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17- RFP Submission - HDR - Water and Wastewater Cost of Service and Rate Design Study
City of Bozeman | Water and Wastewater Utility System Cost of Service & Rate Design Study Providing Reliable Revenue and Encouraging Conservation August 15 2017 ProposalWater & Wastewater Utility System Cost of Service & Rate Design Study hdrinc.com Version # hdrinc.com 700 SW Higgins Avenue, Suite 200 Missoula, MT 59803T 406.532.2200 F 406.532.2241 August 15, 2017 Ms. Kristin DonaldFinance Director City of Bozeman 12 North Rouse Street Bozeman, MT 59771 RE: Providing reliable revenue and encouraging conservation HDR Engineering, Inc. (HDR) provides approach that will establish defensible, cost-based rates which reflect the City’s overall goals and policy objectives (including water conservation), while providing a reliable revenue source from all the customer classes. A comprehensive water and wastewater rate study requires specific financial/rate setting skills and experience, which must be seamlessly combined with local knowledge and understanding. HDR, and our team of rate setting experts, are nationally recognized for our expertise in this challenging area. Our team provides the City with the following key benefits: •We bring familiarity and past experience with your utilities systems, as well as experience with a wide variety of revenue setting strategies and knowledge of the advantages/disadvantages of each strategy. HDR successfully conducted the last comprehensive rate study for the City in 2007 and we have an intimate understanding of the cost allocation and rate design challenges of the City. HDR and the City recognize that rate setting goals and objectives change over time and providing a “fresh look” at the overall rate setting process will be a critical component to this study. At the same time, HDR’s intimate understanding of national trends and utility best practices will help guide the City to sound policy decisions related to issues such as revenue stability, conservation-based rate structures and affordability . •Our project team members are nationally recognized for their expertise in utility rate and fee setting studies. Our proposed Project Manager Shawn Koorn, HDR’s Northwest Utility Rates and Finance Leader, has extensive experience in working with utilities across the U.S. on their rates and fees and has specialized expertise in the development of detailed cost of service analyses and rate structure analyses. Shawn is a co-instructor for the AWWA Financial Management Seminar and a contributing author to the AWWA M-54 manual, Developing Rates for Small Systems. Tom Gould (QA/QC) is also a co-instructor for the AWWA Financial Management Seminar and is a contributing author to the AWWA M-1 manual, Principles of Water Rates, Fees and Charges. Our team also includes Amanda McInnis and Dan Harmon, who know your staff and have provided high quality service for many years. •We effectively communicate with policy makers and the public on complex rate issues. Changing the way fees are charged will require clear communication with your stakeholders regarding why the changes are being proposed in order to obtain support for the proposed changes. HDR specializes in working with municipal utilities and communities similar to the City of Bozeman. We are committed to continuing to provide you with the responsive, local service and national expertise you expect. As project manager, I will work closely with our project team to make sure the City receives a high quality cost of service and rate design study. If you have any questions, please contact Shawn Koorn at Shawn.Koorn@hdrinc.com (425.450.6366) or Amanda McInnis (406.532.2210). Sincerely, HDR Engineering, Inc. Amanda McInnis, PE Shawn Koorn Local Liaison Project Manager City of Bozeman | Water and Wastewater Utility System Cost of Service & Rate Design Study 01 1 Project Understanding Company Overview HDR is a multidisciplinary engineering, architectural, and consulting firm specializing in meeting the infrastructure needs of cities, towns, counties, utility districts, associations, and other public entities. Our business model is to provide local, responsive client service backed by national expertise to solve our clients’ most complex challenges. • Founded in 1917, 100 years of operation • Nearly 10,000 employees in 225 locations worldwide • Bozeman office established in 2015, Missoula office established in 1995 Since opening our Montana offices, we have performed multiple projects for Bozeman, Missoula, Kalispell, Billings, Great Falls, Helena, Columbia Falls, Butte-Silverbow, Whitefish, Hamilton, and Missoula County. We have provided rate analysis and impact fee studies for Bozeman, Kalispell, Whitefish, and Hamilton and many more nationally. We will continue to partner with the City of Bozeman to understand the breadth of possible choices for rate analysis. We have access to the top minds and resources around the country to plan and design solutions for your unique challenges. Contact Information MISSOULA, MT BELLEVUE, WA Amanda McInnis, PE700 SW Higgins, Ste 200 Missoula, MT 59803 Amanda.McInnis@hdrinc.comT 406.532.2210 F 406.532.2241 Shawn Koorn500 108th Ave NE, Ste 1200 Bellevue, WA 98004 Shawn.Koorn@hdrinc.com T 425.450.6366 All work will be performed by HDR staff; no subconsultants are planned for this contract. Office Locations The majority of the cost of service and rate activities will be performed by HDR’s utility rate and finance staff located in our Bellevue, WA office. This expertise will be supplemented by our Missoula office. HDR has a Utility Rate and Finance Group, as well as offices in Bozeman, Missoula, Butte, and Billings. hdrinc.com Version # City of Bozeman | Water and Wastewater Utility System Cost of Service & Rate Design Study 02 Project Understanding Introduction The City of Bozeman currently charges both fixed fee and a consumption charge for residential water customers (Table 1). The consumptive charge is split into three tiers, as shown, with increasing costs per unit of water used to send a price signal to conserve water. Table 1. Water Rates CLASS MIN CHARGE (UP TO 2.0 HCF) HCF USED CHARGE PER HCF USED Single Family $5.01 0-8 HCF $2.50 Single Family 8-15 HCF $2.69 Single Family over 15 HCF $3.17 Multi Family $3.83 $1.92 Government $3.50 $1.74 MSU $4.35 $2.17 Commercial $3.37 $1.68 This structure has provided a relatively stable residential revenue source (see Table 2) for the City with dips in residential revenue in 2010 and 2011. Total annual water production has remained about the same or even dropped slightly over the same period (see Figure 1). Service population has continued to grow, while per capita use has dropped (Figure 2); driven partially by the water conservation program. Understanding the trajectory of water use and price elasticity (change in demand with price signals) will be critical to establishing reliable revenues. Table 2. Single Family Residential Water Revenue by Fiscal Year 2007-2016* 2007 $1.4M 2008 $1.4M 2009 $1.5M 2010 $1.2M 2011 $1.2M 2012 $1.3M 2013 $1.4M 2014 $1.4M 2015 $1.4M 2016 $1.5M * Source: 2017 City of Bozeman Budget Book, page 191 This current water rate price structure has been in place since 2007 and the City would like a review of both its water and wastewater rate structures to provide both rate stability and, for water, adequate price signals to promote water conservation. In addition, the water reclamation facility and the wastewater collection system have capital needs. This study will provide guidance on the level of capital that can be funded over the next five years and how this may impact rates. Figure 1. Annual water demand has remained relatively flat over the last 10 years. Figure 2. Per Capita Water Use has dropped in recent years. hdrinc.com Version # City of Bozeman | Water and Wastewater Utility System Cost of Service & Rate Design Study 03 Overview of HDR’s Qualifications and Experience The City requested five specific areas of discussion concerning HDR’s experience. These included: • Narrative description of HDR’s qualifications for the City’s requested services • Describe HDR’s general experience and specialties • Identify specific experience in capital plan preparation, rate studies and on-call professional services • Identify other public utility, municipal and co-op clients, including Montana municipal clients • Identify experience with water conservation programs and rate design Narrative Description of HDR’s Qualifications for the City’s Requested Services The City has requested the development of a comprehensive water and wastewater cost of service and rate study. To provide those requested services, HDR has a Utility Rates and Finance Group, consisting of financial planners, accountants, and economists, who have attained a national reputation in the areas of utility rate studies and fees. Each rate study is led by a highly experienced and qualified project manager with expertise in utility financial planning and rates. The designated project manager is responsible for all technical and delivery aspects of the study (on-time delivery, within budget). To provide a successful study, our project teams are complemented with highly experienced financial/rate analysts. Finally, we leverage our local office personnel to provide engineering and planning expertise to our study, given that a financial planning/rate study is a blend of financial/rate expertise and engineering/planning expertise. More specifically, we believe our overall qualifications to conduct the City’s study center around five key areas. HDR brings practical work experience with utilitiesPrior to consulting, many of our employees have spent considerable time working for a utility or public agency. We understand the challenges of limited time and budgets. We work with our clients to develop and provide the most efficient and cost-effective solutions. HDR provides a breadth of consulting servicesAs a multidisciplinary engineering and consulting firm, HDR provides staff with highly specialized expertise, such as financial planning and rates. The individuals assigned to the City’s project are industry experts in utility ratemaking. We have extensive experience in establishing rates and fees. HDR has experience in AWWA and drought response and rate training and evaluationWe have performed hundreds of water and wastewater rate studies throughout the U.S. and Canada. When needed, we provide expert testimony services in both public utility commission hearings and litigation cases. Our staff are contributing authors to the AWWA M-1 manual, Principles of Water Rates, Fees, and Charges, and the AWWA M-54 Manual, Developing Rates for Small Systems. In addition, Shawn Koorn is currently a peer reviewer for the Water Research Foundation (WRF) project on recycled water pricing. Additionally, as a result of the recent California drought, HDR has recently worked with a number of utilities on pricing for tiered rate structures, drought/revenue stability and affordability. Shawn Koorn is an instructor for the AWWA Financial Management SeminarAs nationally recognized experts, HDR project team members teach a number of courses and workshops on the subjects of financial planning, cost of service, rate design, and capacity fees. Shawn Koorn is a co-instructor for the AWWA Financial Management Seminar. This three-day seminar is dedicated to the issues of the theory and methodologies associated with utility financial planning, cost of service, rates, and system development charges. HDR has recently worked with several California utilities impacted by the drought to establishe tiered rate structures that also provide revenue stability and affordability HDR established your current inclined block rate structure for residential customers in 2007. 2 Firm Experience hdrinc.com Version # City of Bozeman | Water and Wastewater Utility System Cost of Service & Rate Design Study 04 Presentation and Communication Skills Ultimately, the most important task of a rate study is presenting the results of the study to the City Commission and the public. Our ability to explain complex concepts in a simple and easily understood manner is a skill that sets us apart from our competition. Our in-house expertise and capabilities for public involvement and public outreach only enhance our qualifications and project teams. Finally, HDR is well positioned to provide the technical and professional assistance needed by the City to achieve their stated goals and objectives. HDR has a strong understanding of the key issues associated with this study and an experienced project team capable of providing the required services. HDR’s General Experience and Specialties HDR is a well-established and highly respected firm with technical and professional expertise in a variety of areas, including utility financial planning and rates. Formed in 1917, we provide engineering and consulting services and scientific studies to clients across the U.S. and abroad. We are a national firm with nearly 10,000 employee-owners in 225 offices worldwide. HDR is organized regionally, with four Montana offices in Bozeman, Missoula, Butte, and Billings. Each local office is managed by an Area Manager and each office contains a wide range of skills and expertise. Each local office has the ability to draw upon HDR’s national experts to meet their local client’s needs. Experience in Capital Plan Preparation, Rate Studies and On-Call Professional Services Capital Plan and Rate Study Preparation As noted above, HDR has extensive experience in conducting rate studies. Provided in Technical Appendix B is a more detailed partial listing of HDR’s experience in conducting rate studies. While each study is unique and based upon the utility’s specific facilities and circumstances, they all have in common the use of generally accepted rate making principles to establish the proposed rates. This includes the development of a financial plan (i.e., revenue requirement analysis) which contains a capital funding plan. We utilize a utility’s capital improvement plan or master plan to determine the capital projects and then review the various available funding sources for the capital. This may include items such as grants, developer contributions, connection fees, long-term borrowing and rates. One area of emphasis is on the capital planning process to provide adequate and prudent funding levels for renewal and replacement capital funding. We recommend establishing a formal written policy statement, but at a minimum, we suggest funding an amount equal to or greater than the utility’s annual depreciation expense. A formal asset management plan is a preferred approach to determining minimum annual funding requirements from rates, but the use of depreciation expense reasonably reflects the assets currently in ground. Depreciation is not the same as replacement cost and, given that, funding an amount greater than annual depreciation expense is suggested. Among the utilities that HDR has recently worked with on their capital plans is the City of Woodland, CA and the City of Logan, UT. Woodland was constructing a new source of supply (surface water treatment plant) and the level of the needed rate adjustments was significant. HDR developed a method to fund the plant and transition the rates over time. In the case of the City of Logan, HDR developed a financial plan to fund a $200 million wastewater treatment plant upgrade and developed a method to equitably allocate the treatment costs between the regional customers (contract holders). On-call Professional Services HDR works with a number of clients on an on-call basis. As an example, HDR is currently working with the City of Sioux Falls on a wastewater system development charge and user rate for a potential new industrial customer. In 2012, HDR conducted a wastewater regionalization study for the City of Sioux Falls and calculated regional system development charges and rates. The City of Sioux Falls recently contacted HDR and requested immediate on-call help. HDR was able to quickly assist them and provide the services needed. Other public utility, municipal and co-op clients, including Montana municipal clients Appendix B provides a partial listing of our clients. Included within that list of clients are the following Montana rate and finance clients: Cities of Kalispell, Hamilton, and Whitefish, and our prior rate study with the City of Bozeman. HDR is currently working with the City of Kalispell and their advisory committee on the City’s stormwater connection fees. HDR has a significant number of Montana engineering clients including, but not limited to: Cities of Billings, Great Falls, Helena, Missoula, Kalispell, and Butte-Silverbow, along with many other smaller municipalities.HDR assisted Woodland, CA in establishing rates to fund a new surface water treatment plant. hdrinc.com Version # City of Bozeman | Water and Wastewater Utility System Cost of Service & Rate Design Study Experience with Water Conservation Programs and Rate Design HDR has been at the forefront of conservation and rate design. Most notably, our recent work with numerous water utility clients in California to address the drought and revenue stability issues via conservation rates provides us with a broad foundation of knowledge and experience as it relates to current industry thinking on this topic. Our experience is not limited to California utilities as conservation, efficient use and drought management are important in all areas of the U.S. For example, a few years ago the midwest had a severe drought and HDR worked with the City of Lincoln, NE to establish tiered (conservation-based) water rates and drought rates. Our innovative work with the City of Lincoln was selected to be presented at the AWWA 2013 ACE Conference: Proactive Management: Establishing Drought Rates and Surcharges. While the above examples are more reflective of our recent projects, conservation-based rates and efficient use is not a “new” topic for HDR. HDR prepared a comprehensive review of conservation-based rate structures for the City of Boulder. This study reviewed and analyzed 22 different rate structures for the City. Much of the challenge in effectively using an inclined block rate structure is in establishing the size and number of blocks and the pricing for each. In your current structure, the second tier pricing is less than 10% more than the bottom tier, a very modest price signal to your customers. A more aggressive price signal (18%) comes in the third block (see Table 3). Restructuring the blocks, as well as tying the current water projects to those costs, could merit a more aggressive price in the second tier. Some water poor states recommend very aggressive (25-50%) price signals in higher blocks to encourage conservation, especially in drought situations. In San Luis Obispo, we reviewed five combinations of flat base rates and tiers to balance the competing objectives, revenue stability, and water conservation (see Table 4 below). HDR has also analyzed over more innovative rate structures. A brief summary is shown below in Table 5. Table 5. Comparison of Conservation Water Rate Structures RATE TYPE SENDS A CONSERVATION SIGNAL? EASY TO EXPLAIN?EASY TO IMPLEMENT?ADDRESS EQUITY CONCERNS?PROVIDES RELIABLE REVENUE? Flat Rate No Yes Yes; does not require water metering. No; water bill does not reflect the cost of service. Yes; water revenue is independent of water use. Increasing Block Rate Yes; depends on the size of the bloack and the price per unit. Yes Yes; requires analysis, regarding number of blocks, size of blocks, and price per unit for each block. Requires water metering. Requires forecasting customer usage. Yes; if established around City Customer Consumption Patterns Can; depends on the level of the fixed charge and conservation signal desired. Consumption-Based Fixed Rate Yes No No Marginal Cost Pricing Yes No No No Yes Budget-Based Rates Yes No No Possibly Yes Table 3. Price Signals for Residential Water Rates % INCREASE OVER PREVIOUS BLOCK 0-8 HCF $2.50 0% 8-15 HCF $2.69 8% Over 15 HCF $3.17 18% Table 4. Summary of Single-Family Water Rate Structure Options 05 hdrinc.com Version # City of Bozeman | Water and Wastewater Utility System Cost of Service & Rate Design Study 06 Expertise and Experience of Key Personnel 3 Proposed Team LOCATION CITY OF BOZEMAN EXPERIENCEREVENUE REQUIREMENT ANALYSISCOST OF SERVICE ANALYSISRATE DESIGN/CONSERVATION RATESRATE RECOMMENDATIONSWATER UTILITYWASTEWATER UTILITYPUBLIC INVOLVEMENTREPORT PRODUCTIONShawn Koorn Bellevue, WA Amanda McInnis Missoula, MT Tom Gould Bellevue, WA Judy Dean Bellevue, WA Dan Harmon Missoula, MT Josiah Close Bellevue, WA Shawn Koorn will be the Project Manager for the City’s study. He is a nationally recognized expert in utility rate setting. Over the years, he has been the Project Manager for hundreds of utility cost of service and rate studies. His role in the study will be to: • Act as the primary contact between HDR and the City; • Coordinate work within the HDR team; • Participate in review of all analyses and each project element; • Implement and oversee our QA/QC process; • Proactively manage the project’s process, challenges encountered, and timely execution; and • Oversee project delivery to the City’s satisfaction. • Provide all public presentations of the study QA/QC will be provided by Tom Gould, who has over 39 years of experience in conducting rate studies. Tom was the Project Manager for the City‘s 2007 water and sewer rate studies, which Judy Dean also worked on. Amanda McInnis provides continuity with the 2007 Rate Study and Dan Harmon provides engineering support. QA/QC Tom GouldProject Manager Shawn Koorn Local Liaison Amanda McInnis Engineering Assistance/AnalysisDan Harmon, PE Rate Analysis Judy Dean (Lead)Josiah CloseShawn Koorn Public PresentationsShawn Koorn hdrinc.com Version # City of Bozeman | Water and Wastewater Utility System Cost of Service & Rate Design Study Tom Gould ,| QA/QC Bellevue, WA Tom is a nationally recognized expert in utility rate setting. He was the Project Manager for the City of Bozeman’s 2007 water and wastewater rate study. Tom has an intimate understanding of the issues addressed during the 2007 rate study and the methodologies which were used to equitably assign costs and design the final proposed rates. Experience and Expertise • Over 39 years of water and wastewater utility rate setting experience • Co-instructor for the AWWA Financial Management Seminar • Contributing author to the AWWA M-1 Manual, Principles of Water Rates, Fees and Charges. Benefits to Bozeman • In-depth understanding of the City’s 2007 water and wastewater rate study and the revenue requirement, cost of service and rate design methodologies • Depth of knowledge related to industry best practices and current industry trends • Extensive knowledge and experience as it relates to conservation-based rate designs, Related Project Experience • City of Bozeman 2007 Rate Study • City of Spokane water, Wastewater, Solid Waste Rate Study • City of Kalispell Water, Wastewater and Stormwater Water Rate and Capacity Fee Studies Amanda McInnis, PE | Local Liaison Missoula, MT Amanda will be the local liaison for the City’s study. Amanda is located in our Missoula office and has a long and strong working relationship with the City. Amanda will work closely with HDR’s Project Manager to assure that adequate resources are provided to provide an on-time, on-budget and high-quality rate study for the City. Experience and Expertise • Over 20 years of planning and consulting experience. • Over 14 years of experience working with the City of Bozeman. Benefits to Bozeman • In-depth understanding of the City’s water and wastewater system facilities and operations. Related Project Experience • 2007 Bozeman Water and Wastewater Rate Study • 2006 Bozeman Wastewater Facilities Plan Shawn Koorn, | Project Manager Bellevue, WA Shawn is a nationally recognized expert in utility rate setting and he has been the Project Manager for numerous water and wastewater rate studies. Most recently, Shawn has worked with a number of water utilities in California on conservation-based water rates and drought rates. Experience and Expertise • More than 17 years of experience in utility rate setting, including revenue requirements, cost of service, and rate design. • Recognized expert in the area of financial planning, cost of service and rate design for utility rates. • Co-instructor for the AWWA Financial Management Seminar. • Contributing author to the AWWA M-54 manual, Developing Rates for Small Systems. Benefits to Bozeman • Provides national expertise to understand national trends, approaches and emerging issues • Ability to apply those approaches to the City’s unique situation and customer Related Project Experience • City of San Luis Obispo 2014 Water Rate Structure Study • Coeur d’Alene 2012 Comprehensive Wastewater Rate and Fee Study • City of Issaquah 2016 Comprehensive Water, Wastewater and Stormwater Rate Study 07 hdrinc.com Version # City of Bozeman | Water and Wastewater Utility System Cost of Service & Rate Design Study Dan Harmon, PE | Engineering Assistance Missoula, MT Dan provides local knowledge and familiarity with rate and impact fee studies and is familiar with the City’s facilities and operations. Experience and Expertise • Over 30 years of experience with public infrastructure planning, financial planning, and construction. Benefits to Bozeman • Provides experience with facilities planning and capital improvement prioritization and implementation. • Brings a strong track record working with HDR’s proposed rate analysts and has completed similar studies with them in western Montana. Related Project Experience • Hamilton Impact Fee Analysis • Hamilton Water & Sewer Rate Study • Bozeman Water and Wastewater Facility Planning Judy Dean, | Task Manager Bellevue, WA Judy was the project analyst for the City of Bozeman’s 2007 rate study and is very familiar with the technical details of that study, along with the City’s data and information. Experience and Expertise• Over 25 years of utility rate setting experience including revenue requirement, cost of service and rate design analyses • Has developed technical rate analyses for water and wastewater utilities across the U.S. and Canada • Prior to consulting, worked within the Finance Department of a medium sized municipality Benefits to Bozeman • In-depth technical understanding of the City’s 2007 rate study and the development of the rate model for that study • Extensive knowledge and experience related to financial policies and benchmarking Related Project Experience• City of Bozeman 2007 Rate Study • City of Spokane 2008 Water, Wastewater, Solid Waste Rate Study • City of Kalispell 2005 Water, Wastewater and Stormwater Rate and Capacity Fee Studies Josiah Close, | Rate Analysis Bellevue, WA Josiah will assist in developing the technical analysis for the City’s studies. He has worked extensively with customer databases to establish consumption tiers for conservation- based rate designs. Experience and Expertise • More than 5 years of industry experience in financial planning and rates. • Highly experienced in water and wastewater rate design and developing tiered (increasing block) rate structures. • Expert in developing utility financial planning and rate models for future use by utility staff. Benefits to Bozeman • Experience working with HDR analysts on this team, providing expert model development. • Develops cost of service and rate designs that reflect the utility’s characteristics and costs. • Public utility management background with direct rate model experience from a utility’s perspective. Related Project Experience • City of San Luis Obispo 2014 Water Rate Structure Study • City of Pleasanton, CA 2015 Comprehensive Water and Sewer Rate Study • City of Woodland, CA 2016 Water Rate Study 08 hdrinc.com Version # City of Bozeman | Water and Wastewater Utility System Cost of Service & Rate Design Study Assignment of Project Team to Key Tasks The commitment of the proposed project personnel is measured by their estimated project hours. Provided below is a table which summarizes the estimated project hours for each of the individual project team members. Name Project Role Hours % of Total Shawn Koorn Project Manager 136 18% Amanda McInnis, PE Client Liaison 16 2% Tom Gould QA/QC 22 2% Judy Dean Task Manager 172 22% Dan Harmon, PE Engineering Assistance 32 4% Josiah Close Rate Analyst 374 47% Various Project Assistant 45 5% TOTAL 797 100% 09 hdrinc.com Version # City of Bozeman | Water and Wastewater Utility System Cost of Service & Rate Design Study 10 4 References Provided below are project examples of recent projects which are similar to the City’s requested services. While no two projects are ever the same, HDR believes the following list of projects and clients demonstrates our ability to successfully complete the City’s study. The table below provides a summary of the selection of HDR’s recent project expertise and experience as it relates to the Scope of Work for this contract.REVENUE REQUIREMENT ANALYSISCOST OF SERVICE ANALYSISRATE DESIGNRATE RECOMMENDATIONSWATER UTILITYWASTEWATER UTILITYSTORMWATER UTILITYPUBLIC INVOLVEMENTREPORT PRODUCTIONCoeur d’Alene, ID Wastewater Rate & Capacity Fee Study Everett, WA Surface Water Rate Study Issaquah, WA Water, Wastewater, & Stormwater Rate Study & General Facilities Charge Analysis Medford, OR Comprehensive Water & Wastewater Rate Studies Hillsboro, OR Water Rate & System Development Charge Study Woodland, CA Comprehensive Water & Wastewater Rate Study Stockton, CA Water, Sewer, & Stormwater Rate Studies Las Gallinas Valley Sewer Rate Restructuring Folsom, CA Water & Wastewater Rate Updates Project Examples and Client References hdrinc.com Version # City of Bozeman | Water and Wastewater Utility System Cost of Service & Rate Design Study KEY FEATURES •Revenue requirement, cost of service, rate design • Facilitation of a rate advisory committee •High strength customer charges KEY STAFF • Shawn Koorn •Judy Dean REFERENCE: Don Keil Assistant Superintendent, Wastewater Utility Department 208.769.2347 Coeur d’Alene Wastewater Rate and Capacity Fee Study City of Coeur d’Alene Coeur d’Alene, ID HDR completed a wastewater rate and capacity fee study for the City of Coeur d’Alene. The starting point for the analysis was developing a financial plan for the next ten years to fund the capital improvements to meet current and future regulatory requirements, renewal and replacement, and growth related needs. The capital plan was also utilized to update the existing capacity fees to cost-based levels based on the proportion of capital related to serving new customers and expansion. Once the financial plan was complete, HDR developed a cost of service analysis and rate designs to collect the necessary level of revenues. The key aspect to the study is the development of a funding plan for the capital improvements specifically related to the wastewater treatment plant upgrades. HDR worked with the City’s advisory group during the development of the study to gain policy input on the final study recommendations. At the completion of the study, HDR presented the results to the City Council and rates and Cap fees were adopted for a 5-year period. HDR is currently working with the City in the update of the study for the next 5-year rate setting period. KEY FEATURES • Development of a water and wastewater financial plan • Evaluation of water rate structure alternatives • Review of wastewater rate structures • Development of drought rates KEY STAFF • Shawn Koorn •Josiah Close •Judy Dean •Tom Gould REFERENCE: Carrie Mattingly Utilities Director City of San Luis Obispo 805.781.7205 San Luis Obispo Water and Sewer Rate Assistance City of San Luis Obispo San Luis Obispo, CA HDR has been assisting the City of San Luis Obispo in the development of water and sewer rates since 2004. Over the last 10 years the City’s rate design goals and objectives have changed. Originally, in 2004/2005, the City was concerned about constrained water supply resources and wanted rate structures to encourage efficient water use and discourage wasteful use. The impact of conservation-based water rates also needed to be considered in the context of the City’s volumetric-based sewer rates. In contrast to 2004/05, in 2012, the key rate structure goal was revenue stability as the City was beginning to have revenue impacts due to declining consumption for both utilities. In the last couple of years, the drought has resulted in further examination of the rate structures, particularly for the water utility. HDR has taken a holistic viewpoint in their review of the conservation-based water rate structures; reviewing both the fixed and variable components. HDR recently worked with the City’s management team and City Council to determine their prioritized rate design goals and objectives. From those prioritized goals and objectives, HDR developed a number of rate design structure alternatives intended to meet these goals. The City adopted a revised water rate structure as a result of this study. For the wastewater utility, HDR annually works with the City to determine their sewer billing units. This involves reviewing the City’s residential consumption data and for each account, determining the appropriate winter billing volume. In San Luis Obispo, the key rate structure goal was revenue stability. 11 hdrinc.com Version # City of Bozeman | Water and Wastewater Utility System Cost of Service & Rate Design Study 12 KEY FEATURES •Revenue requirement, cost of service, rate design •Public presentations KEY STAFF • Shawn Koorn •Josiah Close •Tom Gould REFERENCE: Lorraine Peterson Public Works Business Manager 541.774.2122 Comprehensive Wastewater Rate Study City of Medford Medford, OR HDR conducted a comprehensive wastewater rate study for the City of Medford’s Regional Water Reclamation Division (WRD). The objective of the rate study was to review the WRD’s operating and capital costs in order to develop a financial plan and cost-based rates. The financial plan is designed to meet the WRD’s operation and maintenance (O&M) needs and the capital improvement program for the regional facility. This study determined the adequacy of the existing regional wastewater rates and provides the framework and cost justification for any needed future adjustments. KEY FEATURES •Water, wastewater, and stormwater •Revenue requirement, cost of service, rate design •System development charges •Public presentations KEY STAFF • Shawn Koorn •Judy Dean •Josiah Close REFERENCE: Beth Anne Wroe Deputy Finance Director 425.837.3059 Water, Wastewater, & Stormwater Rate Study & General Facilities Charge Analysis City of Issaquah Issaquah, WA In 2015, HDR developed a Water, Wastewater, and Stormwater Rate Study and General Facilities Charge (GFC) analysis for the City of Issaquah as the City had not updated rates and fees in approximately 10 years. HDR developed a 10-year financial plan to determine the adequacy of existing rates for each of the utilities. HDR worked with City staff to develop the projection of revenues and expenses. Based on the overall operating and capital needs, rates were developed for each of the utilities. In addition the water, wastewater, and stormwater GFC’s were updated. These are one-time fees paid by new customers connecting to the system. HDR developed the maximum allowable fee for the City to consider implementing. HDR presented the study recommendations to both the finance committee and City Council. At the conclusion of the study the proposed rates were adopted by the City Council. hdrinc.com Version # City of Missoula | Missoula Utility Financial Plan and Rate Study KEY FEATURES •Revenue requirement, cost of service, rate design •Public presentations •Wholesale water rate design KEY STAFF • Shawn Koorn •Judy Dean •Josiah Close •Tom Gould REFERENCE: Tessa DeLine Finance Director 541.774.2454 Comprehensive Water Rate Study City of Medford Medford, OR HDR conducted a comprehensive water rate study. The objective of the rate study was to develop a rate model and projection of rates for the next fiscal year. A key aspect of the study was the sufficient funding of the Commission’s operating costs and rate impacts of future capital improvement needs. HDR worked with Commission staff and Board, as well as focus meetings with regional water customers to develop cost-based and equitable rates. This was completed through the development of a comprehensive cost of service analysis and rate design process that reflected the various consumption patterns and facility needs of the different customer groups served by the Commission. The Commission adopted the rates proposed by HDR. HDR recently assisted Commission staff in the updating of the water rate model for 2017 proposed rates. Again, HDR worked with the Board and regional customer group to establish the proposed rates that were adopted by the Commission. KEY FEATURES • Water and sewer rate study •Public outreach and education •Revenue requirement, cost of service, and rate design • Development of alternative rate structures KEY STAFF • Shawn Koorn • Judy Dean • Josiah Close REFERENCE: Lynn Johnson Senior Management Analyst 530.661.5979 Comprehensive Water & Wastewater Rate Study City of Woodland Woodland, CA HDR completed a comprehensive water and wastewater rate study. In 2008, a key aspect of the water study was the establishment of cost-based rates that were sufficient to fund the capital costs of developing a regional water treatment facility. In addition, the City was implementing a metering plan to meter all customers. HDR developed metered water rates for a five-year period as customers were gradually transitioning over to metered rates. In 2011, HDR updated the metered water rates based on actual metered consumption data, which was similar to the projected consumption patterns used during the prior study. HDR worked successfully and effectively with the Water Advisory Committee to review the proposed rate transition plan and adjustments to the water rate structure. At the same time, HDR also completed a wastewater rate study. With metered data, the City could explore volume-based wastewater rates. The wastewater rate study resulted in the adoption of wastewater rates utilizing an average winter water consumption billing approach. In 2015, HDR again updated the rate study to develop the final rate projection based on final costs for the regional water facility. The study resulted in rates being adopted for calendar year 2016 which were less than the previously adopted rates under the Proposition 218 process. 13 hdrinc.com Version # City of Missoula | Missoula Utility Financial Plan and Rate Study Current Client List The City has requested a current client list with the jurisdiction name, contact name, phone number, and length of engagement. To clarify our response, HDR interprets this to be the list of clients that HDR is currently under contract with and conducting rate studies. We have also shown only those rate study project commitments of the proposed HDR project team. CLIENT STUDY DESCRIPTION CLIENT CONTACT NAME TELEPHONE ESTIMATED COMPLETION DATE City of Belmont, CA Solid Waste Rate Study Leticia Alvarez 650.595.7469 Dec. 2017 City of Coeur d’ Alene, ID Wastewater SDCs James Remitz 208.769.2278 Jan. 2017 City of Everett, WA W/WW/SW Connect. Fees Matt Welborn 425.257.8974 Dec. 2017 City of Folsom, CA W/WW Rate Study Todd Eising 916.351.3502 Dec. 2017 City of Leavenworth, WA W/WW Rate Study Joel Walinksi 509.548.5275 Dec. 2017 Medford Water, OR Water Rate Study Tessa DeLine 541.774.2454 Dec. 2017 City of Santa Maria, CA W/WW Rate Study Shad Springer 805.925.0951 Oct. 2017 City of San Luis Obispo, CA Water Rate Structures Carrie Mattingly 805.781.7205 Oct. 2017 City of Rapid City, SD W/WW Rate and Fee Study Dan Coon 605.394.4154 Nov. 2017 Attached as Appendices E and F to this submittal are the recently completed City of Pleasanton Comprehensive Water and Sewer Rate Studies, completed in 2015. While no two studies are exactly the same, the City of Pleasanton, CA water and sewer rate studies are provided as an example of recent rate study completed by the project team. A key component of the water study was the review of customer water consumption characteristics and development of tier pricing. The water study also included the development of drought rates that can be implemented during water shortage events to maintain target revenues. The key aspect of the sewer rate study was the development of the cost of service to review the commercial rate structures. HDR worked collaboratively with the City project team to develop the final proposed rates that were adopted by the City for a 5-year period. Example Recently Completed Rate Study 14 hdrinc.com Version # City of Missoula | Missoula Utility Financial Plan and Rate Study 5 Work Summary Introduction The City has requested professional and technical services as they relate to water and wastewater utility system cost of service and rate design. HDR proposes to provide the requested technical and professional services and to independently assess and evaluate the City’s water and wastewater rates. The ultimate goal of this study is to provide adequate and sustainable funding for each utility’s O&M and capital needs, while developing rates which are equitable, cost-based and meets the City’s other rate design objectives (e.g., revenue stability, conservation). In order to achieve these objectives, the study will use generally accepted rate setting methodologies and principles and tailor those methodologies to the specific and unique circumstances and characteristics of the City’s systems. Rate Study Key Issues and Challenges The last comprehensive water and wastewater rate study completed for the City was in 2007 and it was successfully completed by HDR. As a part of that study, HDR developed the City’s overall rate setting methodology, along with a set of financial planning/rate setting policies to provide prudent planning criteria. The study also advanced the City’s water rates by establishing an inclining-block rate structure (i.e., tiered rates). Since the 2007 study, the City has continued to grow and expand. The City has replaced its aging water treatment plant with a new state-of-the-art treatment facility. At the same time, water conservation and efficient use has become an even more important component of the City’s water utility. Given these changes since the last comprehensive study, it is prudent to again comprehensively review the City’s water and wastewater rates. Among the key issues and challenges for this study are the following: • Review of the City’s financial planning/rate setting policies to confirm and update as appropriate to reflect the City’s current circumstances and policy perspectives. • Gaining an understanding of national utility “best practices” and current trends (i.e., what are other utilities doing and how successful are they?). • Balance the desire for conservation-oriented rate structures with the financial need for revenue stability and, ultimately, public acceptance of the rate designs. • The challenges posed by affordability concerns and the options of addressing these concerns via pricing and non-pricing approaches. • Effective public presentations of the rate study to the Bozeman City Commission and the public to gain support for the final recommendations of the study While these issues and challenges are significant, they are not insurmountable for HDR given our national expertise and experience in addressing similar issues and challenges at other water and wastewater utilities. City’s Goals and Objectives for the Study While the City has not specifically stated with the RFP a set of goals and objectives for the study, based upon our understanding of the City’s requested services, HDR has assembled the following list of goals and objectives for the City’s study: • Develop the study using generally accepted rate methodologies and industry best practices (e.g., AWWA, WEF). • Develop a revenue requirement analysis for each utility that reflects the City’s historical and projected operating needs over the next 5-year period and meets the City’s financial policies (e.g., target reserve balances, debt service coverage ratios, and renewal and replacement funding). • Develop a capital funding plan for each utility that provides the capital improvement needs and funding sources, along with the impacts to rates. • Develop a rate transition plan for each utility that minimizes rate impacts, avoids rate spikes, and protects reserves, while maintaining appropriate service levels. • Develop a cost of service analysis to equitably allocate the costs between each utility’s customer classes of service (rate schedules). • Develop average unit costs as part of the cost of service analysis to establish the cost basis of the proposed rates. • Review the City’s rate design goals and objectives and incorporate into the proposed rate designs.15 hdrinc.com Version # City of Bozeman | Water and Wastewater Utility System Cost of Service & Rate Design Study 16 • Review and assess the City’s current water and wastewater rate structures, particularly the City’s tiered water rate structure. Explore alternative rate structures and recommend changes, as appropriate, to the current structures, classes of service, tier allocations, and the fixed/variable charges for each utility. • Provide effective written and oral presentations of the results of this study. • Work closely with the City’s project team to maximize the value of this study. Given these rate study goals and objectives, the focus shifts to the overall approach or methodology to the study needed to achieve these stated goals and objectives. Overview of the Study The methodology HDR uses for its comprehensive rate studies relies upon “generally accepted” methodologies (i.e., the AWWA M1 Manual and the WEF Manual of Practice [MOP] #27). A comprehensive rate study is generally comprised of three interrelated analyses: a revenue requirement analysis, a cost of service analysis, and the rate design. Provided below is an overview of each analytical step of the study. Revenue Requirement Analysis Cost of Service Analysis Rate Design Analysis Compares the sources of funds (revenues) to the expenses of the utility to determine the overall adjustment to rates Allocates the total revenue requirements to the various customer classes of service in a “fair and equitable” manner Designs rates to yield the revenue requirements and meet the goals and objectives of the study 5.1 Overview of the Comprehensive Rate Study Process The framework or methodology described above will be utilized to analyze the City’s water and wastewater rates. While Figure 5-1 provides an overview of the typical components of a comprehensive study, an important aspect of this study is incorporating and “tailoring” those analytical elements into an overall scope of services that will provide the deliverables necessary for the City to make prudent and sound financial and policy decisions. A key element of HDR’s approach is project review meetings at key decision point of the analysis to gain City staff input and comments. This is critical to the study for several reasons. First, it allows for City staff to review the application of generally accepted methodologies to the City’s data and system characteristics. Second, it is the start of the knowledge transfer from HDR to City staff in understanding the implications of certain financial decisions (e.g., bond financing, capital impacts, rate structure changes). Next, it allows for City staff to review the assumptions and application of the data in the technical analysis. Finally, it allows for HDR to help explain the approach and identify the key policy decisions with City staff that will be importation for the City Commission and public to understand. HDR’s collaborative approach to developing the rate study differentiates us from our competitors and allows for City input at key points of the study. The City has segregated the requested scope of work into the following components or elements: • Cost of Service Study (includes revenue requirements and cost of service analysis) • Rate Design Development (rate design analysis) Given that requested segregation of the scope of work between the cost of service and rate design portions of the study, HDR has proposed the following approach and work tasks to conduct the City’s study. As can be seen, the work is divided by element, but at a more basic level by planning, analysis, and communication. The next section of our proposal provides a detailed discussion of the goals and objectives for each element and task and the project deliverables to be provided for each task and the overall study. Summary This section of HDR’s proposal has provided an overview of our understanding the City’s goals and objectives for the study, the general approach to be used to conduct the study and the City’s overall goals and objectives which will be accomplished by this study and proposed scope of services. The proposed scope of work is discussed in more detail in the next section of the proposal. hdrinc.com Version # City of Bozeman | Water and Wastewater Utility System Cost of Service & Rate Design Study 17 6 Work Plan and Project Schedule Introduction HDR’s proposed work plan is designed to provide the City with confidence that HDR understands the issues and elements of the study which must be addressed in order to be successful and meet the City’s overall goals and objectives for the study. This section of our proposal will provide a more detailed discussion of HDR’s work plan (i.e., scope of work) and the project time schedule for completion. HDR has attempted to provide as detailed a work plan as reasonably possible to better demonstrate our overall skills and experience in conducting a rate study. Detailed Work Plan The City, within their RFP, provided a discussion of the scope of work to be provided. The work is divided into two major elements; the cost of service study and the rate design development. Our proposed work plan has maintained these two major elements and has provided detailed tasks under each major element to logically and systematically review the City’s costs and rates. Provided below is the detailed work plan. Element 1 - Cost of Service Study The cost of service study is designed to determine the overall costs of providing water and wastewater service to the City’s customers, and then, equitably allocate those costs to the various customer classes of service of each utility. As a part of this element of the study, HDR will conduct a revenue requirement and cost of service analysis. The revenue requirement analysis determines the level of adequate and prudent funding (O&M and capital) for each utility, while also considering the City’s financial planning criteria (e.g., debt service coverage ratios (DSC), reserve levels). As a part of this element of the study, if needed, a rate adjustment transition plan will be developed to smoothly transition the City’s rates to cost-based levels. The cost of service analysis within this portion of the study will equitably allocate the water and wastewater costs to each customer class of service of each utility and provide the level of revenue to be collected from each class of service, along with average unit costs which are the starting point for developing final proposed rate designs (Element 2 – Rate Design Development). The City within their RFP provided seven different planning criteria to be incorporated into the study and the analyses. The seven different planning criteria stated in the City’s RFP were as follows: 1. Review proposed capital improvement plan(s) and total projected project costs; 2. Review financial history, including revenues and expenses, and current rate and fee structure; 3. Develop requisite Revenue Requirement analysis of test period system revenue and expenses as the foundation of the cost of service class analysis; 4. Identify annual and peak requirements and usage by customer class; 5. Examine customer database and review current customer classifications; 6. Identify water conservation related costs and determine appropriate classification of costs; and 7. Identify largest users and determine if users are being charged under the appropriate rate schedule. HDR has incorporated each of the above planning criteria into the work plan and, where appropriate, referenced them to clearly document their incorporation into the work plan. Element 1 – Cost of Service Study Task 1—Initial Project (Kick-Off) Meeting Objective: Bring the HDR project team, City management, and staff together, at the start of the project, in order to gain a mutual understanding of the goals, objectives, issues and concerns related to the study. The initial project meeting will primarily be used to discuss the overall goals and objectives of the City’s study and the key issues associated with the study. HDR will also review and discuss with the City the available documentation including, but not limited to, utility billing records, historical budget documents and audit reports, resolutions, policies, operation and maintenance practices. It is proposed that the initial project meeting be approximately two hours in length at the City’s offices. This meeting will be attended by HDR’s Project Manager (Shawn Koorn), Task Manager (Judy Dean), and Client Liaison (Amanda McInnis). Anticipated City Involvement: hdrinc.com Version # City of Bozeman | Water and Wastewater Utility System Cost of Service & Rate Design Study 18 • Have their key management/project team members attend a 2 hour planning meeting. • Review of City’s available data and records. Task 1 Deliverables: • A 2-hour project meeting to identify the objectives, issues and concerns of both parties. • Face-to-face meeting to get the study off to a positive start. Task 2—Data Collection Objective: Review and assess the City’s existing water and wastewater data, and provide a written data request detailing the data required to complete the study. HDR will provide a written data request to the City prior to the initial project kick-off meeting so that it can be discussed at the meeting and any problem areas quickly resolved. The data and information requested for this study should be, for the most part, readily available information (e.g. financial, statistical, customer, etc.). Anticipated City Involvement: • Gather the data requested in the written data request provided by HDR. (Note: typically requires 8 to 24 hours of total staff time to provide.) Task 2 Deliverables: • An initial written data request to the City and identification of any data constraints. Task 3—Financial Planning (Revenue Requirement Analysis) Objective: Using a “generally-accepted” rate setting methodology, develop the water and wastewater financial plan (i.e., revenue requirement analysis) for a projected five-year period. Develop the analyses for each utility in the context of any City financial planning policies. The analysis will utilize the City’s budgeting and capital infrastructure planning documents. As appropriate, develop any needed rate transition plans. The development of a revenue requirement analysis or financial plan for the water and wastewater utilities is the first major analytical portion of the comprehensive rate study process. This portion of the study entails reviewing, for each utility, the various sources of funds (revenues) and comparing them to the applications of funds (expenses) for the utility. This task considers the prudent and proper funding for O&M and capital expenditures for each utility, and determines the need for any rate adjustments over the time period selected. A more detailed discussion of the various steps involved in the development of the financial plans is provided below. STEP 1 – SELECTION OF A TEST PERIOD A “test period” refers to a time frame of reference for the accumulation of revenues, expenses and consumption data. In this case, a five-year projected time period is proposed (i.e., FY 2019 – FY 2023). STEP 2 – METHOD OF ACCUMULATING COSTS For the City’s revenue requirement analysis, a “cash basis” methodology is recommended. Under this generally accepted methodology, O&M, taxes, debt service and CIP funded from rates are summed to equal each utility’s total revenue requirement. This methodology is consistent with the City’s past rate setting methodology. STEP 3 – ACCUMULATION OF REVENUES AND EXPENSES Given the test period and method of accumulating costs, HDR will develop a 5-year projection of the City’s revenues and expenses for each utility. HDR will begin by reviewing the City’s financial history for each utility, including revenues and expenses, and the current rate and fee structures (Planning Criteria #2). As a part of this task, HDR independently projects the rate revenues for each utility and customer class of service by utilizing the City’s billing records and current water and wastewater rates. This independent calculation of projected rate revenues is important in that it verifies and confirms the City’s billing data (i.e., consumption by block and customers by meter size) since the billing data is a critical input into the cost of service and eventual design of rates . Next, HDR will review the historical expenses and anticipated future expenses for each utility. The expenses included within the revenue requirement analysis are composed of two major types of costs; operational and capital expenses. Operational costs are generally escalated from current budgeted levels and adjusted for any extraordinary expenses. HDR will work with the City to develop the projections. To project capital costs, HDR will review the City’s proposed capital improvement plans and the total projected costs of these capital projects (Planning Criteria #1). From these documents, HDR will develop a capital funding plan for each utility. The funding sources for the capital projects may include impact fee revenue, reserves, new long-term borrowing and rates. One of the areas of focus for the study will be an analysis of the impacts of existing and future capital improvements Task 3 considers the prudent and proper funding for O&M and capital expendures for each utility and determines the need for any rate adjustments over the time period selected. hdrinc.com Version # City of Bozeman | Water and Wastewater Utility System Cost of Service & Rate Design Study 19 and water supply acquisition. Scenarios for the capital plan can be developed which identify the impacts to rates from the various capital funding plans. An important aspect of the capital funding plan is providing adequate annual funding from rates for renewal and replacement capital projects in order to maintain the City’s existing infrastructure (i.e., pay-as-you-go funding). It is important to note that in HDR’s 2007 rate study conducted for the City, the report provided a detailed discussion on financial planning/rate setting policies. Included within that discussion was a policy statement on minimum funding from rates for capital outlays. HDR will review these financial planning/rate setting policies with the City and, based upon those discussions, update them as appropriate for the current study. HDR will use these updated financial planning/rate setting policies within the development of the City’s capital funding plan and revenue requirements. As noted above, one potential funding source is long-term debt. HDR will examine the City’s use of debt financing for capital improvements and provide a recommendation on its use and limitations. Philosophically, and for a variety of reasons, HDR is conservative on the use of long-term debt, but understands that its prudent and appropriate use will help minimize long-term costs and rates over time. In developing the overall financial plan (revenue requirements) for each utility, consideration will also be given to the City’s other financial planning criteria. Most prominently, these include a minimum target for debt service coverage (i.e., target greater than or equal to 1.50 DSC), and maintenance of minimum reserve levels, etc. Minimum reserves are important to manage varying annual sales/revenues and to also help mitigate the need for large rate adjustments (rate spikes). Once a draft of the revenue requirements for each utility has been developed, an internal project meeting with the City’s management team will be held to review the analysis. This meeting is intended to review the overall methodology used, but more importantly, review the analyses on a line-by-line basis to confirm with the City the data and assumptions used with the analysis. This meeting will be attended by HDR’s Project Manager, Task Manager, and Local Liaison. STEP 4 – SUMMARIZATION OF THE REVENUE REQUIREMENTS Given the projection of revenues and expenses, a summary of the draft final revenue requirements can be provided (Planning Criteria #3). The summary of the revenue requirements for each utility provides an understanding of the overall level of rate adjustments needed over the next five years to adequately and sustainably support the City’s water and wastewater utilities over the projected time period. Given a better understanding of the overall magnitude of any needed rate adjustments, HDR will work with the City to develop a rate transition plan to smoothly implement any needed rate adjustments. Anticipated City Involvement: • Provide “as needed” assistance to explain the City’s financial data and information. • Provide “as needed” data refinements or additional data needs as determined during the process of developing the revenue requirements (financial plans). • Attend a one-half day internal project meeting to review the draft revenue requirements. Task 3 Deliverables: • Development of a projected 5-year water and wastewater financial plan that considers the prudent and proper funding of the operating and capital needs of each utility. • A capital funding plan within the revenue requirement analysis, utilizing the City’s comprehensive plans or capital budget, which attempts to maximize capital expenditures, while minimizing the impacts to customers over time. • Review of the use of long-term debt as a capital improvement funding source. • Review of the impact of capital plans and water supply acquisition on water rates. • If needed, a transition plan to “phase in” any needed rate adjustments. • Recommendations regarding key financial indicators (DSC, capital replacement, reserves, etc.). • A one-half day project meeting with City staff to review the draft revenue requirement analysis, attended by HDR’s Project Manager and Task Manager. Task 4—Cost of Service AnalysisObjective: Develop an average embedded cost of service study to equitably allocate the revenue requirements of the water and wastewater systems to the customers served by the City. Review the current customer classes of service An important aspect of the capital funding plan is providing adequate annual funding from rates for renewal and replacement capital projects in order to maintain the City’s existing infrastructure (i.e pay- as-you-go funding). hdrinc.com Version # City of Bozeman | Water and Wastewater Utility System Cost of Service & Rate Design Study 20 (rate schedules) for appropriateness based upon facility requirements and usage characteristics (annual and peak demands). Equitably allocate costs to classes of services. Develop average unit costs for use within the design of the final proposed rates. Given the results of the revenue requirements, the City’s water and wastewater costs will be equitably allocated to the various customer classes of service using an average embedded cost of service methodology. In simplified terms, a cost of service study equitably allocates the revenue requirements of each utility between the various customer classes of service (e.g., single-family, multi-family, commercial). A brief discussion of the major steps associated with the City’s water and wastewater cost of service analysis is provided below. STEP 1 – SELECTION OF TEST PERIOD The first step of a cost of service is to select a time period, from the revenue requirement analysis, for the allocation of costs. In the City’s case, allocating the FY 2019 revenue requirements for cost of service purposes, for each utility, would appear to be appropriate. STEP 2 – DETERMINATION OF CLASSES OF SERVICE The City currently has different customer classes of service for water and wastewater. A cost of service is designed to answer the question of whether there are cost-differences associated with serving different types of customers. As a part of this step of the cost of service study, HDR will examine the customer database and review current customer classes of service (Planning Criteria 5). Generally, classes of service group together customers with similar usage characteristics or facility requirements. HDR will review with the City the recommended classes of service for cost allocation purposes. The City also wants this study to identify the largest users and determine if the users are being charged under appropriate rate schedules (Planning Criteria #7). HDR will discuss this issue with the City and will work with the City to identify these large users and review their facility requirements, annual usage and peak requirements. Depending upon the customer, they may be segregated as a separate class of service within the cost of service to confirm the rates being charged to the specific customer are equitable and appropriate. HDR would note that as a part of the City’s 2007 wastewater rate study, large industrial/high strength customers were identified and closely examined. STEP 3 – FUNCTIONALIZATION AND CLASSIFICATION OF EXPENSES The next step in the cost of service analysis is to functionalize the data. Functionalization refers to the arrangement of cost data into its basic cost categories (e.g., for the water utility, source of supply/production, treatment, transmission, distribution). This task is often accomplished within the utility’s current chart of accounts. For the water utility, classification involves determining whether each specific cost or account item was incurred to meet a consumer’s average day, peak day, fire protection, or customer-related need. In contrast, for the wastewater utility, classification involves determining whether each specific cost or account item was incurred to meet a consumer’s volume, strength, or customer-related need. In classifying costs, HDR will use generally accepted methodologies and techniques. One of the key areas identified by the City for review is the water conservation-related costs and a determination of their appropriate classification (Planning Criteria #6). There are a number of different approaches and philosophies which are used when assigning these costs. Certain costs may be assigned to average day or peak day, or to specific pricing tiers within rate structure. HDR will review these various approaches and philosophies with the City and provide a recommended method. STEP 4 – ALLOCATION OF EXPENSES The next analytical process is the development of allocation factors to equitably allocate the classified costs. In developing the allocation factors, HDR will develop factors that are “fair and equitable” to all customers, and rely upon City-specific data. As a part of this step, HDR will review the annual and peak usage requirements by customer class of service (Planning Criteria # 4). Peak usage by class of service is not measured by class of service and will need to be estimated using various different approaches. STEP 5 – SUMMARY OF THE COST OF SERVICE Given the development of all the allocation factors, the final task allocates the expenses to each class of service. From this process, a summary page of the cost of service study for each utility is provided. The summary page for the cost of service study compares the difference between the current level of rate revenues received from each class of service, and the allocated cost of service for each class of service. The cost of service will also provide average unit costs, or cost-based water and wastewater rates, which are important to the development of final rate designs. Average “... a cost of service study equitably allocates the revenue requirements of each utility between the various customer classes of service (e.g single- family, multi-family, commercial.).” hdrinc.com Version # City of Bozeman | Water and Wastewater Utility System Cost of Service & Rate Design Study 21 unit costs provide the City with an understanding of the cost/rate relationship between fixed and variable costs, and the differences in costs associated with serving the different types of customers. In summary, the development of average unit costs will provide “cost of service” based water and wastewater rates for all classes of service for the City. At the completion of the draft cost of service analysis, an internal project meeting with the City’s management team will be held to review the analysis. This meeting is intended to review the overall methodology used, but more importantly, review the analyses on a line-by-line basis to confirm with the City the data and assumptions used with the analysis. This meeting will be attended by HDR’s Project Manager, Task Manager, and Local Liaison. Anticipated City Involvement: • Attend a 4-hour project meeting to review the draft cost of service analysis for each utility. • Provide any “as needed” data refinements or additional data needs for the cost of service. • Identify and review for HDR the large users of the water and wastewater system. Task 4 Deliverables: • Review the customer classes of service for purposes of the water and wastewater cost of service. • Review of the issue of the equitable allocation of water conservation costs. • Review of the annual and peak requirements of the various customer classes of service. • A “fair and equitable” allocation of the revenue requirements to the various classes of service for the City’s water and wastewater systems. • Review of the large users rates to determine appropriate and equitable rates for these customers. • A summary of the average unit costs (cost-based rates) for the various customer classes of service for the water and wastewater utilities and identification of pass-through charges. • A 4-hour project meeting to review the draft cost of service analysis. Meeting will be attended by HDR’s