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CC 2021-11-09_10a Water and Wastewater Rate Study MEMORANDUM TO: CITY COUNCIL FROM: BILL ROBESON, ASSISTANT CITY MANAGER/PUBLIC WORKS DIRECTOR NICOLE VALENTINE, ADMINISTRATIVE SERVICES DIRECTOR SHANE TAYLOR, UTILTIES MANAGER SUBJECT: DRAFT WATER AND WASTEWATER RATE STUDY DATE: NOVEMBER 9, 2021 SUMMARY OF ACTION: Review and provide feedback on the Draft Water and Wastewater Rate Study. The study proposes water rate increases of 10% on March 21, 2022, January 1, 2023, and January 1, 2024, followed by a 6% increase on January 1, 2025, and no increase on January 1, 2026, with costs included for the Central Coast Blue project. A Wastewater rate increase of 8.3% annually over the next 5 years is also proposed. These increases reflect the anticipated real costs of providing Water and Wastewater services. This Study also includes information about Water and Wastewater Drought Rates that can be used during a Stage 1 Water Shortage Emergency. IMPACT ON FINANCIAL AND PERSONNEL RESOURCES: The cost of the Study is approximately $69,300, which was included in the FY 2019-20 through FY 2021-22 Budgets. An estimated 150 hours was required to complete the final draft report. RECOMMENDATION: It is recommended that the City Council review and provide feedback on the Draft Water and Wastewater Rate Study. BACKGROUND: Water and sewer services are a foundational aspect of City services and protect the public health, safety, and general welfare of the community. A shared water and sewer system allows for more efficient land use patterns, prevents water borne diseases, avoids conflicts between wells and septic systems, reduces individual large capital investments and allows for consistently clean, treated and tested water to be delivered to all residents and businesses regardless of property geography. The water system also includes a citywide fire hydrant system. Item 10.a. - Page 1 CITY COUNCIL DRAFT WATER AND WASTEWATER RATE STUDY NOVEMBER 9, 2021 PAGE 2 In order to gain these foundational benefits, the water system and related infrastructure needs to be managed, maintained and funded by the users of the system through six utility bills per year. Every 5 years, City staff produce a study of costs and needed revenue to operate the water and wastewater system. Once completed, the City Council reviews the study and makes a determination of rates needed to operate the two systems during the next five years. The previous Water and Wastewater Rate Study was completed in 2014 and set updated Water rates for services for Fiscal Years 2014-15 through 2018-19. The Wastewater rates were projected to maintain fiscal sustainability and solvency under the rates during the 2014 study and no rate adjustments were necessary at that time. The Wastewater rates have not been adjusted since 2009. On January 22, 2019, the City Council approved an agreement with Tuckfield & Associates to prepare a Water, Wastewater and Storm Water Rate Study Update. The study was intended to set rates for the next 5-year period, beginning in 2020. On October 29, 2019, the City Council held a Special Study Session to receive a presentation of the Draft Study by Clayton Tuckfield from Tuckfield & Associates. The Study Session provided an opportunity for the Council and citizens to receive information, ask questions, and discuss the Water, Wastewater and Storm Water rate study. Effective January 1, 2018, Senate Bill 231 classified Storm W ater systems as part of the Wastewater/Sewer System and provided that storm water fees may be collected using a Proposition 218 Rate Setting Process. A letter was sent to the City dated December 19, 2019, from the Howard Jarvis Taxpayers Association. The letter argued that Senate Bill 231 conflicts with case law interpreting the California Constitution, and that the ability to propose a storm drainage fee is subject to a vote by the property owners or the voting residents of the affected area. The City Attorney confirmed this interpretation and recommended that staff remove the Storm Water component from the current draft rate study. Central Coast Blue The City of Pismo Beach is the lead agency for the Central Coast Blue Project (CCB). The Project has been a multi-agency effort between three of the four Northern Cities Management Area agencies (the Cities of Arroyo Grande, Grover Beach, and Pismo Beach) and the South San Luis Obispo County Sanitation District (SSLOCSD) to construct a regional recycled water project that will enhance supply reliability by injecting advanced purified water into the Santa Maria Groundwater Basin (SMGB). The Project will reduce vulnerability to drought and seawater intrusion by creating a seawater intrusion barrier and supplementing the naturally occurring groundwater. Phase 1 of the Project will treat wastewater from the City of Pismo Beach to an advanced purification level and inject the treated water into the Basin at key locations near the coast, resulting in 900- Item 10.a. - Page 2 CITY COUNCIL DRAFT WATER AND WASTEWATER RATE STUDY NOVEMBER 9, 2021 PAGE 3 1,000 acre-feet per year of additional water for use by the participating parties. Phase 2 is anticipated to treat wastewater from the SSLOCSD and may occur at a later date. The Cities of Arroyo Grande, Grover Beach, and Pismo Beach have conducted several meetings and discussions regarding CCB and each party’s share and role in the project. Through these discussions, the parties have arrived at an agreed-upon framework for sharing costs and operating the project, most recently revised in September 2021 and presented to each city council in September and October 2021. A draft cost-sharing agreement is underway, along with a Joint Powers Agreement that would form a Joint Powers Authority to operate the project following completion of construction and commissioning. Under the current framework, the City will seek a 25% share of the Project and the remaining shares of the Project are anticipated to be allocated as follows: PROJECT Contributing Water Purveyors Cost Share Percentage Arroyo Grande 25% Grover Beach 36% Pismo Beach 20% Unsubscribed 19% Total 100% As indicated in the table above, 19% of the project is currently unsubscribed by the three participating cities. Until that 19% is subscribed by one of the cities or other customers, it is anticipated that it will be split equally among the three cities, 6.33% to each. The City of Arroyo Grande’s total project estimated percentage would be 25% + 6.33% = 31.33%. The City of Pismo Beach is currently evaluating whether it will subscribe to a greater share of the Project, which will result in a lower unsubscribed portion and therefore a lower cost share for the City of Arroyo Grande. It is anticipated that the Pismo Beach will provide direction on this issue at its November 16, 2021 City Council meeting. The cost-sharing agreement currently being developed by staff will reflect the final percentages arrived at following that meeting. It is anticipated that the Project will be heavily funded by Federal and State grants. To date, $4,496,094 in Federal and State grants have been awarded to fund the Project. On September 7, 2021, Water Systems Consulting, Inc. (WSC) submitted an application seeking approximately $28.6 million in grant funding for the Project from the Proposition 1 Groundwater Grant Program (Prop 1 GWGP) administered by the State Water Resources Control Board. If awarded, these grant funds will provide funding for more than 50% of the costs of constructing the Project. Updated Project cost estimates were prepared as part of the Prop 1 grant application and WSC has supplied the following Item 10.a. - Page 3 CITY COUNCIL DRAFT WATER AND WASTEWATER RATE STUDY NOVEMBER 9, 2021 PAGE 4 updated estimated total Project costs, as well as the total costs to participating agencies when accounting for previously-awarded grants, and the total potential grant funding opportunities for the Project: Overall Costs Total Project Costs $56,681,853 Grant or outside agency funding contributions spent to- date $2,489,576 Prop 1 GWGP (Round 1), Zone 3 Reserves, SSLOCSD EIR Contribution Awarded and Unspent Grant Funds $2,496,094 Title XVI WRRG Total Participating agency obligations $51,696,183 Future Grant Opportunities Prop 1 GWGP (Round 3) $28,625,746 Submitted concept proposal and waiting on invite to apply Title XVI WRRG $11,220,526 Project can apply to future funding opportunities and receive 25% cost share of eligible costs up to $20Mil Total Future Grant Opportunities $39,846,272 Total Participating Agency Obligation after Potential Grant Funds $11,849,911 Stage 1 Water Shortage Emergency At its October 12, 2021 regular meeting, Council conducted a continued Public Hearing and adopted a resolution declaring a Stage 1 Water Shortage Emergency and implementing Emergency Water Shortage Restrictions and Regulations in accordance with the California Water Code and the Arroyo Grande Municipal Code. The resolution imposes the following reduction requirements for Arroyo Grande water customers: • For Single Family Residential (SFR) and Multi-Family Residential (MFR) customers using of 0-9 units, the reduction allocation is 0% • For SFR and MFR customers using 10-18 units, the reduction allocation is 7% • For SFR and MFR customers using 19 or more units, the reduction allocation is 14% • Commercial customers are exempt from the overall water restrictions unless they have an irrigation meter • Irrigation customers will be required to reduce water usage by 25% Item 10.a. - Page 4 CITY COUNCIL DRAFT WATER AND WASTEWATER RATE STUDY NOVEMBER 9, 2021 PAGE 5 The calculations used to develop this revised recommendation are shown in the table below. Water and Sewer Fund Budgets During the FY 2021-22 and FY 2022-23 Biannual Budget, process the Water and Sewer fund revenue was shown as a flat amount to reflect that the updated Water and Wastewater Rate Study =had not yet been adopted. The Biannual Budget included the following information regarding the Water and Sewer Funds: Fund 612 Sewer FY 2021-22 and FY 2022-23 Biannual Budget Item 10.a. - Page 5 CITY COUNCIL DRAFT WATER AND WASTEWATER RATE STUDY NOVEMBER 9, 2021 PAGE 6 .. Fund 640 Water FY 2021-22 and FY 2022-23 Biannual Budget The Reserve Target balance for both of these funds is 90 days (25%) of the current annual operating expense budget plus $500,000 to fund CIP Projects. The Reserve Target for Fund 612 Sewer for FY 2022-23 is $739,200. At the end of FY 2022-23 the ending fund balance for Fund 614 is projected to be $531,069, approximately $208,000 under the Reserve Target. The FY 2022-23 Reserve Target for Fund 649 Water is $2,716,600. At the end of FY 2022-23, the ending fund balance for Fund 640 is projected to be $1,920,414, approximately $796,100 under the Reserve Target. ANALYSIS OF ISSUES: A number of issues impact funding needs in the enterprise system. These include: the ongoing infrastructure maintenance and upgrades identified in the Water Master 2021-22 2022-23 BUDGET BUDGET Beginning Working Capital 1,011,446$ (512,682) 801,521$ (209,925) Revenues: Revenues 947,000 (49,542) 947,000 - Transfers In - - - - Total Revenues 947,000 (49,542) 947,000 - Expenses: Salaries and Benefits 245,000 (5,100) 239,800 (5,200) Services and Supplies 168,045 827 172,040 3,995 Debt Service 8,500 (9,200) - (8,500) Operating Equipment 3,500 (31,000) 2,500 (1,000) Capital Improvement Program 243,140 (300,966) 260,412 17,272 Transfers Out 488,740 (6,860) 542,700 53,960 Total Expenditures 1,156,925 (352,299) 1,217,452 60,527 Ending Available Working Capital 801,521$ (209,925) 531,069$ (270,452) Increase/ (Decrease) Increase/ (Decrease) 2021-22 2022-23 BUDGET BUDGET Beginning Working Capital 3,923,733$ (65,843) 2,873,883$ (1,049,850) Revenues: Revenues 6,882,488 - 6,882,488 - Transfers In - (1,606,471) 232,750 232,750 Total Revenues 6,882,488 (1,606,471) 7,115,238 232,750 Expenses: Salaries and Benefits 795,100 (58,600) 778,000 (17,100) Services and Supplies 753,945 60,553 736,940 (17,005) Debt Service 13,500 (13,700) - (13,500) Capital Outlay 67,500 57,000 1,200 (66,300) Capital Improvement Program 366,040 (985,352) 470,250 104,210 Transfers Out 5,936,253 317,635 6,082,316 146,063 Total Expenditures 7,932,338 (622,464) 8,068,706 136,368 Ending Available Working Capital 2,873,883$ (1,049,850) 1,920,414$ (953,468) Increase/ (Decrease) Increase/ (Decrease) Item 10.a. - Page 6 CITY COUNCIL DRAFT WATER AND WASTEWATER RATE STUDY NOVEMBER 9, 2021 PAGE 7 Plan and the City's Capital Improvement Program; the recent economic downturn related to the Covid-19 pandemic and the resulting need to wait to increase fees; 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 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 is currently drawing down reserves to offset annual shortfalls. These challenges are not unique to the City of Arroyo Grande, as many agencies throughout the State face similar circumstances. The goal of the Study is to determine water and wastewater rates for FY 2021-22 to FY 2025-26. The major objectives of the Study include the following: • Review the current and future financial status of each of the water and wastewater enterprises • Make any adjustments to the revenue being received to ensure that the financial obligations are being met now and in the future, including adequate reserves and debt service coverage • Design water and wastewater rates that generate the required revenue for the cost of service while being proportionate and equitable for customers Water Rates The rate structure for water service has two components: (1) a fixed monthly charge; and (2) a variable (water consumption-based) charge. The first component is a fixed amount calculated to recover a portion of the City’s fixed costs of operating and maintaining the City’s water system and is established on the basis of the customer water meter size. The variable component of the rate structure is based on water consumption. The variable component is structured in such a way as to capture the costs of providing water and to deter waste and encourage conservation. For residential customers, the variable charges are further apportioned between three distinct tiers. The goal of the first tier is to provide for basic indoor water use; the second tier is to provide for outdoor irrigation; and the third tier is for excessive use. Together, the components are calculated to recover the proportionate cost of providing water service attributable to parcels within each customer class. 