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Mountain House Community Service
District January 11, 2017
Introduction to the Water & Sewer Rate
Studies Presented by:
Ed Pattison – General Manager Sarah Ragsdale – Administrative
Services Director Greg Clumpner – Director, NBS Greg Henry – Consultant, NBS
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Overview of the Presentation:
“Rates 101” – Overview of a Rate Study
Rate History & Current Status
Initial Study Results
Summary of Board Direction Needed
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1. Rates 101 Overview of a “Rate Study”
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30,000-Foot Overview of Water Rates: • Enterprise Utilities are:
– Intended to be Self-Sufficient (Rate Revenue Cover Costs) – Fire-walled from General Fund Activities (Cannot fund GF)
• Mountain House CSD: – Is Special Case (i.e., a Master-Planned Community) –
Resulted in the General Fund Subsidizing Water and Sewer Utilities
– Unique in How the Community and Finances were Set Up – Long-Term Plan is to Reach Self-Sufficiency as Planned
Growth is Achieved; MHCSD is not a Typical Water Utility
1. Overview of a Rate Study
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Water Rates – Background and Industry Trends: Major Factors Influencing Rates: • Drought: Supply Shortages and Conservation Mandates • Legal Constraints (San Juan Capistrano, Palmdale, etc.) • Results: Most California Water Agencies are Raising Rates
1. Overview of a Rate Study (Cont.)
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Water Rates – Background and Industry Trends: • Legal Requirements:
– Compliance with Prop 218 (“Right to Vote on New Taxes”) • No Subsidies between Customer Classes • “Parcel” has been Legally Defined as Customer Classes (Not
Individual Parcels) • Rate Calculation must Be Cost-Based, but are not Required to
be “Precise” (i.e., they need to reasonably reflect actual costs) – SB 814 (new Drought/Excessive Water Use Act) – Must
adopt measures to prevent “Excessive Use” and Wasting Water, Including Conservation Rates and Penalties for “Excessive Use”
– Cost-Basis, Particularly for “Tiered” Volumetric Rates (Recently filed Hillsborough Lawsuit is about this Issue)
1. Overview of a Rate Study (Cont.)
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Considers what rate structure alternative best meets the District’s need to collect rate revenue from each customer
class.
Allocates revenue requirements to the
customer classes in a “fair and equitable"
manner that complies with Prop 218.
Compares current sources and uses of
funds and determines the revenue needed from
rates and projected rate adjustments.
FINANCIAL PLAN
COST-OF-SERVICE
ANALYSIS
RATE DESIGN a b c
1. Overview of a Rate Study (Cont.)
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How are Annual Rate Revenue Requirements
Determined?
1a. Financial Plan
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1. O&M Req’t
2. Debt Req’t
3. Capital Req’t
4. Reserve
Req’t Rates
Funding Priorities:
1a. Financial Plan (Cont.)
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Funding Priorities: 1. O&M Req’t
– Budgeted Expenses – Identified by type (labor cost, electricity) and projected
forward with a unique inflation factor – Non-Rate Revenue is deducted – For MHCSD, the GF subsidizes O&M Expenses – Pass Through Costs (Water Purchases)
2. Debt Req’t – Existing Debt Schedules – For MHCSD this is paid using the “pledge” revenue – Includes payment to developer
1a. Financial Plan (Cont.)
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Funding Priorities (cont.): 3. Capital Improvement Costs
– Based upon Capital Improvement Program – Inflated using Construction Cost Index – Can be financed or Pay-As-You-Go with reserves or rate
revenue – Can be reduced / extended at the direction of the Board
1a. Financial Plan (Cont.)
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Funding Priorities (cont.): 4. Reserve Requirements:
– Enterprise-Funded Utilities are supposed to be self-sufficient, so reserves are intended to avoid needing additional GF subsidies in the future.
– GFOA* standards “Start with 90 days of working capital, move up or down based upon specifics, never less that 45 day”
– Capital R&R fund standard is 3% net assets – Can be held for specific purpose (rate stabilization reserve) – Special reserves
• Often are restricted (for example, connection fees)
1a. Financial Plan (Cont.)