Project Manager, Task Manager, and Local Liaison. Task 5—Reporting of the Cost of Service ElementObjective: Develop a written report summarizing the activities, analyses and findings from the cost of service element (Tasks 1 – 4). Provide a summary presentation of the initial findings of the cost of service tasks to the Bozeman City Commission. At the conclusion of Element 1: Cost of Service Study, HDR will develop a detailed written report summarizing the activities, analyses and the preliminary findings. This written report is intended to be incorporated into the Element 2 written report in order to provide a comprehensive summary of the study for each utility. HDR will provide a PDF draft of this written report and the City may review and comment on the report. HDR will incorporate the City’s comments into the draft final Cost of Service Study report. HDR will also provide one public presentation to the Bozeman City Commission to present the results, and gain policy feedback from the Commission. HDR’s Project Manager will make the presentation. HDR will be responsible for the development of all presentation materials. HDR will work with the City to determine the content, timing and overall schedule for the meeting. Should additional public meetings/presentations be required for this portion of the study (Element 1), they will be provided on a time and material basis. Anticipated City Involvement: • Review the draft written report and provide comments and feedback. • Review public presentation materials and scheduling of City Commission presentation. Task 5 Deliverables: • Development of the written report summarizing the Cost of Service Study. • Development of presentation materials for the City Commission public meeting. • One public presentation to the City Commission on the Cost of Service Study. This concludes the discussion of the various tasks for the Cost of Service Study. Using the results of the Cost of Service Study, rate designs can be developed to collect the appropriate level of revenue in an equitable and cost-based manner. Element 2 – Rate Design Development Element 2 takes the data, information and findings from the Cost of Service study and begins the process of reviewing and developing final proposed rate designs for the City. In the development of rates, consideration is given to both the level of the rates and the structure of the rates. Level refers to the amount of revenue to be collected from each rate, while structure refers to the components of the rate (fixed and variable) and how they are collected. This portion of the study will examine both the level and the structure of the City’s water and wastewater rates. hdrinc.com Version # City of Bozeman | Water and Wastewater Utility System Cost of Service & Rate Design Study 22 The City, within their RFP, noted the following requirements for this portion of the study. • Review of existing rate structure; • Consistency between rate schedules and fee schedules; • Consumption/revenue elasticity based on any proposed rate increases/decreases; • Adequate and equitable usage, demand, and basic charges; • Conservation program costs and avoided costs; • Aid to construction costs from development impact fees; • Aid to future supply costs from payment of cash-in-lieu of water rights; and • Low income rates and charges. To incorporate and accomplish the above requirements, HDR has developed a number of tasks. Provided below is a more detailed discussion of each task. Element 2 – Rate Design Development Task 6—Review of Existing City Rate Structures Objective: Review with the City the existing water and sewer rate structures and discuss with the City the perceived strengths and weaknesses of the current rates. Identify areas for improvement or enhancement, including conservation price signals, revenue stability, and affordability concerns. An important starting point in designing final rates is to review the existing rates and gain an understanding of their structure. In providing this review, HDR will identify the perceived strengths and weaknesses of each rate structure. At the same time, HDR will examine the rates for consistency and proportionality of relationships (e.g., does the single-family rate make sense in relation to multi-family?). Since 2007, the customer base has grown and consumption patterns have likely changed. A continued and sustained effort towards conservation will also have an impact. Understanding these impacts will help identify areas within the rate structure for modification, improvement or enhancement. HDR has an advantage in this task in that we developed the current structures which are in place today. We also have an understanding of the past thinking which was used to develop the current structures in place today. In part, the City was transitioning from a uniform (flat) water rate structure for residential to a three block inclining rate structure. Transitioning and minimizing impacts to customers was important at that time. Looking ahead, it is important to identify the City’s perceived strengths and weaknesses of the existing rate structure to help identify those areas where the existing structure can be modified, enhanced or maintained. Anticipated City Involvement: • Review with HDR the existing water and wastewater rate structures. Task 6 Deliverables: • Review of the City’s existing water and wastewater rate structures. • Identification of strength, weaknesses, and areas for improvement within each structure. • Review of consistency and proportionality between the various rate structures. Task 7—Review of Rate Design Goals and Objectives Objective: Review with the City their rate design goals and objectives (e.g., conservation, revenue stability, equity, affordability, ease of understanding, ease of administration) to better align the proposed rates with the City’s overall rate design goals and objectives. Understanding the City’s rate design goals and objectives helps HDR identify potential rate structures which better align with the City’s objectives. HDR will review the various rate design goals and objectives with the City and assist the City in identifying their primary rate design goals and objectives. Anticipated City Involvement: • Review with HDR the rate design goals and objectives. Task 7 Deliverables: • Review and identification of the City’s rate design goals and objectives. Task 8—Development of Proposed Rate Designs Objective: Utilize the cost information developed as a part of the previous tasks, along with the City’s rate design goals and objectives, develop water and wastewater rate design options for possible adoption by the City. Review up to three alternative rate designs that meet the City’s rate design goals and objectives. Develop bill comparisons to provide a better understanding of the potential impacts to customers at varying levels of usage. This task is the culmination of the previous tasks which identified the total costs for the water and wastewater utility, provided an equitable method to allocate the total costs to the various customer classes of service, and then calculated average unit costs to provide the cost-basis to begin the rate design process. At the present time, the water utility has five classes of service; single-family, multi-family, commercial, hdrinc.com Version # City of Bozeman | Water and Wastewater Utility System Cost of Service & Rate Design Study 23 government, and Montana State University. The current rate structure is composed of a monthly service charge based upon meter size and a consumption charge. The single-family class of service has a three-block inclining rate structure, while the other classes of service have a uniform rate structure. The approach HDR uses to analyze water rates is logical and systematic. First, HDR will begin by analyzing individual customer monthly data records to gain an understanding of average, peak, seasonal demand usage, and the changing customer usage patterns. This review and sorting of the individual customer data allows for a review of the range of consumption and provides a more rational and stronger analytical basis for the development of tier sizes. Next, utilizing the results of the City’s rate design goals and objectives, HDR will review the range of potential conservation-oriented rate structures for possible detailed analysis. An example of the range of rate structures may include, but not be limited to, the following: Traditional Rate Designs “Less-Traditional” Rate Designs • Uniform Rates • Individually Tailored Rates • Inclining/Tiered Rates • Water Budget Rates • Seasonal Rates • Consumption-Based Fixed Rates Each potential rate structure will be reviewed in the context of the City’s rate design goals and objectives and the “best” structures will be selected for more detailed analysis and review. While the focus above appears to be on the consumption portion of the rate structure, careful consideration is also given to the relationship of fixed charges to the variable charges and the need for revenue stability. In the rate design process, all components of the rate will be examined. To address this, HDR will work from the calculated average unit costs and develop rate alternatives for each rate schedule. In particular, the residential tier sizes and prices will be examined. Finally, in reviewing and selecting the different rate structures for more detailed analysis, consideration will also need to be given to the City’s billing system capabilities. Up to three alternative rate designs options will be developed for each customer class of service. Bill comparisons will be developed to illustrate the impacts to customers at varying levels of usage. The City’s RFP requires HDR to provide a sampling of a minimum of three customers per classification showing the difference of charges between the existing and proposed rates. The bill comparison will essentially accomplish the same thing, but this type of bill comparison will provide an annual bill comparison with the total bill for each month. For the wastewater utility, the City currently has three classes of service (rate schedules); residential, multi-family/commercial/government/MSU, and industrial. These rates contain a monthly service charge and a volume-based consumptive charge. Similar to the water utility, up to three rate options will be developed for the wastewater rate schedules and bill comparisons developed, including comparisons for three specific customers in each rate schedule. In this case, it is likely that much of the focus of this portion of the study will be on assuring that the industrial rate is appropriate given the wastewater characteristics of these customers. The City also requested rate schedule and bill comparisons of other neighboring utilities. HDR will develop these comparisons once the proposed rate designs have been developed. At the completion of the draft rate options, a project meeting will be held with the City to review and discuss each option and final rate alternative(s) developed. Anticipated City Involvement: • Review the proposed rate designs for appropriateness. • For each rate schedule, provide three example customers for the individual bill comparisons. Task 8 Deliverables: • Review of the individual customer billing data (consumption records). • Review of the potential range of rate designs options compared to the City’s rate design goals and objectives. • Development of up to three rate designs for each class of service. • Bill comparisons and graphs for the rate design alternatives developed. • Individual bill comparisons for three selected customers from each class of service. • Rate schedule and bill comparisons for neighboring utilities. • Project meeting to review the rate design options in detail. Task 9—Reporting of the Rate Design Development Element Objective: Develop a written report summarizing the activities, analyses and findings from the rate design development element (Tasks 5 – 8). Provide a summary presentation of the draft final findings and recommendations to the Bozeman City Commission. At the conclusion of Element 2: Rate Design Development, HDR will develop a detailed written report summarizing the activities, analyses and the findings from the rate design tasks. This written report is intended to be incorporated into the Element 1 written report in order to provide a comprehensive summary of the study for each utility. HDR will provide a PDF draft of this written report and the City may review and comment on the report. HDR hdrinc.com Version # City of Bozeman | Water and Wastewater Utility System Cost of Service & Rate Design Study 24 will incorporate the City’s comments into the draft final Rate Design Development report. HDR will also provide one public presentation to the Bozeman City Commission to present the rate design development results. This presentation is intended to also gain policy feedback from the Commission as to their preferred rate design options for a possible public hearing for adoption of the rates. HDR’s Project Manager will make the presentation. HDR will be responsible for the development of all presentation materials. HDR will work with the City to determine the content, timing and overall schedule for this Commission meeting. Should additional public meetings/presentations be required for this portion of the study (Element 2), they will be provided on a time and material basis. Anticipated City Involvement: • Review the draft written report and provide comments and feedback. • Review public presentation materials and scheduling of City Commission presentation. Task 9 Deliverables: • Development of the written report summarizing the Rate Design Development. • Development of presentation materials for the City Commission public meeting. • One public presentation to the City Commission on the Rate Design Development. Task 10—Finalize Report DocumentsObjective: Develop the final written reports for the water and wastewater rate study. The prior tasks have developed written reports for Element 1 and 2. The intent of this task is to take the written reports from those Elements and combine them into a single, cohesive, written report which documents the approach and methodology to the study, along with HDR’s findings, conclusions and recommendations for the water and wastewater rate study. Ten copies of the final report will be provided to the City, along with a PDF and Word version of the report. Anticipated City Involvement: • Review and comment on the draft final written report. Task 10 Deliverables: • A draft final and final written report. Ten hard copies and a PDF of the final report. Task 11—Final Public Rate HearingObjective: Provide a final presentation to the Bozeman City Commission of the proposed water and wastewater rates for adoption. The final task is the presentation to the City Commission of the proposed water and wastewater rates for adoption. These rates should have been selected by the Commission as a part of the Task 9 presentation to the Commission. Similar to the other presentations, HDR will develop all presentation materials for this meeting and the HDR Project Manager will make the presentation. Should additional meetings beyond this final public rate hearing presentation be needed, HDR will provide it on a time and material basis. Anticipated City Involvement: • Review and comment on presentation materials. Task 11 Deliverables: • Development of the presentation materials for the final public hearing. • One public presentation of the final proposed rates. Task 12—Computer/Rate ModelsObjective: Provide a copy of all Excel financial/rate models developed as a part of this study. All financial/rate models developed as a part of this study will be provided to the City at the end of this study. As the model is being developed, HDR will work closely with City staff to attempt to provide a model that meets their needs and is easy to use and understand. No user manual or training has been assumed as a part of this scope of services, but it may be contracted for. Anticipated City Involvement: • Provide feedback related to a preferred structure for the models. Task 12 Deliverables: • A copy of the final Excel rate models used to develop the City’s study. This concludes the discussion of the proposed scope of work for the City. This scope of work has been developed based upon our understanding of the City’s goals and objectives for this study. HDR is willing to modify our approach to meet the City’s specific needs. Estimated Project Time Schedule The City provided a very simple time schedule with key dates for the completion of the Cost of Service Study (December 1, 2017) and the Rate Design Development (April 1, 2018). The desires to adopt and implement new water and wastewater rates in the June/July 2018 time period. From those dates, along with the scope of services developed above, HDR has developed an estimated time schedule to accomplish the City’s implementation dates. Provided below is an overview of the estimated project time schedule for the City’s study. hdrinc.com Version # City of Bozeman | Water and Wastewater Utility System Cost of Service & Rate Design Study 25 This schedule assumes a start date in early September with a completion date of April 1, 2018. As the study progresses, regular internal project meetings with City management and staff are scheduled to review the analysis and provide feedback and suggestions. These meetings were highlighted in the scope of services. In addition, there will likely be numerous conference and telephone calls as the study proceeds to review data and information and resolve any questions or issues. Additional internal meetings may be added if needed. HDR would also propose a bi-weekly conference call between the HDR project manager and the City project manager. This will allow both parties to discuss the status of the project, discuss any outstanding data needs, schedule and budget. In this way, both parties are in continuous communication on the rate study process and status. The schedule also assumes three City Commission meetings to review the cost of service, review the rate designs and conduct the final public hearing on the rates. HDR is willing to modify our project time schedule to meet the specific needs of the City. Project Hours By Individual and Task The City requested the project hours by individual and by task. HDR has developed the following estimate of the project hours, by individual, and by task. TASK SHAWN AMANDA TOM JUDY DAN JOSIAH PROJ ASST TOTAL 1. Initial Project Kick-off Meeting 6 4 0 6 0 0 2 18 2. Data Request 1 0 0 2 0 8 1 12 3. Financial Planning (Revenue Requirement Analysis) 16 2 4 40 10 120 1 193 4. Cost of Service Analysis 16 2 4 24 14 88 2 150 5. Cost of Service Element Reporting (Written & Presentation) 1212 20 40 164 60 168 82 6426 6. Existing Rate Structures Review 2 0 0 20 0 2 1 7 7. Rate Design Goals & Objectives Review 6 0 0 6 0 4 2 18 8. Proposed Rate Designs Development 24 0 2 32 2 60 6 126 9. Rate Design Element Reporting (Written & Presentation 12 8 0 0 4 0 16 4 0 0 8 8 8 2 48 22 10. Report Document Finalization 8 4 4 8 0 8 8 40 11. Final Public Rate Hearing 12 2 0 4 0 4 2 24 12. Computer/Rate Models 1 0 0 8 0 40 0 49 TOTAL 136 17.1% 16 2.0% 22 2.8% 172 21.6% 32 4.0% 374 46.9% 45 5.6% 797 100.0% hdrinc.com Version # City of Bozeman | Water and Wastewater Utility System Cost of Service & Rate Design Study 26 7 City-Furnished Documentation Introduction The City acknowledges and understands the importance of their role in this study. The City has requested that the proposal be clear in addressing what the City will be expected to assist with. This section of the proposal will address the City’s request for clarity. City’s Role, Responsibilities and Time Commitments In the prior section of the report, HDR specifically called out the expected City staff support for each task. Rather than duplicate that information for this response, HDR would simply reference the City to Section 6 of this proposal for that information. The major effort needed from the City will be related to Task 2 – Data Request. HDR’s typical data request is organized around four major areas: • Plant Data (plant assets records, number of reservoirs, feet of distribution main by size) • Revenue Data (rate revenue history, by month, by class of service and misc. revenues) • Consumption Data (monthly consumption data by class of service and by pricing tier) • Expense Data (current budget, CIP budget, audited financials, debt schedules, etc.) • Operating Data (system peak demand, total produced/treated, etc.) • Other Data (master plans, any relevant agreements, rate resolutions) The information needed for the study, should be for the most part, readily available information. HDR generally estimates that the staff time needed to respond to the formal written data request is 8 to 24 hours. The City’s other major commitment of time will be for internal project meetings, which are typically 4 to 6 hours in length in order to carefully review the technical analyses and discuss the issues in detail and gain City feedback. Finally, HDR will draft the written reports for the Cost of Service and Rate Design elements of the study. HDR will expect the City to review the draft reports and provide any feedback or corrections to HDR. hdrinc.com Version # Appendix A: Statement of Non- Discrimination Statement of Non-Discrimination HDR Engineering, Inc. hereby affirms it will not discriminate on the basis of rate, color, religion, creed, sex, age, marital status, national origin, or because of actual or perceived sexual orientation, gender identity or disability and acknowledges and understands the eventual contract will contain a provision prohibiting discrimination as described above and this prohibition on discrimination shall apply to the hiring and treatments of employees and to all subcontracts. ____________________________________ Amanda McInnis, VP Appendix B: Partial Client List of Utiliity Financial PLanning/ Rate Studies City of Bozeman | Water and Wastewater Utility System Cost of Service & Rate Design Study 30 hdrinc.com Version # City of Bozeman | Water and Wastewater Utility System Cost of Service & Rate Design Study 31 hdrinc.com Version # City of Bozeman | Water and Wastewater Utility System Cost of Service & Rate Design Study 32 hdrinc.com Version # Appendix C: Professional Services Agreement Review City of Bozeman | Water and Wastewater Utility System Cost of Service & Rate Design Study Professional Services Agreement Review HDR reviewed the Professional Services agreement and in general agrees to the terms and conditions. However, HDR would request a meeting to discuss the following changes if acceptable by the City. §REQUESTED MODIFICATION 4.Add the following language: City agrees to pay Contractor the amount specified in the Scope of Services. Contractor will submit invoices on a monthly basis and City will pay all undisputed amounts within 30 days following receipt of Contractor’s invoice. 5.b Delete the following language:Contractor represents and warrants to City that … 5.b Delete the following language:The City will not determine or exercise control as to the general procedures or formats necessary to have these services meet this warranty. Replace this warranty as struck with these requirements. 7.(ii) an negligent, reckless, or intentional misconduct of any of the Contractor’s agents, or (iii) the negligent, reckless, or intention misconduct of any other third party. 7.Add at the end of the final sentence:… as per 28-2-702 MCA and claims related to payment for services performed under this agreement 7.Delete the following language:The insurance shall cover and apply to all claims, demands, suits, damages, losses, and expenses that may be asserted or claimed against, recovered from, or suffered by the City without limit and without regard to the cause therefore and which is acceptable to the City and contractor shall furnish… Replace deleted language with the following:Contractor shall secure and maintain during the duration of this agreement insurance in the types and amounts identified below… 7.Delete the following language: … and employees, shall be endorsed as an additional or named insured on a primary … 7.Delete the following language: … and shall include no less than a sixty (60) day notice … Replace deleted language with:Thirty (30) 8.a Add the following language: … any terms or conditions of this Agreement, and Contractor fails to cure the failure or breach within a reasonable period of time following written notice thereof from the City, the City may, … 10.a Revise the language to the following:In the even of a claim for damages by Contractor either party under this Agreement, Contractor’s the party’s damages shall be limited to contract damages and Contractor each party hereby expressly waives… 10.b Add the following language: … within thirty (30) days of becoming aware of the facts and circumstances… 19.Delete the following language: … any of the terms or conditions of this Agreement or to give any notice required herein, then the prevailing Party or the Party giving notice shall be … HDR is willing to work with the City to develop a mutually acceptable professional services agreement. hdrinc.com Version # Appendix D: Resumes City of Coeur d’Alene, Comprehensive Wastewater Rate Study, Coeur d’Alene ID Role: Project Manager. HDR conducted a comprehensive wastewater rate study which included development of a 10-year financial plan cost of service analysis review and update of the wastewater capital fee rate design analysis public presentations and meetings and preparation of summary report and financial models. Four Corners W/S District, Four Corners Valuation Update, Four Corners, MT Role: Project Manager. HDR is updating a 2009 valuation study of the water and sewer systems. HDR will update the reconstruction valuation assessment based on the data and methodology available within the prior study. Las Gallinas Valley Sanitary District - Sewer Rate Methodology and Connection Fee Study, San Rafael, CARole: Project Manager. HDR provided a technical and professional review of the district’s sewer rate methodology and connection fee study. The study compared and contrasted the district’s rate structures and rate policies with industry accepted practices particularly those in use in California. This study will be used during the planned rate-setting activities for fiscal year 2014/2015. Other issues such as the implementation administration community/political impacts and legality of the alternatives will also be reviewed and evaluated. City of Spokane, Comprehensive Water Wastewater and Solid Waste Rate and General Facility Charge Study, Spokane, WA Role: Project Manager. HDR conducted a comprehensive water wastewater and solid waste rate and general facility charge study. The rate study included development of the revenue requirement to determine adequate rate levels a cost of service analysis designed to understand the cost differences associated with serving various types of customers and a rate design analysis that establish a cost-basis for setting rates. Miscellaneous fees (i.e. meter installation hydrant flow tests and chemistry tests for wastewater strength) were also reviewed and updated as part of the project. The general facility charge study considered the value of capacity and the fee for new development. Updated the city’s water and wastewater general facility charges and methodologies to reflect the city’s current capital plans. An all-day education workshop/session was also conducted for city staff that presented the general theory and methodology used to establish cost-based rates. City of Yakima, 2017 Water System Plan Update, Yakima, WARole: Rate Analyst. HDR is assisting the City of Yakima in the update of its water system plan. This includes preparing a water demand forecast to serve as the basis for hydraulic modeling system analysis and capital improvement planning for the next 10- and 20-year planning horizons. City of Woodland, 2016 Water Rate Study Update, Woodland, CARole: Project Manager. HDR developed a new rate transition plan and updated the water rate study. The study included an update to the cost of service and rate designs to provide the basis for the rates to reflect recent legal decisions, as well as review of drought rates that can be implemented by the City Council to minimize the reduction in revenues as a result of declines in consumption due to drought or water shortage events. EDUCATION Bachelor of Science, Business Administration, Central Washington University Bachelor of Science, Economics, Central Washington University PROFESSIONAL MEMBERSHIPS American Water Works Association, Member American Public Power Association/Northwest, Member Shawn Koorn Project Manager Shawn is a Financial Analyst providing financial planning, cost benefit analysis, and economic review towards development of rate and cost of service studies for stormwater, electric, water, wastewater, natural gas, and solid waste utilities. This information is communicated utilizing technical abilities and presentation skills in a clear and concise manner. Shawn’s experience involves all analytical aspects of the utility financial planning process. These include the development of revenue requirements, cost of service, and rate design studies for clients. He is highly capable and understands the finer technical issues involved with each project, as well as the broader economic issues that today’s public and private utilities are facing. hdrinc.com Version # Bozeman Impact Fee Study Role: Project Manager. HDR assisted the City of Bozeman in analyzing and implementing an impact fee for water, sewer, police, and fire services. City of Bozeman, Wastewater Facilities PlanRole: Project Manager. HDR developed a wastewater facilities plan for the City of Bozeman. HDR provided a thorough examination of the existing wastewater treatment plant collection system, population growth information, and projections for future commercial and residential development to determine the life expectancy of existing facilities, in addition to making plans to retrofit and/or replace existing facilities without disrupting service to the City. Bozeman WRF Phase 1 Expansion & ImprovementsRole: Principal in Charge. HDR designed and provided construction management services for the $53 million improvements to the Bozeman Water Reclamation Facility (WRF) in response to the rapidly growing community and increasing regulatory restrictions. The project consisted of the design of a new headworks facility, new primary effluent pumping facility, new bioreactor basins for nitrogen and phosphorus removal, RAS/WAS pumping and secondary clarification, UV disinfection facility, solids digestion and dewatering, and effluent management facilities. The project also included the design of a new administration/laboratory complex for the WRF. HDR provided TMDL engineering support services and developed a long-term effluent management strategy. Bozeman Storm Water Facilities PlanRole: Project Manager. HDR developed a Storm Water Facilities Plan to help the City of Bozeman address growth and development as well as to meet its commitment to the State of Montana Department of Environmental Quality and EPA’s National Pollution Discharge Elimination System (NPDES) Phase 2 Storm Water Program (Phase 2 Rule). Bozeman 2007 Capital Funding Assistance Role: Project Manager. HDR provided capital funding assistance for the City of Bozeman. Activities included: Providing information on availability and the location of potential federal funds that may be applied to City capital improvement projects; preparing and providing ongoing support for an annual federal funding request package; and assisting the City in developing a comprehensive federal funding lobbying strategy. Billings Wastewater/Stormwater Reuse and Reclamation StudyRole: Project Manager. As a follow-on to HDR’s Integrated Water Plan for the City of Billings, HDR is examining the potential for reuse within the City service area. In conjunction with the Wastewater Treatment Facility Plan, this study will help the City take steps toward a sustainable and cost-effective supply and treatment plan for the citizens of Billings. The study will focus on the reclamation of wastewater and stormwater for reuse by select industrial customers and for irrigation use. EDUCATION Master of Science, Civil Engineering, University of Washington, 1997 Bachelor of Science, Civil Engineering, University of Wisconsin, 1994 REGISTRATIONS Professional Engineer, MT, No. 15015 PROFESSIONAL MEMBERSHIPS Water Environment Association American Public Works Association Amanda McInnis, PE Client Liaison Amanda has 23 years of experience and is a senior project manager with a broad wastewater background. She has managed and prepared numerous wastewater and stormwater facilities plans as well as integrated water/reuse plans. She is well versed in discharge permit negotiation, numeric nutrient criteria implications, MS4 permitting and TMDL planning. She has served as project manager on multiple large secondary treatment expansion projects and designed many more. hdrinc.com Version # Whitefish 2005 Master Plan Role: Rate Analyst. HDR provided a comprehensive water sewer and storm drainage system master plan to evaluate the City’s systems. Work included evaluating population growth modeling the existing and future systems evaluating alternatives for meeting existing and future demand defining necessary improvements to meet demand and regulatory requirements estimating the cost impacts of the necessary improvements prioritization of improvements CIP development and financial management evaluation. Lincoln Drought Rate StructureRole: Rate Analyst. HDR developed water shortage (drought) rates to work in unison with the Water Management Plan and provide the proper price (economic) incentives for customers to conserve water while at the same time keeping the utility financially whole. Various alternatives were developed and reviewed with the Mayor and City Council members. Sandpoint Comprehensive Water and Sewer Rate StudyRole: Rate Analyst. HDR conducted a comprehensive water and sewer rate study which included development of revenue requirements for a projected five-year period to establish the cost-based level of revenue to be collected from rates and a plan to transition rates to cost-based levels development of an embedded cost of service study to equitably allocate the revenue requirements of the water and sewer system to the customers served by the city and development of water and sewer rate design options. Kalispell Comprehensive Water, Sewer, Storm Drainage, and Street Maintenance Fund Financial and Rate StudyRole: Rate Analyst. HDR performed a comprehensive water sewer storm drainage and street maintenance fund financial and rate study to ensure that each of the utilities and funds has adequate financial resources to operate properly and that the rates are fair equitable and cost-based. San Luis Obispo Water and Sewer Rate Structure and Billing System EvaluationRole: Rate Analyst. HDR conducted a comprehensive study of the city’s utility billing system and rate structure for water and sewer services. The city was interested in encouraging conservation and the relationship between sewer billing and water conservation. Determined the city’s rate design goals and objectives. Revenue stability was not a high priority and the city wanted to pursue rate structures with low fixed charges and higher commodity charges. Developed a number of options for the city to consider for implementation. The project also involved a comprehensive review of automated meter reading (AMR) systems that would support the city’s goals of customer satisfaction increased operational efficiency and cost recovery. EDUCATION Master of Business Administration, Business Administration, Willamette University, 1976 Bachelor of Arts, Business Administration, Central Washington University, 1974 PROFESSIONAL MEMBERSHIPS American Public Power Association American Water Works Association Tom Gould QA/QC Tom has worked extensively with municipal utilities and special districts to establish fair and equitable rates for their customers. He has a strong background in organizational management, and through his consulting practice, has worked extensively within all levels and areas of utilities. He has served as instructor for the three-day American Water Works Association (AWWA) financial management seminar for many years. This seminar is dedicated to the issues of the theory and methodologies associated with water financial planning, cost of service, rates, and connection fees. He is also a contributing author to the AWWA M-1 manual, “Principles of Water Rates, Fees and Charges,” the AWWA M-54 Manual, “Developing Rates for Small Systems,” and the Water Environment Federation (WEF) Manual of Practice No. 7, “Wastewater Collection Systems Management.” Cities or districts faced with rapid customer growth, potential partnerships, or large capital projects have relied on Tom’s experience to formulate financial plans, or implement fair rate adjustments, via comprehensive studies and open communication. hdrinc.com Version # Kalispell Utility Comprehensive Plan UpdateRole: Rate Analyst. HDR assisted the City of Kalispell in defining a comprehensive regional plan for extending water sewer and stormwater service to the boundary of the planning jurisdiction. A significant utility planning effort was completed in 2002 with the City of Kalispell Water Sewer and Storm Drainage Systems Facility Plan. This work effort reviews and updates where necessary and builds upon information and findings presented in the Facility Plan. Kalispell Comprehensive Water, Sewer, Storm Drainage, and Street Maintenance Fund Financial and Rate StudyRole: Rate Analyst. HDR performed a comprehensive water, sewer, storm drainage, and street maintenance fund financial and rate study to ensure that each of the utilities and funds has adequate financial resources to operate properly and that the rates are fair equitable and cost-based. Hamilton Water/Sewer Rate Study Update and Impact Fee StudyRole: Rate Analyst. HDR updated the City’s comprehensive water and sewer rate study originally completed by HDR in February 2007. The rate study will determine the adequate funding required for each utility’s operations and maintenance (O&M) expenses and capital needs, in addition to developing rates that are cost-based and equitable. Everett 2012 Comprehensive Sewer Plan UpdateRole: Rate Analyst. HDR assisted the City of Everett to prepare the Comprehensive Sewer Plan Update and to coordinate and update its Combined Sewer Overflow (CSO) Reduction Plan. HDR also updated the City’s existing sewer model developed design flow events performed an extensive calibration of over 20 flow monitoring basins and evaluated infiltration and inflow level of service and CSO improvements. Hamilton Water & Sewer Rate StudyRole: Rate Analyst. HDR provided technical assistance in conducting a comprehensive water and sewer rate study for the City. HDR assisted the City in reviewing and updating the connection fees for the water and sewer utilities. In addition, HDR provided impact fee analysis services for the City’s traffic, police, fire, water, and sewer systems. Pasco Comprehensive Water, Sewer, Stormwater, and Irrigation Utilities Rate StudyRole: Rate Analyst. HDR conducted a comprehensive water, sewer, stormwater, and irrigation rate analyses to provide a feasible financial and rate plan for each utility’s operating and capital improvement projects. The water and sewer studies included a cost of service analysis. The findings resulted in a six-year financial plan with recommended rates for each utility to ensure adequate revenue for operations capital and financial stability over time. The major focus of the sewer study was on the initial financial planning for the upgrade to the wastewater treatment plant (secondary wastewater treatment plant upgrade). Developed a financial plan for rates which transitioned the city’s rates over a three-year period to cost-based rates. In addition assisted the city in developing industrial treatment rates for agricultural food processors. These rates took into account the high-strength characteristics of these customers. EDUCATION Bachelor of Science, Accounting, Central Washington University REGISTRATIONS Certified Public Accountant - Inactive Washington State No. 22607 American Water Works Association, Member Washington Finance Officers Association Government Finance Officers Association Judy Dean Rate Analysis Task Lead Judy is a senior financial analyst with HDR. She brings a strong background in accounting and finance. Judy currently holds a Washington State CPA~Inactive Certificate. Judy has worked on rate studies and utility connection charges for a number of utilities including City of Oak Harbor, City of Kalispell , City of Hamilton, City of Puyallup, and Columbia Basin Electric Coop. hdrinc.com Version # San Luis Obispo 2014 Water and Sewer Billing ReviewRole: Rate Analyst. HDR determined the sewer billing units which involved reviewing the city’s residential consumption data and for each account and determining the appropriate winter billing volume. City of Woodland, 2016 Water Rate Study UpdateRole: Rate Analyst. HDR developed a new rate transition plan and updated the water rate study. The study included an update to the cost of service and rate designs to provide the basis for the rates to reflect recent legal decisions, as well as review of drought rates that can be implemented by the City Council to minimize the reduction in revenues as a result of declines in consumption due to drought or water shortage events. Dillon Utility Rate StudyRole: Rate Analyst. HDR helped to develop cost-based rates for the Town of Dillon’s water and sewer enterprise funds. The rate study involved developing the revenue requirement for each enterprise fund to determine adequate and prudent funding levels, preparing a cost of service study designed to identify the cost differences associated with serving various types of customers (e.g., residential, multi-family, commercial), and analyzing rate design approaches. Tamalpais Community Services District, Review of Sewer Rate StructuresRole: Rate Analyst. HDR performed a third-party review of the district sewer rate structure and provided alternatives for the district’s board to review and evaluate for possible adoption. South Lake Tahoe Public Utility District, Water Rate Study AssistanceRole: Rate Analyst. HDR assisted the district with developing responses to questions and comments received from customers, participating in conference calls with staff and the district board, and developing alternative rate structures for review for implementation in FY 12/13. Truckee Donner Public Utility District, Water Rate Study UpdateRole: Rate Analyst. HDR updated the water rate study which included updated rate model and water rate design that transition the district o more volumetric rates while attempting to maintain the attribute of revenue stability. Tahoe City Public Utility District, Water and Sewer Rate Study UpdateRole: Rate Analyst. HDR updated the water and sewer rates which included development of the revenue requirement to determine adequate funding levels a cost of service analysis designed to understand the cost differences associated with serving various types of customers and rate design analysis that develops rates based on the district’s goals and objectives. Warrensburg Comprehensive Sanitary Sewer Rate StudyRole: Rate Analyst. HDR developed a financial planning/rate model that allowed the City to project the future financial performance of the sewer system based on various assumptions. This model produced the sewer system’s projected operating results and cash flow for the next five fiscal years. EDUCATION Bachelor of Science, Finance, Oregon State University Josiah Close Rate Analysis Josiah specializes in the area of utility financial planning, cost of service, rate setting and system development charges. Josiah is highly experienced in developing complex financial planning and utility rate studies. He is very proficient in financial modeling and in the analysis of complex data sets and information. Josiah is currently working with a California utility on the evaluation of volumetric sewer rates. In performing this evaluation, he is working with different databases of information. He recently provided a similar study in which the drought in California had impacted the water consumption and wastewater flow estimates. He worked with precipitation and water consumption data to determine a reasonable estimate of wastewater flows. hdrinc.com Version # Hamilton Water/Sewer Rate Study Update and Impact Fee StudyRole: Project Manager. HDR updated the City’s comprehensive water and sewer rate study originally completed by HDR in 2007. The rate study will determine the adequate funding required for each utility’s operations and maintenance (O&M) expenses and capital needs in addition to developing rates that are cost-based and equitable. Hamilton Water, Wastewater, Police, Transportation, and Fire Impact Fee AnalysisRole: Project Manager. HDR provided technical assistance and analysis for completing an impact fee analysis for the City. The study resulted in the implementation of impact fees for the City’s water wastewater police and fire departments. Hamilton Water & Sewer Rate StudyRole: Project Manager. HDR provided technical assistance in conducting a comprehensive water and sewer rate study for the City. HDR assisted the City in reviewing and updating the connection fees for the water and sewer utilities. In addition HDR provided impact fee analysis services for the City’s traffic police fire water and sewer systems. Bozeman WRF Early Out ImprovementsRole: Project Manager. HDR assisted the City of Bozeman to comply with more stringent permit compliance requirements for nutrients. The project consisted of an early-out construction project that included retrofit of the existing aeration basins to enable biological nitrogen removal using the phased nitrification/de-nitrification process. This project provided nitrogen removal using biological processes with the ability to provide chemical precipitation for phosphorus removal in the future. Bozeman WRF Phase 1 Expansion & ImprovementsRole: Project Manager. HDR designed and provided construction management services for the $53 million improvements to the Bozeman Water Reclamation Facility (WRF) in response to the rapidly growing community and increasing regulatory restrictions. The project consisted of the design of a new headworks facility, new primary effluent pumping facility, new bioreactor basins for nitrogen and phosphorus removal, RAS/WAS pumping and secondary clarification, UV disinfection facility, solids digestion and dewatering, and effluent management facilities. The project also included the design of a new administration/laboratory complex for the WRF. HDR provided TMDL engineering support services and developed a long-term effluent management strategy. Bozeman Hyalite/Sourdough WTPRole: Project Manager. HDR designed and provided construction inspection and administration services for a new 22 mgd membrane WTP and raw water supply. The $32 million project, constructed by Apollo, included demolition of the existing treatment plant, construction of new raw water supply pipelines, raw water intake design, construction of the new state-of-the-art pressure membrane facility with membrane feed pumping station, and construction of a new 84-inch-diameter effluent pipeline. HDR provided construction and I&C programming services and conducted detailed training and start-up assistance to the WTP staff. EDUCATION Bachelor of Science, Civil Engineering, Montana State University, Bozeman, 1992 REGISTRATIONS Professional Engineer, MT, No. 8151 Professional Engineer, ID, No. 7440 Professional Engineer, OR, No. 16181PE Professional Engineer, WA, No. 25727 Professional Engineer, British Columbia, Canada, No. 176626 PROFESSIONAL MEMBERSHIPS Montana Water Environment Association Pacific Northwest Clean Water Association (PNCWA) Dan Harmon, PE Engineering Assistance/Analysis Dan is a civil engineer with extensive experience in the design and construction of public works facilities, including expertise in solids handling, odor control, headworks, and disinfection design for wastewater treatment plants. His experience includes a wide range of wastewater treatment plant projects, ranging from small constructed wetlands to multi-million dollar advanced treatment plants. Dan’s facility plan experience includes the development of metering plans and implementation of flow measurement and flow characterization development of a facility water balance evaluation of land application systems and facility sizing and acquisition of project funding through the CDBG, TSEP, and USEPA STAG funding programs. hdrinc.com Version # Appendix E: Pleasanton Sewer Rate Study FINAL REPORT City of Pleasanton Comprehensive Local Wastewater Collection System Rate Study July 2015 July 1, 2015 Mr. Daniel Smith Director of Operations City of Pleasanton 3333 Busch Road Pleasanton, CA 94566 Subject: City of Pleasanton Local Wastewater Collection System Rate Study Dear Mr. Smith HDR Engineering, Inc. (HDR) is pleased to present to the City of Pleasanton (City) the final report for the 2015 comprehensive local wastewater collection system rate study. A key objective of the City’s comprehensive wastewater rate study was to develop a financial plan and rates that generate sufficient revenue to fund the operating and capital needs of the City’s local wastewater collection system (utility). At the same time, the City’s rates should be fair and equitable. This report outlines the overall approach used to achieve these objectives, along with our findings, conclusions and recommendations. The City owns and operates a wastewater collection system. This report has focused on the costs and rates associated with that system. The costs and rates for treatment of the wastewater are provided by Dublin San Ramon Services District (DSRSD), and those treatment costs are passed through to the City’s customers as a separate and distinct rate. This report was developed utilizing the City’s accounting, operating and management records. HDR has relied upon this cost and planning information to develop the analyses which provided the basis for our findings, conclusions and recommendations. At the same time, this study was developed utilizing industry recognized wastewater rate setting principles and methodologies. This report provides the basis for developing and implementing rates which are cost-based, equitable and defensible to the City’s customers. We appreciate the assistance provided by the City’s management team in the development of this study. More importantly, HDR appreciates the opportunity to provide these technical and professional services to the City. Sincerely yours, HDR Engineering, Inc. Shawn Koorn Associate Vice President hdrinc.com 500 108th Ave NE, Suite 1200, Bellevue, WA 98004 T 425-450-6200 Executive Summary Introduction ....................................................................................................................... 1 Overview of the Rate Study Process .................................................................................. 1 Key Rate Study Results ....................................................................................................... 2 Summary of the Revenue Requirement Analysis .............................................................. 2 Summary of the Cost of Service Analysis ........................................................................... 6 Summary of the Present and Proposed Rate Designs ....................................................... 7 Summary of the Rate Study ............................................................................................... 8 1 Introduction and Overview 1.1 Introduction ............................................................................................................. 9 1.2 Goals and Objectives ............................................................................................... 9 1.3 Overview of the Rate Study Process ..................................................................... 10 1.4 Organization of the Study...................................................................................... 10 1.5 Summary ................................................................................................................ 10 2 Overview of the Wastewater Rate Setting Principles 2.1 Introduction ........................................................................................................... 11 2.2 Generally Accepted Rate Setting Principles .......................................................... 11 2.3 Types of Utilities .................................................................................................... 11 2.4 Determining the Revenue Requirement ............................................................... 12 2.4.1 Public Utilities ............................................................................................... 12 2.4.2 Private Utilities ............................................................................................. 13 2.5 Analyzing Cost of Service ....................................................................................... 13 2.6 Designing Wastewater Rates ................................................................................. 14 2.7 Economic Theory and Rate Setting ....................................................................... 14 2.8 Summary ................................................................................................................ 14 3 Development of the Revenue Requirements 3.1 Introduction ........................................................................................................... 15 3.2 Collection Versus Treatment Services ................................................................... 15 3.3 Determining the Revenue Requirement ............................................................... 15 3.3.1 Establishing a Time Frame and Approach ................................................ 15 3.3.2 Projecting Rate and Other Miscellaneous Revenues ............................... 16 3.3.3 Projecting Operation and Maintenance Expenses .................................. 17 3.3.4 Projecting Capital Funding Needs and Transfer Payments ..................... 17 3.3.5 Projection of Debt Service ....................................................................... 21 3.3.6 Change in Working Capital ....................................................................... 21 3.3.7 Summary of the Revenue Requirements ................................................. 21 Table of Contents i Table of Contents i City of Pleasanton – Comprehensive Local Wastewater Collection System Rate Study 3.3.8 Rate Adjustments / Rate Transition ......................................................... 23 3.4 Consultant’s Conclusions ....................................................................................... 24 3.5 Summary ................................................................................................................ 24 4 Development of the Cost of Service Analysis 4.1 Introduction ........................................................................................................... 25 4.2 Objectives of a Cost of Service Study .................................................................... 25 4.3 Determining the Customer Classes of Service ...................................................... 25 4.4 General Cost of Service Procedures ...................................................................... 26 4.4.1 Functionalization of Costs ........................................................................ 26 4.4.2 Classification of Costs .............................................................................. 26 4.4.3 Development of Allocation Factors ......................................................... 27 4.5 Summary of the Cost of Service Analysis .............................................................. 27 4.6 Consultant’s Conclusions and Recommendations ................................................ 28 4.7 Summary ................................................................................................................ 29 5 Development of the Rate Designs 5.1 Introduction ........................................................................................................... 30 5.2 Rate Design Criteria and Considerations ............................................................... 30 5.3 Summary of the Prior Recommendations ............................................................. 30 5.4 Review of the City’s Present and Proposed Residential Rates .............................. 31 5.5 Review of the City’s Present and Proposed Commercial Rates ............................ 33 5.6 Review of the City’s Present and Proposed Industrial Rates ................................ 34 5.7 Summary of the Local Wastewater Collection Rate Study ................................... 35 Technical Appendix ii Table of Contents ii City of Pleasanton – Comprehensive Local Wastewater Collection System Rate Study “This study determined the adequacy of the existing local wastewater rates and provides the framework for any needed future adjustments.” Introduction HDR was retained by the City of Pleasanton (City) to conduct a comprehensive local collection wastewater rate study. The objective of the rate study was to review the City’s operating and capital costs in order to develop a financial plan and cost-based rates. The financial plan is designed to meet the City’s operation and maintenance (O&M) needs and the capital improvement program for the local wastewater collection system. This study determined the adequacy of the existing local wastewater rates and provides the framework and cost justification for any needed future adjustments. The City owns and operates a wastewater collection system. Treatment of the wastewater is provided by a regional treatment facility. The findings, conclusions and recommendations from this study are solely related to the City’s wastewater collection system. Overview of the Rate Study Process A comprehensive wastewater rate study uses three interrelated analyses to address the adequacy and equity of a utility’s rates. These three analyses are a revenue requirement analysis, a cost of service analysis, and a rate design analysis. These three analyses are illustrated below in Figure ES-1. Figure ES–1 Overview of the Comprehensive Wastewater Rate Analyses Revenue Requirement Analysis Cost of Service Analysis Rate Design Analysis Compares the revenues to the expenses of the utility to determine the overall rate adjustment required Allocates the revenue requirement to the various customer classes of service in a “fair and equitable" manner Considers both the level and structure of the rate design to collect the target level of revenues Executive Summary Executive Summary 1 City of Pleasanton – Comprehensive Local Wastewater Collection System Rate Study The above framework for reviewing and evaluating rates was utilized for the City’s study. Key Rate Study Results Based on the technical analysis undertaken as part of this study, the following findings, conclusions, and recommendations were noted. A revenue requirement analysis was developed for FY 2016 through FY 2020. The FY 2015 budget was used as the starting point of the analysis. Operation and maintenance expenses for the local collection utility are projected to increase at inflationary levels with no changes to levels of service or anticipated extraordinary expenses. The City has a number of replacement capital projects in the future and the funding of these projects was one of the primary drivers behind the results and the recommendations for the proposed rate adjustments. Annual rate adjustments over the FY 2016 – FY 2020 time period are needed to support the operating and capital needs of the wastewater. The FY 2016 rate adjustment includes a previously approved inflationary adjustment of 2.5% effective July 1, 2015 and a 3.0% increase effective October 1, 2015, for a total FY revenue increase of 4.8% and rate increase of 5.5% Annual Consumer Price Index adjustments are proposed on July 1, of each subsequent year and the study has assumed a rate of 2.5% for purposes of projecting the necessary rate increases. Under the proposed financial plan, no long-term debt will be issued and the City’s local collection wastewater utility will be debt free starting in FY 2016. A cost of service analysis was developed to review the equity of the existing rates. The results of the cost of service analysis indicated minor cost differences between the various customer classes of service. However, for a number of reasons, it is recommended that no adjustments to the cost/rate relationships between the classes of service be made at this time. All customer classes of service (rates) were adjusted equally (on a percentage basis). The study has proposed rates for the FY 2016 – FY 2020 time period. For a single-family residential customer, the average bi-monthly adjustment is approximately $0.73/bi- month/year. Summary of the Revenue Requirement Analysis A revenue requirement analysis is the first analytical step in the comprehensive rate study process. This analysis determines the adequacy of the overall local wastewater collection rates. From this analysis, a determination can be made as to the overall level of local wastewater collection rate adjustments needed to provide adequate and prudent funding for both operating and capital needs. For this study, the revenue requirement was developed for the budget plus a five-year projected time period (FY 2015 - 2020). As a practical matter, a multi-year time frame is Executive Summary 2 City of Pleasanton – Comprehensive Local Wastewater Collection System Rate Study “The proper and adequate funding of capital projects is important to help minimize rates over time. A general financial guideline states that, at a minimum, a utility should fund an amount equal to or greater than annual depreciation expense through rates.” recommended in an attempt to identify any major expenses that may be on the horizon. By anticipating future financial requirements, the City can begin planning for these changes sooner, thereby minimizing short-term rate impacts and overall long-term rates. For the revenue requirement analysis a “cash basis” approach was utilized. The “cash basis” approach is the most commonly used methodology by municipal utilities to set their revenue requirement and is composed of O&M expenses, transfer payments, debt service and capital projects funded from rates. The primary financial inputs in the development of the revenue requirement were the City’s 2015 budget documents, 2014 billed customer and consumption data and the City’s capital improvement plan. The proper and adequate funding of capital projects is important to help minimize rate increases over time. A general financial guideline states that, at a minimum, a utility should fund an amount equal to or greater than annual depreciation expense through rates. Annual depreciation expense reflects the current investment in plant being depreciated or “losing” its useful life. Therefore, this portion of plant investment needs to be replaced to maintain the existing level of infrastructure (and service levels). However, it must be kept in mind that, in theory, annual depreciation expense reflects an investment in infrastructure that was placed in service an average of 15 years ago, assuming a 30-year useful, depreciable, life. Simply funding an amount equal to annual depreciation expense will not be sufficient to fund the replacement of an existing or depreciated facility. Therefore, consideration should be given to funding within rates some amount greater than annual depreciation expense for renewals and replacements. For purposes of reviewing the capital project funding, City has segregated their capital plan into two components: • Sewer Replacement Fund • Sewer Expansion Fund The sewer replacement fund is intended to provide funding for the more routine renewal and replacement type projects, while the expansion fund is related to growth and expansion. This study has provided a detailed discussion and exhibits associated with each of these funds and the capital projects associated with them. As a part of this study, a concerted effort was made to increase the overall level of “pay-as-you-go” (rate) funding for replacement capital projects. Provided below in Table ES-1 is a summary of the amount of rate funded capital for each year. Executive Summary 3 City of Pleasanton – Comprehensive Local Wastewater Collection System Rate Study Table ES–1 Summary of the Annual Rate Funded CIP ($000) FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 FY 2020 Replacement Capital Projects $1,250 $1,500 $1,750 $2,000 $2,000 $2,100 Expansion Capital Projects 0 0 0 0 0 0 Total CIP Funded From Rates $1,250 $1,500 $1,750 $2,000 $2,000 $2,100 As a point of reference, the City’s annual depreciation expense is approximately $2.9 million (2014). This financial plan has placed the City’s rate funding for CIP at $2.1 million by FY 2020. It is important to note and understand that depreciation expense is not the same as replacement cost. Thus, funding an amount which exceeds depreciation expense (i.e. $2.8 million) is both prudent and appropriate. In developing this financial plan, HDR and the City have attempted to minimize rate impacts while funding the planned capital improvement projects of the City. However, as can be seen, this financial plan has strengthened the City’s “pay-as-you-go” funding for capital projects. Given a projection of operating and capital expenses a summary of the revenue requirement analysis was developed. Provided below in Table ES-2 is a summary of the revenue requirement analysis (financial plan). Executive Summary 4 City of Pleasanton – Comprehensive Local Wastewater Collection System Rate Study Table ES–2 Summary of the City Revenue Requirement Analysis ($000) FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 FY 2020 Sources of Funds - Rate Revenues $3,895 $3,934 $3,973 $4,013 $4,053 $4,094 Misc. Revenues 168 170 172 179 186 187 Total Sources of Funds $4,062 $4,103 $4,145 $4,192 $4,239 $4,281 Applications of Funds – Operation & Maint. Exp. $2,593 $2,671 $2,751 $2,834 $2,919 $3,006 Total Transfers (CIP) 1,250 1,500 1,750 2,000 2,000 2,100 Net Debt Service 183 0 0 0 0 0 Change in Working Capital 36 120 (35) (213) (138) (165) Total Revenue Requirement $4,062 $4,291 $4,466 $4,621 $4,781 $4,941 Balance/(Defic.) of Funds $0 ($187) ($320) ($429) ($542) ($661) Defic. as a % of Rate Rev. 0.0% 4.7% 8.1% 10.7% 16.4% 16.1% Proposed Rate Adjustments - Annual CPI Adjustments [1] 0.0% 2.5% 2.5% 2.5% 2.5% 2.5% Other Rate Adjustments [2] 0.0% 3.0% 0.0% 0.0% 0.0% 0.0% Total Proposed Revenue Adjustment 0.0% 4.8% 2.5% 2.5% 2.5% 2.5% [1] – CPI adjustment effective July 1 of each year [2] – Rate Adjustment effective October 1, 2015 [3] – The FY 2016 revenue adjustment reflects the 2.5% CPI adjustment July 1, 2015 and the 3.0% rate adjustment effective October 1, 2015 for an annual revenue increase of 4.8% and rate adjustment of 5.5% As can be seen, the revenue requirement has summed the O&M, transfers (i.e., rate funded capital), net debt service and the change in working capital. The total revenue requirement is then compared to the total sources of funds which includes the rate revenues, at present rate levels, and other miscellaneous revenues. From this comparison a balance or deficiency of funds in each year can be determined. This balance or deficiency of funds is then compared to the rate revenues to determine the level of rate adjustment needed to meet the revenue requirement. It is important to note the “Balance/(Deficiency) of Funds” row is cumulative. That is, any adjustments in the initial years will reduce the deficiency in the later years. Over this project time period, the total deficiency of rates is 16.1%. As can be seen in Table ES-2 a rate transition plan has been developed to adjust rates over this time period. To better understand the impacts of these adjustments, Table ES-3 provides a summary of the impacts to residential rates. Executive Summary 5 City of Pleasanton – Comprehensive Local Wastewater Collection System Rate Study Table ES–3 Summary of the City Rate Transition Plan and Residential Bill Impacts [1] Present Bill [2] FY 2016 FY 2017 FY 2018 FY 2019 FY 2020 Bi-Monthly Residential Bill - $24.46 Proposed Rate Adjustment [3] 3.0% 2.5% 2.5% 2.5% 2.5% Mthly Bill After Rate Adj. [4] $25.19 $25.82 $26.47 $27.13 $27.81 $ Change/Bi-Month $0.73 $0.63 $0.65 $0.66 $0.68 Cumulative Bi-Mthly Change $0.73 $1.36 $2.01 $2.67 $3.35 [1] – Bi-Monthly bill reflects only the local collection system portion of a customer’s wastewater bill [2] – The City has previously adopted a CIP adjustment effective July 1, 2015 [3] – The FY 2016 rate adjustment is effective October 1, 2015. CPI adjustment is effective July 1, 2015 of each year [4] – Bi-Monthly (i.e. 2 month) bill reflects only the local collection system portion of a customer’s wastewater bill As can be seen, the current bi-monthly residential bill for the local wastewater collection services is $24.46/bi-month. With the proposed adjustments, the impacts will be approximately $0.73/bi-month annual adjustments. Cumulatively, over the five year period the residential bill is projected to go from $24.46/bi-month to $27.81/bi-month, or a total change of $3.35/bi-month. Based on the revenue requirement analysis developed herein, HDR has concluded that the City will need to adjust their rates over the next five years (FY 2016 – FY 2020). HDR has reached this conclusion for the following reasons: • Rate adjustments are necessary to fund the City’s capital improvement needs, of which a large portion are driven by the funding of replacement capital projects. • Rate adjustments are necessary to fund the City’s capital projects on a “pay-as-you-go” basis and avoid the need for the issuance of any long-term debt. • The proposed rate adjustments maintain the City’s strong financial health and provide long-term sustainable funding levels for the City. In reaching this conclusion, HDR would recommend that the City adopt the proposed rates through FY 2020 in order to provide surety as to the availability of funding for the capital improvement program. Detailed technical exhibits of the revenue requirement analysis have been included within the Technical Appendix and can be found on Exhibits 1 – 5. Summary of the Cost of Service Analysis A cost of service analysis determines the equitable allocation of the revenue requirement to the various customer classes of service (e.g. residential, commercial, etc.). The objective of the cost of service analysis is different from determining the revenue requirement. A revenue Executive Summary 6 City of Pleasanton – Comprehensive Local Wastewater Collection System Rate Study requirement analysis determines the utility’s overall financial needs, while the cost of service analysis determines the fair and equitable manner to collect that revenue requirement. The results of the cost of service analysis indicated some cost differences between the customer classes of service. While some minor cost differences exist, the overall allocation of costs between customers generally appears to be reasonable. In reaching this conclusion, one of variables which may impact cost allocations is the trend of declining per capita consumption for residential customers, along with the current drought conditions with California and the Bay Area. These conditions certainly have an impact upon consumptive use and cost allocations. Given the changing usage patterns and current drought, HDR believes the focus of this study should be on the overall rate adjustment needs based on the City’s need to fund capital improvement projects over the five years. As the City continues to monitor rates and cost of service results through future studies, cost of service adjustments may be made as the results are driven by customer consumption. Given that, no adjustments in the cost relationships between the customer classes of service are recommended at this time. As a result, the overall proposed revenue/rate adjustments will be applied equally across all customer groups. Section 4 of this report provides a detailed discussion of the cost of service analysis conducted for the City’s local collection system. The Technical Appendix contains the various exhibits associated with this analysis and be found on Exhibits 6 - 13. Summary of the Present and Proposed Rate Designs The final step of the comprehensive rate study process is the design of local wastewater collection rates to collect the desired levels of revenue, based on the results of the revenue requirement and cost of service analysis. The revenue requirement analysis had provided a set of recommendations related to annual rate adjustments, while the cost of service results indicated that no interclass adjustments were needed at this time. Given the above, the City’s existing local wastewater collection rates were equally adjusted in each of years. The exception to this is the senior discount. The audit committee recommended a reduction in the discount from 20% to 15% which is reflected in the proposed rates. Provided below in Table ES-4 is an abbreviated summary of the present and proposed residential rates. Table ES–4 Summary of the Proposed Residential Wastewater Local Collection Rates Present Rates FY 2016 Oct. 1, 2015 FY 2017 July 1 2016 FY 2018 July 1 2017 FY 2019 July 1, 2018 FY 2020 July 1, 2019 Proposed Rate Adjustment 2.5% 3.0% 2.5% 2.5% 2.5% 2.5% Single Family ($/Bi-Month/D.U.) Single-Family Residential $24.46 $25.19 $25.82 $26.47 $27.13 $27.81 Senior Discount 21.41 21.95 22.50 23.06 23.64 21.41 Low-Income Discount 17.12 17.63 18.07 18.53 18.99 19.47 Note: A complete detail of the residential rates can be found on Table 5-2 Executive Summary 7 City of Pleasanton – Comprehensive Local Wastewater Collection System Rate Study The City has a more detailed set of residential rates for townhome, condominium and multi- family customers. In addition, the City also has rate schedules for commercial, institutional and industrial customers. Section 5 of this report provides a detailed discussion of the present and proposed local wastewater collection rates for FY 2016 – FY 2020. Summary of the Rate Study This completes the overview of the development of the comprehensive local wastewater collection rate study for the City. The focus of this study has been the prudent and adequate funding of the utility, particularly as it relates to the needed capital improvement projects. The proposed rate adjustments maintain the City’s financial position to meet its financial planning objectives. A full and complete discussion of the development of the comprehensive rate study and the proposed rate adjustments can be found in following sections of this report. Executive Summary 8 City of Pleasanton – Comprehensive Local Wastewater Collection System Rate Study 1.1 Introduction HDR Engineering, Inc. (HDR) was retained by the City of Pleasanton (City) to conduct a comprehensive local collection wastewater rate study. The objective of the rate study was to review the City’s operating and capital costs in order to develop a financial plan and cost-based rates. The financial plan is designed to meet the City’s operation and maintenance (O&M) needs and the capital improvement program for the local wastewater collection system. This study determined the adequacy of the existing wastewater rates and provides the framework for any needed future adjustments. The City owns and operates a wastewater collection system. Treatment of the wastewater is owned and operated by Dublin San Ramon Services District (DSRSD). DSRSD provides treatment services to the City by contract. This report has focused only on the costs and rates associated with the City’s local collection system. The costs and rates for wastewater treatment are developed by DSRSD, and those treatment costs are passed through to the City’s customers as a separate and distinct rate. The findings, conclusions and recommendations from this study are solely related to the City’s wastewater collection system. 