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 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. Item 10.a. - Page 7 CITY COUNCIL DRAFT WATER AND WASTEWATER RATE STUDY NOVEMBER 9, 2021 PAGE 8 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 40% 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 / 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 (SFR), Multifamily Residential (MFR), non-residential, and irrigation. While there can be differences in use within a customer class (i.e. not all SFR customers 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 recommended water rate structure includes maintaining the fixed charge structure but, modifying the variable rate structure to (1) revise the tier break points for SFR customers and (2) provide an individual uniform volume charge for MFR and other customers. It is proposed that the current three-tier rate structure be maintained for SFR customers, however the tier break points are proposed to be modified. For SFR customers, Tier 1 is defined as consumption to provide basic indoor water use and is based on 2.39 persons per household (pph) using 55 gallons per capita per day (gcpd), utilizing the standards recommended by the California Department of Finance and the California Water Board. These criteria result in a Tier 1 breakpoint of 10 Hundred Cubic Feet (HCF) per billing period. Tier 2 is defined as consumption related to outdoor water use up to the average SFR summer peak demand which was determined from billing information to be 42 HCF. Tier 3 is defined as water use above Tier 2. Item 10.a. - Page 8 CITY COUNCIL DRAFT WATER AND WASTEWATER RATE STUDY NOVEMBER 9, 2021 PAGE 9 For MFR there is very little consumption (less than 2.0%) above the current Tier 1 breakpoint of 18 HCF. Over 82% of the water consumed by MFR customers is in the zero to 10 HCF block per dwelling unit. Therefore, it is recommended that the MFR Tiers be eliminated and replaced with a uniform volume rate similar to the current non-residential classifications. For the water system, the anticipated revenue needs were determined with and without the Central Coast Blue (CCB) Project to ensure that the Council and the public are provided the most complete information possible. As the City Council has directed that staff negotiate agreements necessary to enable the City to participate in the CCB Project, all information provided in this staff report will focus on anticipated water rates with CCB. As indicated in the Background section above, the Project is anticipated to be heavily funded by grants from the Federal and State governments. However, it is currently unknown how much will ultimately be awarded to the Project. Increases in the City’s water rates may be reduced as additional grants are received. As presented, the CCB project is currently estimated to cost $43,407,577. The City will incur new debt service from loan proceeds to fund its share of Phase 1 construction of the CCB project. It is assumed that this amount is financed at 1% for 30 years and will have an annual debt service payments of approximately $511,000 beginning in FY 2022-23. The proposed water rate structure and rates with CCB are provided in the table below: Item 10.a. - Page 9 CITY COUNCIL DRAFT WATER AND WASTEWATER RATE STUDY NOVEMBER 9, 2021 PAGE 10 Proposed Water Fixed and Variable Charges with Central Coast Blue Current March 21, Ja nuary 1, January 1, January 1, January 1, Rate FY 21-22 FY 22-23 FY 23-24 FY 24-25 FY 25-26 Meter Size Fixed Charge ($ per month) 5/8"$29.51 $29.45 $32.40 $35.64 $37.78 $37.78 3/4" $31.67 $32.31 $35.54 $39.09 $41.44 $41.44 1"$38.12 $40.87 $44.96 $49.46 $52.43 $52.43 1.5"$46.73 $52.29 $57.52 $63.27 $67.07 $67.07 2"$70.41 $83.68 $92.05 $101.26 $107.34 $107.34 3"$244.74 $314.85 $346.34 $380.97 $403.83 $403.83 4"$309.31 $400.47 $440.52 $484.57 $513.64 $513.64 6"$459.96 $600.25 $660.28 $726.31 $769.89 $769.89 8"$632.14 $828.57 $911.43 $1,002.57 $1,062.72 $1,062.72 Service Fee per Add'l Unit $7.99 $8.26 $9.08 $9.98 $10.58 $10.58 Fireline Size 2" $3.74 $4.40 $4.84 $5.32 $5.64 $5.64 3" $10.88 $12.79 $14.07 $15.48 $16.41 $16.41 4" $23.18 $27.25 $29.98 $32.98 $34.96 $34.96 6" $67.33 $79.16 $87.08 $95.79 $101.54 $101.54 8" $143.48 $168.69 $185.56 $204.12 $216.37 $216.37 10" $258.03 $303.37 $333.71 $367.08 $389.10 $389.10 Variable Charge ($ per HCF) Single-Family Tier 1 -0 to 18 units $3.78 Tier 2 -19 to 36 units $4.16 Tier 3 -Over 36 $5.55 Tier 1 -0 to 10 units $4.13 $4.54 $4.99 $5.29 $5.29 Tier 2 -11 to 38 units $4.82 $5.30 $5.83 $6.18 $6.18 Tier 3 -Over 38 $5.96 $6.56 $7.22 $7.65 $7.65 Multifamily Tier 1 -0 to 18 units $3.78 Tier 2 -19 to 27 units $4.16 Tier 3 -Over 27 $5.55 Tier 1 -0 to 10 units $4.13 $4.54 $4.99 $5.29 $5.29 Tier 2 -11 to 38 units $4.82 $5.30 $5.83 $6.18 $6.18 Tier 3 -Over 38 $5.96 $6.56 $7.22 $7.65 $7.65 Commercial $3.95 $4.50 $4.95 $5.45 $5.78 $5.78 Irrigation $4.21 $5.10 $5.61 $6.17 $6.54 $6.54 Hydrant $6.13 $8.36 $9.20 $10.12 $10.73 $10.73 Wheeling $2.04 $2.42 $2.66 $2.93 $3.11 $3.11Item 10.a. - Page 10 CITY COUNCIL DRAFT WATER AND WASTEWATER RATE STUDY NOVEMBER 9, 2021 PAGE 11 The following table shows the impacts to SFR bills water rates with a 5/8-inch meter using 19 HCF bi-monthly over time with the implementation of the proposed water rates from the previous table with CCB: The following chart compares Arroyo Grande’s average SFR water bill with those of other communities at the same consumption, assuming adoption of the proposed water rate increases: Table 26 SFR Bi-monthly Water Bill Impacts at 19 HCF Bi-Monthly With Central Coast Blue Proposed SFR Charges Current FY 21-22 FY 22-23 FY 23-24 FY 24-25 FY 25-26 Fixed Charges $59.02 $58.90 $64.80 $71.28 $75.56 $75.56 Variable Charges $72.20 $84.68 $93.10 $102.37 $108.52 $108.52 Total Charges $131.22 $143.58 $157.90 $173.65 $184.08 $184.08 Dollar Change $12.36 $14.32 $15.75 $10.43 $0.00 Percent Change 9.4% 10.0% 10.0% 6.0% 0.0% $131.22 $143.58 $157.90 $173.65 $184.08 $184.08 $0 $20 $40 $60 $80 $100 $120 $140 $160 $180 $200 Current FY 21-22 FY 22-23 FY 23-24 FY 24-25 FY 25-26 Fixed Charges Variable Total Item 10.a. - Page 11 CITY COUNCIL DRAFT WATER AND WASTEWATER RATE STUDY NOVEMBER 9, 2021 PAGE 12 Wastewater Rates The current wastewater rates consist of fixed and variable charges to residential and non- residential customers. All customers are charged the same fixed charged bi-monthly. Residential and Non-residential customers are charged different variable rates. With Central Coast Blue Single-family Residential Bi-Monthly Water Bills of Local Communities Using 19 HCF with Central Coast Blue Note: Above table uses water rates in effect August 2021. Arroyo Grande March 2022 bill is based on the rate structure and rates above. Pismo Beach includes Special Water Tax. $0 $20 $40 $60 $80 $100 $120 $140 $160 $180 $200 $220 $240 $260 $280 $300 $320 $340 $360 $380 Grover Beach Arroyo Grande Current Bill Arroyo Grande March 21, 2022 Bill Paso Robles Pismo Beach Atascadero Oceano CSD San Luis Obispo Morro Bay Cayucos CSD - CSA 10A Avila Beach CSD Cambria CSD Proposed Stage 1 Drought Wastewater Fixed and Variable Charges Current March 21, Ja nuary 1, January 1, January 1, January 1, Rate FY 21-22 FY 22-23 FY 23-24 FY 24-25 FY 25-26 Fixed Charge ($ per month) All Customers [1]$2.40 $2.62 $2.84 $3.08 $3.34 $3.62 Variable Charge ($ per HCF) [2] Single-family Residential $0.67 $0.72 $0.78 $0.84 $0.91 $0.99 Multifamily Residential $0.94 $1.04 $1.12 $1.21 $1.31 $1.42 Non-Residential $1.32 $1.40 $1.52 $1.65 $1.79 $1.94 [1] Fixed charge per month per account and to each additional unit. [2] Charged on the basis of water consumption read through the meter. Item 10.a. - Page 12 CITY COUNCIL DRAFT WATER AND WASTEWATER RATE STUDY NOVEMBER 9, 2021 PAGE 13 The impact to an average SFR customer (using 19 HCF) will be an increase of $1.39 bi- monthly as shown in the following table. Wastewater Rates are increasing due to expenditure increases related to inflation and personnel services. The current and proposed bills include the current South San Luis Obispo County Sanitation District (SSLOCSD) wastewater treatment charge of $25.48 monthly. The following chart compares Arroyo Grande’s average wastewater bill with those of other communities at the same consumption: SFR Bi-monthly Wastewater Bill Impacts at 19 HCF Proposed SFR Charges Current FY 21-22 FY 22-23 FY 23-24 FY 24-25 FY 25-26 Fixed Charges $4.80 $5.24 $5.68 $6.16 $6.68 $7.24 Variable Charges $12.73 $13.68 $14.82 $15.96 $17.29 $18.81 SSLOCSD Charge $50.96 $50.96 $50.96 $50.96 $50.96 $50.96 Total Charges $68.49 $69.88 $71.46 $73.08 $74.93 $77.01 Dollar Change $1.39 $1.58 $1.62 $1.85 $2.08 Percent Change 2.0% 2.3% 2.3% 2.5% 2.8% $68.49 $69.88 $71.46 $73.08 $74.93 $77.01 $0 $10 $20 $30 $40 $50 $60 $70 $80 $90 Current FY 20-21 FY 21-22 FY 22-23 FY 23-24 FY 24-25 Fixed Charges Variable Charges Item 10.a. - Page 13 CITY COUNCIL DRAFT WATER AND WASTEWATER RATE STUDY NOVEMBER 9, 2021 PAGE 14 Water and Wastewater Drought Rates The City requested that water and wastewater rates be developed to address the City’s implementation of a Stage 1 drought declaration. The City’s Stage 1 drought declaration requires residential and irrigation customers to reduce consumption from calendar year 2020 levels by 10 percent overall and 25 percent respectively. To compensate for the revenue decline that will occur with usage cutbacks, Stage 1 drought rates for the water and wastewater systems were calculated to recover the lost revenue and to restore the financial planning to the same sustainability as provided with the normal rates presented in the earlier sections of this report assuming a sustained drought. The Stage 1 drought rates were calculated for a five-year period with the same implementation dates of the normal water and wastewater rates with March 21, 2022 for the first year and subsequent increases each January 1. The following table shows Stage 1 drought water rates with Central Coast Blue: Single-family Residential Bi-Monthly Wastewater Bills of Local Communities Using 19 HCF Note: Above table uses water rates in effect August 2021. Arroyo Grande March 2022 bill is based on the rate structure and rates above. $0 $20 $40 $60 $80 $100 $120 $140 $160 $180 $200 $220 $240 $260 $280 $300 Atascadero Arroyo Grande Current Bill Arroyo Grande March 21, 2022 Bill Oceano CSD Grover Beach Pismo Beach Paso Robles Morro Bay San Luis Obispo Cambria CSD Cayucos CSD Avila Beach CSD Item 10.a. - Page 14 CITY COUNCIL DRAFT WATER AND WASTEWATER RATE STUDY NOVEMBER 9, 2021 PAGE 15 Proposed Stage 1 Drought Water Fixed and Variable Charges with Central Coast Blue Current March 21, Ja nuary 1, January 1, January 1, January 1, Rate FY 21-22 FY 22-23 FY 23-24 FY 24-25 FY 25-26 Meter Size Fixed Charge ($ per month) 5/8"$29.51 $33.46 $36.81 $40.49 $42.92 $42.92 3/4" $31.67 $36.70 $40.37 $44.41 $47.08 $47.08 1"$38.12 $46.43 $51.07 $56.19 $59.56 $59.56 1.5"$46.73 $59.40 $65.34 $71.87 $76.19 $76.19 2"$70.41 $95.06 $104.57 $115.03 $121.94 $121.94 3"$244.74 $357.67 $393.44 $432.78 $458.75 $458.75 4"$309.31 $454.93 $500.43 $550.47 $583.50 $583.50 6"$459.96 $681.88 $750.08 $825.09 $874.60 $874.60 8"$632.14 $941.26 $1,035.38 $1,138.92 $1,207.25 $1,207.25 Service Fee per Add'l Unit $7.99 $9.38 $10.32 $11.34 $12.02 $12.02 Fireline Size 2"$3.74 $5.00 $5.50 $6.04 $6.41 $6.41 3"$10.88 $14.53 $15.98 $17.59 $18.64 $18.64 4"$23.18 $30.96 $34.06 $37.47 $39.71 $39.71 6"$67.33 $89.93 $98.92 $108.82 $115.35 $115.35 8"$143.48 $191.63 $210.80 $231.88 $245.80 $245.80 10"$258.03 $344.63 $379.08 $416.99 $442.01 $442.01 Variable Charge ($ per HCF) Single-Family Tier 1 -0 to 18 units $3.78 Tier 2 -19 to 36 units $4.16 Tier 3 -Over 36 $5.55 Tier 1 -0 to 10 units $4.69 $5.16 $5.67 $6.01 $6.01 Tier 2 -11 to 38 units $5.48 $6.02 $6.62 $7.02 $7.02 Tier 3 -Over 38 $6.77 $7.45 $8.20 $8.69 $8.69 Multifamily Tier 1 -0 to 18 units $3.78 Tier 2 -19 to 27 units $4.16 Tier 3 -Over 27 $5.55 Tier 1 -0 to 10 units $4.69 $5.16 $5.67 $6.01 $6.01 Tier 2 -11 to 38 units $5.48 $6.02 $6.62 $7.02 $7.02 Tier 3 -Over 38 $6.77 $7.45 $8.20 $8.69 $8.69 Commercial $3.95 $5.11 $5.62 $6.19 $6.57 $6.57 Irrigation $4.21 $5.79 $6.37 $7.01 $7.43 $7.43 Hydrant $6.13 $9.50 $10.45 $11.50 $12.19 $12.19 Wheeling $2.04 $2.75 $3.02 $3.33 $3.53 $3.53 Item 10.a. - Page 15 CITY COUNCIL DRAFT WATER AND WASTEWATER RATE STUDY NOVEMBER 9, 2021 PAGE 16 The following table shows the impacts to SFR bills with the implantation of the drought water rates identified above for customers with a 5/8-inch meter using 19 HCF bi-monthly: The following chart compares Arroyo Grande’s average SFR drought water bill with those of other communities at the same consumption: SFR Bi-monthly Water Bill Impacts with Drought Rates at 19 HCF with Central Coast Blue Proposed SFR Charges Current FY 21-22 FY 22-23 FY 23-24 FY 24-25 FY 25-26 Fixed Charges $59.02 $66.92 $73.62 $80.98 $85.84 $85.84 Variable Charges $72.20 $96.22 $105.78 $116.28 $123.28 $123.28 Total Charges $131.22 $163.14 $179.40 $197.26 $209.12 $209.12 Dollar Change $31.92 $16.26 $17.86 $11.86 $0.00 Percent Change 24.3% 10.0% 10.0% 6.0% 0.0% $131.22 $163.14 $179.40 $197.26 $209.12 $209.12 $0 $50 $100 $150 $200 $250 Current FY 21-22 FY 22-23 FY 23-24 FY 24-25 FY 25-26 Fixed Charges Variable Charges Item 10.a. - Page 16 CITY COUNCIL DRAFT WATER AND WASTEWATER RATE STUDY NOVEMBER 9, 2021 PAGE 17 Wastewater rates under a Stage 1 drought declaration are provided in the following table: Proposed Stage 1 Drought Wastewater Fixed and Variable Charges Current March 21, January 1, January 1, January 1, January 1, Rate FY 21-22 FY 22-23 FY 23-24 FY 24-25 FY 25-26 Fixed Charge ($ per month) All Customers [1]$2.40 $2.98 $3.23 $3.50 $3.80 $4.12 Variable Charge ($ per HCF) [2] Single-family Residential $0.67 $0.82 $0.89 $0.96 $1.03 $1.13 Multifamily Residential $0.94 $1.18 $1.27 $1.38 $1.49 $1.61 Non-Residential $1.32 $1.60 $1.73 $1.88 $2.04 $2.21 [1] Fixed charge per month per account and to each additional unit. [2] Charged on the basis of water consumption read through the meter. Item 10.a. - Page 17 CITY COUNCIL DRAFT WATER AND WASTEWATER RATE STUDY NOVEMBER 9, 2021 PAGE 18 The drought rate impact to an average SFR customer (Using 19 HCF) will be an increase of $4.01 bi-monthly as shown in the following table. The current and proposed bills include the current South San Luis Obispo County Sanitation District (SSLOCSD) wastewater treatment charge of $25.48 monthly. The following chart compares Arroyo Grande’s average drought wastewater bill with those of other communities at the same consumption: SFR Bi-monthly Wastewater Bill Impacts with Drought Rates at 19 HCF Proposed SFR Charges Current FY 21-22 FY 22-23 FY 23-24 FY 24-25 FY 25-26 Fixed Charges $4.80 $5.96 $6.46 $7.00 $7.60 $8.24 Variable Charges $12.73 $15.58 $16.91 $18.24 $19.57 $21.47 SSLOCSD Charge $50.96 $50.96 $50.96 $50.96 $50.96 $50.96 Total Charges $68.49 $72.50 $74.33 $76.20 $78.13 $80.67 Dollar Change $4.01 $1.83 $1.87 $1.93 $2.54 Percent Change 5.9% 2.5% 2.5% 2.5% 3.3% $68.49 $72.50 $74.33 $76.20 $78.13 $80.67 $0 $10 $20 $30 $40 $50 $60 $70 $80 $90 Current FY 20-21 FY 21-22 FY 22-23 FY 23-24 FY 24-25 Fixed Charges Variable Charges Item 10.a. - Page 18 CITY COUNCIL DRAFT WATER AND WASTEWATER RATE STUDY NOVEMBER 9, 2021 PAGE 19 Next Steps The Draft Water and Wastewater Rate Study is being presented at this time for review and discussion. Feedback received during the discussion will be incorporated into the final Study, along with any updated information regarding the CCB Project cost sharing agreement. During the next few months, next steps for the Water and Wastewater Rate Study will include: • December 14, 2021 – Presentation of the Final Water and Wastewater Rates Study for approval for Fiscal Year 2021-22 through Fiscal Year 2025-26, and schedule a Proposition 218 public hearing • February 8, 2022 – Conduct a public hearing to consider protests regarding the proposed rate adjustments identified in the Proposition 218 hearing notice and outlined in the Water and Wastewater Rate Study • March 21, 2022 – If approved, rates go into effect ALTERNATIVES: 1. Review and provide feedback on the Draft Water and Wastewater Rate Study including direction on preferred rate options which are: a. Water Rates with CCB and Wastewater Rates Item 10.a. - Page 19 CITY COUNCIL DRAFT WATER AND WASTEWATER RATE STUDY NOVEMBER 9, 2021 PAGE 20 b. Water Rates with CCB and Drought Wastewater Rates c. Drought Water Rates with CCB and Wastewater Rates d. Drought Water Rates with CCB and Drought Wastewater Rates e. Water Rates without CCB and Wastewater Rates f. Water Rates without CCB and Drought Wastewater Rates g. Drought Water Rates without CCB and Wastewater Rates h. Drought Water Rates without CCB and Drought Wastewater Rates; or 2. Provide direction to staff. ADVANTAGES: Review and discussion of the Draft Water and Wastewater Rate Study will provide the City Council and residents with the most up-to-date and comprehensive information regarding the revenue needs for the City’s water and wastewater systems, as well as the rate adjustments necessary to ensure ongoing service to City customers. DISADVANTAGES: There are no disadvantages to reviewing the Draft Water and Wastewater Rate Study. However, the Study describes the increased water and wastewater rates that are necessary to continue ensuring ongoing and reliable water and wastewater services to the City’s customers, which will increase costs to the public. ENVIRONMENTAL REVIEW: No environmental review is required for this item. PUBLIC NOTIFICATION AND COMMENTS: The Agenda was posted at City Hall and on the City’s website in accordance with Government Code Section 54954.2. Attachments: 1. Water and Wastewater Rate Study Final Draft Item 10.a. - Page 20 Report for: City of Arroyo Grande 300 E Branch Street Arroyo Grande, CA 93420 (805) 473-5400 Submitted By: Tuckfield & Associates Contact: Mr. Clayton Tuckfield 2549 Eastbluff Dr, #450B Newport Beach, CA 92660 (949) 760-9454 www.tuckfieldassociates.com November 2021 Report on Water and Wastewater Rate Study DRAFT Attachment 1 Item 10.a. - Page 21 DRAFT [This Page Intentionally Left Blank for Two-sided Printing] Item 10.a. - Page 22 Tuckfield & Associates 2549 Eastbluff Drive, Suite 450B, Newport Beach, CA 92660 Phone (949) 760-9454 Fax (949) 760-2725 Email ctuckfield@tuckfieldassociates.com DRAFT November 4, 2021 Mr. Shane Taylor Utilities Manager City of Arroyo Grande 300 E Branch Street Arroyo Grande, CA 93420 Dear Mr. Taylor: I am pleased to present this Water and Wastewater Rate Study (Study) report for the City of Arroyo Grande (City). The water and wastewater water rates presented in this report have been developed based on cost of service principles and industry methods that result in fair and equitable rates for the users of the systems in accordance with Proposition 218. This study included a review and analysis of the water and wastewater revenue and revenue requirements, number of customers, volumes, and current rate structure. The major objectives of the Study include the following.  