HomeMy WebLinkAboutE- Packet 06-11-2007_City of Bozeman Water Rate Study for FY2008-FY2012_15
Commission Memorandum
REPORT TO: Honorable Mayor and City Commission
FROM: Anna Rosenberry, Finance Director
Debbie Arkell, Public Services Director
Chris Kukulski, City Manager
SUBJECT: Adoption of the City of Bozeman Water Rate Study for FY2008-FY2012,
prepared by HDR Engineering, Inc.
MEETING DATE: June 11, 2007
BACKGROUND: On March 26, 2007, HDR Engineering presented the Commission with
the results of their study of Water Rates. During that public presentation, HDR addressed the
rate increases needed over the next five years and proposed a number of options for changes in
the city’s rate structures. Since that time, HDR has issued the final Draft Report “City of
Bozeman – Comprehensive Water Rate Study.” To paraphrase the report, the proposed water
rates are cost-based and were developed using “generally accepted” rate making methods and
principles. They have been adjusted to reflect the results of the cost of service analysis. They
also include an inverted or tiered rate to encourage more efficient outdoor use by residential
customers.
Best Practices for commercial customer conservation are discussed in detail, beginning on page
3-21 of the report.
136
HDR Engineering recommends, and staff concurs, with both implementing the cost-of-service
rates for all customers and water conservation rates for residential customers.
RECOMMENDATION: Adopt the City of Bozeman – Comprehensive Water Rate Study.
Direct staff to prepare the necessary resolutions and to schedule Water Rate Public Hearings for
a Commission meeting in July.
FISCAL EFFECTS: Taking the recommended action has no direct fiscal impact at this
point. Once the rate resolutions are adopted after public hearings, the recommended rates for
FY2008 would result in:
• Approximate 5% decrease for average Residential Customers (not high usage).
• Approximate 6% increase for Commercial Customers.
The proposed rates are designed to enable our water utility to operate in a financially sound and
prudent manner, with overall rate increases of 2.6% in FY2010, 2.6% in FY2011, 2.6% in 2012.
ALTERNATIVES: As suggested by the City Commission.
Respectfully submitted,
_________________________________ _________________________________
Anna Rosenberry, Finance Director Debbie Arkell, Public Services Director
_________________________________
Chris A. Kukulski, City Manager
Report compiled on June 5, 2007
Attachments: March 26, 2007 - Rate Presentation Slides
Comprehensive Water Rate Study
137
Draft Report
City of Bozeman
Comprehensive Water Rate Study
April 2007
Prepared by:
HDR Engineering, Inc.
138
April 10, 2007
Ms. Anna Rosenberry, CPA
Finance Director
City of Bozeman
411 E Main Street
P.O. Box 1230
Bozeman, Montana 59771-1230
Dear Ms. Rosenberry:
Please find attached the draft final report on the comprehensive water rate study prepared by
HDR Engineering, Inc. (HDR) for the City of Bozeman (City). The conclusions and
recommendations contained within this report are intended to enable the City’s water utility to
operate on a prudent and financially sound basis.
This report has been developed from the City’s data and information utilizing generally accepted
rate-setting techniques. The findings, conclusions and recommendations of this report provide
the basis for the development of fair and equitable water rates for the City.
We appreciate your assistance, along with that of the City’s management team and staff in the
development of this report. We look forward to the opportunity to provide other technical
assistance in the future.
Sincerely yours,
HDR Engineering, Inc.
Tom Gould
Vice President
139
Table of Contents i
City of Bozeman – Comprehensive Water Rate Study
Contents
Executive Summary
Introduction .................................................................................................................. ES-1
Key Water Rate Study Results ..................................................................................... ES-1
Overview of the Rate Study Process ............................................................................ ES-1
Prudent Financial Planning .......................................................................................... ES-2
Summary of Water Rate Study Results ....................................................................... ES-3
Summary ...................................................................................................................... ES-7
1 Introduction
1.1 Introduction .......................................................................................................... 1-1
1.2 Overview of the Rate Study Process .................................................................... 1-1
1.3 Organization of the Study .................................................................................... 1-2
1.4 Summary .............................................................................................................. 1-2
2 Overview of Utility Rate Setting Principles
2.1 Introduction .......................................................................................................... 2-1
2.2 Global Principles in Which Rates Should Be Set ................................................ 2-1
2.3 Methods of Accumulating Costs for Water Revenue Requirements ................... 2-2
2.4 Overview of Cost Allocation Procedures ............................................................ 2-2
2.5 Economic Theory and Rate Design ..................................................................... 2-3
2.6 Prudent Financial Planning .................................................................................. 2-3
2.7 City Financial/Rate Setting Policies .................................................................... 2-5
2.8 Summary .............................................................................................................. 2-6
3 Development of the Water Utility Rate Study
3.1 Introduction .......................................................................................................... 3-1
3.2 Development of the Water Revenue Requirements ............................................. 3-1
3.3 Water Cost of Service Analysis ........................................................................... 3-8
3.4 Water Rate Designs............................................................................................ 3-14
3.5 Summary of the Water Rate Study .................................................................... 3-20
Technical Appendix
140
Executive Summary ES-1
City of Bozeman – Comprehensive Water Rate Study
“The objective of the
comprehensive rate study
was to develop a financial
plan and cost-based rates
necessary to meet the City’s
operation and maintenance
needs and the capital
improvement program for
the water utility.”
Executive Summary
Introduction
HDR Engineering (HDR) was retained by the City of Bozeman (City) to conduct a
comprehensive water rate study. The objective of the comprehensive rate study was to develop a
financial plan and cost-based water rates necessary to meet the
City’s operation and maintenance (O&M) needs and the
capital improvement program for the water utility. This study
determined the adequacy of the existing water rates and
provides the framework for any needed future rate
adjustments.
In developing this study the capital improvement plan projects
were major cost drivers for the study. The amount and timing
of these projects were key in establishing the financial revenue
requirements for the water utility.
Key Water Rate Study Results
Based upon the technical analysis undertaken as a part of this study, the following findings,
conclusions and recommendations were noted.
Minimum water reserve levels are recommended to increase financial stability.
Maintain water capital funding from rates equal to or greater than depreciation to ensure
adequate funding for replacement of existing infrastructure.
Revenue requirements were developed for a six-year period of fiscal year 2007 through
2012. The City’s overall revenue levels for 2007, 2008 and 2009 appear adequate.
However, rate adjustments of 2.6%/year are recommended for 2010, 2011 and 2012.
Based upon the findings of the water cost-of-service analyses conducted, it appears that there
are some interclass differences (customers slightly under or over-paying). A slow ramping-
in of interclass changes or cost of service adjustments is recommended.
At this time, no major change in the water rate structure is recommended, except to add a
tiered rate structure for residential customers to encourage efficient outdoor water use.
Provided below is the executive summary of the analyses undertaken for the City and the
findings, conclusions and recommendations reached as a result of this study.
Overview of the Rate Study Process
A comprehensive rate study consists of three interrelated analyses. Table ES-1 provides an
overview of these analyses.
141
Executive Summary ES-2
City of Bozeman – Comprehensive Water Rate Study
Table ES-1
Overview of the Comprehensive Rate Analyses
A comprehensive review of the City’s water rates was undertaken using each of the analyses
shown above. In this process, the water utility was evaluated on a “stand-alone” basis. That is,
no subsidies between other utilities should occur. By viewing the water utility on a stand-alone
basis, the need to adequately fund both O&M and capital infrastructure must be balanced against
the rate impacts to customers.
Prudent Financial Planning
In developing revenue requirements, the City’s budget documents are used as the initial starting
point. However, within the development of the revenue requirements, the analysis should also
consider prudent financial planning criteria. The prudent financial planning criteria considered
during the development of this study were as follows:
ESTABLISHING A MINIMUM FUNDING LEVEL FOR CAPITAL PROJECTS FUNDED FROM
RATES – Prudent financial planning dictates that a utility should fund a certain portion of
capital improvement projects from rates on an on-going basis. The general financial
guideline used is that at a minimum, a utility should fund an amount equal to or greater than
annual depreciation expense.
ESTABLISHING A MINIMUM DEBT SERVICE COVERAGE RATIO – The debt service coverage
ratio is an important financial measure that is reviewed by bond rating agencies and banks to
evaluate a utility’s ability to make debt service payments. While the City will have a legal
obligation to meet a specified minimum DSC, for financial planning purposes it is prudent to
plan around meeting a debt service coverage ratio that is above the minimum (e.g. 1.50 –
1.75).
ESTABLISHING MINIMUM RESERVE LEVELS – The City should strive to maintain a cash
balance sufficient to meet the total operating expenses for the water utility in order to provide
sufficient cash flow to meet daily operating expenses.
Revenue Requirement Analysis
Cost of Service Analysis
Rate Design Analysis
Compares the revenue of the utility to the
expenses to determine the overall rate
adjustment required
Allocates the revenue requirements to the
various customer classes of service in an
equitable manner
Considers both the level and structure of the
rate design to collect the appropriate and
targeted level of revenues
142
Executive Summary ES-3
City of Bozeman – Comprehensive Water Rate Study
“An important aspect
of the water revenue
requirements was the
proper and adequate
funding of capital
improvements.”
These prudent financial planning practices were used within the City’s study. In addition to
these financial planning criteria, certain financial policies related to rate setting were also
examined. These policies closely following the prudent financial planning criteria noted above.
Summary of the Water Rate Study Results
In conducting the water rate study, the three analyses of a comprehensive rate study were
conducted; a revenue requirement analysis, a cost of service analysis and the design of rates.
Provided below is a summary of each analysis.
Water Revenue Requirement Analysis – The development of the water revenue requirements
was the first analysis undertaken. This analysis is used to determine the overall adequacy of the
water utility revenues (rates).
For this particular analysis, the revenue requirements were developed for the six-year time
period of 2007 – 2012. The City’s analysis utilized the “cash-basis” approach to accumulate
costs. The cash basis approach sums the water utility’s O&M expenses, taxes, debt service and
capital improvements from rates to determine the overall funding
requirements. This approach is the most commonly used
methodology to set revenue requirements.
An important aspect of the water revenue requirements was the
proper and adequate funding of capital improvements. The City’s
capital improvement plan was used as a starting point. The capital
improvement projects were designated by the City as either water
fund or impact fee (growth) related projects. The City has planned during the period of 2008 –
2012 approximately $29.7 million in water fund capital improvements and $12.8 million in
growth related capital improvements. The funding for the planned water fund capital
improvements is from rates, reserves and $8.0 million dollars in State Revolving Fund loans.
The funding for the water growth related capital improvements is from water impact fees and
reserves.
A general financial guideline that can be used to determine proper funding levels for capital
improvements from rates is that, at a minimum, a utility should fund an amount equal to or
greater than annual depreciation expenses. The City has historically had a policy of funding at
least 100% or more of annual depreciation expense within their rates for renewal and
replacement capital projects. This higher level of funding attempts to close the gap between the
difference between replacement cost and the level of rate funding based on original cost
(depreciation expense).
A summary of the water revenue requirement analysis is provided below in Table ES-2.
143
Executive Summary ES-4
City of Bozeman – Comprehensive Water Rate Study
Table ES-2
Summary of the Water Revenue Requirement Analysis (000’s)
2007 2008 2009 2010 2011 2012
Revenues
Retail Sales $5,103 $5,691 $5,975 $6,274 $6,587 $6,916
Other Revenue 367 379 392 403 420 434
Total Revenues $5,470 $6,070 $6,367 $6,677 $7,007 $7,350
Expenses
O&M Expenses $3,053 $3,236 $3,428 $3,631 $3,788 $3,952
Rate Revenues Dedicated to CIP 2,324 2,741 2,877 3,016 3,200 3,300
Current Debt Service 93 93 62 30 15 15
New Debt 0 0 0 0 305 611
Total Revenue Requirement $5,470 $6,070 $6,367 $6,677 $7,308 $7,878
Balance/(Deficiency) of Funds ($0) ($0) ($0) ($0) ($301) ($528)
Bal./(Def.) as a % of Rates (Cumulative) 0.0% 0.0% 0.0% 0.0% 4.6% 7.6%
Proposed Annual Rate Adjustments 0.0% 0.0% 0.0% 2.6% 2.6% 2.6%
Add’l Revenue From Rate Adj. $0 $0 $0 $163 $343 $539
Bal./(Def.) of Funds After Rate Adj. $0 $0 $0 $163 $42 $11
It should be noted that the balance or deficiencies in any single year are cumulative. That is, any
adjustments in the initial years will reduce the deficiency in the following years. Over the six-
year period, rates need to be adjusted by approximately 7.6% in order to adequately and properly
fund the City’s water utility O&M and capital infrastructure needs. To implement the needed
adjustments, a water transition plan was developed. It has been recommended that rates be
adjusted by 2.6% in 2010, 2011 and 2012.
Provided below in Table ES-3 is the relative impacts of the proposed adjustments to an average
residential customer.
Table ES-3
Water Utility – Six Year Rate Transition Plan
2007 2008 2009 2010 2011 2012
Present Average Monthly
Residential Water Bill [1]
$35.30
Proposed Water Rate Adjustments 0.0% 0.0% 2.6% 2.6% 2.6%
Projected Average Monthly
Residential Water Bill $35.30 $35.30 $36.22 $37.16 $38.13
$ Change Per Month $0.00 $0.00 $0.92 $0.94 $0.97
Cumulative $ Change Per Month $0.00 $0.00 $0.92 $1.86 $2.83
[1] Average bill was assumed a 3/4” meter with 10 CCF
144
Executive Summary ES-5
City of Bozeman – Comprehensive Water Rate Study
Water Cost of Service Analysis – A water cost of service analysis is concerned with the
equitable allocation of the total water revenue requirements to the various customer classes of
service of the utility. The objectives of the water cost of service analysis are different from
determining revenue requirements. A revenue requirement analysis determines the utility's
overall financial needs, while the cost of service study determines the "fair and equitable”
manner to collect those revenue requirements. A summary of the water utility cost of service
analysis is shown within Table ES-4.
Table ES-4
Summary of the Water Utility Cost of Service Analysis for 2008 ($000’s)
Classes of Service
Present Rate
Revenues
Allocated
Costs
$
Difference
%
Difference
Residential $2,837 $2,533 ($304) -10.7%
Low-Income 5 9 4 74.4%
Multi-Family 1,171 1,176 5 0.4%
Commercial 1,043 1,314 271 26.0%
Government 99 136 37 38.1%
Montana State University 531 518 (13) -2.4%
Unmetered 5 5 (1) -11.3%
Total $5,691 $5,691 $0 0.0%
The cost of service results indicate that some cost differences do exist between the major
customer classes of service. A general rule is that a customer class is paying their fair allocation
of costs if the costs of service results are within +/- 5.0% of the overall adjustment. It is
recommended that a slow ramping in of interclass cost of service adjustments should be made
over time. As a result of this decision, each class of service will be adjusted in the design of the
proposed rates not more than +/-10.0%. Residential will be adjusted -5.0%,
Commercial/Government +10.0%, Multi-Family/MSU/Unmetered 0.0%. By definition, low-
income should be below cost, and show the need for a large adjustment. For that reason, no cost
of service adjustment is made to the low-income customer class of service.
Water Rate Design – The revenue requirement and cost of service results indicate that a priority
of the City should be to generate an adequate level of funding for the water utility. Therefore,
the revenue requirement results were the basis for establishing cost-based rates for the utility. At
the present time, the City has seven water classes of service. The current customer classes of
service for rate purposes are residential, low-income, multi-family, commercial, government,
Montana State University, and unmetered. The present rate structure is composed of a base rate
(meter) charge and a consumption charge. Presented below in Table ES-5 is a summary of the
present (2007) water rate schedules.
145
Executive Summary ES-6
City of Bozeman – Comprehensive Water Rate Study
Table ES-5
Summary of the 2007 Present Water Rates
Rate Component Present Rate
Meter Charge (Monthly)
3/4" $12.60/Month
1” 16.07
1-1/4” 20.00
1-1/2” 24.00
2” 34.04
3” 57.42
4” 90.95
6” 165.45
8” 260.45
Consumption Charge ($/CCF)
Residential $2.27
Low-Income $2.27
Multi-Family $1.57
Commercial $1.29
Government $1.34
Montana State University $1.78
[1] – CCF of water = One hundred cubic feet of water. 1 CCF of water = 748 gallons
A high priority of the City is to encourage efficient use of water, particularly as it relates to
outdoor water use by residential customers. The City’s current water rate structure does not
provide a particularly strong conservation price signal for residential customers and for outdoor
use. This study considered other alternative rate structures to further strengthen the conservation
price signal. A three-step inverted block rate structure for residential customer is recommended
as a starting point for strengthening the City’s efforts in this area. In developing this
recommendation, it is important to note there was insufficient bill frequency data to adequately
determine the full impact on rate revenues with this tiered rate structure. Tiered rate structures
have greater issues with revenue stability then the City’s current rate structure, and for that
reason the City should be cautious in the pricing used for the tail or highest use block. Presented
below in Table ES-6 is a summary of the proposed water rates.
146
Executive Summary ES-7
City of Bozeman – Comprehensive Water Rate Study
Table ES-6
Summary of the Proposed Water Rates
Present
Rate 2008 2009 2010 2011 2012
Meter Charge (Monthly)
3/4" $12.60 $12.60 $12.60 $12.60 $12.60 $12.60
1” 16.07 16.57 16.69 16.90 17.31 18.56
1-1/4” 20.00 20.73 20.92 21.22 21.84 23.67
1-1/2” 24.00 25.80 26.25 26.99 28.49 32.98
2” 34.04 37.35 38.18 39.56 42.32 50.60
3” 57.42 64.28 65.99 68.85 74.57 91.71
4” 90.95 102.86 105.84 110.80 120.72 150.50
6” 165.45 190.90 197.26 207.87 229.08 292.71
8” 260.45 301.60 311.89 329.04 363.33 466.21
Consumption Charge ($/CCF)
Residential $2.27
Low-Income 2.27
0 – 7 CCF $2.05 $2.05 $2.10 $2.15 $2.21
8 – 15 CCF 2.20 2.20 2.26 2.32 2.38
Over 15 CCF 2.60 2.60 2.67 2.74 2.81
Multi-Family 1.57 1.57 1.57 1.61 1.65 1.69
Commercial 1.29 1.38 1.38 1.42 1.46 1.50
Government 1.29 1.38 1.38 1.42 1.46 1.50
Montana State University 1.34 1.43 1.43 1.47 1.51 1.55
The inverted or tiered rate structure proposed for the residential class of service has sized the
blocks around indoor use (0 – 7 CCF), efficient outdoor use (8 – 15 CCF) and inefficient outdoor
use (over 15 CCF). These blocks sizes are based upon an assumed or typical residential
customer’s usage characteristics.
It will be noted that the study has not recommended an inverted or tiered block rate structure for
the multi-family, commercial, government and university customer classes of service.
Conservation and efficient use can be achieved in a number of different ways, and price is one of
those methods. However, the adoption of an inverted block rate structure for these customers
would be problematic in that for these specific customers, greater consumptive use does not
necessarily imply inefficient or wasteful use. To achieve water conservation and efficient use,
non-residential customers may best be addressed by individual water audits or technical
advice/assistance. Commercial conservation through a more comprehensive conservation
program is discussed later in the rate design section of the report.
A full and complete discussion of the development of the comprehensive water rate study and
the proposed rate designs can be found in Section 3 of this report.
147
Executive Summary ES-8
City of Bozeman – Comprehensive Water Rate Study
Summary
The previous discussion has provided an executive summary of the rate analyses undertaken for
the City’s water utility. In summary, it was concluded that the City’s water rates appear to be
fair and equitable and set at a level that generally meets the City’s current overall costs. The
City should consider the establishment of formal written financial/rate setting policies to aid in
establishing future rates. Included within this report are Technical Appendices, which
documents all the analyses undertaken, along with our findings, conclusions and
recommendations.
148
Introduction 1-1
City of Bozeman – Comprehensive Water Rate Study
“The objective of the rate
study was to develop
financial plans and cost-
based rates necessary to
meet the City’s operation
and maintenance needs and
the capital improvement
program for the utility.”
Section 1
Introduction
1.1 Introduction
HDR Engineering, Inc. (HDR) was retained by the City of Bozeman (City) to conduct a
comprehensive water rate study. The objective of the rate study
was to develop financial plans and cost-based rates necessary to
meet the City’s operation and maintenance (O&M) needs and
the capital improvement program for the utility. This study
determined the adequacy of the existing water rates and
provides the framework for any needed future adjustments.
In developing this study the City’s water capital improvement
plan was a major cost driver for the study. The amount and
timing of these projects were important to the establishment of
the financial revenue requirements.
1.2 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 water 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 Rate Analyses
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 rate adjustment required
Allocates the revenue requirements 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
149
Introduction 1-2
City of Bozeman – Comprehensive Water Rate Study
1.3 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
water rates. The following sections comprise the City’s water rate study report:
Section 2 – Overview of Utility Rate Setting Principles
Section 3 – Development of the Water Rate Analyses
A Technical Appendices is attached at the end of this report, which details the various water rate
analyses that were used in the preparation of this report.
1.4 Summary
This report will review the comprehensive water rate analyses prepared for the City of Bozeman.
This report has been prepared utilizing “generally accepted” water 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 water rates for the City.
150
Overview of Utility Rate Setting Principles 2-1
City of Bozeman – Comprehensive Water Rate Study
“In developing and
establishing utility rates,
there are “generally
accepted” principles or
guidelines around which
rates should be set.”
Section 2
Overview of Utility Rate Setting Principles
2.1 Introduction
A major objective of conducting a comprehensive rate study is to determine the adequacy of the
existing water rates and provide the basis for any needed adjustments to meet operating and
capital needs of the City. At the same time, the study reviewed the fairness and equity of the
current water rates.