1.2 Goals and Objectives The City had a number of key objectives in developing the wastewater rate study. These key objectives were as follows: • Develop the study in a manner that is consistent with the principles and methodologies established by the Water Environment Federation (WEF), Manual of Practice No. 27, Financing and Charges for Wastewater Systems. • In financial planning and establishing the City’s rates, review and utilize best industry practices, while recognizing and acknowledging the specific and unique characteristics of the City’s system. • Review the City’s rates utilizing “generally accepted” rate making methodologies to determine adequacy and equity of the utility rates. • Meet the City’s financial planning criteria, particularly as it relates to adequate funding of capital infrastructure and maintenance of adequate and prudent reserve levels. • Develop a final proposed financial plan which adequately supports the utility’s funding requirements, while attempting to minimize overall impacts to rates. • Provide rates which meet the legal requirements of Proposition 218. These key objectives provided a framework for policy decisions in the analysis that follows. 1. Introduction and Overview Introduction and Overview 9 City of Pleasanton – Comprehensive Local Wastewater Collection System Rate Study 1.3 Overview of the Rate Study Process User rates must be set at a level where a utility’s operating and capital expenses are met with the revenues received from customers. This is an important point, as failure to achieve this objective may lead to insufficient funds to maintain system integrity. To evaluate the adequacy of the existing rates, a comprehensive rate study is often performed. A comprehensive wastewater rate study consists of three interrelated analyses. Figure 1-1 provides an overview of these analyses. Figure 1–1 Overview of the Comprehensive Wastewater Rate Analyses The above framework for reviewing and evaluating rates was utilized for the City’s study. 1.4 Organization of the Study This report is organized in a sequential manner that first provides an overview of utility rate setting principles, followed by sections that detail the specific steps used to review the City’s wastewater rates. The following sections comprise the City’s wastewater rate study report: • Section 2 – Overview of Wastewater Rate Setting Principles • Section 3 – Development of the Revenue Requirement • Section 4 – Development of the Cost of Service Analysis • Section 5 – Development of the Wastewater Rates A Technical Appendices is attached at the end of this report, which details the various technical analyses that were undertaken in the preparation of this report. 1.5 Summary This report will review the comprehensive wastewater rate analyses prepared for the City. This report has been prepared utilizing “generally accepted” wastewater rate setting techniques. The next section of the report will provide a brief overview of the general rate setting process that was used to analyze and establish the proposed wastewater rates for the City. Revenue Requirement Analysis Cost of Service Analysis Rate Design Analysis Compares the revenues to the expenses of the utility to determine the overall rate adjustment required Allocates the revenue requirement to the various customer classes of service in a “fair and equitable" manner Considers both the level and structure of the rate design to collect the target level of revenues Introduction and Overview 10 City of Pleasanton – Comprehensive Local Wastewater Collection System Rate Study 2.1 Introduction This section of the report provides background information about the wastewater rate setting process, including descriptions of generally accepted principles, types of utilities, methods of determining a revenue requirement, the cost of service approach, and rate design. This information is useful for gaining a better understanding of the details presented in Sections 3 through 5. 2.2 Generally Accepted Rate Setting Principles As a practical matter, utilities should consider setting their rates around some generally accepted or global principles and guidelines. Utility rates should be: • Cost-based, equitable, and set at a level that meets the utility’s full revenue requirement. • Easy to understand and administer. • Designed to conform with “generally accepted” rate setting techniques. • Stable in their ability to provide adequate revenues for meeting the utility’s financial, operating, and regulatory requirements. • Established at a level that is stable from year-to-year from a customer’s perspective. 2.3 Types of Utilities Utilities are generally divided into two types: Public utilities are usually owned by a City, county, or special district, and are theoretically operated at zero profit. A public utility is locally owned since its customers are also its owners. Public utilities are capitalized or financed by issuing debt and soliciting funds from customers through direct capital contributions or user rates. Public or municipal utilities are typically exempt from state and federal income taxes. A publicly elected City Council or Board of Commissioners usually regulates public utilities. Private utilities are “for profit” enterprises and are owned by a private company and/or stockholders. The shareholders are, in essence, the owners of the private utility. Therefore, the owners of a private utility may not be customers or local citizens, but rather numerous individuals or shareholders spread across the United States. A private utility is capitalized by issuing stock to the general public. Private utilities are taxable entities. Given their “for- profit” status, their rates and operations are generally regulated by a state public utility commission or other regulatory body. As a point of reference, the City is a public (municipal) utility and the analysis has been based on the methodology generally utilized by a public utility. 2. Overview of Wastewater Rate Setting Principles Overview of Wastewater Rate Setting Principles 11 City of Pleasanton – Comprehensive Local Wastewater Collection System Rate Study 2.4 Determining the Revenue Requirement Because public and private utilities have very different administrative and financial characteristics their methods differ for determining revenue requirements and setting rates. 2.4.1 Public Utilities Most public utilities use the “cash basis” approach for establishing their revenue requirement and setting rates. This approach conforms to most public utility budgetary requirements and the calculation is easy to understand. A public utility totals its cash expenditures for a period of time to determine required revenues. The revenue requirement for a public utility is usually comprised of the following costs or expenses: • Total Operating Expenses: This includes a utility’s operation and maintenance (O&M) expenses, plus any applicable taxes or transfer payments. Operation and maintenance expenses include the materials, electricity, labor, supplies, etc. needed to keep the utility functioning. • Total Capital Expenses: Capital expenses are calculated by adding debt service payments (principal and interest) to capital improvements financed with rate revenues. In lieu of including capital improvements financed with rate revenues, a utility sometimes includes depreciation expense to stabilize annual revenue requirement. Under the “cash basis” approach, the sum of the total operating expenses plus the total capital expenses equals the utility’s revenue requirement during any selected period of time (historical or projected). Note that the two portions of the capital expense component (debt service and capital improvements financed from rates) are necessary under the cash basis approach because utilities generally cannot finance all their capital facilities with long-term debt. At the same time, it is often difficult to pay for capital expenditures on a “pay-as-you-go” basis given that some major capital projects may have significant rate impacts upon a utility, even when financed with long-term debt. Many utilities have found that some combination of pay-as-you- go funding and long-term financing will often lead to minimization of rates over time. Public utilities typically use the “cash basis”1 approach to establish their revenue requirements. An exception occurs if a public utility provides service to a wholesale or contract customer. In this situation, a public utility could use the “utility basis” approach (see Table 2-1) to earn a fair return on its investment. 1 “Cash basis” as used in the context of rate setting is not the same as the terminology used for accounting purposes and recognition of revenues and expenses. As used for rate setting, “cash basis” simply refers to the specific cost components to be included within the revenue requirement analysis. Overview of Wastewater Rate Setting Principles 12 City of Pleasanton – Comprehensive Local Wastewater Collection System Rate Study Table 2–1 Cash versus Utility Basis Comparison Cash Basis Utility Basis (Accrual) + O&M Expenses + O&M Expenses + Taxes/Transfer Payments + Taxes/Transfer Payments + Capital Improv. Funded From Rates (≥ Depreciation Expense) + Depreciation Expense + Debt Service (Principal + Interest) + Return on Investment = Total Revenue Requirement = Total Revenue Requirement 2.4.2 Private Utilities Most private utilities use a “utility basis” or accrual approach for establishing revenue requirement and setting rates (see Table 2-1). The revenue requirement for a private utility is usually comprised of the following costs or expenses: • Total Operating Expenses: This includes a utility’s operation and maintenance (O&M) expenses, plus any applicable taxes or transfer payments. Similar to a public utility under the “cash basis” methodology, operation and maintenance expenses include the materials, electricity, labor, supplies, etc. needed to keep the utility functioning. • Depreciation Expense: Depreciation expense is a “book value” and in the rate setting process a means of recouping the cost of capital facilities over their useful lives. The inclusion of depreciation expense within the revenue requirement is a means of generating internal cash. • Return on Investment: A utility should earn a “fair return” on their investment in utility plant and property. Private utilities must pay state and federal income taxes along with any applicable property, franchise, sales, or other form of revenue taxes. The return portion of this type of revenue requirement pays for the private utility’s interest expense on indebtedness, provides funds for a return to the utility’s shareholders in the form of dividends, and leaves a balance for retained earnings and cash flow purposes. 2.5 Analyzing Cost of Service After the total revenue requirement is determined, it is allocated to the users of the service. The allocation, usually analyzed through a cost of service analysis, reflects the cost relationships for producing and delivering services. A cost of service analysis requires three analytical steps: 1. Costs are functionalized or grouped into the various cost categories related to providing service (collection, pumping, treatment, etc.). This step is largely accomplished by the utility’s accounting system. Overview of Wastewater Rate Setting Principles 13 City of Pleasanton – Comprehensive Local Wastewater Collection System Rate Study “Economic theory suggests that the price of a commodity must roughly equal its cost if equity among customers is to be maintained.” 2. The functionalized costs are classified to specific cost components. Classification refers to the arrangement of the functionalized data into cost components. For example, a wastewater utility’s costs are typically classified as volume, strength (BOD/TSS), or customer-related. 3. Once the costs are classified into components, they are proportionally allocated to the customer classes of service (residential, non-residential, industrial, etc.). The allocation is based on each customer class’ relative contribution to the cost component. For example, customer-related costs are allocated to each class of service based on the total number of customers in that class of service. Once costs are allocated, the revenues from each customer class of service required to achieve cost-based rates can be determined. 2.6 Designing Wastewater Rates Rates that meet the utility’s objectives are designed based on both the revenue requirement and the cost of service analysis. This approach results in rates that are strictly cost-based and does not consider other non-cost based goals and objectives (economic development, ability to pay, revenue stability, etc.). In designed final proposed rates, factors such as ability to pay, continuity of past rate philosophy, economic development, ease of administration, and customer understanding can be taken into consideration. 2.7 Economic Theory and Rate Setting One of the major justifications for a comprehensive rate study is founded in economic theory. Economic theory suggests that the price of a commodity must roughly equal its cost if equity among customers is to be maintained. This statement’s implications on utility rate designs are significant. For example, a wastewater utility usually incurs strength-related costs in treating high strength wastewater. It follows that the customers who have higher strength levels and create greater treatment costs should pay for those strength-related facilities in proportion to their contribution to total plant loadings. When costing and pricing techniques are refined, consumers have a more accurate picture of what the commodity costs to produce and deliver. This price-equals-cost concept provides the basis for the subsequent analysis and comments. 2.8 Summary This section of the report has provided a brief introduction to the general principles, techniques, and economic theory used to set wastewater rates. These principles and techniques will become the basis for the City’s comprehensive wastewater rate study. Overview of Wastewater Rate Setting Principles 14 City of Pleasanton – Comprehensive Local Wastewater Collection System Rate Study “. . . the revenue requirement analysis as developed herein assumes the full and proper funding needed to operate and maintain the City’s local wastewater system on a financially sound and prudent basis.” 3.1 Introduction This section describes the development of the revenue requirement analysis for City’s local wastewater system. The revenue requirement analysis is the first analytical step in the comprehensive rate study process. This analysis determines the adequacy of the overall wastewater rates. From this analysis, a determination can be made as to the overall level of rate adjustments needed to provide adequate and prudent funding for both operating and capital needs of the utility. Typically, one of the main objectives of a rate study is to develop fair and equitable rates while attempting to minimize the impacts to the utility’s customers. 3.2 Collection Versus Treatment Services A wastewater utility provides two major wastewater functions to their customers – collection of the wastewater and the treatment of the wastewater. The City operates a collection system, but does not provide treatment. Rather, the City participates by contract in a regional treatment facility owned and operated by DSRSD. For purposes of this study, the focus is only on the collection system portion of the costs. For rate setting purposes, customers are charged two components on their bill – the City’s collection system portion and the regional treatment component from DSRSD. All discussion of costs and rates within this study is related to the operation of the City’s collection system. 3.3 Determining the Revenue Requirement In developing the City’s wastewater revenue requirement, the utility, as an enterprise fund, must financially “stand on its own” and be properly funded. As a result, the revenue requirement analysis, as developed herein, assumes the full and proper funding needed to operate and maintain the City’s local wastewater system on a financially sound and prudent basis. Provided below is a more detailed discussion of the development of the revenue requirement analysis for the City. 3.3.1 Establishing a Time Frame and Approach The first step in calculating the revenue requirement for the City’s wastewater utility was to establish a time frame for the revenue requirement analysis. For this study, the revenue requirement was developed for a six-year projected time period (FY 2015 – FY 2020). This six year time frame was composed of Budget FY 2015 and the five projected years of FY 2016 – FY 2020. Reviewing a multi-year time period is recommended since it attempts to identify any major expenses that may be on the horizon. By anticipating future financial requirements, the 3. Development of the Revenue Requirements Development of the Revenue Requirements 15 City of Pleasanton – Comprehensive Local Wastewater Collection System Rate Study City can begin planning for these changes sooner, thereby minimizing short-term rate impacts and overall long-term rates. The second step in determining the revenue requirement was to decide on the basis of accumulating costs. In this particular case, for the revenue requirement analysis a “cash basis” approach was utilized. The “cash basis” approach is the most commonly used methodology by municipal utilities to set their revenue requirement. This is also the methodology that the City has historically used to establish their wastewater revenue requirements. Table 3-1 provides a summary of the “cash basis” approach and cost components used to develop the City’s wastewater revenue requirement. Table 3–1 Overview of the City’s “Cash Basis” Revenue Requirements + Wastewater Operation and Maintenance Expenses + Transfers to R&R Fund (Rate Funded Capital) + Debt Service (P + I) – Existing and Future ± Change in Working Capital . = Total City Revenue Requirement − Miscellaneous Revenues . = Net Revenue Requirement (Balance Required from Rates) Given a time period around which to develop the revenue requirement and a method to accumulate the costs; the focus shifts to the development and projection of the revenues and expenses of the City’s wastewater system. The primary financial inputs in the development of the revenue requirement were the City’s FY 2015 budget documents, 2014 billed customer and consumption data, and the City’s capital improvement plan. Presented below is a detailed discussion of the steps and key assumptions contained in the development of the projections of the City’s wastewater revenue requirement analysis. 3.3.2 Projecting Rate and Other Miscellaneous Revenues The first step in developing the revenue requirement was to develop a projection of the wastewater rate revenues, at present rate levels. In general, this process involved developing projected billing units for each customer group. The billing units for each customer group were then multiplied by the applicable current local wastewater rates. This method of independently calculating revenues links the projected revenues used within the analysis to the projected billing units. It also helps to confirm that the billing units used within the study are reasonable for purposes of projecting future revenues, allocating costs and, ultimately, establishing proposed rates. The vast majority of the City’s rate revenues are derived from residential customers. Currently, residential includes single-family homes, townhomes, condominiums and multi-family Development of the Revenue Requirements 16 City of Pleasanton – Comprehensive Local Wastewater Collection System Rate Study customers. Each of these types of customers has a separate and distinct rate. In addition to these rates, the City also has a senior discount rate and a low-income discount rate for residential customers. The senior and low-income discount rates2 are different rates and levels of discount. The City also serves a variety of commercial and institutional customers. The City has a number of different rates for these commercial and institutional customers to reflect differences in wastewater contributions by these customers. In total, and at currently adopted rate levels, the City’s wastewater system is projected to receive approximately $3.9 million in rate revenue in FY 2015. Over time, the study has assumed a conservative level customer growth (1%/year). By FY 2020, the rate revenues, assuming no rate adjustments, are projected to be approximately $4.1 million. In addition to rate revenues, the local wastewater system also receives miscellaneous revenues. To fund the senior/low-income discount program the City’s General Fund makes a transfer of funds to the wastewater utility. The City also receives other miscellaneous revenue sources. In total, the City is projected to annually receive approximately $168,000 in miscellaneous revenues over the projected planning horizon. This amount is anticipated to increase slightly over the projected five year time period. On a combined basis, taking into account the rate revenues and the miscellaneous revenues, the City wastewater utility has total projected revenues of approximately $4.1 million in FY 2015, increasing to approximately $4.3 million in FY 2020. 3.3.3 Projecting Operation and Maintenance Expenses Operation and maintenance (O&M) expenses are incurred by the regional system to operate and maintain the existing plant in service and to pay for regional wastewater treatment expenses. For purposes of this study, O&M was grouped into a single line item account and projected over the five year period at an assumed annual inflation rate of 3.0%. The total operation and maintenance expenses for the wastewater utility are projected to be approximately $2.6 million in FY 2015. Over the five year planning horizon, the total O&M expenses are projected to increase to approximately $3.0 million by FY 2020. 3.3.4 Projecting Capital Funding Needs and Transfer Payments A key component in the development of the wastewater revenue requirement was properly and adequately funding capital improvement needs. One of the major issues facing many utilities across the U.S. is the amount of deferred capital projects and the funding pressure from growth/expansion-related improvements. The proper and adequate funding of capital projects 2 Under Proposition 218, a utility may not provide subsidies for senior citizens or low-income customers by increasing the wastewater rates of the other customers. To legally provide this rate discount, the City transfers funds in from the City’s General Fund to financially support this program. $3,144 $704 $10 $37 FY 2015 Rate Revenues ($000) Residential Commercial Institutional Industrial/Demand Development of the Revenue Requirements 17 City of Pleasanton – Comprehensive Local Wastewater Collection System Rate Study is an important issue for all wastewater utilities and is not just a local issue or concern of the City. In general, there are three types of capital projects that a utility may need to fund. These include the following types: • Renewal and replacement projects • Growth/capacity expansion projects • Regulatory-related projects A renewal and replacement project is essentially maintaining the existing system that is in place today. As the existing plant becomes worn out, obsolete, etc. the utility should be making continuous investments to maintain the integrity of the facilities. In contrast to this, a utility may make capital investments to expand the capacity of facilities to accommodate future customers. Finally, certain projects may be a function of a regulatory requirement in which the Federal or State government mandates the need for an improvement to the system to meet a regulatory standard. Understanding these different types of capital projects is important because it may help to explain why costs are increasing and the cost drivers for any needed rate adjustment. In addition, and more importantly, the way in which projects are funded may vary by the type of capital project. For example, renewal and replacement projects may be paid for via rates and funded on a “pay-as-you-go basis”. In contrast to this, growth or capacity expansion projects may be funded via the collection of connection fees (i.e. growth-related charges) in which new development pays a proportional and equitable share of the cost of their connection (impact). Finally, regulatory projects may be funded by a variety of different means, which may include rates, long-term debt, grants, etc. While the above discussion appears to neatly divide capital projects into three clearly defined categories, the reality of working with specific capital projects may be more complex. For example, a pump may be replaced, but while being replaced, it is up-sized to accommodate greater capacity. There are many projects that share these “joint” characteristics. At the same time, projects may not be “replacement” related, but rather “improvement” related. For purposes of reviewing the capital project funding, City has segregated their capital plan into two components: • Sewer Replacement Fund • Sewer Expansion Fund Each of these types of capital projects (funds) are discussed in more detail below. SEWER REPLACEMENT FUND - The sewer replacement fund is intended to provide funding for the more routine renewal and replacement type projects. Provided below in Table 3-2 is a summary of the sewer replacement fund. Development of the Revenue Requirements 18 City of Pleasanton – Comprehensive Local Wastewater Collection System Rate Study Table 3–2 Summary of the Sewer Replacement Fund ($000) FY 2015 FY 2016 FY 2107 FY 2018 FY 2019 FY 2020 Beginning Balance - $7,878 $3,533 $3,602 $4,419 $4,590 $5,281 Sources of Funds – Replacement New Bonds $0 $0 $0 $0 $0 $0 Rate Funded Capital 1,250 1,500 1,750 2,000 2,000 2,100 Other Revenue/Interest Income 12 9 11 17 26 29 Total Replacement Funds Avail. $9,140 $5,042 $5,363 $6,437 $6,616 $7,410 Replacement Capital Projects – Annual Main. Replac./Improv. $992 $514 $527 $921 $946 $1,142 EALS/EARS Pump Station 3,499 0 0 0 0 0 Other Planned Improvements 0 614 100 542 0 0 Other Replacement Projects 1,116 312 317 384 389 406 Total Replace. Capital Projects $5,607 $1,440 $944 $1,847 $1,335 $1,548 Transfer to Debt $0 $0 $0 $0 $0 $0 Ending Balance $3,533 $3,602 $4,419 $4,590 $5,281 $5,862 As can be seen in Table 3-2, there are a number of projects which vary from year-to-year. A more detailed listing of the capital projects may be found on Exhibit 4a of the Technical Appendices. While the total amount of project may vary from year to year, this sewer replacement funding plan has attempted to provide a consistent funding source for the replacement fund. In this case, the wastewater utility’s rates will annually fund an amount ranging from $1.25 million to $2.1 million. As a point of reference, the City’s annual depreciation expense is approximately $2.8 million. A desirable funding target for rate funded capital is an amount equal to or greater than annual depreciation expense. While this financial plan has not fully met that target funding level of rates, the level of funding has been increased to a more prudent level. However, even with this increased funding, depending upon the timing of replacement capital projects, additional funding from rates may be needed at some point in time to address the renewal and replacement of existing assets. SEWER EXPANSION FUND – The City also has certain expansion or capacity related projects. The City has an Expansion Fund to track and fund these projects. Provided below in Table 3-3 is a summary of the Sewer Expansion Fund and the expansion-related projects. Development of the Revenue Requirements 19 City of Pleasanton – Comprehensive Local Wastewater Collection System Rate Study Table 3–3 Summary of the Sewer Expansion Fund ($000) FY 2015 FY 2016 FY 2107 FY 2018 FY 2019 FY 2020 Beginning Balance - $2,171 $29 $31 $240 $350 $461 Sources of Funds – Expansion New Bonds $0 $0 $0 $0 $0 $0 Connection Fees 158 159 161 163 164 166 Other Revenue/Interest Income 0 100 100 1 2 3 Total Expansion Funds Avail. $2,329 $288 $292 $404 $516 $630 Expansion Capital Projects – Meadowlark Sewer Siphon $583 $205 $0 $0 $0 $0 EALS/EARS Pump Station 1,161 0 0 0 0 0 Del Valle Pkwy Nevada St. 482 0 0 0 0 0 Other Expansion Projects 75 51 53 54 56 57 Total Replace. Capital Projects $2,301 $257 $53 $54 $56 $57 Transfer to Debt $0 $0 $0 $0 $0 $0 Ending Balance $29 $31 $240 $350 $461 $572 As shown in Table 3-3, these expansion-related projects are primarily funded from connection fees and existing expansion fund reserves. None of these projects are funded from rate revenues. As a result, there is no impact to user rates from these SDC-funded capital projects. A more detailed exhibit of the expansion fund can be found on Exhibit 4b of the Technical Appendices. SUMMARY OF THE ANNUAL FUNDING OF CIP FROM RATES - From Tables 3-2and 3-3 a total annual funding of capital projects from rates can be determined. This is the amount which is included within City’s revenue requirement analysis. Provided below in Table 3-4 is a summary of the amount of rate funded capital for each year. Table 3–4 Summary of the Annual Rate Funded CIP ($000) FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 FY 2020 Replacement Capital Projects $1,250 $1,500 $1,750 $2,000 $2,000 $2,100 Expansion Capital Projects 0 0 0 0 0 0 Total CIP Funded From Rates $1,250 $1,500 $1,750 $2,000 $2,000 $2,100 Development of the Revenue Requirements 20 City of Pleasanton – Comprehensive Local Wastewater Collection System Rate Study “No new long-term debt issues are assumed over the projected five year period.” As noted previously, the City’s annual depreciation expense is approximately $2.9 million (2014). This financial plan has placed the City’s rate funding for CIP at $2.1 million by FY 2020. It is important to note and understand that depreciation expense is not the same as replacement cost. Thus, funding an amount which exceeds depreciation expense (i.e. $2.8 million) is both prudent and appropriate. In developing this financial plan, HDR and the City have attempted to minimize rate impacts while funding the planned capital improvement projects of the City. 3.3.5 Projection of Debt Service The City currently has a minor amount of outstanding debt and the remaining debt service payment is in FY 2015. No new long-term debt issues are assumed over the projected five year period. 3.3.6 Change in Working Capital The final component of the revenue requirements is change in working capital (reserves). The City has a maintenance and operations (M&O) fund and a replacement (R&I) fund. The revenue requirements developed during this time period assume no change in working capital or the use of these funds to mitigate the need for any rate adjustments. 3.3.7 Summary of the Revenue Requirements Given the above projections of revenues and expenses, a summary of the wastewater revenue requirement analysis for the City can be developed. In developing the revenue requirement analysis, consideration was given to the financial planning considerations of the City. In particular, emphasis was placed on attempting to minimize rates, yet still have adequate funds to support the operational activities and capital projects throughout the projected time period. Presented below in Table 3-5 is a summary of the City’s projected wastewater revenue requirement. Detailed exhibits of this analysis can be found in the Technical Appendices (Exhibits 1 – 5). Development of the Revenue Requirements 21 City of Pleasanton – Comprehensive Local Wastewater Collection System Rate Study Table 3–5 Summary of the City Revenue Requirement Analysis ($000) FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 FY 2020 Sources of Funds - Rate Revenues $3,895 $3,934 $3,973 $4,013 $4,053 $4,094 Misc. Revenues 168 170 172 179 186 187 Total Sources of Funds $4,062 $4,103 $4,145 $4,192 $4,239 $4,281 Applications of Funds – Operation & Maint. Exp. $2,593 $2,671 $2,751 $2,834 $2,919 $3,006 Total Transfers (CIP) 1,250 1,500 1,750 2,000 2,000 2,100 Net Debt Service 183 0 0 0 0 0 Change in Working Capital 36 120 (35) (213) (138) (165) Total Revenue Requirement $4,062 $4,291 $4,466 $4,621 $4,781 $4,941 Balance/(Defic.) of Funds $0 ($187) ($320) ($429) ($542) ($661) Defic. as a % of Rate Rev. 0.0% 4.7% 8.1% 10.7% 16.4% 16.1% Proposed Rate Adjustments - Annual CPI Adjustments [1] 0.0% 2.5% 2.5% 2.5% 2.5% 2.5% Other Rate Adjustments [2] 0.0% 3.0% 0.0% 0.0% 0.0% 0.0% Total Proposed Revenue Adjustment 0.0% 4.8% 2.5% 2.5% 2.5% 2.5% [1] – CPI adjustment effective July 1 of each year [2] – Rate Adjustment effective October 1, 2015 [3] – The FY 2016 revenue adjustment reflects the 2.5% CPI adjustment July 1, 2015 and the 3.0% rate adjustment effective October 1, 2015 for an annual revenue increase of 4.8% and rate adjustment of 5.5% As can be seen, the revenue requirement has summed the O&M, transfers (i.e., rate funded capital), net debt service and the change in working capital. The total revenue requirement is then compared to the total sources of funds which includes the rate revenues, at present rate levels, and other miscellaneous revenues. From this comparison a balance or deficiency of funds in each year can be determined. This balance or deficiency of funds is then compared to the rate revenues to determine the level of rate adjustment needed to meet the revenue requirement. It is important to note the “Balance/(Deficiency) of Funds” row is cumulative. That is, any adjustments in the initial years will reduce the deficiency in the later years. Over this project time period, the total deficiency of rates is 20.1%. $2,593 $1,250 $183 FY 2015 Revenue Requirements ($000) O&M Expenses Total Transfers (CIP) Net Debt Service Development of the Revenue Requirements 22 City of Pleasanton – Comprehensive Local Wastewater Collection System Rate Study “Cumulatively, the residential bill is projected to go from $24.46/bi-month to $27.81/bi-month, or a total change of $3.35/bi- month, transitioned over a five-year period. ” The revenue requirements developed in Table 3-5 has been developed to meet financial planning objectives of the City. More specifically, the City desires to adequately and prudently fund their wastewater operating and capital needs. In doing so, any needed rate adjustments should avoid large adjustments in any single year. Table 3-5 has also included a set of proposed rate adjustments (blue band) which are sufficient to meet the total revenue requirements over the projected time period. The proposed rate adjustments are a function of assumed inflation over this time period, coupled with the need to increase the capital improvement funding from rates (renewal and replacement funding). 3.3.8 Rate Adjustments / Rate Transition As a part of the financial plan developed for City, consideration was given to the smooth transition of rates over time to the needed level of rate revenues. Presented below in Table 3-6 is a summary of the rate transition plan and rate impacts. Table 3-6 Summary of the City Rate Transition Plan and Residential Bill Impacts [1] Present Rates [2] FY 2016 FY 2017 FY 2018 FY 2019 FY 2020 Bi-Monthly Residential Bill - $24.46 Proposed Rate Adjustment [3] 3.0% 2.5% 2.5% 2.5% 2.5% Mthly Bill After Rate Adj. [4] $25.19 $25.82 $26.47 $27.13 $27.81 $ Change/Bi-Month $0.73 $0.63 $0.65 $0.66 $0.68 Cumulative Bi-Mthly Change $0.73 $1.36 $2.01 $2.67 $3.35 [1] – Bi-Monthly bill reflects only the local collection system portion of a customer’s wastewater bill [2] – The City has previously adopted a CIP adjustment effective July 1, 2015 [3] – The FY 2016 rate adjustment is effective October 1, 2015. CPI adjustment is effective July 1, 2015 of each year [4] – Bi-Monthly (i.e. 2 month) bill reflects only the local collection system portion of a customer’s wastewater bill The financial plan shown above has indicated the need for annual rate adjustments which exceed inflationary levels. An important question to be addressed is what the impacts to customers may be as a result of the proposed rate adjustments over this five year period. Table 3-6 illustrates the impact to a typical bi-monthly residential bill as a result of the proposed adjustments. As can be seen, the current bi-monthly residential bill is $24.46/bi-month. With the proposed adjustments, the impacts will be approximately $0.73/bi- month annual adjustments. Cumulatively, the residential bill is projected to go from $24.46/bi- month to $27.81/bi-month, or a total change of $3.35/bi-month, transitioned over a five-year period. Development of the Revenue Requirements 23 City of Pleasanton – Comprehensive Local Wastewater Collection System Rate Study 3.4 Consultant’s Conclusions Based on the revenue requirement analysis developed herein, HDR has concluded that the City will need to adjust their rates over the next five years (FY 2016 – FY 2020). HDR has reached this conclusion for the following reasons: • Rate adjustments are necessary to fund the City’s capital improvement needs, of which a large portion is driven by the need to adequately fund renewal and replacement projects. • Rate adjustments are necessary to fund the City’s replacement capital projects on a “pay-as-you-go” basis and avoid the need for the issuance of any long-term debt. • The proposed rate adjustments maintain the City’s strong financial health and provide long-term sustainable funding levels for the City. In reaching this conclusion, HDR would recommend that the City adopt the proposed rates through FY 2020 in order to provide surety as to the availability of funding for the capital improvement program. 3.5 Summary This section of the report has provided a discussion of the City’s wastewater revenue requirement analysis. The revenue requirement analysis developed a financial plan to support the City’s operating and capital needs. The next section will discuss the cost of service analysis developed for City’s wastewater system. Development of the Revenue Requirements 24 City of Pleasanton – Comprehensive Local Wastewater Collection System Rate Study 4.1 Introduction In the previous section, the revenue requirement analysis focused on the total sources and application of funds required to adequately fund the City’s local wastewater collection system. This section will provide an overview of the cost of service analysis developed for the City. A cost of service analysis is concerned with the equitable allocation of the total revenue requirement between the various customer classes of service (e.g., residential and commercial). The previously developed revenue requirement was utilized in the development of the cost of service analysis. 4.2 Objectives of a Cost of Service Study There are two primary objectives in conducting a wastewater cost of service study: • Allocate the City’s revenue requirement among the customer classes of service, and • Derive average unit costs for subsequent rate designs The objectives of the cost of service analysis are different from determining a revenue requirement. As noted in the previous section, a revenue requirement analysis determines the utility’s overall financial needs, while the cost of service analysis determines the fair and equitable manner to collect the revenue requirement. The second rationale for conducting a cost of service analysis is to ensure that proposed rates are designed such that it properly reflects the costs incurred by the City. For example, a wastewater utility typically incurs costs related to flow (volume), strength, and customer cost components. Each of these types of costs may be collected in a slightly different manner as to allow for the development of rates that collect costs in the same manner as they are incurred. 4.3 Determining the Customer Classes of Service The first step in a cost of service analysis is to determine the customer classes of service. Based on the current rates the classes of service used within the cost of service analysis were: Residential Commercial Institutional Industrial/Demand Residential customers include single-family residences, townhouses, condominiums and multi- family. These customers pay a flat monthly rate while all other non-residential customers pay a volumetric charge with a minimum bill associated with it. In determining classes of service for cost of service purposes, the objective is to group customers together into similar or homogeneous groups based upon facility requirements 4. Development of the Cost of Service Analysis Development of the Cost of Service 25 City of Pleasanton – Comprehensive Local Wastewater Collection System Rate Study Development of the Cost of Service 26 City of Pleasanton – Comprehensive Local Wastewater Collection System Rate Study Terminology of a Wastewater Cost of Service Analysis Functionalization – The arrangement of the cost data by functional category (e.g. collection, pumping, etc.). Classification – The assignment of functionalized costs to cost components (e.g. volume, strength, and customer related). Allocation – Allocating the classified costs to each class of service based upon each class’s proportional contribution to that specific cost component. Volume Costs – Costs that are classified as volume related vary with the total flow of wastewater (e.g. power for pumping). Strength Costs – Costs classified as strength related refer to the wastewater treatment function. Typically, strength‐related costs are further defined as biochemical oxygen demand (BOD) and suspended solids (SS). Different types of customers may have high wastewater strength characteristics and high strength wastewater costs more to treat. Treatment facilities are often designed and sized around meeting these costs. Customer Costs – Costs classified as customer related vary with the number of customers on the system, e.g. billing costs. Direct Assignment – Costs that can be clearly identified as belonging to a specific customer group or group of customers. and/or flow characteristics. HDR reviewed the current customer classes of service used by the City and found them consistent with typical industry practices. 4.4 General Cost of Service Procedures In order to determine the cost to serve each customer class of service on the City’s system, a cost of service analysis is conducted. A cost of service study utilizes a three‐step approach to review costs. These steps take the form of functionalization, classification, and allocation. Provided below is a detailed discussion of the wastewater cost of service study conducted for the City, and the specific steps taken within the analysis. 4.4.1 Functionalization of Costs The first analytical step in the cost of service process is called functionalization. Functionalization is the arrangement of expenses and asset (plant) data by major operating functions (e.g., collection, pumping, etc.) Within this study, there was a limited amount of functionalization of the cost data. 4.4.2 Classification of Costs The second analytical task performed in a wastewater cost of service study is the classification of the costs. Classification determines why the expenses were incurred or what type of need is being met. The following cost classifiers were used to develop the cost of service analysis: Volume Related Costs: Volume related costs are those costs which tend to vary with the total quantity of wastewater collected and treated. Strength Related Costs: Strength related costs are those costs associated with the additional handling and treatment of high “strength” wastewater. Strength of wastewater is typically measured in biochemical oxygen demand (BOD) and total suspended solids (SS). Increased levels of BOD or SS generally equate to increased treatment costs. Customer Related Costs: Customer‐related costs vary with the addition or deletion of a customer or a cost which is a function of the number of customers served. Customer related costs typically include the costs of billing, collecting, and accounting. Revenue Related Costs: Some costs associated with the utility may vary with the amount of revenue received by the utility. An example of a revenue related cost would be a utility tax which is based on gross utility revenue. 4.4.3 Development of Allocation Factors Once the classification process is complete, and the customer groups have been defined, the various classified costs were allocated to each customer group. The City’s classified costs were allocated to the various customer groups using the following allocation factors. Volume Allocation Factor: Volume-related costs are generally allocated on the basis of contribution to wastewater flows. Wastewater flows were calculated based on flow estimates for the residential customers and volumetric billing information of the commercial customers. Strength Allocation Factor: Strength-related costs are classified between biochemical oxygen demand (BOD) and suspended solids (SS). Both of these types of costs are allocated to the various classes of service based upon the assumed domestic strength level of 200 mg/l for BOD and SS. Customer Allocation Factor: Customer costs within the cost of service analysis are allocated to the various customer classes of service based upon their respective customer counts. Two types of customer allocation factors were developed; actual and weighted. The actual customer allocation factor assumes that there is no disproportionate cost associated with serving a customer (e.g. postage for bills is the same regardless of the size or usage of the customer). In contrast, a weighted customer allocation factor assumes that there is some disproportionality associated with serving different types of customers and attempts to estimate the level of difference in serving the customers. Revenue Related Allocation Factor: The revenue related allocation factor was developed from the projected rate revenues for FY 2016. 4.5 Summary of the Cost of Service Analysis In summary form, the cost of service analysis began by functionalizing the City’s plant asset records and operating expenses. The functionalized plant and expense accounts were then classified into their various cost components. The individual classification totals were then allocated to the various customer groups based on the appropriate allocation factors. The allocated expenses for each customer group were then aggregated to determine each customer group’s overall revenue responsibility. Development of the Cost of Service 27 City of Pleasanton – Comprehensive Local Wastewater Collection System Rate Study Table 4–1 Summary of the Cost of Service Analysis ($000s) Class of Service Present 2016 Rate Revenues Allocated Costs $ Difference % Difference Residential $3,175 $3,386 ($211) 6.6% Commercial 711 681 30 -4.2% Institutional 11 12 ($1) 12.3% Industrial/Demand 37 42 ($5) 12.2% Total $3,934 $4,121 ($187) 4.8% The cost of service study attempted to align the operating and capital costs to each customer class with their respective benefit (proportional allocation). Given the range of assumptions that may be used in a cost of service analysis, a general “guideline” that may be considered when viewing a cost of service analysis is if a class is within +/- 5% of the overall required adjustment the class, than it may be considered as being within a “reasonable range” of paying its “fair share”.3 It is important to understand that a cost of service analysis is based on one year’s data and corresponding customer information. Total flow and the costs incurred by the utility will change from year to year. As such, it is appropriate to determine whether these findings are consistent over time, and adjust accordingly. 4.6 Consultant’s Conclusions and Recommendations While some minor cost differences exist, the overall allocation of costs between customers generally appears to be reasonable. In reaching this conclusion, one of variables which may impact cost allocations is the trend of declining per capita consumption for residential customers, along with the current drought conditions with California and the Bay Area. These conditions certainly have an impact upon consumptive use and cost allocations. Given the changing usage patterns and current drought, HDR believes the focus of this study should be on the overall rate adjustment needs based on the City’s need to fund capital improvement projects over the next few years. As the City continues to monitor rates and cost of service results through future studies, cost of service adjustments may be made as the results are driven by customer consumption. Given that, no adjustments in the cost relationships between the customer classes of service are recommended at this time. As a result, the overall proposed revenue/rate adjustments will be applied equally across all customer groups. 3 In this study, the overall deficiency for FY 2016 is -0.6%. Using this guideline, a class of service may be considered within the range of reasonableness if their adjustment is in the range of −5.6% to + 4.4%. Development of the Cost of Service 28 City of Pleasanton – Comprehensive Local Wastewater Collection System Rate Study 4.7 Summary This section of the report has provided a summary of the cost of service analysis developed for the City. This analysis was prepared using generally accepted cost of service techniques. The next section of the report will review the present and proposed wastewater collection rates for the City. Development of the Cost of Service 29 City of Pleasanton – Comprehensive Local Wastewater Collection System Rate Study 5.1 Introduction The final step of the City’s comprehensive local wastewater rate study is the design of rates to collect the desired levels of revenues, based on the results of the prior analyses. In reviewing City’s rates, consideration is given to the level of the rates and the structure of the rates. 5.2 Rate Design Criteria and Considerations Prudent rate administration dictates that several criteria must be considered when setting utility rates. Some of these rate design criteria are listed below: • Rates which are easy to understand from the customer’s perspective • Rates which are easy for the utility to administer • Consideration of the customer’s ability to pay • Continuity, over time, of the rate making philosophy • Policy considerations (encourage efficient use, economic development, etc.) • Provide revenue stability from month to month and year to year • Promote efficient allocation of the resource • Equitable and non-discriminatory (cost-based) Many contemporary rate economists and regulatory agencies recognize the last consideration, equitable and cost-based rates should be of paramount importance and provide the primary guidance to utilities on rate structure and policy. It is important that the City provide its customers with a proper price signal as to what their usage or volumetric contributions are costing. This goal may be approached through rate level and structure. When developing the proposed rate designs, all the above listed criteria were taken into consideration. However, it should be noted that it is difficult, if not impossible, to design a rate that meets all the goals and objectives listed above. For example, it may be difficult to design a rate that takes into consideration the customer’s ability to pay, and one which is cost-based. In designing rates, there are always trade-offs between these various goals and objectives. 5.3 Summary of the Prior Recommendations The revenue requirement analysis was used to determine the adequate and prudent level of funding needed to operate the wastewater collection system of the City. The revenue requirement reviewed the time period of FY 2015 – FY 2020. The results of the revenue requirement analysis indicated the need for annual rate adjustments for FY’s 2016 – FY 2020. The proposed rates to be developed in this section of the report will assume these adjustments for each of the fiscal years reviewed. 5. Development of the Rate Designs Development of the Rate Designs 30 City of Pleasanton – Comprehensive Local Wastewater Collection System Rate Study “In summary, for purposes of designing and proposing rates, all rates will be adjusted equally and all customers will receive equal percentage rate adjustments.” The cost of service analysis indicated some cost differences, but it was concluded that it would be prudent at this time to not make any interclass adjustments. Given that, the rates all customers should be increased equally (i.e. receive equal percentage rate adjustments). 5.4 Review of the City’s Present and Proposed Residential Rates Provided below in Table 6-1 is a summary of the City’s present residential wastewater collection rates. As noted previously, the City also charges for wastewater treatment, and those rates are established by the regional wastewater treatment provider (DSRSD). Residential customers are charged on a flat dwelling unit basis and residential is segregated by single-family, townhouses, condominiums and multi-family. The rates shown in Table 5-1 are bi-monthly rates (i.e. the charge for a 2-month period). Table 5–1 Summary of the Present Residential Wastewater Local Collection Rates Rate Description Present Rate [1] Single-Family ($/Bi-Month/Dwelling Unit) Single-Family Residential $24.46/Bi-Month/D.U. 2nd Unit 12.80 Senior Discount 19.57 Low-Income Discount 17.12 2nd Unit Senior Discount 10.24 2nd Unit Low-Income Discount 8.96 Single-Family Residential – Ruby Hill 4.32 Senior Discount – Ruby Hill 3.46 Low-Income Discount – Ruby Hill 3.02 Townhouse ($/Bi-Month/Dwelling Unit) $24.46/Bi-Month/D.U. Condominiums ($/Bi-Month/Dwelling Unit) Condominium $16.79/Bi-Month/D.U. Senior Discount 13.43 Low-Income Discount 11.75 Multi-Family ($/Bi-Month/Dwelling Unit) Base Charge $12.80/Bi-Month/D.U. Senior Discount 10.24 Low-Income Discount 8.96 [1] –Local wastewater collection rates effective July 1, 2015 As can be seen in Table 5-1, the City also has rates for a senior discount and a low-income discount. Provided below in Table 5-2 is a summary of proposed residential wastewater local Development of the Rate Designs 31 City of Pleasanton – Comprehensive Local Wastewater Collection System Rate Study collection rates by customer type and fiscal year. The rates in Table 5-2 are stated as bi- monthly rates. Table 5–2 Summary of the Proposed Residential Wastewater Local Collection Rates Present Rates FY 2016 Oct. 1, 2015 FY 2017 July 1 2016 FY 2018 July 1 2017 FY 2019 July 1, 2018 FY 2020 July 1, 2019 Proposed Rate Adjustment 3.0% 2.5% 2.5% 2.5% 2.5% Single Family ($/Bi-Month/D.U.) Single-Family Residential $24.46 $25.19 $25.82 $26.47 $27.13 $27.81 2nd Unit 12.80 13.09 13.42 13.76 14.10 14.45 Senior Discount 19.57 21.41 21.95 22.50 23.06 23.64 Low-Income Discount 17.12 17.63 18.07 18.53 18.99 19.47 2nd Unit Senior Discount 10.24 11.13 11.41 11.70 11.99 12.28 2nd Unit Low-Income Discount 8.96 9.16 9.39 9.63 9.87 10.12 S.F. Residential – Ruby Hill 4.32 12.60 25.82 26.47 27.13 27.81 Senior Discount – Ruby Hill 3.46 10.71 21.95 22.50 23.06 23.64 Low-Income Discount – Ruby Hill 3.02 8.82 18.07 18.53 18.99 19.47 Townhouse ($/Bi-Month/D.U.) $24.46 $25.19 $25.82 $26.47 $27.13 $27.81 Condominium ($/Bi-Month/D.U.) Condominium $16.79 $17.17 $17.60 $18.04 $18.49 $18.95 Senior Discount 13.43 14.59 14.96 15.33 15.72 16.11 Low-Income Discount 11.75 12.02 12.32 12.63 12.94 13.27 Multi-Family ($/Bi-Month/D.U.) Base Charge $12.80 $13.18 $13.51 $13.85 $14.20 $14.56 Senior Discount 10.24 11.20 11.48 11.77 12.07 12.38 Low-Income Discount 8.96 9.23 9.46 9.70 9.94 10.19 As can be seen, the level of the rate adjustments shown in Table 5-2 is based upon the findings and conclusions from the revenue requirement study. The annual adjustments have been applied equally to all classes of service based upon the findings and conclusions from the cost of service analysis. The exception to this is the senior discount rates. The audit committee recommended that the senior discount be reduced from 20% to 15% which has been reflected in the proposed rates. Ruby Hill Currently, the customers that the City serves in the Ruby Hill area pay an administration fee. The City of Livermore, by contract, provides sewage treatment services to the Ruby Hill area. Livermore does not provide, however, the collection system services to this area. Instead, the City of Pleasanton is responsible for operating and maintaining the local collection system within the Ruby Hill area. To date, the City has not charged for these services and must in order to have fair and equitable rates among all customers in the utility. Starting in FY 2015, on October 1, the customers will begin to transition to paying the full single family residential rate over a two year period. Development of the Rate Designs 32 City of Pleasanton – Comprehensive Local Wastewater Collection System Rate Study Transitioning Sewer Billing to the Property Tax Roll The City has been reviewing the possibility of moving the residential customers’ sewer charges to the annual property tax bill. At this time the City has not determined the timing of moving towards billing the sewer charges on the property tax bill. However, the City is planning on transitioning to this method by the end of the five-year rate transition period. One advantage of placing the sewer bill on the property tax roll is that City staff will update the rates one time per year and minimize the City’s overall costs for bi-monthly billing, customer service related to billing questions, and mailing expenses. In addition, by placing the bill on the property tax rolls, the City will receive payments for the entire customer base and minimize the impacts of late payments and delinquent accounts. A disadvantage of this method is the City will receive revenues only two times per year. This may result in the need to increase the minimum reserve fund levels to deal with any unforeseen cost impacts between the payments from the County. 5.5 Review of the City’s Present and Proposed Commercial Rates Provided below in Table 5-3 is a summary of the City’s present commercial wastewater collection rates. Similar to the residential rates, in addition to these local collection rates, the City also charges for wastewater treatment, and those rates are established by the regional wastewater treatment provider (DSRSD) and passed directly through to customers. In contrast to the residential rates, the commercial rates are charged on a volumetric basis. The rate is comprised of a fixed charge (minimum bill) and a consumption (volumetric) charge. The volumetric charge is applied only for usage over and above 5 CCF. The consumption charges vary by the type of commercial customer. The rates shown below in Table 5-3 are bi- monthly rates (i.e. the charge for a 2-month period). Table 5–3 Summary of the Present Commercial Wastewater Local Collection Rates Rate Description Present Rate [1] Commercial Fixed Charge - Minimum Bill ($/Bi-Month/Acct.) $12.80/Bi-Month/Acct. Consumption Charge ($/CCF) First 5 Hundred Cubic Feet (CCF) $0.000/CCF Over 5 Hundred Cubic Feet (CCF) Auto Steam Cleaning $1.375/CCF Bakery 1.365 Commercial Laundry 1.375 Grocery w/ Garbage Disposal 1.320 Mortuary 1.600 Restaurants – Fast Food 1.285 Restaurants – Full Service 1.285 All Other 1.161 [1] –Local wastewater collection rates effective July 1, 2015 Development of the Rate Designs 33 City of Pleasanton – Comprehensive Local Wastewater Collection System Rate Study As can be seen, the consumption charges are differentiated by customer type. The vast majority of the City’s commercial customers are charged the “All Other” commercial rate. The other large commercial category for the City is the full service restaurants. Provided below in Table 5-4 are the proposed commercial wastewater rates. Table 5–4 Summary of the Proposed Commercial Wastewater Local Collection Rates Present Rates FY 2016 Oct. 1, 2015 FY 2017 July 1 2016 FY 2018 July 1 2017 FY 2019 July 1, 2018 FY 2020 July 1, 2019 Proposed Rate Adjustment 3.0% 2.5% 2.5% 2.5% 2.5% Commercial Fixed Charge – Min. Bill ($/Bi-Month/Acct.) $12.80 $13.18 $13.51 $13.85 $14.20 $14.56 Consumption Charge ($/CCF) First 5 CCF $0.000 $0.000 $0.000 $0.000 $0.000 $0.000 Over 5CCF Auto Steam Cleaning $1.375 $1.416 $1.451 $1.487 $1.524 $1.562 Bakery 1.365 1.406 1.441 1.477 1.514 1.552 Commercial Laundry 1.375 1.416 1.451 1.487 1.524 1.562 Grocery w/ Garbage Disposal 1.320 1.360 1.394 1.429 1.465 1.502 Mortuary 1.600 1.648 1.689 1.731 1.774 1.818 Restaurants – Fast Food 1.285 1.324 1.357 1.391 1.426 1.462 Restaurants – Full Service 1.285 1.324 1.357 1.391 1.426 1.462 All Other 1.161 1.196 1.226 1.257 1.288 1.320 Similar to residential rate designs, the rate adjustments shown in Table 5-4 are based upon the findings and conclusions from the revenue requirement study. The annual adjustments have been applied equally to all classes of service based upon the findings and conclusions from the cost of service analysis. 