Generate positive levels of income in the Study period  Maintain operating and capital reserves at or greater than target levels  Maintain debt service coverage ratios at or greater than the minimum required  Meet annual capital replacement spending from the water and wastewater rates and charges This report presents the findings and recommendations for the financial plans and rates for the City’s water and wastewater systems. Tables and figures throughout the report are provided to demonstrate the calculations. It has been a pleasure to work with City staff during the performance of this study. If there are any questions, please contact me at (949) 760-9454. Very Truly Yours, TUCKFIELD & ASSOCIATES G. Clayton Tuckfield President/Project Consultant Item 10.a. - Page 23 Water and Wastewater Rate Study City of Arroyo Grande Table of Contents Page DRAFT Executive Summary ............................................................................................... 1 Enterprise Financial Plans ............................................................................................................................... 1 Proposed Water Rates without Central Coast Blue ........................................................................................ 2 Proposed Water Rate Structure and Rates ............................................................................................. 2 Water Bill Impacts without Central Coast Blue ................................................................................................ 3 Water Bill Impacts with Central Coast Blue ..................................................................................................... 5 Proposed Wastewater Rates .......................................................................................................................... 6 Proposed Wastewater Rate Structure and Rates.................................................................................... 6 Wastewater Bill Impacts .................................................................................................................................. 7 Introduction ............................................................................................................. 9 Background ..................................................................................................................................................... 9 Objectives ........................................................................................................................................................ 9 Scope of Study .............................................................................................................................................. 10 Assumptions ......................................................................................................... 10 Reserve Policy .............................................................................................................................................. 11 Operating Reserve ................................................................................................................................. 11 Capital Reserve ..................................................................................................................................... 11 Facility Fund Reserve ............................................................................................................................ 11 Lopez Fund Reserve ............................................................................................................................. 11 Beginning Balances and Reserve Targets .................................................................................................... 11 Water Financial Planning ..................................................................................... 12 Current Water Rates ..................................................................................................................................... 12 Water User Classifications ............................................................................................................................ 13 Number of Customers............................................................................................................................ 13 Number of Water Meters ....................................................................................................................... 13 Water Sales Volumes ............................................................................................................................ 14 Water Financial Plan ..................................................................................................................................... 14 Water Revenues .................................................................................................................................... 15 Miscellaneous Water Revenues ............................................................................................................ 15 Water Revenue Requirements .............................................................................................................. 15 Water Operation and Maintenance Expense ................................................................................. 15 Transfer to Lopez Fund .................................................................................................................. 16 Water Annual CIP Funding ............................................................................................................ 16 Item 10.a. - Page 24 Water and Wastewater Rate Study City of Arroyo Grande Table of Contents (continued) Page DRAFT Debt Service ................................................................................................................................... 16 Water Capital Improvement Program .................................................................................................... 16 Water Financial Plan .............................................................................................................................. 17 Proposed Revenue Adjustments.................................................................................................... 29 Water Cost of Service .......................................................................................... 20 Industry Methodology .................................................................................................................................... 20 Costs of Service to be Allocated ................................................................................................................... 21 Water Rate Design ................................................................................................ 21 Proposed Water Rate Structure .................................................................................................................... 21 Proposed Water Fixed Charges .......................................................................................................... 22 Proposed Private Fire Protection Fixed Charges ........................................................................... 23 Proposed Service Fee per Additional Unit Charge ........................................................................ 23 Proposed Water Variable Charges ...................................................................................................... 23 Water Supply Costs........................................................................................................................ 23 Deliver Costs .................................................................................................................................. 23 Peaking Costs ................................................................................................................................ 23 Proposed Single-family Residential Variable Water Rates .................................................................. 24 Proposed Multifamily and Non-Residential Variable Water Rates ...................................................... 25 Proposed Water Rates .................................................................................................................................. 25 Water Bill Impact Analysis ................................................................................... 26 Water Rate Survey ................................................................................................ 28 Water Rates with Central Coast Blue ................................................................. 28 Water Financial Plan Revenue Increases with Central Coast Blue .............................................................. 29 Water Rates with Central Coast Blue ............................................................................................................ 30 Water Bill Impacts with Central Coast Blue ................................................................................................... 30 Wastewater Financial Planning ........................................................................... 34 Current Wastewater Rates ............................................................................................................................ 34 Wastewater User Classifications ................................................................................................................... 34 Number of Customers............................................................................................................................ 34 Water Sales Volumes of Wastewater Customers ................................................................................. 35 Wastewater Financial Plan ............................................................................................................................ 36 Wastewater Revenues .......................................................................................................................... 36 Miscellaneous Wastewater Revenues ................................................................................................... 36 Item 10.a. - Page 25 Water and Wastewater Rate Study City of Arroyo Grande Table of Contents (continued) Page DRAFT Wastewater Revenue Requirements ..................................................................................................... 36 Wastewater Operation and Maintenance Expense....................................................................................... 37 Wastewater Annual CIP Funding ................................................................................................... 37 Wastewater Capital Improvement Program........................................................................................... 38 Wastewater Financial Plan .................................................................................................................... 38 Proposed Revenue Adjustments.................................................................................................... 38 Wastewater Cost of Service ................................................................................ 40 Industry Methodology .................................................................................................................................... 40 Costs of Service to be Allocated ................................................................................................................... 40 Cost Allocation to Wastewater Parameters ................................................................................................... 41 Unit Costs of Service ..................................................................................................................................... 41 User Class Costs ........................................................................................................................................... 42 Wastewater Rates ................................................................................................. 42 Proposed Wastewater Rate Structure........................................................................................................... 43 Proposed Wastewater Fixed Charges ........................................................................................... 43 Proposed Wastewater Variable Charges ....................................................................................... 43 Proposed Wastewater Rates ........................................................................................................................ 43 Wastewater Bill Impact Analysis ......................................................................... 44 Wastewater Rate Survey ...................................................................................... 45 Water and Wastewater Drought Rates ............................................................... 46 List of Tables Table ES-1 Proposed Revenue Increases ........................................................................................................ 1 Table ES-2 Single-family Current and Proposed Tiers .................................................................................... 2 Table ES-3 Proposed Water Fixed and Variable Charges without Central Cost Blue ...................................... 3 Table ES-4 Comparison of Current Single-family Residential Bi-Monthly Bill with 5/8 -inch Meter with Proposed Bill Using March 2022 Water Rates without Central Coast Blue ................................... 4 Table ES-5 Single-family Residential Bi-monthly Water Bill Impacts with 5/8-inch Meter at 19 HCF Bi-monthly without Central Coast Blue ........................................................................................... 4 Table ES-6 Impacts to Single-family Residential Bi-monthly Water Bills with and without Central Coast Blue at 19 HCF ....................................................................................................... 5 Table ES-7 Proposed Wastewater Fixed and Variable Charges ...................................................................... 6 Item 10.a. - Page 26 Water and Wastewater Rate Study City of Arroyo Grande Table of Contents (continued) Page DRAFT Table ES-8 Comparison of Current Single-family Residential Bi-monthly Wastewater Bill with Proposed Bill Using March 2022 Wastewater Rates ..................................................................... 7 Table ES-9 Single-family Residential Bi-monthly Wastewater Bill Impacts at 19 HCF ..................................... 7 Table 1 Assumptions and Planning Factors .............................................................................................. 10 Table 2 June 30, 2019 Beginning Cash Balances and Reserve Targets .................................................. 12 Table 3 Current Water Rates .................................................................................................................... 12 Table 4 Historical and Projected Average Number of Water Customers by Classification ....................... 13 Table 5 Historical and Projected Average Number of Water Customers by Meter Size ........................... 14 Table 6 Historical and Projected Water Consumption (in HCF) ................................................................ 14 Table 7 Projected Rate-based Water Revenue Using Existing Rates ...................................................... 15 Table 8 Projected Miscellaneous Water Revenue .................................................................................... 15 Table 9 Projected Water Operation and Maintenance Expense ............................................................... 16 Table 10 Water Capital Improvement Program ........................................................................................... 17 Table 11 Water Financial Plan .................................................................................................................... 28 Table 12 Allocation of Water Revenue Requirements to Cost Component ................................................ 21 Table 13 Design of Water Fixed Charges ................................................................................................... 22 Table 14 Design of Water Fixed Charges by Meter Size ............................................................................ 22 Table 15 Design of 6-inch Private Fire Protection Charges ........................................................................ 23 Table 16 Design of Private Fire Protection Charges ................................................................................... 23 Table 17 Design of Single-family Tiered Water Rate Structure................................................................... 24 Table 18 Single-family Residential Tiered Water Rates .............................................................................. 25 Table 19 Design of Multifamily and Non-Residential Variable Water Rates ............................................... 25 Table 20 Proposed Water Fixed Charges and Variable Charges without Central Coast Blue ................... 25 Table 21 Comparison of Current Single-family Residential Bi-Monthly Bill with 5/8-inch Meter with Proposed Bill Using March 2022 Water Rates ............................................................................. 