In developing and establishing utility rates, there are “generally accepted” principles or
guidelines around which rates should be set. This section of the
report provides a general overview of the methodology and
guidelines used for setting cost-based rates for the utility. This
should give the reader a better understanding of the general
process that is detailed later in this report. In addition, this
section of the report discusses the issues of “prudent” financial
planning and the use of established financial policies to aid in
establishing the City’s rates.
2.2 Global Principles in Which Rates Should Be Set
As a practical matter, there should be a general set of principles around which rates should be
set. These guiding principles may be items such as setting rates that are cost-based, equitable,
and easy to administer. These types of principles may be referred to as “global principles” since
they should be utilized by all utilities in the development of their rates.
Provided below is a brief listing of the global principles around which the City should consider
setting its water rates:
Rates should be cost-based and equitable, and set at a level able to meet the full revenue
requirements of the utility.
Rates should be easy to understand and administer.
Rates and the process of allocating costs should conform to generally-accepted rate setting
techniques.
Rates should be stable, in their ability to provide adequate revenues to meet the utility’s
financial, operating, and regulatory requirements.
Rate levels should be stable from year to year from the customer’s perception.
These guiding principles were utilized within this study to help develop water rates that are cost-
based and equitable.
151
Overview of Utility Rate Setting Principles 2-2
City of Bozeman – Comprehensive Water Rate Study
2.3 Methods of Accumulating Costs for Water Revenue
Requirements
The convention used by most public utilities to establish their revenue requirements is called the
“cash basis” approach of setting rates. As the name implies, a public utility aggregates its cash
expenditures for a period of time to determine its required revenues from user rates and other
forms of income. This methodology conforms nicely to most public utility budgetary
requirements, and is a very straightforward and easily understood calculation. Operation and
maintenance expenses are added to any applicable taxes or transfer payments to determine total
operating expenses. Capital costs are calculated by adding debt service payments (principal and
interest) to capital improvements financed with operating rate revenues. Depreciation expense is
sometimes included in lieu of this latter item to stabilize annual revenue requirements. Under
the “cash basis” of accounting, the sum of the capital and operating expense equals the utility’s
revenue requirement during any period of time. It should be noted 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 of their
capital facilities with long-term debt. Table 2-1 may be helpful in summarizing the “cash basis”
methodology.
Table 2-1
Overview of the “Cash Basis” Methodology
+ O&M Expense
+ Taxes/Transfer Payments
+ Capital Additions Financed with Rate Revenues (≥ Depreciation Exp.)
+ Debt Service (P+I)
= Total Revenue Requirements
2.4 Overview of the Cost Allocation Procedures
After the total revenue requirement has been quantified and determined, it is allocated to the
users of the service in a manner that reflects the cost relationships incurred for the production
and delivery of the services. This analytical exercise usually takes the form of a “cost of
service” study.
A cost of service study is a three-step approach. First, costs must be functionalized or grouped
into the various cost categories related to the providing of service (e.g. for a water utility; source
of supply, treatment, transmission, distribution, etc.). This step is largely accomplished by the
utility’s accounting system. The next step is the classification of the functionalized costs.
Classification refers to the arrangement of the functionalized data into cost components. For a
water utility, these are typically, capacity-related, commodity (flow)-related, public fire
protection-related and customer-related component costs. Each of the cost components are
allocated to the various customer classes of service based upon each customer class’ relative
contribution to the specific cost component. For example, customer related costs are allocated
proportionally to each class of service based upon the total number of customers in that class of
152
Overview of Utility Rate Setting Principles 2-3
City of Bozeman – 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."
service. Once the costs are allocated to each class of service, a measure of the required level of
rate revenues from each class of service to achieve cost-based rates can be determined.
2.5 Economic Theory and Rate Design
The design of the proposed water rates for adoption by the City concludes the rate study process.
The rate design process utilizes the results of both the revenue requirement and cost of service
analysis to develop rates that achieve the overall goals and objectives of the City. These goals
and objectives may include consideration of cost-based rates, but may also consider items such
as ability to pay, continuity of past rate philosophy, conservation, encouragement of economic
development, ease of administration, legal requirements, etc. It is important to understand that
cost of service is only one goal or objective in designing final water rates, however, it is an
important one.
While the general description of the utility rate setting process discussed in this section of the
report is greatly simplified and abbreviated, it does however address the basic elements of
contemporary regulatory thinking. 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. The implications of this statement on utility rate
design are significant. For example, capacity-related costs are
usually incurred by a water utility to meet peak use requirements.
Thus, the customers causing peak demands should properly pay
for the demand-related facilities in proportion to their
contribution to maximum demands. Recent emphasis on seasonal
and marginal cost-based utility rates are movements in a direction
that embrace this economic concept. Through refinement of
costing and pricing techniques, consumers of a product are given a more accurate price signal of
what the commodity costs to produce and deliver. The above basic thoughts have considerable
foundation in economic literature. They also serve as primary guidelines for rate design by most
utility regulators and administrative agencies. This “price-equals-cost” concept will provide the
basis for much of the subsequent analysis and comment.
2.6 Prudent Financial Planning
In developing revenue requirements, the City’s budget documents are used as the initial starting
point. However, within the development of the revenue requirements, the analysis should also
consider prudent financial planning criteria. There are three key financial indicators that should
be considered in the development of all utility financial plans or revenue requirement analyses.
These three financial planning criteria are: establishing minimum funding levels for capital
projects funded from rates, establishing a minimum target debt service coverage ratio, and
establishing minimum reserve levels. The following discussion provides a brief overview of
each of these financial planning indicators.
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ESTABLISHING MINIMUM RESERVE LEVELS
Reserve levels are a crucial part of a utility’s financial picture. Typically utilities maintain
several different types of reserve funds. These may include: an operating reserve, a capital
(replacement) reserve, an emergency or contingency reserve, and a rate stabilization reserve.
Each of these reserves has its own financial, operating or legal requirements which may set
an established minimum reserve level (e.g. a bond reserve). A key aspect of reviewing
reserve levels was determining target minimum levels for the City’s current reserves. It is
important to remember that when reserves fall below the targeted minimum level,
management should review the cause of the declining reserves and determine what action, if
any, should be taken. Maintenance of minimum reserve levels should not, on its own, trigger
the need for a rate adjustment. However, after two consecutive years of diminishing reserves
as a result of under-recovery of costs, rates should be reviewed.
ESTABLISHING A MINIMUM FUNDING LEVEL FOR CAPITAL PROJECTS FUNDED FROM
RATES
Prudent financial planning dictates that a utility should fund a certain portion of capital
improvement projects from rates on an on-going basis. The general financial guideline used
is that at a minimum, a utility should fund an amount equal to or greater than annual
depreciation expense. However, there are three reasons for increasing the level of capital
funding through rates. The first is that funding levels over and above depreciation expense
better reflect actual replacement cost. Second, increasing the level of capital funding from
rates will help provide cash flow to fund the capital plan in future years, and minimize any
long-term borrowing needs. Finally, an increased level of capital funding will have the
added benefit of strengthening the utility’s debt service coverage ratio.
ESTABLISHING A MINIMUM TARGET DEBT SERVICE COVERAGE RATIO
The debt service coverage ratio is an important financial measure that is reviewed by bond
rating agencies and banks to evaluate a utility’s ability to make debt service payments. For
revenue bonds, there is typically a legal requirement (rate covenant) to meet a minimum debt
service coverage ratio. The debt service coverage ratio is calculated by subtracting total
O&M and taxes from total revenues. The resulting figure is the balance available for debt
service payment. The balance available for debt service is then divided by the annual debt
service obligations (payments) to determine the debt service coverage ratio. For a revenue
bond, most bond covenants require meeting a minimum coverage ratio of 1.25 – 1.30. While
the City would have a legal obligation to meet the minimum, for financial planning purposes
it is prudent to plan around meeting a debt service coverage ratio that is above the minimum
(e.g. 1.50 – 1.75). In that way, if the utility has any negative financial fluctuations (e.g.
cool/wet summer, low sales/revenues); they will be much more assured of meeting the
required minimum. At the same time, by planning around a higher debt service coverage
ratio, the City will appear financially stronger to the bond rating agencies, which may
translate into an improved bond rating and lower interest rates on borrowing. Bond rating
agencies do not want utilities to financially plan around simply meeting the minimum.
The above key financial planning criteria are main drivers in the City’s study. Other prudent
financial planning criteria beyond those cited above were used within the City’s study. As the
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“By establishing
financial/rate setting
policies, it provides City
management with clear
policy direction concerning
these key financial
measures and parameters.”
“One of the major financial
challenges in the utility industry
is the need to properly maintain
utility infrastructure. Across the
U.S., the water utility industry is
seeing more systems that are
deteriorating and are
inadequately funded.”
study is discussed in more detail, these other financial planning criteria will be discussed at that
time.
2.7 City Financial/Rate Setting Policies
As a part of the comprehensive rate study process, it is important to understand the key
objectives the City was striving to achieve and the policy issues that needed to be addressed by
the study. By establishing financial/rate setting policies, it provides City management with clear
policy direction concerning these key financial measures and
parameters. At the same time, it should also lead to more
stable rates over time as a consistent set of financial policies
are used to establish the City’s rates.
Provided below is a brief discussion of each of the key
financial/rate setting policy issues addressed as a part of this
study. The key policy issues provided a decision framework
for key areas of the study.
OPERATING RESERVES – THE CITY SHOULD STRIVE TO MAINTAIN A CASH BALANCE THAT IS
SUFFICENT TO MEET DAILY OPERATING EXPENSES.
Cash working capital, or operating reserves, is needed to meet daily cash flow needs, and to
minimize reliance on short-term borrowing. For the water utility it was determined that
minimum operating reserve levels of 45 days of annual operating expenses were needed for
that purpose. This financial measure is equivalent to approximately 12% (45 days / 365
days).
CAPITAL RESERVE – THE CITY SHOULD STRIVE TO MAINTAIN A CAPITAL RESERVE.
The capital reserve should be set at a minimum level equal to the amount of the utilities
annual depreciation expense.
MINIMUM FUNDING OF CAPITAL OUTLAY PROJECTS FROM RATES– THE CITY SHOULD
ANNUALLY BUDGET AND FUND A REASONABLE AMOUNT OF THE COST FOR “DEPRECIATION”
OF CAPITAL ASSETS AS AN EXPENSE WITHIN THE UTILITY’S OPERATING BUDGET.
One of the major financial challenges in the utility
industry is the need to properly maintain utility
infrastructure. Across the U.S., the water utility
industry is seeing more systems that are deteriorating
and are inadequately funded. Therefore, this policy is
designed to properly fund a capital program that will
help to assure system reliability and efficiency. A well
thought out and fully funded replacement program will
extend the life of the City’s utility system and in turn
reduce infrastructure costs over the long-term. A utility
should fund a certain portion of capital improvement projects from rates on an on-going
basis. A general financial guideline that can be used to determine minimum funding levels
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for capital improvements funded from rates is an amount equal to or greater than annual
depreciation expense.
MINIMUM DEBT SERVICE COVERAGE RATIO – THE CITY SHOULD STRIVE FOR A MINIMUM
DEBT SERVICE “COVERAGE” RATIO NECESSARY TO SATISFY ITS OUTSTANDING REVENUE
BOND COVENANTS
The debt service coverage (DSC) ratio is a financial measure of the utility’s ability to repay
outstanding debt. Typically, a utility must maintain a minimum of a 1.25 DSC on
outstanding revenue bond debt. Failure to meet the minimum DSC for an outstanding debt
obligation is considered to be technical default, making the bonds callable or payable upon
demand. Therefore, it is critical that the utility meet this legal requirement. For the City, the
net revenue of the combined utilities (gross revenue of the utilities less operating and
maintenance expenses) must currently equal at least 1.25 times the City’s annual revenue
bond debt service payments. It is recommended that the City target a minimum DSC of 1.50
for financial planning purposes.
COMPREHENSIVE UTILITY RATE STUDIES – COMPREHENSIVE UTILITY RATE STUDIES
SHOULD BE CONDUCTED AT LEAST EVERY FIVE YEARS TO UPDATE ASSUMPTIONS AND
ENSURE LONG-TERM SOLVENCY AND VIABILITY OF THE CITY’S UTILITIES.
The City’s systems and costs change over time. It is prudent for the City to conduct a
comprehensive rate study at least every five (5) years. It should be noted that the use of five
years should tie to the comprehensive (master) planning period.
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, techniques, and economic theory
were the basis for the rate study and the foundation used to meet the City’s key objectives in
establishing their water rates. At the same time, the City reviewed and established a set of
financial/rate setting policies to aid in adequately and consistently establishing their water rates.
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“Typically, one of the main
objectives of a water rate
study is to develop
equitable water rates while
attempting to minimize the
impacts to the utility’s
customers.”
Section 3
Development of the Water Rate Study
3.1 Introduction
This section of the report will discuss the rate analysis developed for the City’s water utility. A
key objective or goal of a water rate study is to develop water rates that are “fair and equitable”
and adequately fund the operating and capital requirements of the utility. In this process, the
water utility should be viewed as a "stand alone" entity capable of financially supporting its own
operating and capital needs.
In developing a comprehensive water rate study, three interrelated analyses were conducted for
the City. First, a revenue requirement analysis was conducted to determine the overall funding
needs of the water utility. Next, the cost of service analysis provided a method to equitably
allocate the City’s water revenue requirements between the various types of customers (e.g.
residential, commercial, etc.). Finally, given a determination of the level of funding required and
a method to equitably allocate costs, rates can be designed to collect the appropriate level of
revenues, while considering any other City rate design objectives (e.g. conservation, revenue
stability, etc.). This section of the report will review each of these analytical steps of the
comprehensive water rate study and discuss the key assumptions, findings and conclusions of
each. At the end of this section of the report, the proposed water rates are provided.
3.2 Development of the Water Revenue Requirements
The development of revenue requirements is the first step in the rate study process. A revenue
requirement analysis determines the adequacy of the overall level of water rates. From this
analysis, a determination can be made as to the level of water
rate adjustment needed to provide adequate and prudent
funding for both operating and capital needs.
The City’s budget documents, consumption data, and capital
improvements plan were used to complete the revenue
requirements. In this process, a number of items were
calculated independently of the City’s budget document.
Specifically, these items were the projection of rate revenues,
excise taxes and reserve levels. Provided below is a detailed discussion of the development of
the water utility revenue requirements.
3.2.1 Determination of Time Period and Method of Accumulating Costs
The initial step in calculating the revenue requirement for the water utility was to establish a
“test period”, or time frame of reference for the revenue requirement analysis. For this particular
study, the revenue requirements were developed for a six-year projected time period (2007 –
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2012). This time period captured the City’s major capital projects over the next few years.
Reviewing a multi-year time period is generally 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 water rate
impacts and water rates over the long-term.
In developing the City’s revenue requirements, a “cash basis” approach was utilized. While
Section 2 provided a brief overview of the “cash basis” approach, this method of establishing the
City’s water revenue requirements has been “tailored” to follow the City’s system of accounts
(budget documents). While it has been “tailored” to follow the City’s budgeting approach, it still
contains the major cost components of the “cash basis” methodology. Table 3-1 provides a
summary of the approach that was used to develop the City’s water revenue requirements.
Table 3-1
Overview of the Water Utility Revenue Requirements
+ Operation and Maintenance Expenses
9 Treatment
9 Reservoirs
9 Operations
9 Utility Locates
9 Water Service
9 Meter Reading
9 Hydrants
9 Water Valves
9 Main Repairs
+ Net Capital Improvements Funded From Rates (calculated below) [1]
+ Debt Service (P+I) Existing and Future
= Total Water Revenue Requirements
[1] Net Capital Improvements Funded From Rates
+ Total Water Capital Improvement Projects
– Funding Sources Other Than Rates
9 Impact Fees
9 Grants
9 Low-Interest State Loans
9 Long Term Debt Issues
= Net Capital Improvements Funded From Rates [1]
Given a time period around which to develop the revenue requirements, and a method to
accumulate the costs, the focus can shift to the projection of revenues and expenses for the City’s
water utility. The primary financial inputs in this process were the City’s historical billing
records, the City’s capital improvement plan and the City’s 2006 budgeted expenses.
3.2.2 Water Rate and Other Miscellaneous Revenues
The revenue requirement calculation begins with a projection of rate revenues at present rate
levels. This process involved developing projected billing units for each customer class of
service (e.g. residential, commercial, etc.) based on historical usage records and an assumed
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“A general financial guideline
that can be used to determine
proper funding levels for
capital improvements from
rates is that, at a minimum, a
utility should fund an amount
equal to or greater than
annual depreciation expense.”
annual growth rate. The billing units are then applied (multiplied) against the current rates to
calculate the projected rate revenue. This method of independently calculating revenue ensures
consistency in the revenue and consumption figures that are used throughout the rate study
process.
The revenue at present rates was
calculated using historical consumption
data. The present rates were then
calculated for each year based on the
specific rate schedule for that year. The
revenues at present rates were
calculated separately for historical FY
2006. FY 2007 was estimated based on
historical 2006 customer class loads
and a 5.0% growth rate. Projected
revenues for 2007 thru 2012 were based upon an assumed 5.0% customer growth rate.
The water utility also receives a variety of miscellaneous revenues unrelated to the sale of water.
These revenues are received from sources such as inspections, service charges, and interest
income. Miscellaneous revenues vary by year, but are fairly level during the planning period. In
2007, the City is projected to receive approximately $5.4 million in total revenues.
3.2.3 Projection of Water Operation and Maintenance Expenses
In general, operation and maintenance expenses are grouped into functional areas or services
(e.g. operations, meter reading, etc.). Escalation factors were developed for the various types of
expenses that the City incurs: power, labor, materials and supplies, equipment, miscellaneous,
and electricity. The escalation factors applied range from 2% to 10% per year. The higher
escalation factor reflected the significantly higher costs associated with medical benefits.
The City’s 2006 budgeted expenses were used as a starting point to project future O&M
expenses. Future year projections were calculated by applying an applicable escalation factor.
The current O&M levels are approximately $3.0 million per year. This is expected to escalate
over the study’s planning horizon to almost $4.0 million.
3.2.4 Projection of Water Capital Improvement Projects and Funding
An important aspect of the water revenue requirements
was the funding of capital improvements. The City
anticipates approximately $42.5 million in capital
expenditures for the water utility over the planning period
of 2008 - 2012. There are a number of different methods
that may be used for the City’s replacement and growth-
related capital projects. Among the methods that may be
used to finance these capital improvement projects are
long-term debt, impact fees, grants, capital reserves and
rates. It is through the use of a combination of these
financing resources that the City can minimize their rates through time.
Projected 2007 Water Rate Revenues
By Class of Service ($ Millions)
$3,597
$935$89$477
Residential
Commercial
Government
MSU
Projected 2007 Water Rate Revenues
By Class of Service ($ Millions)
$3,597
$935$89$477
Residential
Commercial
Government
MSU
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“Historically, the City has
funded 100% or more of
annual depreciation
expense for renewal and
replacement funding.”
A general financial guideline that can be used to determine proper funding levels for capital
improvements from rates is that, at a minimum, a utility should fund an amount equal to or
greater than annual depreciation expenses. Annual depreciation expense reflects the current
investment in plant that is being depreciated or “losing” its useful life. Therefore, this portion of
plant investment needs to be replaced (funded) to maintain the existing level of infrastructure. It
must be kept in mind that, in theory, annual depreciation expense reflects an investment in
infrastructure an average of fifteen (15) years ago, assuming a 30-year useful (depreciable) life.
Simply funding an amount equal to annual depreciation expense will not be sufficient to replace
the existing or depreciated facility. Therefore, consideration should be given to funding within
rates some amount greater than annual depreciation expense for renewals and replacements.
Whenever possible, the City should be funding capital projects from rates in an amount that is
actually greater than annual depreciation expense.
Historically, the City has funded 100% or more of annual
depreciation expense for renewal and replacement funding.
Failure to fund at least 100% of depreciation will require the use
of long-term borrowing to fund the difference between
replacement cost and rate funding, or unfortunately, the deferral
of maintenance projects due to a lack of adequate funding. The
water utility industry currently has billions of dollars of deferred
maintenance due to a failure to properly and adequately fund this important component of rates.
For purposes of this study, the level of funding has been maintained at the City’s current level.
Provided below in Table 3-2 is a summary of the water utility capital improvement projects.
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Table 3-2
Overview of the Water Capital Improvement Plan (000’s)
Description 2007 2008 2009 2010 2011 2012
Capital Outlays – Water Fund
Water Plant Treatment -
Sourdough Tank Repairs $0 $200 $0 $0 $0 $0
3/4 Ton 4X4 Pickup 0 35 0 0 0 0
22 MG Water Treatment Plant 902 133 1,000 1,000 10,000 10,000
Sourdough Water Intake/Tank Improv. 0 0 200 0 0 0
Sourdough Creek Dam/Water Rights 0 4 0 0 0 0
Water Operations 1,421 1,736 750 90 797 90
Unidentified CIP 0 810 927 1,926 0 0
Total Capital Outlays for Water Fund $2,323 $2,918 $2,877 $3,016 $10,797 $10,090
Capital Outlays - Impact Fee
Shops Complex - Phase I $0 $990 $0 $0 $0 $0
22 MG Membrane Water Treatment Plant 0 67 500 500 5,000 5,000
Sourdough Creek Dam 0 50 0 0 0 0
Sourdough Creek Drainage Water Rights 0 16 0 0 0 0
5.3 MG Concrete Water Reservoir 0 0 0 0 0 0
Lyman – Exp. Groundwater Collection 0 700 0 0 0 0
New Transmission Main from WTP 0 0 0 0 0 0
Total Capital Outlays for Impact Fee $0 $1,823 $500 $500 $5,000 $5,000
Total Capital Outlays $2,323 $4,741 $3,377 $3,516 $15,797 $15,090
Less: Funding Sources
From Operating Reserve Fund $0 $0 $0 $0 $0 $1,000
From Capital Reserve Fund 0 177 0 0 3,597 1,790
SRF Loan for WTP 0 0 0 0 4,000 4,000
Impact Fees 0 $1,823 500 500 5,000 5,000
Total Funding Sources Other than Rates $0 $1,823 $500 $500 $5,000 $5,000
Rate Revenues Dedicated to CIP $2,323 $2,741 $2,877 $3,016 $3,200 $3,300
[1] – Detail of the water capital improvement projects can be found in the Water Technical Appendices
As noted previously, the City anticipates approximately $42.5 million in capital expenditures for
the water utility over the five-year period of 2008 – 2012. This equates to approximately $8.5
million per year in capital improvement projects. Of the $42.5 million in projects, approximately
$29.6 million is related to water fund improvements and $12.8 million in impact fee (growth-
related) improvements, during 2008 - 2012. The majority of funding for the planned water fund
capital improvements is from rates and $8.0 million dollars in State Revolving Fund loans.