5.6 Review of the City’s Present and Proposed Industrial Rates Industrial customers are billed through the regional wastewater provider and passed through to the customers including the City’s local wastewater rates. The summary of the present local collection system rates is provided below in Table 5-5. Development of the Rate Designs 34 City of Pleasanton – Comprehensive Local Wastewater Collection System Rate Study Table 5–5 Summary of the Present Industrial Wastewater Local Collection Rates Rate Description Present Rate [1] Industrial Fixed Charge - Minimum Bill ($/Bi-Month/Acct.) $2.77/Bi-Month/Acct. Annual Loadings ($/MG) 124.95/MG Peak Monthly Loading ($/MGD) 80,799.19/MGD [1] –Local wastewater collection rates effective July 1, 2015 Presented below in Table 5-6 is a summary of the proposed industrial wastewater rates. Table 5–6 Summary of the Proposed Commercial Wastewater Local Collection Rates Present Rates FY 2016 Oct. 1, 2015 FY 2017 July 1 2016 FY 2018 July 1 2017 FY 2019 July 1, 2018 FY 2020 July 1, 2019 Proposed Rate Adjustment 3.0% 2.5% 2.5% 2.5% 2.5% Industrial Fixed Charge - Minimum Bill ($/Bi-Month/Acct.) $2.77 $2.85 $2.92 $2.99 $3.06 $3.14 Annual Loadings ($/MG) 124.98 128.73 131.95 135.25 138.63 142.10 Peak Monthly Loading ($/MGD) 80,822.84 83,247.53 85,328.72 87,461.94 89,648.49 91,889.70 5.7 Summary of the Local Wastewater Collection Rate Study This completes the analysis for the City’s local wastewater collection utility. This study has provided a comprehensive review of the City’s local wastewater collection rates. Adoption of the proposed rates will allow the City to meet their current and projected local wastewater collection system financial obligations and major capital projects for the time period reviewed. Development of the Rate Designs 35 City of Pleasanton – Comprehensive Local Wastewater Collection System Rate Study Technical Appendix FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 FY 2020 Revenues Rate Revenues $3,894,900 $3,933,849 $3,973,188 $4,012,920 $4,053,049 $4,093,579Miscellaneous Revenues 167,597 170,038 172,133 178,939 185,633 187,127 ---------------- ---------------- ---------------- ---------------- ---------------- ---------------- Total Revenues $4,062,497 $4,103,887 $4,145,321 $4,191,859 $4,238,682 $4,280,706 Expenses Total Sewer O&M $2,593,187 $2,670,983 $2,751,112 $2,833,645 $2,918,655 $3,006,214 Total Transfers 1,250,000 1,500,000 1,750,000 2,000,000 2,000,000 2,100,000 Net Debt Service 183,150 0 0 0 0 0Total Change in Working Capital 36,160 119,762 (35,453) (212,843) (137,622) (164,771) Total Expenses $4,062,497 $4,290,745 $4,465,659 $4,620,802 $4,781,032 $4,941,444 Bal/(Def) of Funds $0 ($186,858)($320,338)($428,943)($542,350)($660,737) Balance as a % of Rate Revenues 0.0%4.7%8.1%10.7%13.4%16.1% Annual CPI Increases 0.0%2.5%2.5%2.5%2.5%2.5% Proposed Rate Adjustment 0.0%3.0%0.0%0.0%0.0%0.0% Total Proposed Rate Adjustment 0.0%4.8%2.5%2.5%2.5%2.5% Additional Revenue from Adjustment $0 $186,858 $320,338 $428,943 $542,350 $660,737 Total Balance/(Deficiency) of Funds $0 $0 $0 ($0)$0 $0 Additional Rate Increase Needed 0.0%0.0%0.0%0.0%0.0%0.0% Average Residential Local Bi-Monthly ImpactAfter Proposed Rate Adjustment $24.46 [1]$25.19 $25.82 $26.47 $27.13 $27.81 Annual $ Change $0.60 $0.73 $0.63 $0.65 $0.66 $0.68 Debt Service Coverage RatioBefore Rate Adjustment 8.02 0.00 0.00 0.00 0.00 0.00 After Proposed Rate Adjustment 8.02 0.00 0.00 0.00 0.00 0.00 Sewer M&O Fund Beginning Cash Reserve Balance $4,180,740 $4,216,900 $4,336,663 $4,301,210 $4,088,366 $3,950,744Plus: To Operating Reserves 36,160 119,762 0 0 0 0 Less: Uses of Funds 0 0 (35,453) (212,843) (137,622) (164,771) Transfer to RI Fund 0 0 0 0 0 0Ending Balance $4,216,900 $4,336,663 $4,301,210 $4,088,366 $3,950,744 $3,785,973 Target Minimum - 180 Days of O&M $1,278,832 $1,317,197 $1,356,713 $1,397,414 $1,439,337 $1,482,517 Revenue Requirement Summary Exhibit 1 Sewer Cost of Service StudyCity of Pleasanton 1 of 24 City of Pleasanton Sewer Cost of Service Study Exhibit 2 Escalation Factors Budget FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 FY 2020 Revenues: Customer Growth Budget 1.0% 1.0% 1.0% 1.0% 1.0% Flat 0.0%0.0% 0.0% 0.0% 0.0% 0.0% Miscellaneous Revenues 1.0%1.0% 1.0% 1.0% 1.0% 1.0% Expenses: Labor Budget 3.0% 3.0% 3.0% 3.0% 3.0% Benefits Budget 3.5% 3.5% 3.5% 3.5% 3.5% Materials & Supplies Budget 2.5% 2.5% 2.5% 2.5% 2.5% Equipment Budget 3.5% 3.5% 3.5% 3.5% 3.5% Miscellaneous Budget 2.0% 2.0% 2.0% 2.0% 2.0% Utilities Budget 4.0% 4.0% 4.0% 4.0% 4.0% Growth:Budget 1.0% 1.0% 1.0% 1.0% 1.0% Interest Earnings:0.5%0.5% 0.5% 0.8% 1.0% 1.0% Revenue Bond Term in Years 20 20 20 20 20 20 Interest Rate 5.0%5.0% 5.0% 5.0% 5.0% 5.0% Projected 2 of 24 City of Pleasanton Sewer Cost of Service Study Exhibit 3 Revenue Requirement Page 1 of 3 Budget FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 FY 2020 RevenuesRate Revenues Residential $3,143,890 $3,175,329 $3,207,082 $3,239,153 $3,271,544 $3,304,260 As Customer Growth Commercial 703,925 710,964 718,074 725,254 732,507 739,832 As Customer Growth Institutional 10,398 10,502 10,607 10,713 10,820 10,928 As Customer Growth Industrial/Demand 36,688 37,054 37,425 37,799 38,177 38,559 As Customer Growth ------------ ------------ ------------ ------------ ------------ ------------ Total Rate Revenues $3,894,900 $3,933,849 $3,973,188 $4,012,920 $4,053,049 $4,093,579 Miscellaneous Revenues Miscellaneous Revenues $0 $0 $0 $0 $0 $0 As Miscellaneous Revenues Traffic Marking 0 0 0 0 0 0 As Miscellaneous RevenuesInterest Income 10,542 10,842 10,753 15,331 19,754 18,930 Calculated Interfund Sales 50,000 50,000 50,000 50,000 50,000 50,000 As Flat In - Benefit Surplus / Implied Subsidy 17,055 17,396 17,744 18,099 18,461 18,830 As Miscellaneous In - General Fund for Senior Low Income Discount 90,000 91,800 93,636 95,509 97,419 99,367 As Miscellaneous ------------ ------------ ------------ ------------ ------------ ------------ Total Miscellaneous Revenues $167,597 $170,038 $172,133 $178,939 $185,633 $187,127 Total Revenue $4,062,497 $4,103,887 $4,145,321 $4,191,859 $4,238,682 $4,280,706 Expenses Sewer O&M $2,593,187 $2,670,983 $2,751,112 $2,833,645 $2,918,655 $3,006,214 As Labor ------------ ------------ ------------ ------------ ------------ ------------ Total Expenses $2,593,187 $2,670,983 $2,751,112 $2,833,645 $2,918,655 $3,006,214 Total Sewer O&M $2,593,187 $2,670,983 2,751,112$ $2,833,645 $2,918,655 $3,006,214 Transfers In $0 $0 $0 $0 $0 $0 As Miscellaneous Out 0 0 0 0 0 0 As Miscellaneous Rate Funded Capital - To R&R Fund 1,250,000 1,500,000 1,750,000 2,000,000 2,000,000 2,100,000 FY 2014 Depreciation = $2,861,846 ------------ ------------ ------------ ------------ ------------ ------------ Total Transfers $1,250,000 $1,500,000 $1,750,000 $2,000,000 $2,000,000 $2,100,000 Notes Projected 3 of 24 City of Pleasanton Sewer Cost of Service Study Exhibit 3 Revenue Requirement Page 2 of 3 Budget FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 FY 2020 Notes Projected Debt Service Existing Debt $183,150 $0 $0 $0 $0 $0 Assumed New Debt - R&I Fund 0 0 0 0 0 0 Calculated @ 5% for 20 yrs Assumed New Debt - Expansion Fund 0 0 0 0 0 0 Calculated @ 5% for 20 yrs ------------ ------------ ------------ ------------ ------------ ------------ Total Debt Service $183,150 $0 $0 $0 $0 $0 Less: Other Funding Bond Reserves $0 $0 $0 $0 $0 $0 From Expansion Fund 0 0 0 0 0 0 From R&I Fund 0 0 0 0 0 0------------ ------------ ------------ ------------ ------------ ------------Total Less Other Funds $0 $0 $0 $0 $0 $0 Net Debt Service $183,150 $0 $0 $0 $0 $0 Change in Working Capital To/(From) M&O Fund $36,160 $119,762 ($35,453) ($212,843) ($137,622) ($164,771) To/(From) R&I Fund 0 0 0 0 0 0 ------------ ------------ ------------ ------------ ------------ ------------ Total Change in Working Capital $36,160 $119,762 ($35,453)($212,843)($137,622)($164,771) TOTAL REVENUE REQUIREMENTS $4,062,497 $4,290,745 $4,465,659 $4,620,802 $4,781,032 $4,941,444 Bal/(Def) of Funds $0 ($186,858)($320,338)($428,943)($542,350)($660,737) Balance as a % of Rate Revenues 0.0%4.7%8.1%10.7%13.4%16.1% Annual CPI Increases 0.0%2.5%2.5%2.5%2.5%2.5% Months of Adjustment 12 12 12 12 12 12 Add'l Revenue with CPI Adj.$0 $98,346 $201,143 $308,556 $420,759 $537,930 Bal/(Def) After CIP Adj.$0 ($88,512)($119,196)($120,388)($121,591)($122,807) Add'l Rate Adj. Required 0.0%2.2% 2.9% 2.8% 2.7% 2.7% 4 of 24 City of Pleasanton Sewer Cost of Service Study Exhibit 3 Revenue Requirement Page 3 of 3 Budget FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 FY 2020 Notes Projected Proposed Rate Adjustment 0.0%3.0%0.0%0.0%0.0%0.0% Months of Adjustment 12 9 12 12 12 12 Additional Revenue from Adjustment $0 $88,512 $119,196 $120,388 $121,591 $122,807 Total Balance/(Deficiency) of Funds $0 ($0)$0 ($0)$0 $0 Total Proposed Rate Adjustment 0.0%4.8%2.5%2.5%2.5%2.5% Total Additional Revenue $0 $186,858 $320,338 $428,943 $542,350 $660,737 Total Bal/(Def) of Funds After Adj.$0 $0 $0 ($0)$0 $0 Additional Rate Increase Needed 0.0%0.0%0.0%0.0%0.0%0.0% Average Residential Local Bi-Monthly Impact After Proposed Rate Adjustment $24.46 [1] $25.19 $25.82 $26.47 $27.13 $27.81 Annual $ Change $0.60 $0.73 $0.63 $0.65 $0.66 $0.68 [1] - As of July 1, 2015 Debt Service Coverage Ratio Before Rate Adjustment 8.02 0.00 0.00 0.00 0.00 0.00 After Proposed Rate Adjustment 8.02 0.00 0.00 0.00 0.00 0.00 Sewer M&O Fund Beginning Cash Reserve Balance $4,180,740 $4,216,900 $4,336,663 $4,301,210 $4,088,366 $3,950,744 Plus: To Operating Reserves 36,160 119,762 0 0 0 0 Less: Uses of Funds 0 0 (35,453) (212,843) (137,622) (164,771) Transfer to RI Fund 0 0 0 0 0 0 Ending Balance $4,216,900 $4,336,663 $4,301,210 $4,088,366 $3,950,744 $3,785,973 Target Minimum - 180 Days of O&M $1,278,832 $1,317,197 $1,356,713 $1,397,414 $1,439,337 $1,482,517 5 of 24 City of Pleasanton Inflation 2.7% Sewer Cost of Service Study Exhibit 4a Sewer Replacement Fund FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 FY 2020 Beginning Balance $7,877,828 $3,533,483 $3,602,231 $4,419,469 $4,589,749 $5,281,079 Sources of Funds - Replacement New Bond Proceeds $0 $0 $0 $0 $0 $0 Vineyard Corridor Specific Plan Fee 0 0 0 0 0 0 Rate Funded Capital 1,250,000 1,500,000 1,750,000 2,000,000 2,000,000 2,100,000 Transfer from M&O Fund 0 0 0 0 0 0 Other Revenues (FEMA Grant & Others)3,832 0 0 0 0 0 Interest Income 8,812 8,983 11,021 17,147 26,274 29,165 ----------------- ----------------- ----------------- ----------------- ----------------- ----------------- Total Replacement Funds Available $9,140,472 $5,042,466 $5,363,252 $6,436,616 $6,616,023 $7,410,244 Replacement Capital Projects Sanitary Sewer Pump Station S-5 $20,000 $0 $0 $0 $0 $0 Bi-Annual Sewer Maintenance Hole Improvements 0 30,810 0 32,496 0 34,275 Bi-Annual Sewer Electrical Panel Improvements 55,788 0 52,736 0 55,623 0 Annual Sewer Main Replacement/Improvements 991,716 513,500 527,365 920,726 945,585 1,142,490 Annual Sewer Pump and Motor Repairs 151,857 51,350 52,736 54,160 55,623 57,124 Bi-Annual Emergency Generator Overhaul 68,102 0 52,736 0 55,623 0 Bi-Annual Sewer Maintenance Hole Improvements 46,227 77,025 0 81,241 0 85,687 Sewer Rate Analysis 60,000 0 0 0 0 0 Sewer Telemetry Upgrades 100,000 0 0 0 0 0 MEADOWLARK SEWER SIPHON 0 0 0 0 0 0 EALS/EARS PS 3,498,899 0 0 0 0 0 Stoneridge Mall ByPass 107,895 0 0 0 0 0 Del Valle Pkwy/Nevada St. Sewer Additions 356,505 0 0 0 0 0 General Fund CIP Engineering Reimbursement to GF 150,000 154,050 158,209 216,641 222,491 228,498 Other Miscellaneous Planned Improvements 0 513,500 0 541,603 0 0 Transfer to Expansion Fund 0 100,000 100,000 0 0 0 ----------------- ----------------- ----------------- ----------------- ----------------- ----------------- Total Replacement Capital Projects $5,606,989 $1,440,235 $943,783 $1,846,867 $1,334,944 $1,548,073 Transfer to Debt $0 $0 $0 $0 $0 $0 Ending Balance Sewer Replacement Fund $3,533,483 $3,602,231 $4,419,469 $4,589,749 $5,281,079 $5,862,170 Notes 6 of 24 City of Pleasanton Inflation 2.7% Sewer Cost of Service Study Exhibit 4b Sewer Expansion Fund FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 FY 2020 Beginning Balance $2,171,497 $28,494 $31,237 $240,109 $349,876 $460,791 Sources of Funds Expansion Connection Fees - Expansion Fund $157,837 $159,415 $161,010 $162,620 $164,246 $165,888 As Customer Growth Transfer From R&I Fund 0 100,000 100,000 0 0 0 New Bond Proceeds 0 0 0 0 0 0 Interest Income 71 78 599 1,307 2,292 2,848 ----------------- ----------------- ----------------- ----------------- ----------------- ----------------- Total Expansion Sources of Funds $2,329,405 $287,987 $292,846 $404,036 $516,414 $629,527 Expansion Capital Projects Meadowlark Sewer Siphon $582,542 $205,400 $0 $0 $0 $0 Del Valle Pkwy/Nevada St. Sewer Add't 482,369 0 0 0 0 0 Sewer Connection Fee Update 25,000 0 0 0 0 0 EALS/EARS PS (p112031)1,161,000 0 0 0 0 0 CIP Engineering Reimburs to GF 50,000 51,350 52,736 54,160 55,623 57,124 Future Unidentified Projects 0 0 0 0 0 0 ------------ ------------ ------------ ------------ ------------ ------------ Total Expansion Capital Projects $2,300,911 $256,750 $52,736 $54,160 $55,623 $57,124 Transfer to Debt $0 $0 $0 $0 $0 $0 Ending Balance Sewer Expansion Fund $28,494 $31,237 $240,109 $349,876 $460,791 $572,403 Notes 7 of 24 City of PleasantonSewer Cost of Service StudyExhibit 5 Revenues at Present Rates Page 1 of 6 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Total Single Family $/Month Single Family Residential $11.93 14,886 14,886 14,886 14,886 14,886 14,886 14,886 14,886 14,886 14,886 14,886 14,886 14,886 ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- $177,590 $177,590 $177,590 $177,590 $177,590 $177,590 $177,590 $177,590 $177,590 $177,590 $177,590 $177,590 2nd Unit $6.24 187 187 187 187 187 187 187 187 187 187 187 187 187 ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- $1,167 $1,167 $1,167 $1,167 $1,167 $1,167 $1,167 $1,167 $1,167 $1,167 $1,167 $1,167 Senior Discount $9.54 3,139 3,139 3,139 3,139 3,139 3,139 3,139 3,139 3,139 3,139 3,139 3,139 3,139----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- $29,959 $29,959 $29,959 $29,959 $29,959 $29,959 $29,959 $29,959 $29,959 $29,959 $29,959 $29,959 Low Income Discount $8.35 178 178 178 178 178 178 178 178 178 178 178 178 178----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------$1,486 $1,486 $1,486 $1,486 $1,486 $1,486 $1,486 $1,486 $1,486 $1,486 $1,486 $1,486 2nd Unit Senior Discount $4.99 15 15 15 15 15 15 15 15 15 15 15 15 15 ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------$74.88 $74.88 $74.88 $74.88 $74.88 $74.88 $74.88 $74.88 $74.88 $74.88 $74.88 $74.88 2nd Unit Low Inc. Discount $4.37 0 0 0 0 0 0 0 0 0 0 0 0 0 ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 Single Family Res - Ruby Hill $4.32 768 768 768 768 768 768 768 768 768 768 768 768 768 ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- $3,318 $3,318 $3,318 $3,318 $3,318 $3,318 $3,318 $3,318 $3,318 $3,318 $3,318 $3,318 Senior Discount - Ruby Hill $3.46 70 70 70 70 70 70 70 70 70 70 70 70 70----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- $242 $242 $242 $242 $242 $242 $242 $242 $242 $242 $242 $242 Low Income Discount - Ruby Hill $3.02 0 0 0 0 0 0 0 0 0 0 0 0 0----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------$0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Total Single Family Revenue $213,837 $213,837 $213,837 $213,837 $213,837 $213,837 $213,837 $213,837 $213,837 $213,837 $213,837 $213,837 $2,566,038 8 of 24 City of PleasantonSewer Cost of Service StudyExhibit 5 Revenues at Present Rates Page 2 of 6 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Total Condominium $/Month/Unit Condominium $8.19 1,818 1,818 1,818 1,818 1,818 1,818 1,818 1,818 1,818 1,818 1,818 1,818 1,818----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- $14,889 $14,889 $14,889 $14,889 $14,889 $14,889 $14,889 $14,889 $14,889 $14,889 $14,889 $14,889 Senior Disount $6.55 16 16 16 16 16 16 16 16 16 16 16 16 16----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------$105 $105 $105 $105 $105 $105 $105 $105 $105 $105 $105 $105 Low Income Discount $5.73 6 6 6 6 6 6 6 6 6 6 6 6 6 ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------$34 $34 $34 $34 $34 $34 $34 $34 $34 $34 $34 $34 Total Condominium Revenue $15,029 $15,029 $15,029 $15,029 $15,029 $15,029 $15,029 $15,029 $15,029 $15,029 $15,029 $15,029 $180,344 Multi-Family $/Month/Unit Base Charge $6.24 4,728 4,728 4,728 4,728 4,728 4,728 4,728 4,728 4,728 4,728 4,728 4,728 4,728----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- $29,503 $29,503 $29,503 $29,503 $29,503 $29,503 $29,503 $29,503 $29,503 $29,503 $29,503 $29,503 Senior Disount $4.99 689 689 689 689 689 689 689 689 689 689 689 689 689----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------$3,439.49 $3,439.49 $3,439.49 $3,439.49 $3,439.49 $3,439.49 $3,439.49 $3,439.49 $3,439.49 $3,439.49 $3,439.49 $3,439.49 Low Income Discount $4.37 42 42 42 42 42 42 42 42 42 42 42 42 42 ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------$183.46 $183.46 $183.46 $183.46 $183.46 $183.46 $183.46 $183.46 $183.46 $183.46 $183.46 $183.46 Total Multi-Family Revenue $33,125.66 $33,125.66 $33,125.66 $33,125.66 $33,125.66 $33,125.66 $33,125.66 $33,125.66 $33,125.66 $33,125.66 $33,125.66 $33,125.66 $397,508 9 of 24 City of PleasantonSewer Cost of Service StudyExhibit 5 Revenues at Present Rates Page 3 of 6 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Total Commercial Auto Steam Cleaning $/Acct. Minimum Bill $6.240 3 3 3 3 3 3 3 3 3 3 3 3 3$/CCFUp to 5 CCF $0.000 0 15 0 15 0 15 0 15 0 15 0 15 90 Per CCF over 5 1.341 0 648 0 525 0 409 0 258 0 170 0 112 2,122 ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Total Revenues $19 $888 $19 $723 $19 $567 $19 $365 $19 $247 $19 $169 $3,070 Bakery $/Acct. Minimum Bill $6.240 7 9 11 6 10 7 6 10 6 9 10 6 8 $/CCFUp to 5 CCF $0.000 39 54 64 35 56 42 27 60 33 54 56 36 556Per CCF over 5 1.331 1,895 2,236 2,347 1,472 1,702 1,122 1,010 2,496 1,311 1,728 1,491 2,017 20,827 ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Total Revenues $2,566 $3,032 $3,192 $1,997 $2,328 $1,537 $1,382 $3,385 $1,782 $2,355 $2,047 $2,722 $28,326 Commercial Laundry $/Acct.Minimum Bill $6.240 3 2 3 1 2 2 2 2 2 2 3 1 2 $/CCF Up to 5 CCF $0.000 24 12 15 9 13 18 14 11 15 11 16 9 167 Per CCF over 5 1.341 58 106 66 89 57 102 72 88 76 83 72 70 939----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Total Revenues $96 $155 $107 $126 $89 $149 $109 $130 $114 $124 $115 $100 $1,415 Grocery w/ Garbage Disposal $/Acct.Minimum Bill $6.240 2 4 6 1 5 1 2 4 2 4 5 1 3$/CCF Up to 5 CCF $0.000 12 24 31 6 30 6 12 24 12 24 30 6 217 Per CCF over 5 1.287 1,233 885 1,733 127 1,830 164 1,103 1,284 1,004 990 1,422 180 11,955 ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Total Revenues $1,599 $1,164 $2,268 $170 $2,386 $217 $1,432 $1,677 $1,305 $1,299 $1,861 $238 $15,617 10 of 24 City of PleasantonSewer Cost of Service StudyExhibit 5 Revenues at Present Rates Page 4 of 6 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Total Mortuary $/Acct. Minimum Bill $6.240 1 1 1 1 1 1 1 1 1 1 1 1 1 $/CCFUp to 5 CCF $0.000 0 5 0 5 0 5 0 5 0 5 0 5 30Per CCF over 5 1.561 0 20 0 17 0 7 0 12 0 12 0 10 78 ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Total Revenues $6 $37 $6 $33 $6 $17 $6 $25 $6 $25 $6 $22 $197 Resaurants - Fast Food $/Acct. Minimum Bill $6.240 23 20 34 14 35 12 26 20 24 22 36 9 23 $/CCF Up to 5 CCF $0.000 180 160 269 104 270 78 197 147 181 156 270 66 2,078Per CCF over 5 1.253 3,270 1,931 3,513 1,557 2,873 977 2,941 2,447 2,670 2,983 2,886 1,076 29,124----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Total Revenues $4,241 $2,544 $4,614 $2,038 $3,818 $1,299 $3,847 $3,191 $3,495 $3,875 $3,841 $1,404 $38,208 Resaurants - Full Service $/Acct.Minimum Bill $6.240 45 65 89 26 88 24 47 66 45 67 88 24 56 $/CCF Up to 5 CCF $0.000 305 434 585 175 582 161 312 441 308 458 593 168 4,522 Per CCF over 5 1.253 14,234 9,141 14,684 4,976 13,947 5,291 14,205 8,784 13,886 10,609 14,174 5,381 129,312----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Total Revenues $18,116 $11,859 $18,954 $6,397 $18,025 $6,779 $18,092 $11,418 $17,680 $13,711 $18,309 $6,892 $166,234 All Other $/Acct.Minimum Bill $6.240 340 373 543 220 503 215 302 414 303 412 506 212 362$/CCF Up to 5 CCF $0.000 3,329 3,262 4,864 2,084 4,490 2,004 2,958 3,651 3,002 3,685 4,593 1,961 39,883 Per CCF over 5 1.132 42,938 12,265 47,381 13,002 34,867 12,421 40,952 24,363 41,438 21,835 41,000 14,813 347,275 ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Total Revenues $50,727 $16,212 $57,024 $16,091 $42,608 $15,402 $48,242 $30,162 $48,799 $27,288 $49,569 $18,091 $420,216 Total Commercial Revenue $77,371 $35,891 $86,184 $27,574 $69,279 $25,969 $73,129 $50,354 $73,200 $48,924 $75,768 $29,639 $673,283 11 of 24 City of PleasantonSewer Cost of Service StudyExhibit 5 Revenues at Present Rates Page 5 of 6 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Total INSTITUTIONAL Schools - No Irrigation Use $/Acct.Minimum Bill $0.000 3 7 5 5 5 5 3 7 3 7 5 5 10$/CCF All Consumption $1.088 118 821 485 291 582 969 110 2,261 50 2,179 726 965 9,557 ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Total Revenues $128 $893 $528 $317 $633 $1,054 $120 $2,460 $54 $2,371 $790 $1,050 $10,398 Schools - Irrigation Use $/Acct. Minimum Bill $0.000 1 1 1 1 1 1 1 1 1 1 1 1 1 $/CCFAll Consumption $0.715 0 105 0 123 0 114 0 54 0 109 0 95 600----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Total Revenues $0 $75 $0 $88 $0 $82 $0 $39 $0 $78 $0 $68 $429 All Others $/Acct.Consumption $1.132 0 0 0 0 0 0 0 0 0 0 0 0 0 ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Total Revenues $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 0 Total Institutional Revenue $128 $893 $528 $317 $633 $1,054 $120 $2,460 $54 $2,371 $790 $1,050 $10,398 12 of 24 City of PleasantonSewer Cost of Service StudyExhibit 5 Revenues at Present Rates Page 6 of 6 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Total INDUSTRIAL Charges $6,070 $0 $6,135 $0 $6,130 $0 $6,126 $0 $6,156 $0 $6,072 $0 $36,688 ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------$6,070 $0 $6,135 $0 $6,130 $0 $6,126 $0 $6,156 $0 $6,072 $0 $/Connec. Connections $0.00 3 3 3 3 3 3 3 3 3 3 3 3 3----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------Total Connection Charge $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $/MGD Demand $0.00 0 0 0 0 0 0 0 0 0 0 0 0 0.00000----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------Total Demand Charge $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $/MG Collection $0.00 0 0 0 0 0 0 0 0 0 0 0 0 0.000000----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------Total Collection Charge $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Total Revenues $6,070 $0 $6,135 $0 $6,130 $0 $6,126 $0 $6,156 $0 $6,072 $0 $36,688 SUMMARY - # Of Revs At Customers Prsnt RatesResidential Single-Family 19,041 $2,566,038 Condominiums 1,840 $180,344 Multiple-Family 5,459 397,508 ----------- ----------- Total Residential 26,340 $3,143,890 Commercial 458 $703,925 Institutional 11 $10,398 FY 2015 BudgetIndustrial/Demand 3 $36,688 $3,900,000 Difference ($5,100) Total 26,812 $3,894,900 Percent -0.1% 13 of 24 City of Pleasanton Sewer Cost of Service Study Exhibit 6 Volume Allocation Factor 2014 15%Total Annual Avg. Daily Annual Flow Inflow and Flow at Plant Flow At % of (CCF)Infiltration (CCF)Plant (MGD)Total Residential 2,605,262 390,789 2,996,051 6.14 80.4% Commercial 589,175 88,376 677,551 1.39 18.2% Institutional 10,157 1,524 11,681 0.02 0.3% Industrial/Demand 36,305 5,446 41,751 0.09 1.1% --------------- --------------- --------------- --------------- --------------- Total 3,240,899 486,135 3,727,034 7.64 100.0% Actual Flows [1]0 (VOL) Notes: [1] Volume Allocation 14 of 24 City of Pleasanton Sewer Cost of Service Study Exhibit 7 Customer Allocation Factors Number of % of Number of Weighting Weighted % of Bills [1]Total Bills Factor Customer Total Residential 26,340 98.2%26,340 1.0 26,340 98.2% Commercial 458 1.7%458 1.0 458 1.7% Institutional 11 0.0%11 1.0 11 0.0% Industrial/Demand 3 0.0%3 2.0 6 0.0% --------------- --------------------------------------------- --------------- Total 26,812 100.0%26,812 26,815 100.0% (AC)(WCA) Notes: [1] Based on FY 2014 Billing Data Actual Customer Customer Service & Accounting 15 of 24 City of Pleasanton Sewer Cost of Service Study Exhibit 8 Strength Allocation Factors Annual Flow Avg. Factor Calculated % of Avg. Factor Calculated % of (MG)(mg/l) Pounds [1]Total (mg/l) [1]Pounds [2]Total Residential 2,241 200 3.74 76.6%200 3.74 76.6% Commercial 507 250 1.06 21.7%250 1.06 21.7% Institutional 9 275 0.02 0.4%275 0.02 0.4% Industrial/Demand 31 250 0.07 1.3%250 0.07 1.3% ------------------------------ ------------------------------ --------------- Total 2,788 5 100.0%5 100.0% (BOD)(SS) Note: [1] Calculated Pounds = Annual Flow * Strength Factor * (8.345 lbs/One Million Gallons) Suspended SolidsBiological Oxygen Demand 16 of 24 City of Pleasanton Sewer Cost of Service Study Exhibit 9 Revenue Allocation Factor Projected % of FY 2016 Total Residential $3,175,329 80.7% Commercial 710,964 18.1% Institutional 10,502 0.3% Industrial/Demand 37,054 0.9% --------------- --------------- Total $3,933,849 100.0% (RR) 17 of 24 City of Pleasanton Page 1 of 2Sewer Cost of Service StudyExhibit 10Cost of Service Operating Bio-oxygen Suspended Actual CustomerTest Year Volume Demand Solids Customer Acct/Svcs Revenue DirectFY 2016 (VOL)(BOD)(SS)(AC) (WCA)(RR)(DA) Expenses Sewer O&M $2,670,983 $2,403,884 $0 $0 $267,098 $0 $0 $0 90%Vol 10% AC ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ Total Expenses $2,670,983 $2,403,884 $0 $0 $267,098 $0 $0 $0 Total Sewer O&M $2,670,983 $2,403,884 $0 $0 $267,098 $0 $0 $0 Transfers In $0 $0 $0 $0 $0 $0 $0 $0 As Total O&M Expenses Out 0 0 0 0 0 0 0 0 As Total O&M Expenses Rate Funded Capital - To R&R Fund 1,500,000 1,350,000 0 0 150,000 0 0 0 As Total O&M Expenses ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ Total Transfers $1,500,000 $1,350,000 $0 $0 $150,000 $0 $0 $0 Debt Service Existing Debt $0 $0 $0 $0 $0 $0 $0 $0 As Total O&M Expenses Assumed New Debt - R&I Fund 0 0 0 0 0 0 0 0 As Total O&M Expenses Assumed New Debt - Expansion Fund 0 0 0 0 0 0 0 0 As Total O&M Expenses ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ Total Debt Service $0 $0 $0 $0 $0 $0 $0 $0 Less: Other Funding Bond Reserves $0 $0 $0 $0 $0 $0 $0 $0 As Total O&M Expenses From Expansion Fund 0 0 0 0 0 0 0 0 As Total O&M Expenses From R&I Fund 0 0 0 0 0 0 0 0 As Total O&M Expenses ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ Total Less Other Funds $0 $0 $0 $0 $0 $0 $0 $0 Net Debt Service $0 $0 $0 $0 $0 $0 $0 $0 Weighted for:Strength Related Basis of Classification 18 of 24 City of Pleasanton Page 1 of 2Sewer Cost of Service StudyExhibit 10Cost of Service Operating Bio-oxygen Suspended Actual CustomerTest Year Volume Demand Solids Customer Acct/Svcs Revenue DirectFY 2016 (VOL)(BOD)(SS)(AC) (WCA)(RR)(DA) Weighted for:Strength Related Basis of Classification Change in Working Capital To/(From) M&O Fund $119,762 $107,786 $0 $0 $11,976 $0 $0 $0 As Total O&M Expenses To/(From) R&I Fund 0 0 0 0 0 0 0 0 As Total O&M Expenses ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ Total Change in Working Capital $119,762 $107,786 $0 $0 $11,976 $0 $0 $0 TOTAL REVENUE REQUIREMENTS $4,290,745 $3,861,670 $0 $0 $429,074 $0 $0 $0 Less: Miscellaneous Revenue Miscellaneous Revenues $0 $0 $0 $0 $0 $0 $0 $0 As Total Revenue Requirements Traffic Marking 0 0 0 0 0 0 0 0 As Total Revenue RequirementsInterest Income 10,842 9,757 0 0 1,084 0 0 0 As Total Revenue Requirements Interfund Sales 50,000 45,000 0 0 5,000 0 0 0 As Total Revenue Requirements In - Benefit Surplus / Implied Subsidy 17,396 15,656 0 0 1,740 0 0 0 As Total Revenue Requirements In - General Fund for Senior Low Income Discount 91,800 82,620 0 0 9,180 0 0 0 As Total Revenue Requirements ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ Total Miscellaneous Revenues $170,038 $153,034 $0 $0 $17,004 $0 $0 $0 NET REVENUE REQUIREMENTS $4,120,707 $3,708,636 $0 $0 $412,071 $0 $0 $0 90.0% 0.0% 0.0% 10.0% 0.0% 0.0% 0.0% Notes: 19 of 24 City of Pleasanton Sewer Cost of Service Study Exhibit 11 Allocation of Total Revenue Requirement FY 2016 Classification Components Expenses Volume Related $3,708,636 $2,981,262 $674,207 $11,622.89 $41,544 (VOL) Strength Related Bio-oxygen Demand (BOD-1)$0 $0 $0 $0 $0 (BOD) Suspended Solids (SS-1)0 0 0 0 0 (SS) ------------ ------------ ------------ ------------ ------------ Total Strength Related $0 $0 $0 $0 $0 Customer Related - Actual Customer $412,071 $404,813 $7,043 $169 $46 (AC) - Weighted Customer 0 0 0 0 0 (WCA) ------------ ------------ ------------ ------------ ------------ Total Customer Related $412,071 $404,813 $7,043 $169 $46 Revenue Related $0 $0 $0 $0 $0 (RR) Direct Assignment $0 $0 $0 $0 $0 (DA) Total Revenue Requirements $4,120,707 $3,386,075 $681,249 $11,792 $41,591 Basis of Allocation Industrial/ DemandInstitutionalCommercialResidential 20 of 24 City of Pleasanton Sewer Cost of Service Study Exhibit 12 Cost of Service Analysis Summary Revenues at Present Rates $3,933,849 $3,175,329 $710,964 $10,502 $37,054 Allocated Revenue Requirement $4,120,707 $3,386,075 $681,249 $11,792 $41,591 -------------- -------------- -------------- -------------- -------------- Balance/(Deficiency) of Funds ($186,858) ($210,746) $29,715 ($1,290) ($4,536) Required % Change in Rates 4.8%6.6%-4.2%12.3%12.2% Residential Industrial/ DemandInstitutionalCommercial 21 of 24 City of Pleasanton Sewer Cost of Service Study Exhibit 13 Average Unit Costs System Average Volume Costs - $/CCF $1.14 $1.14 $1.14 $1.14 $1.14 Strength Costs - $/CCF $0.00 $0.00 $0.00 $0.00 $0.00 Revenue/Direct - $/CCF $0.00 $0.00 $0.00 $0.00 $0.00 -------------- -------------- -------------- -------------- -------------- Total $/CCF $1.14 $1.14 $1.14 $1.14 $1.14 Customer Costs - $/Customer/Month $1.28 $1.28 $1.28 $1.28 $1.28 Total Average Cost - $/Cust/Month $12.81 $10.71 $123.89 $89.33 $1,155.29 Alloc RevReq/Consumption $1.27 $1.30 $0.00 $1.16 $1.15 Rev Req/Consumption $1.21 $1.22 $0.00 $1.03 $1.02 Basic Data: Annual Flow - 100 CF 3,240,899 2,605,262 589,175 10,157 36,305 Number of Customers 26,812 26,340 458 11 3 Residential Industrial/ DemandInstitutionalCommercial 22 of 24 City of Pleasanton Sewer Cost of Service Study Residential Rates Present Rates FY 2016 FY 2017 FY 2018 FY 2019 FY 2020 July 1, 2015 October 1, 2015 July 1, 2016 July 1, 2017 July 1, 2018 July 1, 2019 Rate Adj [1]0.0%3.0%0.0%0.0%0.0%0.0% Effective Months 9 12 12 12 12 CPI Adj. [2]2.5%0.0%2.5%2.5%2.5%2.5% Single Family (Bi-Monthly)$/Acct. Single Family Residential $24.46 $25.19 $25.82 $26.47 $27.13 $27.81 2nd Unit 12.80 13.09 13.42 13.76 14.10 14.45 Senior Discount 19.57 21.41 21.95 22.50 23.06 23.64 Low Income Discount 17.12 17.63 18.07 18.53 18.99 19.47 2nd Unit Senior Discount 10.24 11.13 11.41 11.70 11.99 12.28 2nd Unit Low Inc. Discount 8.96 9.16 9.39 9.63 9.87 10.12 Single Family Res - Ruby Hill 4.32 12.60 25.82 26.47 27.13 27.81 Senior Discount - Ruby Hill 3.46 10.71 21.95 22.50 23.06 23.64 Low Income Discount - Ruby Hill 3.02 8.82 18.07 18.53 18.99 19.47 Condominium (Bi-Monthly)$/Acct. Condominium $16.79 $17.17 $17.60 $18.04 $18.49 $18.95 Senior Disount 13.43 14.59 14.96 15.33 15.72 16.11 Low Income Discount 11.75 12.02 12.32 12.63 12.94 13.27 Multi-Family (Bi-Monthly)$/Acct. Base Charge $12.80 $13.18 $13.51 $13.85 $14.20 $14.56 Senior Disount 10.24 11.20 11.48 11.77 12.07 12.38 Low Income Discount 8.96 9.23 9.46 9.70 9.94 10.19 City of Pleasanton Sewer Cost of Service Study Commercial Rates Present Rates FY 2016 FY 2017 FY 2018 FY 2019 FY 2020 July 1, 2015 October 1, 2015 July 1, 2016 July 1, 2017 July 1, 2018 July 1, 2019 Rate Adj [1]0.0%3.0%0.0%0.0%0.0%0.0% Effective Months 12 9 12 12 12 12 CPI Adj. [2]2.5%0.0%2.5%2.5%2.5%2.5% Commercial Fixed Charge (Bi-Mo)$/Acct. Minimum Bill $12.80 $13.18 $13.51 $13.85 $14.20 $14.56 Consumption Charge $/CCF Up to 5 CCF $0.000 $0.000 $0.000 $0.000 $0.000 $0.000 > 5 CCF Auto Steam Cleaning $1.375 $1.416 $1.451 $1.487 $1.524 $1.562 Bakery 1.365 1.406 1.441 1.477 1.514 1.552 Commercial Laundry 1.375 1.416 1.451 1.487 1.524 1.562 Grocery w/ Garbage Disposal 1.320 1.360 1.394 1.429 1.465 1.502 Mortuary 1.600 1.648 1.689 1.731 1.774 1.818 Resaurants - Fast Food 1.285 1.324 1.357 1.391 1.426 1.462 Resaurants - Full Service 1.285 1.324 1.357 1.391 1.426 1.462 All Other 1.161 1.196 1.226 1.257 1.288 1.320 Institutional Consumption Charge $/CCF Schools - No Irrigation Use $1.116 $1.141 $1.170 $1.199 $1.229 $1.260 Schools - Irrigation Use 0.733 0.750 0.769 0.788 0.808 0.828 All Others 1.161 1.187 1.217 1.247 1.278 1.310 Industrial Fixed Charge $2.77 $2.85 $2.92 $2.99 $3.06 $3.14 Annual Loadings ($/MG)124.98 128.73 131.95 135.25 138.63 142.10 Peak Monthly Loadings ($/MGD)80,822.84 83,247.53 85,328.72 87,461.94 89,648.49 91,889.70 [1] - Includes DSRSD regional treatment charge of $52.09 City of Pleasanton [1]City of Livermore Dublin San Ramon Services District Bi-Monthly Sewer Bill $77.28 $86.76 $63.73 $0.00 $15.00 $30.00 $45.00 $60.00 $75.00 $90.00 $105.00 Single Family Residential Bi-Monthly Sewer Bill Appendix F: Pleasanton Water Rate Study FINAL REPORT City of Pleasanton Comprehensive Water Rate Study May 2015 hdrinc.com 500 108th Ave NE, Suite 1200, Bellevue, WA 98004 T 425-450-6200 May 26, 2015 Mr. Daniel Smith Director of Operations City of Pleasanton 3333 Busch Road Pleasanton, California 94566 Subject: City of Pleasanton Water Rate Study Dear Mr. Smith HDR Engineering, Inc. (HDR) is pleased to present to the City of Pleasanton (City) the final report for the 2015 comprehensive water rate study. The City’s comprehensive water rate study was developed to provide a financial plan and rates that generate sufficient revenue to fund the operating and capital needs and develop cost-based and equitable rates for the City’s potable and recycled water system. This report outlines the overall approach used to achieve these objectives, along with our findings, conclusions and recommendations. The City owns and operates a water transmission and distribution system. The City purchases water from Zone 7 and supplements that water with local groundwater resources. The costs associated with developing and purchasing water supplies, plus the costs of distributing water to customers has been developed based on City provided information and included within the development of the proposed potable water rates. In addition, the City purchases recycled water from the Dublin San Ramon Services District and the City of Livermore. Recycled water is delivered to City customers through its recycled water distribution system and charged to customers based on the cost of providing this service. This study was developed utilizing industry recognized water rate setting principles and methodologies. This report provides the basis for developing and implementing potable and recycled water rates which are cost-based, equitable and defensible to the City’s customers. We appreciate the assistance provided by the City’s management team in the development of this study. More importantly, HDR appreciates the opportunity to provide these technical and professional services to the City. Sincerely yours, HDR Engineering, Inc. Shawn Koorn Associate Vice President i Table of Contents i City of Pleasanton – Comprehensive Water Rate Study Executive Summary Introduction .................................................................................................................. 1 Overview of the Rate Study Process .............................................................................. 1 Potable Water Rate Study .............................................................................................. 2 Key Potable Water Rate Study Results ................................................................. 2 Summary of the Potable Water Revenue Requirement Analysis .......................... 3 Summary of the Potable Water Cost of Service Analysis ...................................... 7 Summary of the Present and Proposed Potable Water Rate Designs ................... 8 Summary of the Proposed Potable Water Drought Rates .................................. 10 Recycled Water Rate Study .......................................................................................... 11 Key Recycled Water Rate Study Results ............................................................. 12 Summary of the Recycled Water Revenue Requirement Analysis ...................... 12 Summary of the Present and Proposed Recycled Water Rate Designs ............... 14 Water Rate Study Recommendations .......................................................................... 15 Summary of the Water Rate Study............................................................................... 16 1 Introduction and Overview 1.1 Introduction ...................................................................................................... 17 1.2 Goals and Objectives ......................................................................................... 17 1.3 Overview of the Rate Study Process .................................................................. 18 1.4 Organization of the Study .................................................................................. 18 1.5 Summary ........................................................................................................... 18 2 Overview of the Water Rate Setting Principles 2.1 Introduction ...................................................................................................... 19 2.2 Generally Accepted Rate Setting Principles ........................................................ 19 2.3 Types of Utilities ................................................................................................ 19 2.4 Determining the Revenue Requirement ............................................................ 20 2.4.1 Public Utilities .......................................................................................... 20 2.4.2 Private Utilities ........................................................................................ 21 2.5 Analyzing Cost of Service ................................................................................... 21 2.6 Designing Water Rates ...................................................................................... 22 2.7 Economic Theory and Rate Setting .................................................................... 22 2.8 Summary ........................................................................................................... 22 Table of Contents ii Table of Contents ii City of Pleasanton – Comprehensive Water Rate Study 3 Development of the Potable Water Rate Study 3.1 Introduction ...................................................................................................... 23 3.2 Development of the Potable Water Revenue Requirement ............................... 23 3.2.1 Determining the Revenue Requirement ............................................... 23 3.2.2 Establishing a Time Frame and Approach ............................................. 23 3.2.3 Projecting Rate and Other Miscellaneous Revenues ............................. 24 3.2.4 Projecting Operation and Maintenance Expenses ................................. 25 3.2.5 Projecting Capital Funding Needs and Transfer Payments .................... 26 3.2.6 Projection of Debt Service .................................................................... 29 3.2.7 Change in Working Capital .................................................................... 29 3.2.8 Summary of the Potable Water Revenue Requirements ....................... 29 3.2.9 Rate Adjustments / Rate Transition ...................................................... 31 3.2.10 Consultant’s Conclusions ...................................................................... 32 3.3 Development of the Potable Water Cost of Service Analysis .............................. 32 3.3.1 Objectives of a Cost of Service Study .................................................... 32 3.3.2 Determining the Customer Classes of Service ....................................... 33 3.3.3 General Cost of Service Procedures ...................................................... 33 3.3.4 Summary of the Cost of Service Analysis .............................................. 36 3.3.5 Consultant’s Conclusions and Recommendations ................................. 36 3.4 Development of the Potable Water Rate Design ................................................ 37 3.4.1 Rate Design Criteria and Considerations ............................................... 37 3.4.2 Development of Cost-Based Potable Water Rates ................................ 38 3.4.3 Summary of the Prior Recommendations ............................................. 40 3.4.4 Review of the City’s Present and Proposed Single-Family Potable Water Rates.......................................................................................... 40 3.4.5 Review of the City’s Present and Proposed Multi-family and Commercial Potable Water Rates ......................................................... 43 3.4.6 Review of the City’s Present and Proposed Irrigation Potable Water Rates .................................................................................................... 44 3.4.7 Development of Potable Water Drought Rates ..................................... 45 3.5 Potable Water Rate Study Recommendations ................................................... 48 3.6 Summary of the Potable Water Rate Study ........................................................ 49 iii Table of Contents iii City of Pleasanton – Comprehensive Water Rate Study 4 Development of the Recycled Water Rate Study 4.1 Introduction ...................................................................................................... 50 4.2 Development of the Recycled Water Revenue Requirement ............................. 50 4.2.1 Determining the Revenue Requirement ............................................... 50 4.2.2 Establishing a Time Frame and Approach ............................................. 50 4.2.3 Projecting Rate and Other Miscellaneous Revenues ............................. 51 4.2.4 Projecting Operation and Maintenance Expenses ................................. 52 4.2.5 Projecting Capital Funding Needs and Transfer Payments .................... 52 4.2.6 Projection of Debt Service .................................................................... 52 4.2.7 Summary of the Recycled Water Revenue Requirements ..................... 53 4.2.8 Consultant’s Conclusions ...................................................................... 54 4.3 Development of the Recycled Water Rate Design .............................................. 54 4.3.1 Development of Recycled Water Rates ................................................. 54 4.3.2 Review of the City’s Present and Proposed Recycled Water Rates ........ 54 4.4 Recycled Water Rate Study Recommendations ................................................. 55 4.5 Summary of the Recycled Water Rate Study ...................................................... 55 Technical Appendix A – Potable Water Analyses Technical Appendix B – Recycled Water Analyses Technical Appendix C – Tier Pricing Analysis Technical Appendix D – Drought Rate Analysis Executive Summary 1 City of Pleasanton – Comprehensive Water Rate Study Introduction HDR was retained by the City of Pleasanton (City) to conduct a comprehensive water rate study. The objective of the rate study was to review the City’s operating and capital costs in order to develop a financial plan and cost-based rates for both the potable and recycled water systems. Potable water is most easily described as “drinking water” and has been treated and delivered to the City’s customers for human consumption and other uses. In contrast, recycled water is not treated to a drinking level and is therefore used for outdoor irrigation. This study determined the adequacy of the existing water rates, both potable and recycled, and provides the framework and cost justification for any needed future adjustments. The City owns and operates a water transmission and distribution system. The City purchases potable water from Zone 7 and supplements purchased water with local groundwater resources. The costs associated with providing water supply, plus the costs of distributing water to customers has been developed based on City provided information and included within the development of the proposed rates. In addition, the City purchases and delivers recycled (non-potable) water to customers that can benefit from recycled water service (e.g., irrigation needs). The findings, conclusions and recommendations from this study are solely related to the City’s potable and recycled water systems. Overview of the Rate Study Process A comprehensive water rate study uses three interrelated analyses to address the adequacy and equity of a utility’s rates. These three analyses are a revenue requirement analysis, a cost of service analysis, and a rate design analysis. These three analyses are illustrated below in Figure ES-1. Figure ES–1 Overview of the Comprehensive Water Rate Analyses Revenue Requirement Analysis Cost of Service Analysis Rate Design Analysis Compares the revenues to the expenses of the utility to determine the overall rate adjustment required Allocates the revenue requirement to the various customer classes of service in a “fair and equitable" manner Considers both the level and structure of the rate design to collect the target level of revenues Executive Summary Executive Summary 2 City of Pleasanton – Comprehensive Water Rate Study The above framework for reviewing and evaluating the City’s water system rates was utilized in the development of this study. Potable Water Rate Study The water rate study technical analysis was developed separately for the potable and recycled water systems. The potable water system technical analysis was developed based on the operating and capital costs necessary to provide potable water to the City’s customers. Key Potable Water Rate Study Results The potable water technical analysis resulted in the following findings, conclusions, and recommendations. A revenue requirement analysis was developed for FY 2016 through FY 2020. The FY 2015 budget was used as the starting point of the analysis. Preliminary FY 2016 and 2017 budgeted information for O&M expenses were also included within the analysis. Operation and maintenance expenses are projected to increase at inflationary levels with no assumed changes to levels of service or anticipated extraordinary expenses. The current drought has impacted customer consumption levels, which in turn has reduced overall revenues for the potable water system. The prudent level of funding renewal and replacements through rates is one of the primary drivers behind the results and the recommendations for the proposed rate adjustments. The potable water system has no outstanding long-term debt. Under the proposed financial plan, no long-term debt will be issued to fund necessary capital improvements. Annual rate adjustments over the FY 2016 – FY 2020 time period are needed to support the capital improvement plan and renewal and replacement funding levels. The FY 2016 adjustment of 5.5% is proposed to be effective on October 1, 2015. Annual inflationary adjustments of 2.5% are proposed on January 1, of each subsequent year starting January 1, 2016. A cost of service analysis was developed to review the equity of the existing rates. The results of the cost of service analysis indicated minor cost differences between the various customer classes of service. However, for a number of reasons (i.e., drought impacts), it is recommended that no adjustments to the cost/rate relationships between the classes of service be made at this time. The study has proposed rates for the FY 2016 – FY 2020 time period. For a single-family residential customer, the average bi-monthly adjustment is estimated to be approximately $8.40 at the end of the five year period with expected inflationary based rate adjustments. Local distribution costs are proposed to increase by inflationary measures over the 5- year period, and at this time have been estimated at 2.5% for rate example purposes. Executive Summary 3 City of Pleasanton – Comprehensive Water Rate Study “The proper and adequate funding of capital projects is important to help minimize rates over time. A general financial guideline states that, at a minimum, a utility should fund an amount equal to or greater than annual depreciation expense through rates.” The primary adjustment to water rates for FY 2016 is to reflect the current cost of Zone 7 purchased water. The Zone 7 rate will adjust as a pass-through wholesale rate when adopted by Zone 7. At this time no further Zone 7 wholesale rate adjustments have been included in the study. An analysis of the allocation of costs to the City’s residential water rate tiers has been completed to reflect recent legal decisions. Drought rates, by drought stage, were developed for the City to encourage efficient use and maintain sufficient revenues during mandatory conservation efforts. The drought rates can be implemented by the City Council as drought stages are declared. Summary of the Potable Water Revenue Requirement Analysis A revenue requirement analysis is the first analytical step in the development of the potable water rate study. This analysis determines the adequacy of the overall water rates. From this analysis, a determination can be made as to the overall level of water rate adjustments needed to provide adequate and prudent funding for both operating and capital needs. For this study, the revenue requirement was developed for a six-year projected time period (FY 2015 - 2020). A multi-year time frame is recommended to better anticipate future financial requirements and allow the City to begin planning for these changes sooner, thereby minimizing short-term rate impacts and overall long-term rates. For the revenue requirement analysis a “cash basis” approach was utilized. The “cash basis” approach is the most commonly used methodology by municipal utilities to set their revenue requirement and is composed of O&M expenses, transfer payments, debt service and capital projects funded from rates. The primary financial inputs in the development of the revenue requirement analysis were the City’s 2015 budget documents, 2014 billed customer and consumption data, and the City’s capital improvement plan. The proper and adequate funding of capital projects is important to help minimize rates over time. A general financial guideline states that, at a minimum, a utility should fund an amount equal to or greater than annual depreciation expense through rates. Annual depreciation expense reflects an investment in infrastructure that was placed in service an average of 15 years ago, assuming a 30-year useful, depreciable, life. Simply funding an amount equal to annual depreciation expense will not be sufficient to fund the replacement of an existing or depreciated facility. Therefore, consideration should be given to funding within rates some amount greater than annual depreciation expense for renewals and replacements. Executive Summary 4 City of Pleasanton – Comprehensive Water Rate Study For purposes of reviewing the capital project funding, City has segregated their capital plan into two components: x Potable Water Replacement Fund x Potable Water Expansion Fund The water replacement fund is intended to provide funding for the more routine renewal and replacement type projects, while the expansion fund is related to growth and expansion. This study has provided a detailed discussion and exhibits associated with each of these funds and the capital projects associated with them. As a part of this study, a concerted effort was made to increase the overall level of “pay-as-you-go” (rate) funding for replacement capital projects. Provided below in Table ES-1 is a summary of the amount of rate funded capital for each year. Table ES–1 Summary of the Annual Rate Funded CIP ($000) FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 FY 2020 Replacement Capital Projects $1,600 $1,825 $2,115 $2,250 $2,550 $2,800 Expansion Capital Projects 0 0 0 0 0 0 Total Rate Funded Capital $1,600 $1,825 $2,115 $2,250 $2,550 $2,800 As a point of reference, the City’s potable water annual depreciation expense is approximately $3.3 million (2014). This financial plan has placed the City’s rate funding for CIP at $2.8 million by FY 2020. It is important to note and understand that depreciation expense is not the same as replacement cost. Thus, funding an amount which exceeds depreciation expense (i.e. $3.3 million) is both prudent and appropriate. In developing this financial plan, HDR and the City have attempted to minimize rate impacts while funding the planned capital improvement projects of the City. While this financial plan has strengthened the City’s “pay-as-you-go” funding for capital projects, the level of rate funding for renewal and replacement capital does not meet annual depreciation expense levels, which is the target minimum funding level. Given this level of funding, HDR recommends that the City increase this level of funding whenever funds are available to do so. As a note, expansion related capital improvement projects are funded primarily through existing expansion reserves and annual potable water connection fees. Given a projection of operating and capital expenses a summary of the potable water revenue requirement analysis was developed. Provided below in Table ES-2 is a summary of the revenue requirement analysis (financial plan). Executive Summary 5 City of Pleasanton – Comprehensive Water Rate Study Table ES–2 Summary of the Potable Water Revenue Requirement Analysis ($000) FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 FY 2020 Revenues Rate Revenues $16,418 $16,941 $16,936 $17,212 $17,652 $18,111 Other Revenues 2,151 916 927 949 972 984 Total Revenues $18,569 $17,858 $17,862 $18,161 $18,624 $19,095 Expenses O&M Expenses $15,743 $16,358 $16,687 $17,298 $17,948 $18,611 Transfers Out 1,928 2,157 2,452 2,591 2,896 3,151 Net Debt Service 0 0 0 0 0 0 Change in Working Capital 898 235 266 283 312 423 Total Expenses $18,569 $18,751 $19,405 $20,173 $21,156 $22,184 Bal./(Def.) of Funds $0 ($893) ($1,542) ($2,013) ($2,532) ($3,089) Balance as % of Rev from Rates 0.0% 5.3% 9.1% 11.7% 14.3% 17.1% Proposed Rate Adjustments Annual CPI Increases 0.0% 2.5% 2.5% 2.5% 2.5% 2.5% Proposed Rate Adjustment 0.0% 5.5% 0.0% 0.0% 0.0% 0.0% Annualized Rate Adjustments [1] 0.0% 5.4% 1.3% 1.3% 1.3% 1.3% [1] - Annualized rate adjustment reflects the change in revenues based on the timing of the proposed rate change. For example, the CPI adjustments will take place January 1 of each year, or midway through the fiscal year while the rate adjustment is proposed for October 1, 2015. As can be seen, the revenue requirement has summed the O&M, transfers (i.e., rate funded capital), net debt service and the change in working capital. The total revenue requirement is then compared to the total sources of funds which include the rate revenues, at present rate levels, and other miscellaneous revenues. From this comparison a balance or deficiency of funds in each year can be determined. This balance or deficiency of funds is then compared to the rate revenues to determine the level of rate adjustment needed to meet the revenue requirement. It is important to note the “Bal./(Def.) of Funds” row is cumulative. That is, any adjustments in the initial years will reduce the deficiency in the later years. Over this project time period, the total deficiency of rates is 17.1%. As can be seen in Table ES-2 a rate transition plan has been developed to adjust rates over this time period. To better understand the impacts of these adjustments, Table ES-3 provides a summary of the impacts to residential potable water customer rates. Executive Summary 6 City of Pleasanton – Comprehensive Water Rate Study Table ES–3 Summary of the Potable Water Rate Transition Plan and Residential Bill Impacts [1] Present Bill FY 2016 Oct. 1, 2015 FY 2016 Jan 1 2016 FY 2017 Jan 1 2017 FY 2018 Jan 1 2018 FY 2019 Jan 1, 2019 FY 2020 Jan 1, 2020 Bi-Monthly Residential Bill [1]- $77.84 Proposed Rate Adjustment 5.5% 2.5% 2.5% 2.5% 2.5% 2.5% Mthly Bill After Rate Adj. $81.05 $82.06 $83.09 $84.13 $85.18 $86.24 $ Change/Bi-Month $3.21 $1.01 $1.03 $1.04 $1.05 $1.06 Cumulative Bi-Mthly Change $3.21 $4.22 $5.25 $6.29 $7.34 $8.40 [1] – Bi-Monthly bill assuming a ¾” meter and 24 CCF (17,952 gallons) of water consumption As can be seen, the current bi-monthly residential bill for an average potable water customer is $77.84/bi-month (assumes a 3/4" meter & 24 hundred cubic feet [CCF] of consumption). With the proposed adjustments in October 2016, the impacts will be approximately a $3.21/bi- month and approximately $1.00/bi-month with following year’s proposed CPI adjustments. Cumulatively, over the five year period the residential bill is projected to go from $77.84/bi- month to $86.24/bi-month, or a total change of $8.40/bi-monthly. Based on the revenue requirement analysis developed herein, HDR has concluded that the City will need to adjust their rates over the next five years (FY 2016 – FY 2020) to maintain their cost-based rates. HDR has reached this conclusion for the following reasons: x Rate adjustments are necessary to fund the City’s capital improvement needs, of which a large portion is driven by the funding of replacement capital projects. x Rate adjustments are necessary to fund the City’s capital projects on a “pay-as-you-go” basis and avoid the need for the issuance of any long-term debt. x Rate adjustments are necessary to reflect the reduction in annual water consumption (i.e. per capita use) which may be reflective of the new level of water consumption for the foreseeable future. x The proposed rate adjustments maintain the City’s strong financial health and provide long-term sustainable funding levels for the City. x The proposed rate adjustments do not provide sufficient replacement funding, when compared to annual depreciation expense, during the 5-year period. In reaching this conclusion, HDR would recommend that the City adopt the proposed rates through FY 2020 in order to provide surety as to the availability of funding for the capital improvement program. Detailed technical exhibits of the revenue requirement analysis have been included within the Technical Appendix in Exhibits 1-7. Executive Summary 7 City of Pleasanton – Comprehensive Water Rate Study Summary of the Potable Water Cost of Service Analysis A cost of service analysis determines the equitable allocation of the revenue requirement to the various customer classes of service (e.g. single-family, multi-family, commercial, irrigation). The objective of the cost of service analysis is different from determining the revenue requirement. A revenue requirement analysis determines the utility’s overall financial needs, while the cost of service analysis determines the fair and equitable manner to collect that revenue requirement. The results of the cost of service analysis indicated some cost differences between the customer classes of service. While some minor cost differences exist, the overall allocation of costs between customers generally appears to be reasonable. In reaching this conclusion, one of variables which does directly impact cost allocations is the trend of declining consumption, along with the current drought conditions with California and the Bay Area. These conditions certainly have an impact upon consumptive use and cost allocations. Customer responsiveness to the drought has resulted in an allocation of costs that dos not reflect how the system was designed and customer impacts on the system under “normal” conditions. The allocation of costs is based on many different components; however, the two primary components are related to average day use and peak day use. Both of these components are impacted by the current drought. First, average the consumption for customers has reduced in response to the drought. However, not all customer classes respond to the drought in the same manner. For example, residential customers may be able to reduce consumption at a higher percentage level than a commercial customer given the commercial customers needs to use water for business purposes. In this case, the average day allocation of costs would shift from one class to the other and may not reflect “normal” water conditions and burdens placed on the system. The second component is related to peak day, or how the customers place demands on the system. Similar to average day needs, the peak demands and responsiveness to the drought vary by customer class. For example, while a residential customer may respond and minimize outdoor watering and peak demands on the system, a commercial, or multi-family, customer may be able to entirely eliminate outdoor watering needs and peak demands on the system. These two different responses to the drought change the relationship of the cost allocations and do not reflect “normal” water conditions and how the system was designed to operate. This results in a cost of service analysis that does not reflect typical customer impacts on the system and would result in changing rates in the short- term based on one point in time, which does not reflect how customer typically utilize the system. Given the changing usage patterns due to the drought, HDR believes the focus of this study should be on the overall rate adjustment needs based on the City’s need to fund capital improvement projects over the 5-year time period and move towards adequately funding renewal and replacements through rates. As the City continues to monitor rates and cost of service results through future studies, cost of service adjustments may be made at some later date as the cost of service results are primarily driven by customer consumption. Given that, no adjustments in the interclass cost relationships are recommended at this time. Executive Summary 8 City of Pleasanton – Comprehensive Water Rate Study Section 3.3 of this report provides a detailed discussion of the cost of service analysis conducted for the City’s potable water system. The Technical Appendix contains the various exhibits associated with this analysis and can be found in Exhibits 8 - 16. Summary of the Present and Proposed Potable Water Rate Designs The final step of the comprehensive rate study process is the design of potable water rates to collect the desired levels of revenue, based on the results of the revenue requirement and cost of service analysis. The revenue requirement analysis provided a set of recommendations related to annual rate adjustments. As noted, no cost of service adjustments (i.e. interclass changes) were recommended or made at this time. A key input in the development of the City’s potable water rates is the cost of purchased water from Zone 7. The current rate structure is based on the cost of Zone 7 water purchases and local transmission and distribution costs. These costs are “stacked” to develop the tiered single-family rate structure and included in the development of the uniform rate structure for all other customers. Another key aspect of the proposed rate designs is conforming to current legal requirements, of which Proposition 218 is front and center. At its very core, Proposition 218 requires a water utility to establish cost-based rates for the services provided. However, like most propositions or voter’s initiatives, Proposition 218 provided certain direction, but lacked clarity and definition in certain areas. Hence, there have been a number of lawsuits in recent years related to utility rates and Proposition 218. Most recently, in the Capistrano Taxpayers Association, Inc. v. City of San Juan Capistrano, the City of San Juan Capistrano (Capistrano) was challenged, among other items, over the cost-basis for the tiers (price blocks) of their tiered water rate structure. The Appellate Court hearing this case ruled that tiered rates are a valid rate structure under Proposition 218, but to be legally compliant with Proposition 218, the pricing of the tiers must be cost-based. The City has residential tiered rates with four usage/price tiers. As a part of this study, HDR developed a technical memorandum to supplement the water rate design discussion to clearly demonstrate and support the proposed residential water rates and tiered pricing. A more detailed discussion of the development of the cost basis for the tier pricing is provided in Section 3.4 of this report and a detailed memorandum is included as a Technical Appendices. Given the above, the City’s potable water rates were developed for the next 5-year time period (FY 16 – FY 20) for each of the customer classes of service. Provided below in Table ES-4 is a summary of the present and proposed single-family potable water rates. Executive Summary 9 City of Pleasanton – Comprehensive Water Rate Study Table ES–4 Summary of the Proposed Single-Family Residential Water Rates Present Rate FY 2016 Oct. 1, 2015 FY 2016 Jan. 1 2016 FY 2017 Jan 1 2017 FY 2018 Jan 1 2018 FY 2019 Jan 1, 2019 FY 2020 Jan 1, 2020 Proposed Rate Adjustment 0.0% 5.5% 2.5% 2.5% 2.5% 2.5% 2.5% Single Family ($/Bi-Month) Fixed Meter Charge (3/4”) $26.41 $26.41 $27.07 $27.75 $28.44 $29.15 $29.88 Consumption Charge 0-20 CCF $2.1000 $2.4000 $2.4000 $2.4000 $2.4000 $2.4000 $2.4000 21-40 CCF 2.3581 2.7581 2.7646 2.7712 2.7780 2.7849 2.7920 41-60 CCF 2.6825 2.9825 2.9946 3.0070 3.0197 3.0327 3.0460 60+ CCF 3.4520 3.7520 3.7801 3.8089 3.8384 3.8686 3.8996 As can be seen the proposed rates, effective October 1, 2015, have been adjusted to reflect the cost of Zone 7 purchase water costs. The cost of Zone 7 purchased water is included as a component in each of the single-family tier rates and will be adjusted as a pass through rate increase when Zone 7 adopts a new wholesale water rate. The local distribution component, not the Zone 7 component, of the proposed rates for the following years will be adjusted annually on January 1 of each year based on the change in inflation from the prior year. For the development of future rates, an inflationary factor of 2.5% was used to reflect the estimated level of future rates. The rates for FY 2016 – FY 2020 will be developed (adjusted) based on the actual inflation indices from the prior year. Similar to the single family rates, the multi-family, commercial, and irrigation proposed rates were adjusted to reflect the current Zone 7 charge for the rates effective October 1, 2015. In addition, the local distribution component of the rate will be adjusted annually based on recent inflationary impacts. Provided in Table ES-5 is a summary of the proposed multi-family, commercial, and irrigation rates. Table ES–5 Summary of the Proposed Commercial, Multi-Family, & Irrigation Water Rates Present Rate FY 2016 Oct. 1, 2015 FY 2016 Jan. 1 2016 FY 2017 Jan 1 2017 FY 2018 Jan 1 2018 FY 2019 Jan 1, 2019 FY 2020 Jan 1, 2020 Proposed Rate Adjustment 0.0% 5.5% 2.5% 2.5% 2.5% 2.5% 2.5% Fixed Meter Charge (3/4”) $26.41 $26.41 $27.07 $27.75 $28.44 $29.15 $29.88 Consumption Charge($/CCF) Commercial $2.4693 $2.7693 $2.7760 $2.7829 $2.7900 $2.7973 $2.8047 Multi-Family 2.4693 2.7693 2.7760 2.7829 2.7900 2.7973 2.8047 Irrigation 2.6152 2.9152 2.9256 2.9362 2.9471 2.9583 2.9698 Executive Summary 10 City of Pleasanton – Comprehensive Water Rate Study Section 3.4 of this report provides a detailed discussion of the present and proposed potable water rates along with a component by component summary of the potable water rates for FY 2016 – FY 2020. As noted in the development of the single-family residential rates, the inflationary increases will be based on the actual prior year inflationary indices to set the proposed rates January 1, 2016 through January 1, 2020. Summary of the Proposed Potable Water Drought Rates Drought rates are one of several “tools” to assist during a drought or water emergency. In the City’s case, the drought rates will work in tandem with the City’s other conservation programs, and specifically the City’s excess use penalties (Ord. 2097) previously adopted by the City. It should be noted that the existing excess use penalty rates were reviewed as part of the rate study, and in discussion with City staff it was determined that the current approach is meeting the City’s goals and objectives for the excess use penalties. Therefore, no changes to the excess use penalty rates were recommended. When properly designed, drought rates simultaneously address the issues of the financial/revenue impacts of decreased consumption while also providing an additional incentive to encourage efficient use, or more appropriately stated, discourage wasteful or inefficient use through pricing. In a drought, water rates are one mechanism or tool used to encourage or create conservation savings. When a utility enters a drought stage, it is not uncommon for a utility to have a set of water drought rates to maintain sufficient revenues due to reductions in usage and to provide an incentive to induce a specified level of conservation savings. For purposes of establishing drought rates, four stages for water shortage and a target water savings for each stage were established in the City’s water conservation plan. These water shortage stages are summarized below. Stage 1 – Up to 20% water savings: Voluntary Stage 2 – Up to 20% water savings: Mandatory Stage 3 – Up to 35% water savings: Mandatory Stage 4 – Over 35% water savings: Mandatory In developing the drought rates, the monthly meter charge remains fixed at the same level regardless of the drought stage. For purposes of this discussion, it is also assumed that the Zone 7 rate is also fixed, but it will change if Zone 7 modifies their wholesale rate to the City. Therefore, the portion of the water rate impacted by the water shortage rate is the local consumption charges of the water rates. Based on the conservation savings estimated for each drought stage, the drought rates were developed to maintain the current level of revenues for each customer class of service. As noted, in addition to maintaining the current level of revenue to support operating costs, additional costs the City incurs during the drought were included to reflect the changes in costs at each stage. Provided below in Table ES-6 is a summary of the drought rates for each block. Executive Summary 11 City of Pleasanton – Comprehensive Water Rate Study Table ES–6 Summary of the Drought Rates – $/CCF Normal Conditions Voluntary Stage 1 Mandatory Stage 2 Mandatory Stage 3 Mandatory Stage 4 0% 20% 20% 35% >35% Single-Family Tier 1 – 0-20 CCF $0.0000 $0.1619 $0.5689 $1.2266 $2.5611 Tier 2 – 21-40 CCF $0.0000 $0.1619 $0.5689 $1.2266 $2.5611 Tier 3 – 41-60 CCF $0.0000 $0.1619 $0.5689 $1.2266 $2.5611 Tier 4 – 60+ CCF $0.0000 $0.1619 $0.5689 $1.2266 $2.5611 Multi-Family and Commercial All Consumption $0.0000 $0.1385 $0.5400 $1.1631 $2.5145 Irrigation All Consumption $0.0000 $0.1458 0.5655 $1.2244 $2.6470 The drought rates in Table ES-6 are added to the current rates in place at the time the drought stage is declared. For example, if the first tier rate is currently $2.4000/CCF and the City declares a Stage 2 drought, then the first tier rate will change to $2.9689/CCF ($2.4000 + $0.5689). These drought rates can be added to the City’s proposed rates, at the appropriate drought stage level, effective October 1, 2015, as directed by the City Council. Implementation of these drought rates will help the City maintain revenue levels during drought related consumption reductions, provide additional pricing incentives to reduce consumption, and work in tandem with the City’s excessive use penalties for inefficient water users. Drought rates will be revised at the same time as potable water rates are adjusted starting in January 2016 with the first CPI adjustment. As noted, drought rates are in place to provide sufficient revenues to meet operating and capital needs. Given this, when potable water rates are increased the level of revenues will increase. Subsequently, drought rates will need to be reviewed and updated based on the relationship to the current rates and revenue needs. This includes any CPI adjustments to the local distribution charges as well as the Zone 7 wholesale water rates. In this way the enactment of the drought rates will provide the same level of revenues prior to drought rates and resulting water conservation impacts. A more detailed discussion of the potable water drought rates is provided in Section 3.4.7 of this report. In addition, HDR developed a technical memorandum to supplement the development of the potable water drought rates to clearly demonstrate and support the pricing of the drought rates. This technical memorandum is attached within the technical appendix to this report. Recycled Water Rate Study The City is in the process of expanding its current recycled water system with the addition of new pipelines, storage, and future capital improvements to provide recycled water to areas of Executive Summary 12 City of Pleasanton – Comprehensive Water Rate Study the City. The recycled water system technical analysis was developed based on the operating and capital costs necessary to provide recycled water where available. Key Recycled Water Rate Study Results The recycled water technical analysis resulted in the following findings, conclusions, and recommendations. A revenue requirement analysis was developed for FY 2016 through FY 2020. The FY 2015 budget was used as the starting point of the analysis. Operation and maintenance expenses were projected based on FY 2016 and FY 2017 budget estimates along with future estimated inflationary levels. The City purchases recycled water supply from Dublin San Ramon Services District and the City of