27 Table 22 Single-family Residential Bi-monthly Water Bill Impacts at 19 HCF Bi-monthly .......................... 28 Table 23 Annual Revenue Increases with and without Central Coast Blue Project .................................... 29 Table 24 Proposed Water Fixed and Variable Charges with Central Coast Blue ....................................... 31 Table 25 Comparison of Current Single-family Residential Bi-monthly Water Bill with 5/8-inch Meter Size with Proposed Bill Using March 2022 Water Rates with Central Coast Blue ............................... 32 Table 26 Single-family Residential Bi-monthly Water Bill Impacts at 19 HCF Bi-monthly with Central Coast Blue ................................................................................................................ 32 Table 27 Impacts to Single-family Residential Bi-monthly Water Bills of Central Cost Blue at 19 HCF ..................................................................................................................................... 33 Table 28 Current Wastewater Rates ........................................................................................................... 34 Item 10.a. - Page 27 Water and Wastewater Rate Study City of Arroyo Grande Table of Contents (continued) Page DRAFT Table 29 Historical and Projected Average Number of Wastewater Customers by Classification ............. 35 Table 30 Historical and Projected Water Consumption of Wastewater Customers (HCF) ......................... 35 Table 31 Projected Rate-based Wastewater Revenue Using Existing Rates............................................. 36 Table 32 Projected Miscellaneous Wastewater Revenue ........................................................................... 36 Table 33 Projected Wastewater Operation and Maintenance Expense ..................................................... 37 Table 34 Wastewater Capital Improvement Program ................................................................................. 38 Table 35 Wastewater Financial Plan ........................................................................................................... 39 Table 36 Allocation of Wastewater Revenue Requirement to Cost Component ........................................ 41 Table 37 FY 2020-21 Development of Unit Costs ....................................................................................... 42 Table 38 Distribution of Costs to Customer Classes FY 20-21 ................................................................... 42 Table 39 Design of Variable Wastewater Rates ......................................................................................... 43 Table 40 Proposed Wastewater Fixed and Variable Charges .................................................................... 44 Table 41 Comparison of Current Single-family Residential Bi-monthly Wastewater Bill with Proposed Bill Using March 2022 Wastewater Rates ............................................................ 44 Table 42 Single-family Residential Bi-monthly Wastewater Bill Impacts at 19 HCF ................................... 45 Table 43 Proposed Stage 1 Drought Water Fixed and Variable Charges without Central Coast Blue ...... 47 Table 44 Proposed Stage 1 Drought Water Fixed and Variable Charges with Central Coast Blue ........... 48 Table 45 Proposed Stage 1 Drought Wastewater Fixed and Variable Charges ......................................... 49 List of Figures Figure 1 Water Financial Plan Comparison of Revenue with Annual Obligations ..................................... 19 Figure 2 Water Debt Coverage Ratio ......................................................................................................... 20 Figure 3 Water Debt Coverage Ratio with Central Coast Blue .................................................................. 30 Figure 4 Wastewater Financial Plan Comparison of Revenue with Annual Obligations ............................ 40 List of Charts Chart ES-1 Single-family Residential Bi-Monthly Water Bills of Local Communities Using 19 HCF without Central Coast Blue ............................................................................................................. 5 Chart ES-2 Single-family Residential Bi-Monthly Water Bills of Local Communities Using 19 HCF with Central Coast Blue .................................................................................................................. 6 Chart ES-3 Single-family Residential Bi-Monthly Wastewater Bills of Local Communities at 19 HCF ............. 9 Chart 1 Single-family Residential Bi-Monthly Water Bills of Local Communities Using 19 HCF Item 10.a. - Page 28 Water and Wastewater Rate Study City of Arroyo Grande Table of Contents (continued) Page DRAFT without Central Coast Blue .......................................................................................................... 28 Chart 2 Single-family Residential Bi-Monthly Water Bills of Local Communities Using 19 HCF with Central Coast Blue ............................................................................................................... 33 Chart 3 Single-family Residential Bi-Monthly Wastewater Bills of Local Communities at 19 HCF ........... 45 List of Appendices Appendix A Water System Tables ................................................................................................................... 46 Appendix B Wastewater System Tables ......................................................................................................... 51 Item 10.a. - Page 29 Water and Wastewater Rate Study  City of Arroyo Grande Tuckfield & Associates DRAFT 1 Executive Summary The City of Arroyo Grande (City) retained Tuckfield & Associates to conduct a comprehensive Water and Wastewater Rate Study (Study). The objectives of the Study included determining water and wastewater rates for FY 2021-22 to FY 2025-26 (the “Study Period”) through development of pro forma statements of revenues and revenue requirements for each system and analyses to determine the costs of providing service. A second objective was to provide recommendations to improve the equity among ratepayers while incorporating local requirements and state laws. Enterprise Financial Plans Forward-looking financial plans were developed for the water and wastewater systems that projected revenue requirements (costs) of each system. The amount of revenue needed to recover the revenue requirements was determined for each system for FY 2021-22. This revenue was then increased annually by various percentages that will create sustainable enterprises for each system. A summary of the proposed annual revenue increases for the water and wastewater systems for the Study Period are provided in Table ES-1. The percentages in Table ES-1 are an indication of the increases needed in user charges of the utility systems. The increases are necessary to maintain the financial health of each system while funding the operation and maintenance (O&M) expenses, capital funding needs, debt service, and reserve requirements. For the water system, the revenue increases were determined with and without the Central Coast Blue (CCB) project. CCB is a water sustainability project that will create a new, high quality, and reliable water supply for the City of Arroyo Grande and other agencies. The CCB project will provide a new advanced water purification facility to create a high-quality water source to supplement local supplies. The CCB project will allow these communities to have a more sustainable groundwater supply especially during multiple dry years. Table ES-1 Proposed Revenue Increases [1] Increases this year may not match Tables ES-5 and ES-9 due to rate structure change and cost of service adjustments. [2] Central Coast Blue project. March 21 January 1 January 1 January 1 January 1 Utility System FY 21-22 [1] FY 22-23 FY 23-24 FY 24-25 FY 25-26 Water System (without CCB [2])4.0% 4.0% 4.0% 4.0% 4.0% Water System (with CCB [2])10.0% 10.0% 10.0% 6.0% 0.0% Wastewater System 8.3% 8.3% 8.3% 8.3% 8.3% Item 10.a. - Page 30 Water and Wastewater Rate Study  City of Arroyo Grande Tuckfield & Associates DRAFT 2 Proposed Water Rates without Central Coast Blue Proposed Water Rate Structure and Rates The City provided water billing information that was analyzed to determine user class characteristics and to project water revenue. The results indicate that total water consumption has declined from a high of over 1.4 million hundred cubic feet (HCF) since FY 2013-14. For the Single-family Residential (SFR) and Multifamily Residential (MFR) classifications, the decline in consumption resulted in a reduction of water sold in all tiers though an increase in the peaking factor has occurred for customers in both Tier 2 and Tier 3 as related to Tier 1. In addition, the existing Tier 2 break point that was established as the summer peak average consumption has increased from 36 HCF bi-monthly to 38 HCF bi-monthly. It is recommended that the tier break points be changed to reflect the new SFR and MFR consumption patterns. It is proposed that Tier 1 be revised from zero to 18 HCF to zero to 10 HCF, reflecting current indoor water consumption aggregated over the service area and not by individual home. It is further recommended that the upper Tier 2 break point be revised from 36 HCF to 38 HCF. The recommended SFR Tier restructuring is provided in Table ES-2 below. The proposed water rate structure and rates without CCB are provided in Table ES-3 for implementation beginning March 21, 2022 and each January 1 thereafter for the Study Period. 𝑇𝑖𝑒𝑟 1 = 2.31 𝑝𝑝ℎ∗55 𝑔𝑝𝑐𝑑∗365 𝑑𝑎𝑦𝑠 𝑦𝑒𝑎𝑟∗1 𝐻𝐶𝐹 748 𝑔𝑎𝑙∗1 𝑦𝑒𝑎𝑟 6 𝑏𝑖𝑙𝑙𝑠=~ 10 𝐻𝐶𝐹 pph = persons per household from California Department of Finance estimates for 2021 gpcd = gallons per capita per day Table ES-2 Single-family Residential Current and Proposed Tiers Current Proposed Tier Tiers Tiers Tier 1 0 - 18 HCF 0 - 10 HCF Tier 2 19 - 36 HCF 11 - 38 HCF Tier 3 Over 36 HCF Over 38 HCF Item 10.a. - Page 31 Water and Wastewater Rate Study  City of Arroyo Grande Tuckfield & Associates DRAFT 3 Water Bill Impacts without Central Coast Blue Table ES-4 presents the impacts to SFR bills from the implementation of the proposed March 21, 2022 water rates without CCB. For a SFR customer using the average consumption of 19 HCF bi-monthly, the bill will increase from $131.22 to $136.53, an increase of $5.11, or 4.0 percent. Table ES-3 Proposed Water Fixed and Variable Charges without Central Coast Blue Current March 21, January 1, January 1, January 1, January 1, Rate FY 21-22 FY 22-23 FY 23-24 FY 24-25 FY 25-26 Meter Size Fixed Charge ($ per month) 5/8" $29.51 $28.41 $29.55 $30.73 $31.96 $33.24 3/4" $31.67 $31.15 $32.40 $33.70 $35.05 $36.45 1"$38.12 $39.35 $40.92 $42.56 $44.26 $46.03 1.5" $46.73 $50.30 $52.31 $54.40 $56.58 $58.84 2"$70.41 $80.39 $83.61 $86.95 $90.43 $94.05 3" $244.74 $302.01 $314.09 $326.65 $339.72 $353.31 4" $309.31 $384.09 $399.45 $415.43 $432.05 $449.33 6" $459.96 $575.61 $598.63 $622.58 $647.48 $673.38 8" $632.14 $794.49 $826.27 $859.32 $893.69 $929.44 Service Fee per Add'l Unit $7.99 $7.86 $8.18 $8.50 $8.84 $9.20 Fireline Size 2"$3.74 $3.66 $3.81 $3.96 $4.12 $4.28 3"$10.88 $10.63 $11.06 $11.50 $11.96 $12.44 4"$23.18 $22.66 $23.57 $24.51 $25.49 $26.51 6"$67.33 $65.81 $68.44 $71.18 $74.03 $76.99 8" $143.48 $140.24 $145.85 $151.68 $157.75 $164.06 10" $258.03 $252.20 $262.29 $272.78 $283.69 $295.04 Variable Charge ($ per HCF) Single-Family Tier 1 - 0 to 18 units $3.78 Tier 2 - 19 to 36 units $4.16 Tier 3 - Over 36 $5.55 Tier 1 - 0 to 10 units $3.93 $4.09 $4.25 $4.42 $4.60 Tier 2 - 11 to 38 units $4.49 $4.67 $4.86 $5.05 $5.25 Tier 3 - Over 38 $5.41 $5.63 $5.86 $6.09 $6.33 Multifamily Tier 1 - 0 to 18 units $3.78 Tier 2 - 19 to 27 units $4.16 Tier 3 - Over 27 $5.55 Tier 1 - 0 to 10 units $3.93 $4.09 $4.25 $4.42 $4.60 Tier 2 - 11 to 38 units $4.49 $4.67 $4.86 $5.05 $5.25 Tier 3 - Over 38 $5.41 $5.63 $5.86 $6.09 $6.33 Commercial $3.95 $4.22 $4.39 $4.57 $4.75 $4.94 Irrigation $4.21 $4.75 $4.94 $5.14 $5.35 $5.56 Hydrant $6.13 $7.70 $8.01 $8.33 $8.66 $9.01 Wheeling $2.04 $2.07 $2.15 $2.24 $2.33 $2.42 Item 10.a. - Page 32 Water and Wastewater Rate Study  City of Arroyo Grande Tuckfield & Associates DRAFT 4 Table ES-5 provides how SFR bills with a 5/8-inch meter using 19 HCF bi-monthly will escalate over time with implementation of the proposed water rates from Table ES-3. Chart ES-1 has been prepared to compare Arroyo Grande’s average SFR water bill with those of other communities at the same consumption. The chart indicates that with the March 2022 rates, an Arroyo Grande SFR customer with a bi-monthly consumption of 19 HCF will experience a bill that is among the lowest of the communities listed. Table ES-4 Comparison of Current Single-family Residential Bi-Monthly Bill with 5/8 -inch Meter with Proposed Bill Using March 2022 Water Rates without Central Coast Blue Current Bill Proposed March 21, 2022 Bill Service Volume Current Service Volume Proposed Dollar Percent Description Use (HCF) Charge Charge Bill Charge Charge Bill Difference Change 0 $59.02 $0.00 $59.02 $56.82 $0.00 $56.82 ($2.20) -3.7% Very Low 5 $59.02 $18.90 $77.92 $56.82 $19.65 $76.47 ($1.45) -1.9% Low 10 $59.02 $37.80 $96.82 $56.82 $39.30 $96.12 ($0.70) -0.7% Median 15 $59.02 $56.70 $115.72 $56.82 $61.75 $118.57 $2.85 2.5% Average 19 $59.02 $72.20 $131.22 $56.82 $79.71 $136.53 $5.31 4.0% 20 $59.02 $76.36 $135.38 $56.82 $84.20 $141.02 $5.64 4.2% High 30 $59.02 $117.96 $176.98 $56.82 $129.10 $185.92 $8.94 5.1% Very High 50 $59.02 $220.62 $279.64 $56.82 $229.94 $286.76 $7.12 2.5% Table ES-5 Single-family Residential Bi-monthly Water Bill Impacts with 5/8- inch Meter at 19 HCF Bi-monthly without Central Coast Blue Proposed SFR Charges Current FY 21-22 FY 22-23 FY 23-24 FY 24-25 FY 25-26 Fixed Charges $59.02 $56.82 $59.10 $61.46 $63.92 $66.48 Variable Charges $72.20 $79.71 $82.93 $86.24 $89.65 $93.25 Total Charges $131.22 $136.53 $142.03 $147.70 $153.57 $159.73 Dollar Change $5.31 $5.50 $5.67 $5.87 $6.16 Percent Change 4.0% 4.0% 4.0% 4.0% 4.0% $131.22 $136.53 $142.03 $147.70 $153.57 $159.73 $0 $20 $40 $60 $80 $100 $120 $140 $160 $180 Current FY 21-22 FY 22-23 FY 23-24 FY 24-25 FY 25-26 Fixed Charges Variable Charges Item 10.a. - Page 33 Water and Wastewater Rate Study  City of Arroyo Grande Tuckfield & Associates DRAFT 5 Water Bill Impacts with Central Coast Blue Table ES-6 provides a comparison of the SFR bi-monthly bills with and without the CCB project at the average SFR consumption, including the dollar difference and the percentage difference in the bills. The average SFR customer with a 5/8-inch meter using 19 HCF will pay $7.05 more bi-monthly with the CCB project beginning March 21, 2022 and $30.51 more bi-monthly beginning January 1, 2025 for that fiscal year. Chart ES-2 provides a comparison of SFR bi-monthly bills with CCB to bills of other communities at the same consumption. The chart shows that Arroyo Grande SFR bills remains among the lowest communities listed. Chart ES-1 Single-family Residential Bi-Monthly Water Bills of Local Communities Using 19 HCF without Central Coast Blue Note: Above table uses water rates in effect August 2021. Arroyo Grande March 2022 bill is based on the rate structure and rates in Table ES-3. Pismo Beach includes Special Water Tax. Table ES-6 Impacts to Single-family Residential Bi-monthly Water Bills with and without Central Coast Blue at 19 HCF March 21 January 1 January 1 January 1 January 1 Description FY 21-22 FY 22-23 FY 23-24 FY 24-25 FY 25-26 Average Bill w/o CCB $136.53 $142.03 $147.70 $153.57 $159.73 Average Bill with CCB $143.58 $157.90 $173.65 $184.08 $184.08 Difference $7.05 $15.87 $25.95 $30.51 $24.35 Item 10.a. - Page 34 Water and Wastewater Rate Study  City of Arroyo Grande Tuckfield & Associates DRAFT 6 Proposed Wastewater Rates Proposed Wastewater Rate Structure and Rates It is recommended that the current wastewater rate structure be retained for the proposed wastewater rates. The current rate structure places an emphasis on recovering the City’s wastewater costs on a volumetric basis. Table ES-7 presents the wastewater rates for the next five years. Table ES-7 Proposed Wastewater Fixed and Variable Charges March 21, January 1, January 1, January 1, January 1, Meter Size Current FY 21-22 FY 22-23 FY 23-24 FY 24-25 FY 25-26 Fixed Charge ($ per month) All Customers [1]$2.40 $2.62 $2.84 $3.08 $3.34 $3.62 Variable Charge ($ per HCF) [2] Single-family Residential $0.67 $0.72 $0.78 $0.84 $0.91 $0.99 Multifamily Residential $0.94 $1.04 $1.12 $1.21 $1.31 $1.42 Non-Residential $1.32 $1.40 $1.52 $1.65 $1.79 $1.94 [1] Fixed charge per month per account and to each additional unit. [2] Charged on the basis of water consumption read through the meter. Chart ES-2 Single-family Residential Bi-Monthly Water Bills of Local Communities Using 19 HCF with Central Coast Blue Note: Above table uses water rates in effect August 2021. Arroyo Grande March 2022 bill