CC 2014-03-25_11.a. 2014 Water and Wastewater Financial Plan and Rate StudyMEMORANDUM
TO: CITY COUNCIL
FROM: GEOFF ENGLISH, DIRECTOR OF PUBLIC WORKS
DEBBIE MALICOAT, DIRECTOR OF ADMINISTRATIVE SERVICES'\J('-
SUBJECT: CONSIDERATION OF 2014 WATER AND WASTEWATER FINANCIAL
PLAN AND RA TE STUDY
DATE: MARCH 25, 2014
RECOMMENDATION:
It is recommended the City Council review the 2014 Water and Wastewater Rate Study
and: 1) schedule a public hearing to consider adjustment in water rates and in the water
rate structure as outlined in the study; 2) direct staff to prepare and distribute a
Proposition 218 notice for the proposed water rate increase; and 3) approve
recommended changes to the water and wastewater reserve policies.
IMPACT ON FINANCIAL AND PERSONNEL RESOURCES:
The proposed rate changes are anticipated to increase water revenue by 1 % in Fiscal
Year 2014-15, 2% in Fiscal Year 2015-16, and 3% each year for Fiscal Years 2016-17
through 2018-19.
BACKGROUND:
In May 2013, the City Council approved a contract wit~ Raftelis Financial Consultants,
Inc. (RFC) to prepare a Water and Wastewater Financial Plan and Rate Study. The
previous study was completed in 2009 and set rates for services for fiscal years 2009-
10 through 2013-14. The RFC study is intended to set rates for the next 5-year period,
beginning in July 2014. The study is attached for City Council consideration.
Based upon the provisions of Proposition 218, all affected rate payers must receive
written notice by mail at least 45 days prior to the City Council consideration of
adjustments. The notice must include the amount of the fee, the basis on which the fee
was calculated and the date, time and place of the public hearing and must clearly
advise of the right to protest the fee increase. A number of adjustments are
identified in the report. Therefore, in order to implement potential adjustments on July 1,
2014, staff is requesting the City Council review the results of the study and provide
direction prior to notification of the public hearing and formal consideration of the rate
adjustments, which is scheduled for May 27, 2014.
Due to the past management of the rate adjustments and cost control measures
implemented by the City, both the Water and Wastewater Funds have healthy fund
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balances. As a result, staff is pleased to report the results of the rate study recommend
no increase to the wastewater rates and only modest increases to the water rates.
ANAYL YSIS OF ISSUES:
A number of issues impact funding needs in the enterprise system. These include:
the ongoing infrastructure maintenance and upgrades identified in the Water Master
Plan and the City's Capital Improvement Program; the recent economic downturn
which resulted in a dramatic decrease in revenue derived from development impact
fees, resulting in current rates supporting a greater amount of capital projects;
important capital needs that impact costs for operation of the Lopez reservoir and
treatment facility; the ongoing operational costs of City staff; and potential impacts
of the current drought condition and impacts from conservation efforts. The current
rates adopted by the City Council have put the enterprise system in a solid financial
position with each fund able to meet its minimum reserve policy. However, as
operational costs continue to increase, and with expenses arising from new
regulations and mandates, without future revenue adjustments the enterprise
system would need to draw on reserves to offset annual shortfalls of approximately
$520,000 in Fiscal Year 2015-16 and approximately $800,000 by Fiscal Year 2018-
19. These challenges are not unique to the City of Arroyo Grande, as many
agencies throughout the state and nation face similar circumstances.
Water and Lopez Funds
Currently, water operations are funded by a rate structure that consists of three
components: a monthly service charge, a Lopez monthly base charge (both of
which vary by meter size) and a volume or consumption charge (which is tiered for
residential customers and uniform for non-residential customers). Rates for all
three components are also differentiated between accounts located within and
outside the. City limits. Page 5 of the RFC report displays the current monthly
charge for each of these components.
RFC reviewed the revenue required in order to meet the City's ongoing operating,
capital and debt needs, as well as to provide for an adequate level of reserves.
Based on this analysis, it is recommended that the City increase revenue through a
modest step up approach for Fiscal Years 2014-15 through 2018-19 of 1%, 2%,
3%, 3%, and 3%, respectively. This proposed approach aims to strike a balance
between the recognition of the current fiscal environment and the long-term needs
of the enterprise system, with a multi-year measured approach.
In addition to the rate adjustments, RFC proposes, and staff concurs with, several
changes to the rate structure that will respond to customer concerns or provide
easier administration of the water enterprise. These include:
• Charging the same rate for all accounts, whether or not they are located
within the City limits.
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• Combining the monthly service charge and the Lopez monthly base charge
as one monthly fixed charge.
• Change from a 4-tiered rate structure to a 3-tiered rate structure, with
expansion of the tiers.
Charging the same rate for all accounts and combining the service charges will
provide several benefits, including the simplification of the rate structure as well as
administration of the ten accounts that are outside the City limits.
As shown on page 7 of the RFC report, setting water allotments for the three tiers
more closely reflects the water demand of residential customers for indoor needs
(Tier 1 ), outdoor needs (Tier 2) and any additional usage. This continues ·to
encourage conservation of the City's water resources while simplifying the rate
structure. In addition, RFC recommends expanding the amount of water allocated
to each tier, again to more closely reflect indoor, outdoor and additional usage. For
single family residences, the first tier would expand from 12 units of water to 18
units (1 unit of water is equal to 100 cubic feet or 748 gallons). The second tier
would allocate an additional 18 units and all usage above 36 units in a bi-monthly
period would fall into the third tier.
Similarly, multi-family residential customers would have 18 units of water in the first
tier. However, because multi-family residential customers typically do not have the
same amount of outdoor water usage as single family residential customers, the
second tier would only allocate an additional 9 units of water and all water usage
over 27 units would fall into the third tier.
Non-residential and irrigation accounts would continue to be charged a uniform rate,
consistent with the current rate structure.
Rate Design
Water and wastewater rates are subject to Proposition 218, which in addition to a
45-day noticing requirement, has several provisions to ensure that rates are not
arbitrary and capricious, are based on the cost of providing the service and that the
charge imposed for the service doesn't exceed the proportional cost of service.
This means that there must be a nexus between the costs and the rates that are
charged, and that customer classes are charged equitably. The American Water
Works Association, a leader in setting industry standards, states that "the costs of
water rates and charges should be recovered from classes of customers in
proportion to the cost of serving those customers."
In determining the cost to provide water service, the total cost is analyzed by
function and then equitably distributed to the various classes of customers. In this
case, the costs of service are broken down into functional components of base cost,
extra capacity or peaking cost, and customer-service related costs. Some of these
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are fixed and do not change regardless of the amount of water used by a customer;
others are variable and depend on the amount of water consumed.
For example, meter reading and billing are done for every account, regardless of
how much water is used by the customer; these are categorized as fixed costs.
However, chemicals and water treatment costs increase or decrease depending on
the amount of water that is used by customers; these are categorized as variable
costs. The City's current fixed water charge generates approximately 37% of the
total revenue. The proposed rate structure maintains a similar percentage of
revenue from the fixed monthly charge to preserve the current level of revenue
stability (37% fixed I 63% variable).
Customer classes are groups of customers with similar use characteristics. In the
City's case, these have been determined to be: single family residential, multi-family
residential, non-residential, and irrigation. While there can be differences in use
within a customer class (not all single family residences use the same amount of
water each month), the class overall shares similar characteristics.
The cost of providing water service is allocated to each customer class, which
determines how much revenue should be generated by each class. Rates are then
derived based on the number of accounts, fixed and variable cost components and
usage characteristics of each class.
The City has historically used water for City facilities, buildings and parks without
being charged. Based on the consultant's understanding of regulations, as well as
staff's discussion with other cities, the report recommends that the City begin
paying for its water use. Since the City's water use falls into two categories, non-
residential for buildings and irrigation for parks and landscaping, the variable rates
for these customer classes will experience a slight decrease. As a result,
businesses will benefit and in most cases receive an initial water rate decrease. The
overall cost of each customer class has not significantly changed; however, the cost
will be spread over a greater number of units of water. The volume charge will
decrease in order to generate the revenue required to cover the costs for the class.
Another recommended change relates to non-residential customers that have
multiple accounts tied to one meter. These are typically commercial buildings, such
as strip malls or office buildings subdivided into several suites, or mobile home
parks. The previous rate model charged one meter fee for water, but each
"additional unit" was charged the Lopez Fee. For example, office suites often share
a restroom, yet currently each suite pays an independent Lopez Fee. The City has
received several complaints about this and it was perceived as inequitable to
charge each suite/mobile home for the Lopez Fee. The recommended rate
structure combines the meter charge and Lopez Fee into one charge that is based
on each meter, and provides a much lower "additional unit" fee that reflects just the
customer service component of water service. This will better reflect the costs
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PAGES
associated with this customer class and will address the concerns the City has
received from ratepayers over the past several years.
Due to modifications to the rate structure, there are some minor variations in the
impacts of the first year rate increase on different types of customers. In order to
help visualize the variations, staff analyzed the impacts on actual charges to
different neighborhoods that represent typical differences in the size of homes and
properties.
The impact of the rate recommendations on various customers and usage levels is
shown as follows:
ProE!osed Rate Increase
Avg
Units Current 1st Year 1st Year%
Used Char!le FY 2015 FY2016 FY 2017 FY2018 FY2019 Increase Increase
Single Family Res_idence .
Avg Rancho Grande Household (5/8") so 243.54 249.11 254.74 263.03 27L41 279.83 5.57 2.3%
Avg Berry Gardens Household (5/8") 32 167.40 165.97 169.38 174.66 179.97 185.45 (L43) -0.9%
Avg East AG Household (5/8") 24 137.48 136.61 139.22 143.46 147.73 152.09 (0.87) -0.6%
Avg West AG Household (5/8") 20 122.52 12L93 124.14 127.86 13L61 135.41 (0.59) -0.5%
Low usage user (5/8") 12 92.60 94.61 96.08 98.82 10L59 104.39 2.01 2.2%
Extremely low usage user (5/8") 5 69.01 7L30 72.14 74.04 75.97 77.93 2.29 3.3%
Avg Mobile Home Park -300 units (6") 3152 15,138.68 15,m.10 16,092.75 16,598.84 17,105.42 17,612.51 634.42 4.2%
Avg Residential (1") 31 183.62 178.24 18L67 187.19 192.76 198.50 (5.38) -2.9%
Multi-Family Residence
Avg Apartment Complex -4 units (1") 45 265.71 264.84 269.70 277.85 286.05 294.29 (0.87) -0.3%
Avg_Apartment Complex -12 units (LS") 300 _1,~6-5-i -1,276.90
..
1,306.45 1,349.31 1,392.21 1,436.00 (79.64) -5.9%
Non-Residential
Avg Business-Large (1") 200 1,019.04 764.59 785.10 810.77 838.49 866.25 (254.45) -25.0%
Avg Business -Box Store (2") 350 1,834.58 1,344.88 1,380.81 1,425.90 1,474.57 1,523.31 (489.70) -26.7% ..
Avg Business -Small/Village (5/8") 15 103.82 106.70 108.59 11L69 114.97 118.28 2.88 2.8%
Avg 9 Businesses (Single Meter -5/8") 5 409.81 190.40 192.09 196.87 20L73 206.62 (219.41) -53.5%
Irrigation
Avg Low usage (S/8") 40 20L24 203.05 207.44 213.94 220.87 227.43 L81 0.9%
Avg High usage (4") 300 1,703.44 1,685.76 1,719.84 1,m.43 1,828.35 l,88L61 (17.68) -LO%
In addition to considering the impacts to various customer classes, staff asked RFC
to compare the City's water and sewer rates to those in neighboring communities.
Exhibits A and B on pages 33 and 34 of the RFC report reflect the comparison for
single family homes throughout the area. As displayed in the graphs, the City's
water rates are lower than four other agencies in the County, and near the mid-point
of all agencies. The City's sewer rates as displayed on the graph, include the fees
for the South San Luis Obispo County Sanitation District (SCSD), and are the
lowest in the County.