Livermore. Purchased recycled water projections were based on City provided estimates of customers converting to recycled water in the near future. The analysis includes annual debt service payments starting in FY 2017 which funds Phase 1A and 1B of the recycled water system. The analysis begins to fund a renewal and replacement fund over the 5-year period to establish a renewal and replacement fund. A recycled water connection fee was calculated and is provided under a separate cover to the City. The current recycled water rate structure is based on 90% of the potable water irrigation rate. The proposed recycled water rate maintains the 90% relationship to the potable irrigation rate. Summary of the Recycled Water Revenue Requirement Analysis Similar to the potable water analysis, a revenue requirement analysis was developed for the recycled water system to determine the adequacy of recycled water rates. The analysis is used to determine if the level of current recycled water rates adequately supports recycled water operations and capital needs. The projection of revenues for the recycled water analysis was based on the expected conversion of existing potable irrigation customers to the recycled water system when it becomes available. It should also be noted that the projected revenues assume maintaining the recycled water rate relationship equal to 90% of the potable irrigation rate. The City provided the anticipated recycled water sales to new customers over the 5-year period which was used to project annual recycled water revenues and recycled water purchases from Dublin San Ramon Services District and the City of Livermore. The recycled water revenue requirement was developed for the six-year projected time period of FY 2015 – FY 2020. The revenue requirement analysis was established using a “cash basis” approach. This is the same methodology and time period used in the development of the Executive Summary 13 City of Pleasanton – Comprehensive Water Rate Study potable water revenue requirement. The cash basis approach is composed of O&M expenses, transfer payments, debt service, and capital projects funded from rates. The primary financial inputs in the development of the revenue requirement were the City’s projected recycled water budget for FY 2016 and FY 2017, projected recycled water customer billing data, and the recycled water capital improvement plan. The City is in the early stages of establishing a recycled water system. As a result, the development of a renewal and replacement fund to finance future capital improvements and maintain the existing system is critical to the financial stability of the recycled water program. The City’s current capital improvement plan includes Phases 1A and 1B, which are funded through a low interest loan from the State of California. This results in an annual debt service payment starting in FY 2017 of approximately $750,000. When recycled water revenues are sufficient, the City will begin to establish a transfer to the recycled water renewal and replacement fund. It is expected this will occur starting in FY 2018 and ramp up as sales and revenue levels permit. The same general financial guideline used in the potable water analysis for the funding of renewal and replacements also applies to the recycled water utility. That is, at a minimum, a utility should fund an amount equal to or greater than annual depreciation expense through rates. As noted, as revenues are available the City should increase the level of rate funded capital to maintain the recycled water system. In the future some consideration should be given to funding, within recycled water rates, some amount greater than annual depreciation expense for purposes of funding replacement cost. Given the projection of operating and capital expenses, a summary of the recycled water revenue requirement analysis was developed. Provided below in Table ES-7 is a summary of the revenue requirement analysis (financial plan). Executive Summary 14 City of Pleasanton – Comprehensive Water Rate Study Table ES–7 Summary of the Recycled Water Revenue Requirement Analysis ($000) FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 FY 2020 Revenues Rate Revenues $103 $614 $1,174 $1,556 $1,777 $1,881 Other Revenues 285 288 291 294 297 300 Total Revenues $388 $902 $1,465 $1,850 $2,074 $2,181 Expenses O&M Expenses $44 $600 $854 $1,009 $1,102 $1,152 Transfers 0 0 0 75 200 275 Net Debt Service 0 0 750 750 750 750 Change in Working Capital 0 0 0 0 0 0 Total Expenses $44 $600 $1,604 $1,834 $2,052 $2,177 Bal./(Def.) of Funds $344 $301 ($140) $16 $21 $4 Balance as % of Rev from Rates -335.5% -49.1% 11.9% -1.0% -1.2% -0.2% Proposed Rate Adjustments [1] 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% [1] Proposed recycled water revenues are based on 90% of the proposed irrigation water rates, which include the previously discussed potable water rate adjustments. No further recycled water rate adjustments are proposed during this time period. As can be seen, the revenue requirement is the sum of the O&M, transfers (i.e., rate funded capital), net debt service and the change in working capital. The total revenue requirement is then compared to the total sources of funds which include the projected rate revenues, set at 90% of the proposed potable irrigation rate, and other miscellaneous revenues. From this comparison a balance or deficiency of funds in each year can be determined. Over this project time period, the projected recycled water revenues adequately fund the projected O&M, capital, establishment of the renewal and replacement fund, and maintenance of prudent operating reserves. Summary of the Present and Proposed Recycled Water Rate Designs The proposed recycled water rates are based on 90% of the potable irrigation rate. This method of establishing recycled water rates is a method used by many utilities in California to develop their recycled water rates. As noted in the revenue requirement section, based on this relationship to the potable irrigation rate, no additional rate adjustments are proposed for the recycled water rates. However, given the change in the potable water irrigation rates, the recycled water rate will be adjusted on October 1, 2015 to reflect the relationship to potable irrigation rate levels. In addition, as potable water rates are adjusted by the proposed inflationary increases and any changes in Zone 7 rates, the recycled water rates will also be adjusted. For purposes of projecting recycled water rates, an estimated inflationary increase of 2.5% was used for the potable water rates, and subsequently for the recycled water rates. It should be noted that no adjustments to the Zone 7 rates have been included in the development of the proposed recycled water rates. Executive Summary 15 City of Pleasanton – Comprehensive Water Rate Study Given the above, the City’s recycled water rates were developed for the next 5-year time period (FY 16 – FY 20). Provided in Table ES-8 is a summary of the present and proposed recycled water rates. Table ES–8 Summary of the Present and Proposed Recycled Water Rates ($/CCF) Present Rate FY 2016 Oct. 1, 2015 FY 2016 Jan 1 2016 FY 2017 Jan 1 2017 FY 2018 Jan 1 2018 FY 2019 Jan 1, 2019 FY 2020 Jan 1, 2020 Rate per CCF $2.3537 $2.6237 $2.6330 $2.6426 $2.6524 $2.6625 $2.6728 As can be seen the proposed rates, effective October 1, 2015, have been adjusted to maintain the relationship to the proposed potable water irrigation rate. This relationship has been maintained as potable water customers share in the cost of recycled water costs (through the upper tiers which are established as the outdoor use tiers) as it provides a benefit to potable water customers of not needing to purchase additional water from Zone 7 or require the City to develop additional water supplies. Therefore, the relationship provides an incentive to utilize recycled water and reduce potable water consumption for outdoor watering needs. Thereby minimizing customer reliance on more expensive potable water supplies and freeing up potable water for indoor customer use. The proposed recycled water rates assume no changes in the wholesale potable rate from Zone 7 and the assumed inflationary adjustment of 2.5% for example purposed. The actual rate will vary depending on the actual inflation used to set the proposed rates, and will be based on 90% of the potable water irrigation rate. Section 4 of this report provides a detailed discussion of the present and proposed recycled water rates. Water Rate Study Recommendations Based on the results of the potable water rate study, HDR recommends the following: Potable water rates should be adjusted 5.5% based on the proposed rates as part of this study for October 1, 2015. When funds are available, increase the level of annual replacement funding to transition towards meeting annual depreciation expense levels. Future CPI related rate adjustments are necessary to meet operating and capital needs. These were estimated at 2.5% per year each January 1st starting in 2016 through 2020. The actual rates will be based on the actual CPI index for the year prior to the rate setting period. Drought rates should be adopted based on the need to maintain sufficient revenues for operating and capital needs. Drought rates should be adjusted whenever potable water rates are adjusted (Zone 7 pass through or CPI adjustments). Executive Summary 16 City of Pleasanton – Comprehensive Water Rate Study Based on the results of the recycled water rate study, HDR recommends the following: Maintain the existing basis for the recycled water rate of 90% of the potable water irrigation rate. Adjust the recycled water rate when adjusting the potable water rates. Begin to establish the replacement fund for the recycled water fund for future system repair and replacements. Summary of the Water Rate Study This completes the overview of the development of the comprehensive potable and recycled water rate study for the City. The focus of this study has been the prudent and adequate funding of the utility, particularly as it relates to the needed capital improvement projects and prudent annual funding of renewal and replacement needs. The proposed rate adjustments maintain a fiscally healthy potable and recycled water system. A full and complete discussion of the development of the potable and recycled water rate study can be found in following sections of this report. Introduction and Overview 17 City of Pleasanton – Comprehensive Water Rate Study 1.1 Introduction HDR Engineering, Inc. (HDR) was retained by the City of Pleasanton (City) to conduct a comprehensive water rate study. The objective of the rate study was to review the City’s potable and recycled water operating and capital costs in order to develop a financial plan and cost-based rates. The financial plan is designed to meet the City’s operation and maintenance (O&M) needs and the capital improvement program for the potable and recycled water systems. This study determined the adequacy of the existing water rates and provides the framework for any needed future adjustments. The City owns and operates a potable and recycled water distribution system. The City purchases potable water from Zone 7, supplemented with ground water, and purchases recycled water from Dublin San Ramon Services District and the City of Livermore. Each system was analyzed on a stand-alone basis to determine if rates are adequately funding each system’s operating and capital needs. 1.2 Goals and Objectives The City had a number of key objectives in developing the water rate study. These key objectives were as follows: x Develop the study in a manner that is consistent with the principles and methodologies established by the American Water Works Association (AWWA), M1 Manual, Principles of Water Rates, Fees, and Charges. x In financial planning and establishing the City’s rates, review and utilize best industry practices, while recognizing and acknowledging the specific and unique characteristics of the City’s systems. x Review the City’s rates utilizing “generally accepted” rate making methodologies to determine adequacy and equity of the utility rates. x Meet the City’s financial planning criteria, particularly as it relates to adequate funding of capital infrastructure and maintenance of adequate and prudent reserve levels. x Develop a final proposed financial plan which adequately supports the utility’s funding requirements, while attempting to minimize overall impacts to rates. x Provide rates which meet the legal requirements of Proposition 218 and recent legal decisions related to Proposition 218. These key objectives provided a framework for policy decisions in the analysis that follows. 1. Introduction and Overview Introduction and Overview 18 City of Pleasanton – Comprehensive Water Rate Study 1.3 Overview of the Rate Study Process User rates must be set at a level where a utility’s operating and capital expenses are met with the revenues received from customers. This is an important point, as failure to achieve this objective may lead to insufficient funds to maintain system integrity. To evaluate the adequacy of the existing rates, a comprehensive rate study is often performed. A comprehensive water rate study consists of three interrelated analyses. Figure 1-1 provides an overview of these analyses. Figure 1–1 Overview of the Comprehensive Water Rate Analyses The above framework for reviewing and evaluating rates was utilized for the City’s potable and recycled water systems. 1.4 Organization of the Study This report is organized in a sequential manner that first provides an overview of utility rate setting principles, followed by sections that detail the specific steps used to review the City’s potable and recycled water rates. The following sections comprise the City’s water rate study report: x Section 2 – Overview of Water Rate Setting Principles x Section 3 – Development of the Potable Water Rate Study x Section 4 – Development of the Recycled Water Rate Study A Technical Appendices is attached at the end of this report, which details the various technical analyses that were undertaken in the preparation of this report. 1.5 Summary This report will review the comprehensive water rate analyses prepared for the City. This report has been prepared utilizing generally accepted water rate setting techniques. Revenue Requirement Analysis Cost of Service Analysis Rate Design Analysis Compares the revenues to the expenses of the utility to determine the overall rate adjustment required Allocates the revenue requirement to the various customer classes of service in a “fair and equitable" manner Considers both the level and structure of the rate design to collect the target level of revenues Overview of Water Rate Setting Principles 19 City of Pleasanton – Comprehensive Water Rate Study 2.1 Introduction This section of the report provides background information about the water rate setting process, including descriptions of generally accepted principles, types of utilities, methods of determining a revenue requirement, the cost of service analysis, and rate design. This information is useful for gaining a better understanding of the details presented in Sections 3 and 4 of this report. 2.2 Generally Accepted Rate Setting Principles As a practical matter, all utilities should consider setting their rates around some generally accepted or global principles and guidelines. Utility rates should be: x Cost-based, equitable, and set at a level that meets the utility’s full revenue requirement. x Easy to understand and administer. x Designed to conform to “generally accepted” rate setting techniques. x Stable in their ability to provide adequate revenues for meeting the utility’s financial, operating, and regulatory requirements. x Established at a level that is stable from year-to-year from a customer’s perspective. 2.3 Types of Utilities Utilities are generally divided into two types: Public utilities are usually owned by a City, county, or special district, and are theoretically operated at zero profit. A public utility is locally owned since its customers are also its owners. Public utilities are capitalized or financed by issuing debt and soliciting funds from customers through direct capital contributions or user rates. Public or municipal utilities are typically exempt from state and federal income taxes. A publicly elected City Council or Board of Commissioners usually regulates public utilities. Private utilities are “for profit” enterprises and are owned by a private company and/or shareholders. The shareholders are, in essence, the owners of the private utility. Therefore, the owners of a private utility may not be customers or local citizens, but rather numerous individuals or shareholders spread across the United States. A private utility is capitalized by issuing stock to the general public. Private utilities are taxable entities. Given their “for-profit” status, their rates and operations are generally regulated by a state public utility commission or other regulatory body. As a point of reference, the City is a public (municipal) utility and the analysis has been based on the methodology generally utilized by a public utility. 2. Overview of Water Rate Setting Principles Overview of Water Rate Setting Principles 20 City of Pleasanton – Comprehensive Water Rate Study 2.4 Determining the Revenue Requirement Because public and private utilities have very different administrative and financial characteristics their methods differ for determining revenue requirements and setting rates. 2.4.1 Public Utilities Most public utilities use the “cash basis” approach for establishing their revenue requirement and setting rates. This approach conforms to most public utility budgetary requirements and the calculation is easy to understand. A public utility totals its cash expenditures for a period of time to determine required revenues. The revenue requirement for a public utility is usually comprised of the following costs or expenses: x Total Operating Expenses: This includes a utility’s operation and maintenance (O&M) expenses, plus any applicable taxes or transfer payments. Operation and maintenance expenses include the materials, electricity, labor, supplies, etc. needed to keep the utility functioning. x Total Capital Expenses: Capital expenses are calculated by adding debt service payments (principal and interest) to capital improvements financed with rate revenues. In lieu of including capital improvements financed with rate revenues, a utility sometimes includes depreciation expense to stabilize the annual revenue requirement. Under the “cash basis” approach, the sum of the total operating expenses plus the total capital expenses equals the utility’s revenue requirement during any selected period of time (historical or projected). Note that the two portions of the capital expense component (debt service and capital improvements financed from rates) are necessary under the cash basis approach because utilities generally cannot finance all their capital facilities with long-term debt. At the same time, it is often difficult to pay for capital expenditures on a “pay-as-you-go” basis given that some major capital projects may have significant rate impacts upon a utility, even when financed with long-term debt. Many utilities have found that some combination of pay-as-you- go funding and long-term financing will often lead to minimization of rates over time. Public utilities typically use the “cash basis”1 approach to establish their revenue requirements. An exception occurs if a public utility provides service to a wholesale or contract customer. In this situation, a public utility could use the “utility basis” approach (see Table 2-1) to earn a fair return on its investment. 1 “Cash basis” as used in the context of rate setting is not the same as the terminology used for accounting purposes and recognition of revenues and expenses. As used for rate setting, “cash basis” simply refers to the specific cost components to be included within the revenue requirement analysis. Overview of Water Rate Setting Principles 21 City of Pleasanton – Comprehensive Water Rate Study Table 2–1 Cash versus Utility Basis Comparison Cash Basis Utility Basis (Accrual) + O&M Expenses + O&M Expenses + Taxes/Transfer Payments + Taxes/Transfer Payments + Capital Improv. Funded From Rates ;ш Depreciation Expense) + Depreciation Expense + Debt Service (Principal + Interest) + Return on Investment = Total Revenue Requirement = Total Revenue Requirement 2.4.2 Private Utilities Most private utilities use a “utility basis” or accrual approach for establishing revenue requirement and setting rates (see Table 2-1). The revenue requirement for a private utility is usually comprised of the following costs or expenses: x Total Operating Expenses: This includes a utility’s operation and maintenance (O&M) expenses, plus any applicable taxes or transfer payments. Similar to a public utility under the “cash basis” methodology, operation and maintenance expenses include the materials, electricity, labor, supplies, etc. needed to keep the utility functioning. x Depreciation Expense: Depreciation expense is a “book value” and in the rate setting process a means of recouping the cost of capital facilities over their useful lives. The inclusion of depreciation expense within the revenue requirement is a means of generating internal cash. x Return on Investment: A utility should earn a “fair return” on their investment in utility plant and property. Private utilities must pay state and federal income taxes along with any applicable property, franchise, sales, or other form of revenue taxes. The return portion of this type of revenue requirement pays for the private utility’s interest expense on indebtedness, provides funds for a return to the utility’s shareholders in the form of dividends, and leaves a balance for retained earnings and cash flow purposes. 2.5 Analyzing Cost of Service After the total revenue requirement is determined, it is allocated to the users of the service. The allocation, usually analyzed through a cost of service analysis, reflects the cost relationships for producing and delivering services. A cost of service analysis requires three analytical steps: 1. Costs are functionalized or grouped into the various cost categories related to providing service (supply, distribution, pumping, etc.). This step is largely accomplished by the utility’s accounting system. Overview of Water Rate Setting Principles 22 City of Pleasanton – Comprehensive Water Rate Study “Economic theory suggests that the price of a commodity must roughly equal its cost if equity among customers is to be maintained.” 2. The functionalized costs are then classified to specific cost components. Classification refers to the arrangement of the functionalized data into cost components. For example, a water utility’s costs are typically classified as average day, peak day, or customer-related. 3. Once the costs are classified into components, they are proportionally allocated to the customer classes of service (residential, non-residential, irrigation, etc.). The allocation is based on each customer class’ relative contribution to the cost component. For example, customer-related costs are allocated to each class of service based on the total number of customers in that class of service. Once costs are allocated, the revenues from each customer class of service required to achieve cost-based rates can be determined. 2.6 Designing Water Rates Rates that meet the utility’s objectives are designed based on both the revenue requirement and the cost of service analysis. This approach results in rates that are strictly cost-based and does not consider other non-cost based goals and objectives (conservation, economic development, ability to pay, revenue stability, etc.). In designed final proposed rates, factors such as ability to pay, continuity of past rate philosophy, economic development, ease of administration, and customer understanding may typically be taken into consideration2. 2.7 Economic Theory and Rate Setting One of the major justifications for a comprehensive rate study is founded in economic theory. Economic theory suggests that the price of a commodity must roughly equal its cost if equity among customers is to be maintained. This statement’s implications on utility rate designs are significant. For example, a water utility usually incurs capacity-related costs to meet summer lawn watering needs. It follows that the customers who create excessive peak demands on the system and create the need for upsizing of the distribution system should pay for those over-sized facilities in proportion to their contribution to total peaking requirements. When costing and pricing techniques are refined, consumers have a more accurate understanding of what the commodity costs to produce and deliver. This price-equals-cost concept provides the basis for the subsequent analysis and comments. 2.8 Summary This section of the report has provided a brief introduction to the general principles, techniques, and economic theory used to set water rates. These principles and techniques will become the basis for the City’s comprehensive water rate study. 2 The recent Capistrano decision has limited a water utility’s ability to establish tiered rates for purposes of encouraging water conservation. The Capistrano decision determined that the pricing of the tiers must have a cost- basis and cannot simply be punitive to encourage efficient use. Development of the Potable Water Rate Study 23 City of Pleasanton – Comprehensive Water Rate Study 3.1 Introduction This section describes the development of the potable water rate study. Potable water is most easily described as “drinking water” and has been treated and delivered to the City’s customers for human consumption and other uses. In contrast to potable water, non-potable or recycled water is not treated to a level suitable for human consumption and is therefore used for outdoor irrigation. This portion of the report will focus on the costs related to the City’s potable water system. The potable water rate study includes the development of the revenue requirement, cost of service, and rate design analyses. Each of these analyses is discussed in more detail, including the specific steps to develop the City’s cost-based and equitable potable water rates. 3.2 Development of the Potable Water Revenue Requirement The revenue requirement analysis is the first analytical step in the comprehensive rate study process. This analysis determines the adequacy of the overall potable water rates. From this analysis, a determination can be made as to the overall level of rate adjustments needed to provide adequate and prudent funding for both operating and capital needs of the potable water system. 3.2.1 Determining the Revenue Requirement In developing the City’s potable water revenue requirement, the utility, as an enterprise fund, must financially “stand on its own” and be properly funded. As a result, the revenue requirement analysis, as developed herein, assumes the full and proper funding needed to operate and maintain the City’s potable water system on a financially sound and prudent basis. Provided below is a more detailed discussion of the development of the revenue requirement analysis for the City. 3.2.2 Establishing a Time Frame and Approach The first step in calculating the revenue requirement for the City’s potable water utility was to establish a time frame for the revenue requirement analysis. For this study, the revenue requirement was developed for a six-year projected time period (FY 2015 – FY 2020). This six year time frame was composed of Budget FY 2015 and the five projected years of FY 2016 – FY 2020. Reviewing a multi-year time period is recommended since it attempts to identify any major expenses that may be on the horizon. By anticipating future financial requirements, the City can begin planning for these changes sooner, thereby minimizing short-term rate impacts and overall long-term rates. The second step in determining the revenue requirement was to decide on the basis of accumulating costs. In this particular case, for the revenue requirement analysis a “cash basis” approach was utilized. The “cash basis” approach is the most commonly used methodology by 3. Development of the Potable Water Rate Study Development of the Potable Water Rate Study 24 City of Pleasanton – Comprehensive Water Rate Study “ . . . the State of California has recently implemented additional required conservation savings for 2015 which will impact the level of consumption and resulting consumption based revenues.” municipal utilities to set their revenue requirement. This is also the methodology that the City has historically used to establish their potable water revenue requirements. Table 3-1 provides a summary of the “cash basis” approach and cost components used to develop the City’s potable water revenue requirement. Table 3–1 Overview of the City’s “Cash Basis” Revenue Requirements + Water Operation and Maintenance Expenses + Transfers to R&R Fund (Rate Funded Capital) + Debt Service (P + I) – Existing and Future ± Change in Working Capital . = Total Potable Water Revenue Requirement о Miscellaneous Revenues . = Net Revenue Requirement (Balance Required from Potable Rates) Given a time period around which to develop the revenue requirement and a method to accumulate the costs; the focus shifts to the development and projection of the revenues and expenses of the City’s potable water system. The primary financial inputs in the development of the revenue requirement were the City’s FY 2015 budget documents, 2014 billed customer and consumption data, and the City’s potable water capital improvement plan. Presented below is a detailed discussion of the steps and key assumptions contained in the development of the projections of the City’s potable water revenue requirement analysis. 3.2.3 Projecting Rate and Other Miscellaneous Revenues The first step in developing the revenue requirement analysis was to develop a projection of the potable water rate revenues, at present rate levels. In general, this process involved developing projected billing units for each customer group (e.g., residential, multi-family, commercial, etc.). The billing units for each customer group were then multiplied by the applicable current potable water rates. This method of independently calculating revenues links the projected revenues used within the analysis to the projected billing units. It also helps to confirm that the billing units used within the study are reasonable for purposes of projecting future revenues, allocating costs and, ultimately, establishing proposed rates. A key aspect of the projection of potable water rates was to develop a projection of consumption levels considering the current drought. In addition, the State of California has recently implemented additional required conservation savings for 2015 which will impact the level of consumption and resulting consumption based revenues. In discussion with City staff it was determined that calendar year 2014 consumption levels would Development of the Potable Water Rate Study 25 City of Pleasanton – Comprehensive Water Rate Study be reduced by approximately 10% for purposes of projecting revenues for FY 2015 and held flat at that level throughout the remaining 5-year period. To account for further reductions due to the State mandated conservation levels this study has developed drought rates which are discussed in detail in Section 3.4.7 of this report. The City has separate rate schedules (structures) for its single-family, multi-family, commercial, and irrigation customers. The majority of the City’s potable water rate revenues are derived from single-family customers. The City also has a senior discount rate and a low-income discount rate for single-family customers. The senior and low-income discount rates3 are different rates and levels of discount. The rate discount provided is funded through the City’s general fund and is not subsidized by other ratepayers. The City also serves a variety of multi-family, commercial and irrigation customers. In total, and at currently adopted rate levels, the City’s potable water system is projected to receive approximately $16.4 million in rate revenue in FY 2015. Over time, the study has assumed a conservative level customer growth (1%/year) as well as overall consumptive growth based solely on increased population. By FY 2020, the rate revenues, assuming no rate adjustments, are projected to be approximately $18.1 million. In addition to rate revenues, the potable water system also receives miscellaneous revenues. As noted above, the General Fund makes a transfer of funds to the water utility to fund the senior/low-income discount program. The City has other miscellaneous revenue sources. In total, the City is projected to annually receive approximately $950,000 in miscellaneous revenues over the projected planning horizon. This amount is anticipated to increase slightly over the projected five year time period and excludes the current drought penalty revenues. On a combined basis, taking into account the rate revenues and the miscellaneous revenues, the City’s potable water utility has total projected revenues of approximately $18.6 million in FY 2015, increasing to approximately $19.1 million in FY 2020. 3.2.4 Projecting Operation and Maintenance Expenses Operation and maintenance (O&M) expenses are incurred by the potable water system to operate and maintain the existing plant in service and to purchase water from Zone 7, the City’s wholesale water provider. Potable water O&M was projected based on four (4) main budget categories: water conservation, water O&M, water purchases, and utility billing. O&M expenses, with the exception of water purchases were projected over the five year period at an assumed annual inflation rate of 3.0%. Water purchases from Zone 7 were projected based on the current Zone 7 rates and City’s developed purchased water projections. The total O&M 3 Under Proposition 218, a utility may not provide subsidies for senior citizens or low-income customers by increasing the water rates of the other customers. To legally provide this rate discount, the City transfers funds in from the City’s General Fund to financially support this program. Development of the Potable Water Rate Study 26 City of Pleasanton – Comprehensive Water Rate Study expenses for the potable water system are approximately $15.7 million based on the FY 2015 budget. O&M expenses comprise approximately 85% of the total expenses incurred by the City. The cost of water from Zone 7 accounts for roughly half of the total costs associated with the City’s water utility. Over the five year planning horizon, the total O&M expenses are projected to increase to approximately $18.6 million by FY 2020 based on assumed inflationary impacts and increases in Zone 7 water purchases. It should be noted that the analysis used the current Zone 7 rate ($2.40) and does not include any future wholesale potable water rate increases from Zone 7. Any wholesale water rate increase from Zone 7 will be passed through to the City’s customers when adopted by Zone 7. 3.2.5 Projecting Capital Funding Needs and Transfer Payments A key component in the development of the water revenue requirement was properly and adequately funding capital improvement needs. One of the major issues facing many utilities across the U.S. is the amount of deferred capital projects and the funding pressure from growth/expansion-related improvements. The proper and adequate funding of capital projects is an important issue for all water utilities and is not just a local issue/concern of the City. In general, there are three types of capital projects that a utility may need to fund. These include the following types: x Renewal and replacement projects x Growth/capacity expansion projects x Regulatory-related projects A renewal and replacement project is essentially maintaining the existing system that is in place today. As the existing plant becomes worn out, obsolete, etc. the utility should be making continuous investments to maintain the integrity of the facilities. In contrast to this, a utility may make capital investments to expand the capacity of facilities to accommodate future capacity needs (customers). Finally, certain projects may be a function of a regulatory requirement in which the Federal or State government mandates the need for an improvement to the system to meet a regulatory standard. Understanding these different types of capital projects is important because it may help to explain why costs are increasing and the cost drivers for any needed rate adjustment. In addition, and more importantly, the way in which projects are funded may vary by the type of capital project. For example, renewal and replacement projects may be paid for via rates and funded on a “pay-as-you-go basis”. In contrast to this, growth or capacity expansion projects may be funded via the collection of development or water connection fees (i.e. growth-related charges) in which new development pays a proportional and equitable share of the cost of their connection (impact). Finally, regulatory projects may be funded by a variety of different means, which may include rates, long-term debt, grants, etc. While the above discussion appears to neatly divide capital projects into three clearly defined categories, the reality of working with specific capital projects may be more complex. For example, a pump may be replaced, but while being replaced, it is up-sized to accommodate greater capacity. There are many projects that share these “joint” characteristics. At the same time, projects may not be “replacement” related, but rather “improvement” related. Development of the Potable Water Rate Study 27 City of Pleasanton – Comprehensive Water Rate Study For purposes of reviewing the capital project funding, City has segregated their capital plan into two components: x Water Replacement Fund x Water Expansion Fund Each of these types of capital projects (funds) are discussed in more detail below. WATER REPLACEMENT FUND - The potable water replacement fund is intended to provide funding for the more routine renewal and replacement type projects. Provided below in Table 3-2 is a summary of the potable water replacement fund. Table 3–2 Summary of the Potable Water Replacement Fund ($000) FY 2015 FY 2016 FY 2107 FY 2018 FY 2019 FY 2020 Beginning Fund Balance $12,834 $10,833 $7,822 $7,394 $7,739 $7,888 Revenue Rate Funded Capital $1,600 $1,825 $2,115 $2,250 $2,550 $2,800 Vineyard Ave 4th Tier Fee 43 45 46 48 49 51 Transfer from O&M Fund 0 0 0 0 0 0 Additional Revenue Bonds 0 0 0 0 0 0 Total Revenue $1,643 $1,870 $2,161 $2,298 $2,599 $2,851 Water Repair and Replacement Bi-Electrical Panel Upgrades $152 $0 $53 $0 $56 $0 Pressure Reducing Valve Imp - Hill 99 0 53 0 56 0 Bi-Annual Water Quality Imp 45 103 0 108 0 114 Annual Water Pump and Motor Repairs 277 103 105 108 111 114 Water System Master Plan Update 0 51 0 0 0 0 Annual Replacement of Water Meters 487 514 527 217 222 57 Annual Water Replacement Projects 450 514 527 921 946 1,085 Bi-An. Emergency Water Generator Overhaul 72 0 53 0 56 0 Water Tank Corrosion Repairs 200 0 211 0 222 286 Bi-Annual Control Valve Installations 156 0 132 0 167 0 Annual polybutylene replacement 93 128 132 135 139 143 General Fund - Utility Cut Patching 78 80 82 84 86 89 General Fund - CIP Engineering 220 257 264 379 389 400 Advance Metering Infrastructure 0 3,081 0 0 0 0 Backflow Admin Database Development 50 0 0 0 0 0 Water Rate Analysis 60 0 0 0 0 0 Water Telemetry Upgrades 0 51 53 0 0 0 Del Valle Parkway Water Main Ext 0 0 398 0 0 0 Total Water Repair and Replacement $2,439 $4,881 $2,589 $1,953 $2,450 $2,288 To O&M Fund for Debt Service $0 $0 $0 $0 $0 $0 To Recycled Water Fund $1,205 $0 $0 $0 $0 $0 Ending Fund Balance $10,833 $7,822 $7,394 $7,739 $7,888 $8,451 Development of the Potable Water Rate Study 28 City of Pleasanton – Comprehensive Water Rate Study As can be seen in Table 3-2, there are a number of projects which vary from year-to-year. A more detailed listing of the capital projects may be found on Exhibit 5a of the Technical Appendices. While the total amount of project may vary from year to year, the potable water replacement funding plan has attempted to provide a consistent funding source for the replacement fund. In this case, the potable water rates will annually fund an amount ranging from $1.6 million to $2.8 million (as highlighted in Table 3-2). As a point of reference, the City’s annual depreciation expense is approximately $3.3 million. A desirable and recommended minimum funding target for rate funded capital is an amount equal to or greater than annual depreciation expense. While this financial plan has not fully met that target funding level of rates, the level of funding has been increased to a more prudent level. However, even with this increased funding, depending upon the timing of replacement capital projects, additional funding from rates may be needed at some point in time to address the renewal and replacement of existing assets. WATER EXPANSION FUND – The City also has certain expansion or capacity related water improvement projects. The City has a potable water expansion fund to track and fund these projects. Provided below in Table 3-3 is a summary of the potable water expansion fund and the expansion-related projects. Table 3–3 Summary of the Potable Water Expansion Fund ($000) FY 2015 FY 2016 FY 2107 FY 2018 FY 2019 FY 2020 Beginning Fund Balance $3,017 $3,277 $3,397 $2,264 $2,510 $2,476 Revenue Plus: Connection Fees $300 $300 $300 $300 $300 $300 Transfers In 0 0 0 0 0 0 Transfers Out 0 0 0 0 0 0 SRF Loan - Recycled Water 0 0 0 0 0 0 Additional Revenue Bonds 0 0 0 0 0 0 Total Revenue $300 $300 $300 $300 $300 $300 Water Expansion Upper Ruby Hill Tank $0 $103 $897 $0 $0 $0 Pump and Motor Capacity Increase 0 0 264 0 278 0 Del Valle Parkway Water Main Ext 0 0 220 0 0 0 Water System Master Plan Update 0 26 0 0 0 0 General Fund - CIP Engineering 40 51 53 54 56 57 Total Water Expansion $40 $180 $1,433 $54 $334 $57 To O&M Fund for Debt Service $0 $0 $0 $0 $0 $0 To Recycled Water Fund $0 $0 $0 $0 $0 $0 Ending Fund Balance $3,277 $3,397 $2,264 $2,510 $2,476 $2,719 As shown in Table 3-3, these expansion-related projects are primarily funded from connection fees and existing expansion fund reserves. It should be noted that projects are included in both replacement and expansion as portions of specific projects are funded through both Development of the Potable Water Rate Study 29 City of Pleasanton – Comprehensive Water Rate Study “. . . no new long- term debt issues are assumed over the projected five year period.” replacement and expansions funds. However, none of the expansion related portion of the projects, shown in Table 3-3 are funded from rate revenues. As a result, there is no impact to user rates from the expansion- (growth) related, and funded, capital projects. A more detailed exhibit of the expansion fund can be found on Exhibit 5b of the Technical Appendices. SUMMARY OF THE ANNUAL FUNDING OF CIP FROM RATES - From Tables 3-2and 3-3 a total annual funding of capital projects from rates can be determined. This is the amount which is included within City’s revenue requirement analysis. Provided below in Table 3-4 is a summary of the amount of rate funded capital for each year. Table 3–4 Summary of the Annual Potable Water Rate Funded CIP ($000) FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 FY 2020 Replacement Capital Projects $1,600 $1,825 $2,115 $2,250 $2,550 $2,800 Expansion Capital Projects 0 0 0 0 0 0 Total CIP Funded From Rates $1,600 $1,825 $2,115 $2,250 $2,550 $2,800 As noted previously, the City’s annual depreciation expense is approximately $3.3 million (2014). This financial plan has placed the City’s rate funding for CIP at $2.8 million by FY 2020. It is important to note and understand that depreciation expense is not the same as replacement cost. Thus, funding an amount which exceeds depreciation expense (i.e. $3.3 million) is both prudent and appropriate. In developing this financial plan, HDR and the City have attempted to minimize rate impacts while funding the planned capital improvement projects of the City. 3.2.6 Projection of Debt Service The City currently has no outstanding debt for the potable water system. In addition, no new long-term debt issues are assumed over the projected five year period to fund the City’s capital improvement program. 3.2.7 Change in Working Capital The final component of the revenue requirement analysis is change in working capital, or additional transfers to reserve funds to maintain prudent ending fund balances or for future funding of specific projects. The rate analysis assumes an annual transfer to the potable water system operating and maintenance reserve fund to maintain prudent reserve levels. No other transfers are included to the potable water replacement or expansion funds. 3.2.8 Summary of the Potable Water Revenue Requirements Given the above projections of revenues and expenses, a summary of the potable water revenue requirement analysis can be developed. In developing the revenue requirement Development of the Potable Water Rate Study 30 City of Pleasanton – Comprehensive Water Rate Study analysis, consideration was given to the financial planning considerations of the City. In particular, emphasis was placed on attempting to minimize rates, yet still have adequate funds to support the operational activities and capital projects throughout the projected time period. A focus of the analysis, and resulting rate projections, is based on meeting the potable water system renewal and replacement needs. Presented below in Table 3-5 is a summary of the City’s projected potable water revenue requirement. Detailed exhibits of this analysis can be found in the Technical Appendices (Exhibits 1 – 7). Table 3–5 Summary of the Potable Water Revenue Requirement Analysis ($000) FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 FY 2020 Revenues Rate Revenues $16,418 $16,941 $16,936 $17,212 $17,652 $18,111 Other Revenues 2,151 916 927 949 972 984 Total Revenues $18,569 $17,858 $17,862 $18,161 $18,624 $19,095 Expenses O&M Expenses $15,743 $16,358 $16,687 $17,298 $17,948 $18,611 Transfers Out 1,928 2,157 2,452 2,591 2,896 3,151 Net Debt Service 0 0 0 0 0 0 Change in Working Capital 898 235 266 283 312 423 Total Expenses $18,569 $18,751 $19,405 $20,173 $21,156 $22,184 Bal./(Def.) of Funds $0 ($893) ($1,542) ($2,013) ($2,532) ($3,089) Balance as % of Rev from Rates 0.0% 5.3% 9.1% 11.7% 14.3% 17.1% Proposed Rate Adjustments Annual CPI Increases 0.0% 2.5% 2.5% 2.5% 2.5% 2.5% Proposed Rate Adjustment 0.0% 5.5% 0.0% 0.0% 0.0% 0.0% Annualized Revenue Impact [1] 0.0% 5.4% 1.3% 1.3% 1.3% 1.3% [1] Annualized rate adjustment reflects the change in revenues based on the timing of the proposed rate change. For example, the CPI adjustments will take place January 1 of each year, or midway through the fiscal year while the rate adjustment is proposed for October 1, 2015. As can be seen, the potable water revenue requirement has summed the O&M, transfers (i.e., rate funded capital), net debt service and the change in working capital. The total revenue requirement is then compared to the total sources of funds which include the rate revenues, at present rate levels, and other miscellaneous revenues. From this comparison a balance or deficiency of funds in each year can be determined. This balance or deficiency of funds is then compared to the rate revenues to determine the level of rate adjustment needed to meet the revenue requirement. It is important to note the Development of the Potable Water Rate Study 31 City of Pleasanton – Comprehensive Water Rate Study “Cumulatively, the residential bill is projected to go from $77.84/bi-month to $86.24/bi-month, or a total change of $8.40/bi- month, transitioned over a five-year period. ” “Bal./(Def.) of Funds” row is cumulative. That is, any adjustments in the initial years will reduce the deficiency in the later years. Over this project time period, the total deficiency of rates is 17.1%. The revenue requirements developed in Table 3-5 has been developed to meet financial planning objectives of the City. More specifically, the City desires to adequately and prudently fund the potable water renewal and replacement needs. In doing so, any needed rate adjustments should avoid large adjustments in any single year. Table 3-5 has also included a set of proposed rate adjustments (yellow band) which are projected to be sufficient to meet the total revenue requirements over the projected time period. The proposed rate adjustments are a function of assumed inflation over this time period, coupled with the need to increase the capital improvement funding from rates (renewal and replacement funding). 3.2.9 Rate Adjustments / Rate Transition As a part of the financial plan developed for City, consideration was given to the smooth transition of rates over time to the needed level of rate revenues. Presented below in Table 3-6 is a summary of the rate transition plan and single-family customer bill impacts. Table 3–6 Summary of the Potable Water Rate Transition Plan and Single-Family Bill Impacts [1] Present Bill FY 2016 Oct. 1, 2015 FY 2016 Jan 1 2016 FY 2017 Jan 1 2017 FY 2018 Jan 1 2018 FY 2019 Jan 1, 2019 FY 2020 Jan 1, 2020 Bi-Monthly Residential Bill [1]- $77.84 Proposed Rate Adjustment 5.5% 2.5% 2.5% 2.5% 2.5% 2.5% Monthly Bill After Rate Adjust. $81.05 $82.06 $83.09 $84.13 $85.18 $86.24 $ Change/Bi-Month $3.21 $1.01 $1.03 $1.04 $1.05 $1.06 Cumulative Bi-Monthly Change $3.21 $4.22 $5.25 $6.29 $7.34 $8.40 [1] – Bi-Monthly bill assuming a ¾” meter and 24 CCF of water consumption The financial plan shown above has indicated the need for annual rate adjustments to adequately fund the City’s operating and capital needs for the water utility. An important question to be addressed is what the impacts to customers may be as a result of the proposed rate adjustments over this five year period. Table 3-6 illustrates the impact to a typical bi- monthly residential bill as a result of the proposed adjustments. As can be seen, the current bi-monthly residential bill is $77.84/bi-month. With the proposed adjustments, the impacts will be approximately a $3.21/bi- month annual adjustment in October of FY 2016 and Development of the Potable Water Rate Study 32 City of Pleasanton – Comprehensive Water Rate Study approximately $1.00/bi-month with following year’s proposed adjustments. Cumulatively, over the five year period the residential bill is projected to go from $77.84/bi-month to $86.24/bi- month, or a total change of $8.40/bi-monthly, transitioned over a five-year period. 3.2.10 Consultant’s Conclusions Based on the revenue requirement analysis developed herein, HDR has concluded that the City will need to adjust their potable water rates over the next five years (FY 2016 – FY 2020). HDR has reached this conclusion for the following reasons: x Rate adjustments are necessary to increase the rate funding the City’s capital improvement needs, of which a large portion is driven by the need to adequately fund renewal and replacement projects. x Rates adjustments reflect the declining consumption due to overall per capita reductions due to low flow appurtenances as well as impacts of the drought. x Rate adjustments are necessary to fund the City’s replacement capital projects on a “pay-as-you-go” basis and avoid the need for the issuance of any long-term debt. x The proposed rate adjustments maintain the City’s strong financial health and provide long-term sustainable funding levels for the City. In reaching this conclusion, HDR would recommend that the City adopt the proposed rates through FY 2020 in order to provide surety as to the availability of funding for the capital improvement program. 3.3 Development of the Potable Water Cost of Service Analysis In the previous section, the revenue requirement analysis focused on the total sources and application of funds required to adequately fund the City’s potable water system. This section will provide an overview of the potable water cost of service analysis developed for the City. A cost of service analysis is concerned with the equitable allocation of the total revenue requirement between the various customer classes of service (e.g., residential and commercial). The previously developed potable water revenue requirement was utilized in the development of the cost of service analysis. 3.3.1 Objectives of a Cost of Service Study There are two primary objectives in conducting a water cost of service analysis: x Allocate the City’s potable water revenue requirement among the customer classes of service, and x Derive average unit costs for subsequent rate designs The objectives of the cost of service analysis are different from determining a revenue requirement. As noted in the previous section, a revenue requirement analysis determines the utility’s overall financial needs, while the cost of service analysis determines the fair and equitable manner to collect the revenue requirement. Development of the Potable Water Rate Study 33 City of Pleasanton – Comprehensive Water Rate Study Water Cost of Service Analysis Terminology Functionalization – The arrangement of the cost data by functional category (e.g., source of supply, treatment, etc.). Classification – The assignment of functionalized costs to cost components (e.g., commodity, capacity, customer and fire protection related). Allocation – Allocating the classified costs to each class of service based upon each class’s proportional contribution to that specific cost component. Commodity Costs – Costs that are classified as commodity related vary with the total flow of water (e.g., chemical use at a treatment plant). Capacity Costs – Costs classified as capacity related vary with peak day or peak hour usage. Facilities are often designed and sized around meeting peak demands. Fire Protection Costs – Costs that are related to fire protection services (e.g., hydrants, oversizing of storage and distribution mains). Customer Costs – Costs classified as customer related vary with the number of customers on the system (e.g., metering costs). The second rationale for conducting a cost of service analysis is to develop unit costs which can be used in the development of the final rate designs. The cost of service analysis provides a cost per unit of water consumption based on each customer class’s equitable (proportional) share of costs. For example, a water utility incurs costs related to flow, average day, peak day, fire protection, and customer-related cost components. A water utility must build sufficient capacity to meet summer peak capacity needs. Therefore, those customers contributing to those peak demands should pay their proportional share of the costs to provide the capacity in the system. The unit costs provide the relationship between these components which can then be used to set cost-based rates. 3.3.2 Determining the Customer Classes of Service The first step in a cost of service analysis is to determine the customer classes of service. Based on the current rates the classes of service used within the cost of service analysis were: Single-Family Multi-Family Commercial Irrigation In determining classes of service for cost of service purposes, the objective is to group customers together into similar or homogeneous groups based upon facility requirements and/or flow characteristics. HDR reviewed the current customer classes of service used by the City and found them consistent with typical industry practices. 3.3.3 General Cost of Service Procedures In order to determine the cost to serve each customer class of service on the City’s potable water system, a cost of service analysis is conducted. A cost of service study utilizes a three-step approach to review costs. These steps take the form of functionalization, classification, and allocation. Provided below is a detailed discussion of the potable water cost of service study conducted for the City, and the specific steps taken within the analysis. The approach used for the City’s study reflects generally accepted cost of service methodologies as outlined in the AWWA M1 manual. Development of the Potable Water Rate Study 34 City of Pleasanton – Comprehensive Water Rate Study Functionalization of Costs The first analytical step in the cost of service process is called functionalization. Functionalization is the arrangement of expenses and asset (plant) data by major operating functions (e.g., transmission, storage, distribution). Within this study, there was a limited amount of functionalization of the cost data since it was largely accomplished within the City’s system of accounts. Classification of Costs The second analytical task performed in a water cost of service study is the classification of the costs. Classification examines why the expenses were incurred or what type of need is being met. The following cost classifiers were used to develop the potable water cost of service analysis: Commodity Related Costs: Commodity costs are those costs which tend to vary with the total quantity of water consumed by a customer. Commodity costs are those incurred under average load (demand) conditions and are generally specified for a period of time such as a month or year. Chemicals or utilities (electricity) are examples of commodity- related cost as these costs tend to vary based upon the total flow of water. Capacity Related Costs: Capacity costs are those which vary with peak demand, or the maximum rates of flow to customers. System capacity is required when there are large demands for water placed upon the system (e.g., summer lawn watering). For water utilities, capacity related costs are generally related to the sizing of facilities needed to meet a customer’s maximum water demand at any point in time. For example, portions of distribution storage reservoirs and mains (pipes) must be adequately sized for this particular type of requirement. Customer Related Costs: Customer costs are those cost which vary with the number of customers on the water system. They do not vary with system output or consumption levels. These costs are also sometimes referred to as readiness to serve or availability costs. Customer costs may also sometimes be further classified as either actual or weighted. Actual customer costs vary proportionally, from customer to customer, with the addition or deletion of a customer regardless of the size of the customer. An example of an actual customer cost is postage for mailing bills. This cost does not vary from customer to customer, regardless of the size or consumption characteristics of the customer. In contrast, a weighted customer cost reflects a disproportionate cost, from customer to customer, with the addition or deletion of a customer. Examples of weighted customer costs are items such as meter maintenance expenses, where a large industrial customer requires a significantly more expensive meter than a typical residential customer. Fire Protection Related Costs: Fire protection costs are those costs related to the public fire protection functions. Usually, such costs are those related to public fire hydrants and the over-sizing of mains and distribution storage reservoirs for fire protection purposes Revenue Related Costs: Some costs associated with the utility may vary with the amount of revenue received by the utility. An example of a revenue related cost would be a utility tax which is based on gross utility revenue. Development of the Potable Water Rate Study 35 City of Pleasanton – Comprehensive Water Rate Study Development of Allocation Factors Once the classification process is complete, and the customer groups have been defined, the various classified costs were allocated to each customer group. The City’s potable water classified costs were allocated to the various customer groups using the following allocation factors. Commodity Allocation Factor: As noted earlier, commodity-related costs vary with the total flow of water. Therefore, the commodity allocation factor was based on the projected total metered consumption plus losses for each class of service for the projected test period. As noted, the consumption reflects the impacts of the current drought, which can impact the results of the cost of service as it does not reflect ‘normal’ or typical consumption levels or patterns of use. Capacity Allocation Factor: The capacity allocation factor was developed based on the assumed contribution to peak day use of each class. Peak day use by customer class of service was estimated using assumed peaking factors for each customer group. In this particular case, the peaking factor was defined as the relationship between peak day contribution and average day use and determined for each customer group based on a review of the average month to peak month usage. Given an estimated peaking factor, the peak day contribution for each class of service was developed. Similar to the commodity allocation factor the peaking data reflects the impacts of the drought and therefore will impact the results of the cost of service analysis as customers respond differently to the conservation goals and programs. Customer Allocation Factor: Customer costs vary with the number of customers on the system. Two basic types of customer allocation factors were identified – actual and weighted. The allocation factors for actual customers were based on the projection of the number of customers developed within the revenue requirement. The weighted customer allocation factors is also broken down further into two factors which attempt to reflect the disproportionate costs associated with serving different types of customers. The first weighted customer factor is for customer service and accounting. This weighted customer allocation factor takes into account the fact that it may take more time to read a meter and process a bill for various customers. The second weighted customer allocation factor is for meters and services. This factor attempts to reflect the different costs associated with providing larger sized meters. For example, there is a significant cost difference associated with replacing a 3/4” meter compared to a six-inch meter. This cost difference is reflected within the allocation factor. Public Fire Protection Allocation Factor: The development of the allocation factor for public fire protection expenses involved an analysis of each class of service and their fire flow requirements. The analysis took into account the gallon per minute fire flow requirements in the event of a fire, along with the duration of the required flow. The fire flow rates used within the allocation factor were based on industry standards and similar experiences with other water cost of service studies. The minimum fire flow requirements are then multiplied by the number of customers in each class of service, and the assumed duration of the fire, to determine the class’ prorated fire flow requirements. Development of the Potable Water Rate Study 36 City of Pleasanton – Comprehensive Water Rate Study Revenue Related Allocation Factor: The revenue related allocation factor was developed from the projected rate revenues for FY 2015 for each customer class of service. These same revenues were used within the revenue requirement analysis discussed previously. 3.3.4 Summary of the Cost of Service Analysis In summary form, the cost of service analysis began by functionalizing the City’s revenue requirement. The functionalized revenue requirement was then classified into their various cost components. The individual classification totals were then allocated to the various customer classes of service based on the appropriate allocation factors. The allocated expenses for each customer class were then aggregated to determine each customer class’s overall revenue responsibility. Table 3–7 Summary of the Potable Water Cost of Service Analysis ($000) Class of Service Present 2016 Rate Revenues Allocated Costs $ Difference % Difference Single-Family $9,657 $10,126 ($470) 4.9% Multi-Family 1,440 1,365 75 -5.2% Commercial 3,516 4,177 (661) 18.8% Irrigation 2,329 2,166 163 -7.0% Total $16,941 $17,834 ($893) 5.3% The cost of service study attempted to align the operating and capital costs to each customer class with their respective benefit (proportional allocation). The results of the analysis show that some cost differences exist between the various customer classes of service. However, as noted the impacts of the current drought may skew the results of the cost of service analysis given specific customer response to the conservation requirements. Overall it appears that the allocated costs reasonably reflect the revenues of each customer class of service. Given the range of assumptions that may be used in a cost of service analysis, a general “guideline” that may be considered when viewing a cost of service analysis is if a class is within +/- 5% of the overall required adjustment the class, than it may be considered as being within a “reasonable range” of paying its “fair share”.4 It is important to understand that a cost of service analysis is based on one year’s data and corresponding customer information. Total flow and the costs incurred by the utility will change from year to year. As such, it is appropriate to determine whether these findings are consistent over time, and adjust accordingly. Establishing rates based on a single data point, such as the cost of service results for one year, may result in rates being adjusted, both up and down, that does not reflect the impacts customers have on the system. This is further impacted by the current drought and customer responses to the State mandated conservation. 4 In this study, the overall balance for FY 2016 is 5.3%. Using this guideline, a class of service may be considered within the range of reasonableness if their adjustment is in the range of 0.3% to +10.3%. Development of the Potable Water Rate Study 37 City of Pleasanton – Comprehensive Water Rate Study 3.3.5 Consultant’s Conclusions and Recommendations While some cost differences exist, the overall allocation of costs between customers appears to be reasonable. In reaching this conclusion, one of variables which may impact cost allocations is the trend of declining per capita consumption for residential customers, along with the current drought conditions within California and specifically the Bay Area. These conditions certainly have an impact upon consumptive use and cost allocations. Customer responsiveness to the drought has resulted in an allocation of costs that dos not reflect how the system was designed and customer impacts on the system under “normal” conditions. The allocation of costs is based on many different components; however, the two primary components are related to average day use and peak day use. Both of these components are impacted by the current drought. First, average the consumption for customers has reduced in response to the drought. However, not all customer classes respond to the drought in the same manner. For example, residential customers may be able to reduce consumption at a higher percentage level than a commercial customer given the commercial customers needs to use water for business purposes. In this case, the average day allocation of costs would shift from one class to the other and may not reflect “normal” water conditions and burdens placed on the system. The second component is related to peak day, or how the customers place demands on the system. Similar to average day needs, the peak demands and responsiveness to the drought vary by customer class. For example, while a residential customer may respond and minimize outdoor watering and peak demands on the system, a commercial, or multi-family, customer may be able to entirely eliminate outdoor watering needs and peak demands on the system. These two different responses to the drought change the relationship of the cost allocations and do not reflect “normal” water conditions and how the system was designed to operate. This results in a cost of service analysis that does not reflect typical customer impacts on the system and would result in changing rates in the short- term based on one point in time, which does not reflect how customer typically utilize the system. Given the changing usage patterns due to the current drought, HDR believes the focus of this study should be on the overall rate adjustment needs based on the City’s need to fund capital improvement projects over the next five year period. As the City continues to monitor rates and cost of service results through future studies, cost of service adjustments may be made since the results are significantly driven by consumptive use and usage demands. Given the current drought conditions, the consumptive use and usage demands during this time period may not be reflective of normal water conditions. Given that, HDR concluded that no adjustments in the cost relationships between the customer classes of service should be recommended at this time. As a result, the overall proposed revenue/rate adjustments will be applied equally across all customer classes of service. 3.4 Development of the Potable Water Rate Design The final step of the City’s comprehensive potable water rate study is the design of rates to collect the desired levels of revenues, based on the results of the prior analyses. In reviewing City’s rates, consideration is given to the level of the rates and the structure of the rates. Development of the Potable Water Rate Study 38 City of Pleasanton – Comprehensive Water Rate Study 3.4.1 Rate Design Criteria and Considerations Prudent rate administration dictates that several criteria must be considered when setting utility rates. Some of these rate design criteria are listed below: x Rates which are easy to understand from the customer’s perspective x Rates which are easy for the utility to administer x Consideration of the customer’s ability to pay x Continuity, over time, of the rate making philosophy x Policy considerations (encourage efficient use, economic development, etc.) x Provide revenue stability from month to month and year to year x Promote efficient allocation of the resource x Equitable and non-discriminatory (cost-based) x Legally Defendable Many contemporary rate economists and regulatory agencies recognize that equitable and cost-based rates should be of paramount importance and provide the primary guidance to utilities on rate structure and policy. It is important that the City provide its customers with a proper price signal as to what their consumption and peaking (demand) requirements are costing. This goal may be approached through rate level and structure. When developing the proposed rate designs, all the above listed criteria were taken into consideration. However, it should be noted that it is difficult, if not impossible, to design a rate that meets all the goals and objectives listed above. For example, it may be difficult to design a rate that takes into consideration the customer’s ability to pay, and one which is cost-based. In designing rates, there are always trade-offs between these various goals and objectives. 