is based on the rate structure and rates in Table 24. Pismo Beach includes Special Water Tax. Item 10.a. - Page 35 Water and Wastewater Rate Study  City of Arroyo Grande Tuckfield & Associates DRAFT 7 Wastewater Bill Impacts As shown in Table ES-8, a SFR customer using 19 HCF bi-monthly will have a wastewater bill that will increase from $68.49 to $69.88, an increase of $1.39 or 2.0 percent. The current and proposed bills include the current South San Luis Obispo County Sanitation District (SSLOCSD) wastewater treatment charge of $25.48 monthly. Table ES-9 below provides how wastewater bills will escalate over the next five years with the implementation of the wastewater rates from Table ES-7. Table ES-8 Comparison of Current Single-family Residential Bi-monthly Wastewater Bill with Proposed Bill Using March 2022 Wastewater Rates Current Bill March 21, 2022 Service San District Volume Current Service San District Volume Proposed Dollar Percent Description Use (HCF) Charge Charge Charge Bill Charge Charge Charge Bill Difference Change 0 $4.80 $50.96 $0.00 $55.76 $5.24 $50.96 $0.00 $56.20 $0.44 0.8% Very Low 5 $4.80 $50.96 $3.35 $59.11 $5.24 $50.96 $3.60 $59.80 $0.69 1.2% Low 10 $4.80 $50.96 $6.70 $62.46 $5.24 $50.96 $7.20 $63.40 $0.94 1.5% Median 13 $4.80 $50.96 $8.71 $64.47 $5.24 $50.96 $9.36 $65.56 $1.09 1.7% Average 19 $4.80 $50.96 $12.73 $68.49 $5.24 $50.96 $13.68 $69.88 $1.39 2.0% 20 $4.80 $50.96 $13.40 $69.16 $5.24 $50.96 $14.40 $70.60 $1.44 2.1% High 30 $4.80 $50.96 $20.10 $75.86 $5.24 $50.96 $21.60 $77.80 $1.94 2.6% Very High 50 $4.80 $50.96 $33.50 $89.26 $5.24 $50.96 $36.00 $92.20 $2.94 3.3% Table ES-9 Single-family Residential Bi-monthly Wastewater Bill Impacts at 19 HCF Note: Assumes constant South San Luis Obispo County Sanitation District (SSLOCSD) charges. Proposed SFR Charges Current FY 21-22 FY 22-23 FY 23-24 FY 24-25 FY 25-26 Fixed Charges $4.80 $5.24 $5.68 $6.16 $6.68 $7.24 Variable Charges $12.73 $13.68 $14.82 $15.96 $17.29 $18.81 SSLOCSD Charge $50.96 $50.96 $50.96 $50.96 $50.96 $50.96 Total Charges $68.49 $69.88 $71.46 $73.08 $74.93 $77.01 Dollar Change $1.39 $1.58 $1.62 $1.85 $2.08 Percent Change 2.0% 2.3% 2.3% 2.5% 2.8% $0 $10 $20 $30 $40 $50 $60 $70 $80 Current FY 20-21 FY 21-22 FY 22-23 FY 23-24 FY 24-25 Fixed Charges Variable Charges $68.49 $69.88 $71.46 $73.08 $74.93 $77.01 Item 10.a. - Page 36 Water and Wastewater Rate Study  City of Arroyo Grande Tuckfield & Associates DRAFT 8 Chart ES-3 has been prepared to compare Arroyo Grande’s average SFR wastewater bill with those of other communities at 19 HCF. The chart indicates that Arroyo Grande’s SFR wastewater bill is among the lowest of the communities listed. Chart ES-3 Single-family Residential Bi-Monthly Wastewater Bills of Local Communities at 19 HCF For Rates in Effect August 2021 Note: Above table uses wastewater rates in effect August 2021. Arroyo Grande March 2022 bill is based on the rate structure and rates in Table ES-7. Item 10.a. - Page 37 Water and Wastewater Rate Study  City of Arroyo Grande Tuckfield & Associates DRAFT 9 Introduction The City of Arroyo Grande (City) retained Tuckfield & Associates to conduct a comprehensive Water and Wastewater Rate Study (Study) for its water and wastewater enterprise systems. This Study develops pro forma statements of revenues and revenue requirements for each enterprise, determines the cost of providing service to customers, and designs new water and wastewater rates and charges for implementation. Background The City of Arroyo Grande was incorporated as a general law City in 1911 and is located in San Luis Obispo County along the Arroyo Grande Creek, more than 180 miles northwest of Los Angeles. The City provides water and wastewater service to a 5.5 square mile service area serving a population of approximately 17,900. Water and wastewater revenues and expenses are accounted for separately in enterprise funds of the City. The water utility obtains its water supply from nine wells and from surface water obtained from the Lopez Reservoir Project. Groundwater is pumped from the Santa Maria Ground Water Basin. Based on the current Groundwater Management Agreement, the City has an entitlement to 1,323 acre-feet. Groundwater is also pumped from the Pismo Formation and the current pumping capability from this source is 160 acre-feet per year. The City also receives an entitlement of 2,290 acre-feet of surface water from the Lopez Reservoir Project through an August 2000 water supply contract with the San Luis Obispo County Flood Control and Water Conservation District. Surplus water from the reservoir may also be purchased by the City when such supplies are available, though it is not considered to be a firm supply for the City. Storage facilities presently include six above ground or partially buried water tanks with a storage capacity of approximately 6.7 million gallons. The transmission and distribution system include over 87 miles of pipeline ranging in size from 2-inch to 16-inch, six booster pump stations, approximately 6,755 meters, and about 900 public fire hydrants. The wastewater system consists of sewer pipe, lift stations, and general utility assets used to collect the City’s wastewater. The wastewater is collected through a system of 5 lift stations and sewer pipe ranging in size from 6-inch to 24-inch and is delivered to a trunk sewer provided by the South San Luis Obispo County Sanitation District (SSLOCSD). The City is a member agency of the SSLOCSD to provide wastewater collection (via the trunk sewer), wastewater treatment, and disposal services. Arroyo Grande is one of three member agencies of SSLOCSD receiving similar services. Objectives The objectives of this Study are to (1) review the current and future financial status of each of the water and wastewater enterprises, (2) make any adjustments to the revenue being received to ensure that the financial obligations are being met now and in the future, including adequate reserves and debt service coverage, and (3) design water and wastewater rates that generate the required revenue while being fair and equitable for its customers. Item 10.a. - Page 38 Water and Wastewater Rate Study  City of Arroyo Grande Tuckfield & Associates DRAFT 10 Scope of the Study This Study includes the findings and recommendations of analyzing each of the water and wastewater system’s financial status and related Capital Improvement Program (CIP) projects. Historical trends were analyzed from data supplied by the City showing the number of customers, volumes, revenue, and revenue requirements. Revenue requirements of each enterprise includes operation and maintenance (O&M) expense, routine capital outlays, CIP funding, debt service, and additions to reserves. Changing conditions such as additional facilities, system growth, employee additions/reductions, and non-recurring maintenance expenditures are recognized. Inflation for ongoing expenditures is included to reflect cost escalation. The financial plan and rates developed herein are based on funding of the CIP and estimates of O&M expenses provided by the City. Deviation from the financial plans, construction cost estimates and funding requirements, major operational changes, or other financial policy changes that were not foreseen, may result in the need for lower or higher revenue than anticipated. It is suggested that the City conduct an update to the rate study at least every three years for prudent rate planning. Assumptions Several assumptions were used to conduct the Study for the period FY 2021-22 to FY 2025-26. The assumptions included growth rates in customer accounts and related consumption, expense inflation factors, financing and other assumptions used for projecting revenue and expense and estimating debt service payments. The financial planning assumptions are provided in Table 1. Table 1 Assumptions and Planning Factors Description Value Annual Account & Demand growth [1] Single-family Residential 0.50% All Other 0.00% Interest earnings on fund reserves (annual)0.50% Cost Escalation Personnel Services [2]3.5% Benefits 8.0% Electrical Power 3.0% Chemicals 3.0% Purchased Water 3.0% Personnel Transfers 4.0% All Other Operations & Maintenance 2.0% Capital 3.0% [1] Annualized growth in water accounts is based on historical information provided by staff. [2] Personnel Services growth in staffing, promotions, and inflation is 3.5% annually. Item 10.a. - Page 39 Water and Wastewater Rate Study  City of Arroyo Grande Tuckfield & Associates DRAFT 11 Reserve Policy The City’s reserve policy goals were developed in the previous rate study in 2014. The reserve goals provide a means to meet unanticipated reductions in revenues, meet changes in the costs of providing services, provide for fixed asset repair and replacement, natural disaster needs, and other issues. The reserves also provide guidelines to maintain the financial health and stability of the enterprise funds. The reserve types and the amount of reserves used in this Study are discussed below. Operating Reserve The purpose of the Operating Reserve is to provide working capital to meet cash flow needs during normal operations and support the operation, maintenance and administration of the utility. This reserve ensures that operations can continue should there be significant events that impact cash flows. The target balance to be maintained is 90 days (25 percent) of the current annual operating expense budget. Capital Reserve The purpose of the Capital Reserve is to fund future replacement of assets and CIP projects. The Capital reserves are used to fund the construction of the projects as the projects progress and the funds are expended. The reserve target has been established at $500,000 each for the water and wastewater systems. Facility Fund Reserve Revenue from water and wastewater development fees (capacity charges) are received and set aside to be used only for system expansion. The reserves remain in a separate account and are only spent on capital improvement projects that are specifically identified for which the fee was collected. There are no specific target balances for the funds. Lopez Fund Reserve The Lopez Fund accounts for the revenue and expenditures of the surface water purchases from the County. Revenues are collected through the water rates in sufficient amounts to provide for a transfer of revenue to meet the expenses in the Lopez Fund. A reserve is maintained in the fund at least equal to annual Lopez debt service. Beginning Balances and Reserve Targets As of June 30, 2021, the City’s beginning reserve balances are listed in Table 2. The reserves are used in developing the financial plans for the water and wastewater utility systems. The Target Reserves are also provided in the table. Item 10.a. - Page 40 Water and Wastewater Rate Study  City of Arroyo Grande Tuckfield & Associates DRAFT 12 Water Financial Planning Financial planning for the water system includes identifying and projecting revenues and revenue requirements for a five-year planning period. This section discusses current water rates, current user classifications, projected revenues and revenue requirements, capital improvement expenditures and financing sources, and proposed revenue adjustments. Current Water Rates Table 3 provides the current water rates of the water system. The current rate structure was established with the City’s last rate study in 2014. The water rates consist of fixed and variable charges to residential and non- residential customers. Fixed charges are shown in the table as monthly charges and bills are mailed to customers bi-monthly. All customers are charged a fixed charge that varies by meter size. Table 3 Current Water Rates Meter Variable Fixed Fireline Variable Meter Size Charge Charge Customer Class Rate ($/mo)($/mo)($/HCF) 5/8" $29.51 Single-Family 3/4" $31.67 Tier 1 - 0 to 18 units $3.78 1" $38.12 Tier 2 - 19 to 36 units $4.16 1.5" $46.73 Tier 3 - Over 36 units $5.55 2" $70.41 $3.74 Multifamily 3" $244.74 $10.88 Tier 1 - 0 to 18 units $3.78 4" $309.31 $23.18 Tier 2 - 19 to 27 units $4.16 6" $459.96 $67.33 Tier 3 - Over 27 units $5.55 8" $632.14 $143.48 Commercial $3.95 10"$258.03 Irrigation $4.21 Service Fee Hydrant $6.13 for Add'l Unit Wheeling $2.04$7.99 Table 2 June 30, 2021 Beginning Fund Balances and Reserve Targets Water Wastewater Reserve Reserve Reserve Reserve Reserve Type Balance Target Balance Target Operating Fund Reserve $3,423,733 $950,000 $511,446 $228,000 Capital Reserve $500,000 $500,000 $500,000 $500,000 Facility Fund Reserve $202,040 $0 $334,917 $0 Lopez Fund $1,703,434 $1,280,100 $0 $0 Total $5,829,207 $2,730,100 $1,346,363 $728,000 Item 10.a. - Page 41 Water and Wastewater Rate Study  City of Arroyo Grande Tuckfield & Associates DRAFT 13 Single-family residential (SFR) and Multifamily residential (MFR) customers are charged for consumption using a bi-monthly three-tier variable rate structure. Tier 1 for both residential types include usage per dwelling unit from zero to 18 hundred cubic feet (HCF). Tier 2 is consumption from 19 to 36 HCF for SFR and 19 to 27 units for MFR. Tier 3 is consumption over Tier 2. Non-residential customers are charged a uniform rate for water consumed. Water User Classifications Number of Customers The City classifies water customers as SFR, MFR, Commercial, Irrigation, Hydrant (construction), and Wheeling. SFR customers account for about 90 percent of the total customers (excluding fire accounts) served by the water system. Growth is projected to occur only in SFR accounts at a rate of 0.50 percent annually or about 30 SFR accounts added each year, following the assumptions listed in Table 1. Table 4 provides the historical and projected average number of customers by classification. Number of Water Meters Table 5 provides a summary of the current and projected average number of water customers by meter size. The majority of customers have 5/8-inch meters (83 percent) installed at the service location. It is assumed that all new SFR customers will have 1-inch meters installed and this is the minimum size for new meter installations for the City’s customer base. Table 4 Historical and Projected Average Number of Water Customers by Classification Historical Projected Customer Class FY 20-21 FY 21-22 FY 22-23 FY 23-24 FY 24-25 FY 25-26 Number of Accounts Single-Family [1]6,007 6,037 6,067 6,097 6,127 6,158 Multifamily 117 118 118 119 119 120 Commercial 434 436 436 436 436 436 Irrigation 165 165 165 165 165 165 Hydrant 1 1 1 1 1 1 Wheeling 1 1 1 1 1 1 Total Accounts 6,725 6,758 6,788 6,819 6,849 6,881 Fire Protection Public Fire Hydrants 909 909 909 909 909 909 Private Firelines 132 132 132 132 132 132 Total Fire Protection 1,041 1,041 1,041 1,041 1,041 1,041 Number of Dwelling Units Single-Family [1]6,007 6,037 6,067 6,097 6,127 6,158 Multifamily [1]1,697 1,705 1,714 1,723 1,731 1,740 [1] Residential accounts/units are forecast to increase based on the assumed growth rate of 0.5% annually. Item 10.a. - Page 42 Water and Wastewater Rate Study  City of Arroyo Grande Tuckfield & Associates DRAFT 14 Water Sales Volumes Table 6 provides the historical and projected water sales volume by customer classification. Water sales volumes were projected by recognizing the growth in the number of accounts and the FY 2020-21 water use per customer. Water Financial Plan The financial plan provides the means of analyzing the revenue and revenue requirements of the water system and its impact on reserves as well as the ability to fund on-going O&M expense and capital infrastructure requirements. This section of the Report discusses the projection of revenue, O&M expenses, capital Table 5 Historical and Projected Average Number of Water Customers by Meter Size Historical Projected Description FY 20-21 FY 21-22 FY 22-23 FY 23-24 FY 24-25 FY 25-26 Active Water Meters/Accounts [1] 5/8"5,633 5,633 5,633 5,633 5,633 5,633 3/4" 326 326 326 326 326 326 1"530 561 591 622 652 683 1.5"127 127 127 127 127 128 2"77 79 79 79 79 79 3"23 23 23 23 23 23 4"5 5 5 5 5 5 6"4 4 4 4 4 4 Total Accounts 6,725 6,758 6,788 6,819 6,849 6,881 [1] Historical water accounts for FY 20-21 were provided through City billing records. Table 6 Historical and Projected Water Consumption (in HCF) Historical Projected [1] Description FY 20-21 FY 21-22 FY 22-23 FY 23-24 FY 24-25 FY 25-26 Single-Family 686,416 689,844 693,272 696,700 700,128 703,671 Multifamily 104,384 104,876 105,430 105,983 106,475 107,029 Commercial 110,492 111,001 111,001 111,001 111,001 111,001 Irrigation 91,207 91,207 91,207 91,207 91,207 91,207 Hydrant 114 114 114 114 114 114 Wheeling 11,000 11,000 11,000 11,000 11,000 11,000 Total Consumption 1,003,613 1,008,042 1,012,024 1,016,005 1,019,925 1,024,022 [1] Forecast assumes that the use per customer from FY 20-21 is applied to the number of customers. Consumption increases due to the growth in customers. Item 10.a. - Page 43 Water and Wastewater Rate Study  City of Arroyo Grande Tuckfield & Associates DRAFT 15 improvement needs of the water system and