* GFOA = Government Finance Officers Association
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Board Direction Needed: 1. General Fund Subsidies:
– Continue at Current Levels? – Continue at Reduced Level? – Phase Out Over Time? (How fast?)
2. CIP Funding Levels: – 100% of Planned Capital Project? – Something less?
3. Reserve Fund Levels: – Allow to remain below target levels? – Raise rates in order to meet Target levels? How Fast?
1a. Financial Plan (Cont.)
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How do we determine the cost of serving
individual customers (or customer classes)?
1b. Cost of Service Analysis
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What are “Defensible” Water Rates?: • Charges Cannot be More Than Actual Cost of
Serving that Customer/Parcel • Cost-Based (Follow Industry Standards and San
Juan Capistrano guidelines) • Non-Discriminatory (One Class is Not Subsidizing
Another Class) • Volumetric Tiers must demonstrate their “cost-
basis” (i.e., not merely set to achieve conservation objectives)
1b. Cost of Service Analysis (Cont.)
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Allocating Costs to Customer Classes (Part 1):
• Allocated by peak water use & meter size
Capacity Related Costs
• Allocated equally to each meter
Customer Related Costs
• Allocated by meter size to fire meters
Fire Protection Costs Fixe
d C
osts
1b. Cost of Service Analysis (Cont.)
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• Allocated by consumption
Commodity Costs
• Allocated by consumption
Conservation Costs
Varia
ble
Cos
ts
Allocating Costs to Customer Classes (Part 2):
1b. Cost of Service Analysis (Cont.)
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Revenue Requirements Allocated Each Customer Class:
Total Fixed Costs by Class
+ Total Variable Costs by Class
= Revenue Requirement by Class
1b. Cost of Service Analysis (Cont.)
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Board Direction Needed: 1. Should Current Customer Classes be Retained?
– Density-based EDU’s? – Single-Family, Multi-Family & Non-Residential? – Meter sizes as customer classes?
1b. Cost of Service Analysis (Cont.)
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How should rate revenue be collected from
customers & customer classes?
1c. Rate Design Analysis
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What are Fixed vs. Variable %’s
30% Fixed
70% Variable
This Promotes Revenue
STABILITY
This Promotes Revenue
INSTABILITY 30% Variable
70% Fixed
Due to Drought/Conservation Impacts, Revenue Stability Now Plays a Bigger Role in Rate Design Than in the Past.
1c. Rate Design Analysis (Cont.)
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Volumetric & Tiered Rate Designs: The San Juan Capistrano court ruling established (at least for now) that tiered volumetric rates must reflect actual costs.
1c. Rate Design Analysis (Cont.)
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Board Direction Needed: 1. What % of Rate Revenue Should be Collected from
Fixed vs. Volumetric Rates? – Higher Fixed % provides more revenue stability – Higher Volumetric % Provides more Conservation Incentives – Meter sizes as customer classes?
2. What Volumetric Rate Should be Used? – Uniform Tier (one volumetric rate for all customers & usage) – Tiered Rates (how many, can they be cost-based, etc.) – Meter sizes as customer classes?
3. Rate Design for Sewer Rates? – Should volumetric rates be Used? – If yes, should they be based on average winter water use?
1c. Rate Design Analysis (Cont.)
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2. Current Status – Current Bill
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2. Current Status – Current Bill
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2. Rate History
$-
$20
$40
$60
$80
$100
$120
$140
$160
$180
Total Utility Bill Charges
Water use Water base Wastewater base Stormwater base
Water debt service Wastewater debt service Stormwater debt service Garbage
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2. Rate History (cont.)