Reserves
The City's current reserves in the Water and Lopez Funds are $6.2 million. RFC
reviewed the City's current Water and Sewer Fund reserves and has recommended
that the City increase its operating reserve from 60 days of operating and
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maintenance costs to 90 days. This will provide a greater degree of flexibility if
revenue decreases due to conservation efforts or in the event of unforeseen costs
or interruption of service. The report recommends maintaining the current capital
reserve at $500,000 and the debt service reserve equal to 1-year of debt service
obligations (approximately $1.4 million). Staff is recommending the use of some
reserves to phase in the recommended rate increase, but believe it is in the City's
best interest to keep the total reserves at approximately $6 million (approximately
$3 million above the policy minimum) due to additional projected capital needs and
anticipated water supply and conservation related project costs.
Sewer Fund
The Sewer Fund has made great strides financially in recent years and is a far cry from
where it was in fiscal year 2001-02, when the year ended with a negative fund balance.
Through difficult, but prudent rate increases in the past, the Sewer Fund ended Fiscal
Year 2013-14 with reserves meeting the minimum policy levels for the first time in a
decade.
Wastewater rates, which consist of a monthly base charge and a discharge commodity
rate per unit are displayed on page 27 of the RFC report. At this time, revenues are
sufficient to cover all operating expenses. As a result, the Sewer Fund is projected to
maintain fiscal sustainability and solvency under the current rates and no rate
adjustments are necessary at this time. However, staff will continue to closely monitor
the fund and if circumstances change, may return to the Council to recommend
appropriate responses.
In addition, while the City's wastewater rates are not recommended to increase at this
time, the SCSD is currently evaluating their rates and staff has been informed that a
rate increase from the SCSD is likely. Therefore, residents will experience an increased
cost for wastewater rates in total. Although a separate fee, it is charged on the City's
utility bill and therefore the average customer is unlikely to distinguish between the
SCSD wastewater fee and the City's wastewater fee.
Reserves
The Sewer Fund's current reserve is approximately $650,000. Given the high level
of revenue derived from the discharge commodity rate (75% of revenue), RFC
recommends that the City increase its operating reserve target from 60 days to 90
days of operating and maintenance costs. A 90-day reserve ensures working
capital to support the operation, maintenance and administration of the utility. In
addition, RFC recommends that the City continue to maintain a target capital
reserve level equal to 100% of the expected annual capital expenses.
ALTERNATIVES:
The following alternatives are provided for the Council's consideration:
1. Approve staff's recommendation; or
2. Provide direction to staff.
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ADVANTAGES:
Implementing the proposed water rate increases and rate structure changes will provide
ongoing revenue to meet the next 5-years of operating, capital and debt expenditures
and reserve recommendations in the Water Fund and Lopez Fund. Concerns related to
"additional unit" fees will be mitigated and some customers will experience lower water
utility costs. The recommendations will balance minimizing rate increases with
maintaining adequate reserves available to meet important capital and water supply
needs.
DISADVANTAGES:
Some customers will experience higher water utility costs.
ENVIRONMENTAL REVIEW:
No environmental review is required for this item.
PUBLIC NOTIFICATION AND COMMENTS:
The Agenda was posted in front of City Hall on Thursday, March 20, 2014. The Agenda
and report were posted on the City's website on Friday, March 21, 2014. No public
comments were received.
Attachment:
1. Water and Wastewater Rate Study Report
Item 11.a. - Page 7
City of Arroyo Grande
WATER AND
WASTEWATER RATE
STUDY REPORT
March, 2014 –DRAFT
Prepared By:
ATTACHMENT 1
Item 11.a. - Page 8
March 13, 2014
City Council
City of Arroyo Grande
1375 Ash Street
Arroyo Grande, CA 93420
Subject:Water and Wastewater Rate Study Report
Dear Mr. Mayor and City Council,
Raftelis Financial Consultants, Inc.(RFC)is pleased to provide this Water and Wastewater Rate Study
Report (Report) for the City of Arroyo Grande (City)as a periodic comprehensive update and to establish
utility rates that are equitable and in compliance with Proposition 218.
The major objectives of the study include the following:
1.Develop financial plans for the water and wastewater enterprises to ensure financial
sufficiency, meet operation and maintenance (O&M) costs, ensure sufficient funding for
capital replacement and refurbishment (R&R) needs, and maintain a strong financial outlook
for the enterprises;
2.Develop sound and sufficient reserve fund targets;
3.Review current rate structures for the water and wastewater enterprises;
4.Develop a cost-of-service analysis for the water and wastewater enterprises; and
5.Develop fair and equitable utility rates.
The Report summarizes the key findings and recommendations related to the development of the
financial plans for the water and wastewater enterprises and the development of the updated rates.
It has been a pleasure working with you,and we thank you and the City staff for the support provided
during the course of this study.
Sincerely,
Raftelis Financial Consultants, Inc.
Habib Isaac
Manager
Item 11.a. - Page 9
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Table of Contents
E.EXECUTIVE SUMMARY ____________________________________________________________4
WATER ENTERPRISE ____________________________________________________________________4
WASTEWATER ENTERPRISE ________________________________________________________________8
1 ASSUMPTIONS USED IN THE STUDY __________________________________________________9
1.1 INFLATION ______________________________________________________________________9
1.2 GROWTH AND DEMAND FACTORS ______________________________________________________9
2 WATER SYSTEM –FINANCIAL PLAN AND RATES ________________________________________10
2.1 FINANCIAL PLAN _________________________________________________________________10
2.1.1 REVENUE REQUIREMENTS __________________________________________________________10
2.1.2 RECOMMENDATIONS AND PROPOSED FINANCIAL PLAN ______________________________________13
2.2 RATE DESIGN ___________________________________________________________________16
2.2.1 RATE METHODOLOGY BACKGROUND __________________________________________________16
2.2.2 RATE METHODOLOGY ____________________________________________________________17
2.2.3 FUNCTIONAL COST COMPONENTS ____________________________________________________17
2.2.4 PROPOSED RATE STRUCTURE________________________________________________________19
2.2.5 RESIDENTIAL RATE IMPACTS ________________________________________________________25
3 WASTEWATER SYSTEM –FINANCIAL PLAN ____________________________________________27
3.3 FINANCIAL PLAN _________________________________________________________________27
3.3.1 REVENUE REQUIREMENTS __________________________________________________________27
3.3.2 FINANCIAL PRO FORMA AT CURRENT RATES _____________________________________________29
3.3.3 RECOMMENDATIONS AND PROPOSED FINANCIAL PLAN ______________________________________30
3.4 PROPOSED WW RATES ____________________________________________________________32
EXHIBIT A –SINGLE-FAMILY RESIDNETIAL WATER RATE COMPARISON _________________________________33
EXHIBIT B –SINGLE-FAMILY RESIDNETIAL WASTEWATER RATE COMPARISON ____________________________34
APPENDIX A –DETAILED FINANCIAL PLAN PRO FORMA AT CURRENT RATES _____________________________35
APPENDIX B –DETAILED FINANCIAL PLAN PRO FORMA AT PROPOSED RATES ____________________________36
APPENDIX C –PUBLIC HYDRANT /PRIVATE FIRE LINE COST ALLOCATION _______________________________37
APPENDIX D –WATER RATE SUMMARY______________________________________________________38
Item 11.a. - Page 10
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E.Executive Summary
In 2013, the City of Arroyo Grande contracted with RFC to conduct a Water and Wastewater Rate Study
(Study) to develop a financial plan as well as design rates for the water and wastewater systems.
The City’s Water and Wastewater Enterprises are operating in an environment where operational costs
continue to increase while debt obligations and reserve funding must be satisfied to maintain a
financially healthy utility. This is not a situation that is unique to the City of Arroyo Grande,as many
agencies throughout the state are faced with the need to update capital infrastructure that is necessary
to continue providing water and wastewater services,adhere to new regulations and mandates, and
meet service demands with limited water supplies.
Water Enterprise
The City provides water services to a population of approximately 17,000. The City’s main source of
water includes ground and surface water.The City may also purchase surplus surface water when
available. The City’s water supply is crucial to provide its residents with a reliable supply of water.
The current rate structure of the City consists of three components: a monthly service charge, a Lopez
monthly base charge (both of which vary by meter size),and a volume charge (which is tiered for
residential customers and uniform for non-residential customers).The rates of all three components are
also differentiated between accounts located within and outside City limits,as shown in Tables E-2
through E-4.Table E-1 provides a summary of water accounts by meter size, with the majority of
residential customers served by 5/8”and 3/4”meters.Tables E-2 and E-3 identifies the monthly service
charges by meter size and Table E-4 lists the volumetric charges (also commonly referred to as
commodity charges).
Table E-1: Water Accounts by Meter Size
Meter Sizes FYE 2014
Accounts
5/8-in or 3/4-in 5,792
1-in 372
1 1/2-in 101
2-in 55
3-in 11
4-in 7
6-in 2
8-in 0
Total Water Accounts 6,340
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Table E-2: Current Monthly Service Charges
Table E-3: Current Lopez Monthly Service Charges
Table E-4: Current Volume Charges ($ / ccf1)
[1] Single-Family Residential
[2] Multi-Family Residential
1 1 ccf = 100 cubic feet = 748 gallons of water
Meter SizeInside CityOutside City
5/8-in or 3/4-in$5.75 $7.19
1-in $6.90 $8.63
1 1/2-in $8.55 $10.69
2-in $13.00$16.25
3-in $45.65$57.06
4-in $57.65$72.19
6-in $85.95$107.44
8-in $117.75$147.19
Effective 7/1/2013
Meter SizeInside CityOutside City
5/8-in or 3/4-in$20.33$25.41
1-in $29.16$36.45
1 1/2-in $37.89$47.36
2-in $46.83$58.54
3-in $55.56$69.45
4-in $64.51$80.64
6-in $82.26$102.83
8-in $101.65$127.06
Effective 7/1/2013
TierBi-Monthly UsageInside CityOutside City
SFR[1] Tier 11 – 12 $3.37$4.21
SFR Tier 213 – 32 $3.74$4.68
SFR Tier 3 33-64 $4.23$5.29
SFR Tier 4 64+$5.12$6.40
MFR[2] Tier 1 1 – 12 $3.37$4.21
MFR Tier 213 – 18 $3.74$4.68
MFR Tier 3 19-30 $4.23$5.29
MFR Tier 4 30+$5.12$6.40
Non-ResidentialUniform$3.74$4.68
IrrigationUniform$4.11$5.14
Other Uniform$3.74$4.68
Water WheelingUniform$1.29$1.29
Hydrant Uniform$23.35$23.35
Effective 7/1/2013
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Total reserves for Fiscal Year 2014-15 is estimated at approximately $6.1M, which accounts for an
operating reserve equal to ninety (90) days of operating expenses, an appropriation of capital
improvements equal to $500,000, and a recommended debt service reserve equal to one year of annual
debt service.However, without future revenue adjustments, the Water Enterprise would need to draw
on reserves to offset annual shortfalls.Commencing in Fiscal Year 2015-16,reserves would need to
cover a shortfall of approximately $520,000. By Fiscal Year 2018-19, the draw on reserves would reach
an amount slightly over $800,000. In addition, starting with Fiscal Year 2019-20, reserves would be
$720,000 short of the recommended minimum target and would be fully depleted by Fiscal Year 2021-
22.The City also has debt obligations and corresponding bond covenants to fulfill on an annual basis.
With current rate revenue, the City would not satisfy its 125% bond coverage ratio commencing in Fiscal
Year 2018-19.
After review of the Water Enterprise’s revenue requirements, reserves, debt obligatio ns, and current
revenues, it is recommended that the City adjust revenue through a modest step up approach for Fiscal
Year 2014-15 through Fiscal Year 2018-19 (1%, 2%, 3%, 3%, 3%).The proposed financial plan for the
water system aims to strike a balance between the recognition of the current fiscal landscape with a
multi-year measured approach. Under the proposed plan, the Water Enterprise will maintain reserves
above the minimum target throughout Fiscal Year 2021-22. In order to mitigate long-term impacts to
customers while maintaining the fund’s finances, a “step-up” rate-adjustment approach is proposed
(rather than imposing a 5% annual increase beginning in Fiscal Year 2016-17).