Approximately $15.1 million of the total water fund projects is funded from rates. The balance
of the water fund projects will be funded from existing reserves. In contrast to this, the funding
for the water impact fee (growth-related) improvements will come from water impact fees and
reserves.
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“A very positive aspect of this
portion of the study is that it
indicates that the City’s
current rates are actually
funding 100%or more of
annual depreciation expense
in 2007.”
3.2.5 Projection of Debt Service Payments
Debt service relates to the principal and interest obligations of the water utility when financing
capital projects with a long-term debt issue. The City currently has two Lyman Creek Water
Revenue Bond issues outstanding. The total annual debt service payments for these loans are
approximately $92,000 per year. The first bond will be fully paid in 2009, requiring only a
$30,000 debt service payment annually thereafter.
3.2.6 Summary of the Water Revenue Requirements
The above components came together to develop the overall
water revenue requirements for the City. In developing the
final revenue requirements, consideration was given to the
financial planning criteria of the City. In particular,
emphasis was placed on attempting to minimize rates, yet
still providing adequate funds to support the City’s O&M
activities, along with the planned capital projects throughout
the projected time period. A summary of the water revenue
requirements is shown below in Table 3-3.
Table 3-3
Summary of the Water Revenue Requirement Analysis (000’s)
2007 2008 2009 2010 2011 2012
Revenues
Retail Sales $5,103 $5,691 $5,975 $6,274 $6,587 $6,916
Other Revenue 367 379 392 403 420 434
Total Revenues $5,470 $6,070 $6,367 $6,677 $7,007 $7,350
Expenses
O&M Expenses $3,053 $3,236 $3,428 $3,631 $3,788 $3,952
Rate Revenues Dedicated to CIP 2,324 2,741 2,877 3,016 3,200 3,300
Current Debt Service 93 93 62 30 15 15
New Debt 0 0 0 0 305 611
Total Revenue Requirements $5,470 $6,070 $6,367 $6,677 $7,308 $7,878
Balance/(Deficiency) of Funds ($0) ($0) ($0) ($0) ($301) ($528)
Bal./(Def.) as a % of Rates (Cumulative) 0.0% 0.0% 0.0% 0.0% 4.6% 7.6%
Proposed Annual Rate Adjustments 0.0% 0.0% 0.0% 2.6% 2.6% 2.6%
Add’l Revenue From Rate Adj. $0 $0 $0 $163 $343 $539
Bal./(Def.) of Funds After Rate Adj. $0 $0 $0 $163 $42 $11
In reviewing Table 3-3, it should be noted that the annual deficiencies are cumulative. That is,
any adjustments in the initial years will reduce the deficiency in the latter years. The results of
the water revenue requirements indicate a small deficiency of funds by the end of the projected
six-year time period. Given the assumed inflation of costs over the projected time horizon, this
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Composition of the 2007
Water Revenue Requirements
48%
15%0%
37%
O&M
Current Debt
New Debt
CIP from Rates
Composition of the 2007
Water Revenue Requirements
48%
15%0%
37%
O&M
Current Debt
New Debt
CIP from Rates
result would be expected. The increase of rate revenues as a result of customer growth has also
helped to minimize the need for any rate adjustments.
A very positive aspect of this portion of the study is that it indicates that the City’s current rates
are actually funding 100% or more of
annual depreciation expense in 2007.
However, over the six year period,
increasing costs will erode the
existing balance of funds and by 2012
the deficiency of funding is
approximately $529,000 or 7.6% of
rates. This level of deficiency over
the time period is very manageable.
Detailed exhibits of the water revenue
requirement analysis prepared for the
City are provided in Technical Appendices at the end of this report.
3.2.7 Debt Service Coverage
A debt service coverage (DSC) ratio is a financial measure of the utility’s ability to repay
outstanding debt. A debt service coverage ratio of 1.25 is generally considered the legally
acceptable minimum for a revenue bond.1 Therefore, this implies that the City should have a
debt service coverage (DSC) ratio that is greater than 1.25 for all outstanding revenue bonds.
Failure to meet this DSC requirement would be considered a “technical default” on the part of
the City, making the revenue bonds callable or payable upon demand. Therefore, it is critical
that the City meet this legal requirement. On this basis, the net revenue of the combined utilities
(gross revenue of the utilities less operating and maintenance expenses) must currently equal at
least 1.25 times the City’s annual revenue bond debt service payments.
Table 3-4 provided a summary of the calculation of debt service coverage ratios. For the water
utility, on a stand-alone basis, the utility easily meets its coverage requirements.
Table 3-4
Summary of Revenue Bond Debt Service Coverage Ratios
2007 2008 2009 2010 2011 2012
Water Revenue Bond DSC Ratios –
Before Rate Increase 26.00 30.48 47.77 101.33 10.05 5.43
After Proposed Rate Increase 26.00 30.48 47.77 106.75 11.12 6.29
1 "Legally" as used herein, refers to the contractual agreement between revenue bondholders and the City to assure
repayment of the bonds, and to financially operate the utility in such a manner as to maintain the City’s debt service
coverage ratio above a specified minimum. This minimum debt service coverage ratio is a specified covenant of the
bond resolution for the revenue bond.
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“In reviewing the results
of the water revenue
requirement analysis with
City management, it was
determined that a 2.6%
rate adjustment should be
proposed for 2010, 2011,
and 2012”.
As can be seen from the above table, the City easily meets the debt service coverage test. This is
primarily a function of the low amount of debt service currently carried by the City, along with
the strong level of capital improvement funding from rates.
3.2.8 Rate Transition Plan
The purpose of the rate transition plan was to set the size and timing of the water rate
adjustments to meet the City’s needs, but also to help minimize impacts to customers. The
proposed rate transition plan for the water utility is shown in Table 3-5.
Table 3-5
Water Utility – Six Year Rate Transition Plan
2007 2008 2009 2010 2011 2012
Present Average Monthly
Residential Water Bill [1]
$35.30
Proposed Water Rate Adjustments 0.0% 0.0% 2.6% 2.6% 2.6%
Projected Average Monthly
Residential Water Bill $35.30 $35.30 $36.22 $37.16 $38.13
$ Change Per Month $0.00 $0.00 $0.92 $0.94 $0.97
Cumulative $ Change Per Month $0.00 $0.00 $0.92 $1.86 $2.83
[1] Average bill was assumed a ¾” meter with 10 CCF
As Table 3-5 indicates, the current average residential bill for a City customer is $35.30/month.
The proposed rate adjustments will change the average residential bill to $38.13 per month by
2012, or a $2.83/month overall change.
3.2.9 Summary and Recommendations of the Revenue Requirements
Based upon the water revenue requirement analysis developed
herein, it is projected that the City’s water utility will operate
at a slight deficiency during the six-year period of 2007 –
2012. The total level of deficiency is projected to be
approximately $539,000 or 7.6% by 2012. In reviewing the
results of the water revenue requirement analysis with City
management, it was determined that a 2.6% rate adjustment
should be proposed for 2010, 2011, and 2012 (Table 3-5).
This concludes the discussion and review of the water
revenue requirement analysis. Given the findings and recommendations from this analysis, the
focus now shifts to the water cost of service analysis.
3.3 Water Cost of Service Analysis
A water cost of service analysis is concerned with the equitable allocation of the total water
revenue requirements to the various customer classes of service of the utility. There are two
primary objectives in conducting a cost of service study. They are as follows:
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Terminology of a
Water Cost of Service
Analysis
FUNCTIONALIZATION – The
arrangement of the cost data by
functional category (e.g. supply,
treatment, etc.).
CLASSIFICATION – The
assignment of functionalized
costs to cost components (e.g.
base, extra-capacity, customer,
and fire protection related).
ALLOCATION – Allocating the
classified costs to classes 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 usage. Facilities
are often designed and sized
around meeting peak demands.
FIRE PROTECTION COSTS - Costs
that are related to fire protection
systems (e.g. hydrants).
CUSTOMER COSTS – Costs
classified as customer related
vary with the number of
customers on the system (e.g.
metering costs).
DIRECT ASSIGNMENT – Costs
that can be clearly identified as
belonging to a specific customer
or group of customers.
CUSTOMER CLASSES OF SERVICE
– The grouping of customers
into similar groups based upon
usage characteristics and/or
facility requirements.
Allocate the water revenue requirements among the
customer classes of service
Derive average unit costs for subsequent water rate designs
The objectives of the water cost of service analysis are different
from determining revenue requirements. A revenue requirement
analysis determines the utility's overall financial needs, while
the cost of service study determines the equitable manner to
collect those revenue requirements. Provided below is a more
detailed discussion of the overall approach used, along with the
findings and conclusions of the study.
3.3.1 Customer Classes of Service
One of the first tasks that must be accomplished in the cost of
service analysis is to determine the customer classes of service
to be reviewed. The objective of this task is to group customers
together into similar or homogeneous groups based upon facility
requirements and/or flow characteristics. For this study, the
following customer classes of service were utilized:
Residential
Low-Income
Multi-Family
Commercial
Governmental
Montana State University
Unmetered
The water cost of service conducted for the City utilized a three-
step approach to review costs. These three steps are:
functionalization, classification, and allocation. Provided below
is a more detailed discussion of each of these analytical steps of
the water cost of service study performed for the City.
3.3.2 Functionalization of Costs
The first analytical step in the water cost of service is called
functionalization. Functionalization is the arrangement of
expenses and asset (plant) data by major operating functions
within the utility (e.g. wholesale purchases/supply, pumping,
transmission, distribution, etc). Within this study, the
functionalization of the water cost data was largely
accomplished through the City’s system of accounts.
3.3.3 Classification of Costs
The second analytical step in the water cost of service study is
the classification of costs. Classification determines why the
expenses were incurred or what type of need is being met. The
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City’s plant accounts and revenue requirements were reviewed and classified according to the
following cost classifiers as part of the water utility cost of service study.
Commodity-Related Costs. Commodity-related costs are those costs that tend to vary with
the total quantity of water consumed by a customer. The cost of electricity associated with
pumping water is an example of a commodity-related cost, since these costs tend to vary
based upon the total flow of water.
Capacity (Demand) Related Costs. Capacity costs are those costs incurred to meet peak
demand conditions. These costs are a function of meeting maximum demand requirements
of the customers. Capacity may be defined by the peak period event, but is typically defined
as peak day and/or peak hour requirements. Capacity related costs are important since they
are related to the sizing of facilities that meet these peak use requirements. For example,
portions of distribution reservoirs and mains (pipes) must be adequately sized to meet peak
use demands.
Customer Related Costs. Customer costs are those costs that 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 customer. In contrast to this, a weighted customer cost
reflects a disproportionate cost, from customer to customer, with the addition or deletion of a
customer.
Public Fire Protection Related Costs. Public fire protection costs are those costs that are
related to the public fire protection function. Usually, such costs are those related to public
fire hydrants and the over-sizing of mains and reservoirs for fire protection purposes.
Revenue Related Costs. Certain costs associated with the water utility may vary with the
amount of revenue received by the City. An example of a revenue related cost is a tax based
upon the gross revenues of the utility.
Direct Assignments. Some costs associated with operating the system may be directly
traced to a specific customer or class of service (e.g. bad debt expense). In this case, these
costs are then “directly assigned” to that specific class of service. This assures that other
classes of service will not be allocated costs for those “significant” facilities that they do not
benefit from, or costs that they did not incur.
For each of the classified costs noted above, an allocation factor must be developed to allocate
each specific type of cost in an equitable manner to the customer classes of service (e.g.
residential, commercial, etc.).
A more detailed discussion of the specific cost of service methodology used for the City is
provided below.
3.3.4 Functionalization and Classification of Water Plant in Service
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The City’s historical plant records were used in performing the functionalization of water plant
in service. The classification process included reviewing each group of assets and determining
which cost classifiers the assets were related to, or what function the asset (facility) provided.
Source of supply is based on the average day versus peak day use of the City’s system to meet
volume and capacity needs. The amount of volume required to meet average day demand is
considered to be commodity related. The balance of peak use requirements is considered
capacity related. This approach resulted in a classification of source of supply that was 42.0%
commodity-related and 58.0% capacity-related. This indicates that the City has a fairly high
peak day demand in relation to their average day demand.
Storage reservoirs are typically designed to meet two types of basic needs—capacity needs and
public fire protection needs. The total storage capacity of the City’s water reservoirs was
examined and consideration given to the capacity required for fire protection purposes under a
“worst case” scenario. This amount of capacity, in relation to the total storage capacity, is
considered to be public fire protection related. The balance of storage capacity is considered to
be capacity related. This approach resulted in a classification of reservoirs that was 88.0%
capacity-related and 12.0% public fire protection related.
Pumping and transmission facilities are typically sized around meeting both average day and
peak day capacity requirements. Therefore, pumping and transmission facilities were classified
as 58% capacity related and 42% commodity related.
For most utilities, a vast majority of their investment is in water distribution plant. Water
distribution lines (mains) are typically assumed to meet three types of needs on the system;
customer-related, capacity-related, and public fire protection-related needs. First, a distribution
system is a function of the number of customers that it serves, and must also be in place to meet
a customer’s minimum requirements for water. This portion of the distribution main plant
investment is considered customer-related or a function of the number of customers on the
system. Next, a portion of the distribution main investment is considered a function of meeting
peak flow demand requirements on the system. Distribution mains must be sized to adequately
meet the peak flow (capacity) requirements of the customers. This portion of the distribution
main plant investment is considered capacity-related. Finally, even during a peak day or peak
hour events, distribution mains must also be over-sized for fire flow requirements. This final
portion of over-sizing for distribution main investment is classified as public fire protection-
related. The analysis for the City’s distribution mains resulted in a classification of 65.0%
capacity-related, 26.0% customer-related, and 9.0% public fire protection related.
Table 3-6 shows a summary of the basic functionalization and classification of the City’s major
water plant items.
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Table 3-6
Summary of the Classification of Water Utility Plant in Service
Plant Component Commodity Capacity
Actual
Customer
Weighted
Customer
Fire
Protection
Direct
Assignment
Source of Supply 42% 58% – – – –
Storage – 88% – – 12% –
Pumping 42% 58% – – – –
Distribution Mains – 65% 26% – 9% –
Meters/Services – – – 100% – –
Hydrants – – – – 100% –
The above table represents a summary of the classification of major accounts. A more detailed
review of the classification of the water plant in service can be found in the Water Technical
Appendices.
3.3.5 Functionalization and Classification of Operating Expenses
Operating expenses are generally functionalized and classified in a manner similar to the
corresponding plant account. For example, maintenance of distribution mains is typically
classified in the same manner (percentages) as the plant account for distribution mains. This
approach to classification of operating expenses has been used for this analysis. In particular,
source of supply expenses were classified as 42% commodity-related and 58% capacity-related.
This classification is related to the average day versus peak day use of the City’s system.
For the City’s study, the 2008 water revenue requirements were functionalized and classified
utilizing the previously discussed methodology. A more detailed review of the functionalization
and classification of revenue requirements can be found in the Water Technical Appendices.
3.3.6 Allocation of the Revenue Requirements
Once the classes of service have been defined, and the classification process is complete, the
various costs are then allocated to each of the classes of service based on equitable allocation
factors. The City’s classified water costs were allocated to the various classes of service using
the following allocation factors.
Commodity-Related Allocation Factor. Commodity-related costs vary with the flow of
water. Therefore, commodity-related costs were allocated to the various customer classes of
service using the City’s 2006 water sales (consumption). Water sales were projected forward
from this historical billed consumption. This information was provided by the City from
their billing system.
Capacity-Related Allocation Factor. Capacity-related costs vary with peak use or
maximum demands on the system. Accordingly, the capacity allocation factor was
developed based upon each classes assumed contribution to the system peak day demand. In
developing this allocation factor, the City did not have City-specific measured information
on individual customer class contributions to the City’s peak day event. Given that, the
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peaking factors, by class of service, were used to estimate the contribution of the each class
of service to the peak event. The peaking factors for each customer class of service were
initially calculated (estimated) by taking the ratio of the average month to peak month
consumption. This ratio was assumed to be a reasonable surrogate of peaking factors for
each customer class of service. The calculated total system peak demand was compared to
the actual (historical) system peak demand to assure reasonableness of the peaking factors
for each class of service.
Customer Allocation Factors. 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 upon the projection of the
number of customers developed within the revenue requirements. The weighted customer
allocation factor is also broken down further into two factors that attempt to reflect the
disproportionate costs associated with serving larger water users. 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 larger customers. The second weighted customer allocation factor is for meters and
services. This factor attempts to reflect that different costs associated with providing larger
sized meters.
Public Fire Protection Allocation Factor. The allocation of public fire protection expenses
in the water cost of service analysis involved an analysis of each class of service and their
fire flow requirements. The analysis took into account the gallon per minute flow
requirements in the event of a fire, along with the required duration of the flow. The fire
flow rates used within the allocation factor were based upon the planning guidelines in the
City’s Water System Plan. For this study, it has been assumed that the minimum fire flow
requirement for a residential customer is 1,500 gallons per minute (gpm) and 2,500 gpm for
the commercial customer. The minimum fire flow requirements are then multiplied by the
number of customers in each class of service, and the assumed duration, in minutes, of the
required flow, to determine the class’s prorated fire flow requirements.
Revenue Related Allocation Factor. The revenue related allocation factor was developed
from each customer class’ projected annual rate revenues for 2008. This same amount of
revenue was used in the revenue requirement analysis.
The water utility allocation factors noted above can be found in the Water Technical
Appendices.
3.3.7 Summary of the Water Cost of Service Results
The summary of the allocated costs determine each class’s overall cost responsibility. The
allocated costs are then compared to the present revenue received from each customer class to
determine the cost difference between current rates and the cost of service for each class. This
difference in costs is compared to present rate levels to determine the adjustment needed
(increase or decrease) to have cost-based rates. A summary of the water cost of service analysis
developed for each class of service is shown within Table 3-7.
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“The cost of service
did note some cost
differences associated
with serving the City’s
different customer
groups.
Table 3-7
Summary of the Water Utility Cost of Service Analysis for 2008 ($000’s)
Classes of Service
Present Rate
Revenues
Allocated
Costs
$
Difference
%
Difference
Residential $2,837 $2,533 ($304) -10.7%
Low-Income 5 9 4 74.4%
Multi-Family 1,171 1,176 5 0.4%
Commercial 1,043 1,314 271 26.0%
Government 99 136 37 38.1%
Montanan State
University 531 518 (13) -2.4%
Unmetered 5 5 (1) -11.3%
Total $5,691 $5,691 $0 0.0%
The allocation of costs attempted to assure that the facilities and costs allocated to each customer
class reflected their respective benefit. The cost of service results indicate that cost differences
do exist between the major customer classes of service. Generally, plus or minus 5% of the
overall system average adjustment is considered to be within the “range of reasonableness” and
indicate that a class of service is paying their “cost of service.”
3.3.8 Summary Conclusions and Recommendations of the Cost of
Service
The cost of service did note some cost differences associated with serving the City’s different
customer groups. Therefore, it was determined that interclass cost of service adjustments should
slowly be ramped in over time. As a result of this decision, each class of service will be adjusted
within an overall +/- 10% in the design of the proposed rates. A slow ramping in of interclass
cost of service adjustments should be made over time. As a result of this decision, each class of
service will be adjusted in the design of the proposed rates not more than +/- 10.0%. Residential
will be adjusted -5.0%, Commercial/Government +10.0%, Multi-Family/MSU/Unmetered 0.0%.
Low-income will not be adjusted since, by definition, they should show the need for a large rate
adjustment. By definition, the low-income customer class of service has a below-cost rate.
It must be kept in mind that a cost of service analysis reflects
costs and usage characteristics of a specific point in time, and as
time goes on, customer’s consumption patterns and usage
requirements change. Given that consumption patterns and costs
change over time, only through continual analysis, can one fully
understand the true cost of providing service. Given the results of
the water cost of service analysis, the focus will now shift to the
development of the proposed water rate designs.
3.4 Water Rate Designs
The final step of the comprehensive water rate study process is the design of water rates to
collect the desired level of revenue, based upon the findings and recommendations of the water
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“There are various “generally
accepted” rate structures that
can be used to establish or
develop water rates. The
initial starting point in
considering a water rate
structure is the relationship
between fixed costs and
variable costs.”
revenue requirement and cost of service analysis. In reviewing water rate designs, consideration
is given to the level of the rates and the structure of the rates. This portion of the report will
review the proposed water rate designs for the City.