$-
$20
$40
$60
$80
$100
$120
$140
Utility Bill Charges excluding Garbage
Water use Water base Wastewater base Stormwater base
Water debt service Wastewater debt service Stormwater debt service
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$-
$10
$20
$30
$40
$50
$60
$70
$80
$90
Utility Bill Debt Service Charges
Water debt service Wastewater debt service Stormwater debt service
2. Rate History (cont.)
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$-
$10
$20
$30
$40
$50
$60
Utility Bill O&M Charges
Water use Water base Wastewater base Stormwater base
2. Rate History (cont.)
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$-
$5
$10
$15
$20
$25
$30
$35
$40
$45
$50
Water and Wastewater O&M Charges
Water use Water base Wastewater base
2. Rate History (cont.)
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2. Rate History (cont.)
2002-2003 2016-2017 % IncreaseWater charge (5 units) 2.38$ 2.25$ -5%Water base 14.81 14.08 -5%Water debt service 18.40 37.11 102%Storm debt service 4.42 10.81 145%Storm fee 8.85 7.84 -11%Sewer fee 24.56 25.41 3%Sewer debt service 16.52 32.07 94%Garbage (64 gal toter, bi-weekly recycle) 27.20 38.60 42%
117.14$ 168.17$ 44%
Comparison of Utility Billing for Medium Density Residence
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2. Rate History (cont.)
General Fund Subsidy Subsidies by Year Cumulative Subsidies
Water Wastewater Stormwater Water Wastewater Stormwater
FY 08-09 593,058 1,338,227 198,012 593,058 1,338,227 198,012 FY 09-10 648,469 483,953 52,380 1,241,527 1,822,180 250,392 FY 10-11 611,624 353,231 - 1,853,151 2,175,411 250,392 FY 11-12 530,515 374,800 - 2,383,666 2,550,211 250,392 FY 12-13 - 261,598 - 2,383,666 2,811,809 250,392 FY 13-14 42,254 217,210 - 2,425,920 3,029,019 250,392 FY 14-15 230,745 112,640 - 2,656,665 3,141,659 250,392 FY 15-16 715,000 17,000 - 3,371,665 3,158,659 250,392
Total - $6,780,716
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2. Rate History (cont.)
General Fund Subsidy Subsidies by Year Cumulative Subsidies
Water Wastewater Stormwater Water Wastewater Stormwater
FY 08-09 593,058 1,338,227 198,012 593,058 1,338,227 198,012 FY 09-10 648,469 483,953 52,380 1,241,527 1,822,180 250,392 FY 10-11 611,624 353,231 - 1,853,151 2,175,411 250,392 FY 11-12 530,515 374,800 - 2,383,666 2,550,211 250,392 FY 12-13 - 261,598 - 2,383,666 2,811,809 250,392 FY 13-14 42,254 217,210 - 2,425,920 3,029,019 250,392 FY 14-15 230,745 112,640 - 2,656,665 3,141,659 250,392 FY 15-16 715,000 17,000 - 3,371,665 3,158,659 250,392
Total - $6,780,716
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2. Rate History (cont.)
General Fund Subsidy
$0.0 Mil
$0.5 Mil
$1.0 Mil
$1.5 Mil
$2.0 Mil
$2.5 Mil
FY 08-09 FY 09-10 FY 10-11 FY 11-12 FY 12-13 FY 13-14 FY 14-15 FY 15-16
Utility Subsidies by Year
Water Wastewater Stormwater
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2. Current Status – Bill Comps
$23.70
$29.51$31.99
$42.27
$51.53 $51.73 $52.00$56.59
$64.63$68.78
$75.58
$-
$20
$40
$60
$80
Regional Water Bill Comparisons (Monthly)Single Family Residential* (12 hcf / month)
Water: VariableWater: Fixed
* Has implemented Penalty/Drought Rates or Surcharges.˜ Water & Wastewater services provided by multiple agencies.
Currently doing a Rate Study. ** Recently completed a Rate Study.
*Assumed to be a medium density home with a 3/4" meter
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2. Current Status – Bill Comps
$31.87 $33.76 $34.00
$42.06$44.78
$51.25
$57.12 $57.48
$67.00 $68.76 $69.28
$-
$20
$40
$60
$80
Regional Wastewater Bill Comparisons (Monthly)Single Family Residential
Sewer: VariableSewer: Fixed
* Has implemented Penalty/Drought Rates or Surcharges.˜ Water & Wastewater services provided by multiple agencies.