3.4.2 Development of Cost-Based Potable Water Rates As mentioned, developing cost-based and equitable rates is of paramount importance in developing proposed water rates. While always a key consideration in developing rates, meeting the legal requirements, and documenting the steps taken to meet the requirements, has been in the forefront with the recent legal challenges in the State of California on water rates. Given this, the development of the City’s proposed potable water rates have been developed to meet the legal requirements of Proposition 218 (Prop. 218). A key component of Prop. 218 is the development of rates which reflect the cost of providing service and are proportionally allocated between the various customer classes of service. HDR would point out that there is no single methodology for equitably assigning costs to the various customer groups. The American Water Works Association M1 Manual clearly delineates various methodologies which may be used to establish cost-based rates. Unfortunately, Proposition 218 is not prescriptive. It simply requires the adoption of “cost-based” rates and does not provide a clear definition or methodology for establishing cost-based rates. Given that, HDR developed the City’s proposed potable water rates based on generally accepted rate setting methodologies to meet the requirements of Proposition 218 and recent legal decisions to provide an administrative record of the steps taken to establish the City’s potable water rates. Development of the Potable Water Rate Study 39 City of Pleasanton – Comprehensive Water Rate Study HDR is of the opinion that the proposed rates meet the industry definition of “cost-based” rates, along with the spirit (intent) and legal requirements of Proposition 218. HDR reaches this conclusion based upon the following: x The revenues derived from the potable water rates do not exceed the funds required to provide the property related service (i.e. potable water service). The proposed rates are designed to collect the overall revenue requirements of the City. x The revenues derived from water rates shall not be used for any purpose other than that for which the fee or charge is imposed. The revenues derived from the City’s potable water rates are used exclusively to operate and maintain the City’s water system. x The amount of a fee or charge imposed upon a parcel or person as an incident of property ownership shall not exceed the proportional costs of the service attributable to the parcel. This study has focused almost exclusively on the issue of proportional assignment of costs to customer classes of service. The proposed rates have appropriately grouped customers into customer classes of service (single-family, multi-family, commercial, and irrigation) that reflect the varying consumption patterns and system requirements of each customer class of service. The grouping of customers and rates into these classes of service creates the equity and fairness expected under Proposition 218 by having differing rates by customer classes of service which reflect both the level of revenue to be collected by the utility, but also the manner in which these costs are incurred and equitably assigned to customer classes of service based upon their proportional impacts. At its very core, Proposition 218 requires a water utility to establish cost-based rates for the services provided. However, like most propositions or voter’s initiatives, Proposition 218 provided certain direction, but lacked clarity and definition in certain areas. Hence, there have been a number of lawsuits in recent years related to utility rates and Proposition 218. Most recently, in the Capistrano Taxpayers Association, Inc. v. City of San Juan Capistrano, the City of San Juan Capistrano (Capistrano) was challenged, among other items, over the cost-basis for the tiers (price blocks) of their tiered water rate structure. In this specific case, it appears that the key issue was the pricing of the upper blocks (3rd and 4th blocks) and the price/cost difference between the prior tiers pricing. The change in prices between Capistrano’s tiers was significant, and was the main challenge by the plaintiffs claiming that the “punitive” pricing was not cost justified under Proposition 218. Capistrano believed that the pricing was justified under the constitutional requirement to use water efficiently and Capistrano viewed the pricing as penalty blocks for inefficient or wasteful use. The initial ruling of the court in this case was not favorable to Capistrano. Capistrano appealed the court’s decision, and the Appellate Court hearing this case recently upheld the lower court’s decision as it pertained to the pricing of the tiers within the Capistrano’s water rate design. In summary, the Appellate Court ruled that tiered rates are a valid rate structure under Proposition 218, but to be legally compliant with Proposition 218, the pricing of the tiers must be cost-based. Unless there is an appeal of this ruling to the California State Supreme Court, the San Juan Capistrano decision will continue the trend of more narrowly defining “cost- Development of the Potable Water Rate Study 40 City of Pleasanton – Comprehensive Water Rate Study based” rates, particularly as they relate to the pricing used in rate design. The Court’s decision has greatly diminished the latitude for policy input of the legislative body in establishing a local utility’s rates, but it has also placed a greater burden of proof on the utility to demonstrate the cost basis for tiered pricing. The City has residential tiered rates with four usage/price tiers. As a part of this study, HDR developed a technical memorandum to supplement the water rate design discussion to clearly demonstrate and support the proposed residential water rates and tiered pricing. This technical memorandum is attached within the technical appendix to this report. It provides a more detailed discussion of the San Juan Capistrano decision and of the costing techniques and methodologies used to support the City’s proposed residential tiered rate structure. 3.4.3 Summary of the Prior Recommendations The revenue requirement analysis was used to determine the adequate and prudent level of funding needed to operate and maintain the City’s potable water system. The revenue requirement reviewed the time period of FY 2015 – FY 2020. The results of the revenue requirement analysis indicated the need for annual rate adjustments for FY’s 2016 – FY 2020. The proposed rates to be developed in this section of the report will assume these adjustments for each of the fiscal years reviewed. The cost of service analysis indicated some cost differences, but it was concluded that it would be prudent at this time, as a consequence of the drought conditions, to not make any interclass adjustments. Given this, the proposed rates were developed based on the results of the revenue requirement analysis. 3.4.4 Review of the City’s Present and Proposed Single-Family Potable Water Rates Provided below in Table 3-8 is a summary of the City’s present and proposed single-family potable water rates. Residential customers are charged a bi-monthly meter charge based on the size of the meter serving the customer, and an increasing 4-tier consumption rate. The rates shown in Table 3-8 are bi-monthly rates (i.e. the charge for a 2-month period). The proposed rates for FY 2016 have been adjusted to reflect the cost of purchased water from Zone 7. Given this, the consumption charges have been increased to reflect the cost of Zone 7 water and increased approximately $0.30. In addition, the recycled water charge of $0.10 per CCF has been added to the second tier (21-40 CCF) and maintained for tiers three and four. These changes in the tiered consumption rates reflect the target increase of 5.5% to the overall revenues of the utility. Future CPI adjustments will be implemented on all components of the rates, both the fixed meter charge and consumption charges. Development of the Potable Water Rate Study 41 City of Pleasanton – Comprehensive Water Rate Study Table 3–8 Summary of the Present and Proposed Single-Family Potable Water Rates (Bi-Monthly) Present Rate FY 2016 Oct. 1, 2015 FY 2016 Jan. 1, 2016 FY 2017 Jan. 1 2017 FY 2018 Jan. 1 2018 FY 2019 Jan. 1, 2019 FY 2020 Jan. 1, 2020 Proposed Rate Adjustment 0.0% 5.5% 2.5 2.5% 2.5% 2.5% 2.5% Fixed Meter Charge ($/Acct.) 5/8" $17.62 $17.62 $18.06 $18.51 $18.97 $19.44 $19.93 3/4" 26.41 26.41 27.07 27.75 28.44 29.15 29.88 1" 44.04 44.04 45.14 46.27 47.43 48.62 49.84 1 1/2" 88.07 88.07 90.27 92.53 94.84 97.21 99.64 2" 140.91 140.91 144.43 148.04 151.74 155.53 159.42 3" 308.27 308.27 315.98 323.88 331.98 340.28 348.79 4" 880.78 880.78 902.80 925.37 948.50 972.21 996.52 6" 1,761.55 1,761.55 1,805.59 1,850.73 1,897.00 1,944.42 1,993.03 8" 3,088.72 3,088.72 3,165.94 3,245.09 3,326.22 3,409.38 3,494.61 Senior 5/8" 14.10 14.10 15.35 15.73 16.12 16.52 16.94 Senior 3/4" 21.13 21.13 23.01 23.59 24.17 24.78 25.40 Senior 1" 35.23 35.23 38.37 39.33 40.32 41.33 42.36 Senior 1 1/2" 70.46 70.46 76.73 78.65 80.61 82.63 84.69 Low Income 5/8" 12.33 12.33 12.64 12.96 13.28 13.61 13.95 Low Income 3/4" 18.49 18.49 18.95 19.43 19.91 20.41 20.92 Consumption Charge ($/CCF) 0-20 CCF $2.1000 $2.4000 $2.4000 $2.4000 $2.4000 $2.4000 $2.4000 21-40 CCF 2.3581 2.7581 2.7646 2.7712 2.7780 2.7849 2.7920 41-60 CCF 2.6825 2.9825 2.9946 3.0070 3.0197 3.0327 3.0460 60+ CCF 3.4520 3.7520 3.7801 3.8089 3.8384 3.8686 3.8996 As can be seen, the level of the rate adjustments shown in Table 3-8 is based upon the findings and conclusions from the revenue requirement study. It should be noted that the proposed CPI adjustments for FY 2016 – FY 2020 are estimated values only as the actual rates will be based on the actual inflationary increases from the prior year. This annual CPI increase will reflect the impact to operating costs incurred by the City to maintain and provide water service to customers. The increase will be based on the actual CPI from the prior 12 month period and customers will be noticed prior to the billing of the proposed rates. It should be noted that the Zone 7 rate will not be adjusted by the annual CPI adjustment, any increases in the rate charged by Zone 7 to the City will be passed through on the consumption charge when implemented by Zone 7 and the City has been notified of the rate change. As can be seen in Table 3-8, the City also has rates for a senior discount and a low-income discount which are funded through a transfer from the City’s general fund. The audit committee recommended that the senior discount rate be adjusted from 20% to 15%; the proposed rates reflect this change. Development of the Potable Water Rate Study 42 City of Pleasanton – Comprehensive Water Rate Study Provided below in Table 3-9 is a summary of proposed single-family potable water rates bill impacts for customers at various levels of consumption. The bill impacts in Table 3-9 are stated as bi-monthly bills. Table 3–9 Bill Comparison - Single-Family Residential Potable Water Rates (Bi-Monthly Bill) Consumption (CCF) Present Bill Proposed Bill Oct. 1 2015 $ Difference % Difference 0 $17.62 $17.62 $0.00 0.00% 5 28.12 29.62 1.50 5.33% 10 38.62 41.62 3.00 7.77% 15 49.12 53.62 4.50 9.16% 25 71.41 79.41 8.00 11.20% 35 94.99 106.99 12.00 12.63% 45 120.19 135.69 15.50 12.90% 60 160.43 180.43 20.00 12.47% 80 229.47 255.47 26.00 11.33% 100 298.51 330.51 32.00 10.72% 125 384.81 424.31 39.50 10.26% 150 471.11 518.11 47.00 9.98% 180 574.67 630.67 56.00 9.74% 225 730.01 799.51 69.50 9.52% 300 988.91 1,080.91 92.00 9.30% *Assumes 5/8” meter* The impacts to customers was also compared to other local water providers. Even with the proposed water rates, effective October 1, 2015, the City’s customer bi-monthly bills are lower than those of the two adjacent water providers. Development of the Potable Water Rate Study 43 City of Pleasanton – Comprehensive Water Rate Study 3.4.5 Review of the City’s Present and Proposed Multi-Family and Commercial Potable Water Rates Provided below in Table 3-10 is a summary of the City’s present and proposed multi-family and commercial potable water rates. Similar to the residential rates, the multi-family and commercial customers are charged a fixed meter charge that varies by meter size. In addition to the fixed meter charge, the multi-family customers are charged a uniform consumption charge. Similar to the single-family rates, the proposed multi-family and commercial consumption charges for FY 2016 have been adjusted based on the cost of purchased water from Zone 7. No changes to the fixed charges have been proposed. However, when implementing the annual CPI adjustments, both the fixed charge and consumption charges will be adjusted. In addition, any increases in the rate charged by Zone 7 to the City will be passed through on the consumption charge. Development of the Potable Water Rate Study 44 City of Pleasanton – Comprehensive Water Rate Study Table 3-10 Summary of the Present and Proposed Multi-Family & Commercial Potable Water Rates (Bi-Monthly) Present Rate FY 2016 Oct. 1, 2015 FY 2016 Jan. 1, 2016 FY 2017 July 1 2017 FY 2018 July 1 2018 FY 2019 July 1, 2019 FY 2020 July 1, 2020 Proposed Rate Adjustment 0.0% 5.5% 2.5% 2.5% 2.5% 2.5% 2.5% Fixed Meter Charge ($/Acct.) 5/8" $17.62 $17.62 $18.06 $18.51 $18.97 $19.44 $19.93 3/4" 26.41 26.41 27.07 27.75 28.44 29.15 29.88 1" 44.04 44.04 45.14 46.27 47.43 48.62 49.84 1 1/2" 88.07 88.07 90.27 92.53 94.84 97.21 99.64 2" 140.91 140.91 144.43 148.04 151.74 155.53 159.42 3" 308.27 308.27 315.98 323.88 331.98 340.28 348.79 4" 880.78 880.78 902.80 925.37 948.50 972.21 996.52 6" 1,761.55 1,761.55 1,805.59 1,850.73 1,897.00 1,944.42 1,993.03 8" 3,088.72 3,088.72 3,165.94 3,245.09 3,326.22 3,409.38 3,494.61 Consumption Charge ($/CCF) All Consumption $2.4693 $2.7693 $2.7760 $2.7829 $2.7900 $2.7973 $2.8047 Similar to residential rate designs, the rate adjustments shown in Table 3-10 are based upon the findings and conclusions from the revenue requirement study. 3.4.6 Review of the City’s Present and Proposed Irrigation Potable Water Rates Provided below in Table 3-11 is a summary of the City’s present and proposed Irrigation potable water rates. Similar to the multi-family and commercial rates, the irrigation customers are charged a fixed meter charge that varies by meter size and a uniform consumption charge. Development of the Potable Water Rate Study 45 City of Pleasanton – Comprehensive Water Rate Study Table 3-11 Summary of the Present and Proposed Irrigation Potable Water Rates (Bi-Monthly) Present Rate FY 2016 Oct. 1, 2015 FY 2016 Jan. 1, 2016 FY 2017 Jan. 1 2017 FY 2018 Jan. 1 2018 FY 2019 Jan. 1, 2019 FY 2020 Jan. 1, 2020 Proposed Rate Adjustment 0.0% 5.5% 2.5% 2.5% 2.5% 2.5% 2.5% Fixed Meter Charge ($/Acct.) 5/8" $17.62 $17.62 $18.06 $18.51 $18.97 $19.44 $19.93 3/4" 26.41 26.41 27.07 27.75 28.44 29.15 29.88 1" 44.04 44.04 45.14 46.27 47.43 48.62 49.84 1 1/2" 88.07 88.07 90.27 92.53 94.84 97.21 99.64 2" 140.91 140.91 144.43 148.04 151.74 155.53 159.42 3" 308.27 308.27 315.98 323.88 331.98 340.28 348.79 4" 880.78 880.78 902.80 925.37 948.50 972.21 996.52 6" 1,761.55 1,761.55 1,805.59 1,850.73 1,897.00 1,944.42 1,993.03 8" 3,088.72 3,088.72 3,165.94 3,245.09 3,326.22 3,409.38 3,494.61 Consumption Charge ($/CCF) All Consumption $2.6152 $2.9152 $2.9256 $2.9362 $2.9471 $2.9583 $2.9698 This concludes the discussion of the proposed potable water rates. Detailed exhibits for the various rate designs are included within the water technical appendices. 3.4.7 Development of Potable Water Drought Rates Drought rates are one of several “tools” to assist during a drought or water emergency. In the City’s case, the drought rates will work in tandem with the City’s other conservation programs, and specifically the City’s excess use penalties (Ord. 2097) previously adopted by the City. It should be noted that the existing excess use penalty rates were reviewed with City staff and it was determined that the current approach is meeting the City’s goals and objectives for the excess use penalties. Therefore, no changes to the excess use penalty rates were recommended. When properly designed, drought rates address the issues of the financial/revenue impacts of decreased consumption. In a drought, water rates are one mechanism or tool used to encourage or create conservation savings. When a utility enters a drought stage, it is not uncommon for a utility to have a set of water drought rates to maintain sufficient revenues due to reductions in usage and to provide an incentive to induce a specified level of conservation savings. The potable water rates being proposed in this water rate study assume “normal” water conditions. Under drought conditions, the City will need to have customers reduce their consumption and provide sufficient conservation savings to meet the City’s conservation Development of the Potable Water Rate Study 46 City of Pleasanton – Comprehensive Water Rate Study savings goals (State mandated) under the various stages of drought. For purposes of establishing drought rates, four stages for water shortage and a target water savings for each stage were established in the City’s water conservation plan. These water shortage stages are summarized below. Stage 1 – Up to 20% water savings: Voluntary Stage 2 – Up to 20% water savings: Mandatory Stage 3 – Up to 35% water savings: Mandatory Stage 4 – Over 35% water savings: Mandatory To help achieve the needed savings in each drought stage, HDR developed a set of rates applicable to each stage. The overall targeted savings, or reductions in use, will be achieved through both “voluntary” savings and via price incentives. While pricing is not the purpose of drought rates, it simply provides the basis for collecting the target revenue needs, it does provide customers with the ability to control the water bill if they choose not to voluntarily participate in the conserving water. In developing the water shortage surcharges HDR has assumed that under each stage there will be some level of “voluntary” savings by the customers based on education and individual conservation practices. The remaining savings will need to be achieved through price incentives and price elasticity, responsiveness to changes in price. For purposes of developing the drought rate pricing, it was assumed that the savings in each stage would target the mid-point of the stage (e.g., State 3 = 20%-35%, or 27.5% average reduction in consumption). Provided below in Table 3-12 is a summary of the assumptions regarding voluntary versus price induced savings. Table 3-12 Summary of the Estimated Voluntary Versus Price Induced Conservation Savings Normal Conditions Voluntary Stage 1 Mandatory Stage 2 Mandatory Stage 3 Mandatory Stage 4 Targeted Reduction Goal 0% 20% 20% 35% >35% Voluntary Savings 0.0% 5.0% 10.0% 15.5% 25.0% Price Induced Savings 0.0% 0.0% 5.0% 12.0% 20.0% Total Targeted Conservation Savings 0.0% 5.0% 15.0% 27.5% 45.0% In developing the water shortage rates, the monthly meter charge remains fixed at the same level regardless of the drought stage. For purposes of this discussion, it is also assumed that the Zone 7 rate is also fixed, but it will change if Zone 7 modifies their wholesale rate to the City. Therefore, the portion of the water rate impacted by the water shortage rate is the local consumption charges of the water rates. Based on the conservation savings estimated for each drought stage, the drought rates were developed to maintain the current level of revenues for each customer class of service. As noted, in addition to maintaining the current level of revenue to support operating costs, additional costs the City incurs during the drought were included to reflect the changes in costs at each stage. Provided below in Table 3-13 is a summary of the drought rates for each block. Development of the Potable Water Rate Study 47 City of Pleasanton – Comprehensive Water Rate Study Table 3-13 Summary of the Drought Rates – $/CCF Normal Conditions Voluntary Stage 1 Mandatory Stage 2 Mandatory Stage 3 Mandatory Stage 4 0% 20% 20% 35% >35% Single-Family Tier 1 – 0-20 CCF $0.0000 $0.1619 $0.5689 $1.2266 $2.5611 Tier 2 – 21-40 CCF $0.0000 $0.1619 $0.5689 $1.2266 $2.5611 Tier 3 – 41-60 CCF $0.0000 $0.1619 $0.5689 $1.2266 $2.5611 Tier 4 – 60+ CCF $0.0000 $0.1619 $0.5689 $1.2266 $2.5611 Multi-Family and Commercial All Consumption $0.0000 $0.1385 $0.5400 $1.1631 $2.5145 Irrigation All Consumption $0.0000 $0.1458 0.5655 $1.2244 $2.6470 The drought rates in Table 3-13 are added to the current rates in place at the time the drought stage is declared. For example, if the first tier rate is currently $2.4000/CCF and the City declares a Stage 2 drought, then the first tier rate will change to $2.9645/CCF ($2.4000 + $0.5645). These drought rates can be added to the City’s proposed rates, at the appropriate drought stage level, effective October 1, 2015, as directed by the City Council. Implementation of these drought rates will help the City maintain revenue levels during drought related consumption reductions, provide additional pricing incentives to reduce consumption, and work in tandem with the City’s excessive use penalties for inefficient water users. Drought rates will be revised at the same time as potable water rates are adjusted starting in January 2016 with the first CPI adjustment. As noted, drought rates are primarily in place to provide sufficient revenues to meet operating and capital needs. Given this, when potable water rates are increased the level of revenues will increase. Subsequently, drought rates will need to be reviewed and updated based on the relationship to the current rates and revenue needs. This includes any CPI adjustments to the local distribution charges as well as the Zone 7 wholesale water rates. In this way the enactment of the drought rates will provide the same level of revenues prior to drought rates and resulting water conservation impacts. To better understand how the drought rates work, Table 3-14 shows a comparison of the residential bi-monthly bill assuming a customer does, and does not, adjust their consumption in response to the requested savings in each drought stage. Development of the Potable Water Rate Study 48 City of Pleasanton – Comprehensive Water Rate Study Table 3-14 Single-Family Drought Rates Bill Impacts [1] Normal Conditions Voluntary Stage 1 Mandatory Stage 2 Mandatory Stage 3 Mandatory Stage 4 Water Conservation Plan Targeted Goals 0% 20% 20% 35% >35% Drought Rate Conservation Target 0.0% 5.0% 15.0% 27.5% 45.0% Customer Using 16 CCF Assuming No Change in Use – 16 CCF $56.02 $58.59 $65.07 $75.51 $96.68 Assuming Reduced Usage - Revised CCF Usage 16.0 15.0 14.0 12.0 9.0 Total Bi-Monthly Bill $56.02 $56.03 $59.41 $61.04 $62.09 Customer Using 26 CCF Assuming No Change in Use – 26 CCF $82.17 $86.38 $96.96 $114.06 $148.76 Assuming Reduced Usage - Revised CCF Usage 26.0 25.0 22.0 19.0 14.0 Total Bi-Monthly Bill $82.17 $83.46 $83.65 $86.53 $87.08 Customer Using 44 CCF Assuming No Change in Use – 44 CCF Assuming Reduced Usage - $132.71 $139.84 $157.74 $186.68 $245.40 Revised CCF Usage Total Bi-Monthly Bill 44.0 42.0 37.0 32.0 24.0 [1] Assumes a 5/8” single-family customer and bi-monthly billing period. As can be seen in the above table, if a customer does not modify their consumption, their utility bill will increase substantially. However, if they do provide the requested savings, their bill will be similar to the “normal” water conditions bill. For example, a customer using 26 CCF currently pays $82.17/bi-month. If the City is in Stage 2 and the customer does not change their usage, then their bill will increase to $96.96. However, if they reduce their 26 CCF of usage by 4 CCF (15% reduction), their revised use of 22 CCF will be billed at $83.65./bi-month. The same approach was developed for the multi-family and commercial customers. The estimated conservation savings were used to reduce the annual consumption and the drought rates were developed to maintain the current level of revenue plus the additional costs associated with each level of the drought. As a part of this study, HDR developed a technical memorandum to supplement the development of the potable water drought rates to clearly demonstrate and support the pricing of the drought rates. This technical memorandum is attached within the technical appendix to this report. 3.5 Potable Water Rate Study Recommendations Based on the results of the potable water rate study, HDR recommends the following: Development of the Potable Water Rate Study 49 City of Pleasanton – Comprehensive Water Rate Study Potable water rates should be adjusted 5.5% based on the proposed rates as part of this study for October 1, 2015. When funds are available, increase the level of annual replacement funding to transition towards meeting annual depreciation expense levels. Future CPI related rate adjustments are necessary to meet operating and capital needs. These were estimated at 2.5% per year each January 1st starting in 2016 through 2020. The actual rates will be based on the actual CPI index for the year prior to the rate setting period. Drought rates should be adopted based on the need to maintain sufficient revenues for operating and capital needs. Drought rates should be adjusted whenever potable water rates are adjusted (Zone 7 pass through or CPI adjustments). 3.6 Summary of the Potable Water Rate Study This completes the analysis for the City’s potable water system. This study has provided a comprehensive review and development of proposed potable water rates, and potable water drought rates, for the City. Adoption of the proposed potable water rates and drought rates will allow the City to meet their current and projected potable water system financial obligations and capital improvement needs for the time period reviewed. Development of the Recycled Water Rate Study 50 City of Pleasanton – Comprehensive Water Rate Study 4.1 Introduction In addition to potable water service, the City also purchases and supplies customers with recycled water for outdoor irrigation needs. The City is in the process of expanding and providing recycled water service to additional customers within the City’s water system service area. This section of the report describes the development of the recycled water rate study. The recycled water rate study includes the development of the revenue requirement and rate design analyses. Each of these analyses is discussed in more detail, including the specific steps to develop the City’s cost-based recycled water rates. 4.2 Development of the Recycled Water Revenue Requirement The revenue requirement analysis is the first analytical step in the rate study process. This analysis determines the adequacy of the overall recycled water rates. From this analysis, a determination can be made as to the overall revenue needs to provide adequate and prudent funding for both operating and capital needs of the recycled water system. 4.2.1 Determining the Revenue Requirement In developing the City’s recycled water system revenue requirement, the utility, must financially “stand on its own” and be properly funded. As a result, the revenue requirement analysis, as developed herein, assumes the full and proper funding needed to operate and maintain the City’s recycled water system on a financially sound and prudent basis. Provided below is a more detailed discussion of the development of the revenue requirement analysis for the City’s recycled water system. 4.2.2 Establishing a Time Frame and Approach The first step in calculating the revenue requirement for the City’s recycled water system was to establish a time frame for the revenue requirement analysis. For this study, similar to the potable water rate study, the revenue requirement analysis was developed for a six-year projected time period (FY 2015 – FY 2020). This six year time frame was composed of Budget FY 2015 and the five projected years of FY 2016 – FY 2020. By anticipating future financial requirements, the City can begin planning for these changes sooner, thereby minimizing short- term rate impacts and overall long-term rates. The second step in determining the revenue requirement was to decide on the basis of accumulating costs. In this particular case, for the revenue requirement analysis a “cash basis” approach was utilized. The “cash basis” approach is the most commonly used methodology by municipal utilities to set their revenue requirement. This is also the methodology that the City has historically used to establish their utility revenue requirements for its potable water rates. 4. Development of the Recycled Water Rate Study Development of the Recycled Water Rate Study 51 City of Pleasanton – Comprehensive Water Rate Study Given a time period around which to develop the revenue requirement and a method to accumulate the costs; the focus shifts to the development and projection of the revenues and expenses of the City’s recycled water system. The primary financial inputs in the development of the revenue requirement were the City’s FY 2015 budget documents, historical and projected recycled water consumption data, and the City’s recycled water capital improvement plan. Presented below is a detailed discussion of the steps and key assumptions contained in the development of the projections of the City’s recycled water system revenue requirement analysis. 4.2.3 Projecting Rate and Other Miscellaneous Revenues The first step in developing the recycled water revenue requirement was to develop a projection of the recycled water rate revenues, at present rate levels. In general, this process involved developing projected billing units for recycled water sales. The billing units were then multiplied by the applicable current recycled water rate to determine the current and proposed level of recycled water revenues. A key aspect of the projection of recycled water revenues was to develop a projection of consumption levels given the expansion of the recycled water system and new customers connecting to the system. The analysis was based on the projection of potable water consumption data transitioning to recycled water service over the next several years. The City provided estimates of the number of customers and consumption that was used to develop the level of proposed consumption over the time period reviewed and used to establish the level of proposed revenues. The City has charged recycled water customers a consumption charge established equal to 90% of the potable water irrigation rate. This rate relationship was maintained over the time period reviewed to determine if it adequately funded recycled water system costs. Based on the projection of recycled water consumption and the changes to the potable irrigation rate, the City’s recycled water system is projected to receive approximately $103,000 in rate revenue in FY 2015. Given the transition of potable water customers to the recycled water system, the proposed rate revenues in FY 2020 are projected to be approximately $1.9 million. In addition to rate revenues, the recycled water system also receives miscellaneous revenues. As noted in the potable water system revenue requirement, potable water rates transfer approximately $285,000 per year to the recycled water system to fund a portion of the overall recycled water system program costs. As noted, this transfer reflects customers being able to use potable water resources as the recycled water produced and distributed “frees up” additional potable water supply. On a combined basis, taking into account the rate revenues and the miscellaneous revenues, the City potable water utility has total projected revenues of approximately $388,000 in FY 2015, increasing to approximately $2.2 million in FY 2020. Development of the Recycled Water Rate Study 52 City of Pleasanton – Comprehensive Water Rate Study 4.2.4 Projecting Operation and Maintenance Expenses As the City begins to expand the recycled water system additional operation and maintenance (O&M) expenses will be incurred to operate and maintain the existing plant in service and to purchase recycled water. The recycled water O&M was based on the FY 2015 and FY 2016 estimated budget. O&M costs are projected to be approximately $368,000 in FY 2016 increasing to approximately $449,000 in FY 2020 based on estimated inflation. The City also incurs costs to purchase recycled water from the Dublin San Ramon Services District and the City of Livermore. Projections of purchased recycled water were based on current rates and projected based on the increase in recycled water demands. In total, purchased recycled water supply costs are approximately $233,000 in FY 2016 increasing to approximately $703,000 in FY 2020, based on projected demands. The total operation and maintenance expenses for the recycled water system are approximately $600,000 for FY 2016, based on the FY 2015 budget. Over the five year planning horizon, the total O&M expenses are projected to increase to approximately $1.2 million by FY 2020 based on additional O&M needs to maintain the expanded recycled water system and increase in purchased recycled water costs, as a result of increased demands. 4.2.5 Projecting Capital Funding Needs and Transfer Payments At this time, the recycled water system does not have an established renewal and replacement (R&R) fund or expansion fund. As part of this study, the analysis reviewed the ability to establish a renewal and replacement fund for the recycled water system as rate revenues were available to support it. Table 4-1 is a summary of the amount of rate funded capital for each year. Table 4-1 Summary of the Annual Recycled Water System Renewal and Replacement Funding ($000) FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 FY 2020 Renewal and Replacement Funding $0 $0 $0 $75 $200 $275 As can be seen, the projections of recycled water revenues, based on 90% of the potable irrigation rate, allow for the City to slowly begin to develop a transfer of funds to the renewal and replacement fund for the recycled water system over the time period reviewed. The City should increase this level of funding when revenues are available to support future replacement of the recycled water system. As the recycled water system matures and expands, the development of an expansion fund will also be necessary to include the revenues received from recycled water connection fees. . 4.2.6 Projection of Debt Service The City has recently incurred long-term debt to fund the improvements necessary to provide recycled water system service to additional customers. The annual debt service payment is Development of the Recycled Water Rate Study 53 City of Pleasanton – Comprehensive Water Rate Study estimated to be approximately $750,000 starting in FY 2017. At this time, no additional long- term debt has been included within the analysis. However, it should be noted that future capital needs will be necessary to continue to expand the recycled water system and the City will evaluate the funding available at that time. 4.2.7 Summary of the Recycled Water Revenue Requirements Given the above projections of revenues and expenses, a summary of the recycled water revenue requirement analysis can be developed. In developing the revenue requirement analysis, consideration was given to the financial planning considerations of the City. A focus of the analysis, and resulting rate projections, is based on maintaining the rate relationship to the potable irrigation rate and begin to provide funding for the renewal and replacement fund. Presented below in Table 4-2 is a summary of the City’s projected recycled water revenue requirement. Detailed exhibits of this analysis can be found in the Technical Appendices (Exhibits 1 – 4). Table 4-2 Summary of the Recycled Water Revenue Requirement Analysis ($000) FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 FY 2020 Revenues Rate Revenues $103 $614 $1,174 $1,556 $1,777 $1,881 Other Revenues 285 288 291 294 297 300 Total Revenues $388 $902 $1,465 $1,850 $2,074 $2,181 Expenses O&M Expenses $44 $600 $854 $1,009 $1,102 $1,152 Transfers 0 0 0 75 200 275 Net Debt Service 0 0 750 750 750 750 Change in Working Capital 0 0 0 0 0 0 Total Expenses $44 $600 $1,604 $1,834 $2,052 $2,177 Bal/(Def.) of Funds $344 $301 ($140) $16 $21 $4 Balance as % of Rev from Rates -335.5% -49.1% 11.9% -1.0% -1.2% -0.2% Proposed Rate Adjustments 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% As can be seen, the recycled water revenue requirement has summed the O&M, transfers (i.e., rate funded capital), and debt service. The total revenue requirement is then compared to the total sources of funds which include the rate revenues, at projected levels, and other miscellaneous revenues. From this comparison a balance or deficiency of funds in each year can be determined. Over this project time period, the projected recycled water revenues, assuming adjustments based on the potable water irrigation rate are implemented, are sufficient to fund the operating and capital needs of the recycled water system.5 5 Implicit to the recycled water rates and this conclusion is any adjustment to the potable irrigation water rate will result in a rate adjustment for recycled water since the recycled water rate is set at 90% of the potable irrigation rate. Development of the Recycled Water Rate Study 54 City of Pleasanton – Comprehensive Water Rate Study The revenue requirements developed in Table 4-2 has been developed to meet financial planning objectives of the City’s recycled water system. The proposed rate adjustments are based on maintaining the cost/price relationship between the proposed potable irrigation rate and the recycled water rate of 90%. 4.2.8 Consultant’s Conclusions Based on the revenue requirement analysis developed herein, HDR has concluded that the City’s recycled water rates are sufficient when the rate relationship to the proposed potable water irrigation rate is maintained. HDR has reached this conclusion for the following reasons: x The projected level of revenue sufficiently funds the O&M needs of the recycled water system. x The projected level of revenues allows for the development of a renewal and replacement fund for the recycled water system. x The proposed level of revenues adequately funds the annual long-term debt payments for providing recycled water system capital improvements. 4.3 Development of the Recycled Water Rate Design The final step of the City’s recycled water rate study is the design of recycled water rates to collect the desired levels of revenues and meet the recycled water system operating and capital needs. In reviewing City’s recycled water rates, consideration is given to the level of the rates and the structure of the rates. 4.3.1 Development of the Recycled Water Rates As noted, the recycled water rates are based on 90% of the potable irrigation rate. This is a common method of establishing recycled water rates in California. During the development of the study, this method of establishing the recycled water system rate was discussed and alternative methods reviewed with City staff and the City’s Finance Committee. In those discussions it was determined that the current method, based on a percentage of potable irrigation rates, would be maintained over this rate setting period. This relationship reflects the fact that the use of recycled water offsets the need to develop additional supplies or purchase additional potable water from Zone 7. This provides an incentive for customers to use recycled water for outdoor watering needs, and is funded, in part, through potable water rates by customers using water in the upper tiers for residential customer which have been established as the tiers for outdoor watering. This provides the nexus for offsetting costs and maintaining the relationship to 90% of the irrigation rate as it is all outdoor watering needs. As a result, the analysis has assumed an increase in the recycled water rates based on the proposed potable irrigation rates over the 5-year time period (FY 2016 – FY 2020). 4.3.2 Review of the City’s Present and Proposed Recycled Water Rates Provided below in Table 4-3 is a summary of the City’s present and proposed recycled water rates. The City currently charges a consumption charge only on all usage by the recycled water Development of the Recycled Water Rate Study 55 City of Pleasanton – Comprehensive Water Rate Study customer. The proposed rates below assume the adoption of the potable irrigation rates and maintain the 90% relationship to that rate. Table 4-3 Summary of the Present and Proposed Recycled Water Rates Present Rate FY 2016 Oct. 1, 2015 FY 2016 Jan. 1, 2016 FY 2017 Jan. 1 2017 FY 2018 Jan. 1 2018 FY 2019 Jan. 1, 2019 FY 2020 Jan. 1, 2020 Consumption Charge ($/CCF) All Usage $2.3537 $2.6237 $2.6330 $2.6426 $2.6524 $2.6625 $2.6728 As can be seen, the level of the rate adjustments shown in Table 4-3 is based upon the relationship to the potable irrigation rate. As noted in the revenue requirement analysis the resulting level of revenues result in sufficiently funding the operating and capital needs of the recycled water system. As noted in the potable water rate designs, the proposed adjustments for FY 2016 – FY 2020 are estimated values only as the actual rates will be based on the actual inflationary increases from the prior year in the potable irrigation rate. 4.4 Recycled Water Rate Study Recommendations Based on the results of the recycled water rate study, HDR recommends the following: Maintain the existing basis for the recycled water rate of 90% of the potable water irrigation rate. Adjust the recycled water rate when adjusting the potable water rates. Begin to establish the replacement fund for the recycled water fund for future system repair and replacements. 4.5 Summary of the Recycled Water Rate Study This completes the analysis for the City’s recycled water system. This study has provided a comprehensive review and development of proposed recycled water rates for the City. Adoption of the proposed recycled water rates will allow the City to meet their current and projected recycled water system financial obligations and capital improvement needs for the time period reviewed. Technical Appendix A – Potable Water Analysis Budgeted FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 FY 2020 Revenues Rate Revenues $16,417,940 $16,941,244 $16,935,515 $17,211,724 $17,651,960 $18,110,694 Miscellaneous Revenues 2,151,007 916,327 926,851 948,780 971,644 983,918 -------------- -------------- -------------- -------------- -------------- --------------Total Revenues $18,568,947 $17,857,570 $17,862,366 $18,160,504 $18,623,603 $19,094,612 Expenses Total $15,742,853 $16,357,876 $16,686,858 $17,298,475 $17,948,119 $18,610,599 Total Operations & Maintenance $15,742,853 $16,357,876 $16,686,858 $17,298,475 $17,948,119 $18,610,599 Transfers Out $1,928,000 $2,157,355 $2,451,791 $2,591,311 $2,895,916 $3,150,608 Net Debt Service $0 $0 $0 $0 $0 $0 Total Change in Working Capital +/-$898,094 $235,428 $265,949 $277,174 $298,973 $403,398 Total Revenue Requirement $18,568,947 $18,750,659 $19,404,599 $20,166,960 $21,143,008 $22,164,605 Bal/(Def) of Funds $0 ($893,088) ($1,542,232) ($2,006,456) ($2,519,405) ($3,069,993) Balance a % of Rate Adj. Required 0.0% 5.3% 9.1% 11.7% 14.3% 17.0% Annual CPI Increases [1]0.0% 2.5% 2.5% 2.5% 2.5% 2.5% Proposed Rate Adjustment [1]0.0% 5.5% 0.0% 0.0% 0.0% 0.0% Total Proposed Annual Rate Adjustment 0.0% 5.4% 1.3% 1.3% 1.3% 1.3% Total Additional Revenue $0 $893,088 $1,542,232 $2,006,456 $2,519,405 $3,069,993 Total Bal/(Def) of Funds After Adj.$0 ($0)$0 ($0)$0 $0 Additional Rate Adjustment Required 0.0%0.0%0.0%0.0%0.0%0.0% Debt Service Coverage Ratio (all debt)Before Rate Adjustment N/A N/A N/A N/A N/A N/AAfter Needed Rate Adjustment N/A N/A N/A N/A N/A N/AAfter Proposed Rate Adjustment N/A N/A N/A N/A N/A N/A Average Residential Bi-Monthly Customer Bill $77.84 (Current rates; 3/4" Meter + 24 CCF bi-monthly) Customer Bill on Proposed Adjustment $77.84 $82.02 $83.05 $84.09 $85.14 $86.20 Bill Difference - Monthly (0.00) 4.18 1.03 1.04 1.05 1.06 Cumulative Bill Difference (0.00) 4.18 5.21 6.24 7.30 8.36 Operations Fund - Ending Balance $8,218,305 $8,453,732 $8,719,682 $8,996,855 $9,295,828 $9,699,227 Projected Exhibit 1 Summary of the Water Revenue Requirement - Potable Water Water Utility Rate Study City of Pleasanton 1 of 52 City of Pleasanton Water Utility Rate Study Escalations Exhibit 2 Budgeted FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 FY 2020 Notes: Revenues: Res - Customer Growth Budget 1.0% 1.0% 1.0% 1.0% 1.0% Irr - Customer Growth Budget -5.0% -15.0% -15.0% -10.0% -5.0% Com - Customer Growth Budget 1.0% 1.0% 1.0% 1.0% 1.0% Recycled Water - Cust. Growth Budget 376.2% 140.0% 50.0% 5.6% 5.3% All - Customer Growth Budget 1.0% 1.0% 1.0% 1.0% 1.0% Single-Family - Consumption Growth Budget 7.5% 4.8% 6.9% 6.5% 4.8% Multi-Family - Consumption Growth Budget 12.5% 7.5% 10.0% 7.0% 5.0% Irrigation - Consumption Growth Budget -5.0% -15.0% -15.0% -10.0% -5.0% Commercial - Consumption Growth Budget 4.0% 4.0% 4.0% 3.5% 3.5% Miscellaneous Revenues Budget 1.0% 1.0% 1.0% 1.0% 1.0% Expenses: Salary Budget 3.0% 3.0% 3.0% 3.0% 3.0% Benefits Budget 3.5% 3.5% 3.5% 3.5% 3.5% General O&M Budget 3.0% 3.0% 3.0% 3.0% 3.0% Materials & Supplies Budget 2.5% 2.5% 2.5% 2.5% 2.5% Equipment Budget 3.5% 3.5% 3.5% 3.5% 3.5% Miscellaneous Budget 2.0% 2.0% 2.0% 2.0% 2.0% Purchased Water - Recycled Budget 3.5% 3.5% 3.5% 3.5% 3.5% Purchased Water - Zone 7 Budget 0.0% 0.0% 0.0% 0.0% 0.0% Interest:0.5% 0.5% 0.5% 0.8% 1.0% 1.0% New Debt Service: Low Interest Loans Term in Years 20 20 20 20 20 20 Rate 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% Revenue Bond Term in Years 20 20 20 20 20 20 Rate 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% Projected 2 of 52 City of PleasantonWater Utility Rate Study Page 1 of 3 Revenue Requirement - Potable WaterExhibit 3 Budgeted FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 FY 2020 Notes: Revenues Rate Revenues Fixed RevenueSingle Family Residential $2,735,976 $2,763,335 $2,790,969 $2,818,879 $2,847,067 $2,875,538 As Res - Customer Growth Mulit-Family 296,082 299,042 302,033 305,053 308,104 311,185 As Res - Customer Growth Irrigation 624,034 592,832 503,907 428,321 385,489 366,215 As Irr - Customer GrowthCommercial667,019 673,689 680,426 687,230 694,103 701,044 As Com - Customer Growth -------------- -------------- -------------- -------------- -------------- -------------- Total Fixed Revenue 4,323,110 4,328,899 4,277,335 4,239,483 4,234,763 4,253,981 Consumption Revenue Single Family Residential $6,412,464 $6,893,398 $7,225,904 $7,721,144 $8,220,191 $8,617,711 As Single-Family - Consumption GrowthMulit-Family 1,014,082 1,140,841 1,226,405 1,349,045 1,443,479 1,515,654 As Multi-Family - Consumption Growth Irrigation 3,076,778 2,922,938 2,484,498 2,111,824 1,900,641 1,805,610 As Irrigation - Consumption Growth Commercial 1,591,507 1,655,167 1,721,374 1,790,228 1,852,886 1,917,737 As Commercial - Consumption Growth-------------- -------------- -------------- -------------- -------------- -------------- Total Consumption Revenue $12,094,830 $12,612,345 $12,658,181 $12,972,241 $13,417,197 $13,856,713 Total Rate Revenues $16,417,940 $16,941,244 $16,935,515 $17,211,724 $17,651,960 $18,110,694 Other Revenues:Meter Sales $40,000 $40,400 $40,804 $41,212 $41,624 $42,040 As Miscellaneous RevenuesFederal/State Grants 0 0 0 0 0 0 As Miscellaneous Revenues Backflow Admin Fees 180,000 181,800 183,618 185,454 187,309 189,182 As Miscellaneous RevenuesDrought Penalties 1,245,000 0 0 0 0 0 Projected FY 2015 Revenues Miscellaneous 0 0 0 0 0 0 As Miscellaneous RevenuesInterfund Water Sales 0 0 0 0 0 0 Included in Revenue Projections Interfund Reimbursement 386,386 390,250 394,152 398,094 402,075 406,096 As Miscellaneous RevenuesInterest Income 20,546 21,134 21,799 33,738 46,479 48,496 Calculated In - Employee Benefit Fund/Implied Subsidy 35,075 36,303 37,573 38,888 40,249 41,658 As Benefits In - Senior Discount (funded by General Fund)244,000 246,440 248,904 251,393 253,907 256,446 As All - Customer Growth-------------- -------------- -------------- -------------- -------------- -------------- Total Other Revenues $2,151,007 $916,327 $926,851 $948,780 $971,644 $983,918 Total Revenues $18,568,947 $17,857,570 $17,862,366 $18,160,504 $18,623,603 $19,094,612 ExpensesWater Planning $0 $0 $0 $0 $0 $0 As General O&M Water Conservation 325,338 335,098 345,151 355,506 366,171 377,156 As General O&M Water O&M 4,809,748 4,718,779 4,843,309 4,988,608 5,138,266 5,292,414 As General O&MWater Purchase - Zone 7 9,667,359 10,335,378 10,500,720 10,926,753 11,385,245 11,850,838 Flat - Direct Pass Through Utility Billing 940,408 968,620 997,679 1,027,609 1,058,437 1,090,191 As Salary--------------- --------------- --------------- --------------- --------------- --------------- Total $15,742,853 $16,357,876 $16,686,858 $17,298,475 $17,948,119 $18,610,599 Total Operations & Maintenance $15,742,853 $16,357,876 $16,686,858 $17,298,475 $17,948,119 $18,610,599 Transfers Out Out - Replacment Fund for Recycled Water Rev $285,000 $287,850 $290,729 $293,636 $296,572 $299,538 As All - Customer GrowthOut - Replacment Fund for Vineyard Ave 4th Tier fee 43,000 44,505 46,063 47,675 49,343 51,071 As Equipment Rate Funded Capital - To R&R Fund 1,600,000 1,825,000 2,115,000 2,250,000 2,550,000 2,800,000 2014 Dep = $3,327,239-------------- -------------- -------------- -------------- -------------- -------------- Total Transfers Out $1,928,000 $2,157,355 $2,451,791 $2,591,311 $2,895,916 $3,150,608 Projected 3 of 52 City of Pleasanton Water Utility Rate Study Page 2 of 3 Revenue Requirement - Potable Water Exhibit 3 Budgeted FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 FY 2020 Notes: Projected Debt Service Add'l Revenue Bonds - Replacement Fund $0 $0 $0 $0 $0 $0 Calculated @ 5% for 20 yrs Add'l Revenue Bonds - Expansion Fund 0 0 0 0 0 0 Calculated @ 5% for 20 yrs -------------- -------------- -------------- -------------- -------------- -------------- Total Debt Service $0 $0 $0 $0 $0 $0 LESS: Other Funding Expansion Fund for Debt $0 $0 $0 $0 $0 $0 R&R Fund for Debt 0 0 0 0 0 0 -------------- -------------- -------------- -------------- -------------- -------------- Net Debt Service $0 $0 $0 $0 $0 $0 Change in Working Capital +/- To/From Operating Reserve $898,094 $235,428 $265,949 $277,174 $298,973 $403,398 To/(From) Water Expansion Fund 0 0 0 0 0 0To/(From) Water Replacement Fund 0 0 0 0 0 0 ----------------- ----------------- ----------------- ----------------- ----------------- ----------------- Total Change in Working Capital +/-$898,094 $235,428 $265,949 $277,174 $298,973 $403,398 Total Revenue Requirement $18,568,947 $18,750,659 $19,404,599 $20,166,960 $21,143,008 $22,164,605 Bal/(Def) of Funds $0 ($893,088) ($1,542,232) ($2,006,456) ($2,519,405) ($3,069,993) Balance a % of Rate Adj. Required 0.0%5.3%9.1% 11.7% 14.3% 17.0% Annual CPI Increases [1]0.0%2.5%2.5%2.5%2.5%2.5% Months of Adjustment 12 6 6 6 6 6 Add'l Revenue with CPI Adj $0 $207,695 $628,317 $1,077,211 $1,566,081 $2,091,782 Bal/(Def) After CIP Adj.$0 ($685,393) ($913,916) ($929,245) ($953,324) ($978,212) Proposed Rate Adjustment [1]0.0%5.5%0.0%0.0%0.0%0.0% Months of Adjustment 12 9 12 12 12 12Add'l Revenue with Rate Adj.$0 $685,393 $913,916 $929,245 $953,324 $978,212 Bal/(Def) After Rate Adj.$0 ($0)$0 ($0)($0)$0 Total Proposed Annual Rate Adjustment 0.0%5.4%1.3%1.3%1.3%1.3% Total Additional Revenue $0 $893,088 $1,542,232 $2,006,456 $2,519,405 $3,069,993 Total Bal/(Def) of Funds After Adj.$0 ($0)$0 ($0)$0 $0 Add'l Rate Adjustment Required 0.0%0.0%0.0%0.0%0.0%0.0% 4 of 52 City of Pleasanton Water Utility Rate Study Page 3 of 3 Revenue Requirement - Potable Water Exhibit 3 Budgeted FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 FY 2020 Notes: Projected Average Residential Bi-Monthly Customer Bill $77.84 (Current rates; 3/4" Meter + 24 CCF bi-monthly) Customer Bill on Proposed Adjustment $77.84 $82.02 $83.05 $84.09 $85.14 $86.20 Bill Difference - Monthly (0.00) 4.18 1.03 1.04 1.05 1.06 Cumulative Bill Difference (0.00) 4.18 5.21 6.24 7.30 8.36 Debt Service Coverage Ratio (all debt) Before Rate Adjustment N/A N/A N/A N/A N/A N/A After Needed Rate Adjustment N/A N/A N/A N/A N/A N/A After Proposed Rate Adjustment N/A N/A N/A N/A N/A N/A Reserve Funds Operations Fund Beginning Balance $7,320,211 $8,218,305 $8,453,732 $8,719,682 $8,996,855 $9,295,828 Plus: Additions 898,094 235,428 265,949 277,174 298,973 403,398 Less: Uses of Funds 0 0 0 0 0 0 Ending Balance $8,218,305 $8,453,732 $8,719,682 $8,996,855 $9,295,828 $9,699,227 Minimum Fund Balance - 90 days O&M $3,881,799 $4,033,449 $4,114,568 $4,265,377 $4,425,564 $4,588,915 Ending Fund Balance/(Deficiency)$4,336,506 $4,420,284 $4,605,114 $4,731,478 $4,870,265 $5,110,312 5 of 52 City of Pleasanton Water Utility Rate Study Exhibit 4 Purchased Water - Zone 7 FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 FY 2020 Notes Zone 7 Water Sales Est.$9,821,095 $10,509,479 $10,679,897 $11,119,012 $11,591,583 $12,071,473 Assumed Rate ($/CCF)$2.40 $2.40 $2.40 $2.40 $2.40 $2.40 As Purchased Water - Zone 7 Assumed Volume (CCF)4,092,123 4,378,950 4,449,957 4,632,922 4,829,826 5,029,780 As All - Customer Growth 4,277,883 4,378,950 4,449,957 4,632,922 4,829,826 5,029,780 Zone 7 Water Sales Calculation Fixed Charge # of Meters 3 3 3 3 3 3 $/Meter/Month $144.00 $148.00 $148.00 $148.00 $148.00 $148.00 Total Fixed Charges $5,184 $5,328 $5,328 $5,328 $5,328 $5,328 Consumption Charge Rate ($/CCF) 0 - 3,300 CCF $13,723 $13,723 $13,723 $13,723 $13,723 $13,723 $4.159 3,300 - 33,300 CCF 98,886 98,886 98,886 98,886 98,886 98,886 $3.330 33,300 - 333,300 CCF 797,146 797,146 797,146 797,146 797,146 797,146 $2.655 333,300 + CCF 8,752,419 9,420,295 9,585,636 10,011,669 10,470,161 10,935,754 $2.329 ----------------- ----------------- ----------------- ----------------- ----------------- ----------------- Total Water Sales $9,662,175 $10,330,050 $10,495,392 $10,921,425 $11,379,917 $11,845,510 Total Zone 7 Water Sales Calculation $9,667,359 $10,335,378 $10,500,720 $10,926,753 $11,385,245 $11,850,838 6 of 52 City of Pleasanton Inflation 2.7% Water Utility Rate Study Renewal & Replacement FundExhibit 5a FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 FY 2020 Notes: Beginning Fund Balance $12,833,709 $10,832,984 $7,821,641 $7,393,631 $7,738,795 $7,887,928 Revenue Rate Funded Capital $1,600,000 $1,825,000 $2,115,000 $2,250,000 $2,550,000 $2,800,000 Vineyard Ave 4th Tier Fee 43,000 44,505 46,063 47,675 49,343 51,071 Transfer from O&M Fund 0 0 0 0 0 0 Additional Revenue Bonds 0 0 0 0 0 0-------------------- -------------------- -------------------------------------------------------------------------------- Total Revenue $1,643,000 $1,869,505 $2,161,063 $2,297,675 $2,599,343 $2,851,071 Water Repair and Replacement Bi-Electrical Panel Upgrades $151,930 $0 $52,736 $0 $55,623 $0 Pressure Reducing Valve Imp - Hill 98,801 0 52,736 0 55,623 0 Bi-Annual Water Quality Imp 44,602 102,700 0 108,321 0 114,249 Annual Water Pump and Motor Repairs 277,483 102,700 105,473 108,321 111,245 114,249 Water System Master Plan Update 0 51,350 0 0 0 0 Annual Replacement of Water Meters 487,023 513,500 527,365 216,641 222,491 57,124 Annual Water Replacement Projects 450,000 513,500 527,365 920,726 945,585 1,085,365 Bi-Annual Emergency Water Generator Overhaul 72,053 0 52,736 0 55,623 0 Water Tank Corrosion Repairs 200,000 0 210,946 0 222,491 285,622Bi-Annual Control Valve Installations 155,942 0 131,841 0 166,868 0Annual polybutylene replacement 93,362 128,375 131,841 135,401 139,057 142,811 General Fund - Utility Cut Patching 77,529 79,622 81,772 83,980 86,247 88,576 General Fund - CIP Engineering 220,000 256,750 263,682 379,122 389,359 399,871 Advance Metering Infrastructure 0 3,081,000 0 0 0 0 Backflow Admin Database Develpmt 50,000 0 0 0 0 0 Water Rate Analysis 60,000 0 0 0 0 0 Water Telemetry Upgrades 0 51,350 52,736 0 0 0 Del Valle Parkway Water Main Ext 0 0 397,843 0 0 0 ---------------- ---------------- ---------------- ---------------- ---------------- ---------------- Total Water Repair and Replacement $2,438,725 $4,880,847 $2,589,073 $1,952,511 $2,450,211 $2,287,868 To O&M Fund for Debt Service $0 $0 $0 $0 $0 $0 To Recycled Water Fund $1,205,000 $0 $0 $0 $0 $0 Ending Fund Balance $10,832,984 $7,821,641 $7,393,631 $7,738,795 $7,887,928 $8,451,130 7 of 52 City of Pleasanton Inflation 2.7% Water Utility Rate Study Expansion Fund Exhibit 5b FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 FY 2020 Notes: Beginning Fund Balance $3,017,057 $3,277,057 $3,397,332 $2,264,351 $2,510,191 $2,476,455 Revenue Plus: Connection Fees $300,000 $300,000 $300,000 $300,000 $300,000 $300,000 From Exhibit 5 Transfers In 0 0 0 0 0 0 Transfers Out 0 0 0 0 0 0 SRF Loan - Recycled Water 0 0 0 0 0 0 Additional Revenue Bonds 0 0 0 0 0 0 ------------------ ------------------ ------------------ ------------------ ------------------ ------------------ Total Revenue $300,000 $300,000 $300,000 $300,000 $300,000 $300,000 Water Expansion Upper Ruby Hill Tank $0 $102,700 $896,520 $0 $0 $0 Pump and Motor Capacity Increase 0 0 263,682 0 278,113 0 Del Valle Parkway Water Main Ext 0 0 220,043 0 0 0 Water System Master Plan Update 0 25,675 0 0 0 0 General Fund - CIP Engineering 40,000 51,350 52,736 54,160 55,623 57,124 ---------------- ---------------- ---------------- ---------------- ---------------- ---------------- Total Water Expansion $40,000 $179,725 $1,432,981 $54,160 $333,736 $57,124 To O&M Fund for Debt Service $0 $0 $0 $0 $0 $0 To Recycled Water Fund $0 $0 $0 $0 $0 $0 Ending Fund Balance $3,277,057 $3,397,332 $2,264,351 $2,510,191 $2,476,455 $2,719,330 8 of 52 City of Pleasanton Water Utility Rate Study Connection Fee Calculation - Potable Water Exhibit 6 FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 FY 2020 FY 2021 FY 2022 FY 2023 FY 2024 FY 2025 Expansion Fund Fee $1,200 $1,200 $1,200 $1,200 $1,200 $1,200 $1,200 $1,200 $1,200 $1,200 $1,200 # of New Cust.250 250 250 250 250 250 250 250 250 250 250 Fee Revenue $300,000 $300,000 $300,000 $300,000 $300,000 $300,000 $300,000 $300,000 $300,000 $300,000 $300,000 9 of 52 City of Pleasanton Water Utility Rate Study Revenues at Present Rates Exhibit 7 Page 1 of 5 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Total Single Family Residential Bi-Monthly Fixed Fee $/Acct. 5/8"$17.62 17,080 17,080 17,080 17,080 17,080 17,080 17,080 3/4"26.41 70 70 70 70 70 70 701"44.04 2,212 2,212 2,212 2,212 2,212 2,212 2,212 1 1/2"88.07 11 11 11 11 11 11 11 2"140.91 1 1 1 1 1 1 1 3"308.27 0 0 0 0 0 0 0 4"880.78 0 0 0 0 0 0 0 6"1,761.55 0 0 0 0 0 0 0 8"3,088.72 0 0 0 0 0 0 0 10"4,844.27 0 0 0 0 0 0 0 Senior 5/8"14.10 3,024 3,024 3,024 3,024 3,024 3,024 3,024 Senior 3/4"21.13 13 13 13 13 13 13 13 Senior 1"35.23 260 260 260 260 260 260 260Senior 1 1/2"70.46 3 3 3 3 3 3 3 Low Inc 5/8"12.33 181 181 181 181 181 181 181 Low Inc 3/4"18.49 9 9 9 9 9 9 9 ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- 22,864 0 22,864 0 22,864 0 22,864 0 22,864 0 22,864 0 22,864 Consumpiton Charge $/CCF 0-20 CCF $2.1000 129,230 151,239 147,667 127,109 122,161 162,891 97,454 164,392 135,411 199,072 120,169 135,890 1,692,686 21-40 CCF 2.3581 33,432 44,284 25,781 18,343 34,898 60,232 35,255 75,215 48,676 78,903 32,860 28,962 516,839 41-60 CCF 2.6825 6,605 15,765 5,752 4,620 13,226 24,568 11,849 40,121 14,960 38,664 10,852 10,925 197,909 60+ CCF 3.4520 8,728 19,014 6,795 3,290 16,529 42,502 14,515 91,430 14,188 80,046 13,230 10,757 321,024------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- 177,995 230,301 185,995 153,362 186,813 290,194 159,073 371,158 213,235 396,686 177,112 186,534 2,728,458 Revenues Bi-Monthly Fixed Fee $455,996 $0 $455,996 $0 $455,996 $0 $455,996 $0 $455,996 $0 $455,996 $0 $2,735,976 Water Consumpiton Charge 398,067 529,952 409,782 333,933 431,366 696,727 369,678 945,828 488,253 984,149 404,625 420,104 6,412,464 ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- Total Single Family Residential Revenues $854,063 $529,952 $865,778 $333,933 $887,362 $696,727 $825,674 $945,828 $944,249 $984,149 $860,621 $420,104 $9,148,439 10 of 52 City of Pleasanton Water Utility Rate Study Revenues at Present Rates Exhibit 7 Page 2 of 5 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Total Mulit-Family Bi-Monthly Fixed Fee $/Acct. (Bi-Mo) 5/8"$17.62 94 94 94 94 94 94 94 3/4"26.41 12 12 12 12 12 12 121"44.04 90 90 90 90 90 90 90 1 1/2"88.07 135 135 135 135 135 135 135 2"140.91 85 85 85 85 85 85 85 3"308.27 19 19 19 19 19 19 19 4"880.78 4 4 4 4 4 4 4 6"1,761.55 4 4 4 4 4 4 4 8"3,088.72 0 0 0 0 0 0 0 10"4,844.27 0 0 0 0 0 0 0 Senior 5/8"14.10 4 4 4 4 4 4 4 Senior 3/4"21.13 0 0 0 0 0 0 0 Senior 1"35.23 7 7 7 7 7 7 7Senior 1 1/2"70.46 13 13 13 13 13 13 13 Senior 2"112.73 10 10 10 10 10 10 10 Senior 3"246.62 3 3 3 3 3 3 3 Low Inc 5/8"12.33 1 1 1 1 1 1 1 Low Inc 3/4"18.49 1 1 1 1 1 1 1 ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- 482 0 482 0 482 0 482 0 482 0 482 0 482 Consumpiton Charge $/CCF (Bi-Mo) All Consumption $2.4693 28,055 40,797 42,975 20,272 41,050 24,653 32,651 44,084 30,770 43,798 39,694 21,877 410,676 ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------28,055 40,797 42,975 20,272 41,050 24,653 32,651 44,084 30,770 43,798 39,694 21,877 410,676 RevenuesBi-Monthly Fixed Fee $49,347 $0 $49,347 $0 $49,347 $0 $49,347 $0 $49,347 $0 $49,347 $0 $296,082 Water Consumpiton Charge 69,276 100,740 106,117 50,058 101,365 60,877 80,624 108,857 75,981 108,151 98,017 54,021 1,014,082 ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- Total Mulit-Family Revenues $118,622 $100,740 $155,464 $50,058 $150,712 $60,877 $129,971 $108,857 $125,328 $108,151 $147,364 $54,021 $1,310,164 11 of 52 City of Pleasanton Water Utility Rate Study Revenues at Present Rates Exhibit 7 Page 3 of 5 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Total Irrigation Bi-Monthly Fixed Fee $/Acct. 5/8"$17.62 148 148 148 148 148 148 148 3/4"26.41 62 62 62 62 62 62 62 1"44.04 225 225 225 225 225 225 225 1 1/2"88.07 303 303 303 303 303 303 303 2"140.91 217 217 217 217 217 217 217 3"308.27 20 20 20 20 20 20 20 4"880.78 15 15 15 15 15 15 15 6"1,761.55 2 2 2 2 2 2 2 8"3,088.72 0 0 0 0 0 0 0 10"4,844.27 2 2 2 2 2 2 2 ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- 994 0 994 0 994 0 994 0 994 0 994 0 994 Consumpiton Charge $/CCF All Consumption $2.6152 78,654 34,784 61,632 19,966 106,798 62,757 171,310 137,747 199,193 122,004 145,909 35,745 1,176,498 --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- 78,654 34,784 61,632 19,966 106,798 62,757 171,310 137,747 199,193 122,004 145,909 35,745 1,176,498 Revenues Bi-Monthly Fixed Fee $104,006 $0 $104,006 $0 $104,006 $0 $104,006 $0 $104,006 $0 $104,006 $0 $624,034 Consumpiton Charge 205,695 90,968 161,180 52,214 279,299 164,121 448,009 360,237 520,930 319,065 381,580 93,479 3,076,778 --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- Total Irrigation Revenues $309,701 $90,968 $265,186 $52,214 $383,305 $164,121 $552,015 $360,237 $624,935 $319,065 $485,586 $93,479 $3,700,812 12 of 52 City of Pleasanton Water Utility Rate Study Revenues at Present Rates Exhibit 7 Page 4 of 5 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Total CommercialBi-Monthly Fixed Fee $/Acct. 5/8"$17.62 235 235 235 235 235 235 235 3/4"26.41 56 56 56 56 56 56 56 1"44.04 201 201 201 201 201 201 201 1 1/2"88.07 250 250 250 250 250 250 250 2"140.91 248 248 248 248 248 248 248 3"308.27 66 66 66 66 66 66 66 4"880.78 11 11 11 11 11 11 11 6"1,761.55 2 2 2 2 2 2 2 8"3,088.72 2 2 2 2 2 2 2 10"4,844.27 0 0 0 0 0 0 0 ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- 1,071 0 1,071 0 1,071 0 1,071 0 1,071 0 1,071 0 1,071 Consumpiton Charge $/CCF All Consumption $2.4693 68,734 38,476 78,570 30,500 62,267 29,705 65,706 53,869 64,571 51,960 67,388 32,771 644,517 ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- 68,734 38,476 78,570 30,500 62,267 29,705 65,706 53,869 64,571 51,960 67,388 32,771 644,517 Revenues Bi-Monthly Fixed Fee $111,170 $0 $111,170 $0 $111,170 $0 $111,170 $0 $111,170 $0 $111,170 $0 $667,019 Consumpiton Charge 169,724 95,009 194,014 75,314 153,757 73,350 162,248 133,019 159,444 128,306 166,401 80,921 1,591,507 --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- Total Commercial Revenues $280,894 $95,009 $305,183 $75,314 $264,927 $73,350 $273,418 $133,019 $270,614 $128,306 $277,571 $80,921 $2,258,526 13 of 52 Page 5 of 5 Summary Number of Customers Single Family Residential 22,864 0 22,864 0 22,864 0 22,864 0 22,864 0 22,864 0 11,432 Mulit-Family 482 0 482 0 482 0 482 0 482 0 482 0 241 Irrigation 994 0 994 0 994 0 994 0 994 0 994 0 497Commercial1,071 0 1,071 0 1,071 0 1,071 0 1,071 0 1,071 0 536 --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- Total Number of Customers 25,411 0 25,411 0 25,411 0 25,411 0 25,411 0 25,411 0 12,706 Consumption (CCF) Single Family Residential 177,995 230,301 185,995 153,362 186,813 290,194 159,073 371,158 213,235 396,686 177,112 186,534 2,728,458 Mulit-Family 28,055 40,797 42,975 20,272 41,050 24,653 32,651 44,084 30,770 43,798 39,694 21,877 410,676 Irrigation 78,654 34,784 61,632 19,966 106,798 62,757 171,310 137,747 199,193 122,004 145,909 35,745 1,176,498 Commercial 68,734 38,476 78,570 30,500 62,267 29,705 65,706 53,869 64,571 51,960 67,388 32,771 644,517 --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- Total Consumption 353,437 344,359 369,172 224,099 396,929 407,308 428,739 606,858 507,769 614,448 430,103 276,927 4,960,149 Revenues FixedSingle Family Residential $455,996 $0 $455,996 $0 $455,996 $0 $455,996 $0 $455,996 $0 $455,996 $0 $2,735,976 Mulit-Family 49,347 0 49,347 0 49,347 0 49,347 0 49,347 0 49,347 0 296,082 Irrigation 104,006 0 104,006 0 104,006 0 104,006 0 104,006 0 104,006 0 624,034 Commercial 111,170 0 111,170 0 111,170 0 111,170 0 111,170 0 111,170 0 667,019 --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- Total Consumption $720,518 $0 $720,518 $0 $720,518 $0 $720,518 $0 $720,518 $0 $720,518 $0 $4,323,110 Variable Single Family Residential $398,067 $529,952 $409,782 $333,933 $431,366 $696,727 $369,678 $945,828 $488,253 $984,149 $404,625 $420,104 $6,412,464 Mulit-Family 69,276 100,740 106,117 50,058 101,365 60,877 80,624 108,857 75,981 108,151 98,017 54,021 1,014,082 Irrigation 205,695 90,968 161,180 52,214 279,299 164,121 448,009 360,237 520,930 319,065 381,580 93,479 3,076,778Commercial169,724 95,009 194,014 75,314 153,757 73,350 162,248 133,019 159,444 128,306 166,401 80,921 1,591,507 --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- Total Consumption $842,761 $816,669 $871,093 $511,519 $965,787 $995,074 $1,060,560 $1,547,941 $1,244,608 $1,539,670 $1,050,623 $648,525 $12,094,830 Total Single Family Residential $854,063 $529,952 $865,778 $333,933 $887,362 $696,727 $825,674 $945,828 $944,249 $984,149 $860,621 $420,104 $9,148,439 Mulit-Family 118,622 100,740 155,464 50,058 150,712 60,877 129,971 108,857 125,328 108,151 147,364 54,021 1,310,164 Irrigation 309,701 90,968 265,186 52,214 383,305 164,121 552,015 360,237 624,935 319,065 485,586 93,479 3,700,812 Commercial 280,894 95,009 305,183 75,314 264,927 73,350 273,418 133,019 270,614 128,306 277,571 80,921 2,258,526 --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- Total Revenues $1,563,280 $816,669 $1,591,611 $511,519 $1,686,305 $995,074 $1,781,079 $1,547,941 $1,965,126 $1,539,670 $1,771,142 $648,525 $16,417,940 FY 15 Budget Target $16,412,017 Difference $5,923 Percent 0.04% FY 14 Actuals $16,038,746 Difference $379,195 Percent 2.36% 14 of 52 City of Pleasanton Water Utility Rate Study Development of Commodity Allocation Factor Exhibit 8 10.0%Average Consumption Unaccounted Net Water Day Use in CCF Water Delivered (MGD)% of Total Single Family Residential 2,728,458 272,846 3,001,304 6.15 55.0% Mulit-Family 410,676 41,068 451,743 0.93 8.3% Irrigation 1,176,498 117,650 1,294,148 2.65 23.7% Commercial 644,517 64,452 708,969 1.45 13.0% ---------------- ---------------- ---------------- ---------------- ---------------- Total 4,960,149 5,456,164 11.18 100.0% Allocation Factor Actual Production [1]11.69 (COMM) NOTES: [1] Actual production for CY 2014 provided by City 15 of 52 City of Pleasanton Water Utility Rate Study Development of Capacity Allocation Factor Exhibit 9 Average Peak Consumption Peaking Day Use (MGD)Factors [1](MGD)% of Total Single Family Residential 6.15 1.65 10.15 54.2% Mulit-Family 0.93 1.35 1.25 6.7% Irrigation 2.65 2.00 5.30 28.3% Commercial 1.45 1.40 2.03 10.9% ---------------------------------- ---------------- Total 11.18 18.74 100.00% Allocation Factor Actual Peak Day [2]16.72 (CAP) NOTES: [1] Developed from peak month to average month [2] Provided by the District - July 2014 16 of 52 City of Pleasanton Water Utility Rate Study Development of the Customer Allocation Factor Exhibit 10 Number of % of Number of Weighting Weighted % of Accounts Total Customers Factor Customer Total Single Family Residential 11,432 90.0%11,432 1.0 11,432 59.3% Mulit-Family 241 1.9%6,814 1.0 6,814 35.3% Irrigation 497 3.9%497 1.0 497 2.6% Commercial 536 4.2%536 1.0 536 2.8% ---------------- ------------------------------------------------ ----------- Total 12,706 100.0%19,279 19,279 100.0% Allocation Factor (AC)(WCA) Weighted % of Customer Total Single Family Residential 2,097,704 64.4% Mulit-Family 213,956 6.6% Irrigation 437,863 13.4% Commercial 509,588 15.6% ---------------- ---------------- Total 3,259,111 100.0% (WCMS) NOTES: Customer Service & AccountingActual Customer Meters & Services 17 of 52 City of Pleasanton Water Utility Rate Study Development of the Public Fire Protection Allocation Factor Exhibit 11 Fire Prot.Total FP Number of Requirements Duration Required % of Customers (gals/min) (minutes)(1,000 g/min)Total Single Family Residential 11,432 750 60 514,440 56.1% Mulit-Family 6,814 750 60 306,630 33.4% Irrigation 497 0 0 0 0.0% Commercial 536 1,500 120 96,390 10.5% Unused 0 0 0 0 0.0% -------------------------------------------------------- Total 19,279 917,460 100.0% Allocation Factor (FP) NOTES: 18 of 52 City of Pleasanton Water Utility Rate Study Development of the Revenue Related Allocation Factor Exhibit 12 Revenue % of Total FY 2016 Single Family Residential $9,656,734 57.0% Mulit-Family 1,439,884 8.5% Irrigation 3,515,770 20.8% Commercial 2,328,856 13.7% -------------------- -------------------- Total $16,941,244 100.0% Allocation Factor (RR) NOTES: 19 of 52 City of Pleasanton Page 1 of 2 Water Utility Rate Study Functionalization and Classification of the Revenue Requirement Exhibit 13 Actual Cust.Meters &Public Fire Revenue Direct Expenses Commodity Capacity Customer Acctg.Services Protection Related Assign. FY 2016 (COMM)(CAP)(AC) (WCA)(WCMS)(FP)(RR)(DA) Expenses Water Planning $0 $0 $0 $0 $0 $0 $0 $0 $0 60%Comm 40%Cap Water Conservation 335,098 0 0 0 0 0 0 0 335,098 100%DA Water O&M 4,718,779 2,816,016 1,902,763 0 0 0 0 0 0 60%Comm 40%Cap Water Purchase - Zone 7 10,335,378 10,335,378 0 0 0 0 0 0 0 100%Comm Utility Billing 968,620 0 0 968,620 0 0 0 0 0 100%AC -------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- Total $16,357,876 $13,151,395 $1,902,763 $968,620 $0 $0 $0 $0 $335,098 Total Operations & Maintenance $16,357,876 $13,151,395 $1,902,763 $968,620 $0 $0 $0 $0 $335,098 Transfers Out Out - Replacment Fund for Recycled Water Rev $287,850 $171,780 $116,070 $0 $0 $0 $0 $0 $0 60%Comm 40%CapOut - Replacment Fund for Vineyard Ave 4th Tier fee 44,505 0 0 0 0 0 0 0 44,505 100%DA Rate Funded Capital - To R&R Fund 1,825,000 1,089,101 735,899 0 0 0 0 0 0 60%Comm 40%Cap -------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- Total Transfers Out $2,157,355 $1,260,881 $851,969 $0 $0 $0 $0 $0 $44,505 Basis of Classification Customer Related Weighted for: 20 of 52 City of Pleasanton Page 2 of 2 Water Utility Rate Study Functionalization and Classification of the Revenue Requirement Exhibit 13 Actual Cust.Meters &Public Fire Revenue Direct Expenses Commodity Capacity Customer Acctg.Services Protection Related Assign. FY 2016 (COMM)(CAP)(AC) (WCA)(WCMS)(FP)(RR)(DA)Basis of Classification Customer Related Weighted for: Debt Service Add'l Revenue Bonds - Replacement Fund $0 $0 $0 $0 $0 $0 $0 $0 $0 As Total O&MAdd'l Revenue Bonds - Expansion Fund 0 0 0 0 0 0 0 0 0 As Total O&M -------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- Total Debt Service $0 $0 $0 $0 $0 $0 $0 $0 $0 LESS: Other Funding Expansion Fund for Debt $0 $0 $0 $0 $0 $0 $0 $0 $0 As Debt Service R&R Fund for Debt 0 0 0 0 0 0 0 0 0 As Debt Service -------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- Net Debt Service $0 $0 $0 $0 $0 $0 $0 $0 $0 Change in Working Capital +/- To/From Operating Reserve $235,428 $140,496 $94,932 $0 $0 $0 $0 $0 $0 60%Comm 40%Cap To/(From) Water Expansion Fund 0 0 0 0 0 0 0 0 0 60%Comm 40%Cap To/(From) Water Replacement Fund 0 0 0 0 0 0 0 0 0 60%Comm 40%Cap -------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- Total Change in Working Capital +/-$235,428 $140,496 $94,932 $0 $0 $0 $0 $0 $0 Total Revenue Requirement $18,750,659 $14,552,771 $2,849,664 $968,620 $0 $0 $0 $0 $379,603 Less: Other Revenues: Meter Sales $40,400 $32,003 $6,267 $2,130 $0 $0 $0 $0 $0 As Total Revenue Requirement < DA Federal/State Grants 0 0 0 0 0 0 0 0 0 As Total Revenue Requirement < DA Backflow Admin Fees 181,800 144,014 28,200 9,585 0 0 0 0 0 As Total Revenue Requirement < DA Miscellaneous 0 0 0 0 0 0 0 0 0 As Total Revenue Requirement < DA Interfund Water Sales 0 0 0 0 0 0 0 0 0 As Total Revenue Requirement < DA Interfund Reimbursement 390,250 309,139 60,534 20,576 0 0 0 0 0 As Total Revenue Requirement < DA Interest Income 21,134 16,742 3,278 1,114 0 0 0 0 0 As Total Revenue Requirement < DA In - Employee Benefit Fund/Implied Subsidy 36,303 28,757 5,631 1,914 0 0 0 0 0 As Total Revenue Requirement < DA In - Senior Discount (funded by General Fund)246,440 195,219 38,227 12,994 0 0 0 0 0 As Total Revenue Requirement < DA -------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- Total Other Revenues $916,327 725,875 142,138 48,314 0 0 0 0 0 Total Net Revenue Requirement $17,834,332 $13,826,896 $2,707,526 $920,307 $0 $0 $0 $0 $379,603 77.5% 15.2% 5.2% 0.0% 0.0% 0.0% 0.0% 2.1% 21 of 52 City of Pleasanton Page 1 of 2 Water Utility Rate Study Direct Assignment Exhibit 13.2 Total Notes: Expenses Water Planning $0 $0 $0 $0 $0 Water Conservation 335,098 181,503 22,352 94,865 36,379 As Capacity Water O&M 0 0 0 0 0 Water Purchase - Zone 7 0 0 0 0 0 Utility Billing 0 0 0 0 0 -------------- -------------- -------------- -------------- -------------- Total $335,098 $181,503 $22,352 $94,865 $36,379 Total Operations & Maintenance $335,098 $181,503 $22,352 $94,865 $36,379 Transfers Out Out - Replacment Fund for Recycled Water Rev $0 $0 $0 $0 $0 Out - Replacment Fund for Vineyard Ave 4th Tier fee $44,505 44,505 0 0 0 Rate Funded Capital - To R&R Fund 0 0 0 0 0 -------------- -------------- -------------- -------------- -------------- Total Transfers Out $44,505 $44,505 $0 $0 $0 CommercialIrrigationMulit-Family Single Family Residential 22 of 52 City of Pleasanton Page 2 of 2 Water Utility Rate Study Direct Assignment Exhibit 13.2 Total Notes:CommercialIrrigationMulit-Family Single Family Residential Debt Service Add'l Revenue Bonds - Replacement Fund $0 $0 $0 $0 $0 Add'l Revenue Bonds - Expansion Fund 0 0 0 0 0 -------------- -------------- -------------- -------------- -------------- Total Debt Service $0 $0 $0 $0 $0 LESS: Other Funding Expansion Fund for Debt $0 $0 $0 $0 $0 Net Debt Service $0 $0 $0 $0 $0 Change in Working Capital +/- To/From Operating Reserve $0 $0 $0 $0 $0 To/(From) Water Expansion Fund 0 0 0 0 0 To/(From) Water Replacement Fund 0 0 0 0 0 -------------- -------------- -------------- -------------- -------------- Total Change in Working Capital +/-$0 $0 $0 $0 $0 Total Revenue Requirement $379,603 $226,008 $22,352 $94,865 $36,379 Less: Other Revenues: Meter Sales $0 $0 $0 $0 $0 As Above Federal/State Grants 0 0 0 0 0 As Above Backflow Admin Fees 0 0 0 0 0 As Above Miscellaneous 0 0 0 0 0 As Above Interfund Water Sales 0 0 0 0 0 As Above Interfund Reimbursement 0 0 0 0 0 As Above Interest Income 0 0 0 0 0 As Above In - Employee Benefit Fund/Implied Subsidy 0 0 0 0 0 As Above In - Senior Discount (funded by General Fund)0 0 0 0 0 As Above -------------- -------------- -------------- -------------- -------------- Total Other Revenues $0 $0 $0 $0 $0 Total Net Revenue Requirement $379,603 $226,008 $22,352 $94,865 $36,379 23 of 52 City of Pleasanton Water Utility Rate Study Allocation of Revenue Requirement Exhibit 14 Net Revenue Basis of Requirement Allocation Commodity $13,826,896 $7,605,840 $1,144,799 $3,279,603 $1,796,654 (COMM) Capacity $2,707,526 $1,466,508 $180,599 $766,487 $293,931 (CAP) Actual Customer $920,307 $828,062 $17,457 $36,000 $38,788 (AC) Cust. Acctg.