its financing, debt service requirements, and revenue adjustments needed to maintain a sustainable water enterprise. Water Revenues The Water Fund receives revenue from several sources. Operating revenue is received from rates and charges for water service. Revenue from water rates is projected by applying the current water rates to the projected number of accounts and consumption volume. Table 7 presents the projected revenue from current water rates of the water system. Miscellaneous Water Revenue Miscellaneous revenues are received from several sources including collections from delinquent accounts, meter installations, late payment fees, ARPA funds, and other sources. Table 8 below provides sources of miscellaneous revenue. Water Revenue Requirements Revenue requirements of the water system include O&M expense, Transfer to Lopez Fund for purchased water, annual CIP funding, and debt service. Each of these items are discussed below. Table 7 Projected Rate-based Water Revenue Using Existing Rates Estimated Projected Description FY 20-21 FY 21-22 FY 22-23 FY 23-24 FY 24-25 FY 25-26 Water Service Revenues Fixed Charges [1]$2,607,244 $2,621,425 $2,635,148 $2,649,329 $2,663,052 $2,677,793 Variable Charges [2]4,004,629 4,022,315 4,038,225 4,054,133 4,069,809 4,086,181 Subtotal Revenues From Current Rates $6,611,873 $6,643,740 $6,673,373 $6,703,462 $6,732,861 $6,763,974 Fire Protection Revenues 71,756 71,756 71,756 71,756 71,756 71,756 Total Revenues From Current Rates $6,683,629 $6,715,496 $6,745,129 $6,775,218 $6,804,617 $6,835,730 [1] FY 21-22 and forecast revenue calculated by multiplying current water service rate by the number of projected meters. [2] FY 21-22 and forecast revenue calculated by multiplying projected water sales by the current variable rates. Table 8 Projected Miscellaneous Water Revenue Budget Projected Description FY 21-22 FY 22-23 FY 23-24 FY 24-25 FY 25-26 Collections Credit Bureau $1,500 $1,500 $1,500 $1,500 $1,500 Meter Installation 15,000 15,000 15,000 15,000 15,000 Utility Billing Late Payment Fees 45,000 45,000 45,000 45,000 45,000 ARPA Funds 332,750 147,500 - 578,700 291,200 Total Miscellaneous Revenues $394,250 $209,000 $61,500 $640,200 $352,700 Item 10.a. - Page 44 Water and Wastewater Rate Study  City of Arroyo Grande Tuckfield & Associates DRAFT 16 Water Operation and Maintenance Expense O&M expenses are an on-going obligation of the water system and such costs are normally met from water service revenue. O&M includes the cost to operate and maintain the water supply, reservoirs, and distribution system facilities. Costs also include technical services and other general and administrative expenses. O&M has been projected recognizing the major expense categories of personnel services, electric power expense, chemicals, all other expenses, and capital outlay. Personnel costs consist of salaries and benefits expense of those personnel directly involved with providing water service. Salaries and wages are projected to increase by 3.5 percent annually, while benefits expense is projected to increase by 8 percent annually. Electric power expense is projected to increase annually by 3 percent while chemicals expense increases also by 3 percent annually. Personnel Transfers increase annually by 4 percent. All other O&M expense is projected to increase by 2 percent annually. Capital outlay is projected to increase by 3 percent annually. Table 9 provides a summary of the O&M expenses for the Study period. A detailed summary of the budgeted and projected O&M expense is provided in Appendix A-1. Transfer to Lopez Fund The Water Fund makes a transfer of funds to the Lopez Fund equal to the cost of purchased water expense. The total expenses for Lopez water supply include Lopez O&M, capital outlay, Lopez Dam 2011A bond debt service, and State Revolving Fund (SRF) loan debt service. The transfer in FY 2021-22 and FY 2022-23 are as budgeted by the City. Future Lopez O&M expense is projected to increase by 3 percent annually and capital outlay and debt service payments are projected to remain constant. Water Annual CIP Funding The Water Fund pays for annual capital needs or the water system as identified in the City’s CIP plan. The amount spent annually is irregular and depends on other financing sources to meet the expenditure needs of the City’s CIP. The amount identified for expenditure in each year of the Study is further discussed below in the Water CIP section. Debt Service The City does not have any outstanding debt on the water system other than the debt service payments associated with the Lopez purchased water expense. Under the City’s contract with the County, the City is required to set water rates to provide a 25% coverage factor on the Lopez Dam 2011A bonds debt service. The required coverage ratio is 100 percent after inclusion of this factor. Additionally, if the City pursues construction of the Central Coast Blue project, it is anticipated the City would incur new debt service in FY 2022-23 to fund construction. This scenario is not included in the discussion of the Table 9 Projected Water Operation and Maintenance Expense Budget Budget Projected Description FY 21-22 FY 22-23 FY 23-24 FY 24-25 FY 25-26 Administration $2,748,945 $2,662,640 $2,744,189 $2,828,821 $2,916,686 Water Production 205,800 209,700 227,138 241,250 256,355 Water Distribution 845,500 783,800 815,371 848,556 883,494 Total Water System O&M Expense $3,800,245 $3,656,140 $3,786,698 $3,918,627 $4,056,535 Item 10.a. - Page 45 Water and Wastewater Rate Study  City of Arroyo Grande Tuckfield & Associates DRAFT 17 water rate adjustments in this section but is discussed further below under the section heading Water Rates with Central Coast Blue. Water Capital Improvement Program The City has developed a CIP provided in Table 10 that lists capital expenditures for FY 2021-22 through FY 2025- 26. Over this period the City projects that it would spend over $2.6 million. The major improvements include Phased Main Replacements at South Halcyon, Cornwall, and Highway 101 exchange. Other projects include service line replacements, SCADA software acquisition, and studies. The CIP is planned to be funded from the Water Fund. Water Financial Plan A financial plan has been prepared that includes the revenues and revenue requirements that were identified for the water system. The financial plan, presented in Table 11, incorporates specific financial planning goals to provide guidance to maintain the health of the water utility on an on-going basis. The goals included the following.  Generate positive levels of income in each year of the Study period  Maintain the operating, capital, and Lopez Fund reserves at or greater than target levels  Maintain debt service coverage ratios at or greater than the minimum required  Maintain the annual capital funding requirement Table 10 Water Capital Improvement Program Budget Projected Description FY 21-22 FY 22-23 FY 23-24 FY 24-25 FY 25-26 Current Capital Improvement Program (CIP) Projects [1] Galvanized Service Replacement $96,826 $0 $0 $0 $0 Phased Main Replacement - Fair Oaks, Elm-Alder 232,750 - - - - Andre Drive / Los Ciervos Court Interconnect 100,000 - - - - SCADA Software/Electronics Upgrade 240,100 - - - - Corporation Yard Renovations 15,000 15,000 15,000 15,000 15,000 Reservoir 4 Exterior Coating - 147,500 - - - Financial Managment Software - 75,000 20,000 - - Phased Main Replacement - S Halcyon Road, Cornwall-Fair Oaks - - 673,500 - - Water Master Plan Update - - 100,000 - - Phased Main Replacement - Cornwall, S Halycon-El Camino Real - - - 578,700 - Phased Main Replacement - Hwy 101 Xng, El Camino Real-W Branch - - - - 291,200 Rate Study Update - - - - 30,000 Total Water CIP $695,616 $237,500 $808,500 $593,700 $336,200 [1] CIP Source: FY 21-22 City CIP document. Represents only Water Fund portion of project. Item 10.a. - Page 46 Water and Wastewater Rate Study  City of Arroyo Grande Tuckfield & Associates DRAFT 18 Table 11 Water Financial Plan Projected Description FY 21-22 FY 22-23 FY 23-24 FY 24-25 FY 25-26 Proposed Revenue Increase (March 21)4.0% Proposed Revenue Increase (January 1)4.0% 4.0% 4.0% 4.0% Water Fund - 640 Revenue Revenues from Existing Water Rates [1]$6,715,496 $6,745,129 $6,775,218 $6,804,617 $6,835,730 Total Additional Water Sales Revenue [2]44,770 386,721 674,993 977,223 1,294,388 Miscellaneous Income [3]394,250 209,000 61,500 640,200 352,700 Interest Income [4]17,357 16,219 9,853 7,138 7,062 Total Revenues $7,171,873 $7,357,069 $7,521,564 $8,429,178 $8,489,880 Expenditures Operation and Maintenance Expense $3,800,245 $3,656,140 $3,786,698 $3,918,627 $4,056,535 Transfer to Lopez Fund 3,740,113 3,852,316 3,926,482 4,002,873 4,081,556 Capital Improvement Funding 695,616 237,500 808,500 593,700 336,200 Total Expenditures $8,235,974 $7,745,956 $8,521,680 $8,515,200 $8,474,291 Net Funds Available ($1,064,101) ($388,887) ($1,000,116) ($86,022) $15,589 Available Reserves Beginning available reserves [5]$3,923,733 $2,859,632 $2,470,745 $1,470,629 $1,384,607 Ending available reserves $2,859,632 $2,470,745 $1,470,629 $1,384,607 $1,400,196 Target Reserves [6]$1,450,000 $1,414,000 $1,447,000 $1,480,000 $1,514,000 Lopez Fund - 641 Revenues Transfer In from Water Fund $3,740,113 $3,852,316 $3,926,482 $4,002,873 $4,081,556 Interest Income [4]8,500 8,600 8,600 8,700 8,700 Total Lopez Revenues $3,748,613 $3,860,916 $3,935,082 $4,011,573 $4,090,256 Expenditures Lopez Water Expense $2,239,161 $2,472,198 $2,546,364 $2,622,755 $2,701,438 Lopez Dam Bonds - 2011A Debt Service 420,749 434,981 434,981 434,981 434,981 SRF Loan Debt Service 845,137 845,137 845,137 845,137 845,137 Lopez Capital Outlay 235,066 100,000 100,000 100,000 100,000 Total Lopez Expenditures $3,740,113 $3,852,316 $3,926,482 $4,002,873 $4,081,556 Net Lopez Funds Available $8,500 $8,600 $8,600 $8,700 $8,700 Lopez Available Reserves Lopez Beginning available reserves $1,703,434 $1,711,934 $1,720,534 $1,729,134 $1,737,834 Lopez Ending available reserves $1,711,934 $1,720,534 $1,729,134 $1,737,834 $1,746,534 Lopez Target Reserves [7]$1,265,900 $1,280,100 $1,280,100 $1,280,100 $1,280,100 Combined Reserves Total Reserves (Fund 640 and 641)$4,571,566 $4,191,279 $3,199,763 $3,122,441 $3,146,730 Target Total Reserves (Fund 640 and 641) $2,715,900 $2,694,100 $2,727,100 $2,760,100 $2,794,100 Debt Service Coverage Total Revenues (Fund 640 and 641)$7,180,373 $7,365,669 $7,530,164 $8,437,878 $8,498,580 Total Expenses (Fund 640 and 641)($7,540,358) ($7,508,456) ($7,713,180) ($7,921,500) ($8,138,091) 25% Coverage Factor Lopez 2011A Bonds [8] ($105,187) ($108,745) ($108,745) ($108,745) ($108,745) Net Revenues ($465,172) ($251,532) ($291,761) $407,633 $251,744 Lopez Coverage [9]94% 97% 96% 105% 103% [1] Projected using the existing rates. [2] Additional revenue from proposed rate adjustments. [3] Includes collection fees, meter installations, late fees, ARPA Funds, and Water Availbility Transfers In. [4] Interest earnings on the average fund balance calculated at 0.5%. [5] The available beginning FY 21-22 cash balance provided by City. Includes operating and capital funds. [6] Target reserve estimated at 90 days of operation and maintenance expense and capital reserves target. [7] Equal to Lopez annual debt service. [8] For Lopez 2011A Bonds, pledge of gross revenues requires Coverage Factor of 25 percent of Lopez 2011A Bonds debt service. [9] Minimum coverage is 100 percent. Item 10.a. - Page 47 Water and Wastewater Rate Study  City of Arroyo Grande Tuckfield & Associates DRAFT 19 Proposed Revenue Adjustments Table 11 provides the annual revenue increases recommended to meet the financial planning criteria for the five-year Study Period. The financial plan indicates that 4.0 percent revenue increases are recommended on March 21, 2022 and on each January 1 through FY 2025-26, with increases of 4.0 percent thereafter for the next five years after the Study Period. The increases are necessary to meet the planning criteria discussed above. A graphical depiction of the revenue and revenue requirements from Table 11 are presented in Figure 1. Revenue using the current rates is shown as the black line while revenue with revenue adjustments is shown as the red line. The green line represents the cash reserve balance at the end of year (which includes operating, capital and Lopez reserves) while the purple line indicates the Target Reserve level for these reserves. Figure 1 shows that the revenue increases in Table 11 are necessary to meet annual O&M expense, Lopez purchased water expense, CIP funding, and the Target reserve maintenance level. The figure shows that the reserve balance (green line) declines in the middle years of the Study but meets the Target reserve level by the last year of the Study. Figure 2 shows the debt service coverage ratio of the Lopez Dam Bonds 2011A debt service. The figure shows that the coverage requirement is not currently being met, however is met by the end of FY 2025-26 and in the later years with implementation of the revenue increases proposed in the water financial plan in Table 11. Figure 1 Water Financial Plan Comparison of Revenue with Annual Obligations $0 $1 $2 $3 $4 $5 $6 $7 $8 $9 $10 $0 $2 $4 $6 $8 $10 $12 FY 21-22 FY 22-23 FY 23-24 FY 24-25 FY 25-26 FY 26-27 FY 27-28 FY 28-29 FY 29-30 FY 30-31 Target and Ending Cash ($ Millions)Sources and Uses ($ Millions)O&M Lopez Water Capital Improvement Funding Revenue with Increases Revenue w/o Increases Target Reserve Total Reserve Item 10.a. - Page 48 Water and Wastewater Rate Study  City of Arroyo Grande Tuckfield & Associates DRAFT 20 Water Cost of Service This section of the report discusses the allocation of the water system’s operating and capital costs for use in designing water rates. The agency responsible for imposing property-related fees in California is required to establish rates that create a nexus between the cost of providing service and the rates to be imposed. Industry Methodology This Study uses methodologies from the American Water Works Association (AWWA) to allocate costs in an appropriate manner. AWWA is an industry trade organization that provides guidance on operations and management of water utilities. AWWA provides general principles to assist agencies in the design of water rates such that they are consistent with local requirements as well as recognizing state laws. The AWWA guidelines have been used to conduct this Study and have been used in the design of the City’s water rates while also following Proposition 218 and the recent San Juan Capistrano court decision. The annual costs of providing water service from the financial plan are allocated to cost components following guidelines provided in the AWWA Manual M1. The methodology provides the basis to design rates to generate sufficient revenue to meet estimated annual revenue requirements from the financial plan. Costs are then recovered through fixed charges and variable charges to water system users. Figure 2 Water Debt Service Coverage Ratio 0% 20% 40% 60% 80% 100% 120% FY 21-22 FY 22-23 FY 23-24 FY 24-25 FY 25-26 FY 26-27 FY 27-28 FY 28-29 FY 29-30 FY 30-31 Debt Service Coverage Ratio Target Ratio Item 10.a. - Page 49 Water and Wastewater Rate Study  City of Arroyo Grande Tuckfield & Associates DRAFT 21 Costs of Service to be Allocated The annual water cost of service consists of the O&M expenses and capital costs of the water system. O&M expenses include costs related to Lopez water supply, water distribution, operation and maintenance of the facilities, and general and administrative costs. Capital costs include capital improvement program funding and debt service discussed in the financial plan. Costs are first allocated to water system cost component based on the operating characteristics and design of the water system facilities. Cost allocations consider the average quantity of water consumed as well as the peak rate at which water is consumed. The water system is designed to serve average and peak demands, and costs that are related to serving average and peak demands are allocated in a manner such that they may be recovered appropriately. The cost allocation components for water service for this Study are Water Supply (groundwater and Lopez water), Delivery, Peaking, Meters and Services, Customer, and Direct Fire Protection. The parameters have been further expanded to recognize those costs that are common to all customers, and those that exclude Wheeling customers. Wheeling customers do not pay for water supply costs. FY 2021-22 was used as the Test Year for assigning the operating and capital costs of the water system to each of these parameters. The total cost to be recovered from the users of the water system by cost component for FY 2021-22 is presented in Table 12. Appendix A-2 provides a detailed allocation. Water Rate Design The cost of service analyses described in the previous section provides the basis for water rate design. The intent of the rate design is to achieve fairness and ensure that each customer