3.4.1 Overview of Water Rate Structures
There are various “generally accepted” rate structures that can be used to establish or develop
water rates. The initial starting point in considering a water rate structure is the relationship
between fixed costs and variable costs. Fixed costs are generally collected as a fixed charge on a
monthly basis (e.g. $5.00 per month/meter). This charge may be called by various names (e.g.
customer charge, meter charge, readiness to serve charge, etc.), but in all cases, it is intended to
collect those fixed costs that the utility incurs, regardless of the customer’s level of consumption.
The most basic form of a fixed customer charge is a flat monthly fixed cost. While the charge is
a fixed cost, it may also vary and increase by meter size. The rate at which the meter charge
increases is usually a function of the meter capacity.
While it was noted that there are different approaches that
can be used to collect fixed charges, the same can be said for
variable or volumetric charges. Variable charges are
generally based upon metered consumption and charged on
a $/unit cost. The unit of measurement may vary (e.g.
gallons, thousands of gallons, cubic feet, hundreds of cubic
feet, etc.), but it is not a critical element in the development
of the rates. This is because the charge per unit is simply
adjusted to reflect the units of measurement being used. In
other words, if you are charging $2.00 per 1,000 gallons,
and wanted to charge on a per gallon basis, the rate would
be 0.002¢/gallon. It is the structure of the variable charges where numerous options exist.
There are three basic rate structures for variable charges; a uniform charge, a declining block
charge and an inverted block charge. Table 3-8 provides an overview of each of these variable
charge rate structures.
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Table 3-8
Overview of the Various Variable Charge Rate Structures
As can be seen from Table 3-8, the basic philosophy of each of these variable charge rate
structures varies significantly. Under a uniform rate structure, the cost per unit does not change
with consumption. From the perspective of customer understanding and rate
administration/billing, this is a simple and straightforward approach. In contrast, the declining
block rate structure is a bit more complex. The number of blocks (e.g. 3 stepped blocks) and size
of the blocks (e.g. 0 – 10 CCF) may vary. However, the number of blocks should be reasonable
(i.e. 2 – 4 blocks) for reasons of simplicity and administration. Declining block rates may imply
that there are certain economies of scale with additional consumption, and not necessarily a
“volume discount.” Depending upon the utility, this may or may not be a true statement.
Finally, an inverted block rate structure attempts to send a price signal to consumers that their
consumption costs more, as more water is consumed. This may or may not be the proper price
signal regarding the utility’s water resource costs. As with the declining block rate structure, the
number and size of each block may vary, but should be reasonable for purposes of customer
understanding and rate administration.
The rate structure concepts noted above may be combined and used to form various rate design
options that meet the City’s needs. However, at the same time, the City must understand its
overall goals and objectives in designing final water rates.
UNIFORM RATE STRUCTURE
The cost per unit of consumption under a uniform rate
structure does not increase or decrease with additional
units of consumption
Usage
Per
Unit
Cost
DECLINING BLOCK RATE STRUCTURE
The cost per unit of consumption under a declining block
rate structure decreases with additional units of
consumption
Usage
Per
Unit
Cost
INVERTED BLOCK RATE STRUCTURE
The cost per unit of consumption under an inverted block
rate structure increases with additional units of
consumption
Usage
Per
Unit
Cost
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3.4.2 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 conservation, economic development, etc.)
Provide revenue stability from month to month and year to year
Promote efficient allocation of the resource
Equitable and non-discriminating (cost-based)
Many contemporary rate economists and regulatory agencies feel that the last consideration,
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 or usage is costing. This goal may be approached through rate level and structure.
When developing the proposed rate designs, all of 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 of 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 the various goals and objectives.
3.4.3 Review of Overall Rate Adjustments
As indicated in the revenue requirement analysis and the cost of service analysis, the priority for
the water utility was to adjust and transition the overall level of the water rates to meet the City’s
financial and rate policies. Therefore, the results of revenue requirement analysis were the
primary basis for establishing the proposed rate adjustments for the water utility. Table 3-9
provides a summary of the proposed water utility adjustments shown within the revenue
requirement analysis. In addition, since cost of service adjustments were recommended at this
time, the proposed 2008 rate adjustment will be applied among each of the customer classes of
service (rate schedules) based on cost of service results.
Table 3-9
Summary of the Proposed Water Rate Adjustments
2007 2008 2009 2010 2011 2012
Proposed Annual Rate Adjustments 0.0% 0.0% 0.0% 2.6% 2.6% 2.6%
3.4.4 Present Water Rates
The City currently has a six water rate schedules. All customers have the same fixed meter
charge based on the size of the meter. The consumption charge is a flat charge based on the
amount of consumption and varies in rate amongst the classes of service. The City’s present
water rates are shown below in Table 3-10.
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Table 3-10
Summary of the 2007 Present Water Rates
Rate Component Present Rate
Meter Charge (Monthly)
3/4" $12.60/Month
1” 16.07
1-1/4” 20.00
1-1/2” 24.00
2” 34.04
3” 57.42
4” 90.95
6” 165.45
8” 260.45
Consumption Charge ($/CCF)
Residential $2.27
Low-Income $2.27
Multi-Family $1.57
Commercial $1.29
Government $1.34
Montana State University $1.78
The above summary shows the present water rates. The focus now shifts to the development of
the proposed water rates.
3.4.5 Proposed Water Rates
In developing the proposed water rates, consideration was given to reviewing various rate
structures that might encourage more efficient water use and conservation. In particular, the City
wants to encourage more efficient outdoor watering. This study considered other alternative rate
structures to further strengthen the conservation price signal. A three tiered rate for residential is
recommended as a starting point for conservation. It is important to note that the City had
insufficient bill frequency data to determine the full impact on rate revenues with this tiered rate.
A bill frequency analysis provides a better understanding of the amount of consumption at the
various levels of usage.
In developing the proposed water rates, three key adjustments were made. First, for the
residential and low-income customers their volumetric (consumption) portion of the rate
structure was adjusted to an inverted or tiered block rate structure. This is intended to encourage
more efficient outdoor use by this customer group. The other major adjustment made is the cost
of service adjustments recommended within the water cost of service analysis. These
adjustments have also been made within the volumetric portion of the rate structure. For
example, it will be noted that the commercial rate has been adjusted from a $1.29/CCF to
$1.38/CCF in 2008. This level of adjustment is a movement towards a more cost-based rate for
this particular customer class of service. Finally, the City’s monthly base rate is based on service
line size. In general, this follows the “generally accepted” approach to establishing meter
charges. The difference in costs between the various meter sizes is typically weighted based on
meter or service line capacity. Currently the City has rates that vary by service line size, and are
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somewhat close to the AWWA meter capacity equivalencies but not in line with them. For
example, a 2” meter has capacity that is equal to eight (times) the capacity of a 3/4” meter. That
would imply that a 2” meter charge should be eight times the 3/4” charge. Therefore, the
proposed rates include phasing-in of the AWWA meter equivalencies, up to 50% of the
equivalency, by the end of the 2012 test period.
The multi-family class of service shows as lesser consumption charge than residential. This is
the result of multi-family using less irrigation resulting in a lower peak capacity factor to the
system. Presented below in Table 3-11 is a summary of the recommended water rates.
Table 3-11
Summary of the Proposed Water Rates
Present
Rate 2008 2009 2010 2011 2012
Meter Charge (Monthly)
3/4" $12.60 $12.60 $12.60 $12.60 $12.60 $12.60
1” 16.07 16.57 16.69 16.90 17.31 18.56
1-1/4” 20.00 20.73 20.92 21.22 21.84 23.67
1-1/2” 24.00 25.80 26.25 26.99 28.49 32.98
2” 34.04 37.35 38.18 39.56 42.32 50.60
3” 57.42 64.28 65.99 68.85 74.57 91.71
4” 90.95 102.86 105.84 110.80 120.72 150.50
6” 165.45 190.90 197.26 207.87 229.08 292.71
8” 260.45 301.60 311.89 329.04 363.33 466.21
Consumption Charge ($/CCF)
Residential $2.27
Low-Income 2.27
0 – 7 CCF $2.05 $2.05 $2.10 $2.15 $2.21
8 – 15 CCF 2.20 2.20 2.26 2.32 2.38
Over 15 CCF 2.60 2.60 2.67 2.74 2.81
Multi-Family 1.57 1.57 1.57 1.61 1.65 1.69
Commercial 1.29 1.38 1.38 1.42 1.46 1.50
Government 1.29 1.38 1.38 1.42 1.46 1.50
Montana State University 1.34 1.43 1.43 1.47 1.51 1.55
Given the proposed rate structures, a bill comparison was developed which compared the
residential bill under the present and proposed rates for varying levels of consumption. As can
be seen from the graph, users with low usage will actually see small decreases. This is a result
of the overall 5% reduction suggested by the cost of service. In contrast to this, large users will
actually see an increase in their bills. The increase associated with larger use customers may not
be as much or as aggressive as the City would initially believe may be needed. However, tiered
rate structures have greater issues with revenue stability then the City’s current rate structure,
and for that reason the City should be cautious in the pricing used for the tail or highest use
block.
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Comparison of Residential
Present and Proposed Bills
($/Month)
$0.00
$50.00
$100.00
CCF UsageMonthly Bill.Present Rates $12.60 $23.95 $35.30 $46.65 $58.00 $69.35 $80.70
Proposed Rates $12.60 $22.85 $33.55 $44.55 $57.55 $70.55 $83.55
0 5 10 15 20 25 30
In developing the block sizes for the residential rate structure, consideration was given to the
amount of water required for indoor and outdoor use. The first block, 7 CCF of water, is an
average amount of winter water for a City’s residential customers. Usage above this amount is
considered to be outdoor use. The second block of 8 CCF to 15 CCF should be adequate for
most residential customers for
outdoor watering needs. Finally,
usage over 15 CCF is considered
to be inefficient usage. As noted
previously, the City had
insufficient bill frequency data
to clearly determine the amount
of usage and revenues that may
be derived in the future from
each of these blocks. The
approach used by HDR has
assumed reasonable estimates of
the consumption in each block.
It will be noted that the study has not recommended an inverted or tiered block rate structure for
the multi-family, commercial, government and university customer classes of service.
Conservation and efficient use can be achieved in a number of different ways, and price is one of
those methods. However, the adoption of an inverted block rate structure for these customers
would be problematic in that for these specific customers, greater consumptive use does not
necessarily imply inefficient or wasteful use. The intent of inverted or tiered block rate
structures is to target inefficient discretionary use (i.e. outdoor watering), not particularly large
use customers. In fact, large use water customers are often the most water efficient customers,
since it may be a large proportion of a company’s operating costs. To achieve water
conservation and efficient use, non-residential customers may best be addressed by individual
water audits or technical advice and assistance. As a business or governmental agency, these
customers already have financial incentives to minimize their bills. Should the City find this not
to be the case, then other alternative rate structures may be appropriate. However, these
alternative rate structures are typically “individualized” to the customer and are much more
complex from an administrative and billing system perspective. An example of this type of rate
structure is an “individualized” inverted block rate structure for a commercial customer. To
implement this type of “individualized” rate structure, the City would need to analysis each
individual customer and have a billing system capable of keeping track of these individual
blocks sizes for each customer. For the vast majority of municipal utilities, this is often
considered too complex or expensive to implement (e.g. billing system modifications). For that
reason, it has not been suggested or recommended within this study at this time. A further
discussion of the ways of achieving commercial conservation is discussed below.
Based upon the proposed rate structure, the rates are designed to collect the overall target
revenue adjustments 2.6% per year for 2010, 2011, and 2012.
3.4.6 Commercial Conservation Best Practices
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Conservation is generally not focused on simply saving water, but rather, it is focused on
reducing or eliminating inefficient use. For the commercial class of customer, a large volume
user does not necessarily imply inefficient use. Given that, punitive pricing practices such as
inverted or tiered rates, such as those used for residential customers, may not be the most
effective tool to encourage conservation in the commercial sector. The City requested an
overview of commercial conservation best practices and examples of utilities that are meeting
this challenge.
Commercial conservation can be divided into two categories: domestic (toilets, urinals, sinks,
etc.) and all other (irrigation, industrial cooling processes, food service equipment, medical
equipment, etc). The following discusses commercial conservation programs in general and then
specific utility case examples.
Similar to residential conservation, education and incentives are an important element of
commercial conservation. At the same time, a commercial conservation program often reaches
out to the commercial sector via audits, newsletters, etc. to achieve target levels of conservation
and eliminate inefficient use.
The following discussion outlines conservation programs from the least to most costly. The costs
shown are only approximations which the City can use to consider the creation of a rebate
program. The easiest and least costly options for commercial conservation are on the domestic
conservation side. Rebates for replacing restroom faucet aerators providing 0.5 gpm cost
approximately $1.00 per fixture for the utility. Under the plumbing code, 0.5 gpm is the
maximum allowed for the Industrial, Commercial and Institutional (ICI) sector. The target
customer for this program would be existing customers with pre-code materials currently
installed. Older toilets typically use 3.5 gallons per flush (gpf). Replacing older, less efficient
toilets with Ultra Low Flow Toilets providing 1.6 gpf typically cost a utility $75 - $100 per toilet
for a rebate. The 1.6 gpf is the maximum allowed under current plumbing code. If a business
wants to install toilets which are more efficient than code, 1.0 gpf high efficiency toilets are
available. Rebates for these toilets typically range between $75 and $110.
The next category of conservation is the “other” and these options cost more than the domestic
conservation options. For irrigation systems, the most cost effective option for the utility will be
rain sensors installed in an automatic irrigation system to shut off irrigation when it is raining.
The approximate cost of rebates for rain sensors to the utility is $100. Target customers for this
potential rebate would be those with in-ground irrigation systems with automatic controllers.
Another option could be a partial rebate, typically seen at $250, for evapotranspiration-based
controllers, which will link the irrigation to weather conditions to shut off if it is raining or the
ground is still wet from a rain event. The potential savings for the evapotranspiration-based
controller to the customer is 15 percent on irrigation water over automatic controlled irrigation
systems saving the customer money and the utility water resources. Rebates can range from no
charge to the customer to some percentage of the total cost.
Another option under the “other” category is audits. These are the most costly to the utility to
perform as professional auditors perform the audit of the system and use of water. An indoor
domestic system audit can cost approximately $300 and cover potential improvements through
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hardware improvements or operational changes. Outdoor irrigation audits run approximately
$500. These audits can also identify more efficient use of water through hardware improvements
or operational changes. These audits are typically performed by professional landscape irrigation
auditors. A list of certified professionals by state can be found at www.irrigation.org. These
audits and recommended improvements can improve the efficiency of the customers’ irrigation
systems.
In discussing rebates and audit programs, an important distinction must be made in this
discussion. The City should be targeting “beneficial” conservation, not just “conservation.”
Beneficial conservation is cost-effective conservation in that the benefits to the utility exceed the
cost of the conservation measure. HDR, in providing this discussion, is not implying that all of
these conservation programs or measures may be “beneficial” conservation. The City, before
undertaking any commercial conservation program, should determine the cost and benefit of that
program or measure.
Several agencies were contacted to discuss best management practices of their commercial
conservation programs. The discussion below is an overview of each utility’s best management
practices as well as costs of savings to their customers if available.
Seattle Public Utilities – Seattle Public Utilities (SPU) promotes a “Regional 1% Conservation
Program”. The program includes the City of Seattle and a group of 17 utilities who purchase
wholesale water from the City of Seattle. The goal of the program is to keep water demand in the
year 2010 at the same level in the year as 2000, despite the anticipated growth expected in the
region. In other words, if each person and business becomes ten percent more water efficient
over the ten year period of 2000-2010, they anticipate saving approximately 11.0 MGD annually
in drinking water.
SPU also conducts workshops and classes in order to educate businesses on the value of
conservation. These classes include specific information on how different equipment can provide
significant savings in both water use and bills to the business. SPU also has a water supply
website which includes a “Supply Indicator” showing the status of the reservoirs and other water
supplies as well as tips for residential and business customers.
Rebates are another program in which SPU encourages businesses to participate. According to
SPU, in 2005 they spent $512,000 on the commercial irrigation program through rebates while
saving an average of 149,482 gallons per day, $3.43 a gallon a day saved.
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Other SPU measures and strategies:
Upgrading domestic water use fixtures, efficiency of industrial use equipment, and irrigation
equipment
Outreach to Chambers of Commerce and other business groups
Technical assistance, assessments and workshops
Bonus incentives to increase specific measure participation
Targeted promotion through vendors, trade groups, agencies, etc.
The above information was provided by Al Dietemann, Water Conservation Team Leader for
SPU. For more information on SPU’s water conservation programs see www.savingwater.org or
commercial conservation information at www.savingwater.org/business.htm.
City of Austin, Texas - The City of Austin is a leader in commercial conservation. Austin
Water Utility’s commercial program is successful due to the practice of targeting individual
businesses. A representative from the utility meets with larger businesses in the Austin area and
outlines how the business can improve their water conservation. For smaller business in the area,
group meetings are held for the same purpose. The utility representatives have spoken at energy
conservation conferences, schools, Earth Day events, church groups, etc. to get the word out
about the conservation programs available.
The Austin Water Utility works closely with the city permit department to identify what new
buildings are being constructed in the city. The new business or building representative is then
contacted to discuss conservation measures and equipment before the building is completed.
This way, efficient equipment is installed in the building during construction and conservation is
practiced from the beginning.
Rebates are also employed. The utility has several rebate programs for commercial water
customers. Examples of the rebates offered are listed below:
Rainwater harvesting system and rain barrel rebate program: Up to $5,000 per project toward
the cost of new and innovative technologies
Special commercial rebates: Covering the installation of new equipment and re-design of
manufacturing equipment up to $40,000. To qualify for this rebate the system must save at
least 300 gallons per day and remain in place for five years.
Free Toilet and Toilet Rebate Program: For hotels, motels, restaurants and office buildings,
$110 for purchase and installation of approved toilet.
The utility also distributes a newsletter to participating businesses. The newsletter includes
spotlights on specific businesses and their conservation successes as well as tips for improving
conservation. The utility focuses on the bottom line type of communication, not only showing
the savings to the business, but also showing they are a good steward of the environment.
On the rate side, the utility uses the winter consumption average and then allows businesses up
to 25 percent consumption above the winter average for their summer use. Anything above the
25 percent is then charged an additional (higher) rate.
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Other programs the utility offers are free irrigation system audits. A city auditor will check
underground sprinkler systems for leaks, water application rates, and adequate coverage to help
determine an efficient irrigation schedule. Customers can also receive a bill credit of up to
$1,000 for upgrading their irrigation system to an underground system with water conservation
features.
All above information was provided by Bill Hoffman with the Austin Water Utility. For more
information, the utility’s website www.waterwiseaustin.org provides information on their
commercial programs, their task force and new conservation initiatives the utility is enacting.
Denver Water – Denver Water has an Irrigation Efficiency Program for their large irrigation
customers. This program is for those able to save a minimum of one acre-foot of water in a
season by irrigating more efficiently by using evapotranspiration controllers, rain sensors or
subsurface driplines or if they modify their landscape with Xeriscape, reduced turf area, or soil
amendments. If the customer is able to save the acre-foot, they receive incentive payments from
Denver Water in the amount of $4,500/acre-foot/year, based on a five-year period to ensure the
sustainability of the project. These savings are also adjusted annually for weather variations
based on a control group of irrigation accounts. Denver Water also encourages the use of
separate irrigation taps where applicable.
The above information was provided by Cindy Moe, Industrial Water Conservation Engineer.
For further information on Denver Water’s commercial and industrial program and their rebates,
please go to
http://www.denverwater.org/cons_xeriscape/conservation/Commercial_IndustIncentivePrgm.ht
ml. Or you can also view their Best Management Practices at
http://www.denverwater.org/cons_xeriscape/conservation/BMPs_Commercial.html.
Other Sources of Information - Other sites providing detailed information on commercial
conservation include the California Urban Water Conservation Council www.cuwcc.org. This
organization is made up of utilities throughout California and lists best management practices
for the conservation of water and control of pollution in the rivers, lakes and bays of California.
East Bay Municipal Utility District (EBMUD) has a detailed section on their website
www.ebmud.com on the conservation programs they offer to their non-residential customers.
These include their WaterSmart Irrigation Controller Program, commercial rebates, and
conservation device distribution.
American Water Works Association provides water conservation information through
www.awwa.org/waterwiser. Information includes the latest resources on water conservation, a
reference section and education programs offered.
In summary, the City has a number of options that it may explore to begin to address the issue of
commercial conservation and inefficient use.
3.5 Summary of the Water Rate Study
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This section of the report has discussed the development and results of the comprehensive water
rate study conducted for the City. The results of the water rate study indicated that water rates
are slightly deficient for the projected time period reviewed. The implementation of rate
adjustments, as shown in the rate transition plan, should generate the additional revenue needed
to meet the City’s increased water operating and capital needs, along with the City’s financial
and rate setting policies.
The water rates, as proposed herein, are cost-based and were developed using “generally
accepted” rate making methods and principles. The proposed rates have been adjusted to reflect
the results of the cost of service, along with contemporary rate setting principles. This includes
an inverted or tiered rate to encourage more efficient outdoor use by residential customers. The
proposed rates should enable the City’s water utility to operate in a financially sound and
prudent manner.