Through our analysis, RFC reviewed the current rate structure and consumption files to determine the
most appropriate rate structure to employ moving forward. As such, RFC is recommending the following
proposed adjustments to the current rate structure:
RFC recommends that all accounts (whether or not they are located within City limits) be
charged the same rates.Typically, differentiating rates between customers inside and outside
the City is commonly employed when additional facilities are required to serve those customers,
such as an additional pumping station,storage facilities, or transmission and distribution
improvements. The costs associated with these facilities should then be accounted for
separately to track the additional “cost of service”incurred to serve these accounts, which
would justify the higher water rates in compliance with Proposition 218. The City currently only
has ten (10)accounts that are outside City limits and keeping track of the facilities that serve
these properties and associated costs would be tedious and require additional staff time that
would not be cost effective. Therefore, it is recommended that all accounts are charged based
on one rate schedule that differs by meter size and customer class.
RFC also recommends combining the monthly service charge and Lopez charge as one monthly
fixed charge. Doing so would simplify the City’s rate schedule for its customers and establish a
fixed revenue stream that provides more flexibility to the City. Although the new recommended
fixed charge still includes costs associated with the Lopez Water Supply, it is not a separate
charge that appears to be solely designated for the Lopez Water Supply. The City should still
maintain its separate fund for Lopez (Fund 641) and only transfer the amount necessary to meet
the annual obligation each year. The remaining revenue from the monthly fixed charge would
be used for other fixed charges and the build-up of reserves within the Water Operating Fund
(Fund 640).
Item 11.a. - Page 13
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Lastly, RFC recommends changing the City’s current water rate structure from a 4-tiered
rate structure to a 3-tiered rate structure. In reviewing the consumption files and analyzing
the amount of consumption by tier for residential customers, only 4% of total annual
consumption falls within Tier 4 as shown on Table E-5 and E-6 for Single-Family Residential
(SFR)and Multi-Family Residential (MFR), respectively.
Table E-5:Single-Family Residential Current Annual Usage by Tier (ccf)
Table E-6: Multi-Family Residential Current Annual Usage by Tier (ccf)
Setting water allotments for three tiers more closely reflects the water demand of residential customers
for indoor needs (Tier 1), outdoor needs (Tier 2), and any additional usage above Tiers 1 and 2 (Tier 3).
In analyzing the usage characteristics of residential customers,usage in the winter was used as a proxy
to determine the indoor demand of customers as outdoor usage during the winter season is typically
reduced to a negligible amount. As such,usage per account in January and February of 2012 equaled
approximately 15 units of water, which reflects 75 gallons per capita per day. Similar to using winter
usage to determine indoor water demand, peak residential usage in the summer can be used to
determine the water demand for outdoor needs as peaking is primarily as result of increased irrigation.
Summer usage averaged approximately 32 units of water per account. Because usage varies from
month to month and between accounts, a buffer is recommended when setting allotments for each
Tier. Consequently, it is recommended that for SFR,Tier 1 be set at 18 units to capture residential
indoor water demand and Tier 2 be set at an additional 18 units of water for a total allotment of 36
units, which captures the average usage in summer of 32 units.
MFR customers would be a similar structure; however,MFR customers typically do not have the same
amount of outdoor water demand when compared to SFR properties.As a result, it is recommended
Tier 1 would be the same allotment, but Tier 2 would be 9 units instead of 18 units. These allotments
are on a per unit basis. As such, a three-unit complex would have a tier 1 allotment equal to 54 units and
an additional Tier 2 allotment of 27 units of water.
Non-residential and irrigation accounts would still be charged a uniform rate consistent with the current
rate structure.
Tier Allotment Total
Allocation Tier Usage Percentage
Tier 1 12 12 358,907 44%
Tier 2 20 32 307,365 37%
Tier 3 32 64 122,780 15%
Tier 4 >64 N/A 32,281 4%
Tier Allotment Total
Allocation Tier Usage Percentage
Tier 1 12 12 88,846 86%
Tier 2 6 18 8,067 8%
Tier 3 12 30 2,735 3%
Tier 4 > 30 N/A 4,107 4%
Item 11.a. - Page 14
Page 8
Wastewater Enterprise
The current wastewater (WW) rate structure consists of monthly base service charges (by dwelling unit)
for all customer classes and a discharge or commodity rate per hundred cubic feet (CCF). Current WW
rates are shown in Tables E-7 and E-8.
Table E-7: Current WW Monthly Base Charges
Description Effective
7/1/2013
Inside City $2.40
Outside City $3.00
Table E-8: Current WW Discharge Rates ($ / ccf)
Description Effective
7/1/2013
Location Inside City Outside City
SFR $0.67 $0.84
MFR $0.94 $1.18
Business $1.32 $1.65
Church $1.32 $1.65
School $1.32 $1.65
Hospital $1.32 $1.65
Motel $1.32 $1.65
Convalescent Home $1.32 $1.65
Other $1.32 $1.65
Based on current rates and an analysis of revenue requirements for the Wastewater Enterprise, t he
current wastewater rates will continue to generate positive net income for at least the next five years .
As a result,the City has been able to build healthy fund balance for operations and capital repair &
replacement expenditures.Therefore,it is recommended that the City maintain its current wastewater
rate schedule,as increases are not necessary at this time .We recommend that the City periodically
review the Wastewater Enterprise to determine if adjustments are needed at a later date, but at this
point,and based on the current revenue requirements, revenue adjustments are not necessary .
Item 11.a. - Page 15
Page 9
1 Assumptions Used in the Study
The period for the Water and Wastewater Financial Plan Study is for Fiscal Year 2013-14 through Fiscal
Year 2022-23.2 Various types of assumptions and inputs were incorporated into the Study. These
assumptions were based on discussion with and/or direction from City management. Assumptions
include growth rates for customer accounts,annual consumption for different customer classes,
reduced water demand factors for recent conservation goals of the City, inflation factors, and other
miscellaneous assumptions. These assumptions are presented in Tables 1-1 and 1-2.
1.1 Inflation
Table 1-1: Inflation Factor Assumptions
KEY FACTORS FYE 2015 FYE 2016 FYE 2017 FYE 2018 FYE 2019
General 3%3%3%3%3%
Salary 3%3%3%3%3%
Benefits 3%3%3%3%3%
Capital 3%3%3%3%3%
Energy 5%5%5%5%5%
1.2 Growth and Demand Factors
Table 1-2:Account Growth Rate Assumptions and Potable Water Demand Factor
FYE 2015 FYE 2016 FYE 2017 FYE 2018 FYE 2019
GROWTH RATE[1]
All Customer Classes <1%<1%<1%<1%<1%
OTHER REVENUES PROJECTIONS
Interest Earnings 1%1%1%1%1%
Property Lease 1%1%1%1%1%
General 1%1%1%1%1%
Non-Inflated 1%0%0%0%0%
WATER DEMAND FACTOR % of prior year consumption
Water Reduction Factor 2%2%1%1%1%
[1] The growth rate for the City is less than 1%; therefore, rates were calculated based on a conservative
growth rate equal to zero.
2 For brevity of presentation, certain tables in this report show the five -year period for FYE 2015 through FYE 2019.
Item 11.a. - Page 16
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2 Water System –Financial Plan and Rates
2.1 Financial Plan
2.1.1 Revenue Requirements
A review of a utility’s revenue requirements is a key step in the rate design process. The review
involves analyses of annual operating revenues under the current rates, operation and
maintenance (O&M) expenses, capital expenditures, transfers between funds, and reserve
requirements. This section of the report provides a discussion on projected revenues, O&M and
capital expenditures, the capital improvement financing plan, debt service requirements, and
revenue adjustments required to ensure the fiscal sustainability of the Water Enterprise.
2.1.1.1 Revenues from Current Rates
The current water rate structure consists of three components:a monthly service charge,a
Lopez monthly base charge (both of which vary by meter size),and a volume charge (which
is tiered for residential customers and uniform for non-residential customers). The projected
water revenues for the Water Enterprise derived from current rates are shown in Table 2-1.
Table 2-1: Projected Water Revenues at current FYE 2013-14 Rates
FYE 2015 FYE 2016 FYE 2017 FYE 2018 FYE 2019
Fixed Revenue $2,399,760 $2,399,760 $2,399,760 $2,399,760 $2,399,760
Variable Rate Revenue[1]$4,098,428 $4,016,460 $3,976,295 $3,936,532 $3,897,167
Total Water Revenues $6,498,188 $6,416,220 $6,376,055 $6,336,292 $6,296,927
[1] An annual reduction in variable revenue is shown as water demand is assumed to reduce each
year by the Water Demand Factor (listed in Table 1-2)to account for the continued need for
customer to conserve water to meet SB7x-7 requirements of 20% reduction per capita by 2020.
2.1.1.2 O&M Expenses
The City’s Fiscal Year 2013-14 budget values and the assumed inflation factors for the study
period were used as the basis for projecting O&M costs. Table 2-2 shows total budgeted and
projected O&M expenses, including debt,for Fiscal Year 2014-15 and subsequent four years
of the study period.
Table 2-2: Projected Water O&M Expenses
FYE 2015 FYE 2016 FYE 2017 FYE 2018 FYE 2019
Total Operating Expenses $6,222,197 $6,337,049 $6,494,449 $6,626,335 $6,787,210
2.1.1.3 Capital Improvement Plan and Asset R&R
The City has adopted a long-term capital improvement plan (CIP) to address future Water
Enterprise needs. Table 2-3 shows the most recent 5-year CIP from the City. The Water
Enterprise’s future CIP needs will be funded through proposed rates on a Pay-As-You-Go
basis (PAYGO),as the City currently does not anticipate the use of debt-financing.
Therefore,no debt is proposed to fund CIP for the Water Enterprise.
Item 11.a. - Page 17
Page 11
Table 2-3: Water Capital Expenditures [1]
[1]Please note that the costs presented in Table 2-3 only includes those costs related to the water portion of the project and not
the entire cost.
2.1.1.4 Reserve Requirements
To ensure a strong financial outlook and credit rating, RFC recommends a few adjustments
to the City’s current reserve policy. Currently, the City has an Operating Reserve equal to 60
days of the Water Enterprise’s annual O&M expenses plus $500,000 for ongoing capital. The
following is the recommended reserves to maintain for the Water Enterprise Fund.
Operating Reserve –The operating reserve is used primarily to meet ongoing cash flow
requirements.Given that a majority of the City’s water revenue is through its commodity
charge (63% of revenue),RFC recommends increasing the operating reserve target from 60
days to 90-days of O&M expenses.As the potential of revenue volatility increases, reserves
should be set at an amount to offset this revenue reliability.A 90-day reserve ensures
working capital to support the operation, maintenance and administration of the utility.
Maintaining this level of reserves also provides liquid funds for the continued ongoing
operations of the utility in the event of unforeseen costs or interruption with the utility or
the bi-monthly billing system.
Capital Reserve –Based on the expected cost of the City’s future CIP expenditure, RFC
recommends maintaining a minimum capital reserve at the current amount of $500,000.
Debt Service Reserve –Based on the outstanding debt obligation of the City for the Lopez
Water Supply, it is recommended that the City establish a debt serve reserve equal to 1-year
of annual debt (approximately $1.4M). This debt is not only an ongoing obligation, but it
also funds the primary water source of the City. As such, the Lopez Water Supply is a critical
asset of the City and establishing a reserve as security will ensure sufficient bond coverage
and potentially mitigate future revenue increases caused by new projects associated with
the Lopez Dam.The reserve can also be drawn upon during times of reduced consumption
without affecting operations or scheduled capital improvement projects.
Collectively, total minimum reserve target of the Water Utility would equal approximately
$3.2M, which reflects approximately 220 days of liquid equity.
FY 2014 FY 2015 FY 2016 FY 2017 FY 2018
Leanna Drive Creek Crossing Upgrade $36,300 $290,400
SCADA Radio Upgrades $41,400
Reservoir 3 and 4 Coating and Seismic Evaluation $79,900 $638,800
Phased Mains Replacement -Fair Oaks $134,700
Reservoir 7 $509,200
Galvanized Service Replacement $35,000 $35,000 $35,000 $35,000 $35,000
Corporation Yard Upgrade $150,000 $15,000
Le Point Area Main Upgrade $38,000 $304,050
$397,400 $420,300 $711,800 $339,050 $544,200
City of Arroyo Grande
Water Capital Improvement Plan
Item 11.a. - Page 18
Page 12
2.1.1.5 Financial Pro Forma at Current Rates
Table 2-4 displays a summary pro forma of the Water Enterprise’s funds under current rates
over the forecast period (Appendix “A” provides a detailed summary of Table 2-4). All
projections shown in the table are based on the current rate structure and do not include
any revenue adjustments.