Currently doing a Rate Study. ** Recently completed a Rate Study.
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2. Current Status – Bill Comps
$57.70
$76.03$80.76
$94.06 $96.51$100.75
$107.44$114.07
$118.53$125.90
$133.91
$-
$20
$40
$60
$80
$100
$120
$140
$160
Regional Total Water & Wastewater Bill Comparisons (Monthly)
Wastewater
Water
* Has implemented Penalty/Drought Rates or Surcharges.˜ Water & Wastewater services provided by multiple agencies.
Currently doing a Rate Study. ** Recently completed a Rate Study.
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3. Scenarios of Initial Results & Rate Increases
Pledge: • Revenue Excluded from Analysis • Expenses Covered Via Pledge Revenue Excluded
– Bond Service Payments – Repayment to Developer
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3. Scenarios of Initial Results & Rate Increases
Water Scenario #1: Highest Water Rate Increases: - GF subsidy is phased out - Reserves = Industry Standard
Water Scenario #2 Lowest Water Rate Increases: - GF subsidy continues - GF funds Emergency Reserves - Reserves set at Minimum
Sewer Scenario #1: Highest Sewer Rate Increases: - GF subsidy is phased out - Reserves = Industry Standard
Sewer Scenario #2: Lowest Sewer Rate Increases: - GF subsidy continues - Reserves set at Minimum
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3. Initial Results Water Scenario #1
$0
$500,000
$1,000,000
$1,500,000
$2,000,000
$2,500,000
$3,000,000
$3,500,000
$4,000,000
$4,500,000
$5,000,000
2017 2018 2019 2020 2021 2022
Annu
al O
blig
atio
ns
Fiscal Year Ending June 30
Water Revenue Requirements vs.Revenue Under Existing and Increased Rates
Reserve Funded Capital Expenses
Rate Funded Capital Expenses
O&M Expenses
Revenues under Existing Rates
Revenues under Increased Rates
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$-
$500,000
$1,000,000
$1,500,000
$2,000,000
$2,500,000
$3,000,000
$3,500,000
$4,000,000
2017 2018 2019 2020 2021 2022Fiscal Year Ending June 30
Ending Cash Balances vs.Recommended Reserve Targets
Un-Restricted
Ending Cash Balance Minimum Target Reserve Balance
3. Initial Results Water Scenario #1
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3. Initial Results Water Scenario #1
0.00%
33.02%
11.69%10.65%
8.04%6.13%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
0%
5%
10%
15%
20%
25%
30%
35%
40%
2017 2018 2019 2020 2021 2022
Cum
ulat
ive
Rat
e In
crea
se
Annu
al R
ate
Incr
ease
Fiscal Year Ending June 30
Projected Increases to Rate Revenue
Rate Increases Cumulative Rate Increase
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$0
$500,000
$1,000,000
$1,500,000
$2,000,000
$2,500,000
$3,000,000
$3,500,000
$4,000,000
$4,500,000
$5,000,000
2017 2018 2019 2020 2021 2022
Annu
al O
blig
atio
ns
Fiscal Year Ending June 30
Water Revenue Requirements vs.Revenue Under Existing and Increased Rates
Reserve Funded Capital Expenses
Rate Funded Capital Expenses
O&M Expenses
Revenues under Existing Rates
Revenues under Increased Rates
3. Initial Results Water Scenario #2
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$-
$500,000
$1,000,000
$1,500,000
$2,000,000
$2,500,000
$3,000,000
$3,500,000
$4,000,000
2017 2018 2019 2020 2021 2022Fiscal Year Ending June 30
Ending Cash Balances vs.Recommended Reserve Targets
Un-Restricted
Ending Cash Balance Minimum Target Reserve Balance
3. Initial Results Water Scenario #2
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3. Initial Results Water Scenario #2