$0 $0 $0 $0 $0 (WCA) Meters & Services $0 $0 $0 $0 $0 (WCMS) Public Fire Protection $0 $0 $0 $0 $0 (FP) Revenue Related $0 $0 $0 $0 $0 (RR) Direct Assign.$379,603 $226,008 $22,352 $94,865 $36,379 (DA) Net Revenue Requirement $17,834,332 $10,126,419 $1,365,207 $4,176,953 $2,165,753 CommercialIrrigationMulit-Family Single Family Residential 24 of 52 City of Pleasanton Water Utility Rate Study Summary of Cost of Service Analysis Exhibit 15 FY 2016 Expenses Notes: Revenues at Present Rates $16,941,244 $9,656,734 $1,439,884 $3,515,770 $2,328,856 Allocated Revenue Requirement $17,834,332 $10,126,419 $1,365,207 $4,176,953 $2,165,753 ------------------ ------------------ ------------------ ------------------ ------------------ Bal/Def of Funds ($893,088) ($469,686) $74,677 ($661,183) $163,103 Required % Change in Rates 5.3%4.9%-5.2%18.8%-7.0% Single Family Residential IrrigationMulit-Family Commercial 25 of 52 City of Pleasanton Water Utility Rate Study Average Unit Costs Exhibit 16 Total Notes: Consumption Related Commodity $/CCF $2.79 $2.79 $2.79 $2.79 $2.79 Capacity $/CCF $0.55 $0.54 $0.44 $0.65 $0.46 Fire/Revenue/Direct $/CCF $0.08 $0.08 $0.05 $0.08 $0.06 ----------- ----------- ----------- ----------- ----------- Total $/CCF $3.41 $3.41 $3.28 $3.52 $3.30 Customer Related Total $/Account $6.04 $6.04 $6.04 $6.04 $6.04 Current Cost ($/CCF)$3.42 $3.54 $3.51 $2.99 $3.61 Allocated Cost ($/CCF)$3.60 $3.71 $3.32 $3.55 $3.36 Single Family Residential CommercialIrrigationMulit-Family 26 of 52 Rate Schedule Single Family Residential Rates Alternative 1 Present FY 2017 FY 2018 FY 2019 FY 2020 Rates October 1,2015 January 1,2016 January 1,2017 January 1,2018 January 1,2019 January 1,2020 Rate Adj.5.5%N/A 0.0%0.0%0.0%0.0% CPI Adj. [2]N/A 2.5%2.5%2.5%2.5%2.5% Bi-Monthly Fixed Fee 5/8"$17.62 $17.62 $18.06 $18.51 $18.97 $19.44 $19.93 3/4"26.41 26.41 27.07 27.75 28.44 29.15 29.88 1"44.04 44.04 45.14 46.27 47.43 48.62 49.84 1 1/2"88.07 88.07 90.27 92.53 94.84 97.21 99.64 2"140.91 140.91 144.43 148.04 151.74 155.53 159.42 3"308.27 308.27 315.98 323.88 331.98 340.28 348.79 4"880.78 880.78 902.80 925.37 948.50 972.21 996.52 6"1,761.55 1,761.55 1,805.59 1,850.73 1,897.00 1,944.42 1,993.03 8"3,088.72 3,088.72 3,165.94 3,245.09 3,326.22 3,409.38 3,494.61 10"4,844.27 4,844.27 4,965.38 5,089.51 5,216.75 5,347.17 5,480.85 Senior 5/8"$14.10 $14.10 $15.35 $15.73 $16.12 $16.52 $16.94 Senior 3/4"21.13 21.13 23.01 23.59 24.17 24.78 25.40 Senior 1"35.23 35.23 38.37 39.33 40.32 41.33 42.36 Senior 1 1/2"70.46 70.46 76.73 78.65 80.61 82.63 84.69 Low Inc 5/8"12.33 12.33 12.64 12.96 13.28 13.61 13.95 Low Inc 3/4"18.49 18.49 18.95 19.43 19.91 20.41 20.92 Consumpiton Charge 0-20 CCF $2.1000 $2.4000 $2.4000 $2.4000 $2.4000 $2.4000 $2.4000 21-40 CCF 2.3581 2.7581 2.7646 2.7712 2.7780 2.7849 2.7920 41-60 CCF 2.6825 2.9825 2.9946 3.0070 3.0197 3.0327 3.0460 60+ CCF 3.4520 3.7520 3.7801 3.8089 3.8384 3.8686 3.8996 [1] - 5.5% rate adjustment assumed to be effective October 1, 2015 [2] - CPI adjustments are effective January 1 of each year Proposed Rates FY 2016[1] 27 of 52 Consumption Present Proposed (CCF)Rates Rates Amount Percent 0 $17.62 $17.62 $0.00 0.00% 5 28.12 29.62 1.50 5.33% 10 38.62 41.62 3.00 7.77% 15 49.12 53.62 4.50 9.16% 25 71.41 79.41 8.00 11.20% 35 94.99 106.99 12.00 12.63% 45 120.19 135.69 15.50 12.90% 60 160.43 180.43 20.00 12.47% 80 229.47 255.47 26.00 11.33% 100 298.51 330.51 32.00 10.72% 125 384.81 424.31 39.50 10.26% 150 471.11 518.11 47.00 9.98% 180 574.67 630.67 56.00 9.74% 225 730.01 799.51 69.50 9.52% 300 988.91 1,080.91 92.00 9.30% Bi-Monthly Fixed Fee $/Acct.Bi-Monthly Fixed Fee $/Acct. 5/8"$17.62 5/8"$17.62 Consumpiton Charge $/CCF Consumpiton Charge $/CCF 0-20 CCF $2.1000 0-20 CCF $2.4000 21-40 CCF 2.3581 21-40 CCF 2.7581 41-60 CCF 2.6825 41-60 CCF 2.9825 60+ CCF 3.4520 60+ CCF 3.7520 Water Utility Rate Study Single Family Residential Rates - 5/8" Alternative 1: Year 1 - FY 2016 Difference City of Pleasanton PRESENT RATES PROPOSED RATES October 1 2015 28 of 52 Consumption Present Proposed (CCF)Rates Rates Amount Percent 0 $94.17 $94.90 $0.73 0.78% 5 104.67 106.90 2.23 2.13% 10 115.17 118.90 3.73 3.24% 15 125.67 130.90 5.23 4.16% 25 147.96 156.69 8.73 5.90% 35 171.54 184.27 12.73 7.42% 45 196.74 212.97 16.23 8.25% 60 236.98 257.71 20.73 8.75% 80 306.02 332.75 26.73 8.73% 100 375.06 407.79 32.73 8.73% 125 461.36 501.59 40.23 8.72% 150 547.66 595.39 47.73 8.72% 180 651.22 707.95 56.73 8.71% 225 806.56 876.79 70.23 8.71% 300 1,065.46 1,158.19 92.73 8.70% Bi-Monthly Fixed Fee $/Acct.Bi-Monthly Fixed Fee $/Acct. 5/8"$17.62 5/8"$17.62 Consumpiton Charge $/CCF Consumpiton Charge $/CCF 0-20 CCF $2.1000 0-20 CCF $2.4000 21-40 CCF 2.3581 21-40 CCF 2.7581 41-60 CCF 2.6825 41-60 CCF 2.9825 60+ CCF 3.4520 60+ CCF 3.7520 Bi-Monthly Fixed Charge $/Acct.Bi-Monthly Fixed Charge $/Acct. Local - Single Family $24.46 Local - Single Family $25.19 DSRSD - Single Family 52.09 DSRSD - Single Family 52.09 Sewer PROPOSED RATESPRESENT RATES October 1 2015 Water City of Pleasanton Single Family Residential Rates Combined Water & Sewer Bill: Year 1 - FY 2016 Difference 29 of 52 Consumption Present Proposed (CCF)Rates Rates Amount Percent 0 $17.62 $18.06 $0.44 2.50% 5 29.62 30.06 0.44 1.49% 10 41.62 42.06 0.44 1.06% 15 53.62 54.06 0.44 0.82% 25 79.41 79.88 0.47 0.60% 35 106.99 107.53 0.54 0.50% 45 135.69 136.33 0.63 0.46% 60 180.43 181.24 0.81 0.45% 80 255.47 256.85 1.37 0.54% 100 330.51 332.45 1.94 0.59% 125 424.31 426.95 2.64 0.62% 150 518.11 521.45 3.34 0.64% 180 630.67 634.86 4.18 0.66% 225 799.51 804.96 5.45 0.68% 300 1,080.91 1,088.47 7.56 0.70% Bi-Monthly Fixed Fee $/Acct.Bi-Monthly Fixed Fee $/Acct. 5/8"$17.62 5/8"$18.06 Consumpiton Charge $/CCF Consumpiton Charge $/CCF 0-20 CCF $2.4000 0-20 CCF $2.4000 21-40 CCF 2.7581 21-40 CCF 2.7646 41-60 CCF 2.9825 41-60 CCF 2.9946 60+ CCF 3.7520 60+ CCF 3.7801 PRESENT RATES PROPOSED RATES January 1 2016 Difference City of Pleasanton Alternative 1: Year 1 - FY 2016 Single Family Residential Rates - 5/8" Water Utility Rate Study 30 of 52 Consumption Present Proposed (CCF)Rates Rates Amount Percent 0 $18.06 $18.51 $0.45 2.49% 5 30.06 30.51 0.45 1.50% 10 42.06 42.51 0.45 1.07% 15 54.06 54.51 0.45 0.83% 25 79.88 80.37 0.48 0.60% 35 107.53 108.08 0.55 0.51% 45 136.33 136.97 0.64 0.47% 60 181.24 182.07 0.83 0.46% 80 256.85 258.25 1.41 0.55% 100 332.45 334.43 1.98 0.60% 125 426.95 429.65 2.70 0.63% 150 521.45 524.88 3.42 0.66% 180 634.86 639.14 4.29 0.68% 225 804.96 810.54 5.58 0.69% 300 1,088.47 1,096.21 7.74 0.71% Bi-Monthly Fixed Fee $/Acct.Bi-Monthly Fixed Fee $/Acct. 5/8"$18.06 5/8"$18.51 Consumpiton Charge $/CCF Consumpiton Charge $/CCF 0-20 CCF $2.4000 0-20 CCF $2.4000 21-40 CCF 2.7646 21-40 CCF 2.7712 41-60 CCF 2.9946 41-60 CCF 3.0070 60+ CCF 3.7801 60+ CCF 3.8089 City of Pleasanton Water Utility Rate Study Single Family Residential Rates - 5/8" Alternative 1: Year 2 - FY 2017 January 1 2017 Difference PROPOSED RATESPRESENT RATES 31 of 52 Consumption Present Proposed (CCF)Rates Rates Amount Percent 0 $18.51 $18.97 $0.46 2.49% 5 30.51 30.97 0.46 1.51% 10 42.51 42.97 0.46 1.08% 15 54.51 54.97 0.46 0.84% 25 80.37 80.86 0.49 0.61% 35 108.08 108.64 0.56 0.52% 45 136.97 137.63 0.66 0.48% 60 182.07 182.92 0.85 0.47% 80 258.25 259.69 1.44 0.56% 100 334.43 336.46 2.03 0.61% 125 429.65 432.42 2.77 0.64% 150 524.88 528.38 3.51 0.67% 180 639.14 643.53 4.39 0.69% 225 810.54 816.26 5.72 0.71% 300 1,096.21 1,104.14 7.93 0.72% Bi-Monthly Fixed Fee $/Acct.Bi-Monthly Fixed Fee $/Acct. 5/8"$18.51 5/8"$18.97 Consumpiton Charge $/CCF Consumpiton Charge $/CCF 0-20 CCF $2.4000 0-20 CCF $2.4000 21-40 CCF 2.7712 21-40 CCF 2.7780 41-60 CCF 3.0070 41-60 CCF 3.0197 60+ CCF 3.8089 60+ CCF 3.8384 City of Pleasanton PRESENT RATES PROPOSED RATES January 1 2018 Difference Water Utility Rate Study Single Family Residential Rates - 5/8" Alternative 1: Year 3 - FY 2018 32 of 52 Consumption Present Proposed (CCF)Rates Rates Amount Percent 0 $18.97 $19.44 $0.47 2.48% 5 30.97 31.44 0.47 1.52% 10 42.97 43.44 0.47 1.09% 15 54.97 55.44 0.47 0.86% 25 80.86 81.36 0.50 0.62% 35 108.64 109.21 0.57 0.53% 45 137.63 138.30 0.67 0.49% 60 182.92 183.79 0.87 0.47% 80 259.69 261.16 1.47 0.57% 100 336.46 338.54 2.08 0.62% 125 432.42 435.25 2.83 0.65% 150 528.38 531.97 3.59 0.68% 180 643.53 648.02 4.49 0.70% 225 816.26 822.11 5.85 0.72% 300 1,104.14 1,112.26 8.12 0.74% Bi-Monthly Fixed Fee $/Acct.Bi-Monthly Fixed Fee $/Acct. 5/8"$18.97 5/8"$19.44 Consumpiton Charge $/CCF Consumpiton Charge $/CCF 0-20 CCF $2.4000 0-20 CCF $2.4000 21-40 CCF 2.7780 21-40 CCF 2.7849 41-60 CCF 3.0197 41-60 CCF 3.0327 60+ CCF 3.8384 60+ CCF 3.8686 Water Utility Rate Study Single Family Residential Rates - 5/8" Alternative 1: Year 4 - FY 2019 PROPOSED RATESPRESENT RATES January 1 2019 Difference City of Pleasanton 33 of 52 Consumption Present Proposed (CCF)Rates Rates Amount Percent 0 $19.44 $19.93 $0.49 2.52% 5 31.44 31.93 0.49 1.56% 10 43.44 43.93 0.49 1.13% 15 55.44 55.93 0.49 0.88% 25 81.36 81.89 0.53 0.65% 35 109.21 109.81 0.60 0.55% 45 138.30 139.00 0.70 0.51% 60 183.79 184.69 0.90 0.49% 80 261.16 262.68 1.52 0.58% 100 338.54 340.67 2.14 0.63% 125 435.25 438.16 2.91 0.67% 150 531.97 535.65 3.69 0.69% 180 648.02 652.64 4.62 0.71% 225 822.11 828.12 6.01 0.73% 300 1,112.26 1,120.59 8.34 0.75% Bi-Monthly Fixed Fee $/Acct.Bi-Monthly Fixed Fee $/Acct. 5/8"$19.44 5/8"$19.93 Consumpiton Charge $/CCF Consumpiton Charge $/CCF 0-20 CCF $2.4000 0-20 CCF $2.4000 21-40 CCF 2.7849 21-40 CCF 2.7920 41-60 CCF 3.0327 41-60 CCF 3.0460 60+ CCF 3.8686 60+ CCF 3.8996 Water Utility Rate Study Single Family Residential Rates - 5/8" Alternative 1: Year 5 - FY 2020 City of Pleasanton PROPOSED RATESPRESENT RATES January 1 2020 Difference 34 of 52 Rate Schedule Multi-Family Rates Alternative 1 FY 2016[1]FY 2017 FY 2018 FY 2019 FY 2020 Rate Adj.Present 5.5%0.0%0.0%0.0%0.0% CPI Adj. [2]Rates 2.5% 2.5% 2.5% 2.5% 2.5% Bi-Monthly Fixed Fee 5/8"$17.62 $18.06 $18.51 $18.97 $19.44 $19.93 3/4"26.41 27.07 27.75 28.44 29.15 29.88 1"44.04 45.14 46.27 47.43 48.62 49.84 1 1/2"88.07 90.27 92.53 94.84 97.21 99.64 2"140.91 144.43 148.04 151.74 155.53 159.42 3"308.27 315.98 323.88 331.98 340.28 348.79 4"880.78 902.80 925.37 948.50 972.21 996.52 6"1,761.55 1,805.59 1,850.73 1,897.00 1,944.42 1,993.03 8"3,088.72 3,165.94 3,245.09 3,326.22 3,409.38 3,494.61 10"4,844.27 4,965.38 5,089.51 5,216.75 5,347.17 5,480.85 Senior 5/8"14.10 15.35 15.73 16.12 16.52 16.94 Senior 3/4"21.13 23.01 23.59 24.17 24.78 25.40 Senior 1"35.23 38.37 39.33 40.32 41.33 42.36 Senior 1 1/2"70.46 76.73 78.65 80.61 82.63 84.69 Senior 2"112.73 122.77 125.83 128.98 132.20 135.51 Senior 3"246.62 268.58 275.30 282.18 289.24 296.47 Low Inc 5/8"12.33 12.64 12.96 13.28 13.61 13.95 Low Inc 3/4"18.49 18.95 19.43 19.91 20.41 20.92 Consumpiton Charge All Consumption $2.4693 $2.7760 $2.7829 $2.7900 $2.7973 $2.8047 [1] - 5.5% rate adjustment assumed to be effective October 1, 2015 [2] - CPI adjustments are effective January 1 of each year 35 of 52 Consumption Present Proposed (CCF)Rates Rates Amount Percent 0 $88.07 $90.27 $2.20 2.50% 5 100.42 104.15 3.73 3.72% 10 112.76 118.03 5.27 4.67% 15 125.11 131.91 6.80 5.44% 25 149.80 159.67 9.87 6.59% 35 174.50 187.43 12.93 7.41% 50 211.54 229.07 17.54 8.29% 75 273.27 298.47 25.20 9.22% 100 335.00 367.87 32.87 9.81% 125 396.73 437.27 40.54 10.22% 150 458.47 506.67 48.21 10.51% 175 520.20 576.07 55.87 10.74% 200 581.93 645.47 63.54 10.92% 250 705.40 784.27 78.88 11.18% 300 828.86 923.07 94.21 11.37% Bi-Monthly Fixed Fee $/Acct.Bi-Monthly Fixed Fee $/Acct. 1 1/2"$88.07 1 1/2"$90.27 Consumpiton Charge $/CCF Consumpiton Charge $/CCF All Consumption $2.4693 All Consumption $2.7760 Water Utility Rate Study City of Pleasanton Multi-Family Rates - 1 1/2" Meter Alternative 1: Year 1 - 2016 Includes 5.5% rate adj. plus 2.5% CPI Difference PROPOSED RATESPRESENT RATES 36 of 52 Consumption Present Proposed (CCF)Rates Rates Amount Percent 0 $90.27 $92.53 $2.26 2.50% 5 104.15 106.44 2.29 2.20% 10 118.03 120.36 2.33 1.97% 15 131.91 134.27 2.36 1.79% 25 159.67 162.10 2.43 1.52% 35 187.43 189.93 2.50 1.33% 50 229.07 231.68 2.61 1.14% 75 298.47 301.25 2.78 0.93% 100 367.87 370.82 2.95 0.80% 125 437.27 440.39 3.12 0.71% 150 506.67 509.97 3.30 0.65% 175 576.07 579.54 3.47 0.60% 200 645.47 649.11 3.64 0.56% 250 784.27 788.26 3.98 0.51% 300 923.07 927.40 4.33 0.47% Bi-Monthly Fixed Fee $/Acct.Bi-Monthly Fixed Fee $/Acct. 1 1/2"$90.27 1 1/2"$92.53 Consumpiton Charge $/CCF Consumpiton Charge $/CCF All Consumption $2.7760 All Consumption $2.7829 City of Pleasanton Water Utility Rate Study Multi-Family Rates - 1 1/2" Meter Alternative 1: Year 2 - 2017 Includes 2.5% CPI Adj Difference PROPOSED RATESPRESENT RATES 37 of 52 Consumption Present Proposed (CCF)Rates Rates Amount Percent 0 $92.53 $94.84 $2.31 2.50% 5 106.44 108.79 2.35 2.20% 10 120.36 122.74 2.38 1.98% 15 134.27 136.69 2.42 1.80% 25 162.10 164.59 2.49 1.53% 35 189.93 192.49 2.56 1.35% 50 231.68 234.34 2.66 1.15% 75 301.25 304.09 2.84 0.94% 100 370.82 373.84 3.02 0.81% 125 440.39 443.59 3.20 0.73% 150 509.97 513.34 3.38 0.66% 175 579.54 583.09 3.55 0.61% 200 649.11 652.84 3.73 0.57% 250 788.26 792.34 4.09 0.52% 300 927.40 931.84 4.44 0.48% Bi-Monthly Fixed Fee $/Acct.Bi-Monthly Fixed Fee $/Acct. 1 1/2"$92.53 1 1/2"$94.84 Consumpiton Charge $/CCF Consumpiton Charge $/CCF All Consumption $2.7829 All Consumption $2.7900 Multi-Family Rates - 1 1/2" Meter Alternative 1: Year 3 - 2018 Water Utility Rate Study City of Pleasanton PROPOSED RATESPRESENT RATES Includes 2.5% CPI Adj Difference 38 of 52 Consumption Present Proposed (CCF)Rates Rates Amount Percent 0 $94.84 $97.21 $2.37 2.50% 5 108.79 111.20 2.41 2.21% 10 122.74 125.18 2.44 1.99% 15 136.69 139.17 2.48 1.81% 25 164.59 167.14 2.55 1.55% 35 192.49 195.12 2.63 1.36% 50 234.34 237.08 2.74 1.17% 75 304.09 307.01 2.92 0.96% 100 373.84 376.94 3.10 0.83% 125 443.59 446.87 3.28 0.74% 150 513.34 516.81 3.46 0.67% 175 583.09 586.74 3.65 0.63% 200 652.84 656.67 3.83 0.59% 250 792.34 796.54 4.19 0.53% 300 931.84 936.40 4.56 0.49% Bi-Monthly Fixed Fee $/Acct.Bi-Monthly Fixed Fee $/Acct. 1 1/2"$94.84 1 1/2"$97.21 Consumpiton Charge $/CCF Consumpiton Charge $/CCF All Consumption $2.7900 All Consumption $2.7973 City of Pleasanton Water Utility Rate Study Multi-Family Rates - 1 1/2" Meter Alternative 1: Year 4 - 2019 PROPOSED RATESPRESENT RATES Includes 2.5% CPI Adj Difference 39 of 52 Consumption Present Proposed (CCF)Rates Rates Amount Percent 0 $97.21 $99.64 $2.43 2.50% 5 111.20 113.66 2.47 2.22% 10 125.18 127.69 2.50 2.00% 15 139.17 141.71 2.54 1.83% 25 167.14 169.76 2.61 1.56% 35 195.12 197.80 2.69 1.38% 50 237.08 239.88 2.80 1.18% 75 307.01 309.99 2.99 0.97% 100 376.94 380.11 3.17 0.84% 125 446.87 450.23 3.36 0.75% 150 516.81 520.35 3.54 0.68% 175 586.74 590.46 3.73 0.63% 200 656.67 660.58 3.91 0.60% 250 796.54 800.82 4.28 0.54% 300 936.40 941.05 4.65 0.50% Bi-Monthly Fixed Fee $/Acct.Bi-Monthly Fixed Fee $/Acct. 1 1/2"$97.21 1 1/2"$99.64 Consumpiton Charge $/CCF Consumpiton Charge $/CCF All Consumption $2.7973 All Consumption $2.8047 Multi-Family Rates - 1 1/2" Meter Alternative 1: Year 5 - 2020 Water Utility Rate Study City of Pleasanton PROPOSED RATESPRESENT RATES Includes 2.5% CPI Adj Difference 40 of 52 Rate Schedule Irrigation Rates Alternative 1 FY 2016[1]FY 2017 FY 2018 FY 2019 FY 2020 Rate Adj.Present 5.5% 0.0% 0.0% 0.0% 0.0% CPI Adj. [2]Rates 2.5% 2.5% 2.5% 2.5% 2.5% Bi-Monthly Fixed Fee 5/8"$17.62 $18.06 $18.51 $18.97 $19.44 $19.93 3/4"26.41 27.07 27.75 28.44 29.15 29.88 1"44.04 45.14 46.27 47.43 48.62 49.84 1 1/2"88.07 90.27 92.53 94.84 97.21 99.64 2"140.91 144.43 148.04 151.74 155.53 159.42 3"308.27 315.98 323.88 331.98 340.28 348.79 4"880.78 902.80 925.37 948.50 972.21 996.52 8"1,761.55 1,805.59 1,850.73 1,897.00 1,944.42 1,993.03 10"3,088.72 3,165.94 3,245.09 3,326.22 3,409.38 3,494.61 Consumpiton Charge All Consumption $2.6152 $2.9256 $2.9362 $2.9471 $2.9583 $2.9698 [1] - 5.5% rate adjustment assumed to be effective October 1, 2015 [2] - CPI adjustments are effective January 1 of each year 41 of 52 Meter Consumption Present Proposed Size (CCF)Rates Rates Amount Percent 1 1/2" 0 $88.07 $90.27 $2.20 2.50% 10 114.22 119.53 $5.30 4.64% 20 140.37 148.78 $8.41 5.99% 35 179.60 192.67 $13.06 7.27% 50 218.83 236.55 $17.72 8.10% 70 271.13 295.06 $23.93 8.83% 90 323.44 353.57 $30.14 9.32% 110 375.74 412.09 $36.34 9.67% 135 441.12 485.23 $44.10 10.00% 170 532.65 587.62 $54.97 10.32% 205 624.19 690.02 $65.83 10.55% 250 741.87 821.67 $79.80 10.76% 300 872.63 967.95 $95.32 10.92% 350 1,003.39 1,114.23 $110.84 11.05% 500 1,395.67 1,553.07 $157.40 11.28% Bi-Monthly Fixed Fee $/Acct.Bi-Monthly Fixed Fee $/Acct. 1 1/2"$88.07 1 1/2"$90.27 Consumpiton Charge $/CCF Consumpiton Charge $/CCF All Consumption $2.6152 All Consumption $2.9256 Irrigation Rates - 1 1/2" Meter Water Utility Rate Study City of Pleasanton Alternative 1: Year 1 - 2016 Includes 5.5% rate adj. plus 2.5% CPI Difference PRESENT RATES PROPOSED RATES 42 of 52 Meter Consumption Present Proposed Size (CCF)Rates Rates Amount Percent 1 1/2" 0 $90.27 $92.53 $2.26 2.50% 10 119.53 121.89 $2.37 1.98% 20 148.78 151.25 $2.47 1.66% 35 192.67 195.30 $2.63 1.37% 50 236.55 239.34 $2.79 1.18% 70 295.06 298.06 $3.00 1.02% 90 353.57 356.79 $3.21 0.91% 110 412.09 415.51 $3.43 0.83% 135 485.23 488.92 $3.69 0.76% 170 587.62 591.68 $4.06 0.69% 205 690.02 694.45 $4.43 0.64% 250 821.67 826.58 $4.91 0.60% 300 967.95 973.39 $5.44 0.56% 350 1,114.23 1,120.20 $5.97 0.54% 500 1,553.07 1,560.63 $7.56 0.49% Bi-Monthly Fixed Fee $/Acct.Bi-Monthly Fixed Fee $/Acct. 1 1/2"$90.27 1 1/2"$92.53 Consumpiton Charge $/CCF Consumpiton Charge $/CCF All Consumption $2.9256 All Consumption $2.9362 Includes 2.5% CPI Adj Difference PROPOSED RATESPRESENT RATES City of Pleasanton Water Utility Rate Study Irrigation Rates - 1 1/2" Meter Alternative 1: Year 2 - 2017 43 of 52 Meter Consumption Present Proposed Size (CCF)Rates Rates Amount Percent 1 1/2" 0 $92.53 $94.84 $2.31 2.50% 10 121.89 124.31 $2.42 1.98% 20 151.25 153.78 $2.53 1.67% 35 195.30 197.99 $2.69 1.38% 50 239.34 242.20 $2.85 1.19% 70 298.06 301.14 $3.07 1.03% 90 356.79 360.08 $3.29 0.92% 110 415.51 419.02 $3.51 0.84% 135 488.92 492.70 $3.78 0.77% 170 591.68 595.85 $4.16 0.70% 205 694.45 699.00 $4.54 0.65% 250 826.58 831.62 $5.04 0.61% 300 973.39 978.97 $5.58 0.57% 350 1,120.20 1,126.33 $6.12 0.55% 500 1,560.63 1,568.39 $7.76 0.50% Bi-Monthly Fixed Fee $/Acct.Bi-Monthly Fixed Fee $/Acct. 1 1/2"$92.53 1 1/2"$94.84 Consumpiton Charge $/CCF Consumpiton Charge $/CCF All Consumption $2.9362 All Consumption $2.9471 City of Pleasanton Water Utility Rate Study Includes 2.5% CPI Adj Difference PROPOSED RATES Irrigation Rates - 1 1/2" Meter Alternative 1: Year 3 - 2018 PRESENT RATES 44 of 52 Meter Consumption Present Proposed Size (CCF)Rates Rates Amount Percent 1 1/2" 0 $94.84 $97.21 $2.37 2.50% 10 124.31 126.79 $2.48 2.00% 20 153.78 156.38 $2.59 1.69% 35 197.99 200.75 $2.76 1.40% 50 242.20 245.13 $2.93 1.21% 70 301.14 304.29 $3.15 1.05% 90 360.08 363.46 $3.38 0.94% 110 419.02 422.62 $3.60 0.86% 135 492.70 496.58 $3.88 0.79% 170 595.85 600.12 $4.27 0.72% 205 699.00 703.66 $4.67 0.67% 250 831.62 836.79 $5.17 0.62% 300 978.97 984.70 $5.73 0.59% 350 1,126.33 1,132.62 $6.29 0.56% 500 1,568.39 1,576.36 $7.97 0.51% Bi-Monthly Fixed Fee $/Acct.Bi-Monthly Fixed Fee $/Acct. 1 1/2"$94.84 1 1/2"$97.21 Consumpiton Charge $/CCF Consumpiton Charge $/CCF All Consumption $2.9471 All Consumption $2.9583 City of Pleasanton Water Utility Rate Study Irrigation Rates - 1 1/2" Meter Alternative 1: Year 4 - 2019 PROPOSED RATESPRESENT RATES Includes 2.5% CPI Adj Difference 45 of 52 Meter Consumption Present Proposed Size (CCF)Rates Rates Amount Percent 1 1/2" 0 $97.21 $99.64 $2.43 2.50% 10 126.79 129.34 $2.54 2.01% 20 156.38 159.04 $2.66 1.70% 35 200.75 203.58 $2.83 1.41% 50 245.13 248.13 $3.01 1.23% 70 304.29 307.53 $3.24 1.06% 90 363.46 366.92 $3.46 0.95% 110 422.62 426.32 $3.69 0.87% 135 496.58 500.56 $3.98 0.80% 170 600.12 604.51 $4.38 0.73% 205 703.66 708.45 $4.79 0.68% 250 836.79 842.09 $5.30 0.63% 300 984.70 990.58 $5.88 0.60% 350 1,132.62 1,139.07 $6.45 0.57% 500 1,576.36 1,584.54 $8.18 0.52% Bi-Monthly Fixed Fee $/Acct.Bi-Monthly Fixed Fee $/Acct. 1 1/2"$97.21 1 1/2"$99.64 Consumpiton Charge $/CCF Consumpiton Charge $/CCF All Consumption $2.9583 All Consumption $2.9698 Water Utility Rate Study Irrigation Rates - 1 1/2" Meter Alternative 1: Year 5 - 2020 City of Pleasanton PROPOSED RATESPRESENT RATES Includes 2.5% CPI Adj Difference 46 of 52 Rate Schedule Commercial Rates Alternative 1 FY 2016[1]FY 2017 FY 2018 FY 2019 FY 2020 Rate Adj.Present 5.5% 0.0% 0.0% 0.0% 0.0% CPI Adj. [2]Rates 2.5% 2.5% 2.5% 2.5% 2.5% Bi-Monthly Fixed Fee 5/8"$17.62 $18.06 $18.51 $18.97 $19.44 $19.93 3/4"26.41 27.07 27.75 28.44 29.15 29.88 1"44.04 45.14 46.27 47.43 48.62 49.84 1 1/2"88.07 90.27 92.53 94.84 97.21 99.64 2"140.91 144.43 148.04 151.74 155.53 159.42 3"308.27 315.98 323.88 331.98 340.28 348.79 4"880.78 902.80 925.37 948.50 972.21 996.52 6"1,761.55 1,805.59 1,850.73 1,897.00 1,944.42 1,993.03 8"3,088.72 3,165.94 3,245.09 3,326.22 3,409.38 3,494.61 10"4,844.27 4,965.38 5,089.51 5,216.75 5,347.17 5,480.85 Consumpiton Charge All Consumption $2.4693 $2.7760 $2.7829 $2.7900 $2.7973 $2.8047 [1] - 5.5% rate adjustment assumed to be effective October 1, 2015 [2] - CPI adjustments are effective January 1 of each year 47 of 52 Consumption Present Proposed (CCF)Rates Rates Amount Percent 0 $44.04 $45.14 $1.10 2.50% 10 68.73 72.90 4.17 6.06% 20 93.43 100.66 7.23 7.74% 35 130.47 142.30 11.83 9.07% 50 167.51 183.94 16.44 9.81% 70 216.89 239.46 22.57 10.41% 90 266.28 294.98 28.70 10.78% 110 315.66 350.50 34.84 11.04% 135 377.40 419.90 42.50 11.26% 170 463.82 517.06 53.24 11.48% 205 550.25 614.22 63.97 11.63% 250 661.37 739.14 77.78 11.76% 300 784.83 877.94 93.11 11.86% 350 908.30 1,016.74 108.45 11.94% 500 1,278.69 1,433.14 154.45 12.08% Bi-Monthly Fixed Fee $/Acct.Bi-Monthly Fixed Fee $/Acct. 1"$44.04 1"$45.14 Consumpiton Charge $/CCF Consumpiton Charge $/CCF All Consumption $2.4693 All Consumption $2.7760 City of Pleasanton Water Utility Rate Study Commercial Rates - 1" Meter Alternative 1: Year 1 - 2016 Includes 5.5% rate adj. plus 2.5% CPI Difference PRESENT RATES PROPOSED RATES 48 of 52 Consumption Present Proposed (CCF)Rates Rates Amount Percent 0 $45.14 $46.27 $1.13 2.50% 10 72.90 74.10 1.20 1.64% 20 100.66 101.93 1.27 1.26% 35 142.30 143.67 1.37 0.96% 50 183.94 185.42 1.48 0.80% 70 239.46 241.07 1.61 0.67% 90 294.98 296.73 1.75 0.59% 110 350.50 352.39 1.89 0.54% 135 419.90 421.96 2.06 0.49% 170 517.06 519.36 2.30 0.45% 205 614.22 616.76 2.54 0.41% 250 739.14 742.00 2.85 0.39% 300 877.94 881.14 3.20 0.36% 350 1,016.74 1,020.29 3.54 0.35% 500 1,433.14 1,437.72 4.58 0.32% Bi-Monthly Fixed Fee $/Acct.Bi-Monthly Fixed Fee $/Acct. 1"$45.14 1"$46.27 Consumpiton Charge $/CCF Consumpiton Charge $/CCF All Consumption $2.7760 All Consumption $2.7829 Commercial Rates - 1" Meter Alternative 1: Year 2 - 2017 PROPOSED RATESPRESENT RATES Includes 2.5% CPI Adj Difference City of Pleasanton Water Utility Rate Study 49 of 52 Consumption Present Proposed (CCF)Rates Rates Amount Percent 0 $46.27 $47.43 $1.16 2.51% 10 74.10 75.33 1.23 1.66% 20 101.93 103.23 1.30 1.28% 35 143.67 145.08 1.41 0.98% 50 185.42 186.93 1.51 0.82% 70 241.07 242.73 1.66 0.69% 90 296.73 298.53 1.80 0.61% 110 352.39 354.33 1.94 0.55% 135 421.96 424.08 2.12 0.50% 170 519.36 521.73 2.37 0.46% 205 616.76 619.38 2.62 0.42% 250 742.00 744.93 2.93 0.40% 300 881.14 884.43 3.29 0.37% 350 1,020.29 1,023.93 3.64 0.36% 500 1,437.72 1,442.43 4.71 0.33% Bi-Monthly Fixed Fee $/Acct.Bi-Monthly Fixed Fee $/Acct. 1"$46.27 1"$47.43 Consumpiton Charge $/CCF Consumpiton Charge $/CCF All Consumption $2.7829 All Consumption $2.7900 PROPOSED RATESPRESENT RATES Includes 2.5% CPI Adj Difference Commercial Rates - 1" Meter Alternative 1: Year 3 - 2018 City of Pleasanton Water Utility Rate Study 50 of 52 Consumption Present Proposed (CCF)Rates Rates Amount Percent 0 $47.43 $48.62 $1.19 2.51% 10 75.33 76.59 1.26 1.68% 20 103.23 104.57 1.34 1.29% 35 145.08 146.53 1.45 1.00% 50 186.93 188.49 1.56 0.83% 70 242.73 244.43 1.70 0.70% 90 298.53 300.38 1.85 0.62% 110 354.33 356.32 1.99 0.56% 135 424.08 426.26 2.18 0.51% 170 521.73 524.16 2.43 0.47% 205 619.38 622.07 2.69 0.43% 250 744.93 747.95 3.01 0.40% 300 884.43 887.81 3.38 0.38% 350 1,023.93 1,027.68 3.75 0.37% 500 1,442.43 1,447.27 4.84 0.34% Bi-Monthly Fixed Fee $/Acct.Bi-Monthly Fixed Fee $/Acct. 1"$47.43 1"$48.62 Consumpiton Charge $/CCF Consumpiton Charge $/CCF All Consumption $2.7900 All Consumption $2.7973 Commercial Rates - 1" Meter Alternative 1: Year 4 - 2019 PROPOSED RATESPRESENT RATES City of Pleasanton Water Utility Rate Study Includes 2.5% CPI Adj Difference 51 of 52 Consumption Present Proposed (CCF)Rates Rates Amount Percent 0 $48.62 $49.84 $1.22 2.51% 10 76.59 77.89 1.29 1.69% 20 104.57 105.93 1.37 1.31% 35 146.53 148.00 1.48 1.01% 50 188.49 190.08 1.59 0.84% 70 244.43 246.17 1.74 0.71% 90 300.38 302.26 1.89 0.63% 110 356.32 358.36 2.03 0.57% 135 426.26 428.47 2.22 0.52% 170 524.16 526.64 2.48 0.47% 205 622.07 624.80 2.74 0.44% 250 747.95 751.02 3.07 0.41% 300 887.81 891.25 3.44 0.39% 350 1,027.68 1,031.49 3.81 0.37% 500 1,447.27 1,452.19 4.92 0.34% Bi-Monthly Fixed Fee $/Acct.Bi-Monthly Fixed Fee $/Acct. 1"$48.62 1"$49.84 Consumpiton Charge $/CCF Consumpiton Charge $/CCF All Consumption $2.7973 All Consumption $2.8047 Water Utility Rate Study Commercial Rates - 1" Meter Alternative 1: Year 5 - 2020 City of Pleasanton PROPOSED RATESPRESENT RATES Difference Includes 2.5% CPI Adj 52 of 52 Technical Appendix B – Recycled Water Analysis Budgeted FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 FY 2020 RevenuesRate Revenues $102,534 $613,701 $1,174,074 $1,556,406 $1,777,321 $1,881,355Miscellaneous Revenues 285,000 287,850 290,729 293,636 296,572 299,538 -------------- -------------- -------------- -------------- -------------- -------------- Total Revenues $387,534 $901,551 $1,464,803 $1,850,042 $2,073,893 $2,180,893 Expenses Total Water O & M Division $43,503 $600,412 $854,458 $1,009,088 $1,102,422 $1,151,783 Total Operations & Maintenance $43,503 $600,412 $854,458 $1,009,088 $1,102,422 $1,151,783 Transfers $0 $0 $0 $75,000 $200,000 $275,000 Net Debt Service $0 $0 $750,000 $750,000 $750,000 $750,000 Total Change in Working Capital +/-$0 $0 $0 $0 $0 $0 Total Revenue Requirement $43,503 $600,412 $1,604,458 $1,834,088 $2,052,422 $2,176,783 Bal/(Def) of Funds $344,031 $301,139 ($139,655)$15,955 $21,472 $4,110 Balas a % of Rate Adj. Required -335.5%-49.1%11.9%-1.0%-1.2%-0.2% Proposed Rate Adjustment [1]0.0%0.0%0.0%0.0%0.0%0.0% Additional Revenue with Rate Adj.$0 $0 $0 $0 $0 $0 Bal/(Def) After Rate Adjustment $344,031 $301,139 ($139,655)$15,955 $21,472 $4,110 Balance as a % of Rate Revenues -335.5%-49.1%11.9%-1.0%-1.2%-0.2% Average Residential Customer Bill $2.35 ($ / CCF) Customer Bill on Proposed Adjustment $2.35 $2.35 $2.35 $2.35 $2.35 $2.35Bill Difference - Monthly 0.00 0.00 0.00 0.00 0.00 0.00Cumulative Bill Difference 0.00 0.00 0.00 0.00 0.00 0.00 Debt Service Coverage Ratio (all debt)Before Rate Adjustment N/A N/A 0.81 1.12 1.30 1.37After Needed Rate Adjustment N/A N/A 1.00 1.12 1.30 1.37 After Proposed Rate Adjustment N/A N/A 0.81 1.12 1.30 1.37 Projected City of PleasantonWater Utility Rate Study Summary of the Water Revenue Requirement - Recycled Water Exhibit 1 1 of 8 City of Pleasanton Water Utility Rate Study Escalations Exhibit 2 Budgeted FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 FY 2020 Notes: Revenues: Res - Customer Growth Budget 1.0% 1.0% 1.0% 1.0% 1.0% Irr - Customer Growth Budget -5.0% -15.0% -15.0% -10.0% -5.0% Com - Customer Growth Budget 1.0% 1.0% 1.0% 1.0% 1.0% Recycled Water - Cust. Growth Budget 376.2% 140.0% 50.0% 5.6% 5.3% All - Customer Growth Budget 1.0% 1.0% 1.0% 1.0% 1.0% Single-Family - Consumption Growth Budget 7.5% 4.8% 6.9% 6.5% 4.8% Multi-Family - Consumption Growth Budget 12.5% 7.5% 10.0% 7.0% 5.0% Irrigation - Consumption Growth Budget -5.0% -15.0% -15.0% -10.0% -5.0% Commercial - Consumption Growth Budget 4.0% 4.0% 4.0% 3.5% 3.5% Miscellaneous Revenues Budget 1.0% 1.0% 1.0% 1.0% 1.0% Expenses: Salary Budget 3.0% 3.0% 3.0% 3.0% 3.0% Benefits Budget 3.5% 3.5% 3.5% 3.5% 3.5% General O&M Budget 3.0% 3.0% 3.0% 3.0% 3.0% Materials & Supplies Budget 2.5% 2.5% 2.5% 2.5% 2.5% Equipment Budget 3.5% 3.5% 3.5% 3.5% 3.5% Miscellaneous Budget 2.0% 2.0% 2.0% 2.0% 2.0% Purchased Water - Recycled Budget 3.5% 3.5% 3.5% 3.5% 3.5% Purchased Water - Zone 7 Budget 0.0% 0.0% 0.0% 0.0% 0.0% Interest:0.5% 0.5% 0.5% 0.8% 1.0% 1.0% New Debt Service: Low Interest Loans Term in Years 20 20 20 20 20 20 Rate 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% Revenue Bond Term in Years 20 20 20 20 20 20 Rate 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% Projected 2 of 8 City of Pleasanton Water Utility Rate Study Page 1 of 2 Revenue Requirement - Recycled Water Exhibit 3 Budgeted FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 FY 2020 Notes: Revenues Rate Revenues Recycled Water Sales $102,534 $613,701 $1,174,074 $1,556,406 $1,777,321 $1,881,355 As Recycled Water Exhibit 4-------------- -------------- -------------- -------------- -------------- -------------- Total Rate Revenues $102,534 $613,701 $1,174,074 $1,556,406 $1,777,321 $1,881,355 Other Revenues: Transfer from Potable Water $285,000 $287,850 $290,729 $293,636 $296,572 $299,538 Interest Income 0 0 0 0 0 0 Calculated -------------- -------------- -------------- -------------- -------------- -------------- Total Other Revenues $285,000 $287,850 $290,729 $293,636 $296,572 $299,538 Total Revenues $387,534 $901,551 $1,464,803 $1,850,042 $2,073,893 $2,180,893 Expenses Water O & M Division O&M Expenses $0 $367,656 $410,779 $423,102 $435,795 $448,869 As General O&M Water Purchase - Recycled Water 43,503 232,756 443,679 585,986 666,626 702,914 As Recycled Water Exhibit 4 --------------- --------------- --------------- --------------- --------------- --------------- Total Water O & M Division $43,503 $600,412 $854,458 $1,009,088 $1,102,422 $1,151,783 Total Operations & Maintenance $43,503 $600,412 $854,458 $1,009,088 $1,102,422 $1,151,783 Transfers In $0 $0 $0 $0 $0 $0 As Miscellaneous Out 0 0 0 0 0 0 As MiscellaneousRate Funded Capital 0 0 0 75,000 200,000 275,000 -------------- -------------- -------------- -------------- -------------- -------------- Total Transfers $0 $0 $0 $75,000 $200,000 $275,000 Debt Service Existing Debt - Recycled Water $0 $0 $750,000 $750,000 $750,000 $750,000 From City Additional Long Term Debt 0 0 0 0 0 0 Calculated @ 5% for 20 yrs -------------- -------------- -------------- -------------- -------------- -------------- Total Debt Service $0 $0 $750,000 $750,000 $750,000 $750,000 LESS: Other Funding Expansion & Repair Replace. Fund for Debt $0 $0 $0 $0 $0 $0 -------------- -------------- -------------- -------------- -------------- -------------- Net Debt Service $0 $0 $750,000 $750,000 $750,000 $750,000 Projected 3 of 8 City of Pleasanton Water Utility Rate Study Page 2 of 2 Revenue Requirement - Recycled WaterExhibit 3 Budgeted FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 FY 2020 Notes: Projected Change in Working Capital +/- To/(From) Water Expansion Fund $0 $0 $0 $0 $0 $0 To/(From) Water Replacement Fund 0 0 0 0 0 0To/(From) Recycled O&M Fund 0 0 0 0 0 0 ----------------- ----------------- ----------------- ----------------- ----------------- ----------------- Total Change in Working Capital +/-$0 $0 $0 $0 $0 $0 Total Revenue Requirement $43,503 $600,412 $1,604,458 $1,834,088 $2,052,422 $2,176,783 Bal/(Def) of Funds $344,031 $301,139 ($139,655)$15,955 $21,472 $4,110 Balas a % of Rate Adj. Required -335.5%-49.1% 11.9%-1.0% -1.2% -0.2% Proposed Rate Adjustment [1]0.0%0.0%0.0%0.0%0.0%0.0%Proposed Rates Included in Revenue Projections Months of Adjustment 12 12 12 12 12 12Additional Revenue with Rate Adj.$0 $0 $0 $0 $0 $0 Bal/(Def) After Rate Adjustment $344,031 $301,139 ($139,655)$15,955 $21,472 $4,110 Balance as a % of Rate Revenues -335.5%-49.1%11.9%-1.0%-1.2%-0.2% [1] Rate Adjustment included in proposed rates Average Residential Customer Bill $2.35 ($ / CCF)Customer Bill on Proposed Adjustment $2.35 $2.35 $2.35 $2.35 $2.35 $2.35 Bill Difference - Monthly 0.00 0.00 0.00 0.00 0.00 0.00 Cumulative Bill Difference 0.00 0.00 0.00 0.00 0.00 0.00 Debt Service Coverage Ratio (all debt)Before Rate Adjustment N/A N/A 0.81 1.12 1.30 1.37 After Proposed Rate Adjustment N/A N/A 0.81 1.12 1.30 1.37 Reserve Funds Operations Fund Beginning Balance $0 $344,031 $645,170 $505,515 $521,470 $542,941 Plus: Additions 344,031 301,139 0 15,955 21,472 4,110Less: Uses of Funds 0 0 (139,655)0 0 0 Ending Balance $344,031 $645,170 $505,515 $521,470 $542,941 $547,051 Minimum Fund Balance - 90 days O&M $10,727 $148,047 $210,688 $248,816 $271,830 $284,001 Ending Fund Balance/(Deficiency)$333,304 $497,123 $294,827 $272,654 $271,111 $263,050 4 of 8 City of Pleasanton Water Utility Rate Study Exhibit 4 Purchased Water - Recycled Water FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 FY 2020 Notes Revenues Assumed Rate ($/CCF)$2.3537 $2.6330 $2.6426 $2.6524 $2.6625 $2.6728 90% of Irrigation Rate Assumed Volume (CCF)43,563 233,077 444,291 586,794 667,546 703,884 As Recycled Water - Cust. Growth --------------- --------------- --------------- --------------- --------------- --------------- Calculated Revenue $102,534 $613,701 $1,174,074 $1,556,406 $1,777,321 $1,881,355 Expenses Purchased Water Projection $40,000 $200,000 $480,000 $720,000 $760,000 $800,000 As Purchased Water - Recycled Source DSRSD ($/AF)$430 $445 $461 $477 $493 $511 As Purchased Water - Recycled Purchased CCF 39,207 209,769 399,862 528,115 600,791 633,496 90% --------------- --------------- --------------- --------------- --------------- --------------- Calculated Purchased Water $38,703 $207,073 $394,721 $521,325 $593,068 $625,351 Livermore ($/AF)$480 $497 $514 $532 $551 $570 As Purchased Water - Recycled Purchased CCF 4,356 23,308 44,429 58,679 66,755 70,388 10% --------------- --------------- --------------- --------------- --------------- --------------- Calculated Purchased Water $4,800 $25,683 $48,958 $64,660 $73,559 $77,563 Total Purchased Water Cost $43,503 $232,756 $443,679 $585,986 $666,626 $702,914 5 of 8 City of Pleasanton Inflation 0.0% Water Utility Rate Study Recycled Water Fund Exhibit 5 FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 FY 2020 Notes: Beginning Fund Balance $0 $1,366 $1,366 $1,366 $76,366 $276,366 Revenue Plus: Connection Fees $0 $0 $0 $0 $0 $0 Exhibit 6 SRF Loan - Recycled Water 10,000,000 9,000,000 0 0 0 0 Plus: Rate Funded Capital 0 0 0 75,000 200,000 275,000 Plus: From RR Fund 1,205,000 0 0 0 0 0 Plus: From Expansion Fund 0 0 0 0 0 0 Additional Revenue Bonds 0 0 0 0 0 0 ------------------ ------------------ ------------------ ------------------ ------------------ ------------------ Total Revenue $11,205,000 $9,000,000 $0 $75,000 $200,000 $275,000 Water Expansion Recycled Water Project $10,000,000 $9,000,000 $0 $0 $0 $0 Recycled Water Project 118,634 0 0 0 0 0 Recycled Water Infras Exp - Design 1,085,000 0 0 0 0 0 ---------------- ---------------- ---------------- ---------------- ---------------- ---------------- Total Water Expansion $11,203,634 $9,000,000 $0 $0 $0 $0 To O&M Fund for Debt Service $0 $0 $0 $0 $0 $0 Ending Fund Balance $1,366 $1,366 $1,366 $76,366 $276,366 $551,366 6 of 8 City of Pleasanton Water Utility Rate Study Connection Fee Calculation - Recycled Water Exhibit 6 FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 FY 2020 FY 2021 FY 2022 FY 2023 FY 2024 FY 2025 Recycled Water Fund Fee $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 # of New Cust.0 0 0 0 0 0 0 0 0 0 0 Fee Revenue $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 7 of 8 City of Pleasanton Recycled Water Alternative 1 Present FY 2016 FY 2017 FY 2018 FY 2019 FY 2020 Total Rate Adj.Rates 0.0% 0.0% 0.0% 0.0% 0.0% Bi-Monthly Fixed Fee All Customers $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 Consumpiton Charge All Consumption $2.3537 $2.6330 $2.6426 $2.6524 $2.6625 $2.6728 8 of 8 Technical Appendix C – Tier Pricing Analysis Technical Memorandum – Cost Basis for Tiered Pricing Introduction HDR Engineering, Inc. (HDR) was retained by the City of Pleasanton (City) to develop a water, sewer, and recycled water rate study. During the development of the study, the Capistrano Taxpayers Association, Inc. v. City of San Juan Capistrano decision was rendered by the Appellate Court, which determined that a cost basis must be established for each of the pricing tiers of a tiered or increasing block rate structure. This decision has implications for all California utilities designing and implementing rates. California has always recognized the importance and value of water supply. Efficient water use, and discouragement of inefficient or wasteful use, has been at the heart of many water utility conservation programs. In particular, one of the important conservation tools used by water utilities is conservation pricing and conservation-oriented rate structures to encourage efficient use through price signals. It is a well recognized economic principle that as the price of a commodity increases the demand for the commodity will go down. By creating water rate structures which increase in per unit price as consumption becomes less efficient, the high use or inefficient water user is provided with a “price signal” to be more efficient in their usage. In Capistrano, the issue of penalty or punitive pricing for inefficient or wasteful users was a point of contention. In short, the Capistrano decision determined among other things that, in order to be compliant with Proposition 218, there must be a cost-basis for each of the pricing tiers. Given that, the purpose of this technical memorandum is to briefly review the Capistrano decision and discuss the cost basis for the City’s tiered pricing water rate structure. San Juan Capistrano and Proposition 218 It has always been important for a utility to have cost-based rates that are fair, equitable, and defendable. The basis for establishing water rates that are fair, equitable, and defendable has traditionally been cost of service principles and methodologies.1 At the same time, the courts have historically recognized that municipal entities can take into account policy objectives other than strictly cost of service when establishing rates (e.g., conservation, efficient use, ability to pay, etc.). In most parts of the U.S., that policy latitude in establishing utility rates remains intact. In contrast to above discussion regarding policy latitude, the State of California has certain well established legal constraints regarding utility ratemaking, of which Proposition 218 is at the forefront. At its very core, Proposition 218 requires a water utility to establish cost-based rates for the services provided. However, like most propositions or voters’ initiatives, Proposition 218 provided certain direction, but lacked clarity and definition in certain areas. Hence, there have been a number of lawsuits in recent years related to utility rates and Proposition 218. In the Capistrano Taxpayers Association, Inc. v. City of San Juan Capistrano, the City of San Juan Capistrano (Capistrano) was challenged, among other items, over the cost-basis for the tiers (price blocks) of their tiered water rate 1 Generally-accepted cost of service principles and methodologies are best defined and discussed within the American Water Works Association M-1 Manual, Principles of Water Rates, Fees and Charges. City of Pleasanton 1 Development of Tier Pricing - 2015 Water Rate Study structure. In this specific case, it appears that the key issue was the pricing of the upper blocks (3rd and 4th blocks) and the price/cost difference between the prior tiers pricing. The change in prices between the Capistrano’s tiers was significant, and was the main challenge by the plaintiffs claiming that the “punitive” pricing was not cost justified under Proposition 218. Capistrano believed that the pricing was justified under the constitutional requirement to use water efficiently and Capistrano viewed the pricing as penalty blocks for inefficient or wasteful use. The initial ruling of the court in this case was not favorable to Capistrano. Capistrano appealed the court’s decision, and the Appellate Court hearing this case recently upheld the lower court’s decision as it pertained to the pricing of the tiers within Capistrano’s water rate design. In summary, the Appellate Court ruled that tiered rates are a valid rate structure under Proposition 218, but to be legally compliant with Proposition 218, the pricing of the tiers must be cost-based. Unless there is an appeal of this ruling to the California State Supreme Court, the San Juan Capistrano decision will result in more narrowly defining “cost-based” rates, particularly as they relate to the pricing used in rate design. The Court’s decision has greatly diminished the latitude for policy input of the legislative body in establishing a local utility’s rates. While much of the focus of the San Juan Capistrano decision was on the issue of tiered pricing, there was a second important and over-arching legal issue for water utilities within the San Juan Capistrano decision. Capistrano’s inclusion of a portion of the costs associated with water reuse (i.e. recycled water) within the potable water rates was also challenged by the Capistrano Taxpayers Association. The initial court ruling was that if a customer did not “touch” the reuse water, then they should not be charged for it. In appeal, this was overturned and the Appellate Court recognized that water reuse and recycled water programs are a part of utility’s overall water supply portfolio and as such, potable water customers do benefit from those types of reuse programs. Essentially, the court agreed that a gallon of reuse water provided to an irrigation customer essentially frees up a gallon of potable water for use on the potable water system. In summary, and for purposes of the development of the Capistrano’s rates, the use of tiered pricing is not illegal and the Appellate Court specifically noted “ . . . tiered, or inclined rates that go up progressively in relation to usage are perfectly consonant with article XIII D, section 6, subdivision (b)(3) . . .” However, what this means is that the pricing of the tiers must be cost-based and reflect the costs incurred to provide water service at the various tiers established by the utility. In addition, as the utility develops its potable water rates, a portion of the costs associated with recycled water may be included within the potable water rates since those costs are incurred to supplement and benefit the utility’s total water supply resources. Overview of Tiered Pricing At first glance, one might think that all water costs the same, no matter how much you use. However, in reality, as usage increases the costs may change significantly, depending upon a number of different factors which are all primarily drive by consumption levels and capacity use. Traditionally, tiered pricing has been based upon the premise that each consumption block should represent some portion of a customer’s usage and the price should reflect the changes in costs associated with those higher levels of usage. For example, the tiers or usage blocks for a residential customer may be categorized around: Tier 1 – Efficient indoor use City of Pleasanton 2 Development of Tier Pricing - 2015 Water Rate Study Tier 2 – Efficient outdoor use Tier 3 – Inefficient outdoor use Tier 4 – Wasteful use While there are no specific technical limitations or legal requirements on the number of tiers, most utilities have established tiered rate structures with two to four tiers. Given the establishment of the number of tiers and the basis for the sizing of the tiers, the focus can now shift to the cost-basis for the pricing of the tiers. After the San Juan Capistrano decision, HDR concluded that utilities have at least three technical approaches to be able to demonstrate (i.e. cost justify) the individual pricing of the tiers. These costing techniques encompass the following areas: Cost differences in water supply (i.e., stacking of water supply resources to tiers) Direct assignment of costs to specific (upper) tiers (e.g., conservation program costs, recycled water costs, etc.) Capacity cost differences from high peak use consumers (relationship of average use to peak use) Each of these technical approaches is discussed in more detail below. Cost Differences in Water Supply Costs - In the San Juan Capistrano case, the court primarily focused its attention on the cost of water supply as the explanatory variable for tiered pricing. For some utilities, this may be the case and the differences in water supply costs from a utility’s array of water resources are easily identifiable. When a utility has multiple sources of supply, a utility may use least cost planning for supply planning and will most likely use water from their cheapest (least cost) resource first. Once that resource is fully utilized then the next most expensive water resource is utilized, and so on. The last available resource (e.g. a desalination plant, water reuse, recycled water, etc.) is typically very expensive (i.e. the marginal cost of supply). Given this, it can be seen that the water resources and corresponding costs can be assigned to pricing tiers with the lowest cost water resource applied to the first price tier and subsequent water resources and costs “stacked” to the water rate tiers, with the most expensive water resource likely assigned to the top tier (e.g. inefficient or wasteful usage). The logic of assigning the most expensive water resources to the upper tiers is because most utilities have a limited and finite source of water supply available. The impact of high volume water users on water supply costs can be profound. As an example, if everyone used water similar to an average residential customer, there may not be a need for the additional water resources and the utility would potentially be able to avoid the cost of the next or last increment of water supply. Taken to an extreme, imagine the water supply resources needed if all residential customers on the system consumed water in the same manner as the largest residential user on the system.2 Thus, the assignment of the highest cost water supplies to large volume users is consistent with the manner in which the costs are incurred. Direct Assignment of Specific Costs - The next method that may be used to cost justify pricing tiers is the direct assignment of specific costs to tiers. Under this method, the utility may incur a cost simply as a function of or benefit to the large volume or upper tier customers. A good example of this is a 2 At the City of Pleasanton, an average residential customer uses 20 ccf per bi monthly billing period. Some of the largest residential water users consume over 200 ccf per bi-month billing period, or 10 times greater than the average residential customer. City of Pleasanton 3 Development of Tier Pricing - 2015 Water Rate Study conservation program that targets outdoor use or a turf buy-back program. Clearly, this program is targeting the usage associated with the high volume upper tiers and, given that, the costs associated with this type of conservation program should be assigned to the upper tiers (i.e. those being targeted). This seems reasonably justified since little or no outdoor use is typically incurred in first block (indoor) usage. Capacity Cost Differences From High Peak Use Customers – The final area in which costs may vary by tier is related to meeting peak use demands on a system. As customers use water, the delivery of the water is a function of the volume of water being delivered, but also the rate of flow. The rate of flow translates into the concept of capacity and the sizing of facilities needed to meet peak use demands at any point in time. To better understand the distinction between volume and capacity use, imagine a 100,000 gallon tank that needs to be filled with water. Using a garden hose to fill the tank would certainly provide the 100,000 gallons of water to fill the tank, but due to a lack of capacity, the rate of flow is very low and it would take a long time to fill the tank (approximately 83 hours at a flow (capacity) rate of 20 gallons per minute). Now, if you want to fill the tank quickly with water, you could use a fire hose with a flow (capacity) rate of 1,000 gallons per minute and fill it in approximately 1.6 hours. That difference is the time required to fill tank is related to capacity. Capacity is an important concept for water utilities since utilities must incur the cost to construct facilities to meet these high customer demands on the system. The capital investment needed to size and meet higher levels of water demands is greater than that of a system with lower (flatter) demand. The large peak demands placed on the system by large volume users requires additional oversizing of facilities to meet their peak demand requirements. A basic cost of service principle is “those who create the cost should pay the cost.” In this case, the customers creating the large peak demand (i.e. upper tier customers) should pay the costs associated with the oversizing of facilities needed to meet their extraordinary high demands. Simply stated, the costs associated with high volume users is not solely a function of the volume of water, but rather, the sizing of facilities needed to meet their excessive peak use requirements. Similar to the issue noted on water supply, if all residential customers used water in the same volumes and capacity demand patterns3 of the largest residential users on the City’s system, the distribution (i.e. capacity-related) costs of the system would be significantly greater. That is, the distribution system would need to be over-sized more than it is today. Development of the City’s Residential Tiered Pricing A traditional cost of service methodology equitably allocates a utility’s costs to specific customer classes of service (e.g. residential, commercial, etc.), but not to distinct usage tiers. Traditionally, rates were developed and proposed which met the allocated costs to the particular customer class of service, but then incorporated other policy considerations other than strictly cost of service (e.g. revenue stability, conservation, etc.) The San Juan Capistrano case, however, ruled that costs must be established for the price tiers, which implies that the cost of service will need to allocate costs to not only customer classes but also to each consumption tier, or alternatively, an analysis be used to demonstrate the cost-basis for the pricing of the tiers. This portion of the technical memorandum describes the process which HDR used to develop the cost basis for the City of Pleasanton’s residential tiered pricing. 3 Capacity demand patterns refers to the fact that low use residential customer’s summer peak use is relatively low compared to the average day or average hour residential demand. In contrast to this, a high volume customer’s peak day or peak hour demand is many times greater than the average residential customer’s demands. City of Pleasanton 4 Development of Tier Pricing - 2015 Water Rate Study Establishment of the Tier Sizes – For the City’s residential tiered rate structure, the City has established 4 blocks. These are defined as follows: Tier 1 – 0 to 20 CCF4 0 – 14,960 gallons Tier 2 – 20 – 40 CCF 14,961 – 29,920 gallons Tier 3 – 40 to 60 CCF 29,921 – 44,880 gallons Tier 4 – Over 60 CCF Over 44,880 gallons The above tier sizes and break points have historically been utilized by the City for a number of years and the City desires to maintain them. These tiers were developed during prior rate structure reviews and reflect the City’s specific customers and use (e.g., average indoor use, average outdoor use). For example, the average use of the City’s residential customers is 20 CCF bi-monthly. That is reflected in the sizing of the first tier of 0 – 20 CCF. HDR in reviewing these block sizes and the tiered pricing issue considered the customer demand patterns of the customers using water in each tier block. Provided below is a summary of this review. Table 1 Summary of Customer Bi-Monthly Demand Patterns Tier 1 (0–20 CCF) Tier 2 (20–40 CCF) Tier 3 (40–60 CCF) Tier 4 (60+ CCF) Total Use In CCF ('13&'14) 1,692,686 516,839 197,909 321,024 Average Use In CCF ('13&'14) 11.57 27.50 47.80 108.48 Average Use in Relation to Tier 1 1.00 2.38 4.13 9.37 Peak Use Factor (Peak to Average Month) 1.41 1.83 2.43 3.42 Peak Factor Proportions Proportion A – All Tiers 15.5% 20.1% 26.8% 37.6% Proportion B – Tiers 3 and 4 0.0% 0.0% 41.6% 58.4% Proportion C – Tier 4 0.0% 0.0% 0.0% 100.0% Proportion D – Tiers 2, 3, and 4 0.0% 23.8% 31.7% 44.5% As Table 1 indicates, the average use of a Tier 1 customer, or the customer that does not exceed 20 CCF, is approximately 12 CCF. This volume, when compared to a Tier 4 customer that uses on average 108 CCF, which is about nine times greater than the Tier 1 customer’s demand. Stated another way, a customer in Tier 4 is approximately the same as nine (9) – Tier 1 customers. The utility can serve nine – Tier 1 customers for every Tier 4 customer that it serves. However, on a peaking factor basis, which would represent the customers impact on system capacity or the need to design the system to peak demand characteristics, the Tier 4 customers is approximately three and a half times a Tier 1 customer. This peak factor relationship is one of the components used in developing the pricing difference between the tiers. 4 A CCF is one hundred cubic feet. 1 CCF = 748 gallons City of Pleasanton 5 Development of Tier Pricing - 2015 Water Rate Study Using the peak use factors, proportions can be developed based upon the amount of capacity that is demanded by a consumer when they consume water in a specific tier. The implications of customer demands upon a water system are immense and for the most part relate to the sizing and construction of facilities to meet these excessively large demands. The demand relationships shown in Table 1 will be used later in this analysis in the assignment of certain and specific costs to tiers. Given that overview of the residential tier blocks, the discussion can shift to the pricing used for each rate tier. Pricing of the City’s Water Rate Tiers - As discussed previously, there are at least three techniques or approaches that may be used to demonstrate (i.e. cost justify) the individual pricing of the City’s tiered rates. These techniques or approaches were: Cost differences in the City’s water supply (i.e., stacking of water supply resources to tiers) Direct assignment of costs to specific (upper) tiers (e.g., conservation program costs, etc.) Capacity cost differences from high peak use consumers (relationship of average use to peak use) Each of these technical approaches, as they relate to the City’s analysis and development of tiered rates are discussed in more detail below. – The City purchases the bulk of its potable water Cost Differences in the City’s Water Supply Costs supply from Zone 7, with the remaining supply coming from City owned groundwater wells. The cost of the water supply is $2.40/CCF from Zone 7 and does not vary based upon lower or higher volumes of water consumed. While groundwater is much cheaper, it only provides a minimal component of the City’s overall water supply needs. As a result, there does not appear to be any cost justification for assigning a higher or lower cost of water supply to the various tiers. At the same time, the City has established a rate philosophy of having the price of the first tier reflect the cost of water from Zone 7. Given that, the first tier is established at $2.40/CCF. By establishing the first Tier rate based on the cost of Zone 7 water purchases, the City is recognizing the fact that a portion of the water supply costs from groundwater supply is much cheaper and by pricing the first tier at the purchase water price reflects the blended cost of groundwater, purchased water, and distribution expenses for Tier 1 customers. Direct Assignment of the City’s Specific Costs – In the City’s analysis, there were two costs which appeared to benefit specific tiers and, as such, they were directly assigned to tiers. The two specific costs in the City’s rate study which were directly assigned were: Conservation Program Costs Vineyard Avenue Capacity Improvements (Enhancements) The water conservation program costs were assigned to Tiers 3 and 4 to reflect where the City incurs the costs for the conservation program. In this case, primarily for large residential water users in Tiers 2 through 4. The conservation costs have been allocated between the tiers based on where the City spends it’s time and effort, and based on the difference in overall consumption in each tier and the peaking factor between the tiers. Given this, approximately 30% of the capacity demand profile is related to Tier 3 and the balance, or approximately 70%, was assigned to Tier 4. The residential share of the conservation program costs are $181,503. Of this amount, approximately $55,000 was assigned to Tier 3 and the balance, or approximately $126,000 was assigned to Tier 4. Conservation program costs were not assigned to Tier 1 since that tier is strictly related to water supply (Zone 7) costs and Tier 2 reflects typical outdoor use. City of Pleasanton 6 Development of Tier Pricing - 2015 Water Rate Study The final direct assignment cost for the City was the transfer of costs for the Vineyard Avenue capacity improvements. This was a transfer payment of $44,505 which was assigned entirely to Tier 4. These improvements were necessary to meet peak day demands of the system. As a result, the City oversized the improvements in this area to meet those maximum demands. As a result, the costs associated providing additional capacity through the Vineyard Avenue improvements is allocated to the highest or 4th tier to reflect those maximum demands on the system from users in the 4th tier. Capacity Cost Differences from the City’s High Peak Use Consumers – The final type of cost incurred by the City that may reflect cost differences by price tiers is capacity related costs. As noted in the prior discussion, as capacity use increases, there is an impact to infrastructure. At the same time, not all capacity costs are related to, or a function of, the sizing of infrastructure. To better understand the City’s capacity costs and the assignment of certain capacity-related costs to the various pricing tiers, the focus of the analysis shifted to the cost of service analysis conducted by HDR. HDR developed a water cost of service analysis as part of the City’s comprehensive water rate study. A cost of service performs three analytical steps with the data. First, the cost data is functionalized and sorted by function (e.g. supply, pumping, distribution, etc.). Next, the costs are allocated to cost categories based upon how the costs are incurred. The costs are allocated to various categories based upon total usage (commodity), peak day demands (capacity), number of customers, public fire protection needs, revenues, or directly assigned. The analysis used the commodity demand methodology as established in the American Water Works M1 Manual. The focus of establishing the cost basis for the City’s tiered rates was focused on the costs allocated, or related to, providing capacity. Using this generally accepted methodology5 the capacity costs are based on the relationship of the customer’s peak demands need regardless of when it occurs. This is also known as the non-coincident peak demand as it may occur outside of the system peak demand. The use of non-coincident peak demands is essential to developing the pricing analysis as the City must plan for meeting peak demands regardless of when they occur. As a result, and as noted previously, the greater demands on the system, the larger the sizing of the system will need to be. Therefore, those customers that place the greater demands on the system should bear a greater proportion of the costs related to providing the available capacity in the system. Given this discussion, and based on a generally accepted cost of service approach, Table 2, shown below, summarizes the allocation of the City’s costs. Table 2 Summary of the Allocation of the FY 2016 Total Water Revenue Requirement ($000) Commodity Capacity Actual Customer Cust. Acct. Meters & Services Public Fire Protect. Revenue Related Direct Assign. Total Net Rev. Req. $13,827 $2,708 $920 $0 $0 $0 $0 $380 5 The generally accepted water cost of service methodologies and techniques used within the City’s study is based upon the American Water Works Association, Principles of Water Rates, Fees and Charges, 6th Edition. City of Pleasanton 7 Development of Tier Pricing - 2015 Water Rate Study The costs shown in Table 2 reflect the total water revenue requirements of the City. As noted above in the introductory discussion, certain costs may vary by pricing tier based upon capacity. Given that, the next step was to analyze the capacity related costs ($2.7 million) contained in Table 2, which is the focus of developing the cost-basis for the tier are pricing. In reviewing the capacity-related costs they were split into two types of capacity: operational capacity and infrastructure capacity. The operational capacity costs are, as the name suggests, related to the operation and maintenance of the utility. These costs do not vary by tier. In contrast, infrastructure capacity costs are related to the physical capital costs associated with infrastructure capacity. The $2.7 million in capacity costs is not entirely related to residential customers. Of that amount, approximately $1.5 million is the cost responsibility of the residential customers. This detail is shown below in Table 3. Table 3 Summary of the FY 2016 Single-Family Residential Capacity Costs ($000) Total Capacity SFR Capacity Operational Capacity Infrastructure Capacity O&M Costs $1,903 $1,031 $1,031 $0 Transfers 852 461 0 461 Change in Working Capital 95 51 51 0 Total Costs $2,850 $1,543 $1,082 $461 Less: Misc Revenues 142 77 54 23 Net Total Costs $2,708 $1,467 $1,028 $438 As shown in Table 3, the residential capacity costs of approximately $1.5 million were then segregated between operational capacity and infrastructure capacity. The operational capacity costs are not the focus of this discussion since they are not related to over-sizing of infrastructure. Rather, the focus of the analysis is on the infrastructure capacity costs which totaled approximately $438,000. There were two primary costs associated with the infrastructure capacity costs of $438,000. These were the recycled water costs and the repair and replacement funding. Recycled water costs reflect a component of potable water rates that are used to offset the capital component of funding the recycled water system. The repair and replacement funding is the annual transfer to fund capital replacements on the system on an annual basis. For the recycled water costs, it was assumed that the capacity related portion of recycled water ($62,689) is related to tiers 2, 3, and 4 which are primarily related to outdoor use. In other words, the use of recycled water for outdoor consumption, which is use in tiers 2-4, frees up potable water for other customers. The cost is split approximately 23.8% to Tier 2, 31.7% to Tier 3 and 44.5% to Tier 4, using the residential customer demand patterns shown in Table 1 (Proportion D). The capacity related portion of repair and replacement capital costs ($398,593) are assigned to all four tiers, but assigned to be reflective of the differences in capacity use (peaking factors) by the various tiers. To assign these costs, Proportion A factors (Table 1) were utilized. In essence, the largest users on the system, or those placing the greatest demands on the system, receive a larger proportion of the costs than the lower use/low demand customers. City of Pleasanton 8 Development of Tier Pricing - 2015 Water Rate Study There were some other minor miscellaneous revenues ($23,017) which were assigned to tiers based upon the way in which all other capacity-related costs were assigned. This method of assignment is consistent with the cost of service analysis methodology developed for the City. Table 4 Summary of the FY 2016 Infrastructure Capacity Costs by Tier ($000s) Infrastructure Costs Tier 1 (0–20 CCF) Tier 2 (20–40 CCF) Tier 3 (40–60 CCF) Tier 4 (60+ CCF) O&M Costs $0 $0 $0 $0 $0 Transfers -Recycled Water 63 0 15 20 28 - Repair and Replacement 399 62 80 107 150 Direct Assignment 0 0 0 0 0 Change in Working Capital 0 0 0 0 0 Total Costs $462 $62 $95 $127 $178 Less: Misc. Revenues 23 2 3 6 12 Net Total Costs $439 $60 $92 $121 $166 The totals shown in Table 4 reflect only the costs associated with infrastructure capacity. Summarizing the Analysis of Pricing to Tiers – The final step in the analysis is to summarize the costs which were assigned to each of the pricing tiers using the above analysis. As was noted in the discussion, only direct assignments and infrastructure capacity costs were assigned to different pricing tiers. A summary of those analyses is shown below in Table 5. Table 5 Summary of the FY 2016 Total Assigned Cost Pricing by Tier ($000s) Infrastructure Costs Tier 1 (0–20 CCF) Tier 2 (20–40 CCF) Tier 3 (40–60 CCF) Tier 4 (60+ CCF) O&M Costs – Water Conservation $182 $0 $0 $55 $126 Transfers -Recycled Water 63 0 15 20 28 - Vineyard Ave. Capacity 45 0 0 0 45 - Repair and Replacement 399 62 80 107 150 Direct Assignment 0 0 0 0 0 Change in Working Capital 0 0 0 0 0 Total Costs $687 $62 $95 $182 $348 Less: Misc. Revenues 23 2 3 6 12 Net Total Costs $664 $60 $92 $176 $336 Utilizing the costs from Table 5 and the total consumption in each tier, Table 6 provides a summary of the average unit costs for each tier. The unit cost shown are on a $/CCF basis and reflect the assigned City of Pleasanton 9 Development of Tier Pricing - 2015 Water Rate Study costs that are incurred to provide water service for each tier under the assumptions of the allocation proportions development. Table 6 Summary of the Average Unit Costs for the Total Assigned Costs by Tier ($000s) Total Assigned Costs Tier 1 (0–20 CCF) Tier 2 (20–40 CCF) Tier 3 (40–60 CCF) Tier 4 (60+ CCF) O&M Costs – - Conservation Costs $182 $0.0000 $0.0000 $0.1834 $0.3392 Transfers - Recycled Water $63 0.0000 0.0290 0.1006 0.0871 - Vineyard Ave. Capacity $45 0.0000 0.0000 0.0000 0.1386 - Repair and Replacement $399 0.0365 0.1554 0.5388 0.4666 Direct Assign. 