Under this scenario, revenues generated from rates and other miscellaneous revenues are
slightly less than operating expenses of the Water Enterprise for Fiscal Year 2014-15;
however,as O&M costs increase through annual inflationary adjustments,current revenues
cannot fully fund O&M, capital, and debt obligations without drawing down reserves each
year.Commencing in Fiscal Year 2015-16, reserves would need to cover a shortfall of
approximately $520,000. By Fiscal Year 2018-19, the draw on reserves would reach an
amount slightly over $800,000. In addition, starting with Fiscal Year 2019-20, reserves would
be $720,000 short of the recommended minimum target and would be fully depleted by
Fiscal Year 2021-22.In addition, the City currently has debt obligations and corresponding
bond covenants to fulfill on an annual basis. With current rate revenue, the City would not
satisfy its 125% bond coverage ratio commencing in Fiscal Year 2018-19.
In conclusion,the City will likely be unable to maintain fiscal sustainability and solvency
under the current rates.
Table 2-4:Financial Plan Pro-forma at Current Rates
Water Enterprise Fund FY 2014FY 2015FY 2016FY 2017FY 2018FY 2019FY 2020FY 2021FY 2022FY 2023
Beginning Balances$5,867,131$6,263,866$6,232,158$5,712,128$5,367,283$4,645,640$3,830,757$2,586,545$1,339,548($169,566)
TOTAL REVENUES (FUND 640 and 641)6,694,429$6,610,788$6,528,820$6,488,655$6,448,892$6,409,527$6,370,555$6,331,973$6,293,777$6,255,963$
TOTAL EXPENDITURES (FUND 640 and 641)(6,297,694)$(6,642,497)$(7,048,849)$(6,833,499)$(7,170,535)$(7,224,410)$(7,614,767)$(7,578,970)$(7,802,891)$(8,086,905)$
Total Water Enterprise Ending Fund Balance 6,263,866$6,232,158$5,712,128$5,367,283$4,645,640$3,830,757$2,586,545$1,339,548$(169,566)$(2,000,508)$
Total Water Enterprise Reserve Target 3,044,366$3,124,841$3,153,554$3,192,904$3,225,876$3,266,095$3,307,584$3,350,385$3,394,540$3,440,093$
Alert - Revenues < Desired TargetN/A N/AN/AN/AN/AN/A(721,039)$(2,010,836)$(3,564,105)$(5,440,601)$
Debt Coverage for COPs 366%280%182%217%142%123%37%36%-16%-81%
Item 11.a. - Page 19
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2.1.2 Recommendations and Proposed Financial Plan
2.1.2.1 Proposed Revenue Adjustments
To ensure that the Water Enterprise will have adequate revenues to fund operating
expenses, capital expenditures,and comply with its bond covenants,it is recommended that
the City implement revenue adjustments equal to 1%, 2%, 3%, 3%, and 3% for Fiscal Year
2014-15 through Fiscal Year 2018-19,respectively.These proposed revenue adjustments
would occur on July 1st for each year of the five years, commencing on July 1,2014. The
proposed revenue adjustments would enable the Enterprise to complete the planned capital
projects for the Study period while maintain reserves above the Enterprise’s recommended
minimum reserve levels.The proposed adjustments also allow the City to maintain
compliance with its bond covenant of 125 percent coverage through the planning horizon.
2.1.2.2 Proposed Financial Plan
A pro forma of the proposed revenue requirements is shown in Table 2-5 below (Appendix
“B” provides a detailed summary of Table 2-5).
The proposed revenue requirements account for the City’s financial needs,meeting target
reserve balances and achieving positive net revenues through the study period while
addressing the City’s O&M and CIP needs.Additionally, the Water Enterprise will satisfy its
debt reserve requirement of 125%in future years.
Table 2-5:Ten-Year Water Enterprise Proposed Financial Plan -Pro-forma
2.1.2.3 10-Year Proposed Financial Outlook
Although the pro forma reflect a ten-year planning horizon,recommended revenue
adjustments are only for the next five years and the figures below reflect Fiscal Year 2014-15
through Fiscal Year 2018-19.Figures 2-1,2-2,2-3 and 2-4 illustrate the projected five-year
financial plan for the Water Enterprise. Figure 2-1 displays the proposed and expected
revenue adjustments through Fiscal Year 2018-19 (3% annual adjustments). Figure 2-2
illustrates the operating position of the Water Enterprise, where the expenses, inclusive of
reserve funding, are shown by stacked bars and total revenues at current rates and
proposed rates are shown by the horizontal trend lines,where proposed revenue is above
the bars. Figure 2-3 summarizes the projected CIP and its funding sources, which is 100%
PAYGO funding.There is no debt shown because the proposed financial plan does not
propose any new debt.The ending total fund balance for the water utility –inclusive of
both the operating and capital funds –is projected and shown in Figure 2-4, where the
horizontal trend line indicates the target reserve balance as recommended by the reserve
requirements discussed in Section 2.1.1.4.
Water Enterprise Fund FY 2014FY 2015FY 2016FY 2017FY 2018FY 2019FY 2020FY 2021FY 2022FY 2023
Beginning Balances$5,867,131$6,263,866$6,297,139$5,970,879$6,015,650$5,882,897$5,859,709$5,613,636$5,574,965$5,488,218
TOTAL REVENUES (FUND 640 and 641)6,694,429$6,675,770$6,722,589$6,878,270$7,037,782$7,201,223$7,368,694$7,540,299$7,716,144$7,896,339$
TOTAL EXPENDITURES (FUND 640 and 641)(6,297,694)$(6,642,497)$(7,048,849)$(6,833,499)$(7,170,535)$(7,224,410)$(7,614,767)$(7,578,970)$(7,802,891)$(8,086,905)$
Total Water Enterprise Ending Fund Balance 6,263,866$6,297,139$5,970,879$6,015,650$5,882,897$5,859,709$5,613,636$5,574,965$5,488,218$5,297,653$
Total Water Enterprise Reserve Target 3,044,366$3,124,841$3,153,554$3,192,904$3,225,876$3,266,095$3,307,584$3,350,385$3,394,540$3,440,093$
Alert - Revenues < Desired TargetN/A N/AN/AN/AN/AN/AN/AN/AN/AN/A
Debt Coverage for COPs 366%293%221%295%260%282%237%279%269%248%
Item 11.a. - Page 20
Page 14
Figure 2-1: Proposed and Expected Revenue Adjustments
Figure 2-2: Proposed Operating Financial Plan
Item 11.a. - Page 21
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Figure 2-3: Projected CIP and Funding Sources for Water Enterprise Funds
Figure 2-4: Projected Ending Balances for Water Enterprise Funds
Item 11.a. - Page 22
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2.2 Rate Design
2.2.1 Rate Methodology Background
Proposition 218 (California Constitution Article 13D) states that:
1.A property-related charge (such as water rates) imposed by a public agency on a parcel
shall not exceed the funds required to provide the property related service.
2.Revenues derived by the charge shall not be used for any other purpose other than that
for which the charge was imposed.
3.The amount of the charge imposed upon any parcel shall not exceed the proportional
cost of service attributable to the parcel.
4.No charge may be imposed for a service unless that service is actually used or
immediately available to the owner of property.
5.A written notice of the proposed charge shall be mailed to the record owner of each
parcel at least 45 days prior to the public hearing, when the agency considers all written
protests against the charge.
Prop 218 ensures that Water Rates cannot be “arbitrary and capricious,” meaning that the rate-
setting methodology must be sound and that there must be a nexus between costs and the rate
charge. In the Rate Methodology, RFC ensures that all aspects of Proposition 218 are followed
and that it creates rates that charge customers equitably.In addition,as stated in the American
Water Works Association (AWWA)Manual M1, “the costs of water rates and charges should be
recovered from classes of customers in proportion to the cost of serving those customers.”
In conjunction with Proposition 218, Article X (2) of the State Constitution established the need
to preserve the State’s water supplies and to discourage the wasteful or unreasonable use of
water by encouraging conservation.In addition,Section 106 of the Water Code declares that the
highest use of water is for domestic purposes, and irrigation is secondary. In connection with
meeting the objectives of Article X, Water Code Sections 370 (AB2882) and 375 authorize a
water purveyor to utilize its water rate design to incentivize the efficient use of water.
Although incentives to conserve water could be provided by implementing a higher rate for
water as consumption increases, a nexus between rates and cost incurred to provide water at
those rates must be developed to achieve compliance with Proposition 218.For this analysis,
consumption and peaking characteristics of customers as well as available water supplies of the
City were analyzed to appropriately allocate costs between customer classes.Variable costs
were separated into two discrete components (base and peak costs)to reflect the cost incurred
by the Water Utility.Furthermore,for residential customers, costs were further apportioned
between defined tiers to determine the proportional share of cost incurred by such tier.This
approach synchronizes the objectives of Article X (2) and Proposition 218 in developing a cost of
service tiered rate structure.
Item 11.a. - Page 23
Page 17
2.2.2 Rate Methodology
The enterprise’s revenue requirements are, by definition, the cost of providing service. This cost
is then used as the basis to develop unit costs for the water components and to allocate costs to
the various customer classes in proportion to the water services rendered. The concept of
proportionate allocation to customer classes requires that allocations should consider not only
the average quantity of water used but also the peak rate at which it is consumed. This is
because the water system is designed to handle peak demands,and the additional costs
associated with design,construction and maintenance of facilities specified to meet these peak
demands need to be allocated to those incurring such costs so that the costs can be recovered
appropriately.
This study calculated water rates based on Fiscal Year 2013-14 as the base year for the new
rates to be proposed.The annual revenue requirements or costs of service to be recovered from
rates include O&M expenses,debt service and coverage,water supply,capital costs, and
funding of reserves. O&M expenses include costs directly related to the supply, treatment, and
distribution of water as well as routine maintenance of system facilities. The total Fiscal Year
2014-15 cost of service to be recovered through rates from the water enterprise’s customers,
shown in Table 2-6 on the following page,is estimated at approximately $6.5M.The cost of
service analysis is based upon the premise that the utility must generate annual revenues
adequate to meet the estimated annual revenue requirements.
To allocate the cost of service among the different customer classes, costs first need to be
allocated to the appropriate water cost components. The following section describes the
allocation of the operating and capital costs of service to the appropriate parameters of the
water system.
2.2.3 Functional Cost Components
The total cost of water service is analyzed by system function in order to equitably distribute
costs of service to the various classes of customers. For this analysis, water utility costs of
service are assigned under the Base-Extra Capacity method to three basic functional cost
components: base costs, extra capacity or peaking costs, and customer service-related costs.
This method is consistent with the American Water Works Association M1 Manual, and is widely
used in the water industry to design rates for retail customers.Table 2-6 shows a summary by
function for each year of the five-year study period, and Table 2-7 provides a breakdown of the
City’s revenue requirements by functional cost components, using a ten-year annual average to
account for how costs are incurred over time.