class pays its fair share of costs. Rates should be simple to administer, easy to understand, and comply with regulatory requirements. This section describes how water rates and charges are designed and includes the proposed schedule of water rates for implementation. Proposed Water Rate Structure The recommended water rate structure includes maintaining the fixed charge structure, however modifying the variable rate structure to (1) revise the tier break points for SFR customers and (2) provide an individual uniform volume charge for MFR and other customers. Table 12 Allocation of Water Revenue Requirements to Cost Component FY 21-22 Common to All Except Wheeling Revenue Common to All Direct Fire Water Requirement Delivery Peaking Meters/Serv Customer Protection Supply Delivery Peaking Lopez Debt $6,984,116 $844,018 $1,519,331 $117,594 $84,860 $172,425 $2,342,661 $213,975 $188,300 $1,500,952 Item 10.a. - Page 50 Water and Wastewater Rate Study  City of Arroyo Grande Tuckfield & Associates DRAFT 22 Proposed Water Fixed Charges The proposed fixed charges recover the Customer, Meters and Services, and Lopez debt service costs of service identified from Table 12 and recovers costs allocated to public fire protection. Customer costs are recovered based on the number of bills issued. Meters and Services, Lopez debt service, and public fire protection costs are recovered based on meter and service ratios provided by AWWA. Tables 13 below presents the design of the proposed monthly fixed charges for customers for FY 2021-22 for a 5/8-inch meter. The current fixed charges generate about 40 percent of revenue from water rates. The proposed fixed charges generate approximately 37 percent of the revenue from water rates. Fixed charges for meter sizes greater than 5/8-inch are increased as shown below in Table 14 for FY 2021-22. The Meter and Services charge, Lopez Debt Service, and Public Fire Protection increase with meter and service cost ratios while the Customer charge does not increase with meter size. Table 13 Design of Water Fixed Charges Customer Service Cost FY 21-22 Customer Cost $84,860 Number of Monthly Bills 81,096 Customer Cost per Unit $1.05 Meters and Services Cost FY 21-22 Meters and Services Cost $117,594 Lopez Debt Service $1,500,952 Public Fire Protection $890,279 Meters and Services Cost $2,508,825 Number of Monthly Eq. Meters & Services 91,700 Meters and Services Cost per Unit $27.36 Monthly Base Fixed Charge - 5/8" Meter $28.41 Table 14 Design of Water Fixed Charges by Meter Size FY 21-22 Meter & Meter &Public Total Meter Service Services Fire Customer Monthly Size Ratio Charge Protection Charge Charge inches 5/8"1.00 $1.28 $16.37 $9.71 $1.05 $28.41 3/4" 1.10 $1.41 $18.01 $10.68 $1.05 $31.15 1"1.40 $1.79 $22.92 $13.59 $1.05 $39.35 1.5"1.80 $2.30 $29.47 $17.48 $1.05 $50.30 2"2.90 $3.71 $47.47 $28.16 $1.05 $80.39 3"11.00 $14.08 $180.07 $106.81 $1.05 $302.01 4"14.00 $17.92 $229.18 $135.94 $1.05 $384.09 6"21.00 $26.88 $343.77 $203.91 $1.05 $575.61 8"29.00 $37.12 $474.73 $281.59 $1.05 $794.49 Lopez Debt Service Item 10.a. - Page 51 Water and Wastewater Rate Study  City of Arroyo Grande Tuckfield & Associates DRAFT 23 Proposed Private Fire Protection Fixed Charges Annual costs allocated to the Fire Protection cost component are separated into Public and Private Fire Protection costs. Public Fire Protection costs are included into the monthly service charges as shown in Table 13. Private Fire Protection costs are recovered from those customers that receive the direct fire protection benefit. The monthly cost by equivalent hydrant (fireline) size is provided in Table 15 and the monthly private fireline charges are designed as shown in Table 16. Proposed Service Fee per Additional Unit Charge The City charges for additional dwelling units that are connected to SFR customers. The charge is established as 2 HCF of water consumption bi-monthly at the Tier 1 rate. The additional unit charge is shown on Table 20. Proposed Water Variable Charges Variable charges are designed to recover the costs that were allocated to the Water Supply, Delivery, and Peaking components shown in Table 12. Consumption and peaking characteristics of water system customers were analyzed to allocate costs to customer classification as well as between each tier. The water supply, delivery, and peaking costs are discussed below. Water Supply Costs The City’s water supply costs include groundwater and Lopez water costs. Total water supply costs are shared uniformly by all customers and are not allocated to rate tiers to differentiate the water supply costs on use because 96 percent of the water produced by the City is from Lopez water and the impact to rates is small. Delivery Costs Delivery costs are operating, and capital costs of the water system related to delivering water to all customers at an average rate of use. Delivery costs tend to vary with the total quantity of water consumed under average demand conditions. These costs are also shared uniformly by all customers of the system. Peaking Costs Peaking costs are costs associated with meeting peak rates of demand requirements of the water system and include operating and capital costs beyond that required for average rates of use. Water system facilities are designed to meet peak demand requirements and are apportioned to customer classes based on their system Table 15 Design of 6-Inch Private Fire Protection Charge Fire Protection FY 21-22 Private Fire Protection Cost $70,135 Private Fire Protection Eq. 6" Firelines 1,066 Private Fire Protection 6" Monthly Charge $65.81 Table 16 Design of Private Fireline Charges FY 21-22 Monthly Fireline Fireline Fireline Size Ratio Charge 2"0.06 $3.66 3"0.16 $10.63 4"0.34 $22.66 6"1.00 $65.81 8"2.13 $140.24 10"3.83 $252.20 Item 10.a. - Page 52 Water and Wastewater Rate Study  City of Arroyo Grande Tuckfield & Associates DRAFT 24 use characteristics. Peaking costs may be assigned to tiers in a tiered-rate structure based on the customers within the tier that are causing the peak demand. Proposed Single-family and Multifamily Residential Variable Water Rates For this Study it is proposed that the current three-tier rate structure be maintained for SFR and MFR customers, however the tier break points are proposed to be modified. Tier 1 is defined as consumption to provide basic indoor water use and is based on 2.31 persons per household (pph) from the California Department of Finance estimates using 55 gallons per capita per day (gcpd) resulting in a Tier 1 breakpoint of 10 HCF (2.31 pph x 55 gpcd x 365 days per year ÷ 748 gal per HCF ÷ 6 billing periods per year). Tier 2 is defined as consumption related to outdoor water use up to the average of the combined SFR and MFR summer peak demand which was determined from billing information to be 38 HCF. Tier 3 is defined as water use above Tier 2. Table 17 provides a summary of the variable rate components applicable to the SFR classification consisting of Water Supply, Delivery, and Peaking costs. Water Supply and Delivery costs are allocated to tiers based on water consumption in each tier. Peaking costs are allocated to the defined tiers based on the peaking factors that occur from customers within the tiers based on the tier break points discussed above. Tier 1 is considered to have a peaking factor of 1.0, Tier 2 and Tier 3 have peaking factors that reflect the average use per customer within these tiers as a ratio to Tier 1. Table 17 Design of Single-Family and Multifamily Tiered Water Rate Structure FY 21-22 Water Supply Water Component of Variable Charge Tier % Water Supply Unit Rate Tier Range Consumption Share Costs $/HCF Tier 1 0 - 10 407,204 51.2%$956,771 $2.35 Tier 2 11 - 38 328,388 41.3%$771,585 $2.35 Tier 3 Over 38 59,128 7.4%$138,927 $2.35 794,720 100.0% $1,867,283 Delivery Component of Variable Charge Tier % Delivery Unit Rate Tier Range Consumption Share Costs $/HCF Tier 1 0 - 10 407,204 51.2%$428,336 $1.05 Tier 2 11 - 38 328,388 41.3%$345,430 $1.05 Tier 3 Over 38 59,128 7.4%$62,196 $1.05 794,720 100.0% $835,962 Peaking Component of Variable Charge Tier Peaking Weighted Peaking Unit Rate Tier Range Factor Consumption Costs $/HCF Tier 1 0 - 10 1.00 407,204 $215,245 $0.53 Tier 2 11 - 38 2.06 676,480 $357,582 $1.09 Tier 3 Over 38 3.80 224,685 $118,767 $2.01 1,308,369 $691,594 Item 10.a. - Page 53 Water and Wastewater Rate Study  City of Arroyo Grande Tuckfield & Associates DRAFT 25 The sum of the three component’s unit rates equals the water rates in the tiers for the SFR and MFR classifications. Table 18 provides the resulting water rate by tier from summing the Water Supply, Delivery, and Peaking unit rates. SFR and MFR customers pay for the same Water Supply and Delivery costs per HCF, however they pay for their individual peaking requirements and associated costs depending on which tier their consumption falls into. Proposed Non-Residential Variable Water Rates For Non-Residential customers, it is proposed that these classes have an individual uniform volume rate structure that recognizes a blending of the three components of Water Supply, Delivery, and Peaking costs. However, each classification will recognize the individual peaking characteristics of its class in their variable rate. A uniform variable rate structure is recommended for Non-residential classes as they are intended to have separate irrigation meters. Table 19 below provides the Non-residential variable rates. Proposed Water Rates Table 20 presents the proposed fixed charges and variable charges for the water system for the next five years. Table 20 includes the current fixed and variable rates as well as future water rates for implementation beginning on March 21, 2022 and each January 1 through FY 2025-26. The table also includes the current variable charges by rate tier and the new rate structure for March 21, 2022. Water system fixed and variable charges beyond March 21, 2022 are increased by the percentages shown in the financial plan in Table 11. Table 18 Single-family amd Multifamily Residential Tiered Water Rates FY 21-22 Water Total Tier Range Supply Delivery Peaking Rate HCF $/HCF $/HCF $/HCF $/HCF Tier 1 0 - 10 $2.35 $1.05 $0.53 $3.93 Tier 2 11 - 38 $2.35 $1.05 $1.09 $4.49 Tier 3 Over 38 $2.35 $1.05 $2.01 $5.41 Table 19 Design of MFR and Non-Residential Variable Water Rates FY 21-22 Total Uniform Description Costs Volume Rate HCF $/HCF Commercial 468,797 111,001 $4.22 Irrigation 432,980 91,207 $4.75 Hydrant 878 114 $7.70 Wheeling 22,802 11,000 $2.07 Item 10.a. - Page 54 Water and Wastewater Rate Study  City of Arroyo Grande Tuckfield & Associates DRAFT 26 Water Bill Impact Analysis An impact analysis was performed to evaluate the change in SFR customer bills that would occur from the implementation of the proposed water rates for the March 21, 2022 rate structure implementation. As shown in Table 20 Proposed Water Fixed and Variable Charges without Central Coast Blue Current March 21, January 1, January 1, January 1, January 1, Rate FY 21-22 FY 22-23 FY 23-24 FY 24-25 FY 25-26 Meter Size Fixed Charge ($ per month) 5/8" $29.51 $28.41 $29.55 $30.73 $31.96 $33.24 3/4" $31.67 $31.15 $32.40 $33.70 $35.05 $36.45 1"$38.12 $39.35 $40.92 $42.56 $44.26 $46.03 1.5" $46.73 $50.30 $52.31 $54.40 $56.58 $58.84 2"$70.41 $80.39 $83.61 $86.95 $90.43 $94.05 3" $244.74 $302.01 $314.09 $326.65 $339.72 $353.31 4" $309.31 $384.09 $399.45 $415.43 $432.05 $449.33 6" $459.96 $575.61 $598.63 $622.58 $647.48 $673.38 8" $632.14 $794.49 $826.27 $859.32 $893.69 $929.44 Service Fee per Add'l Unit $7.99 $7.86 $8.18 $8.50 $8.84 $9.20 Fireline Size 2"$3.74 $3.66 $3.81 $3.96 $4.12 $4.28 3"$10.88 $10.63 $11.06 $11.50 $11.96 $12.44 4"$23.18 $22.66 $23.57 $24.51 $25.49 $26.51 6"$67.33 $65.81 $68.44 $71.18 $74.03 $76.99 8" $143.48 $140.24 $145.85 $151.68 $157.75 $164.06 10" $258.03 $252.20 $262.29 $272.78 $283.69 $295.04 Variable Charge ($ per HCF) Single-Family Tier 1 - 0 to 18 units $3.78 Tier 2 - 19 to 36 units $4.16 Tier 3 - Over 36 $5.55 Tier 1 - 0 to 10 units $3.93 $4.09 $4.25 $4.42 $4.60 Tier 2 - 11 to 38 units $4.49 $4.67 $4.86 $5.05 $5.25 Tier 3 - Over 38 $5.41 $5.63 $5.86 $6.09 $6.33 Multifamily Tier 1 - 0 to 18 units $3.78 Tier 2 - 19 to 27 units $4.16 Tier 3 - Over 27 $5.55 Tier 1 - 0 to 10 units $3.93 $4.09 $4.25 $4.42 $4.60 Tier 2 - 11 to 38 units $4.49 $4.67 $4.86 $5.05 $5.25 Tier 3 - Over 38 $5.41 $5.63 $5.86 $6.09 $6.33 Commercial $3.95 $4.22 $4.39 $4.57 $4.75 $4.94 Irrigation $4.21 $4.75 $4.94 $5.14 $5.35 $5.56 Hydrant $6.13 $7.70 $8.01 $8.33 $8.66 $9.01 Wheeling $2.04 $2.07 $2.15 $2.24 $2.33 $2.42 Item 10.a. - Page 55 Water and Wastewater Rate Study  City of Arroyo Grande Tuckfield & Associates DRAFT 27 Table 21, a SFR customer with a 5/8-inch meter using the average consumption of 19 HCF bi-monthly will experience a bill that will increase from $131.22 to $136.53 an increase of $5.31 or 4.0 percent. Table 22 provides future SFR bills calculated using the proposed rates in Table 20 at the average consumption of 19 HCF bi-monthly. Table 21 Comparison of Current Single-family Residential Bi-monthly Water Bill with 5/8-inch Meter Size with Proposed Bill Using March 2022 Water Rates Without Central Coast Blue Current Bill Proposed March 21, 2022 Bill Service Volume Current Service Volume Proposed Dollar Percent Description Use (HCF) Charge Charge Bill Charge Charge Bill Difference Change 0 $59.02 $0.00 $59.02 $56.82 $0.00 $56.82 ($2.20) -3.7% Very Low 5 $59.02 $18.90 $77.92 $56.82 $19.65 $76.47 ($1.45) -1.9% Low 10 $59.02 $37.80 $96.82 $56.82 $39.30 $96.12 ($0.70) -0.7% Median 15 $59.02 $56.70 $115.72 $56.82 $61.75 $118.57 $2.85 2.5% Average 19 $59.02 $72.20 $131.22 $56.82 $79.71 $136.53 $5.31 4.0% 20 $59.02 $76.36 $135.38 $56.82 $84.20 $141.02 $5.64 4.2% High 30 $59.02 $117.96 $176.98 $56.82 $129.10 $185.92 $8.94 5.1% Very High 50 $59.02 $220.62 $279.64 $56.82 $229.94 $286.76 $7.12 2.5% Table 22 Single-family Residential Bi-monthly Water Bill Impacts at 19 HCF Bi-monthly Without Central Coast Blue Proposed SFR Charges Current FY 21-22 FY 22-23 FY 23-24 FY 24-25 FY 25-26 Fixed Charges $59.02 $56.82 $59.10 $61.46 $63.92 $66.48 Variable Charges $72.20 $79.71 $82.93 $86.24 $89.65 $93.25 Total Charges $131.22 $136.53 $142.03 $147.70 $153.57 $159.73 Dollar Change $5.31 $5.50 $5.67 $5.87 $6.16 Percent Change 4.0% 4.0% 4.0% 4.0% 4.0% $131.22 $136.53 $142.03 $147.70 $153.57 $159.73 $0 $20 $40 $60 $80 $100 $120 $140 $160 $180 Current FY 21-22 FY 22-23 FY 23-24 FY 24-25 FY 25-26 Fixed Charges Variable Charges Item 10.a. - Page 56 Water and Wastewater Rate Study  City of Arroyo Grande Tuckfield & Associates DRAFT 28 Water Rate Survey A water rate survey was conducted for neighboring communities to the City of Arroyo Grande. Chart 1 compares the Arroyo Grande SFR estimated bi-monthly water bill with those of neighboring communities at the same consumption of 19 HCF bi-monthly. The rate survey includes rate schedules in effect August 2021. Water bills for Arroyo Grande are shown using the current rates and the proposed March 21, 2022 rates. The chart indicates that with the March 2022 water rate structure change, an Arroyo Grande SFR customer using the average bi- monthly consumption of 19 HCF will experience a bill that is among the lowest of the communities listed. Water Rates with Central Coast Blue Central Coast Blue (CCB) is a water sustainability project that will create a new, high quality, and reliable water supply for the City of Arroyo Grande and other agencies. The CCB project will provide a new advanced water purification facility to create a high-quality water source to supplement local supplies. Originally, the communities of Pismo Beach, Arroyo Grande, Grover Beach, Oceano, and South San Luis Obispo County Sanitation District (SSLOCSD) were in discussions regarding each agency’s share of the project. However, only the cities of Arroyo Grande, Pismo Beach, and Grover Beach are currently in discussions to design and build Phase 1 of the project. The CCB project will allow these communities to have a more sustainable groundwater supply especially during multiple dry years. Chart 1 Single-family Residential Bi-Monthly Water Bills of Local Communities Using 19 HCF without Central Coast Blue Note: Above table uses water rates in effect August 2021. Arroyo Grande March 2022 bill is based on the rate structure and rates in Table 20. Pismo Beach includes Special Water Tax. Item 10.a. - Page 57 Water and Wastewater Rate Study  City of Arroyo Grande Tuckfield & Associates DRAFT 29 Current discussions indicate that the City of Arroyo Grande will support 25 percent of the overall project cost. However, 19 percent of the project costs are uncommitted and Arroyo Grande, Grover Beach, and Pismo Beach will absorb these costs on an equal sharing basis, indicating that Arroyo Grande will support 31.3 percent of the project costs, however the 19 percent or a portion thereof may be purchased by another party. City staff has assumed that the water enterprise fund will support the City’s share of the