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TECHNICAL APPENDIX
182
CITY OF BOZEMANCOMPREHENSIVE WATER RATE STUDYEXHIBIT 1DATA ASSUMPTIONSFY 06/07 FY 07/08 FY 08/09 FY 09/10 FY 10/11 FY 11/12Escalation Factors1 Revenues2 Rates4.00% 5.00% 5.00% 5.00% 5.00% 5.00% Per Facility Plan3 Other Revenues4.00% 4.00% 4.00% 3.00% 3.00% 3.00%4 56 Expenses7 Utilities3.00% 3.00% 3.00% 3.00% 3.00% 3.00%8 Labor3.85% 3.85% 3.85% 3.85% 3.85% 3.85% Per City9 Benefits - Medical4.00% 10.00% 10.00% 10.00% 10.00% 10.00% Per City10 Benefits - Other2.00% 2.00% 2.00% 2.00% 2.00% 2.00%11 Materials & Supplies3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 12 Chemicals9.00% 10.00% 10.00% 10.00% 10.00% 10.00% 5% + Growth13 Electricity7.00% 8.00% 8.00% 8.00% 8.00% 8.00% Materials & Supplies + Growth14 Natural Gas5.00% 5.00% 5.00% 5.00% 5.00% 5.00% 15 Gas & Oil5.00% 5.00% 5.00% 5.00% 5.00% 5.00%16 Equipment3.00% 3.00% 3.00% 3.00% 3.00% 3.00%17 Miscellaneous2.00% 2.00% 2.00% 2.00% 2.00% 2.00%Interest Income3.00% 3.00% 3.00% 3.00% 3.00% 3.00%New Debt Service (Actual debt issues shown in following exhibit) Revenue Bond Issue Term in Years 20 20 20 20 20 20 Rate 5.50% 5.50% 5.50% 5.50% 5.50% 5.50% New SRF Loans Term in Years 20 20 20 20 20 20 Rate 4.4% 4.4% 4.4% 4.4% 4.4% 4.4% HDR DRAFT 3/29/2007183
CITY OF BOZEMANCOMPREHENSIVE WATER RATE STUDYEXHIBIT 2SUMMARY OF WATER REVENUE REQUIREMENTSFY 06/07 FY 07/08 FY 08/09 FY 09/10 FY 10/11 FY 11/12RevenuesRetail Sales $5,102,717 $5,690,818 $5,975,099 $6,273,594 $6,587,014 $6,916,104Other Revenue 366,790 378,987 391,725 403,148 419,924 433,539 Total Revenues $5,469,507 $6,069,805 $6,366,824 $6,676,742 $7,006,938 $7,349,643 ExpensesO&M Expenses Treatment $1,305,540 $1,364,514 $1,426,955 $1,493,123 $1,563,299 $1,637,787 Reservoirs 117,352 122,482 127,897 133,617 139,664 146,061 Operations 1,193,992 1,297,650 1,406,118 1,519,682 1,582,482 1,648,510 Utility Locates 58,937 61,564 64,342 67,282 70,396 73,697 Water Service 36,050 37,132 38,245 39,393 40,575 41,792 Meter Reading 304,429 315,029 326,078 337,601 349,625 362,179 Hydrants 20,600 21,218 21,855 22,510 23,185 23,881 Water Valves 8,240 8,487 8,742 9,004 9,274 9,552 Main Repairs 7,725 7,957 8,195 8,441 8,695 8,955Rate Revenues Dedicated to CIP 2,323,680 2,740,811 2,876,885 3,016,028 3,200,000 3,300,000Current Debt Service 92,962 92,962 61,511 30,062 15,031 15,031New Debt 0 0 0 0 305,419 610,838 Total Expenses $5,469,507 $6,069,806 $6,366,824 $6,676,743 $7,307,644 $7,878,284Balance/(Deficiency) of Funds($0) ($0) ($0) ($0) ($300,706) ($528,641) REQUIRED RATE ADJUSTMENT (Cummulative) 0.0% 0.0% 0.0% 0.0% 4.6% 7.6%PROPOSED RATE ADJUSTMENT 0.0% 0.0% 0.0% 2.6% 2.6% 2.6% ADDITIONAL REVENUE WITH RATE ADJUSTMENT$0 $0 $0 $163,113 $342,525 $539,456 BALANCE/(DEFICIENCY) OF FUNDS($0) ($0) ($0) $163,113 $41,819 $10,815 ADDITIONAL RATE ADJUSTMENT REQUIRED 0.0% 0.0% 0.0% -2.5% -0.6% -0.1%Average Residential Rate (10 cf, 3/4" meter) [1] $35.30 $35.30 $35.30 $35.30 $36.22 $37.16Rate Impact with Increase $0.00 $0.00 $0.00 $0.92 $0.94 $0.97Total Monthly Rate with Increase $35.30 $35.30 $35.30 $36.22 $37.16 $38.13Debt Service Coverage Ratio [2] Before Rate Increase 26.00 30.48 47.77 101.33 10.05 5.43 After Proposed Rate Increase 26.00 30.48 47.77 106.75 11.12 6.29[1] Rate increase as of September 1, 2006[2] Water Revenue Bond is paid off in 05/06HDR DRAFT 3/29/2007184
CITY OF BOZEMANPage 1 of 8COMPREHENSIVE WATER RATE STUDYEXHIBIT 3SOURCES AND APPLICATIONS OF FUNDS FOR PROJECTED 2006 TO 2012FY 06/07 FY 07/08 FY 08/09 FY 09/10 FY 10/11 FY 11/12Notes SOURCES OF FUNDS Rate Revenues Residential $2,541,534 $2,837,374 $2,979,242 $3,128,205 $3,284,615 $3,448,846 Rates Low-Income 4,865 5,426 5,697 5,982 6,281 6,596 Rates Multi-Family 1,050,508 1,170,841 1,229,383 1,290,852 1,355,395 1,423,164 Rates Commercial 906,832 1,011,056 1,061,609 1,114,690 1,170,424 1,228,945 Rates Commercial - Special 28,213 31,460 33,033 34,684 36,418 38,239 Rates Government 87,951 97,556 102,434 107,555 112,933 118,580 Rates Government - Special 866 970 1,018 1,069 1,123 1,179 Rates Montana State University 476,749 530,935 557,482 585,356 614,624 645,355 RatesUnmetered Water Sales 5,200 5,200 5,200 5,200 5,200 5,200 No EscalationTotal Rate Revenues $5,102,717 $5,690,818 $5,975,099 $6,273,594 $6,587,014 $6,916,104 Other Revenues Sales of Water Materials $104,000 $108,160 $112,486 $115,861 $119,337 $122,917 Other RevenuesHydrant Fees 105,000 110,250 115,763 121,551 127,628 134,010 RatesInterest Income88,110 88,110 88,110 88,110 93,003 94,258 CalculatedRefunds & Reimbursements (ACH discount of $1/mo.) (23,920) (24,877) (25,872) (26,648) (27,447) (28,271) Other RevenuesInspection Service Charges 52,000 54,080 56,243 57,930 59,668 61,458 Other RevenuesRents & Royalties 41,600 43,264 44,995 46,344 47,735 49,167 Other RevenuesTotal Other Revenues $366,790 $378,987 $391,725 $403,148 $419,924 $433,539TOTAL SOURCES OF FUNDS $5,469,507 $6,069,805 $6,366,824 $6,676,742 $7,006,938 $7,349,643APPLICATIONS OF FUNDSOperation & Maintenance ExpenseWater Treatment Plant Personnel ServicesSalaries & Wages $334,241 $347,110 $360,473 $374,351 $388,764 $403,731 LaborOvertime 24,887 25,845 26,840 27,873 28,946 30,061 LaborPERS 27,662 28,216 28,780 29,356 29,943 30,542 Benefits - OtherHealth/Dental Ins 56,550 62,205 68,426 75,268 82,795 91,074 Benefits - MedicalLife Insurance 257 262 267 273 278 284 Benefits - OtherUnemployment Tax 612 624 637 649 662 676 Benefits - OtherFICA 26,413 26,941 27,480 28,030 28,590 29,162 Benefits - OtherWorkers Comp 18,748 19,123 19,505 19,895 20,293 20,699 Benefits - Other Total Personnel Services $489,370 $510,325 $532,408 $555,695 $580,272 $606,228 Supplies & MaterialsOffice Supplies $1,751 $1,804 $1,858 $1,913 $1,971 $2,030 Materials & SuppliesComputer Supplies 2,318 2,387 2,459 2,532 2,608 2,687 Materials & SuppliesPersonal Computers 1,803 1,857 1,912 1,970 2,029 2,090 Materials & SuppliesClothing & Uniforms 927 955 983 1,013 1,043 1,075 Materials & SuppliesChemicals 131,437 144,580 159,038 174,942 192,436 211,680 ChemicalsRoad Supplies 0 00000 Materials & SuppliesVehicle Supplies 515 530 546 563 580 597 Materials & SuppliesGas & Oil 8,524 8,780 9,043 9,315 9,594 9,882 Materials & SuppliesSmall Equip & Tools 0 00000 Materials & SuppliesBooks & Ref Materials 618 637 656 675 696 716 Materials & SuppliesGoods Purchased for Resale 133,900 137,917 142,055 146,316 150,706 155,227 Materials & SuppliesGeneral 30,179 31,084 32,017 32,977 33,967 34,986 Materials & Supplies Total Supplies & Materials $311,971 $330,531 $350,567 $372,217 $395,629 $420,969P R O J E C T E DHDR DRAFT 3/29/2007185
CITY OF BOZEMANPage 2 of 8COMPREHENSIVE WATER RATE STUDYEXHIBIT 3SOURCES AND APPLICATIONS OF FUNDS FOR PROJECTED 2006 TO 2012FY 06/07 FY 07/08 FY 08/09 FY 09/10 FY 10/11 FY 11/12NotesP R O J E C T E D MaintenanceRep & Maint - Equip $40,994 $42,224 $43,491 $44,795 $46,139 $47,523 EquipmentRep & Maint - Bldgs 15,553 16,020 16,500 16,995 17,505 18,030 EquipmentRep & Maint - Other 2,060 2,122 2,185 2,251 2,319 2,388 Equipment Total Maintenance $58,607 $60,365 $62,176 $64,041 $65,963 $67,942 UtilitiesElectricity $42,315 $45,701 $49,357 $53,305 $57,569 $62,175 ElectricityNatural Gas 42,302 44,418 46,638 48,970 51,419 53,990 Natural GasTelephone 7,661 7,891 8,128 8,372 8,623 8,881 Utilities Total Utilities $92,279 $98,009 $104,123 $110,647 $117,611 $125,046 Contracted ServicesConsult & Prof Service$12,400$12,877 $13,373 $13,888 $14,423 $14,978 LaborMaint Contract 8,671 9,005 9,352 9,712 10,086 10,474 LaborJanitorial Contracts 2,363 2,454 2,548 2,646 2,748 2,854 LaborContractors 20,770 21,570 22,400 23,262 24,158 25,088 LaborGeneral 50,861 52,819 54,852 56,964 59,157 61,435 Labor Total Contracted Services $95,065 $98,725 $102,525 $106,473 $110,572 $114,829 Travel/TrainingIn-State $7,091 $7,233 $7,378 $7,525 $7,676 $7,829 MiscellaneousOut-Of-State 0 00000 Miscellaneous Total Travel/Training $7,091 $7,233 $7,378 $7,525 $7,676 $7,829 OtherAdvertising $1,530 $1,561 $1,592 $1,624 $1,656 $1,689 MiscellaneousSubscriptions 638 650 663 677 690 704 MiscellaneousPostage 5,202 5,306 5,412 5,520 5,631 5,743 MiscellaneousShipping & Handling 102 104 106 108 110 113 MiscellaneousDues & Certifications 1,081 1,103 1,125 1,147 1,170 1,194 MiscellaneousInsurance 49,569 50,560 51,572 52,603 53,655 54,728 MiscellaneousRents & Leases 5,974 6,153 6,338 6,528 6,724 6,926 Materials & SuppliesGeneral 20,284 20,689 21,103 21,525 21,956 22,395 Miscellaneous Total Other $84,379 $86,127 $87,911 $89,732 $91,592 $93,491 Internal ChargesAdmin Overhead $143,752 $149,287 $155,034 $161,003 $167,202 $173,639 LaborVeh Maint Fund 23,027 23,913 24,834 25,790 26,783 27,814 Labor Total Internal Charges $166,779 $173,200 $179,868 $186,793 $193,985 $201,453 Total Treatment O&M $1,305,540 $1,364,514 $1,426,955 $1,493,123 $1,563,299 $1,637,787Water Reservoirs Plant Personnel ServicesSalaries & Wages $81,966 $85,121 $88,399 $91,802 $95,336 $99,007 LaborOvertime 2,720 2,825 2,933 3,046 3,164 3,285 LaborPERS 6,489 6,619 6,751 6,886 7,024 7,165 Benefits - OtherHealth/Dental Ins 15,210 16,731 18,404 20,245 22,269 24,496 Benefits - MedicalLife Insurance 69 71 72 74 75 77 Benefits - OtherUnemployment Tax 143 146 149 152 155 158 Benefits - OtherFICA 6,159 6,282 6,408 6,536 6,666 6,800 Benefits - OtherWorkers Comp 4,596 4,688 4,782 4,877 4,975 5,074 Benefits - Other Total Reservoirs - Personnel Services $117,352 $122,482 $127,897 $133,617 $139,664 $146,061HDR DRAFT 3/29/2007186
CITY OF BOZEMANPage 3 of 8COMPREHENSIVE WATER RATE STUDYEXHIBIT 3SOURCES AND APPLICATIONS OF FUNDS FOR PROJECTED 2006 TO 2012FY 06/07 FY 07/08 FY 08/09 FY 09/10 FY 10/11 FY 11/12NotesP R O J E C T E DTotal Water Plant O&M $1,422,892 $1,486,996 $1,554,853 $1,626,741 $1,702,963 $1,783,848Water OperationsOperations Department Personnel ServicesSalaries & Wages $532,302 $593,545 $657,147 $723,197 $751,040 $779,955 Labor; 1 FTE/year '08, '09, '10Overtime 14,751 15,319 15,909 16,521 17,157 17,818 LaborPERS 36,245 44,584 53,089 61,765 63,000 64,260 Benefits - Other;New FTE bene.Health/Dental Ins 84,240 100,464 118,310 137,941 151,736 166,909 Benefits - Medical; FTE Med.Life Insurance 490 499 509 520 530 541 Benefits - OtherUnemployment Tax 889 907 925 944 963 982 Benefits - OtherFICA 39,272 40,057 40,859 41,676 42,509 43,360 Benefits - OtherWorkers Comp 25,575 26,087 26,609 27,141 27,684 28,237 Benefits - Other Total Personnel Services $733,764 $821,463 $913,357 $1,009,705 $1,054,619 $1,102,062 Supplies & MaterialsOffice Supplies $4,635 $4,774 $4,917 $5,065 $5,217 $5,373 Materials & SuppliesComputer Supplies 1,545 1,591 1,639 1,688 1,739 1,791 Materials & SuppliesPersonal Computers 5,150 5,305 5,464 5,628 5,796 5,970 Materials & SuppliesClothing & Uniforms 3,554 3,660 3,770 3,883 3,999 4,119 Materials & SuppliesChemicals 0 00000 ChemicalsRoad Supplies 9,270 9,548 9,835 10,130 10,433 10,746 Materials & SuppliesVehicle Supplies 6,438 6,631 6,830 7,034 7,245 7,463 Materials & SuppliesGas & Oil 14,700 15,435 16,207 17,017 17,868 18,761 Gas & OilSmall Equip & Tools 8,755 9,018 9,288 9,567 9,854 10,149 EquipmentBooks & Ref Materials 412 424 437 450 464 478 Materials & SuppliesGoods Purch for Resale 0 00000 Materials & SuppliesGeneral 69,010 71,080 73,213 75,409 77,671 80,002 Materials & Supplies Total Supplies & Materials $123,468 $127,466 $131,599 $135,871 $140,287 $144,853 MaintenanceRep & Maint - Equip $19,261 $19,839 $20,434 $21,047 $21,678 $22,329 EquipmentRep & Maint - Bldgs 0 00000 EquipmentRep & Maint - Other 5,150 5,305 5,464 5,628 5,796 5,970 Equipment Total Maintenance $24,411 $25,143 $25,898 $26,675 $27,475 $28,299 UtilitiesElectricity $16,050 $17,334 $18,721 $20,218 $21,836 $23,583 ElectricityNatural Gas 7,350 7,718 8,103 8,509 8,934 9,381 Natural GasTelephone 3,605 3,713 3,825 3,939 4,057 4,179 Utilities Total Utilities $27,005 $28,765 $30,649 $32,666 $34,827 $37,143 Contracted ServicesConsult & Prof Service$28,850$29,961 $31,114 $32,312 $33,556 $34,848 LaborMaint Contract 727 755 784 814 846 878 LaborJanitorial Contracts 0 00000 LaborContractors 0 00000 LaborGeneral 20,510 21,300 22,120 22,972 23,856 24,775 Labor Total Contracted Services $50,087 $52,016 $54,018 $56,098 $58,258 $60,501 Travel/TrainingIn-State $8,798 $8,973 $9,153 $9,336 $9,523 $9,713 MiscellaneousOut-Of-State 0 00000 Miscellaneous Total Travel/Training $8,798 $8,973 $9,153 $9,336 $9,523 $9,713 HDR DRAFT 3/29/2007187
CITY OF BOZEMANPage 4 of 8COMPREHENSIVE WATER RATE STUDYEXHIBIT 3SOURCES AND APPLICATIONS OF FUNDS FOR PROJECTED 2006 TO 2012FY 06/07 FY 07/08 FY 08/09 FY 09/10 FY 10/11 FY 11/12NotesP R O J E C T E D OtherAdvertising $1,530 $1,561 $1,592 $1,624 $1,656 $1,689 MiscellaneousSubscriptions 510 520 531 541 552 563 MiscellaneousPostage 510 520 531 541 552 563 MiscellaneousShipping & Handling 0 00000 MiscellaneousDues & Certifications 1,530 1,561 1,592 1,624 1,656 1,689 MiscellaneousInsurance 49,569 50,560 51,572 52,603 53,655 54,728 MiscellaneousRents & Leases 2,575 2,652 2,732 2,814 2,898 2,985 Materials & SuppliesGeneral 18,360 18,727 19,102 19,484 19,873 20,271 Miscellaneous Total Other $74,584 $76,101 $77,650 $79,230 $80,843 $82,489 Internal ChargesAdmin Overhead $143,752 $149,287 $155,034 $161,003 $167,202 $173,639 LaborVeh Maint Fund 8,123 8,436 8,761 9,098 9,448 9,812 Labor Total Internal Charges $151,875 $157,723 $163,795 $170,101 $176,650 $183,451 Total Operations O&M $1,193,992 $1,297,650 $1,406,118 $1,519,682 $1,582,482 $1,648,510Utilities Locate Personnel ServicesSalaries & Wages $34,833 $36,174 $37,567 $39,014 $40,516 $42,075 LaborOvertime 465 483 502 521 541 562 LaborPERS 2,909 2,967 3,027 3,087 3,149 3,212 Benefits - OtherHealth/Dental Ins 8,736 9,610 10,571 11,628 12,790 14,069 Benefits - MedicalLife Insurance 40 41 41 42 43 44 Benefits - OtherUnemploy Tax 64 66 67 68 70 71 Benefits - OtherFICA 3,158 3,221 3,285 3,351 3,418 3,487 Benefits - OtherWorkers Comp 1,753 1,788 1,824 1,861 1,898 1,936 Benefits - Other Total Personnel Services $51,959 $54,350 $56,884 $59,572 $62,425 $65,456 Supplies & MaterialsOffice Supplies $361 $371 $382 $394 $406 $418 Materials & SuppliesComputer Supplies 927 955 983 1,013 1,043 1,075 Materials & SuppliesGeneral 2,575 2,652 2,732 2,814 2,898 2,985 Materials & Supplies Total Supplies & Materials $3,863 $3,978 $4,098 $4,221 $4,347 $4,478 Contracted ServicesGeneral $3,116 $3,235 $3,360 $3,489 $3,624 $3,763 Labor Total Contracted Services $3,116 $3,235 $3,360 $3,489 $3,624 $3,763Total Utilities Locate $58,937 $61,564 $64,342 $67,282 $70,396 $73,697Water Services Supplies & MaterialsGeneral $36,050 $37,132 $38,245 $39,393 $40,575 $41,792 Materials & Supplies Total Water Services - Supplies & Materials $36,050 $37,132 $38,245 $39,393 $40,575 $41,792Meter Reading Personnel ServicesSalaries & Wages $85,268 $88,551 $91,960 $95,501 $99,177 $102,996 LaborOvertime 2,882 2,993 3,108 3,228 3,352 3,481 LaborPERS 6,735 6,870 7,007 7,147 7,290 7,436 Benefits - OtherHDR DRAFT 3/29/2007188