Item 11.a. - Page 24
Page 18
Table 2-6: Revenue Requirements by Function –FYE 2014 through FYE 2019
Table 2-7:Detailed Revenue Requirements by Function -10-Year Average
BaseMax DayMax Hour
Customer
Service
Meters &
Services
Fire
Protection
100.0%44.1%16.1%2.3%11.4%15.7%10.5%
Fiscal Year Ending
FYE 2015 $6,563,170$2,891,533$1,056,757$149,939$747,887$1,027,856$689,199
FYE 2016 $6,609,989$2,912,160$1,064,295$151,008$753,222$1,035,188$694,115
FYE 2017 $6,765,670$2,980,749$1,089,362$154,565$770,962$1,059,569$710,463
FYE 2018 $6,925,182$3,051,025$1,115,045$158,209$789,139$1,084,550$727,213
FYE 2019 $7,088,623$3,123,032$1,141,362$161,943$807,763$1,110,147$744,376
Fixed
62%38%
Base - Variable
Description
Total Water
Expenses
(10-Yr Average)BaseMax DayMax Hour
Customer
Service
Meters &
Services
Fire
Protection
% Allocation 100.0%44.1%16.1%2.3%11.4%15.7%10.5%
Total Allocation 8,809,020 3,880,9871,418,368201,2461,003,8061,379,578925,035
Salaries & Ben - Admin.236,824 ---118,412118,412 -
Salaries & Ben - Prod.115,751 28,93828,938 -28,93828,938 -
Salaries & Ben - Distr.361,869 90,46790,467 -90,46790,467 -
Office Expense 5,159 ---5,159 --
Postage/Mailing 22,928 ---22,928 --
Advertising 688 ---688 --
Contractual Services 139,974 139,974 -----
Water Treatment Services 17,196 17,196 -----
Pre-Employment Physicals 229 ---229 --
Telephone 917 ---917 --
Travel/Conference/Training 2,293 ---2,293 --
Memberships & Subscriptions 1,261 ---1,261 --
Bank Charges 43,391 ---43,391 --
Insurance Claims/Settlements 31,445 ---31,445 --
Insurance-Underground Tanks 503 ---503 --
Maintenance-Office Equipment 1,146 ---1,146 --
Contractual Services 174,710 174,710 -----
Power (Production)125,779 --125,779 ---
Maintenance-Machinery & Equip 22,928 22,928 -----
Water Meters 40,124 ----40,124 -
Special Dept. Supplies 4,586 4,586 -----
Small Tools 2,866 2,866 -----
Chemicals 27,513 27,513 -----
Contractual Services 22,928 22,928 -----
Pre-Employment Physicals 344 344 -----
Power (Distribution)75,467 --75,467 ---
Travel/Conference/Training 3,439 ---3,439 --
Rent-Equipment 1,146 1,146 -----
Maintenance-Vehicles 8,163 8,163 -----
Maintenance-Machinery & Equipment 6,997 6,997 -----
Maintenance-Buildings 2,332 ---2,332 --
Gas & Oil 20,125 10,705 9,420 ----
Maintenance-Reservoirs 5,831 2,047 1,801 ---1,982
Maintenance-Wells/Lines/Pumps 58,306 20,46918,013 ---19,824
Maintenance-Meters 4,664 ----4,664 -
Conservation Programs 50,796 -50,796 ----
Existing Debt Service 8,800 ---8,800 --
Direct Personnel Transfers 628,659 ---314,330314,330 -
Direct Operating Transfers 257,855 64,46464,464 -128,928 --
Cost Allocation Transfers 396,402 ---198,201198,201 -
Lopez Maintenance & Operations - Routine 1,649,4891,649,489 -----
Lopez Maintenance & Operations - Non-Routine 74,621 39,69234,929 ----
Lopez Maintenance & Operations- Pigging 101,062 53,75747,306 ----
Lopez Maintenance & Operations- Capital Overlay 254,653 135,454119,199 ----
Lopez Cost Allocation Transfer 352,858 352,858 -----
Lopez Debt Service 498,827 109,742109,742 --109,742169,601
SRF Debt Service 929,829 204,562204,562 --204,562316,142
Leanna Drive Creek Crossing Upgrade 290,400 154,468135,932 ----
Reservoir 3 and 4 Coating and Seismic Evaluation 718,700 158,114158,114 --158,114244,358
Reservoir 7 509,200 112,024112,024 --112,024173,128
Galvanized Service Replacement 140,000 74,46865,532 ----
Corporation Yard Upgrade 15,000 7,979 7,021 ----
Le Point Area Main Upgrade 342,050 181,941160,109 ----
FixedBase - Variable
Item 11.a. - Page 25
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Revenue requirements for monthly fixed charges include customer service costs,a portion of
peaking costs, and fire protection through the servicing of public hydrants (private fire line
connections have a separate monthly fixed charge schedule). Customer costs include such costs
as meter reading, billing, collecting, and accounting. Meter service costs include maintenance
and capital costs associated with meters and a portion of the capacity related costs.
Proposition 218 requires a nexus between the rates and costs of providing service. To meet this
requirement, RFC has conducted cost of service analysis and has identified two different rate
components of the commodity rates which include delivery and peaking costs.
DELIVERY COSTS Delivery costs, also commonly referred to as Base costs,are those operating and
capital costs of the water system associated with delivering water to all customers at a constant
average rate of use.Therefore, delivery costs are spread over all units of water, irrespective of
customer classes or tiers,to calculate a uniform rate.
EXTRA CAPACITY COSTS Extra capacity or peaking costs represent those costs incurred to meet
customer peak demands for water in excess of a baseline usage. Total extra capacity costs are
apportioned between maximum day and maximum hour demands based on the type of
expense. The maximum day demand is the maximum amount of water used in a single day in a
year. The maximum hour demand is the maximum usage in an hour on the maximum usage
day.Different facilities are designed to meet different peaking characteristics.Therefore,extra
capacity costs include capital improvements and power related costs, and have been
apportioned between base,maximum day, and maximum hour.Costs allocated to base are part
of the delivery costs as defined above.
2.2.4 Proposed Rate Structure
FIXED CHARGES Customer service costs include customer-related and meter-related costs.
Customer costs are uniform for all customers and include such costs as meter reading,billing,
collecting and accounting, and fire protection for 840 public fire hydrants (reference is made to
Appendix “C”for cost allocation between hydrant and private fire lines).Currently, the City’s
fixed monthly water charge generates approximately 37% of total revenue and as part of the
new rate structure;RFC maintained a similar percentage of revenue from the fixed monthly
charge to maintain the current level of revenue stability (37% Fixed /63% Variable).
Item 11.a. - Page 26
Page 20
Meter service costs include maintenance and capital costs associated with meters and a portion
of the capacity related costs. RFC utilized the American Water Works Association meter service
cost ratios in calculating the meter component of the fixed charge. These costs are assigned
based on meter size.Based on these ratios, the City’s 6,340 accounts have a meter equivalency
of 6,937.Table 2-8 shows the fixed charge separated between costs apportioned evenly over all
units and meter equivalencies.Table 2-9 shows the proposed Fiscal Year 2014-15 monthly
charge by meter size, and Table 2-10A shows the proposed five-year monthly service charges.
The total proposed meter charge includes both the billing and customer service charge and the
meter component charge.Table 2-10B shows the proposed five-year monthly service charges
for Private Fire Lines by size of connection.
Table 2-8: Fixed Charge Calculation –5/8” Meter
Table 2-9: Proposed FYE 2015 Monthly Service Charges
Customer Service Cost per UnitFYE 2015FYE 2016FYE 2017FYE 2018FYE 2019
Customer Service $747,887$753,222$770,962$789,139$807,763
Total Units 8,4238,4238,4238,4238,423
Customer Service per Unit $7.40$7.45$7.63$7.81$7.99
Meters and Services Cost Per MEFYE 2015FYE 2016FYE 2017FYE 2018FYE 2019
Meter & Services $1,027,856$1,035,188$1,059,569$1,084,550$1,110,147
Fire Protection (Public Hydrants)$628,373$632,856$647,761$663,033$678,681
Meter Service Equivalency 6,9266,9266,9266,9266,926
Meter & Services per ME $19.93$20.07$20.54$21.03$21.52
Base Fix Charge 5/8" Meter $27.33$27.52$28.17$28.83$29.51
Total Monthly
Fixed Cost
by Meter Size
Meter Service
Cost Ratio
Account/Unit
Charge
Meter &
Service
Per ME FYE 2015
Current
Fixed Charge Difference
5/8"1.00$7.40$19.93$27.33$26.08$1.25
3/4"1.10$7.40$21.92$29.32$26.08$3.24
1"1.40$7.40$27.90$35.30$36.06($0.76)
1 1/2"1.80$7.40$35.87$43.27$46.44($3.17)
2"2.90$7.40$57.79$65.19$59.83$5.36
3"11.00$7.40$219.20$226.60$101.21$125.39
4"14.00$7.40$278.98$286.38$122.26$164.12
6"21.00$7.40$418.47$425.87$168.21$257.66
8"29.00$7.40$577.89$585.29$219.40$365.89
Item 11.a. - Page 27
Page 21
Table 2-10A: Proposed Five-Year Monthly Service Charges
Table 2-10B: Proposed Five-Year Monthly Private Fire Line Service Charges
VARIABLE CHARGES Similar to the City’s current rate structure, approximately 63 percent of
the City’s utility revenue requirements are proposed to be recovered from a variable charge, or
based on the amount of water used.
Variable costs include base and peaking.Base costs are apportioned over total applicable
billable units regardless of customer class, which include costs such as water treatment services
and chemicals.As such,base costs are divided by all units of water. Doing so derives a base
cost per unit of water.
Costs associated with peaking, which primarily includes capital improvements and power, are
first apportioned to each defined customer class based on their total demand (total water used
weighted by peak factor).Peaking was calculated for each customer class based on the
consumption files,which ensures that accounts within each customer class will only recover the
costs allocated to their respective customer class and no account is subsidizing any other
account.Table 2-11 takes the variable costs for Fiscal Year 2014-15 associated with base costs
to calculate a rate per unit of water and Table 2-12 shows Fiscal Year 2014-15 peak costs
allocated between residential and non-residential customers.Table 2-13 is the sum of cost in
Tables 2-11 and 2-12 for each distinct customer class.
Total Monthly Fixed Cost
by Meter Size FYE 2015FYE 2016FYE 2017FYE 2018FYE 2019
5/8"$27.33$27.52$28.17$28.83$29.51
3/4"$29.32$29.53$30.22$30.94$31.67
1"$35.30$35.55$36.39$37.24$38.12
1 1/2"$43.27$43.58$44.60$45.65$46.73
2"$65.19$65.65$67.20$68.78$70.41
3"$226.60$228.21$233.59$239.10$244.74
4"$286.38$288.42$295.21$302.17$309.31
6"$425.87$428.91$439.01$449.36$459.96
8"$585.29$589.46$603.34$617.57$632.14
Private Fire Service
Monthly Charge FYE 2015FYE 2016FYE 2017FYE 2018FYE 2019
2"$3.47$3.49$3.57$3.66$3.74
3"$10.07$10.14$10.38$10.63$10.88
4"$21.46$21.61$22.12$22.64$23.18
6"$62.34$62.78$64.26$65.78$67.33
8"$132.85$133.79$136.94$140.17$143.48
10"$238.90$240.61$246.27$252.08$258.03
Item 11.a. - Page 28
Page 22
Table 2-11:Base Variable Cost–FYE 2015 Rate per Unit (ccf)
Table 2-12: Allocation of Peak Costs between Customer Classes
Table 2-13: Total Variable Costs by Customer Class
Once base costs are calculated and peak costs are allocated to each customer class, the next
step is to design the most equitable and appropriate rate structure to recover such costs from
the corresponding customer class.
Similar to the existing rate structure, the proposed variable rates for residential customers are
tiered and,for non-residential customers the rate is uniform.
RESIDENTIAL RATE STRUCTURE
For residential customers, the variable charges (base and peaking) are further apportioned
between three distinct tiers.The goal of the first tier is to provide for basic indoor water use;
the second tier to provide for outdoor irrigation; and the third tier for excessive use or to
encourage conservation.This is consistent with State laws regarding the highest and most
efficient use of water.Tier 1 is calculated by the base winter quarter average, equal to
approximately 75 gallons per day per capita (with a city density factor of 2.45), which is used as
a proxy for determining indoor usage.However,based on the analysis of usage patterns and the
fluctuations in usage during the winter quarter,RFC recommends that the allotment for Tier 1
be slighted adjusted from 12 to 18 CCF per SFR & MFR unit.Tier 2 is designed to account for an
additional allotment for outdoor irrigation needs of 18 CCF per SFR unit and 9 CCF per MFR unit
Customer Classes
FYE 2015
Projected
Annual Usage
Percent of
Usage
FYE 2015
Base Cost
FYE 2015
Base Cost (CCF)
Residential 907,70578.55%$2,271,249 2.55$
Non-Residential142,53512.33%$356,650 2.55$
Irrigation 105,3629.12%$263,635 2.55$
1,155,602100.00%$2,891,533
Customer Classes
Peaking
Factors
Weighted Peak
Factor
Percentage
of Peak
FYE 2015
Max Day/Hour
Costs
Residential 1.503,74279.43%$958,440
Non-Residential 1.29 50310.67%$128,736
Irrigation 1.62 4679.90%$119,519
4,711100%$1,206,696
Customer Classes
Base Variable
Cost
Max Day/Hour
Costs Total
Residential 2,271,249$958,440$3,229,689$
Non-Residential356,650$128,736$485,386$
Irrigation 263,635$119,519$383,154$
2,891,533$1,206,696$4,098,229$
Item 11.a. - Page 29
Page 23
(which typically have less outdoor landscape area when compared to SFR).Therefore, in
reviewing the consumption patterns and peak use during the summer quarter average, Tier 2
captures the average bi-monthly summer use of single family residential customers equal to
approximately 32 CCF and approximately 24 CCF for a multi-family unit.Tier 3 captures any
additional usage above the amount budgeted in Tiers 1 and 2.