0.00% 0.00% 0.00% 0.00% 0.00% 0.92%0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
0%
5%
10%
15%
20%
25%
30%
35%
40%
2017 2018 2019 2020 2021 2022
Cum
ulat
ive
Rat
e In
crea
se
Annu
al R
ate
Incr
ease
Fiscal Year Ending June 30
Projected Increases to Rate Revenue
Rate Increases Cumulative Rate Increase
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$0
$500,000
$1,000,000
$1,500,000
$2,000,000
$2,500,000
$3,000,000
$3,500,000
$4,000,000
2017 2018 2019 2020 2021 2022
Annu
al O
blig
atio
ns
Fiscal Year Ending June 30
Wastewater Revenue Requirements vs.Revenue Under Existing and Increased Rates
Reserve Funded Capital Expenses
Rate Funded Capital Expenses
O&M Expenses
Revenues under Existing Rates
Revenues under Increased Rates
3. Initial Results Wastewater Scenario #1
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$200,000
$400,000
$600,000
$800,000
$1,000,000
$1,200,000
$1,400,000
$1,600,000
2017 2018 2019 2020 2021 2022Fiscal Year Ending June 30
Ending Cash Balances vs.Recommended Reserve Targets
Wastewater Fund - Un-Restricted Reserves
Ending Cash BalanceMinimum Target Reserve Balance
3. Initial Results Wastewater Scenario #1
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3. Initial Results Wastewater Scenario #1
0.0%
31.9%
22.3%
1.6%
7.7%
16.1%
0%
20%
40%
60%
80%
100%
120%
0%
5%
10%
15%
20%
25%
30%
35%
2017 2018 2019 2020 2021 2022
Cum
ulat
ive
Rat
e In
crea
se
Annu
al R
ate
Incr
ease
Fiscal Year Ending June 30
Projected Increases to Rate Revenue Rate Increases Cumulative Rate Increases
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$0
$500,000
$1,000,000
$1,500,000
$2,000,000
$2,500,000
$3,000,000
$3,500,000
$4,000,000
2017 2018 2019 2020 2021 2022
Annu
al O
blig
atio
ns
Fiscal Year Ending June 30
Wastewater Revenue Requirements vs.Revenue Under Existing and Increased Rates
Reserve Funded Capital Expenses
Rate Funded Capital Expenses
O&M Expenses
Revenues under Existing Rates
Revenues under Increased Rates
3. Initial Results Wastewater Scenario #2
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$200,000
$400,000
$600,000
$800,000
$1,000,000
$1,200,000
$1,400,000
$1,600,000
2017 2018 2019 2020 2021 2022Fiscal Year Ending June 30
Ending Cash Balances vs.Recommended Reserve Targets
Wastewater Fund - Un-Restricted Reserves
Ending Cash BalanceMinimum Target Reserve Balance
3. Initial Results Wastewater Scenario #2
![Page 53: Introduction to the Water & Sewer Rate Studies](https://reader030.vdocuments.us/reader030/viewer/2022012709/61a9a92f42cc715ed30f744b/html5/thumbnails/53.jpg)
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3. Initial Results Wastewater Scenario #2
0.0%
5.1% 5.0% 4.8% 4.7% 4.6%
0%
20%
40%
60%
80%
100%
120%
0%
5%
10%
15%
20%
25%
30%
35%
2017 2018 2019 2020 2021 2022
Cum
ulat
ive
Rat
e In
crea
se
Annu
al R
ate
Incr
ease
Fiscal Year Ending June 30
Projected Increases to Rate Revenue Rate Increases Cumulative Rate Increases
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4. Summary of Board Direction Needed
• Financial Plan – Continue, Reduce, Eliminate General Fund Subsidy? – CIP Funding Level (100%, 50%, 25%?) – Strive to Meet Industry Standard Reserve Targets?
• Cost of Service – Customer Classes (EDU’s, SFR/MFR/Commercial, or
Meter Sizes)? • Rate Design
– % of Rate Revenue from Fixed vs % Variable Charges? – Volumetric Rates (Uniform, Tiered)? – Wastewater Rates with volumetric component?
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Questions