CITY OF BOZEMANPage 5 of 8COMPREHENSIVE WATER RATE STUDYEXHIBIT 3SOURCES AND APPLICATIONS OF FUNDS FOR PROJECTED 2006 TO 2012FY 06/07 FY 07/08 FY 08/09 FY 09/10 FY 10/11 FY 11/12NotesP R O J E C T E DHealth/Dental Ins 15,600 17,160 18,876 20,764 22,840 25,124 Benefits - MedicalLife Insurance 71 73 74 76 77 79 Benefits - OtherUnemploy Tax 149 152 155 158 161 164 Benefits - OtherFICA 6,267 6,392 6,520 6,650 6,783 6,919 Benefits - OtherWorkers Comp 4,771 4,866 4,963 5,063 5,164 5,267 Benefits - Other Total Personnel Services $121,743 $127,056 $132,664 $138,586 $144,845 $151,466 Supplies & MaterialsOffice Supplies $3,090 $3,183 $3,278 $3,377 $3,478 $3,582 Materials & SuppliesComputer Supplies 309 318 328 338 348 358 Materials & SuppliesClothing & Uniforms 618 637 656 675 696 716 Materials & SuppliesBooks & Ref Materials 515 530 546 563 580 597 Materials & SuppliesGeneral 154,500 159,135 163,909 168,826 173,891 179,108 Materials & Supplies Total Supplies & Materials $159,032 $163,803 $168,717 $173,779 $178,992 $184,362 MaintenanceRep & Maint - Equip $3,090 $3,183 $3,278 $3,377 $3,478 $3,582 Equipment Total Maintenance $3,090 $3,183 $3,278 $3,377 $3,478 $3,582 Contracted ServicesMaintenance $623 $647 $672 $698 $725 $753 Labor Total Contracted Services $623 $647 $672 $698 $725 $753 Travel/TrainingIn-State $1,530 $1,561 $1,592 $1,624 $1,656 $1,689 MiscellaneousOut-Of-State 2,550 2,601 2,653 2,706 2,760 2,815 Miscellaneous Total Travel/Training $4,080 $4,162 $4,245 $4,330 $4,416 $4,505 OtherSubscriptions $51 $52 $53 $54 $55 $56 MiscellaneousPostage 15,300 15,606 15,918 16,236 16,561 16,892 MiscellaneousDues & Certifications 510 520 531 541 552 563 Miscellaneous Total Other $15,861 $16,178 $16,502 $16,832 $17,168 $17,512 Total Meter Reading $304,429 $315,029 $326,078 $337,601 $349,625 $362,179Hydrants Supplies & MaterialsGeneral $20,600 $21,218 $21,855 $22,510 $23,185 $23,881 Materials & Supplies Total Hydrants - Supplies & Materials $20,600 $21,218 $21,855 $22,510 $23,185 $23,881Water Valves Supplies & MaterialsGeneral $8,240 $8,487 $8,742 $9,004 $9,274 $9,552 Materials & Supplies Total Water Valves - Supplies & Materials $8,240 $8,487 $8,742 $9,004 $9,274 $9,552Main Repairs Supplies & MaterialsGeneral $7,725 $7,957 $8,195 $8,441 $8,695 $8,955 Materials & Supplies Total Main Repairs - Supplies & Materials $7,725 $7,957 $8,195 $8,441 $8,695 $8,955Total Operations & Maintenance $3,052,865 $3,236,033 $3,428,428 $3,630,653 $3,787,193 $3,952,415HDR DRAFT 3/29/2007189
CITY OF BOZEMANPage 6 of 8COMPREHENSIVE WATER RATE STUDYEXHIBIT 3SOURCES AND APPLICATIONS OF FUNDS FOR PROJECTED 2006 TO 2012FY 06/07 FY 07/08 FY 08/09 FY 09/10 FY 10/11 FY 11/12NotesP R O J E C T E D Capital Outlays - Water Fund Water Plant TreatmentW14 Sourdough Tank Repairs$0 $200,000 $0 $0 $0 $0 From CIP Plan 1/10/07W06 3/4 Ton 4X4 Pickup0 35,0000000 From CIP Plan 1/10/07W07 22 MG Membrane Water Treatment Plant902,500 133,000 1,000,000 1,000,000 10,000,000 10,000,000 From CIP Plan 1/10/07W08 Sourdough Raw Water Intake/Tank Improvements0 0 200,000 0 0 0 From CIP Plan 1/10/07WIF Sourdough Creek Dam Construction/Wtr. Rights0 4,0000000 From CIP Plan 1/10/07Water Operations PW01 Shops Complex - Phase I0 1,507,5000000 From CIP Plan 1/10/07W03 Bi-Annual Engineering Design0 90,000 0 90,000 0 90,000 From CIP Plan 1/10/07W04 Water Bi-Annual Upgrades750,000 0 750,000 0 750,000 0 From CIP Plan 1/10/07W09 Automated Water Fill Station000000 Unscheduled $430,000W12 1 Ton Truck W/Hoist0 40,000 0 0 46,794 0 From CIP Plan 1/10/07W13 Backhoe0 99,0000000 From CIP Plan 1/10/07 Unidentified CIP [1]671,180 809,691 926,885 1,926,028 0 0 InputTotal Capital Outlays for Water Fund $2,323,680 $2,918,191 $2,876,885 $3,016,028 $10,796,794 $10,090,000 $29,697,898 Less: Funding Sources Other Than RatesGrants$0 $0 $0 $0 $0 $0 InputFunds From Operating Reserve Fund0 0 0 0 0 1,000,000 InputFunds From Capital Reserve Fund0 177,380 0 0 3,596,794 1,790,000 InputFunds From Impact Fee Reserve Fund000000 InputNew Revenue Bond000000 InputNew SRF Loan for WTP0 0 0 0 4,000,000 4,000,000 From CIP Plan 1/10/07Total Funding Sources Other Than Rates $0 $177,380 $0 $0 $7,596,794 $6,790,000Rate Revenues Dedicated to CIP [2] $2,323,680 $2,740,811 $2,876,885 $3,016,028 $3,200,000 $3,300,000 Depreciation =$1,579,033 Capital Outlays - Impact Fee Water PlantPW01 Shops Complex - Phase I $0 $990,000 $0 $0 $0 $0 From CIP Plan 1/10/07W07 22 MG Membrane Water Treatment Plant 0 67,000 500,000 500,000 5,000,000 5,000,000 From CIP Plan 1/10/07WIF01 Sourdough Creek Dam 0 50,0000000 Unscheduled $20 millionWIF02 Sourdough Creek Drainage Water Rights 0 16,0000000 From CIP Plan 1/10/07WIF03 5.3 MG Concreete Water Storage Reservoir 0 00000 Unscheduled $5.3 millionWIF04 Lyman - Expansion of Groundwater Collection 0 700,0000000 From CIP Plan 1/10/07WIF05 New Transmission Main from WTP 0 00000 Unscheduled $21.7 million Total Impact Fee Plant $0 $1,823,000 $500,000 $500,000 $5,000,000 $5,000,000Less: Impact Fees $0 ($1,823,000) ($500,000) ($500,000) ($5,000,000) ($5,000,000)Total Unfunded Impact Fee Plant $0 $0 $0 $0 $0 $0 46% 48% 48% 48% 49% 48% Debt Service Water Revenue Bonds$0 $0 $0 $0 $0 $0 Debt SchedulesLyman Creek Water Revenue Bonds62,900 62,900 31,449 0 0 0 Debt SchedulesLyman Creek Water Revenue Bonds - Phase II30,062 30,062 30,062 30,062 15,031 15,031 Debt SchedulesNew Revenue Bond000000 20 yrs @ 5.5%New SRF Loan for WTP0 0 0 0 305,419 610,838 20 yrs @ 4.4%Total Debt Service $92,962 $92,962 $61,511 $30,062 $320,450 $625,869 HDR DRAFT 3/29/2007190
CITY OF BOZEMANPage 7 of 8COMPREHENSIVE WATER RATE STUDYEXHIBIT 3SOURCES AND APPLICATIONS OF FUNDS FOR PROJECTED 2006 TO 2012FY 06/07 FY 07/08 FY 08/09 FY 09/10 FY 10/11 FY 11/12NotesP R O J E C T E DTOTAL REVENUE REQUIREMENT $5,469,507 $6,069,806 $6,366,824 $6,676,743 $7,307,644 $7,878,284TOTAL BALANCE/(DEFICIENCY) ($0) ($0) ($0) ($0) ($300,706) ($528,641)REQUIRED RATE ADJUSTMENT (Cummulative) 0.0% 0.0% 0.0% 0.0% 4.6% 7.6%PROPOSED RATE ADJUSTMENT0.0% 0.0% 0.0% 2.6% 2.6% 2.6% ADDITIONAL REVENUE WITH RATE ADJUSTMENT$0 $0 $0 $163,113 $342,525 $539,456BALANCE/(DEFICIENCY) OF FUNDS($0) ($0) ($0) $163,113 $41,819 $10,815ADDITIONAL RATE ADJUSTMENT REQUIRED 0.0% 0.0% 0.0% -2.5% -0.6% -0.1%Debt Service Coverage Ratio [2] Before Rate Increase 26.00 30.48 47.77 101.33 10.05 5.43 After Proposed Rate Increase 26.00 30.48 47.77 106.75 11.12 6.29[1] Unidentified CIP relates to the unscheduled projects to be funded[2] The WTP funding sources are City provided from the 1/10/07 WW funding spreadsheet.HDR DRAFT 3/29/2007191
CITY OF BOZEMANPage 8 of 8COMPREHENSIVE WATER RATE STUDYEXHIBIT 3SOURCES AND APPLICATIONS OF FUNDS FOR PROJECTED 2006 TO 2012FY 06/07 FY 07/08 FY 08/09 FY 09/10 FY 10/11 FY 11/12NotesP R O J E C T E DOperating Reserve FundBeginning Reserve Balance $2,937,000 $2,937,000 $2,936,999 $2,936,999 $3,100,112 $3,141,931 Updated balance 1/10/07 Per CityLess: To CIP Reserves for WTP 0 0 0 0 0 (1,000,000) Uses of Funds (0) (0) (0) 163,113 41,819 10,815 Balance of RR summaryEnding Reserve Balance$2,937,000 $2,936,999 $2,936,999 $3,100,112 $3,141,931 $2,152,746Minimum 45 days O&M $376,381 $398,963 $422,683 $447,615 $466,914 $487,284Capital Reserve FundBeginning Reserve Balance$2,000,000 $2,731,180 $3,445,426 $4,475,674 $6,535,972 $3,135,258Plus: From Impact Fee Reserve Fund 0 00000 From CIP funding sources Grants (STAG) 0 00000 From CIP funding sources Water Hook up Charges 0 00000 Other Revenues Cash In Lieu Water Rights 0 00000 Other Revenues Rate Revenues Dedicated to CIP 2,323,680 2,740,811 2,876,885 3,016,028 3,200,000 3,300,000 From CIP funding sources Unexpended funds/Unidentified Future CIP 0 00000 From CIP funding sources From Operating Reserves for WTP 0 0 0 0 0 1,000,000 From CIP funding sources SRF Loan Proceeds 0 0 0 0 4,000,000 4,000,000 From CIP funding sources Interest Income 60,000 81,935 103,363 134,270 196,079 94,058 CalculatedLess: Uses of Funds - Total Capital Outlay 1,652,500 2,108,500 1,950,000 1,090,000 10,796,794 10,090,000 From CIP per above RREnding Reserve Balance$2,731,180 $3,445,426 $4,475,674 $6,535,972 $3,135,258 $1,439,315Estimated Annual Depreciation$1,626,404 $1,675,196 $1,725,452 $1,777,216 $1,830,532 $1,885,448 Increased 3% per yearPercentage of Rates Dedicated to CIP45.5% 48.2% 48.1% 46.9% 46.2% 44.3% (Includes Proposed Rate Revenue)Total Operating and Capital Reserve Balance$5,668,180 $6,382,426 $7,412,674 $9,636,085 $6,277,189 $3,592,061Total Operating and Capital Reserve Minimum Target$2,002,785 $2,074,159 $2,148,135 $2,224,830 $2,297,446 $2,372,732Impact Fee Reserve FundBeginning Reserve Balance [1]$3,900,000 $5,806,000 $5,946,180 $7,485,125 $9,144,662 $6,431,383 Per City 1/10/07Plus: Impact Fees1,789,000 1,789,000 1,860,560 1,934,982 2,012,382 2,092,877 Escalated as Rate Rev Interest Income 117,000 174,180 178,385 224,554 274,340 192,941 CalculatedLess: SHOPS COMPLEX - PHASE 10 990,000 0000 From CIP Plan 1/10/07 22MG MEMBRANE WATER TREATMENT PLANT0 67,000 500,000 500,000 5,000,000 5,000,000 From CIP Plan 1/10/07 SOURDOUGH CREEK DAM 0 50,000 0000 Unscheduled $20 million SOURDOUGH CREEK DRAINAGE WATER RIGHTS0 16,000 0000 From CIP Plan 1/10/07 5.3MG CONCRETE WATER STORAGE RESERVOIR000000 Unscheduled $5.3 million LYMAN - EXPANSION OF GROUNDWATER COLLECT0 700,000 0000 From CIP Plan 1/10/07 NEW TRANSMISSION MAIN FROM WTP000000 Unscheduled $21.7 millionEnding Reserve Balance$5,806,000 $5,946,180 $7,485,125 $9,144,662 $6,431,383 $3,717,202 [1] Updated 1/10/07 sheet from City shows $3,900,000 in FY 07 beginning balance. Potential of $2.6 million available for projects (difference between FY 2005 CAFR and latest worksheet).HDR DRAFT 3/29/2007192
CITY OF BOZEMANCOMPREHENSIVE WATER RATE STUDYEXHIBIT 4DEVELOPMENT OF THE COMMODITY ALLOCATION FACTOR06/07 Net Water Avg DayConsumption11.7%Delivered Consumption % ofClass of Service in gallons Losses [2] (Flow + Losses) (MGD) [1] Total Residential557,382,70765,436,730 622,819,437 1.71 34.5% Low-Income1,702,981199,930 1,902,911 0.01 0.1% Multi-Family364,807,40842,828,390 407,635,798 1.12 22.6% Commercial432,049,86250,722,654 482,772,516 1.32 26.8% Commercial - Special13,525,0431,587,840 15,112,883 0.04 0.8% Government38,626,3104,534,729 43,161,039 0.12 2.4% Government - Special278,51432,698 311,212 0.00 0.0% Montana State University205,328,59424,105,577 229,434,171 0.63 12.7% Unmetered1,399,569164,309 1,563,879 0.00 0.1%Total 1,615,100,988 189,612,856 1,804,713,845 4.94 100.0%Allocation Factor2005 Production [3]1,813,776,045 4.97(C0MM) NOTES: [1] = Consumption in gallons/365 Days/1,000,000 [2] Losses based on current City reports. Water Facility Plan, page 21 showed an average of 12.7%[3] Production taken from City reportsHDR Draft 3/29/2007193
CITY OF BOZEMANCOMPREHENSIVE WATER RATE STUDYEXHIBIT 5DEVELOPMENT OF THE CAPACITY ALLOCATION FACTORAverage PeakConsumption Peaking Day UseClass of Service (MGD) Factors [1] (MGD) % of Total Residential 1.70642.504.27 39.2% Low-Income 0.00522.250.01 0.1% Multi-Family 1.11682.002.23 20.5% Commercial 1.32272.002.65 24.3% Commercial - Special 0.04142.800.12 1.1% Government 0.11822.800.33 3.0% Government - Special 0.00093.500.00 0.0% Montana State University 0.62862.001.26 11.6% Unmetered 0.00432.500.01 0.1%Total 4.9444 10.87 100.0% Allocation FactorHistorical Peak Day [2]11.95(CAP) Note: [1] Based on peak to average month for 2005 [2] City provided peak day as 7/21/05 11,954,540 gallons HDR Draft 3/29/2007194
CITY OF BOZEMANCOMPREHENSIVE WATER RATE STUDYEXHIBIT 6DEVELOPMENT OF THE CUSTOMER ALLOCATION FACTORActual CustomerNumber of % of Number of Weighting Weighted % of Weighting Weighted % ofClass of Service Units Total Meters [1] Factor Customer Total Factor Customer Total Residential6,67768.69%6,420 1.006,420 68.53% $307 $1,970,940 61.78% Low-Income340.35%33 1.0033 0.35% 307 $10,131 0.32% Multi-Family1,92419.79%1,850 1.001,850 19.75% 307 $567,950 17.80% Commercial9679.95%930 1.00930 9.93% 615 $571,950 17.93% Commercial - Special350.36%34 1.5051 0.54% 615 $20,910 0.66% Government610.63%59 1.0059 0.63% 615 $36,285 1.14% Government - Special10.01%1 1.502 0.02% 615 $615 0.02% Montana State University180.18%17 1.0017 0.18% 615 $10,455 0.33% Unmetered30.03%3 2.006 0.06% 307 $921 0.03%Total 9,721 100.0% 9,347 9,368 100.0% $3,190,157 100.0%Allocation Factor (AC) (WCA) (WCMS)Customer Service & Accounting Meters & ServicesHDR Draft 3/29/2007195
CITY OF BOZEMANCOMPREHENSIVE WATER RATE STUDYEXHIBIT 7DEVELOPMENT OF THE PUBLIC FIRE PROTECTION ALLOCATION FACTORFire Prot. Total FPNumber of Requirements Duration Requirements % ofClass of Service Meters [1] (gals/min) [2] (minutes) [2] (1,000 g/min) Total Residential 6,4201,500 60577,800 55.17% Low-Income 331,500 602,970 0.28% Multi-Family 1,8501,500 60166,500 15.90% Commercial 9302,500 120279,000 26.64% Commercial - Special 342,500 12010,200 0.97% Government 591,500 605,310 0.51% Government - Special 11,500 6090 0.01% Montana State University 172,500 1205,100 0.49% Unmetered 31,500 60270 0.03%Total 9,347 1,047,240 100.0%Allocation Factor(FP)Note:[1] Based on City provided number of meters for 2005[2] Based on other Montana City studiesHDR Draft 3/29/2007196
CITY OF BOZEMANCOMPREHENSIVE WATER RATE STUDYEXHIBIT 8DEVELOPMENT OF THE REVENUE RELATED ALLOCATION FACTORProjected 06/07 % ofClass of Service Revenue [1] Total Residential $2,837,374 49.9% Low-Income 5,426 0.1% Multi-Family 1,170,841 20.6% Commercial 1,011,056 17.8% Commercial - Special 31,460 0.6% Government 97,556 1.7% Government - Special 970 0.0% Montana State University 530,935 9.3% Unmetered 5,200 0.1%Total Rate Revenues $5,690,818 100.0% Allocation Factor (RR)Note:[1] Calculated based on current rate scheduleHDR Draft 3/29/2007197