With these defined tiers and allotments, the functional variable costs are then applied to each
tier. Similar to how maximum day and maximum hour costs were apportioned between
customer classes, the total residential annualized variable costs (base &peak costs)in Fiscal
Year 2014-15,equal to $3,229,689 for residential customers,are further apportioned between
the defined tiers based on the peaking characteristics generated by customers within each tier,
where Tier 1 is considered the base level (no peak; equal to 1.0). Table 2-14 calculate the rate
per unit (CCF) of each Residential Tier for Fiscal Year 2014-15.
Table 2-14: Residential Peak Costs by Tier
RESIDENTIAL
Description BaseMax Day Tier 1 Tier 2 Tier 3
Residential Base % Share 78.55%79.43%63.2%22.8%14.0%
FYE 2015 Projected Consumption 562,009 203,007 124,535
Peaking Factor by Tier 1.00 1.44 3.01
Weighted Peak Factor 562,009 292,839 374,982
Peak % Share 46%24%30%
TOTAL ALLOCATION 2,891,533$1,206,696$
Allocation to Residential 2,271,249958,440 1,872,939 746,547 610,203
Unit Cost 3.33$3.67$4.89$
Base - Variable Residential Tiers - Variable
Item 11.a. - Page 30
Page 24
Table 2-15 and Table 2-16 show the proposed allotments and five-year residential tiered rates.
Table 2-15: Proposed Allotments and Five-Year Single-Family Residential Tiered Rates ($/ccf)
Table 2-16: Proposed Allotments and Five-Year Multi-Family Residential Unit Tiered Rates ($/ccf)
NON-RESIDENTIAL RATE STRUCTURE
For non-residential customers and irrigation customers,all variable charges including peak costs
are summed to derive a uniform rate per CCF rather than a tiered rate structure. Customers
other than residential vary considerably in size, use profile and needs, which makes it
impractical and inequitable to place them in a “one size fits all” tiered rate structure without
additional detailed data and analysis on type of business and related water demand for such
business to determine appropriate allotments for efficient use.For example, a bookstore and a
coffee shop exhibit drastically different water needs. However, despite not being tiered, the
uniform rate structure is built on the same cost components, and the amount of Peak costs
allocated to Non-residential and Irrigation is fully recovered by the customer class. Therefore,
Non-Residential customers are paying their fair share of incurred costs.Table 2-18 identifies the
rate per unit for Fiscal Year 2014-15 through Fiscal Year 2018-19.
Table 2-18:Proposed Five-Year Non-Residential Rates ($/ccf)
SFR Tiered RatesAllotmentFYE 2015FYE 2016FYE 2017FYE 2018FYE 2019
Tier 1 18 3.33$3.42$3.54$3.66$3.78$
Tier 2 36 3.67$3.76$3.90$4.03$4.16$
Tier 3 >36 4.89$5.02$5.19$5.37$5.55$
MFR Tiered Rates
Allotment
(Per Unit)FYE 2015FYE 2016FYE 2017FYE 2018FYE 2019
Tier 1 18 3.33$3.42$3.54$3.66$3.78$
Tier 2 9 3.67$3.76$3.90$4.03$4.16$
Tier 3 >27 4.89$5.02$5.19$5.37$5.55$
Non-ResidentialFYE 2015FYE 2016FYE 2017FYE 2018FYE 2019
Variable Costs $485,386$488,848$500,362$512,159$524,246
Consumption 139,684136,891135,522134,167132,825
Uniform Rate $3.47$3.57$3.69$3.82$3.95
IrrigationFYE 2015FYE 2016FYE 2017FYE 2018FYE 2019
Variable Costs $383,154$385,887$394,976$404,288$413,830
Consumption 103,255101,189100,17899,17698,184
Uniform Rate $3.71$3.81$3.94$4.08$4.21
Item 11.a. - Page 31
Page 25
2.2.5 Residential Rate Impacts
Bill distribution and customer impact analyses reflect the City’s policies in terms of promoting
the meeting of SB x7-7 targets and the principle of affordability for essential use.Figure 2-5
shows total usage by tier and number of bills that fall within such tier.Figure 2-6A shows the
single-family customer impact of the new proposed rates versus current rates at 18 ccf for the
next five-years and Figure 2-6B (on the following page) reflects a single-family residential
customer at 31 ccf.
Figure 2-5: Customer Usage and Bill Distribution
Figure 2-6A:Single–Family Residential Customer Impacts @ 18 ccf
$115.04 $114.59 $116.60 $120.06 $123.55 $127.07
$0
$20
$40
$60
$80
$100
$120
$140
Current 2015 2016 2017 2018 2019
Fixed Charge Commodity Charges
Summary of Charges Current20152016201720182019
Fixed Charge 52.16$54.65$55.04$56.34$57.67$59.03$
Additional Unit Charge -$-$-$-$-$-$
Commodity Charges 62.88$59.94$61.56$63.72$65.88$68.04$
Total Charges 115.04$114.59$116.60$120.06$123.55$127.07$
$Change N/A (0.45)$2.01$3.46$3.49$3.52$
%Change N/A -0.4%1.8%3.0%2.9%2.8%
Item 11.a. - Page 32
Page 26
Figure 2-7A: Single–Family Residential Customer Impacts @ 31 ccf
$163.66 $162.30 $165.61 $170.76 $175.94 $181.28
$0
$20
$40
$60
$80
$100
$120
$140
$160
$180
$200
Current 2015 2016 2017 2018 2019
Fixed Charge Commodity Charges
Summary of Charges Current20152016201720182019
Fixed Charge 52.16$54.65$55.04$56.34$57.67$59.03$
Additional Unit Charge -$-$-$-$-$-$
Commodity Charges 111.50$107.65$110.57$114.42$118.27$122.25$
Total Charges 163.66$162.30$165.61$170.76$175.94$181.28$
$Change N/A (1.36)$3.31$5.15$5.18$5.34$
%Change N/A -0.8%2.0%3.1%3.0%3.0%
Item 11.a. - Page 33
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3 Wastewater System –Financial Plan
3.3 Financial Plan
3.3.1 Revenue Requirements
A review of a utility’s revenue requirements is a key step in the rate design process. The review
involves an analysis of annual operating revenues under the current rates, O&M expenses,
capital expenditures, transfers between funds, and reserve requirements. This section of the
report provides a discussion on projected revenues, O&M and capital expenditures, the capital
improvement financing plan, debt service requirements, and revenue adjustments required to
ensure the fiscal sustainability and solvency of the Wastewater Enterprise.
3.3.1.1 Revenues from Current Rates
The current wastewater (WW) rate structure consists of monthly base service charges (by
dwelling unit)for all customer classes and a discharge or commodity rate per hundred cubic
feet (CCF).Current WW rates are shown in Tables 3-1 and 3-2.
Table 3-1: Current WW Monthly Base Charges
Description Effective
7/1/2013
Inside City $2.40
Outside City $3.00
Table 3-2: Current WW Volume Charges ($ / ccf)
Description Effective
7/1/2013
Location Inside City Outside City
SFR $0.67 $0.84
MFR $0.94 $1.18
Business $1.32 $1.65
Church $1.32 $1.65
School $1.32 $1.65
Hospital $1.32 $1.65
Motel $1.32 $1.65
Convalescent Home $1.32 $1.65
Other $1.32 $1.65
Table 3-3 provides a summary of WW EDUs for Fiscal Year 2013-14.Similar to the analysis in
the Water Fund,a zero percent growth rate was assumed.
Item 11.a. - Page 34
Page 28
Table 3-3: WW Accounts/Units Summary
Accounts Summary FYE 2014
Single-Family Residential Customers 5,852
Multi-Family Residential –each unit 1,682
Business 596
Church 15
School 14
Hospital 83
Motel 300
Convalescent Home 183
Other 0
Total WW Customers 8,725
The WW revenues are derived from current rates and accounts, and are shown in Table 3-4.
Table 3-4: WW Revenues
FYE 2014 FYE 2015 FYE 2016 FYE 2017 FYE 2018 FYE 2019
Sewer Base Charges:$1,092,478 $1,092,478 $1,092,478 $1,092,478 $1,092,478 $1,092,478
3.3.1.2 O&M Expenses
O&M expenses include the costs of operating and maintaining the wastewater collection as
well as other administrative costs such as customer service and billing. The City’s Fiscal Year
2013-14 budget values and the assumed inflation factors for the study period (as sho wn in
Table 2-1) were used as the basis for projecting O&M costs. Table 3-5 summarizes projected
O&M expenses for the wastewater enterprise. The WW O&M expenses are projected to
increase at approximately three percent per year.
Table 3-5: Projected WW O&M Expenses
FYE 2014 FYE 2015 FYE 2016 FYE 2017 FYE 2018 FYE 2019
Total Operating Expenditures:$960,280 $907,880 $922,137 $936,822 $951,947 $967,525
Item 11.a. - Page 35
Page 29
3.3.1.3 Capital Improvement Plan
The City has adopted a long-term capital improvement plan (CIP) to address the WW
Enterprise’s future needs. Table 4-5 shows the total expected CIP construction cost by year
for the first five years of the ten-year study period. The figures are per the Sewer Master
Plan and are adjusted for inflation. These projects will be funded through proposed rate
revenues (PAYGO). There is no debt proposed to fund CIP for the WW enterprise.
Table 3-6: WW CIP Adjusted For Inflation
FYE 2014 FYE 2015 FYE 2016 FYE 2017 FYE 2018 FYE 2019
Total CIP Plan:$352,290 $190,500 $246,900 $201,512 $219,427 $562,000
3.3.1.4 Reserve Requirements
To ensure fiscal sustainability and the continued operation of the WW enterprise, RFC
recommends that the following reserve level targets be met.
Operating Reserve –The operating reserve is used primarily to meet ongoing cash flow
requirements.Given that a majority of the City’s wastewater revenue is through its
discharge rates (75% of revenue),RFC recommends that the City increase its operating
reserve target from 60 days to 90-days of O&M expenses.As the potential of revenue
volatility increases, reserves should be set at an amount to offset this revenue reliability. A
90-day reserve ensures working capital to support the operation, maintenance and
administration of the utility. Maintaining this level of reserves also provides liquid funds for
the continued ongoing operations of the utility in the event of unforeseen costs or
interruption with the utility or the bi-monthly billing system.
Capital Reserve –Based on the relatively low expected cost of the City’s future CIP
expenditure, RFC recommends that the City continues to maintain a target capital reserve
level equal to 100 percent of the enterprise’s expected annual CIP expenses.
3.3.2 Financial Pro Forma at Current Rates
Table 4-6 displays the pro forma of the WW Enterprise’s funds under current rates over the
forecast period. All projections shown in the table are based on the current rate structure and
do not include any rate adjustments or proceeds from additional debt issuances.
Under this scenario, revenues generated from current rates and other miscellaneous revenues
are sufficient to recover all operating expenses of the WW Enterprise.As a result,it is projected
that the City will be able to maintain fiscal sustainability and solvency under their current
Fiscal Year 2012-13 rates and;therefore,rate adjustments are not necessary at this point in
time.As capital costs fluctuate from year-to-year, reserves are used when necessary.
Item 11.a. - Page 36
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Table 3-7:Detailed Financial Plan Pro-forma at Current Rates
3.3.3 Recommendations and Proposed Financial Plan
3.3.3.1 Proposed Revenue Adjustments
The WW Enterprise is currently financial solvent and it is recommended that the City
maintain the current rate structure. The financial plan illustrates the Wastewater Enterprise
will be financial solvent for the next five years and on;therefore no revenue adjustments
are required.