0 0.0000 0.0000 0.0000 0.0000 Change in Work. Capital 0 0.0000 0.0000 0.0000 0.0000 Total Costs $687 $0.0140 $0.1970 $0.7588 $1.2830 Less: Misc. Revenue 23 $0.0012 $0.0062 $0.0308 $0.0363 Net Total Costs $664 $0.0353 $0.1782 $0.8883 $1.0490 CCF Consumption 2,728,458 1,692,686 516,839 197,909 321,024 Unit Costs for each tier are calculated by dividing the cost for each tier (Table 5) by the CCF consumption in each tier Given the calculated cost per tier, the final step is to summarize the rates by including all other costs; Zone 7 purchased water and O&M operational capacity costs. Table 7 provides a summary of this analysis. Table 7 Summary of the Rates By Tiers (FY 2016) Tier 1 (0–20 CCF) Tier 2 (20–40 CCF) Tier 3 (40–60 CCF) Tier 4 (60+ CCF) Zone 7 Purchases $2.4000 $2.4000 $2.4000 $2.4000 Operational Capacity 0.3768 0.3768 0.3768 0.3768 Assigned By Tiers (Table 6) 0.0353 0.1782 0.8883 1.0490 Total Tier Related Cost $2.8121 $2.9550 $3.6651 $3.8258 Proposed Rates (10/1/15) $2.4000 $2.7581 $2.9825 $3.7520 As can be seen in Table 7, Zone 7 water supply purchases and the O&M expenses related to operational capacity do not vary by tier. The portion of the rate which does vary by tier are the specific costs discussed above which are primarily related to the City’s water conservation program, recycled water, the Vineyard Avenue capacity enhancements and the repair and replacement (infrastructure) funding. As can be seen, the calculated pricing for tiered rates is relatively in line with the City’s proposed residential tiered pricing, and all proposed tiered prices are below the maximum price calculation for City of Pleasanton 10 Development of Tier Pricing - 2015 Water Rate Study each tier. Therefore, it is HDR’s professional opinion that the City’s proposed tiered rates are justified and cost-based. It should be noted that the proposed rates in total are on average approximately 89% of the calculated unit rates for each tier. In other words, the City could effectively increase the consumption charges, but has chosen to collect the difference through the fixed meter charge, which also varies based on the capacity of the meter. This methodology of allocating costs to tiers was developed to comply with the San Juan Capistrano decision, as well as conform to Proposition 218 requirements. The methodology was derived based upon generally accepted cost of service analysis principles and methodologies. Considerations The basis for establishing tiered water pricing is based upon the specific costs, characteristics and usage patterns of a utility’s customers. Two geographically similar utilities may have totally different tiered rates and pricing due to a variety of factors such as water supply, climate, topography, seasonality of customers, average lot size, and so on. This would suggest that it is substantially difficult to compare the tiered pricing of any two utilities and reach any conclusions about the cost-basis of their pricing without having an intimate understanding of how the utility incurs its costs. Finally, pricing by tier is subject to change over time as costs change, but more importantly as customer usage by tiers changes. Changing consumption in each tier can change the unit costs from year to year and care should be taken to try and have stable rates and pricing over time. Summary The development of a cost-basis for City’s tiered pricing has recently become essential in order to comply with Proposition 218 and the recent San Juan Capistrano decision. The analysis developed herein has calculated prices for the City’s tiered rates which indicate that the City of Pleasanton’s residential tiered rate structure is cost based. This finding will enable the City to establish cost-based tiered rates. City of Pleasanton 11 Development of Tier Pricing - 2015 Water Rate Study City of PleasantonWater Utility Rate Study Actual Cust.Meters &Public Fire Revenue Direct Expenses Commodity Capacity Customer Acctg.Services Protection Related Assign. FY 2016 (COMM)(CAP)(AC) (WCA)(WCMS)(FP)(RR)(DA) Expenses Water Planning $0 $0 $0 $0 $0 $0 $0 $0 $0 60%Comm 40%CapWater Conservation 335,098 0 0 0 0 0 0 0 335,098 100%DAWater O&M 4,718,779 2,816,016 1,902,763 0 0 0 0 0 0 60%Comm 40%Cap Water Purchase - Zone 7 10,335,378 10,335,378 0 0 0 0 0 0 0 100%Comm Utility Billing 968,620 0 0 968,620 0 0 0 0 0 100%AC-------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- Total $16,357,876 $13,151,395 $1,902,763 $968,620 $0 $0 $0 $0 $335,098 Total Operations & Maintenance $16,357,876 $13,151,395 $1,902,763 $968,620 $0 $0 $0 $0 $335,098 $0 $0 $0 $0 Transfers OutOut - Replacment Fund for Recycled Water Rev $287,850 $171,780 $116,070 $0 $0 $0 $0 $0 $0 60%Comm 40%Cap Out - Replacment Fund for Vineyard Ave 4th Tier fee 44,505 0 0 0 0 0 0 0 44,505 100%DA Rate Funded Capital - To R&R Fund 1,825,000 1,089,101 735,899 0 0 0 0 0 0 60%Comm 40%Cap-------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- Total Transfers Out $2,157,355 $1,260,881 $851,969 $0 $0 $0 $0 $0 $44,505 Debt Service Add'l Revenue Bonds - Replacement Fund $0 $0 $0 $0 $0 $0 $0 $0 $0 As Total O&M Add'l Revenue Bonds - Expansion Fund 0 0 0 0 0 0 0 0 0 As Total O&M -------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- Total Debt Service $0 $0 $0 $0 $0 $0 $0 $0 $0 LESS: Other Funding Expansion Fund for Debt $0 $0 $0 $0 $0 $0 $0 $0 $0 As Debt ServiceR&R Fund for Debt 0 0 0 0 0 0 0 0 0 As Debt Service -------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- Net Debt Service $0 $0 $0 $0 $0 $0 $0 $0 $0 Change in Working Capital +/- To/From Operating Reserve $235,428 $140,496 $94,932 $0 $0 $0 $0 $0 $0 60%Comm 40%CapTo/(From) Water Expansion Fund 0 0 0 0 0 0 0 0 0 60%Comm 40%CapTo/(From) Water Replacement Fund 0 0 0 0 0 0 0 0 0 60%Comm 40%Cap -------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- Total Change in Working Capital +/-$235,428 $140,496 $94,932 $0 $0 $0 $0 $0 $0 Total Revenue Requirement $18,750,659 $14,552,771 $2,849,664 $968,620 $0 $0 $0 $0 $379,603 Less: Other Revenues: Meter Sales $40,400 $32,003 $6,267 $2,130 $0 $0 $0 $0 $0 As Total Revenue Requirement < DA Federal/State Grants 0 0 0 0 0 0 0 0 0 As Total Revenue Requirement < DA Backflow Admin Fees 181,800 144,014 28,200 9,585 0 0 0 0 0 As Total Revenue Requirement < DA Miscellaneous 0 0 0 0 0 0 0 0 0 As Total Revenue Requirement < DA Interfund Water Sales 0 0 0 0 0 0 0 0 0 As Total Revenue Requirement < DA Interfund Reimbursement 390,250 309,139 60,534 20,576 0 0 0 0 0 As Total Revenue Requirement < DA Interest Income 21,134 16,742 3,278 1,114 0 0 0 0 0 As Total Revenue Requirement < DA In - Employee Benefit Fund/Implied Subsidy 36,303 28,757 5,631 1,914 0 0 0 0 0 As Total Revenue Requirement < DA In - Senior Discount (funded by General Fund)246,440 195,219 38,227 12,994 0 0 0 0 0 As Total Revenue Requirement < DA -------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- Total Other Revenues $916,327 725,875 142,138 48,314 0 0 0 0 0 Total Net Revenue Requirement $17,834,332 $13,826,896 $2,707,526 $920,307 $0 $0 $0 $0 $379,603 Basis of Classification Customer Related Weighted for: 1 of 5 City of Pleasanton Water Utility Rate Study Notes: Expenses Water Planning $0 $0 $0 $0 $0 Water Conservation 0 0 0 0 181,503 Water O&M 1,902,763 1,030,615 1,030,615 0 0 Water Purchase - Zone 7 0 0 0 0 0 Utility Billing 0 0 0 0 0 -------------- -------------- -------------- -------------- -------------- Total $1,902,763 $1,030,615 $1,030,615 $0 $181,503 Total Operations & Maintenance $1,902,763 $1,030,615 $1,030,615 $0 $181,503 Transfers Out Out - Replacment Fund for Recycled Water Rev $116,070 $62,869 $0 $62,869 $0 Out - Replacment Fund for Vineyard Ave 4th Tier fee 0 0 0 0 44,505 Rate Funded Capital - To R&R Fund 735,899 398,593 0 398,593 0 -------------- -------------- -------------- -------------- -------------- Total Transfers Out $851,969 $461,462 $0 $461,462 $44,505 Debt Service Add'l Revenue Bonds - Replacement Fund $0 $0 $0 $0 $0 Add'l Revenue Bonds - Expansion Fund 0 0 0 0 0 -------------- -------------- -------------- -------------- -------------- Total Debt Service $0 $0 $0 $0 $0 LESS: Other Funding Expansion Fund for Debt $0 $0 $0 $0 $0 R&R Fund for Debt 0 0 0 0 0 -------------- -------------- -------------- -------------- -------------- Net Debt Service $0 $0 $0 $0 $0 Change in Working Capital +/- To/From Operating Reserve $94,932 $51,419 $51,419 $0 $0 To/(From) Water Expansion Fund 0 0 0 0 0To/(From) Water Replacement Fund 0 0 0 0 0 -------------- -------------- -------------- -------------- -------------- Total Change in Working Capital +/-$94,932 $51,419 $51,419 $0 $0 Total Revenue Requirement $2,849,664 $1,543,496 $1,082,035 $461,462 $226,008 Less: Other Revenues: Meter Sales $6,267 $3,394 $2,380 $1,015 $0 As Above Federal/State Grants 0 0 0 0 0 As Above Backflow Admin Fees 28,200 15,274 10,708 4,567 0 As Above Miscellaneous 0 0 0 0 0 As Above Interfund Water Sales 0 0 0 0 0 As Above Interfund Reimbursement 60,534 32,788 22,985 9,803 0 As Above Interest Income 3,278 1,776 1,245 531 0 As Above In - Employee Benefit Fund/Implied Subsidy 5,631 3,050 2,138 912 0 As Above In - Senior Discount (funded by General Fund)38,227 20,705 14,515 6,190 0 As Above -------------- -------------- -------------- -------------- -------------- Total Other Revenues $142,138 $76,988 $53,971 $23,017 $0 Total Net Revenue Requirement $2,707,526 $1,466,508 $1,028,064 $438,445 $226,008 Direct Assignment Operational Capacity Infrastructure Capacity Total Capacity SFR Capacity 2 of 5 City of PleasantonWater Utility Rate Study Tier 1 Tier 2 Tier 3 Tier 4 Expenses Water Planning $0 $0 $0 $0 $0 Water Conservation 181,503 0 0 55,356 126,147 0% 0% 30% 70%Water O&M 0 0 0 0 0 Water Purchase - Zone 7 0 0 0 0 0 Utility Billing 0 0 0 0 0 -------------- -------------- -------------- -------------- -------------- Total $181,503 $0 $0 $55,356 $126,147 Total Operations & Maintenance $181,503 $0 $0 $55,356 $126,147 Transfers Out Out - Replacment Fund for Recycled Water Rev $62,869 $0 $14,992 $19,908 $27,969 0.0% 23.8% 31.7% 44.5%Figure 1 (Proportion D) Out - Replacment Fund for Vineyard Ave 4th Tier fee 44,505 0 0 0 44,505 0.0%0.0%0.0% 100.0%Figure 1 (Proportion C) Rate Funded Capital - To R&R Fund 398,593 61,860 80,299 106,631 149,804 #### 20.1% 26.8%37.6%Figure 1 (Proportion A) -------------- -------------- -------------- -------------- -------------- Total Transfers Out $505,967 $61,860 $95,291 $126,539 $222,277 Debt Service Add'l Revenue Bonds - Replacement Fund $0 $0 $0 $0 $0 Add'l Revenue Bonds - Expansion Fund 0 0 0 0 0 -------------- -------------- -------------- -------------- -------------- Total Debt Service $0 $0 $0 $0 $0 LESS: Other Funding Expansion Fund for Debt $0 $0 $0 $0 $0 R&R Fund for Debt 0 0 0 0 0-------------- -------------- -------------- -------------- -------------- Net Debt Service $0 $0 $0 $0 $0 Change in Working Capital +/-To/From Operating Reserve $0 $0 $0 $0 $0 To/(From) Water Expansion Fund 0 0 0 0 0 To/(From) Water Replacement Fund 0 0 0 0 0 -------------- -------------- -------------- -------------- -------------- Total Change in Working Capital +/-$0 $0 $0 $0 $0 Total Revenue Requirement $687,470 $61,860 $95,291 $181,895 $348,424 Less: Other Revenues:Meter Sales $1,015 $91 $141 $269 $514 9% 14% 26% 51%As Above Federal/State Grants 0 0 0 0 0 Backflow Admin Fees 4,567 411 633 1,208 2,314 9% 14% 26% 51%As Above Miscellaneous 0 0 0 0 0Interfund Water Sales 0 0 0 0 0 Interfund Reimbursement 9,803 882 1,359 2,594 4,968 9% 14% 26% 51%As Above Interest Income 531 48 74 140 269 9% 14% 26% 51%As Above In - Employee Benefit Fund/Implied Subsidy 912 82 126 241 462 9% 14% 26% 51%As Above In - Senior Discount (funded by General Fund)6,190 557 858 1,638 3,137 9% 14% 26% 51%As Above -------------- -------------- -------------- -------------- -------------- Total Other Revenues $23,017 $2,071 $3,190 $6,090 $11,666 Total Net Revenue Requirement $664,453 $59,788 $92,101 $175,805 $336,759 Allocation of DA Notes: 3 of 5 City of Pleasanton Water Utility Rate Study Tier 1 Tier 2 Tier 3 Tier 4 Expenses Water Planning $0 $0.0000 $0.0000 $0.0000 $0.0000 Water Conservation 181,503 0.0000 0.0000 0.2797 0.3930 0% 0% 30% 70% Water O&M 0 0.0000 0.0000 0.0000 0.0000Water Purchase - Zone 7 0 0.0000 0.0000 0.0000 0.0000Utility Billing 0 0.0000 0.0000 0.0000 0.0000 -------------- -------------- -------------- -------------- -------------- Total $181,503 $0.0000 $0.0000 $0.2797 $0.3930 Total Operations & Maintenance $181,503 $0.0000 $0.0000 $0.2797 $0.3930 Transfers OutOut - Replacment Fund for Recycled Water Rev $62,869 $0.0000 $0.0290 $0.1006 $0.0871 0.0% 23.8% 31.7% 44.5%Figure 1 (Proportion D) Out - Replacment Fund for Vineyard Ave 4th Tier fee 44,505 0.0000 0.0000 0.0000 0.1386 0.0% 0.0% 0.0% 100.0%Figure 1 (Proportion C) Rate Funded Capital - To R&R Fund 398,593 0.0365 0.1554 0.5388 0.4666 15.5% 20.1% 26.8% 37.6%Figure 1 (Proportion A) -------------- -------------- -------------- -------------- -------------- Total Transfers Out $505,967 $0.0365 $0.1844 $0.6394 $0.6924 Debt Service Add'l Revenue Bonds - Replacement Fund $0 $0.0000 $0.0000 $0.0000 $0.0000 Add'l Revenue Bonds - Expansion Fund 0 0.0000 0.0000 0.0000 0.0000 -------------- -------------- -------------- -------------- -------------- Total Debt Service $0 $0.000 $0.000 $0.000 $0.000 LESS: Other Funding Expansion Fund for Debt $0 $0.0000 $0.0000 $0.0000 $0.0000 R&R Fund for Debt 0 0.0000 0.0000 0.0000 0.0000 -------------- -------------- -------------- -------------- -------------- Net Debt Service $0 $0.0000 $0.0000 $0.0000 $0.0000 Change in Working Capital +/- To/From Operating Reserve $0 $0.0000 $0.0000 $0.0000 $0.0000 To/(From) Water Expansion Fund 0 0.0000 0.0000 0.0000 0.0000 To/(From) Water Replacement Fund 0 0.0000 0.0000 0.0000 0.0000-------------- -------------- -------------- -------------- -------------- Total Change in Working Capital +/-$0 $0.0000 $0.0000 $0.0000 $0.0000 Total Revenue Requirement $687,470 $0.0365 $0.1844 $0.9191 $1.0854 Less: Other Revenues: Meter Sales $1,015 $0.0001 $0.0003 $0.0014 $0.0016 9% 14% 26% 51%As AboveFederal/State Grants 0 0.0000 0.0000 0.0000 0.0000Backflow Admin Fees 4,567 0.0002 0.0012 0.0061 0.0072 9% 14% 26% 51%As Above Miscellaneous 0 0.0000 0.0000 0.0000 0.0000 Interfund Water Sales 0 0.0000 0.0000 0.0000 0.0000 Interfund Reimbursement 9,803 0.0005 0.0026 0.0131 0.0155 9% 14% 26% 51%As Above Interest Income 531 0.0000 0.0001 0.0007 0.0008 9% 14% 26% 51%As Above In - Employee Benefit Fund/Implied Subsidy 912 0.0000 0.0002 0.0012 0.0014 9% 14% 26% 51%As Above In - Senior Discount (funded by General Fund)6,190 0.0003 0.0017 0.0083 0.0098 9% 14% 26% 51%As Above -------------- -------------- -------------- -------------- -------------- Total Other Revenues $23,017 $0.0012 $0.0062 $0.0308 $0.0363 Total Net Revenue Requirement $664,453 $0.0353 $0.1782 $0.8883 $1.0490 Notes: Infrastructure Capacity + DA 4 of 5 City of Pleasanton City of Pleasanton Water Utility Rate Study Water Utility Rate Study Residential Tier Cost Calculation Figure 1 Tier 1 Tier 2 Tier 3 Tier 4 Tier 1 Tier 2 Tier 3 Tier 4 Bi-Monthly Consumption (0 - 20 CCF) (20 - 40 CCF) (40 - 60 CCF) (60 + CCF)Notes:Bi-Monthly Consumption (0 - 20 CCF) (20 - 40 CCF) (40 - 60 CCF) (60 + CCF) Zone 7 Water Purchases $2.4000 $2.4000 $2.4000 $2.4000 Operational Capacity $0.3768 $0.3768 $0.3768 $0.3768 Average Use ('13&'14)11.57 27.50 47.80 108.48 Infrastructure Capacity $0.0353 $0.1782 $0.8883 $1.0490 Proportion A 15.5% 20.1% 26.8% 37.6% Total Tier Related Cost $2.8121 $2.9550 $3.6651 $3.8258 Proportion B 0.0% 0.0%41.6% 58.4% Proportion C 0.0% 0.0% 0.0%100.0% Proportion D 0.0%23.8% 31.7%44.5% 5 of 5 Technical Appendix D – Drought Rate Analysis City of Pleasanton 1 Drought Surcharges - 2015 Water Rate Study Technical Memorandum - Drought Rates Introduction HDR Engineering, Inc. (HDR) was retained by the City of Pleasanton (City) to develop a water, sewer, and recycled water rate study. As part of the water rate study the City requested the development of drought rates to maintain sufficient revenues during drought periods. Drought rates are an important tool that allows the City to maintain adequate revenues when consumption declines due to voluntary or mandatory conservation due to drought conditions, such as the current drought California is experiencing, or other water shortage emergencies. Overview of Drought Rates A drought, or water shortage emergency, certainly creates operational challenges for the City, but it also creates certain financial/rate challenges. As the City is required to increase water conservation efforts and reduce the amount of consumptive use from their customers, the financial impacts are obvious. Reduced consumptive billings will translate into reduced overall revenue. For example, a simple request for a reduction in 10% consumptive use may translate into nearly a 10% reduction in revenues, depending upon the mix of fixed and variable charges in the rates. Drought or water shortage rates are often adopted in advance of the drought or water emergency. At the point when the City declares a drought (specifying the drought stage) the drought rates can be implemented by the City Council. By reviewing and adopting drought rates in advance of the actual event, the City is being proactive, but more importantly the City is provided with sufficient time to carefully analyze the policy and costing decisions associated with such rates. A water management plan or drought management plan is the foundation for the development of drought rates. This document provides a number of key items of information needed to develop drought rates (triggers for restrictions, phases or stages of restrictions, targeted level of savings, etc.). The City’s water conservation plan provides the necessary information to tie the drought rates to specific conservation savings levels and was used in the development of the proposed drought rates. Drought rates are one of several “tools” to assist during a drought or water emergency. In the City’s case, the drought rates will work in tandem with the City’s other conservation programs, and specifically the City’s excess use penalties (Ord. 2097) previously adopted by the City. It should be noted that the existing excess use penalty rates were reviewed and discussed with City staff. It was determined that the current approach for the excess use penalty rates is meeting the City’s goals and objectives and no changes to the excess use penalty rates were recommended. City of Pleasanton 2 Drought Surcharges - 2015 Water Rate Study Customer Responsiveness to Price When properly designed, drought rates address the issue of the financial/revenue impacts of decreased consumption. In a drought, water rates are one mechanism or tool used to encourage or create conservation savings. When a utility enters a drought stage, it is not uncommon for a utility to have a set of water drought rates to maintain sufficient revenues due to reductions in usage. Economic theory suggests that as the price of a commodity increases there should be a corresponding decrease in consumption of that commodity. That change in consumption, in relation to the change in price, is technically referred to as the “price elasticity” of a commodity. If the demand for commodity is very sensitive to price (i.e., small changes in price create large changes in demand) then this commodity is referred to as being “price elastic.” In contrast, a commodity that is relatively insensitive to price (i.e., large changes in price create small changes in demand) is referred to as being “price inelastic.” For the most part, water is “price inelastic” meaning that even with large changes in price the City will likely not see large changes in consumption. There are a number of reasons for this lack of consumer response to price. One of the key reasons is that that there is no substitute for water; we need it for drinking, food preparation and healthy living. At the same time, the current price of water is low meaning that it has high value to consumers at a very low price. The point to be made from this discussion is that in establishing drought rates, certain portions of consumption are more price elastic than others. As an example, outdoor watering is more discretionary use than the water used for drinking, food preparation and health needs. As an example, water that is more non-discretionary may have a price elasticity of only -0.10, meaning that a 100% increase in price may result in only a 10% decrease in consumption. In contrast to this, outdoor use is far more discretionary and may have a price elasticity of -0.35, meaning that a 100% increase in price may result in a 35% decrease in consumption of that segment of water use. Given this observation, outdoor water use is typically targeted in the earlier drought stages for savings as the demand will decrease more proportionally to a pricing increase then indoor use. However, as the drought progresses into stage 3 and 4, indoor use must also be targeted as conservation goals cannot be met without a reduction there as well. This same philosophy or approach has been used to develop the City’s water drought rates. Development of the Drought Rates The potable water rates being proposed in this water rate study assume “normal” water conditions. The current drought in California extends back several years which means that the current usage characteristics cannot be considered normal use. The historical 2013 and 2014 consumption data used in the rate study was adjusted to reflect current conservation requirements (State mandated conservation) not in place during those time periods. Under drought conditions, the City will need to have customers reduce their consumption and provide sufficient conservation savings to meet the City’s conservation savings goals under the various stages of drought. City of Pleasanton 3 Drought Surcharges - 2015 Water Rate Study For purposes of establishing drought rates, four stages for water shortage and a target water savings for each stage were established in the City’s water conservation plan. These water shortage stages are summarized below. Stage 1 – Up to 20% water savings: Voluntary Stage 2 – Up to 20% water savings: Mandatory Stage 3 – Up to 35% water savings: Mandatory Stage 4 – Over 35% water savings: Mandatory To achieve these water savings under each stage, the City would take a number of different actions. The targeted water savings would be achieved via a combination of voluntary savings and savings achieved through price signals (i.e., as the price increases, consumption will be reduced). While the purpose of drought rates is not to provide a price signal, the purpose is to maintain sufficient revenues, a customer’s responsiveness to price does impact their willingness to conserve. However, each customer’s response will vary based upon a number of different factors (e.g., price levels, income level of the customer, and perception of the need for conservation savings). To help achieve the needed savings in each drought stage, HDR developed a set of rates applicable to each stage. The overall targeted savings, or reductions in use, will be achieved through both “voluntary” savings and via price incentives. In developing the water shortage surcharges HDR has assumed that under each stage there will be some level of “voluntary” savings by the customers based on education and individual conservation practices. The remaining savings will need to be achieved through price incentives and price elasticity, responsiveness to changes in price. As noted, the drought rates will be supplemented with the City’s excessive use penalties and other conservation programs to achieve the total savings in each drought stage. For purposes of developing the drought rate pricing, it was assumed that the savings in each stage would target the mid-point of the stage (e.g., State 3 = 20%-35%, or 27.5% average reduction in consumption). Provided below in Table 1 is a summary of the assumptions regarding voluntary versus customer’s decreased consumption due to the pricing. Table 1 Summary of the Estimated Voluntary Versus Price Induced Conservation Savings Normal Conditions Voluntary Stage 1 Mandatory Stage 2 Mandatory Stage 3 Mandatory Stage 4 Targeted Reduction Goal 0% 20% 20% 35% >35% Voluntary Savings 0.0% 5.0% 10.0% 15.5% 25.0% Price Induced Savings 0.0% 0.0% 5.0% 12.0% 20.0% Total Targeted Conservation Savings 0.0% 5.0% 15.0% 27.5% 45.0% At the same time, during drought stages, the City would anticipate incurring additional expenses over and above the revenue requirements incurred during normal water conditions as a result of each stage of the drought. These additional expenses will be incurred for items such as advertising and notification, additional customer outreach, temporary staffing, enforcement, etc. As a part of developing the drought charges these additional or incremental costs, which City of Pleasanton 4 Drought Surcharges - 2015 Water Rate Study are not included in the current revenue requirement used to establish rates, have been considered and factored into the drought rates to attempt to minimize the financial impacts of these incremental costs. Based on the City’s water conservation plan, the development of the drought charges takes into consideration where the consumption savings will occur. Typically this first targets discretionary use and then, if needed, non-discretionary use. As an example, discretionary use for a residential customer is often defined as outdoor usage, while non-discretionary water use is typically considered indoor use. In developing the water shortage rates, the monthly meter charge remains fixed at the same level regardless of the drought stage. For purposes of this discussion, it is also assumed that the Zone 7 rate is also fixed, but it will change if Zone 7 modifies their wholesale rate to the City. Therefore, the portion of the water rate impacted by the water shortage rate is the local consumption charges of the water rates. Provided below is a summary of the water shortage rates developed for the City. Overview of the Drought Rates Based on the conservation savings estimated for each drought stage, the drought rates were developed to maintain the current level of revenues for each customer class of service. As noted, in addition to maintaining the current level of revenue to support current operating and capital costs, additional costs the City incurs during the drought were included to reflect the changes in costs at each stage. These were based on recent conservation related costs during the past several years that were over and above the current budgeted expenses. Provided below in Table 2 is a summary of the drought rates for each block. Table 2 Summary of the Drought Rates – $/CCF Normal Conditions Voluntary Stage 1 Mandatory Stage 2 Mandatory Stage 3 Mandatory Stage 4 0% 20% 20% 35% >35% Single-Family Tier 1 – 0-20 CCF $0.0000 $0.1619 $0.5689 $1.2266 $2.5611 Tier 2 – 21-40 CCF $0.0000 $0.1619 $0.5689 $1.2266 $2.5611 Tier 3 – 41-60 CCF $0.0000 $0.1619 $0.5689 $1.2266 $2.5611 Tier 4 – 60+ CCF $0.0000 $0.1619 $0.5689 $1.2266 $2.5611 Multi-Family and Commercial All Consumption $0.0000 $0.1385 $0.5400 $1.1631 $2.5145 Irrigation All Consumption $0.0000 $0.1458 0.5655 $1.2244 $2.6470 The drought rates in Table 2 are added to the current rates in place at the time the drought stage is declared. For example, if the first tier rate is currently $2.4000/CCF and the City declares a Stage 2 drought, then the first tier rate will change to $2.9689/CCF ($2.4000 + City of Pleasanton 5 Drought Surcharges - 2015 Water Rate Study $0.5689) for single-family customers. These drought rates can be added to the City’s proposed rates, effective October 1, 2015, as directed by the City Council. Implementation of these drought rates will help the City maintain revenue levels during drought related consumption reductions, provide additional pricing incentives to reduce consumption, and work in tandem with the City’s excessive use penalties for inefficient water users. Provided below is a more detailed discussion of the combined base rates and drought rates. Development of the Single-Family Base Rates + Drought Rates Based on the proposed rates and proposed drought rates, the combined rate for each drought stage can be developed. Provided below in Table 3 is a summary of the single-family rates in each stage of the drought. Table 3 Proposed Single-Family Combined Base Rates and Drought Rates – $/CCF Normal Conditions [1] Voluntary Stage 1 Mandatory Stage 2 Mandatory Stage 3 Mandatory Stage 4 0% 20% 20% 35% >35% Tier 1 – 0-20 CCF $2.4000 $2.5619 $2.9689 $3.6266 $4.9611 Tier 2 – 21-40 CCF $2.6581 2.9200 3.3270 3.9847 5.3192 Tier 3 – 41-60 CCF $2.9825 3.1444 3.5514 4.2091 5.5436 Tier 4 – 60+ CCF $3.7520 3.9139 4.3209 4.9786 6.3131 [1] Normal water condition rates reflect the proposed single-family rates effective October 1, 2015. To better understand how the drought rates work, Table 4 shows a comparison of the residential bi-monthly bill assuming a customer does, and does not, adjust their consumption in response to the requested savings in each drought stage. City of Pleasanton 6 Drought Surcharges - 2015 Water Rate Study Table 4 Single-Family Drought Rates Bill Impacts [1] Normal Conditions Voluntary Stage 1 Mandatory Stage 2 Mandatory Stage 3 Mandatory Stage 4 Water Conservation Plan Targeted Goals 0% 20% 20% 35% >35% Drought Rate Conservation Target 0.0% 5.0% 15.0% 27.5% 45.0% Customer Using 20 CCF Assuming No Change in Use – 20 CCF $65.62 $68.86 $77.00 $90.15 $116.84 Assuming Reduced Usage - Revised CCF Usage 20.0 19.0 17.0 15.0 11.0 Total Bi-Monthly Bill $65.62 $66.30 $68.09 $72.02 $72.19 Customer Using 40 CCF Assuming No Change in Use – 40 CCF $120.78 $127.26 $143.54 $169.85 $223.23 Assuming Reduced Usage - Revised CCF Usage 40.0 38.0 34.0 29.0 22.0 Total Bi-Monthly Bill $120.78 $121.42 $123.58 $126.01 $127.48 Customer Using 60 CCF Assuming No Change in Use – 60 CCF $180.43 $190.15 $214.57 $254.03 $334.10 Assuming Reduced Usage - Revised CCF Usage 60.0 57.0 51.0 44.0 33.0 Total Bi-Monthly Bill $180.43 $180.71 $182.60 $186.68 $185.99 [1] Assumes a 5/8” single-family customer and bi-monthly billing period. As can be seen in the above table, if a customer does not modify their consumption, their utility bill will increase substantially. However, if they do provide the requested savings, their bill will be similar to the “normal” water conditions bill. For example, a customer using 40 CCF currently pays $120.78/bi-month. If the City is in Stage 2 and the customer does not change their usage, then their bi-monthly bill will increase to $127.26. However, if they reduce their 40 CCF of usage by 6 CCF (15% reduction), their revised use of 34 CCF will be billed at $123.58/bi- month. Development of the Multi-Family and Commercial Base Rates + Drought Rates The same approach was developed for the multi-family and commercial customers. The estimated conservation savings were used to reduce the annual consumption and the drought rates were developed to maintain the current level of revenue plus the additional costs associated with each level of the drought that were over and above current budgeted expenses. Provided in Table 5 is a summary of the multi-family and commercial proposed rates including the drought rates. City of Pleasanton 7 Drought Surcharges - 2015 Water Rate Study Table 5 Proposed Multi-Family and Commercial Combined Base and Drought Rates – $/CCF Normal Conditions [1] Voluntary Stage 1 Mandatory Stage 2 Mandatory Stage 3 Mandatory Stage 4 0% 20% 20% 35% >35% All Consumption - CCF $2.7693 $2.9078 $3.3093 $3.9324 $5.2838 [1] Normal water condition rates reflect the proposed rates effective October 1, 2015. As can be seen, the current uniform consumption charge has been increased by the drought rate for each stage from Table 2. Development of the Irrigation Base Rates +Drought Rates Similar to the prior drought rates the proposed rates combined with the drought rates for the irrigation customer class was developed. Table 6 Proposed Irrigation Combined Base Rates and Drought Rates – $/CCF Normal Conditions [1] Voluntary Stage 1 Mandatory Stage 2 Mandatory Stage 3 Mandatory Stage 4 0% 20% 20% 35% >35% All Consumption - CCF $2.9152 $3.0610 $3.4807 $4.1396 $5.5622 [1] Normal water condition rates reflect the proposed rates effective October 1, 2015. As shown in Table 6, the irrigation rates reflect the proposed rates and the drought rates for each stage. It should be noted that irrigation use should be essentially zero in stages 3 and 4 based on the City’s current water conservation plan which limits, or eliminates, outdoor watering. Annual Adjustments to the Drought Rates As noted, the purpose of the drought rates is to maintain sufficient revenues during times of declining consumption. Therefore, as potable water rates are adjusted for CPI each January 1st, or Zone 7 wholesale rates are increased, the drought rates will need to be adjusted to reflect the target revenue needs as the development of the drought rates are based on current potable water rates and revenue levels. The adjustment of the drought rates to reflect the changes in CPI to the local potable water distribution rates, can be passed through based on the percentage basis to reflect the change in the overall revenues. For example, if the CPI adjustment is 2.5% then the drought rates, less the portion related to Zone 7, can be increased by 2.5%. City of Pleasanton 8 Drought Surcharges - 2015 Water Rate Study A similar approach can be used to update the drought rates based on the adoption of a new wholesale water rate by Zone 7. However, in this case if the Zone 7 rate is increased, it is recommended that the change in the percentage rate be added to the drought rates component related to Zone 7. For example, if the Zone 7 rate in increased from the current rate of $2.40 to $2.50, then the drought rates component related to Zone 7, can be increased by $4.2% ($2.50/2.40) in each stage and for each tier. Updating the drought rates each time the potable water rates are updated will maintain the sufficient revenue levels necessary to fund the operating and capital needs of the potable water utility during times of drought and reduced consumption levels. Summary The development of drought rates is essential to maintaining the financial stability of the City’s water utility. Combining the drought rates and excessive use penalties to inefficient water users, combined with the City’s water conservation plan will provide the City with a method to manage the current, and future, drought impacts on revenue and utility operations. Rate Schedule Drought Rates - Uniform All Classes Proposed 10/1/2015 Stage 1 Stage 2 Stage 3 Stage 4 Single Family Residential 0-20 CCF $2.4000 $0.1619 $0.5689 $1.2266 $2.5611 21-40 CCF 2.7581 0.1619 0.5689 1.2266 2.5611 41-60 CCF 2.9825 0.1619 0.5689 1.2266 2.5611 60+ CCF 3.7520 0.1619 0.5689 1.2266 2.5611 Multi-Family Residential All Consumption $2.7693 $0.1385 $0.5400 $1.1631 $2.5145 Commercial All Consumption $2.7693 $0.1385 $0.5400 $1.1631 $2.5145 Irrigation All Consumption $2.9152 $0.1458 $0.5655 $1.2244 $2.6470 Drought Rate 1 of 19 Rate Schedule Total Drought Rates - Uniform All Classes Proposed 10/1/2015 Stage 1 Stage 2 Stage 3 Stage 4 Single Family Residential 0-20 CCF $2.4000 $2.5619 $2.9689 $3.6266 $4.9611 21-40 CCF 2.7581 2.9200 3.3270 3.9847 5.3192 41-60 CCF 2.9825 3.1444 3.5514 4.2091 5.5436 60+ CCF 3.7520 3.9139 4.3209 4.9786 6.3131 Multi-Family Residential All Consumption $2.7693 $2.9078 $3.3093 $3.9324 $5.2838 Commercial All Consumption $2.7693 $2.9078 $3.3093 $3.9324 $5.2838 Irrigation All Consumption $2.9152 $3.0610 $3.4807 $4.1396 $5.5622 Base Rate + Drought Rate 2 of 19 Target Reduction Goal 0.0%5.0%15.0%27.5%45.0% Residential Customer Using 20 CCF Assuming No Change in Use - 20 CCF $65.62 $68.86 $77.00 $90.15 $116.84 Assuming Reduced Usage - Revised CCF Usage 20.0 19.0 17.0 15.0 11.0 Total Bi-Monthly Bill $65.62 $66.30 $68.09 $72.02 $72.19 Residential Customer Using 40 CCF Assuming No Change in Use - 40 CCF $120.78 $127.26 $143.54 $169.85 $223.23 Assuming Reduced Usage - Revised CCF Usage 40.0 38.0 34.0 29.0 22.0 Total Bi-Monthly Bill $120.78 $121.42 $123.58 $126.01 $127.48 Residential Customer Using 60 CCF Assuming No Change in Use - 60 CCF $180.43 $190.15 $214.57 $254.03 $334.10 Assuming Reduced Usage - Revised CCF Usage 60.0 57.0 51.0 44.0 33.0 Total Bi-Monthly Bill $180.43 $180.71 $182.60 $186.68 $185.99 Mandatory Conservation Stage 4 Total Bi-Monthly 5/8" Meter Bill (Uniform) Normal Water Conditions Mandatory Conservation Stage 2 Mandatory Conservation Stage 3 Voluntary Conservation Stage 1 3 of 19 City of Pleasanton Water Utility Rate Study Page 1 of 4 Single Family Residential Drought Rates - Uniform Step 1 - Determine Total Targeted Stage 1 Savings and Savings Achieved from Voluntary and Price Elasticity Impacts Estimated Est. Savings % Savings in Total CCF Stage 1 - Target Conservation (Savings)20.0%582,382 CCF - Savings Achieved From Voluntarily (Education, etc.)5.0%145,595 CCF - Saving Achieved Via Price Elasticity (Rates)0.0%0 CCF 436,786 Step 2 - Estimate the Voluntary and Price Elasticity Impacts (Savings) By Price Block Normal Water Estimated Estimated After Vol.Targeted Elasticity After Vol. & Conditions % Savings Savings Savings Savings Savings Rate Impact(CCF)by Block (CCF) (CCF)By Block (CCF) (CCF) 0-20 CCF 1,806,495 5.0%90,325 1,716,170 0.0%0 1,716,170 21-40 CCF 551,589 5.0%27,579 524,010 0.0%0 524,010 41-60 CCF 211,216 5.0%10,561 200,655 0.0%0 200,655 60+ CCF 342,608 5.0%17,130 325,478 0.0%0 325,478 ------------------ ------------------ ------------------ ------------------ ------------------Total Consumption 2,911,908 145,595 2,766,313 0 2,766,313 Target Savings 145,595 0 Difference (CCF)0 0 Step 3 - Determine the Price (Rate) By Block Needed to Achieve Needed Savings and Meet Revenue Requirement UsageAfter Vol. &Estimated Estimated Targeted Rate Impact % Adjst.Rate Commodity Price Savings Elasticity % (CCF)to Rates $/CCF Revenue Elasticity [1] %Savings Difference 0-20 CCF 1,716,170 6.7% $2.5619 $4,396,657 0.000 0.0% 0.0% 0.0%21-40 CCF 524,010 21.7% 2.9200 1,530,108 0.000 0.0% 0.0% 0.0% 41-60 CCF 200,655 31.0% 3.1444 630,940 0.000 0.0% 0.0% 0.0% 60+ CCF 325,478 63.1% 3.9139 1,273,887 0.000 0.0% 0.0% 0.0% ------------------ ------------------- Total 2,766,313 $7,831,591 [1] - Note: Price elasticity is estimated and is a range of Plus: Targeted Additional Stage 1 Costs (Residential Share)$59,133 impacts and will vary based upon the block being impacted, the price of water and the season Target - Total Revenue $7,831,476 $ Difference $116 Stage 1 Drought Conditions STAGE 1 - REQUIRED TOTAL SAVINGS Voluntary Savings Impacts Price Elasticity Savings Impact Check of Elasticity Impacts from Assumed RatesSTAGE 1 4 of 19 City of Pleasanton Water Utility Rate Study Page 2 of 4 Single Family Residential Drought Rates - Uniform Step 1 - Determine Total Targeted Stage 2 Savings and Savings Achieved from Voluntary and Price Elasticity Impacts Estimated Est. Savings % Savings in Total CCF Stage 2 - Target Conservation (Savings)15.0%436,786 CCF - Savings Achieved From Voluntarily (Education, etc.)10.0%291,191 CCF - Saving Achieved Via Price Elasticity (Rates)5.0%145,595 CCF Step 2 - Estimate the Voluntary and Price Elasticity Impacts (Savings) By Price Block Normal Water Estimated Estimated After Vol.Targeted Elasticity After Vol. & Conditions % Savings Savings Savings Savings Savings Rate Impact (CCF)by Block (CCF) (CCF)By Block (CCF) (CCF) 0-20 CCF 1,806,495 5.0%90,325 1,716,170 4.0%68,647 1,647,523 21-40 CCF 551,589 10.0%55,159 496,430 6.0%29,786 466,644 41-60 CCF 211,216 20.0%42,243 168,973 10.0%16,897 152,076 60+ CCF 342,608 30.0%102,782 239,826 12.5%29,978 209,847 ------------------ ------------------ ------------------ ------------------ ------------------ Total Consumption 2,911,908 290,509 2,621,399 145,308 2,476,091 Target Savings 291,191 145,595 Difference (CCF)(682)(287) Step 3 - Determine the Price (Rate) By Block Needed to Achieve Needed Savings and Meet Revenue Requirement Usage After Vol. &Estimated Estimated Targeted Rate Impact % Adjst.Rate Commodity Price Savings Elasticity % (CCF)to Rates $/CCF Revenue Elasticity [1] %Savings Difference 0-20 CCF 1,647,523 23.7% $2.9689 $4,891,332 -0.150 3.6% 4.0% -0.4% 21-40 CCF 466,644 20.6% 3.3270 1,552,526 -0.300 6.2% 6.0% 0.2% 41-60 CCF 152,076 19.1% 3.5514 540,081 -0.400 7.6% 10.0% -2.4% 60+ CCF 209,847 15.2% 4.3209 906,730 -0.500 7.6% 12.5% -4.9% ------------------ ------------------- Total 2,476,091 $7,890,669 [1] - Note: Price elasticity is estimated and is a range of Plus: Targeted Additional Stage 2 Costs (Residential Share)$118,266 impacts and will vary based upon the block being impacted, the price of water and the season Target - Total Revenue $7,890,609$ Difference $60 STAGE 2 Stage 2 Drought Conditions STAGE 2 - REQUIRED TOTAL SAVINGS Voluntary Savings Impacts Price Elasticity Savings Impact Check of Elasticity Impacts from Assumed Rates 5 of 19 City of Pleasanton Water Utility Rate Study Page 3 of 4 Single Family Residential Drought Rates - Uniform Step 1 - Determine Total Targeted Stage 3 Savings and Savings Achieved from Voluntary and Price Elasticity Impacts Estimated Est. Savings % Savings in Total CCF Stage 3 - Target Conservation (Savings)27.5%800,775 CCF - Savings Achieved From Voluntarily (Education, etc.)15.5%451,346 CCF - Saving Achieved Via Price Elasticity (Rates)12.0%349,429 CCF Step 2 - Estimate the Voluntary and Price Elasticity Impacts (Savings) By Price Block Normal Water Estimated Estimated After Vol.Targeted Elasticity After Vol. & Conditions % Savings Savings Savings Savings Savings Rate Impact (CCF)by Block (CCF) (CCF)By Block (CCF) (CCF) 0-20 CCF 1,806,495 9.4%169,811 1,636,684 7.5%122,751 1,513,933 21-40 CCF 551,589 20.0%110,318 441,271 16.1%71,045 370,227 41-60 CCF 211,216 25.0%52,804 158,412 35.0%55,444 102,968 60+ CCF 342,608 35.0%119,913 222,695 45.0%100,213 122,482 ------------------ ------------------ ------------------ ------------------ ------------------ Total Consumption 2,911,908 452,845 2,459,063 349,453 2,109,610 72.4% Target Savings 451,346 349,429 Difference (CCF)1,499 24 Step 3 - Determine the Price (Rate) By Block Needed to Achieve Needed Savings and Meet Revenue Requirement Usage After Vol. &Estimated Estimated Targeted Rate Impact % Adjst.Rate Commodity Price Savings Elasticity % (CCF)to Rates $/CCF Revenue Elasticity [1] %Savings Difference 0-20 CCF 1,513,933 51.1% $3.6266 $5,490,430 -0.150 7.7% 7.5% 0.2% 21-40 CCF 370,227 44.5% 3.9847 1,475,242 -0.300 13.3% 16.1% -2.8% 41-60 CCF 102,968 41.1% 4.2091 433,402 -0.400 16.5% 35.0% -18.5% 60+ CCF 122,482 32.7% 4.9786 609,791 -0.500 16.3% 45.0% -28.7% ------------------ ------------------- Total 2,109,610 $8,008,864 [1] - Note: Price elasticity is estimated and is a range of Plus: Targeted Additional Stage 3 Costs (Residential Share)$236,533 impacts and will vary based upon the block being impacted, the price of water and the season Target - Total Revenue $8,008,875$ Difference ($11) Stage 3 Drought Conditions STAGE 3 - REQUIRED TOTAL SAVINGS Voluntary Savings Impacts Price Elasticity Savings Impact Check of Elasticity Impacts from Assumed Rates STAGE 3 6 of 19 City of Pleasanton Water Utility Rate Study Page 4 of 4 Single Family Residential Drought Rates - Uniform Step 1 - Determine Total Targeted Stage 4 Savings and Savings Achieved from Voluntary and Price Elasticity Impacts Estimated Est. Savings % Savings in Total CCF Stage 4 - Target Conservation (Savings)45.0%1,310,359 CCF - Savings Achieved From Voluntarily (Education, etc.)25.0%727,977 CCF - Saving Achieved Via Price Elasticity (Rates)20.0%582,382 CCF Step 2 - Estimate the Voluntary and Price Elasticity Impacts (Savings) By Price Block Normal Water Estimated Estimated After Vol.Targeted Elasticity After Vol. & Conditions % Savings Savings Savings Savings Savings Rate Impact (CCF)by Block (CCF) (CCF)By Block (CCF) (CCF) 0-20 CCF 1,806,495 15.0%270,974 1,535,521 18.0%276,394 1,259,127 21-40 CCF 551,589 30.0%165,477 386,112 40.0%154,445 231,667 41-60 CCF 211,216 41.0%86,599 124,617 50.0%62,309 62,309 60+ CCF 342,608 60.0%205,565 137,043 65.0%89,078 47,965 ------------------ ------------------ ------------------ ------------------ ------------------ Total Consumption 2,569,300 728,614 2,183,294 582,225 1,601,068 Target Savings 727,977 582,382 Difference (CCF)637 (156) Step 3 - Determine the Price (Rate) By Block Needed to Achieve Needed Savings and Meet Revenue Requirement Usage After Vol. &Estimated Estimated Targeted Rate Impact % Adjst.Rate Commodity Price Savings Elasticity % (CCF)to Rates $/CCF Revenue Elasticity [1] %Savings Difference 0-20 CCF 1,259,127 106.7% $4.9611 $6,246,655 -0.150 16.0% 18.0% -2.0% 21-40 CCF 231,667 92.9% 5.3192 1,232,285 -0.300 27.9% 40.0% -12.1% 41-60 CCF 62,309 85.9% 5.5436 345,415 -0.400 34.3% 50.0% -15.7% 60+ CCF 47,965 68.3% 6.3131 302,809 -0.500 34.1% 65.0% -30.9% ------------------ ------------------- Total 1,601,068 $8,127,163 [1] - Note: Price elasticity is estimated and is a range of Plus: Targeted Additional Stage 4 Costs (Residential Share)$354,799 impacts and will vary based upon the block being impacted, the price of water and the season Target - Total Revenue $8,127,141$ Difference $22 STAGE 4 Stage 4 Drought Conditions STAGE 4 - REQUIRED TOTAL SAVINGS Voluntary Savings Impacts Price Elasticity Savings Impact Check of Elasticity Impacts from Assumed Rates 7 of 19 City of Pleasanton Water Utility Rate Study Page 1 of 4 Multi-Family Drought Rates Stage 1 Drought Conditions Step 1 - Determine Total Targeted Stage 1 Savings and Savings Achieved from Voluntary and Price Elasticity Impacts Estimated Est. Savings % Savings in Total CCF Stage 1 - Target Conservation (Savings)20.0%87,658 CCF - Savings Achieved From Voluntarily (Education, etc.)5.0%21,914 CCF - Saving Achieved Via Price Elasticity (Rates)0.0%- CCF 65,743 Step 2 - Estimate the Voluntary and Price Elasticity Impacts (Savings) By Price Block Normal Water Estimated Estimated After Vol.Targeted Elasticity After Vol. & Conditions % Savings Savings Savings Savings Savings Rate Impact (CCF)by Block (CCF)(CCF)By Block (CCF)(CCF) All Consumption 438,288 5.0%21,914 416,374 0.0%0 416,374 ------------------ ------------------ ------------------ ------------------ ------------------ Total Consumption 438,288 21,914 416,374 0 416,374 Target Savings 21,914 - Difference (CCF)0 0 Step 3 - Determine the Price (Rate) By Block Needed to Achieve Needed Savings and Meet Revenue Requirement Usage After Vol. &Estimated Estimated TargetedRate Impact % Adjst.Rate Commodity Price Savings Elasticity % (CCF)to Rates $/CCF Revenue Elasticity [1]%Savings Difference All Consumption 416,374 5.0%$2.9078 $1,210,731 0.000 0.0% 0.0% 0.0% ------------------ ------------------- Total 416,374 $1,210,731 [1] - Note: Price elasticity is estimated and is a range of Plus: Targeted Additional Stage 1 Costs (Residential Share)$8,900 impacts and will vary based upon the block being impacted, the price of water and the season Target - Total Revenue $1,222,651 $ Difference ($11,920) STAGE 1 - REQUIRED TOTAL SAVINGS Voluntary Savings Impacts Price Elasticity Savings Impact Check of Elasticity Impacts from Assumed Rates STAGE 1 8 of 19 City of Pleasanton Water Utility Rate Study Page 2 of 4 Multi-Family Drought Rates Stage 2 Drought Conditions Step 1 - Determine Total Targeted Stage 2 Savings and Savings Achieved from Voluntary and Price Elasticity Impacts Estimated Est. Savings % Savings in Total CCF Stage 2 - Target Conservation (Savings)15.0%65,743 CCF - Savings Achieved From Voluntarily (Education, etc.)10.0%43,829 CCF - Saving Achieved Via Price Elasticity (Rates)5.0%21,914 CCF Step 2 - Estimate the Voluntary and Price Elasticity Impacts (Savings) By Price Block Normal Water Estimated Estimated After Vol.Targeted Elasticity After Vol. &Conditions % Savings Savings Savings Savings Savings Rate Impact (CCF)by Block (CCF)(CCF)By Block (CCF)(CCF) All Consumption 438,288 10.0%43,829 394,459 5.6%22,090 372,369 ------------------ ------------------ ------------------ ------------------ ------------------ Total Consumption 438,288 43,829 394,459 22,090 372,369 Target Savings 43,829 21,914 Difference (CCF)0 175 Step 3 - Determine the Price (Rate) By Block Needed to Achieve Needed Savings and Meet Revenue Requirement Usage After Vol. &Estimated Estimated Targeted Rate Impact % Adjst.Rate Commodity Price Savings Elasticity % (CCF)to Rates $/CCF Revenue Elasticity [1]%Savings Difference All Consumption 372,369 19.5%$3.3093 $1,232,282 -0.400 7.8% 5.6% 2.2% ------------------ ------------------- Total 372,369 $1,232,282 [1] - Note: Price elasticity is estimated and is a range of Plus: Targeted Additional Stage 2 Costs (Residential Share)$17,801 impacts and will vary based upon the block being impacted, the price of water and the season Target - Total Revenue $1,231,552 $ Difference $730 STAGE 2 STAGE 2 - REQUIRED TOTAL SAVINGS Voluntary Savings Impacts Price Elasticity Savings Impact Check of Elasticity Impacts from Assumed Rates 9 of 19 City of Pleasanton Water Utility Rate Study Page 3 of 4 Multi-Family Drought Rates Stage 3 Drought Conditions Step 1 - Determine Total Targeted Stage 3 Savings and Savings Achieved from Voluntary and Price Elasticity Impacts Estimated Est. Savings % Savings in Total CCF Stage 3 - Target Conservation (Savings)27.5%120,529 CCF - Savings Achieved From Voluntarily (Education, etc.)15.5%67,935 CCF - Saving Achieved Via Price Elasticity (Rates)12.0%52,595 CCF Step 2 - Estimate the Voluntary and Price Elasticity Impacts (Savings) By Price Block Normal Water Estimated Estimated After Vol.Targeted Elasticity After Vol. &Conditions % Savings Savings Savings Savings Savings Rate Impact (CCF)by Block (CCF)(CCF)By Block (CCF)(CCF) All Consumption 438,288 15.5%67,935 370,353 14.2%52,590 317,763 ------------------ ------------------ ------------------ ------------------ ------------------ Total Consumption 438,288 67,935 370,353 52,590 317,763 Target Savings 67,935 52,595 Difference (CCF)0 (4) Step 3 - Determine the Price (Rate) By Block Needed to Achieve Needed Savings and Meet Revenue Requirement Usage After Vol. &Estimated Estimated Targeted Rate Impact % Adjst.Rate Commodity Price Savings Elasticity % (CCF)to Rates $/CCF Revenue Elasticity [1]%Savings Difference All Consumption 317,763 42.0%$3.9324 $1,249,572 -0.350 14.7% 14.2%0.5% ------------------ ------------------- Total 317,763 $1,249,572 [1] - Note: Price elasticity is estimated and is a range of Plus: Targeted Additional Stage 3 Costs (Residential Share)$35,602 impacts and will vary based upon the block being impacted, the price of water and the season Target - Total Revenue $1,249,353 $ Difference $219 STAGE 3 - REQUIRED TOTAL SAVINGS Voluntary Savings Impacts Price Elasticity Savings Impact Check of Elasticity Impacts from Assumed Rates STAGE 3 10 of 19 City of Pleasanton Water Utility Rate Study Page 4 of 4 Multi-Family Drought Rates Stage 4 Drought Conditions Step 1 - Determine Total Targeted Stage 4 Savings and Savings Achieved from Voluntary and Price Elasticity Impacts Estimated Est. Savings % Savings in Total CCF Stage 4 - Target Conservation (Savings)45.0%197,230 CCF - Savings Achieved From Voluntarily (Education, etc.)25.0%109,572 CCF - Saving Achieved Via Price Elasticity (Rates)20.0%87,658 CCF Step 2 - Estimate the Voluntary and Price Elasticity Impacts (Savings) By Price Block Normal Water Estimated Estimated After Vol.Targeted Elasticity After Vol. &Conditions % Savings Savings Savings Savings Savings Rate Impact (CCF)by Block (CCF)(CCF)By Block (CCF)(CCF) All Consumption 438,288 25.0%109,572 328,716 27.0%88,753 239,963 ------------------ ------------------ ------------------ ------------------ ------------------ Total Consumption 438,288 109,572 328,716 88,753 239,963 Target Savings 109,572 87,658 Difference (CCF)0 1,096 Step 3 - Determine the Price (Rate) By Block Needed to Achieve Needed Savings and Meet Revenue Requirement Usage After Vol. &Estimated Estimated Targeted Rate Impact % Adjst.Rate Commodity Price Savings Elasticity % (CCF)to Rates $/CCF Revenue Elasticity [1]%Savings Difference All Consumption 239,963 90.8%$5.2838 $1,267,915 -0.220 20.0% 27.0%-7.0% ------------------ ------------------- Total 239,963 $1,267,915 [1] - Note: Price elasticity is estimated and is a range of Plus: Targeted Additional Stage 4 Costs (Residential Share)$53,403 impacts and will vary based upon the block being impacted, the price of water and the season Target - Total Revenue $1,267,154 $ Difference $761 Voluntary Savings Impacts Price Elasticity Savings Impact Check of Elasticity Impacts from Assumed Rates STAGE 4 STAGE 4 - REQUIRED TOTAL SAVINGS 11 of 19 City of Pleasanton Water Utility Rate Study Page 1 of 4Commercial Drought Rates Stage 1 Drought Conditions Step 1 - Determine Total Targeted Stage 1 Savings and Savings Achieved from Voluntary and Price Elasticity Impacts Estimated Est. Savings% Savings in Total CCF Stage 1 - Target Conservation (Savings)20.0%137,570 CCF - Savings Achieved From Voluntarily (Education, etc.)5.0%34,393 CCF - Saving Achieved Via Price Elasticity (Rates)0.0%- CCF 103,178 Step 2 - Estimate the Voluntary and Price Elasticity Impacts (Savings) By Price Block Normal Water Estimated Estimated After Vol.Targeted Elasticity After Vol. & Conditions % Savings Savings Savings Savings Savings Rate Impact (CCF)by Block (CCF) (CCF)By Block (CCF) (CCF) All Consumption 687,852 5.0%34,393 653,459 0.0%0 653,459 ------------------ ------------------ ------------------ ------------------ ------------------ Total Consumption 687,852 34,393 653,459 0 653,459 Target Savings 34,393 - Difference (CCF)0 0 Step 3 - Determine the Price (Rate) By Block Needed to Achieve Needed Savings and Meet Revenue Requirement Usage After Vol. &Estimated Estimated Targeted Rate Impact % Adjst.Rate Commodity Price Savings Elasticity % (CCF)to Rates $/CCF Revenue Elasticity [1] %Savings Difference All Consumption 653,459 5.0%$2.9078 $1,900,129 0.000 0.0% 0.0% 0.0% ------------------ ------------------- Total 653,459 $1,900,129 [1] - Note: Price elasticity is estimated and is a range of Plus: Targeted Additional Stage 1 Costs (Residential Share)$13,968 impacts and will vary based upon the block being impacted, the price of water and the season Target - Total Revenue $1,918,837 $ Difference ($18,708) STAGE 1 - REQUIRED TOTAL SAVINGS Voluntary Savings Impacts Price Elasticity Savings Impact Check of Elasticity Impacts from Assumed Rates STAGE 1 12 of 19 City of Pleasanton Water Utility Rate Study Page 2 of 4 Commercial Drought Rates Stage 2 Drought Conditions Step 1 - Determine Total Targeted Stage 2 Savings and Savings Achieved from Voluntary and Price Elasticity Impacts Estimated Est. Savings % Savings in Total CCF Stage 2 - Target Conservation (Savings)15.0%103,178 CCF - Savings Achieved From Voluntarily (Education, etc.)10.0%68,785 CCF - Saving Achieved Via Price Elasticity (Rates)5.0%34,393 CCF Step 2 - Estimate the Voluntary and Price Elasticity Impacts (Savings) By Price Block Normal Water Estimated Estimated After Vol.Targeted Elasticity After Vol. &Conditions % Savings Savings Savings Savings Savings Rate Impact (CCF)by Block (CCF)(CCF)By Block (CCF)(CCF) All Consumption 687,852 10.0%68,785 619,067 5.6%34,668 584,399 ------------------ ------------------ ------------------ ------------------ ------------------ Total Consumption 687,852 68,785 619,067 34,668 584,399 Target Savings 68,785 34,393 Difference (CCF)0 275 Step 3 - Determine the Price (Rate) By Block Needed to Achieve Needed Savings and Meet Revenue Requirement Usage After Vol. &Estimated Estimated Targeted Rate Impact % Adjst.Rate Commodity Price Savings Elasticity % (CCF)to Rates $/CCF Revenue Elasticity [1]%Savings Difference All Consumption 584,399 19.5%$3.3093 $1,933,952 -0.250 4.9% 5.6% -0.7% ------------------ ------------------- Total 584,399 $1,933,952 [1] - Note: Price elasticity is estimated and is a range of Plus: Targeted Additional Stage 2 Costs (Residential Share)$27,937 impacts and will vary based upon the block being impacted, the price of water and the season Target - Total Revenue $1,932,805 $ Difference $1,146 STAGE 2 STAGE 2 - REQUIRED TOTAL SAVINGS Voluntary Savings Impacts Price Elasticity Savings Impact Check of Elasticity Impacts from Assumed Rates 13 of 19 City of Pleasanton Water Utility Rate Study Page 3 of 4 Commercial Drought Rates Stage 3 Drought Conditions Step 1 - Determine Total Targeted Stage 3 Savings and Savings Achieved from Voluntary and Price Elasticity Impacts Estimated Est. Savings % Savings in Total CCF Stage 3 - Target Conservation (Savings)27.5%189,159 CCF - Savings Achieved From Voluntarily (Education, etc.)15.5%106,617 CCF - Saving Achieved Via Price Elasticity (Rates)12.0%82,542 CCF Step 2 - Estimate the Voluntary and Price Elasticity Impacts (Savings) By Price Block Normal Water Estimated Estimated After Vol.Targeted Elasticity After Vol. &Conditions % Savings Savings Savings Savings Savings Rate Impact (CCF)by Block (CCF)(CCF)By Block (CCF)(CCF) All Consumption 687,852 15.5%106,617 581,235 14.2%82,535 498,700 ------------------ ------------------ ------------------ ------------------ ------------------ Total Consumption 687,852 106,617 581,235 82,535 498,700 Target Savings 106,617 82,542 Difference (CCF)0 (7) Step 3 - Determine the Price (Rate) By Block Needed to Achieve Needed Savings and Meet Revenue Requirement Usage After Vol. &Estimated Estimated Targeted Rate Impact % Adjst.Rate Commodity Price Savings Elasticity % (CCF)to Rates $/CCF Revenue Elasticity [1]%Savings Difference All Consumption 498,700 42.0%$3.9324 $1,961,086 -0.250 10.5% 14.2%-3.7% ------------------ ------------------- Total 498,700 $1,961,086 [1] - Note: Price elasticity is estimated and is a range of Plus: Targeted Additional Stage 3 Costs (Residential Share)$55,874 impacts and will vary based upon the block being impacted, the price of water and the season Target - Total Revenue $1,960,742 $ Difference $344 STAGE 3 - REQUIRED TOTAL SAVINGS Voluntary Savings Impacts Price Elasticity Savings Impact Check of Elasticity Impacts from Assumed Rates STAGE 3 14 of 19 City of Pleasanton Water Utility Rate Study Page 4 of 4 Commercial Drought Rates Stage 4 Drought Conditions Step 1 - Determine Total Targeted Stage 4 Savings and Savings Achieved from Voluntary and Price Elasticity Impacts Estimated Est. Savings % Savings in Total CCF Stage 4 - Target Conservation (Savings)45.0%309,533 CCF - Savings Achieved From Voluntarily (Education, etc.)25.0%171,963 CCF - Saving Achieved Via Price Elasticity (Rates)20.0%137,570 CCF Step 2 - Estimate the Voluntary and Price Elasticity Impacts (Savings) By Price Block Normal Water Estimated Estimated After Vol.Targeted Elasticity After Vol. &Conditions % Savings Savings Savings Savings Savings Rate Impact (CCF)by Block (CCF)(CCF)By Block (CCF)(CCF) All Consumption 687,852 25.0%171,963 515,889 27.0%139,290 376,599 ------------------ ------------------ ------------------ ------------------ ------------------ Total Consumption 687,852 171,963 515,889 139,290 376,599 Target Savings 171,963 137,570 Difference (CCF)0 1,720 Step 3 - Determine the Price (Rate) By Block Needed to Achieve Needed Savings and Meet Revenue Requirement Usage After Vol. &Estimated Estimated Targeted Rate Impact % Adjst.Rate Commodity Price Savings Elasticity % (CCF)to Rates $/CCF Revenue Elasticity [1]%Savings Difference All Consumption 376,599 90.8%$5.2838 $1,989,874 -0.280 25.4% 27.0%-1.6% ------------------ ------------------- Total 376,599 $1,989,874 [1] - Note: Price elasticity is estimated and is a range of Plus: Targeted Additional Stage 4 Costs (Residential Share)$83,811 impacts and will vary based upon the block being impacted, the price of water and the season Target - Total Revenue $1,988,679 $ Difference $1,194 Voluntary Savings Impacts Price Elasticity Savings Impact Check of Elasticity Impacts from Assumed Rates STAGE 4 STAGE 4 - REQUIRED TOTAL SAVINGS 15 of 19 City of Pleasanton Water Utility Rate Study Page 1 of 4 Irrigation Drought Rates Stage 1 Drought Conditions Step 1 - Determine Total Targeted Stage 1 Savings and Savings Achieved from Voluntary and Price Elasticity Impacts Estimated Est. Savings % Savings in Total CCF Stage 1 - Target Conservation (Savings)20.0%251,120 CCF - Savings Achieved From Voluntarily (Education, etc.)5.0%62,780 CCF - Saving Achieved Via Price Elasticity (Rates)0.0%- CCF 188,340 Step 2 - Estimate the Voluntary and Price Elasticity Impacts (Savings) By Price Block Normal Water Estimated Estimated After Vol.Targeted Elasticity After Vol. & Conditions % Savings Savings Savings Savings Savings Rate Impact (CCF)by Block (CCF)(CCF)By Block (CCF)(CCF) All Consumption 1,255,601 5.0%62,780 1,192,821 0.0%0 1,192,821 ------------------ ------------------ ------------------ ------------------ ------------------ Total Consumption 1,255,601 62,780 1,192,821 0 1,192,821 Target Savings 62,780 - Difference (CCF)0 0 Step 3 - Determine the Price (Rate) By Block Needed to Achieve Needed Savings and Meet Revenue Requirement Usage After Vol. &Estimated Estimated TargetedRate Impact % Adjst.Rate Commodity Price Savings Elasticity % (CCF)to Rates $/CCF Revenue Elasticity [1]%Savings Difference All Consumption 1,192,821 5.0%$3.0610 $3,651,225 0.000 0.0% 0.0% 0.0% ------------------ ------------------- Total 1,192,821 $3,651,225 [1] - Note: Price elasticity is estimated and is a range of Plus: Targeted Additional Stage 1 Costs (Residential Share)$25,498 impacts and will vary based upon the block being impacted, the price of water and the season Target - Total Revenue $3,685,826 $ Difference ($34,601) STAGE 1 - REQUIRED TOTAL SAVINGS Voluntary Savings Impacts Price Elasticity Savings Impact Check of Elasticity Impacts from Assumed Rates STAGE 1 16 of 19 City of Pleasanton Water Utility Rate Study Page 2 of 4 Irrigation Drought Rates Stage 2 Drought Conditions Step 1 - Determine Total Targeted Stage 2 Savings and Savings Achieved from Voluntary and Price Elasticity Impacts Estimated Est. Savings % Savings in Total CCF Stage 2 - Target Conservation (Savings)15.0%188,340 CCF - Savings Achieved From Voluntarily (Education, etc.)10.0%125,560 CCF - Saving Achieved Via Price Elasticity (Rates)5.0%62,780 CCF Step 2 - Estimate the Voluntary and Price Elasticity Impacts (Savings) By Price Block Normal Water Estimated Estimated After Vol.Targeted Elasticity After Vol. &Conditions % Savings Savings Savings Savings Savings Rate Impact (CCF)by Block (CCF)(CCF)By Block (CCF)(CCF) All Consumption 1,255,601 10.0%125,560 1,130,041 5.6%63,282 1,066,759 ------------------ ------------------ ------------------ ------------------ ------------------ Total Consumption 1,255,601 125,560 1,130,041 63,282 1,066,759 Target Savings 125,560 62,780 Difference (CCF)0 502 Step 3 - Determine the Price (Rate) By Block Needed to Achieve Needed Savings and Meet Revenue Requirement Usage After Vol. &Estimated Estimated Targeted Rate Impact % Adjst.Rate Commodity Price Savings Elasticity % (CCF)to Rates $/CCF Revenue Elasticity [1]%Savings Difference All Consumption 1,066,759 19.4%$3.4807 $3,713,067 -0.250 4.9% 5.6% -0.8% ------------------ ------------------- Total 1,066,759 $3,713,067 [1] - Note: Price elasticity is estimated and is a range of Plus: Targeted Additional Stage 2 Costs (Residential Share)$50,996 impacts and will vary based upon the block being impacted, the price of water and the season Target - Total Revenue $3,711,324 $ Difference $1,743 STAGE 2 STAGE 2 - REQUIRED TOTAL SAVINGS Voluntary Savings Impacts Price Elasticity Savings Impact Check of Elasticity Impacts from Assumed Rates 17 of 19 City of Pleasanton Water Utility Rate Study Page 3 of 4 Irrigation Drought Rates Stage 3 Drought Conditions Step 1 - Determine Total Targeted Stage 3 Savings and Savings Achieved from Voluntary and Price Elasticity Impacts Estimated Est. Savings % Savings in Total CCF Stage 3 - Target Conservation (Savings)27.5%345,290 CCF - Savings Achieved From Voluntarily (Education, etc.)15.5%194,618 CCF - Saving Achieved Via Price Elasticity (Rates)12.0%150,672 CCF Step 2 - Estimate the Voluntary and Price Elasticity Impacts (Savings) By Price Block Normal Water Estimated Estimated After Vol.Targeted Elasticity After Vol. &Conditions % Savings Savings Savings Savings Savings Rate Impact (CCF)by Block (CCF)(CCF)By Block (CCF)(CCF) All Consumption 1,255,601 15.5%194,618 1,060,983 14.2%150,660 910,323 ------------------ ------------------ ------------------ ------------------ ------------------ Total Consumption 1,255,601 194,618 1,060,983 150,660 910,323 Target Savings 194,618 150,672 Difference (CCF)0 (13) Step 3 - Determine the Price (Rate) By Block Needed to Achieve Needed Savings and Meet Revenue Requirement Usage After Vol. &Estimated Estimated Targeted Rate Impact % Adjst.Rate Commodity Price Savings Elasticity % (CCF)to Rates $/CCF Revenue Elasticity [1]%Savings Difference All Consumption 910,323 42.0%$4.1396 $3,768,374 -0.250 10.5% 14.2%-3.7% ------------------ ------------------- Total 910,323 $3,768,374 [1] - Note: Price elasticity is estimated and is a range of Plus: Targeted Additional Stage 3 Costs (Residential Share)$101,992 impacts and will vary based upon the block being impacted, the price of water and the season Target - Total Revenue $3,762,320 $ Difference $6,054 STAGE 3 - REQUIRED TOTAL SAVINGS Voluntary Savings Impacts Price Elasticity Savings Impact Check of Elasticity Impacts from Assumed Rates STAGE 3 18 of 19 City of Pleasanton Water Utility Rate Study Page 4 of 4 Irrigation Drought Rates Stage 4 Drought Conditions Step 1 - Determine Total Targeted Stage 4 Savings and Savings Achieved from Voluntary and Price Elasticity Impacts Estimated Est. Savings % Savings in Total CCF Stage 4 - Target Conservation (Savings)90.0%1,130,041 CCF - Savings Achieved From Voluntarily (Education, etc.)45.0%565,020 CCF - Saving Achieved Via Price Elasticity (Rates)45.0%565,020 CCF Step 2 - Estimate the Voluntary and Price Elasticity Impacts (Savings) By Price Block Normal Water Estimated Estimated After Vol.Targeted Elasticity After Vol. &Conditions % Savings Savings Savings Savings Savings Rate Impact (CCF)by Block (CCF)(CCF)By Block (CCF)(CCF) All Consumption 1,255,601 45.0%565,020 690,581 82.0%566,276 124,304 ------------------ ------------------ ------------------ ------------------ ------------------ Total Consumption 1,255,601 565,020 690,581 566,276 124,304 Target Savings 565,020 565,020 Difference (CCF)0 1,256 Step 3 - Determine the Price (Rate) By Block Needed to Achieve Needed Savings and Meet Revenue Requirement Usage After Vol. &Estimated Estimated Targeted Rate Impact % Adjst.Rate Commodity Price Savings Elasticity % (CCF)to Rates $/CCF Revenue Elasticity [1]%Savings Difference All Consumption 124,304 90.8%$5.5622 $691,406 -0.260 23.6% 82.0% -58.4% ------------------ ------------------- Total 124,304 $691,406 [1] - Note: Price elasticity is estimated and is a range of Plus: Targeted Additional Stage 4 Costs (Residential Share)$152,988 impacts and will vary based upon the block being impacted, the price of water and the season Target - Total Revenue $3,813,316 $ Difference ($3,121,909) Voluntary Savings Impacts Price Elasticity Savings Impact Check of Elasticity Impacts from Assumed Rates STAGE 4 STAGE 4 - REQUIRED TOTAL SAVINGS 19 of 19 700 SW Higgins Avenue, Suite 200 Missoula, MT 59803T 406.532.2200 hdrinc.com We practice increased use of sustainable materials and reduction of material use. © 2017 HDR, Inc., all rights reserved.