CITY OF BOZEMANPage 1 of 3COMPREHENSIVE WATER RATE STUDYEXHIBIT 9FUNCTIONALIZATION AND CLASSIFICATION OF PLANTCustomer Related Weighted For: Actual Customer Meters & Fire Revenue05/06 Commodity Capacity CustomerAcctg. Services Protection RelatedAll OtherAccount Desc. Plant (COM) (CAP) (AC) (WCA) (WCMS) (FP) (RR) (DA-O)Basis of ClassificationSource of Supply Plant2003 BIO-CAP ON PONDS $13,229 $5,556 $7,673 $0 $0 $0 $0 $0 $0 42% COMM 58% CAP1998 BOZEMAN CREEK86,756 36,437 50,31800000042%COMM 58% CAP1998 BOZEMAN CREEK HOUSE 45,322 19,035 26,28700000042%COMM 58% CAP1998 BOZEMAN CREEK INTAKE MAIN117,721 49,443 68,27800000042%COMM 58% CAP1998 BOZEMAN CREEK OTHER26,419 11,096 15,32300000042%COMM 58% CAP1998 BOZEMAN CREEK WATER SUPPLY433,589 182,107 251,48200000042%COMM 58% CAP2000 CORROSION CONTROL BUILDING155,487 65,304 90,18200000042%COMM 58% CAP1998 LYMAN CREEK INTAKE50,362 21,152 29,21000000042%COMM 58% CAP1998 LYMAN CREEK RESERVOIR710,636 298,467 412,16900000042%COMM 58% CAP1998 LYMAN CREEK RESERVOIR324,690 136,370 188,32000000042%COMM 58% CAP2000 LYMAN RESERVOIR2,688,660 1,129,237 1,559,42300000042%COMM 58% CAP2003 PORTABLE CABIN 26,723 11,223 15,49900000042%COMM 58% CAP1998 PRESEDIMENT BASIN122,782 51,568 71,21400000042%COMM 58% CAP1998 RESERVOIR SUPPLY MAIN467,936 196,533 271,40300000042%COMM 58% CAP2000 CREEK SUPPLY84,079 35,313 48,76600000042%COMM 58% CAP1998 SOUTH BASIN 214,101 89,922 124,17900000042%COMM 58% CAP1998 WATER PLANT 101,539 42,646 58,89300000042%COMM 58% CAP1998 WATER PLANT EXPANSION 756,712 317,819 438,89300000042%COMM 58% CAP1998 WATER TREATMENT PLANT260,522 109,419 151,10300000042%COMM 58% CAP1998 WATER TREATMENT PLANT2,880,746 1,209,913 1,670,83200000042%COMM 58% CAP1998 2 MG TANK567,838 0 497,445 0 0 0 70,393 0 0 88% CAP 12% FPTotal Source of Supply Plant$10,135,847 $4,018,564 $6,046,890 $0 $0 $0 $70,393 $0 $0Pumping Plant1957 BOOSTER STATION$43,819 $18,404 $25,415 $0 $0 $0 $0 $0 $0 42% COMM 58% CAPTotal Pumping Plant$43,819 $18,404 $25,415 $0 $0 $0 $0 $0 $0Transmission Plant1998 CITY GARAGE$65,000 $0 $42,141 $16,900 $0 $0 $5,959 $0 $0 26% CUST 65% CAP 9% FP1998 DISTRIBUTION SYSTEM1,262,113 0 818,260 328,149 0 0 115,703 0 0 26% CUST 65% CAP 9% FP1998 GARFIELD WATER TRUNK165,984 0 107,612 43,156 0 0 15,216 0 0 26% CUST 65% CAP 9% FP1998 HIGHLAND BLVD 100,284 0 65,017 26,074 0 0 9,193 0 0 26% CUST 65% CAP 9% FP1998 HIGHLAND BLVD WATER LINE 14,000 0 9,077 3,640 0 0 1,283 0 0 26% CUST 65% CAP 9% FP2003 HYALITE TRANSMISSION MAIN4,849,336 0 3,143,949 1,260,827 0 0 444,559 0 0 26% CUST 65% CAP 9% FP2001 IMPACT FEE CREDITS-WATER DAVE CECICH196,271 0 127,248 51,031 0 0 17,993 0 0 26% CUST 65% CAP 9% FP1998 KAGY BLVD WATER SYSTEM 22,898 0 14,846 5,954 0 0 2,099 0 0 26% CUST 65% CAP 9% FP1998 LYMAN CREEK 18" MAIN60,798 0 39,417 15,807 0 0 5,574 0 0 26% CUST 65% CAP 9% FP1998 MIDDLE CREEK TRANSMISSION610,887 0 396,054 158,831 0 0 56,003 0 0 26% CUST 65% CAP 9% FP1998 OAK STREET WATER TRUNK417,450 0 270,644 108,537 0 0 38,269 0 0 26% CUST 65% CAP 9% FP2004 POLE BUILDING 19,587 0 12,699 5,093 0 0 1,796 0 0 26% CUST 65% CAP 9% FP1998 SID 414 NEW HYALITE 184,033 0 119,313 47,849 0 0 16,871 0 0 26% CUST 65% CAP 9% FP1998 SID 437 PARK MANOR76,060 0 49,312 19,776 0 0 6,973 0 0 26% CUST 65% CAP 9% FP1998 SID 502 WEST SIDE 632,577 0 410,116 164,470 0 0 57,991 0 0 26% CUST 65% CAP 9% FP1998 SID 511 THOMPSON & UNIV165,744 0 107,456 43,094 0 0 15,194 0 0 26% CUST 65% CAP 9% FP1998 SID 526 GRAF-FIGGINS76,814 0 49,801 19,972 0 0 7,042 0 0 26% CUST 65% CAP 9% FP1998 SID 528 GRAF-FIGGINS58,366 0 37,840 15,175 0 0 5,351 0 0 26% CUST 65% CAP 9% FP1998 SID 532 REMINGTON ADDITION53,671 0 34,796 13,955 0 0 4,920 0 0 26% CUST 65% CAP 9% FP1998 SID 534 WATER MAINS KMART41,926 0 27,182 10,901 0 0 3,844 0 0 26% CUST 65% CAP 9% FP1998 SID 550 WATER MAIN GRAF-FIGGINS67,524 0 43,777 17,556 0 0 6,190 0 0 26% CUST 65% CAP 9% FP1998 SID 568 WATER MAIN 85,918 0 55,703 22,339 0 0 7,876 0 0 26% CUST 65% CAP 9% FP1998 SID 576 WATER NORTH 22ND 22,748 0 14,748 5,914 0 0 2,085 0 0 26% CUST 65% CAP 9% FP1998 SID 578 NORTH 19TH 29,012 0 18,809 7,543 0 0 2,660 0 0 26% CUST 65% CAP 9% FP1998 SID 582 WATER MAIN WEST KOCH 89,527 0 58,043 23,277 0 0 8,207 0 0 26% CUST 65% CAP 9% FP1998 SID 591 WATER NORTH ROUSE & NORTH 7TH 440,000 0 285,263 114,400 0 0 40,337 0 0 26% CUST 65% CAP 9% FP1998 SID 600 WATER FIGGINS 4TH 90,425 0 58,625 23,511 0 0 8,290 0 0 26% CUST 65% CAP 9% FP1998 SID 603 WATER GRAF'S FIRST94,134 0 61,029 24,475 0 0 8,630 0 0 26% CUST 65% CAP 9% FP1998 SID 610 WATER WESTRIDGE 66,003 0 42,792 17,161 0 0 6,051 0 0 26% CUST 65% CAP 9% FP1998 SID 619 WATER MAINS LEA DRIVE 19,301 0 12,514 5,018 0 0 1,769 0 0 26% CUST 65% CAP 9% FP1998 SID 622 VALLEY UNIT366,727 0 237,759 95,349 0 0 33,619 0 0 26% CUST 65% CAP 9% FP1998 SID 624 VALLEY UNIT525,011 0 340,378 136,503 0 0 48,130 0 0 26% CUST 65% CAP 9% FPHDR Draft 3/29/2007198
CITY OF BOZEMANPage 2 of 3COMPREHENSIVE WATER RATE STUDYEXHIBIT 9FUNCTIONALIZATION AND CLASSIFICATION OF PLANTCustomer Related Weighted For: Actual Customer Meters & Fire Revenue05/06 Commodity Capacity Customer Acctg. Services Protection Related All OtherAccount Desc. Plant (COM) (CAP) (AC) (WCA) (WCMS) (FP) (RR) (DA-O)Basis of Classification1998 SID 629 WATER UNIVERSITY 42,338 0 27,449 11,008 0 0 3,881 0 0 26% CUST 65% CAP 9% FP1984 SID 646 WATER & SEWER N. 7TH AVENUE 159,705 0 103,541 41,523 0 0 14,641 0 0 26% CUST 65% CAP 9% FP1993 SID 656 BURRUP WATER MAIN 270,635 0 175,460 70,365 0 0 24,810 0 0 26% CUST 65% CAP 9% FP1999 SID 665 NORTHWEST WATER LINE 931,950 0 604,207 242,307 0 0 85,436 0 0 26% CUST 65% CAP 9% FP2002 SOURDOUGH IMPROVEMENTS 444,544 0 288,210 115,582 0 0 40,753 0 0 26% CUST 65% CAP 9% FP2003 SOURDOUGH TRANSMISSION MAIN 784,091 0 508,346 203,864 0 0 71,881 0 0 26% CUST 65% CAP 9% FP1998 WATER LINE IMPROVEMENTS 227,261 0 147,339 59,088 0 0 20,834 0 0 26% CUST 65% CAP 9% FP2002 WATER RENOVATIONS PROJECT 696,987 0 451,875 181,217 0 0 63,896 0 0 26% CUST 65% CAP 9% FP1998 WATER SYSTEM EXPANSION 59,093 0 38,312 15,364 0 0 5,417 0 0 26% CUST 65% CAP 9% FP1998 WATER SYSTEM IMPROVEMENTS 36,340 0 23,560 9,449 0 0 3,331 0 0 26% CUST 65% CAP 9% FP1998 WATER TOWER & LINES SID 14,454 0 9,371 3,758 0 0 1,325 0 0 26% CUST 65% CAP 9% FP1998 WATER TRUNK LINE @ OAK STREET 322,433 0 209,041 83,832 0 0 29,559 0 0 26% CUST 65% CAP 9% FP2002 WEST BABCOCK WATER MAIN 39,500 0 25,609 10,270 0 0 3,621 0 0 26% CUST 65% CAP 9% FPTotal Transmission Plant $14,999,464 $0 $9,724,539 $3,899,861 $0 $0 $1,375,064 $0 $0 Total Water Plant $25,179,130 $4,036,968 $15,796,844 $3,899,861 $0 $0 $1,445,457 $0 $0Less Accumulated DepreciationSource of Supply Plant2003 BIO-CAP ON PONDS ($7,937) ($3,334) ($4,604) $0 $0 $0 $0 $0 $0 42% COMM 58% CAP1998 BOZEMAN CREEK (49,445) (20,767) (28,678) 0 0 0 0 0 0 42% COMM 58% CAP1998 BOZEMAN CREEK HOUSE (45,322) (19,035) (26,287) 0 0 0 0 0 0 42% COMM 58% CAP1998 BOZEMAN CREEK INTAKE MAIN (107,420) (45,117) (62,304) 0 0 0 0 0 0 42% COMM 58% CAP1998 BOZEMAN CREEK OTHER (16,013) (6,725) (9,288) 0 0 0 0 0 0 42% COMM 58% CAP1998 BOZEMAN CREEK WATER SUPPLY (433,589) (182,107) (251,482) 0 0 0 0 0 0 42% COMM 58% CAP2000 CORROSION CONTROL BUILDING (36,653) (15,394) (21,258) 0 0 0 0 0 0 42% COMM 58% CAP1998 LYMAN CREEK INTAKE (41,835) 0 (36,649) 0 0 0 (5,186) 0 0 88% CAP 12% FP1998 LYMAN CREEK RESERVOIR (149,041) 0 (130,565) 0 0 0 (18,476) 0 0 88% CAP 12% FP1998 LYMAN CREEK RESERVOIR (68,033) 0 (59,599) 0 0 0 (8,434) 0 0 88% CAP 12% FP2000 LYMAN RESERVOIR (1,040,302) 0 (911,339) 0 0 0 (128,963) 0 0 88% CAP 12% FP2003 PORTABLE CABIN (16,033) (6,734) (9,299) 0 0 0 0 0 0 42% COMM 58% CAP1998 PRESEDIMENT BASIN (96,898) (40,697) (56,201) 0 0 0 0 0 0 42% COMM 58% CAP1998 RESERVOIR SUPPLY MAIN (467,936) 0 (409,927) 0 0 0 (58,009) 0 0 88% CAP 12% FP2000 CREEK SUPPLY (19,820) (8,324) (11,496) 0 0 0 0 0 0 42% COMM 58% CAP1998 SOUTH BASIN (196,658) (82,596) (114,062) 0 0 0 0 0 0 42% COMM 58% CAP1998 WATER PLANT (35,016) (14,707) (20,309) 0 0 0 0 0 0 42% COMM 58% CAP1998 WATER PLANT EXPANSION (438,038) (183,976) (254,062) 0 0 0 0 0 0 42% COMM 58% CAP1998 WATER TREATMENT PLANT (260,522) (109,419) (151,103) 0 0 0 0 0 0 42% COMM 58% CAP1998 WATER TREATMENT PLANT (2,577,905) (1,082,720) (1,495,185) 0 0 0 0 0 0 42% COMM 58% CAP1998 2 MG TANK (528,804) 0 (463,250) 0 0 0 (65,554) 0 0 88% CAP 12% FPTotal Source of Supply Plant ($6,633,220) ($1,821,653) ($4,526,945) $0 $0 $0 ($284,622) $0 $0Pumping Plant1957 BOOSTER STATION ($43,819) ($18,404) ($25,415) $0 $0 $0 $0 $0 $0 42% COMM 58% CAPTotal Pumping Plant ($43,819) ($18,404) ($25,415) $0 $0 $0 $0 $0 $0Transmission Plant1998 CITY GARAGE ($65,000) $0 ($42,141) ($16,900) $0 $0 ($5,959) $0 $0 26% CUST 65% CAP 9% FP1998 DISTRIBUTION SYSTEM (1,262,113) 0 (818,260) (328,149) 0 0 (115,703) 0 0 26% CUST 65% CAP 9% FP1998 GARFIELD WATER TRUNK (165,984) 0 (107,612) (43,156) 0 0 (15,216) 0 0 26% CUST 65% CAP 9% FP1998 HIGHLAND BLVD (80,227) 0 (52,013) (20,859) 0 0 (7,355) 0 0 26% CUST 65% CAP 9% FP1998 HIGHLAND BLVD WATER LINE (4,900) 0 (3,177) (1,274) 0 0 (449) 0 0 26% CUST 65% CAP 9% FP2003 HYALITE TRANSMISSION MAIN (256,588) 0 (166,352) (66,713) 0 0 (23,522) 0 0 26% CUST 65% CAP 9% FP2001 IMPACT FEE CREDITS-WATER DAVE CECICH (28,995) 0 (18,798) (7,539) 0 0 (2,658) 0 0 26% CUST 65% CAP 9% FP1998 KAGY BLVD WATER SYSTEM (22,898) 0 (14,846) (5,954) 0 0 (2,099) 0 0 26% CUST 65% CAP 9% FP1998 LYMAN CREEK 18" MAIN (55,478) 0 (35,968) (14,424) 0 0 (5,086) 0 0 26% CUST 65% CAP 9% FP1998 MIDDLE CREEK TRANSMISSION (610,887) 0 (396,054) (158,831) 0 0 (56,003) 0 0 26% CUST 65% CAP 9% FP1998 OAK STREET WATER TRUNK (417,450) 0 (270,644) (108,537) 0 0 (38,269) 0 0 26% CUST 65% CAP 9% FP2004 POLE BUILDING (1,349) 0 (875) (351) 0 0 (124) 0 0 26% CUST 65% CAP 9% FP1998 SID 414 NEW HYALITE (184,033) 0 (119,313) (47,849) 0 0 (16,871) 0 0 26% CUST 65% CAP 9% FPHDR Draft 3/29/2007199
CITY OF BOZEMANPage 3 of 3COMPREHENSIVE WATER RATE STUDYEXHIBIT 9FUNCTIONALIZATION AND CLASSIFICATION OF PLANTCustomer Related Weighted For: Actual Customer Meters & Fire Revenue05/06 Commodity Capacity Customer Acctg. Services Protection Related All OtherAccount Desc. Plant (COM) (CAP) (AC) (WCA) (WCMS) (FP) (RR) (DA-O)Basis of Classification1998 SID 437 PARK MANOR (76,060) 0 (49,312) (19,776) 0 0 (6,973) 0 0 26% CUST 65% CAP 9% FP1998 SID 502 WEST SIDE (632,577) 0 (410,116) (164,470) 0 0 (57,991) 0 0 26% CUST 65% CAP 9% FP1998 SID 511 THOMPSON & UNIV (165,744) 0 (107,456) (43,094) 0 0 (15,194) 0 0 26% CUST 65% CAP 9% FP1998 SID 526 GRAF-FIGGINS (76,592) 0 (49,657) (19,914) 0 0 (7,022) 0 0 26% CUST 65% CAP 9% FP1998 SID 528 GRAF-FIGGINS (58,325) 0 (37,814) (15,164) 0 0 (5,347) 0 0 26% CUST 65% CAP 9% FP1998 SID 532 REMINGTON ADDITION (53,671) 0 (34,796) (13,955) 0 0 (4,920) 0 0 26% CUST 65% CAP 9% FP1998 SID 534 WATER MAINS KMART (41,926) 0 (27,182) (10,901) 0 0 (3,844) 0 0 26% CUST 65% CAP 9% FP1998 SID 550 WATER MAIN GRAF-FIGGINS (66,819) 0 (43,320) (17,373) 0 0 (6,126) 0 0 26% CUST 65% CAP 9% FP1998 SID 568 WATER MAIN (85,918) 0 (55,703) (22,339) 0 0 (7,876) 0 0 26% CUST 65% CAP 9% FP1998 SID 576 WATER NORTH 22ND (22,748) 0 (14,748) (5,914) 0 0 (2,085) 0 0 26% CUST 65% CAP 9% FP1998 SID 578 NORTH 19TH (29,012) 0 (18,809) (7,543) 0 0 (2,660) 0 0 26% CUST 65% CAP 9% FP1998 SID 582 WATER MAIN WEST KOCH (89,527) 0 (58,043) (23,277) 0 0 (8,207) 0 0 26% CUST 65% CAP 9% FP1998 SID 591 WATER NORTH ROUSE & NORTH 7TH (440,000) 0 (285,263) (114,400) 0 0 (40,337) 0 0 26% CUST 65% CAP 9% FP1998 SID 600 WATER FIGGINS 4TH (90,425) 0 (58,625) (23,511) 0 0 (8,290) 0 0 26% CUST 65% CAP 9% FP1998 SID 603 WATER GRAF'S FIRST (94,134) 0 (61,029) (24,475) 0 0 (8,630) 0 0 26% CUST 65% CAP 9% FP1998 SID 610 WATER WESTRIDGE (66,003) 0 (42,792) (17,161) 0 0 (6,051) 0 0 26% CUST 65% CAP 9% FP1998 SID 619 WATER MAINS LEA DRIVE (15,445) 0 (10,013) (4,016) 0 0 (1,416) 0 0 26% CUST 65% CAP 9% FP1998 SID 622 VALLEY UNIT (355,489) 0 (230,473) (92,427) 0 0 (32,589) 0 0 26% CUST 65% CAP 9% FP1998 SID 624 VALLEY UNIT (520,282) 0 (337,312) (135,273) 0 0 (47,696) 0 0 26% CUST 65% CAP 9% FP1998 SID 629 WATER UNIVERSITY (38,169) 0 (24,746) (9,924) 0 0 (3,499) 0 0 26% CUST 65% CAP 9% FP1984 SID 646 WATER & SEWER N. 7TH AVENUE (119,779) 0 (77,656) (31,143) 0 0 (10,981) 0 0 26% CUST 65% CAP 9% FP1993 SID 656 BURRUP WATER MAIN (202,976) 0 (131,595) (52,774) 0 0 (18,608) 0 0 26% CUST 65% CAP 9% FP1999 SID 665 NORTHWEST WATER LINE (164,462) 0 (106,625) (42,760) 0 0 (15,077) 0 0 26% CUST 65% CAP 9% FP2002 SOURDOUGH IMPROVEMENTS (55,568) 0 (36,026) (14,448) 0 0 (5,094) 0 0 26% CUST 65% CAP 9% FP2003 SOURDOUGH TRANSMISSION MAIN (59,235) 0 (38,403) (15,401) 0 0 (5,430) 0 0 26% CUST 65% CAP 9% FP1998 WATER LINE IMPROVEMENTS (69,207) 0 (44,869) (17,994) 0 0 (6,344) 0 0 26% CUST 65% CAP 9% FP2002 WATER RENOVATIONS PROJECT (79,750) 0 (51,704) (20,735) 0 0 (7,311) 0 0 26% CUST 65% CAP 9% FP1998 WATER SYSTEM EXPANSION (46,456) 0 (30,119) (12,079) 0 0 (4,259) 0 0 26% CUST 65% CAP 9% FP1998 WATER SYSTEM IMPROVEMENTS (17,215) 0 (11,161) (4,476) 0 0 (1,578) 0 0 26% CUST 65% CAP 9% FP1998 WATER TOWER & LINES SID (14,454) 0 (9,371) (3,758) 0 0 (1,325) 0 0 26% CUST 65% CAP 9% FP1998 WATER TRUNK LINE @ OAK STREET (122,542) 0 (79,447) (31,861) 0 0 (11,234) 0 0 26% CUST 65% CAP 9% FP2002 WEST BABCOCK WATER MAIN (4,937) 0 (3,201) (1,284) 0 0 (453) 0 0 26% CUST 65% CAP 9% FPTotal Transmission Plant ($7,131,350) $0 ($4,623,438) ($1,854,151) $0 $0 ($653,761) $0 $0Total Accumulated Depreciation ($13,808,390) ($1,840,057) ($9,175,799) ($1,854,151) $0 $0 ($938,383) $0 $0Net Water Plant $11,370,740 $2,196,911 $6,621,046 $2,045,710 $0 $0 $507,074 $0 $0% OF NET PLANT 100.0% 19.3% 58.2% 18.0% 0.0% 0.0% 4.5% 0.0% 0.0%HDR Draft 3/29/2007200
CITY OF BOZEMANPage 1 of 5COMPREHENSIVE WATER RATE STUDYEXHIBIT 10FUNCTIONALIZATION AND CLASSIFICATION OF EXPENSES Customer RelatedWeighted For:Actual Customer Meters & Fire RevenueBudget Commodity Capacity CustomerAcctg. Services Protection RelatedAll OtherAccount Desc. FY 07/08 (COM) (CAP) (AC) (WCA) (WCMS) (FP) (RR) (DA-O)Basis of ClassificationOperation & Maintenance ExpenseWater Treatment Plant Personnel ServicesSalaries & Wages $347,110 $145,786 $201,324 $0 $0 $0 $0 $0 $0As Treatment PlantOvertime 25,845 10,855 14,990 0 0 0 0 0 0As Treatment PlantPERS 28,216 11,851 16,365 0 0 0 0 0 0As Treatment PlantHealth/Dental Ins 62,205 26,126 36,079 0 0 0 0 0 0As Treatment PlantLife Insurance 262 110 152 0 0 0 0 0 0As Treatment PlantUnemploy Tax624 262 362 0 0 0 0 0 0As Treatment PlantFICA26,941 11,315 15,626 0 0 0 0 0 0As Treatment PlantWorkers Comp 19,123 8,031 11,091 0 0 0 0 0 0As Treatment Plant Total Personnel Services $510,325 $214,337 $295,989 $0 $0 $0 $0 $0 $0 Supplies & MaterialsOffice Supplies $1,804 $757 $1,046 $0 $0 $0 $0 $0 $0As Treatment PlantComputer Supplies 2,387 1,003 1,384 0 0 0 0 0 0As Treatment PlantPersonal Computers 1,857 780 1,077 0 0 0 0 0 0As Treatment PlantClothing & Uniforms 955 401 554 0 0 0 0 0 0As Treatment PlantChemicals 144,580 60,724 83,857 0 0 0 0 0 0As Treatment PlantRoad Supplies 0 0 0 0 0 0 0 0 0As Treatment PlantVehicle Supplies 530 223 308 0 0 0 0 0 0As Treatment PlantGas & Oil 8,780 3,688 5,092 0 0 0 0 0 0As Treatment PlantSmall Equip & Tools0 0 0 000 0 00As Treatment PlantBooks & Ref Materials 637 267 369 0 0 0 0 0 0As Treatment PlantGoods Purch for Resale 137,917 57,925 79,992 0 0 0 0 0 0As Treatment PlantGeneral 31,084 13,055 18,029 0 0 0 0 0 0As Treatment Plant Total Supplies & Materials$330,531 $138,823 $191,708 $0 $0 $0 $0 $0 $0 MaintenanceRep & Maint - Equip $42,224 $17,734 $24,490 $0 $0 $0 $0 $0 $0As Treatment PlantRep & Maint - Bldgs 16,020 6,728 9,291 0 0 0 0 0 0As Treatment PlantRep & Maint - Other2,122 891 1,231 0 0 0 0 0 0As Treatment Plant Total Maintenance$60,365 $25,353 $35,012 $0 $0 $0 $0 $0 $0 UtilitiesElectricity$45,701 $45,701 $0 $0 $0 $0 $0 $0 $0 100% COMMNatural Gas 44,418 44,418 0 0 0 0 0 0 0 100% COMMTelephone 7,891 3,314 4,577 0 0 0 0 0 0As Treatment Plant Total Utilities$98,009 $93,432 $4,577 $0 $0 $0 $0 $0 $0 Contracted ServicesConsult & Prof Serv $12,877 $5,409 $7,469 $0 $0 $0 $0 $0 $0As Treatment PlantMaint Contract9,005 3,782 5,223 0 0 0 0 0 0As Treatment PlantJanitorial Contracts 2,454 1,030 1,423 0 0 0 0 0 0As Treatment PlantContractors 21,570 9,059 12,510 0 0 0 0 0 0As Treatment PlantGeneral 52,819 22,184 30,635 0 0 0 0 0 0As Treatment Plant Total Contracted Services $98,725 $41,464 $57,260 $0 $0 $0 $0 $0 $0 Travel/TrainingIn-State $7,233 $3,038 $4,195 $0 $0 $0 $0 $0 $0As Treatment PlantOut-Of-State 0 0 0 0 0 0 0 0 0As Treatment Plant Total Travel/Training$7,233 $3,038 $4,195 $0 $0 $0 $0 $0 $0 OtherAdvertising$1,561 $655 $905 $0 $0 $0 $0 $0 $0As Treatment PlantSubscriptions 650 273 377 0 0 0 0 0 0As Treatment PlantPostage 5,306 2,229 3,078 0 0 0 0 0 0As Treatment PlantShipping & Handling104 44 60 0 0 0 0 0 0As Treatment PlantDues & Certifications 1,103 463 640 0 0 0 0 0 0As Treatment PlantInsurance 50,560 21,235 29,325 0 0 0 0 0 0As Treatment PlantRents & Leases 6,153 2,584 3,569 0 0 0 0 0 0As Treatment PlantHDR Draft 3/29/2007201