Figures 3-1,3-2,and 3-3 illustrate the projected five-year financial plan for the Wastewater
Enterprise. Figure 3-1 illustrates the operating position of the Wastewater Enterprise,
where the expenses,inclusive of reserve funding, are shown by stacked bars and total
revenue at current rates is shown by the horizontal trend line. Figure 3-2 summarizes the
projected CIP and its funding sources of 100%PAYGO.There is no debt shown because the
proposed financial plan does not propose debt.The ending total fund balance for the WW
utility –inclusive of both the operating and capital funds –is projected and shown in Figure
3-3, where the horizontal trend line indicates the target reserve balance as recommended
by the reserve requirements discussed in Section 3.1.2.
Revenue Adjustments from Rates FY 2014FY 2015FY 2016FY 2017FY 2018FY 2019FY 2020FY 2021FY 2022FY 2023
Revenues from Current Rates
Budgeted Revenue $0
Service Charges$252,324$252,324$252,324$252,324$252,324$252,324$252,324$252,324$252,324$252,324
Discharge Charges$840,154$840,154$840,154$840,154$840,154$840,154$840,154$840,154$840,154$840,154
Total Revenues from Current Rates:$1,092,478$1,092,478$1,092,478$1,092,478$1,092,478$1,092,478$1,092,478$1,092,478$1,092,478$1,092,478
Operating Fund Cash Flows
Revenues
Total Revenue from Rates$1,092,478$1,092,478$1,092,478$1,092,478$1,092,478$1,092,478$1,092,478$1,092,478$1,092,478$1,092,478
Other Operating Revenues$16,000$16,000$16,000$16,000$16,000$16,000$16,000$16,000$16,000$16,000
Total Operating Revenues$1,108,478$1,108,478$1,108,478$1,108,478$1,108,478$1,108,478$1,108,478$1,108,478$1,108,478$1,108,478
Expenditures
Total Operating Expenditures$276,380$285,580$294,122$302,921$311,982$321,315$330,928$340,828$351,024$361,526
Net Revenues Prior to Debt Payment $832,098$822,898$814,356$805,557$796,496$787,163$777,550$767,650$757,454$746,951
Non-Operating Expenditures
Existing Debt Service$21,000$21,000$21,000$21,000$21,000$21,000$21,000$21,000$21,000$21,000
Proposed Debt Service $0 $0 $0 $0 $0 $0 $0 $0 $0$0
Total Non-Operating Expenditures$21,000$21,000$21,000$21,000$21,000$21,000$21,000$21,000$21,000$21,000
Net Revenues after Debt Payment $811,098$801,898$793,356$784,557$775,496$766,163$756,550$746,650$736,454$725,951
Operating Reserve Balances
Beginning Balances$670,013$697,021$865,679$956,262$1,069,909$1,142,648$849,130$817,620$971,586$914,674
Transfer Out - Personnel($288,500)($293,840)($302,655)($311,735)($321,087)($330,720)($340,641)($350,860)($361,386)($372,228)
Transfer Out - Operating($69,000)($72,500)($74,675)($76,915)($79,223)($81,599)($84,047)($86,569)($89,166)($91,841)
Transfer Out - Cost Allocation($69,300)($71,400)($73,542)($75,748)($78,021)($80,361)($82,772)($85,255)($87,813)($90,447)
Transfer Out - USDA City Hall Loan($5,000)($5,000)($5,000)($5,000)($5,000)($5,000)($5,000)($5,000)($5,000)($5,000)
CIP Expenditures($352,290)($190,500)($246,900)($201,512)($219,427)($562,000)($275,600)($65,000)($250,000)($55,000)
Net Income (Loss) after Transfers$27,008$168,658$90,583$113,647$72,738($293,517)($31,510)$153,966($56,911)$111,436
Ending Balances$697,021$865,679$956,262$1,069,909$1,142,648$849,130$817,620$971,586$914,674$1,026,110
Target Balances (% of Operating Expenditure plus CIP)$675,795$680,830$686,249$691,830$697,578$703,499$709,597$715,878$722,347$729,011
Debt CoverageN/AN/AN/AN/AN/AN/AN/AN/AN/AN/A
Item 11.a. - Page 37
Page 31
Figure 3-1: Five-Year WW Operating Financial Plan
Figure 3-2: Projected CIP and Funding Sources for WW Funds
Figure 3-3: Projected Ending Balances for WW Funds
Item 11.a. - Page 38
Page 32
3.4 Proposed WW Rates
As a part of this study, RFC developed the proposed financial plan which illustrates that the
Wastewater Enterprise is currently and will remain financial solvent for the next five years as
shown in in Figures 3-1 and 3-3.Although capital costs in Fiscal Year 2018-19 exceed the annual
revenue, the enterprise has adequate reserves to fund the necessary capital and is replenished
in subsequent years.As such, a Proposition 218 noticing is not required for the City’s
Wastewater Enterprise as the current rates provide sufficient funding for costs incurred and
reserves.
Item 11.a. - Page 39
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EXHIBIT “A”–SINGLE-FAMILY RESIDENTIAL WATER RATE COMPARISON
*The bi-monthly comparison is based on the City’s annual bi-monthly average equal to 31 ccf.
Item 11.a. - Page 40
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EXHIBIT “B”–RESIDENTIAL WASTEWATER RATE COMPARISON
* For variable component, 15 CCF was assumed for comparison.
Item 11.a. - Page 41
Page 35
Appendix “A”–Detailed Financial Plan Pro-forma at Current Rates
Revenue Adjustments from Rates FY 2014FY 2015FY 2016FY 2017FY 2018FY 2019FY 2020FY 2021FY 2022FY 2023
Revenues from Current Rates
Service Charges$462,505$462,505$462,505$462,505$462,505$462,505$462,505$462,505$462,505$462,505
Service Charges - Fire Lines$16,984$16,984$16,984$16,984$16,984$16,984$16,984$16,984$16,984$16,984
Calcuated Lopez Base Meter Charge$1,635,354$1,635,354$1,635,354$1,635,354$1,635,354$1,635,354$1,635,354$1,635,354$1,635,354$1,635,354
Calculater Lopez Addtl. Unit Charge$284,917$284,917$284,917$284,917$284,917$284,917$284,917$284,917$284,917$284,917
Volume Charges$4,182,070$4,098,428$4,016,460$3,976,295$3,936,532$3,897,167$3,858,195$3,819,613$3,781,417$3,743,603
Total Revenues from Current Rates:$6,581,829$6,498,188$6,416,220$6,376,055$6,336,292$6,296,927$6,257,955$6,219,373$6,181,177$6,143,363
640 - Operating Fund Cash Flows
Revenues
Total Revenue from Rates$6,581,829$6,498,188$6,416,220$6,376,055$6,336,292$6,296,927$6,257,955$6,219,373$6,181,177$6,143,363
Other Operating Revenues$83,600$83,600$83,600$83,600$83,600$83,600$83,600$83,600$83,600$83,600
Total Operating Revenues$6,665,429$6,581,788$6,499,820$6,459,655$6,419,892$6,380,527$6,341,555$6,302,973$6,264,777$6,226,963
Expenditures
Salaries & Ben - Admin.$122,395$221,067$227,699$234,530$241,566$248,813$256,277$263,965$271,884$280,041
Salaries & Ben - Prod.$100,970$103,999$107,119$110,333$113,643$117,052$120,563$124,180$127,906$131,743
Salaries & Ben - Distr.$315,660$325,130$334,884$344,930$355,278$365,936$376,915$388,222$399,869$411,865
Supplies & Maint.$742,750$819,334$848,427$878,613$909,937$942,443$976,181$1,011,198$1,047,547$1,085,282
Total Operating Expenditures$1,281,775$1,469,530$1,518,128$1,568,406$1,620,423$1,674,245$1,729,936$1,787,566$1,847,206$1,908,930
Total Non-Operating Expenditures $8,800$8,800$8,800$8,800$8,800$8,800$8,800$8,800$8,800$8,800
Net Revenues after Debt Payment$5,374,854$5,103,458$4,972,891$4,882,449$4,790,669$4,697,482$4,602,819$4,506,607$4,408,771$4,309,232
Operating Reserve Balances
Beginning Balances$3,079,998$5,526,852$8,077,741$10,171,799$12,512,359$14,519,108$16,501,684$18,126,072$19,820,947$21,329,177
Direct Personnel Transfers($508,400)($568,770)($585,833)($603,408)($621,510)($640,156)($659,360)($679,141)($699,515)($720,501)
Direct Operating Transfers($231,800)($231,000)($237,930)($245,068)($252,420)($259,993)($267,792)($275,826)($284,101)($292,624)
Cost Allocation Transfers($316,900)($359,000)($369,770)($380,863)($392,289)($404,058)($416,179)($428,665)($441,525)($454,770)
Transfer Out - Lopez Fund($973,500)($973,500)($973,500)($973,500)($973,500)($973,500)($973,500)($973,500)($973,500)($973,500)
Transfers out - CIP Fund($397,400)($420,300)($711,800)($339,050)($544,200)($437,200)($661,600)($454,600)($501,900)($603,700)
Ending Balances$6,026,852$8,077,741$10,171,799$12,512,359$14,519,108$16,501,684$18,126,072$19,820,947$21,329,177$22,593,314
Appropriation for Capital($500,000)$0 $0 $0 $0 $0 $0 $0 $0 $0
Ending Balance Fund 640$5,526,852$8,077,741$10,171,799$12,512,359$14,519,108$16,501,684$18,126,072$19,820,947$21,329,177$22,593,314
Target Balances$1,115,710$1,196,185$1,224,898$1,264,248$1,297,220$1,337,439$1,378,928$1,421,729$1,465,884$1,511,437
641 - Lopez Fund
Revenues
Transfer In - 640 Fund (30% of Obligation)$973,500$973,500$973,500$973,500$973,500$973,500$973,500$973,500$973,500$973,500
OB Late Payment Penalty$20,500$20,500$20,500$20,500$20,500$20,500$20,500$20,500$20,500$20,500
Interest $8,500$8,500$8,500$8,500$8,500$8,500$8,500$8,500$8,500$8,500
Total Operating Revenues$1,002,500$1,002,500$1,002,500$1,002,500$1,002,500$1,002,500$1,002,500$1,002,500$1,002,500$1,002,500
Operating Expenditures
Lopez Maintenance & Operations - Routine$1,482,923$1,512,581$1,542,833$1,573,690$1,605,164$1,653,319$1,702,918$1,754,006$1,806,626$1,860,825
Lopez Maintenance & Operations - Non-Routine $67,086$68,428$69,796$71,192$72,616$74,794$77,038$79,349$81,730$84,182
Lopez Maintenance & Operations- Pigging$61,419$58,725$183,043 $0 $0 $0 $0 $0 $0 $0
Lopez Maintenance & Operations- Capital Overlay$204,735$199,673$65,715$278,025$278,025$286,366$294,957$303,805$312,920$322,307
Lopez Cost Allocation Transfer$307,800$317,034$326,545$336,341$346,432$356,825$367,529$378,555$389,912$401,609
Total Operating Expenditures$2,123,963$2,156,441$2,187,932$2,259,248$2,302,237$2,371,304$2,442,443$2,515,716$2,591,188$2,668,923
Non-Operating Expenditures
Lopez Debt Service$498,827$498,827$498,827$498,827$498,827$498,827$498,827$498,827$498,827$498,827
SRF Debt Service$929,829$929,829$929,829$929,829$929,829$929,829$929,829$929,829$929,829$929,829
Lopez Bad Debt Expense $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Total Non-Operating Expenditures$1,428,656$1,428,656$1,428,656$1,428,656$1,428,656$1,428,656$1,428,656$1,428,656$1,428,656$1,428,656