CITY OF BOZEMANPage 2 of 5COMPREHENSIVE WATER RATE STUDYEXHIBIT 10FUNCTIONALIZATION AND CLASSIFICATION OF EXPENSES Customer RelatedWeighted For:Actual Customer Meters & Fire RevenueBudget Commodity Capacity Customer Acctg. Services Protection Related All OtherAccount Desc. FY 07/08 (COM) (CAP) (AC) (WCA) (WCMS) (FP) (RR) (DA-O)Basis of ClassificationGeneral 20,689 8,690 12,000 0 0 0 0 0 0 As Treatment Plant Total Other $86,127 $36,173 $49,953 $0 $0 $0 $0 $0 $0 Internal ChargesAdmin Overhead $149,287 $62,700 $86,586 $0 $0 $0 $0 $0 $0 As Treatment PlantVeh Maint Fund 23,913 10,044 13,870 0 0 0 0 0 0 As Treatment Plant Total Internal Charges $173,200 $72,744 $100,456 $0 $0 $0 $0 $0 $0Total Treatment O&M $1,364,514 $625,364 $739,150 $0 $0 $0 $0 $0 $0Water Reservoirs Plant Personnel ServicesSalaries & Wages $85,121 $35,751 $49,370 $0 $0 $0 $0 $0 $0 As Reservoir PlantOvertime 2,825 1,186 1,638 0 0 0 0 0 0 As Reservoir PlantPERS 6,619 2,780 3,839 0 0 0 0 0 0 As Reservoir PlantHealth/Dental Ins 16,731 7,027 9,704 0 0 0 0 0 0 As Reservoir PlantLife Insurance 71 30 41 0 0 0 0 0 0 As Reservoir PlantUnemploy Tax 146 61 84 0 0 0 0 0 0 As Reservoir PlantFICA 6,282 2,638 3,644 0 0 0 0 0 0 As Reservoir PlantWorkers Comp 4,688 1,969 2,719 0 0 0 0 0 0 As Reservoir Plant Total Reservoirs - Personnel Services $122,482 $51,443 $71,040 $0 $0 $0 $0 $0 $0Total Water Plant O&M $1,486,996 $676,807 $810,189 $0 $0 $0 $0 $0 $0Water OperationsOperations Department Personnel Services Salaries & Wages $593,545 $0 $384,811 $154,322 $0 $0 $54,413 $0 $0 As Distribution PlantOvertime 15,319 0 9,932 3,983 0 0 1,404 0 0 As Distribution PlantPERS 44,584 0 28,905 11,592 0 0 4,087 0 0 As Distribution PlantHealth/Dental Ins 100,464 0 65,133 26,121 0 0 9,210 0 0 As Distribution PlantLife Insurance 499 0 324 130 0 0 46 0 0 As Distribution PlantUnemploy Tax 907 0 588 236 0 0 83 0 0 As Distribution PlantFICA 40,057 0 25,970 10,415 0 0 3,672 0 0 As Distribution PlantWorkers Comp 26,087 0 16,913 6,783 0 0 2,392 0 0 As Distribution Plant Total Personnel Services $821,463 $0 $532,576 $213,580 $0 $0 $75,307 $0 $0 Supplies & Materials Office Supplies $4,774 $0 $3,095 $1,241 $0 $0 $438 $0 $0 As Distribution PlantComputer Supplies 1,591 0 1,032 414 0 0 146 0 0 As Distribution PlantPersonal Computers 5,305 0 3,439 1,379 0 0 486 0 0 As Distribution PlantClothing & Uniforms 3,660 0 2,373 952 0 0 336 0 0 As Distribution PlantChemicals 0 0 0 0 0 0 0 0 0 As Distribution PlantRoad Supplies 9,548 0 6,190 2,483 0 0 875 0 0 As Distribution PlantVehicle Supplies 6,631 0 4,299 1,724 0 0 608 0 0 As Distribution PlantGas & Oil 15,435 0 10,007 4,013 0 0 1,415 0 0 As Distribution PlantSmall Equip & Tools 9,018 0 5,846 2,345 0 0 827 0 0 As Distribution PlantBooks & Ref Materials 424 0 275 110 0 0 39 0 0 As Distribution PlantGoods Purch for Resale 0 0 0 0 0 0 0 0 0 As Distribution PlantGeneral 71,080 0 46,083 18,481 0 0 6,516 0 0 As Distribution Plant Total Supplies & Materials $127,466 $0 $82,640 $33,141 $0 $0 $11,685 $0 $0 MaintenanceRep & Maint - Equip $19,839 $0 $12,862 $5,158 $0 $0 $1,819 $0 $0 As Distribution PlantRep & Maint - Bldgs 0 0 0 0 0 0 0 0 0 As Distribution PlantRep & Maint - Other 5,305 0 3,439 1,379 0 0 486 0 0 As Distribution Plant Total Maintenance $25,143 $0 $16,301 $6,537 $0 $0 $2,305 $0 $0 UtilitiesElectricity $17,334 $17,334 $0 $0 $0 $0 $0 $0 $0 100% COMMNatural Gas 7,718 7,718 0 0 0 0 0 0 0 100% COMMTelephone 3,713 0 2,407 965 0 0 340 0 0 As Distribution Plant Total Utilities $28,765 $25,052 $2,407 $965 $0 $0 $340 $0 $0 Contracted ServicesConsult & Prof Serv $29,961 $0 $19,424 $7,790 $0 $0 $2,747 $0 $0 As Distribution PlantMaint Contract 755 0 489 196 0 0 69 0 0 As Distribution PlantJanitorial Contracts 0 0 0 0 0 0 0 0 0 As Distribution PlantContractors 0 0 0 0 0 0 0 0 0 As Distribution PlantGeneral 21,300 0 13,809 5,538 0 0 1,953 0 0 As Distribution Plant Total Contracted Services $52,016 $0 $33,723 $13,524 $0 $0 $4,768 $0 $0HDR Draft 3/29/2007202
CITY OF BOZEMANPage 3 of 5COMPREHENSIVE WATER RATE STUDYEXHIBIT 10FUNCTIONALIZATION AND CLASSIFICATION OF EXPENSES Customer RelatedWeighted For:Actual Customer Meters & Fire RevenueBudget Commodity Capacity Customer Acctg. Services Protection Related All OtherAccount Desc. FY 07/08 (COM) (CAP) (AC) (WCA) (WCMS) (FP) (RR) (DA-O)Basis of Classification Travel/Training In-State $8,973 $0 $5,818 $2,333 $0 $0 $823 $0 $0 As Distribution PlantOut-Of-State 0 0 0 0 0 0 0 0 0 As Distribution Plant Total Travel/Training $8,973 $0 $5,818 $2,333 $0 $0 $823 $0 $0 Other Advertising $1,561 $0 $1,012 $406 $0 $0 $143 $0 $0 As Distribution PlantSubscriptions 520 0 337 135 0 0 48 0 0 As Distribution PlantPostage 520 0 337 135 0 0 48 0 0 As Distribution PlantShipping & Handling 0 0 0 0 0 0 0 0 0 As Distribution PlantDues & Certifications 1,561 0 1,012 406 0 0 143 0 0 As Distribution PlantInsurance 50,560 0 32,780 13,146 0 0 4,635 0 0 As Distribution PlantRents & Leases 2,652 0 1,720 690 0 0 243 0 0 As Distribution PlantGeneral 18,727 0 12,141 4,869 0 0 1,717 0 0 As Distribution Plant Total Other $76,101 $0 $49,338 $19,786 $0 $0 $6,977 $0 $0 Internal Charges Admin Overhead $149,287 $0 $96,786 $38,815 $0 $0 $13,686 $0 $0 As Distribution PlantVeh Maint Fund 8,436 0 5,469 2,193 0 0 773 0 0 As Distribution Plant Total Internal Charges $157,723 $0 $102,256 $41,008 $0 $0 $14,459 $0 $0 Total Operations O&M $1,297,650 $25,052 $825,058 $330,876 $0 $0 $116,664 $0 $0Utilities Locate Personnel ServicesSalaries & Wages $36,174 $0 $0 $0 $0 $36,174 $0 $0 $0 100% WCMSOvertime 483 0 0 0 0 483 0 0 0 100% WCMSPERS 2,967 0 0 0 0 2,967 0 0 0 100% WCMSHealth/Dental Ins 9,610 0 0 0 0 9,610 0 0 0 100% WCMSLife Insurance 41 0 0 0 0 41 0 0 0 100% WCMSUnemploy Tax 66 0 0 0 0 66 0 0 0 100% WCMSFICA 3,221 0 0 0 0 3,221 0 0 0 100% WCMSWorkers Comp 1,788 0 0 0 0 1,788 0 0 0 100% WCMS Total Personnel Services $54,350 $0 $0 $0 $0 $54,350 $0 $0 $0 Supplies & MaterialsOffice Supplies $371 $0 $0 $0 $0 $371 $0 $0 $0 100% WCMS Computer Supplies 955 0 0 0 0 955 0 0 0 100% WCMSGeneral 2,652 0 0 0 0 2,652 0 0 0 100% WCMS Total Supplies & Materials $3,978 $0 $0 $0 $0 $3,978 $0 $0 $0 Contracted ServicesGeneral $3,235 $0 $0 $0 $0 $3,235 $0 $0 $0 100% WCMS Total Contracted Services $3,235 $0 $0 $0 $0 $3,235 $0 $0 $0Total Utilities Locate $61,564 $0 $0 $0 $0 $61,564 $0 $0 $0Water Services Supplies & MaterialsGeneral $37,132 $0 $0 $0 $0 $37,132 $0 $0 $0 100% WCMS Total Water Services - Supplies & Materials $37,132 $0 $0 $0 $0 $37,132 $0 $0 $0Meter Reading Personnel ServicesSalaries & Wages $88,551 $0 $0 $0 $88,551 $0 $0 $0 $0 100% WCA Overtime 2,993 0 0 0 2,993 0 0 0 0 100% WCA PERS 6,870 0 0 0 6,870 0 0 0 0 100% WCA Health/Dental Ins 17,160 0 0 0 17,160 0 0 0 0 100% WCA Life Insurance 73 0 0 0 73 0 0 0 0 100% WCA Unemploy Tax 152 0 0 0 152 0 0 0 0 100% WCA HDR Draft 3/29/2007203
CITY OF BOZEMANPage 4 of 5COMPREHENSIVE WATER RATE STUDYEXHIBIT 10FUNCTIONALIZATION AND CLASSIFICATION OF EXPENSES Customer RelatedWeighted For:Actual Customer Meters & Fire RevenueBudget Commodity Capacity Customer Acctg. Services Protection Related All OtherAccount Desc. FY 07/08 (COM) (CAP) (AC) (WCA) (WCMS) (FP) (RR) (DA-O)Basis of ClassificationFICA 6,392 0 0 0 6,392 0 0 0 0 100% WCA Workers Comp 4,866 0 0 0 4,866 0 0 0 0 100% WCA Total Personnel Services $127,056 $0 $0 $0 $127,056 $0 $0 $0 $0 Supplies & MaterialsOffice Supplies $3,183 $0 $0 $0 $3,183 $0 $0 $0 $0 100% WCA Computer Supplies 318 0 0 0 318 0 0 0 0 100% WCA Clothing & Uniforms 637 0 0 0 637 0 0 0 0 100% WCA Books & Ref Materials 530 0 0 0 530 0 0 0 0 100% WCA General 159,135 0 0 0 159,135 0 0 0 0 100% WCA Total Supplies & Materials $163,803 $0 $0 $0 $163,803 $0 $0 $0 $0 MaintenanceRep & Maint - Equip $3,183 $0 $0 $0 $3,183 $0 $0 $0 $0 100% WCA Total Maintenance $3,183 $0 $0 $0 $3,183 $0 $0 $0 $0 Contracted ServicesMaintenance $647 $0 $0 $0 $647 $0 $0 $0 $0 100% WCA Total Contracted Services $647 $0 $0 $0 $647 $0 $0 $0 $0 Travel/TrainingIn-State $1,561 $0 $0 $0 $1,561 $0 $0 $0 $0 100% WCA Out-Of-State 2,601 0 0 0 2,601 0 0 0 0 100% WCA Total Travel/Training $4,162 $0 $0 $0 $4,162 $0 $0 $0 $0 OtherSubscriptions $52 $0 $0 $0 $52 $0 $0 $0 $0 100% WCA Postage 15,606 0 0 0 15,606 0 0 0 0 100% WCA Dues & Certifications 520 0 0 0 520 0 0 0 0 100% WCA Total Other $16,178 $0 $0 $0 $16,178 $0 $0 $0 $0Total Meter Reading $315,029 $0 $0 $0 $315,029 $0 $0 $0 $0Hydrants Supplies & MaterialsGeneral $21,218 $0 $0 $0 $0 $0 $21,218 $0 $0 100% FP Total Hydrants - Supplies & Materials $21,218 $0 $0 $0 $0 $0 $21,218 $0 $0Water Valves Supplies & MaterialsGeneral $8,487 $0 $5,502 $2,207 $0 $0 $778 $0 $0 As Trans/Distrib Total Water Valves - Supplies & Materials $8,487 $0 $5,502 $2,207 $0 $0 $778 $0 $0Main Repairs Supplies & MaterialsGeneral $7,957 $0 $5,159 $2,069 $0 $0 $729 $0 $0 As Trans/Distrib Total Main Repairs - Supplies & Materials $7,957 $0 $5,159 $2,069 $0 $0 $729 $0 $0Total Operations & Maintenance $3,236,033 $701,858 $1,645,909 $335,151 $315,029 $98,695 $139,390 $0 $0HDR Draft 3/29/2007204
CITY OF BOZEMANPage 5 of 5COMPREHENSIVE WATER RATE STUDYEXHIBIT 10FUNCTIONALIZATION AND CLASSIFICATION OF EXPENSES Customer RelatedWeighted For:Actual Customer Meters & Fire RevenueBudget Commodity Capacity Customer Acctg. Services Protection Related All OtherAccount Desc. FY 07/08 (COM) (CAP) (AC) (WCA) (WCMS) (FP) (RR) (DA-O)Basis of ClassificationRate Revenues Dedicated to CIP $2,740,811 $529,545 $1,595,941 $493,099 $0 $0 $122,225 $0 $0As Total Net Plant Debt ServiceWater Revenue Bonds $0 $0 $0 $0 $0 $0 $0 $0 $0 As Total Net PlantLyman Creek Water Revenue Bonds 62,900 12,153 36,626 11,316 0 0 2,805 0 0 As Total Net PlantLyman Creek Water Revenue Bonds - Phase II 30,062 5,808 17,505 5,408 0 0 1,341 0 0 As Total Net PlantNew Revenue Bond 0 0 0 0 0 0 0 0 0 As Total Net PlantNew SRF Loan 0 0 0 0 0 0 0 0 0 As Total Net PlantTotal Debt Service$92,962 $17,961 $54,131 $16,725 $0 $0 $4,146 $0 $0TOTAL REVENUE REQUIREMENT $6,069,806 $1,249,364 $3,295,981 $844,975 $315,029 $98,695 $265,761 $0 $0Less: Miscellaneous Revenues Sales of Water Materials $108,160 $0 $0 $0 $0 $0 $0 $108,160 $0 100% RRHydrant Fees 110,250 0 0 0 0 0 110,250 0 0 100% FPInterest Income 88,110 0 0 0 0 0 0 88,110 0 100% RRRefunds & Reimbursements (ACH discount of $ (24,877) 0 0 0 0 0 0 (24,877) 0 100% RRInspection Service Charges 54,080 0 0 0 0 0 0 54,080 0 100% RRRents & Royalties 43,264 0 0 0 0 0 0 43,264 0 100% RRTotal Miscellaneous Revenues$378,987 $0 $0 $0 $0 $0 $110,250 $268,737 $0NET REVENUE REQUIREMENTS $5,690,818 $1,249,364 $3,295,981 $844,975 $315,029 $98,695 $155,511 ($268,737) $0 % OF NET REVENUE REQUIREMENTS 100.0% 22.0% 57.9% 14.8% 5.5% 1.7% 2.7% -4.7% 0.0%HDR Draft 3/29/2007205
CITY OF BOZEMANCOMPREHENSIVE WATER RATE STUDYEXHIBIT 11ALLOCATION OF REVENUE REQUIREMENTSNet Revenue Low Multi- Montana Classification Components Requirement Residential Income Family Commercial Government State U Unmetered Allocation FactorCommodity Related$1,249,364 $431,164 $1,317 $282,197 $344,675 $30,095 $158,832 $1,083 (COMM) Capacity Related$3,295,981 $1,292,963 $3,555 $676,996 $836,921 $101,258 $381,041 $3,247 (CAP) Customer Related -Actual Customer$844,975 $580,379 $2,983 $167,243 $87,147 $5,424 $1,537 $261 (AC) -Weighted for Cust. Acctg.315,029 215,905 1,110 62,215 32,991 2,035 572 202 (WCA) -Weighted for Meters & Services98,695 60,976 313 17,571 18,342 1,142 323 28 (WCMS) Total Customer Related$1,258,699 $857,260 $4,406 $247,030 $138,480 $8,600 $2,432 $491 Public Fire Protection Related$155,511 $85,801 $441 $24,725 $42,945 $802 $757 $40 (FP) Revenue Related($268,737) ($133,989) ($256) ($55,291) ($49,231) ($4,653) ($25,072) ($246) (RR) Direct Assignment$0 $0 $0 $0 $0 $0 $0 $0 (DA) NET REVENUE REQUIREMENT $5,690,818 $2,533,199 $9,464 $1,175,657 $1,313,791 $136,103 $517,990 $4,615 Percentage of Total 100.0% 44.5% 0.2% 20.7% 23.1% 2.4% 9.1% 0.1%HDR Draft 3/29/2007206
CITY OF BOZEMAN COMPREHENSIVE WATER RATE STUDYEXHIBIT 12SUMMARY OF THE COST OF SERVICE ANALYSISFY 07/08 O&M Low Multi- Montana Expenses Residential Income Family Commercial Government State U UnmeteredRevenues at Present Rates $5,690,818 $2,837,374 $5,426 $1,170,841 $1,042,516 $98,526 $530,935 $5,200 Less: Allocated Revenue Requirement $5,690,818 $2,533,199 $9,464 $1,175,657 $1,313,791 $136,103 $517,990 $4,615Total Balance/(Deficiency) in Rates ($0) $304,175 ($4,038) ($4,816) ($271,274) ($37,577) $12,945 $585Required % Rate Adjustment 0.0% -10.7% 74.4% 0.4% 26.0% 38.1% -2.4% -11.3%COSA With Proposed Adjustment $5,690,818 $2,533,199 $9,464 $1,175,657 $1,313,791 $136,103 $517,990 $4,615 % COSA With Proposed Adjustment 0.0% -10.7% 74.4% 0.4% 26.0% 38.1% -2.4% -11.3%HDR Draft 3/29/2007207
CITY OF BOZEMAN COMPREHENSIVE WATER RATE STUDYEXHIBIT 13 AVERAGE UNIT COSTSLow Multi- Montana Total Residential Income Family Commercial Government State U UnmeteredCommodity $/ccf $0.58 $0.58 $0.58 $0.58 $0.60 $0.58 $0.58 $0.00Capacity $/ccf $1.54 $1.74 $1.56 $1.39 $1.45 $1.96 $1.39 $0.00Fire/Revenue/Direct $/ccf ($0.05) ($0.06) $0.08 ($0.06) ($0.01) ($0.07) ($0.09) $0.00 Total $/ccf $2.07 $2.25 $2.22 $1.90 $2.03 $2.47 $1.88 $0.00Customer Costs - $/account/month $11.26 $11.13 $11.13 $11.13 $12.41 $12.15 $11.92 $13.64Average Total Cost $/ccf $2.66 $3.40 $4.16 $2.41 $2.27 $2.64 $1.89 $2.47Basic Data: Annual Water Consumption (ccf) 2,140,629 745,114 2,277 487,678 577,568 51,636 274,485 1,871Number of Accounts 9,312 6,420 33 1,850 930 59 17 3HDR Draft 3/29/2007208