TOTAL REVENUES (FUND 640 and 641)6,694,429$6,610,788$6,528,820$6,488,655$6,448,892$6,409,527$6,370,555$6,331,973$6,293,777$6,255,963$
TOTAL EXPENDITURES (FUND 640 and 641)(4,869,038)$(5,213,841)$(5,620,193)$(5,404,843)$(5,741,879)$(5,795,754)$(6,186,111)$(6,150,314)$(6,374,235)$(6,658,249)$
Net Revenue for Debt Coverage Calculation1,825,391$1,396,947$908,626$1,083,812$707,013$613,773$184,444$181,659$(80,458)$(402,286)$
Debt Coverage for COPs 366%280%182%217%142%123%37%36%-16%-81%
Water Enterprise Fund
Total Water Enterprise Ending Fund Balance6,263,866$6,232,158$5,712,128$5,367,283$4,645,640$3,830,757$2,586,545$1,339,548$(169,566)$(2,000,508)$
Total Water Enterprise Reserve Target3,044,366$3,124,841$3,153,554$3,192,904$3,225,876$3,266,095$3,307,584$3,350,385$3,394,540$3,440,093$
Alert - Revenues < Desired TargetN/A N/AN/AN/AN/AN/A(721,039)$(2,010,836)$(3,564,105)$(5,440,601)$
Item 11.a. - Page 42
Page 36
Appendix “B”-Detailed Financial Plan Pro-forma at Proposed Rates
[1]The ten-year pro forma also reflects 3% revenue adjustments from FY 2019-20 through FY 2022-23
Revenue Adjustments from Rates FY 2014FY 2015FY 2016FY 2017FY 2018FY 2019FY 2020FY 2021FY 2022FY 2023
Revenues from Current Rates
Service Charges$462,505$462,505$462,505$462,505$462,505$462,505$462,505$462,505$462,505$462,505
Service Charges - Fire Lines$16,984$16,984$16,984$16,984$16,984$16,984$16,984$16,984$16,984$16,984
Calcuated Lopez Base Meter Charge$1,635,354$1,635,354$1,635,354$1,635,354$1,635,354$1,635,354$1,635,354$1,635,354$1,635,354$1,635,354
Calculater Lopez Addtl. Unit Charge$284,917$284,917$284,917$284,917$284,917$284,917$284,917$284,917$284,917$284,917
Volume Charges$4,182,070$4,098,428$4,016,460$3,976,295$3,936,532$3,897,167$3,858,195$3,819,613$3,781,417$3,743,603
Total Revenues from Current Rates:$6,581,829$6,498,188$6,416,220$6,376,055$6,336,292$6,296,927$6,257,955$6,219,373$6,181,177$6,143,363
640 - Operating Fund Cash Flows
Revenues
Total Revenue from Rates$6,581,829$6,563,170$6,609,989$6,765,670$6,925,182$7,088,623$7,256,094$7,427,699$7,603,544$7,783,739
Other Operating Revenues$83,600$83,600$83,600$83,600$83,600$83,600$83,600$83,600$83,600$83,600
Total Operating Revenues$6,665,429$6,646,770$6,693,589$6,849,270$7,008,782$7,172,223$7,339,694$7,511,299$7,687,144$7,867,339
Expenditures
Salaries & Ben - Admin.$122,395$221,067$227,699$234,530$241,566$248,813$256,277$263,965$271,884$280,041
Salaries & Ben - Prod.$100,970$103,999$107,119$110,333$113,643$117,052$120,563$124,180$127,906$131,743
Salaries & Ben - Distr.$315,660$325,130$334,884$344,930$355,278$365,936$376,915$388,222$399,869$411,865
Supplies & Maint.$742,750$819,334$848,427$878,613$909,937$942,443$976,181$1,011,198$1,047,547$1,085,282
Total Operating Expenditures$1,281,775$1,469,530$1,518,128$1,568,406$1,620,423$1,674,245$1,729,936$1,787,566$1,847,206$1,908,930
Total Non-Operating Expenditures $8,800$8,800$8,800$8,800$8,800$8,800$8,800$8,800$8,800$8,800
Net Revenues after Debt Payment$5,374,854$5,168,440$5,166,661$5,272,064$5,379,559$5,489,178$5,600,958$5,714,933$5,831,138$5,949,609
Operating Reserve Balances
Beginning Balances$3,079,998$5,526,852$8,142,722$10,430,550$13,160,726$15,756,365$18,530,637$21,153,163$24,056,364$26,986,961
Direct Personnel Transfers($508,400)($568,770)($585,833)($603,408)($621,510)($640,156)($659,360)($679,141)($699,515)($720,501)
Direct Operating Transfers($231,800)($231,000)($237,930)($245,068)($252,420)($259,993)($267,792)($275,826)($284,101)($292,624)
Cost Allocation Transfers($316,900)($359,000)($369,770)($380,863)($392,289)($404,058)($416,179)($428,665)($441,525)($454,770)
Transfer Out - Lopez Fund($973,500)($973,500)($973,500)($973,500)($973,500)($973,500)($973,500)($973,500)($973,500)($973,500)
Transfers out - CIP Fund($397,400)($420,300)($711,800)($339,050)($544,200)($437,200)($661,600)($454,600)($501,900)($603,700)
Ending Balances$6,026,852$8,142,722$10,430,550$13,160,726$15,756,365$18,530,637$21,153,163$24,056,364$26,986,961$29,891,474
Appropriation for Capital($500,000)$0 $0 $0 $0 $0 $0 $0 $0 $0
Ending Balance Fund 640$5,526,852$8,142,722$10,430,550$13,160,726$15,756,365$18,530,637$21,153,163$24,056,364$26,986,961$29,891,474
Target Balances$1,115,710$1,196,185$1,224,898$1,264,248$1,297,220$1,337,439$1,378,928$1,421,729$1,465,884$1,511,437
641 - Lopez Fund
Revenues
Transfer In - 640 Fund (30% of Obligation)$973,500$973,500$973,500$973,500$973,500$973,500$973,500$973,500$973,500$973,500
OB Late Payment Penalty$20,500$20,500$20,500$20,500$20,500$20,500$20,500$20,500$20,500$20,500
Interest $8,500$8,500$8,500$8,500$8,500$8,500$8,500$8,500$8,500$8,500
Total Operating Revenues$1,002,500$1,002,500$1,002,500$1,002,500$1,002,500$1,002,500$1,002,500$1,002,500$1,002,500$1,002,500
Operating Expenditures
Lopez Maintenance & Operations - Routine$1,482,923$1,512,581$1,542,833$1,573,690$1,605,164$1,653,319$1,702,918$1,754,006$1,806,626$1,860,825
Lopez Maintenance & Operations - Non-Routine $67,086$68,428$69,796$71,192$72,616$74,794$77,038$79,349$81,730$84,182
Lopez Maintenance & Operations- Pigging$61,419$58,725$183,043 $0 $0 $0 $0 $0 $0 $0
Lopez Maintenance & Operations- Capital Overlay$204,735$199,673$65,715$278,025$278,025$286,366$294,957$303,805$312,920$322,307
Lopez Cost Allocation Transfer$307,800$317,034$326,545$336,341$346,432$356,825$367,529$378,555$389,912$401,609
Total Operating Expenditures$2,123,963$2,156,441$2,187,932$2,259,248$2,302,237$2,371,304$2,442,443$2,515,716$2,591,188$2,668,923
Non-Operating Expenditures
Lopez Debt Service$498,827$498,827$498,827$498,827$498,827$498,827$498,827$498,827$498,827$498,827
SRF Debt Service$929,829$929,829$929,829$929,829$929,829$929,829$929,829$929,829$929,829$929,829
Lopez Bad Debt Expense $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Total Non-Operating Expenditures$1,428,656$1,428,656$1,428,656$1,428,656$1,428,656$1,428,656$1,428,656$1,428,656$1,428,656$1,428,656
TOTAL REVENUES (FUND 640 and 641)6,694,429$6,675,770$6,722,589$6,878,270$7,037,782$7,201,223$7,368,694$7,540,299$7,716,144$7,896,339$
TOTAL EXPENDITURES (FUND 640 and 641)(4,869,038)$(5,213,841)$(5,620,193)$(5,404,843)$(5,741,879)$(5,795,754)$(6,186,111)$(6,150,314)$(6,374,235)$(6,658,249)$
Net Revenue for Debt Coverage Calculation1,825,391$1,461,929$1,102,396$1,473,427$1,295,903$1,405,468$1,182,583$1,389,985$1,341,910$1,238,091$
Debt Coverage for COPs 366%293%221%295%260%282%237%279%269%248%
Water Enterprise Fund
Total Water Enterprise Ending Fund Balance6,263,866$6,297,139$5,970,879$6,015,650$5,882,897$5,859,709$5,613,636$5,574,965$5,488,218$5,297,653$
Total Water Enterprise Reserve Target3,044,366$3,124,841$3,153,554$3,192,904$3,225,876$3,266,095$3,307,584$3,350,385$3,394,540$3,440,093$
Alert - Revenues < Desired TargetN/A N/AN/AN/AN/AN/AN/AN/AN/AN/A
Item 11.a. - Page 43
Page 37
Appendix “C”-Public Hydrant / Private Fire Line Cost Allocation
Connection Size
Demand
Factor (^2.63)Unit Counts
Fire Equivalent
Conenctions
Percent
Allocation
Fire Protection
Costs
FYE 2015 Cost $689,199
Public Hydrants 91.17%$628,373
6"111.31 84093,501
Private Lines 8.83%$60,825
2"6.19 6 37
3"17.98 1 18
4"38.32 542,069
6"111.31 525,788
8"237.21 3 712
10"426.58 1 427
Total 102,552100.00%$689,199
Item 11.a. - Page 44
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EXHIBIT “D”–WATER RATE SUMMARY
Proposed Five-Year Monthly Service Charges
Proposed Five-Year Monthly Private Fire Line Service Charges
Proposed Bi-Monthly Allotments and Five-Year Single-Family Residential Tiered Rates ($/ccf)
Proposed Bi-Monthly Allotments and Five-Year Multi-Family Residential Unit Tiered Rates ($/ccf)
Proposed Five-Year Non-Residential Rates ($/ccf)[1]
[1]Hydrant Rate includes all costs as a uniform variable rate and the Wheeling Rate excludes Lopez charges
Total Monthly Fixed Cost
by Meter Size FYE 2015FYE 2016FYE 2017FYE 2018FYE 2019
5/8"$27.33$27.52$28.17$28.83$29.51
3/4"$29.32$29.53$30.22$30.94$31.67
1"$35.30$35.55$36.39$37.24$38.12
1 1/2"$43.27$43.58$44.60$45.65$46.73
2"$65.19$65.65$67.20$68.78$70.41
3"$226.60$228.21$233.59$239.10$244.74
4"$286.38$288.42$295.21$302.17$309.31
6"$425.87$428.91$439.01$449.36$459.96
8"$585.29$589.46$603.34$617.57$632.14
Private Fire Service
Monthly Charge FYE 2015FYE 2016FYE 2017FYE 2018FYE 2019
2"$3.47$3.49$3.57$3.66$3.74
3"$10.07$10.14$10.38$10.63$10.88
4"$21.46$21.61$22.12$22.64$23.18
6"$62.34$62.78$64.26$65.78$67.33
8"$132.85$133.79$136.94$140.17$143.48
10"$238.90$240.61$246.27$252.08$258.03
SFR Tiered RatesAllotmentFYE 2015FYE 2016FYE 2017FYE 2018FYE 2019
Tier 1 18 3.33$3.42$3.54$3.66$3.78$
Tier 2 36 3.67$3.76$3.90$4.03$4.16$
Tier 3 >36 4.89$5.02$5.19$5.37$5.55$
MFR Tiered Rates
Allotment
(Per Unit)FYE 2015FYE 2016FYE 2017FYE 2018FYE 2019
Tier 1 18 3.33$3.42$3.54$3.66$3.78$
Tier 2 9 3.67$3.76$3.90$4.03$4.16$
Tier 3 >27 4.89$5.02$5.19$5.37$5.55$
Non-ResidentialFYE 2015FYE 2016FYE 2017FYE 2018FYE 2019
Uniform Rate $3.47$3.57$3.69$3.82$3.95
IrrigationFYE 2015FYE 2016FYE 2017FYE 2018FYE 2019
Uniform Rate $3.71$3.81$3.94$4.08$4.21
Hydrant RateFYE 2015FYE 2016FYE 2017FYE 2018FYE 2019
Total Costs $6,563,170$6,609,989$6,765,670$6,925,182$7,088,623
Consumption 1,155,6021,155,6021,155,6021,155,6021,155,602
Uniform Rate $5.68$5.72$5.85$5.99$6.13
Wheeling RateFYE 2015FYE 2016FYE 2017FYE 2018FYE 2019
Variable Costs$2,187,388$2,202,992$2,254,878$2,308,040$2,362,512
Consumption 1,155,6021,155,6021,155,6021,155,6021,155,602
Uniform Rate $1.89$1.91$1.95$2.00$2.04
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