project cost and the water rates designed in this section support the CCB project pipelines, storage, advance treatment, recycled water pump station, and injection wells. Water Financial Plan Revenue Increases with Central Coast Blue With the addition of the CCB project, the City will incur additional operating and capital costs. The City’s share of operating costs of the project are estimated at about $657,000 annually beginning in FY 2022-23 when the CCB project is expected to be operational. The annual O&M costs escalate with inflation after this year. Prior to FY 2022-23, the City will incur capital costs related to permitting, applications, program management, and design which will occur prior to construction, shown in Appendix A-3. These costs are assumed to be funded with water rate revenue and cash reserves. The City will incur new debt service from loan proceeds to fund its share of Phase 1 construction of the CCB project. It is assumed that this amount is financed at 1.0 percent for 30 years and will have annual debt service payments of about $511,000 beginning in FY 2022-23. Table 23 below provides a comparison of the water revenue increases required without the CCB project to the increases required with the CCB project. There has been a major effort to apply and receive substantial grant funding from state and federal agencies to construct this project. If the efforts are successful, the increases with CCB will be reduced based on the amount of grant funding we receive. Table 23 Annual Revenue Increases with and without Central Coast Blue Project July 1 of Fiscal Year Annual Increases without Central Coast Blue Annual Increases with Central Coast Blue FY 2021-22 [1] 4.0% 10.0% FY 2022-23 4.0% 10.0% FY 2023-24 4.0% 10.0% FY 2024-25 4.0% 6.0% FY 2025-26 4.0% 0.0% [1] Increases this year occur in March and may not match Tables 22 and 26 due to rate structure change and cost of service adjustments. Item 10.a. - Page 58 Water and Wastewater Rate Study  City of Arroyo Grande Tuckfield & Associates DRAFT 30 The increases with the CCB project are necessary to meet the additional annual O&M costs of the CCB project of about $657,000, meet annual debt service payments of the CCB project of about $511,000, and to provide debt service coverage ratio of 1.25 within the Study period. The water financial plan with the CCB project is provided in Appendix A-4. Figure 3 shows the debt service coverage ratio that includes the annual debt service payment related to the CCB project. The figure illustrates that debt service coverage is met in year FY 2024-25 and is maintained through the remainder of the 10-year period. Water Rates with Central Coast Blue Table 24 presents the water rates that include the CCB project. The water rates were designed in the same manner as water rates without the project as discussed above in the Water Rate Design section. Water Bill Impacts with Central Coast Blue Table 25 provides the bi-monthly bills at various usage levels for a SFR customer with a 5/8-inch meter compared with the bills using current water rates. Table 25 shows that a SFR customer with a 5/8-inch meter using the average consumption of 19 HCF bi-monthly will experience a bill that will increase from $131.22 to $143.58, an increase of $12.36 or 9.4 percent. Figure 3 Water Debt Service Coverage Ratio with Central Coast Blue 0% 50% 100% 150% 200% 250% 300% FY 21-22 FY 22-23 FY 23-24 FY 24-25 FY 25-26 FY 26-27 FY 27-28 FY 28-29 FY 29-30 FY 30-31 Debt Service Coverage Ratio Target Ratio Item 10.a. - Page 59 Water and Wastewater Rate Study  City of Arroyo Grande Tuckfield & Associates DRAFT 31 Table 24 Proposed Water Fixed and Variable with Central Coast Blue Current March 21, January 1, January 1, January 1, January 1, Rate FY 21-22 FY 22-23 FY 23-24 FY 24-25 FY 25-26 Meter Size Fixed Charge ($ per month) 5/8" $29.51 $29.45 $32.40 $35.64 $37.78 $37.78 3/4" $31.67 $32.31 $35.54 $39.09 $41.44 $41.44 1"$38.12 $40.87 $44.96 $49.46 $52.43 $52.43 1.5" $46.73 $52.29 $57.52 $63.27 $67.07 $67.07 2"$70.41 $83.68 $92.05 $101.26 $107.34 $107.34 3" $244.74 $314.85 $346.34 $380.97 $403.83 $403.83 4" $309.31 $400.47 $440.52 $484.57 $513.64 $513.64 6" $459.96 $600.25 $660.28 $726.31 $769.89 $769.89 8" $632.14 $828.57 $911.43 $1,002.57 $1,062.72 $1,062.72 Service Fee per Add'l Unit $7.99 $8.26 $9.08 $9.98 $10.58 $10.58 Fireline Size 2"$3.74 $4.40 $4.84 $5.32 $5.64 $5.64 3"$10.88 $12.79 $14.07 $15.48 $16.41 $16.41 4"$23.18 $27.25 $29.98 $32.98 $34.96 $34.96 6"$67.33 $79.16 $87.08 $95.79 $101.54 $101.54 8" $143.48 $168.69 $185.56 $204.12 $216.37 $216.37 10" $258.03 $303.37 $333.71 $367.08 $389.10 $389.10 Variable Charge ($ per HCF) Single-Family Tier 1 - 0 to 18 units $3.78 Tier 2 - 19 to 36 units $4.16 Tier 3 - Over 36 $5.55 Tier 1 - 0 to 10 units $4.13 $4.54 $4.99 $5.29 $5.29 Tier 2 - 11 to 38 units $4.82 $5.30 $5.83 $6.18 $6.18 Tier 3 - Over 38 $5.96 $6.56 $7.22 $7.65 $7.65 Multifamily Tier 1 - 0 to 18 units $3.78 Tier 2 - 19 to 27 units $4.16 Tier 3 - Over 27 $5.55 Tier 1 - 0 to 10 units $4.13 $4.54 $4.99 $5.29 $5.29 Tier 2 - 11 to 38 units $4.82 $5.30 $5.83 $6.18 $6.18 Tier 3 - Over 38 $5.96 $6.56 $7.22 $7.65 $7.65 Commercial $3.95 $4.50 $4.95 $5.45 $5.78 $5.78 Irrigation $4.21 $5.10 $5.61 $6.17 $6.54 $6.54 Hydrant $6.13 $8.36 $9.20 $10.12 $10.73 $10.73 Wheeling $2.04 $2.42 $2.66 $2.93 $3.11 $3.11 Item 10.a. - Page 60 Water and Wastewater Rate Study  City of Arroyo Grande Tuckfield & Associates DRAFT 32 Table 26 shows how the bills would escalate over time with the revenue increases that include the CCB project. Table 27 provides a comparison of the SFR bi-monthly bills with and without the CCB project at various use levels while also providing the dollar difference and the percentage difference in the bills. The average SFR customer Table 25 Comparison of Current Single-family Residential Bi-monthly Water Bill with 5/8-inch Meter Size with Proposed Bill Using March 2022 Water Rates with Central Coast Blue Current Bill Proposed March 21, 2022 Bill Service Volume Current Service Volume Proposed Dollar Percent Description Use (HCF) Charge Charge Bill Charge Charge Bill Difference Change 0 $59.02 $0.00 $59.02 $58.90 $0.00 $58.90 ($0.12) -0.2% Very Low 5 $59.02 $18.90 $77.92 $58.90 $20.65 $79.55 $1.63 2.1% Low 10 $59.02 $37.80 $96.82 $58.90 $41.30 $100.20 $3.38 3.5% Median 15 $59.02 $56.70 $115.72 $58.90 $65.40 $124.30 $8.58 7.4% Average 19 $59.02 $72.20 $131.22 $58.90 $84.68 $143.58 $12.36 9.4% 20 $59.02 $76.36 $135.38 $58.90 $89.50 $148.40 $13.02 9.6% High 30 $59.02 $117.96 $176.98 $58.90 $137.70 $196.60 $19.62 11.1% Very High 50 $59.02 $220.62 $279.64 $58.90 $247.78 $306.68 $27.04 9.7% Table 26 Single-family Residential Bi-monthly Water Bill Impacts at 19 HCF Bi-monthly with Central Coast Blue Proposed SFR Charges Current FY 21-22 FY 22-23 FY 23-24 FY 24-25 FY 25-26 Fixed Charges $59.02 $58.90 $64.80 $71.28 $75.56 $75.56 Variable Charges $72.20 $84.68 $93.10 $102.37 $108.52 $108.52 Total Charges $131.22 $143.58 $157.90 $173.65 $184.08 $184.08 Dollar Change $12.36 $14.32 $15.75 $10.43 $0.00 Percent Change 9.4% 10.0% 10.0% 6.0% 0.0% $131.22 $143.58 $157.90 $173.65 $184.08 $184.08 $0 $20 $40 $60 $80 $100 $120 $140 $160 $180 $200 Current FY 21-22 FY 22-23 FY 23-24 FY 24-25 FY 25-26 Fixed Charges Variable Charges Item 10.a. - Page 61 Water and Wastewater Rate Study  City of Arroyo Grande Tuckfield & Associates DRAFT 33 with a 5/8-inch meter using 19 HCF will pay $7.05 more bi-monthly with the CCB project beginning March 21, 2022 and $30.51 more bi-monthly beginning January 1, 2025 for that fiscal year. Chart 2 provides a comparison of SFR bi-monthly bills with CCB to bills of other communities at the same consumption. The chart shows that Arroyo Grande SFR bills with CCB remains among the lowest of the bills listed. Table 27 Impacts to Single-family Residential Bi-monthly Water Bills With and without Central Coast Blue at 19 HCF March 21 January 1 January 1 January 1 January 1 Description FY 21-22 FY 22-23 FY 23-24 FY 24-25 FY 25-26 Average Bill w/o CCB $136.53 $142.03 $147.70 $153.57 $159.73 Average Bill with CCB $143.58 $157.90 $173.65 $184.08 $184.08 Difference $7.05 $15.87 $25.95 $30.51 $24.35 Chart 2 Single-family Residential Bi-Monthly Water Bills of Local Communities Using 19 HCF with Central Coast Blue Note: Above table uses water rates in effect August 2021. Arroyo Grande March 2022 bill is based on the rate structure and rates in Table 24. Pismo Beach includes Special Water Tax. Item 10.a. - Page 62 Water and Wastewater Rate Study  City of Arroyo Grande Tuckfield & Associates DRAFT 34 Wastewater Financial Planning Financial planning for the wastewater enterprise includes identifying and projecting revenues and revenue requirements of the wastewater system for a five-year planning period. Estimates of revenue from various sources are compared with the projected revenue requirements. This comparison allows the review of the adequacy of existing revenue to meet annual obligations and provide the basis for revenue adjustments. New wastewater rates and charges are created to recover the City’s annual operating and capital costs associated with the wastewater system. This section discusses the assumptions, current wastewater rates, user classifications, revenues and revenue requirements, planned CIP projects and financing sources, and proposed revenue adjustments. Current Wastewater Rates The current wastewater rates consist of fixed and variable charges to residential and non-residential customers. The rates have not been increased since 2009. All customers are charged the same fixed charged bi-monthly. Residential and Non-residential customers are charged different variable rates. The current rates are presented in Table 28. Wastewater User Classifications Number of Customers The City currently classifies wastewater customers as SFR, MFR, and one of seven classifications for non- residential customers. Residential customers, including SFR and MFR, account for about 94 percent of the total accounts served by the wastewater system. Table 29 provides the historical and projected average number of customers by classification. Table 28 Current Wastewater Rates Fixed Variable Classification Charges Charges [1] $/month $/HCF Single-family Residential [2]$2.40 $0.67 Multifamily Residential [2]2.40 0.94 Non-Residential $2.40 $1.32 [1] Charged based on water consumption. [2] Charged to each dwelling unit including additional units. Item 10.a. - Page 63 Water and Wastewater Rate Study  City of Arroyo Grande Tuckfield & Associates DRAFT 35 Water Sales Volumes of Wastewater Customers Table 30 provides the historical and projected water sales volumes of wastewater customers by classification. Water sales volumes were projected by recognizing the growth in the number of accounts and the FY 2020-21 use per customer. Residential (SFR and MFR) customers account for more than 87 percent of the water sales volumes of wastewater customers. The water sales volumes of wastewater customers are used to calculate projected wastewater revenue and estimate wastewater discharge volumes. The wastewater discharge volumes are used for cost allocation purposes to assign cost responsibility based on wastewater flow of each class. Table 29 Historical and Projected Average Number of Wastewater Customers by Classification Historical Projected Customer Class FY 20-21 FY 21-22 FY 22-23 FY 23-24 FY 24-25 FY 25-26 Number of Accounts Single-family Residential [1] 6,007 6,037 6,067 6,097 6,127 6,158 Multifamily Residential 117 118 118 119 119 120 Business 392 394 394 394 394 394 Church 14 14 14 14 14 14 School 13 13 13 13 13 13 Hospital 3 3 3 3 3 3 Motel 9 9 9 9 9 9 Convalescent Home 3 3 3 3 3 3 Total Accounts 6,558 6,591 6,621 6,652 6,682 6,714 Number of Units Multifamily Residential [2]1,697 1,705 1,714 1,723 1,731 1,740 Convalescent Home [2]153 153 153 153 153 153 [1] Accounts/units are forecast to increase based on the assumed growth rate of 0.5% annually. [2] Multifamily reflects number of dwelling units. Convalescent reflects number of beds. Table 30 Historical and Projected Water Consumption of Wastewater Customers (HCF) Historical Projected [1] Description FY 20-21 FY 21-22 FY 22-23 FY 23-24 FY 24-25 FY 25-26 Single-family Residential 686,416 689,844 693,272 696,700 700,128 703,671 Multifamily Residential 104,384 104,876 105,430 105,983 106,475 107,029 Business 67,804 68,150 68,150 68,150 68,150 68,150 Church 6,168 6,168 6,168 6,168 6,168 6,168 School 11,082 11,082 11,082 11,082 11,082 11,082 Hospital 5,578 5,578 5,578 5,578 5,578 5,578 Motel 13,913 13,913 13,913 13,913 13,913 13,913 Convalescent Home 5,947 5,947 5,947 5,947 5,947 5,947 Total Projected Consumption 901,292 905,558 909,540 913,521 917,441 921,538 [1] Forecast based on application of FY 20-21 use per customer to the number of customers. Item 10.a. - Page 64 Water and Wastewater Rate Study  City of Arroyo Grande Tuckfield & Associates DRAFT 36 Wastewater Financial Plan The financial plan provides the means of analyzing the revenue and revenue requirements of the wastewater system and its impact on reserves as well as the ability to fund on-going O&M expense and capital infrastructure requirements. This section of the report discusses the projection of revenue, O&M expenses, CIP needs of the wastewater system and its financing, and revenue adjustments needed to maintain a sustainable wastewater enterprise. Wastewater Revenues The Sewer Fund receives revenue from several sources. Operating revenue is received from rates and charges for wastewater service. Table 31 presents the projected fixed and variable rate revenue from current wastewater rates of the wastewater system. The revenue is projected by applying the current wastewater rates from Table 28 to the projected number of accounts and consumption volume. Miscellaneous Wastewater Revenue Miscellaneous revenues are received from late payment fees and ARPA funds. Table 32 below provides the sources of miscellaneous revenue. Wastewater Revenue Requirements Revenue requirements of the wastewater system include O&M expense and CIP funding. Each of these items are discussed below. Table 31 Projected Rate-based Wastewater Revenue Using Existing Rates Projected Description FY 21-22 FY 22-23 FY 23-24 FY 24-25 FY 25-26 Wastewater Service Revenues Fixed Charge Revenue [1]$239,616 $240,710 $241,833 $242,956 $244,080 Variable Consumption Revenue [2] 707,085 709,903 712,719 715,478 718,373 Total Revenues From Current Rates $946,701 $950,613 $954,552 $958,434 $962,453 [1] Current fixed charge multiplied by the number of customers. [2] Current non-residential variable rates multiplied by projected non-residential water volumes. Table 32 Projected Miscellaneous Wastewater Revenue Budget Projected Description FY 21-22 FY 22-23 FY 23-24 FY 24-25 FY 25-26 Utility Billing Late Payment Penalty $7,000 $7,000 $7,000 $7,000 $7,000 ARPA Funds 217,200 50,000 - 282,200 - Total Miscellaneous Revenues $224,200 $57,000 $7,000 $289,200 $7,000 Item 10.a. - Page 65 Water and Wastewater Rate Study  City of Arroyo Grande Tuckfield & Associates DRAFT 37 Wastewater Operation and Maintenance Expense O&M are an on-going obligation of the wastewater system and such costs are normally met from wastewater service revenue. O&M includes the cost to operate and maintain the wastewater collection system, lift stations, and treatment and disposal facilities. Costs also include technical services and other general and administrative expenses. O&M has been projected recognizing the major expense categories of personnel services, electric power expense, capital outlay, and all other expenses. Personnel costs consist of salaries and benefits expense of those personnel directly involved with providing wastewater service. Salaries expense is projected to increase by 3.5 percent annually while benefits expense is projected to increase by 8 percent annually. Electric power expense is projected to increase annually at 3 percent while chemicals expense increases by 3 percent. Personnel Transfers increase annually by 4 percent. All other O&M expense is projected to increase by 2 percent annually. Capital outlay is projected to increase by 3 percent annually. Table 33 provides a summary of the wastewater O&M expenses for the Study period. Wastewater Annual CIP Funding The Sewer Fund pays for CIP needs of the wastewater system as identified in the City’s CIP plan. The annual amount required is provided from the Sewer Fund to aid in funding these improvements. The amount spent annually is discussed below in the Wastewater CIP section. Table 33 Histoprical and Projected Wastewater Operation and Maintenance Expense Historical Budget Projected Desription FY 20-21 FY 21-22 FY 22-23 FY 23-24 FY 24-25 FY 25-26 Salaries and Benefits Salaries $132,800 $132,200 $134,900 $150,276 $153,279 $156,344 Benefits 117,300 112,800 104,900 142,928 153,952 165,849 Subtotal Salaries and Benfits $250,100 $245,000 $239,800 $293,203 $307,231 $322,193 Wastewater Operations Office Supplies $1,100 $1,100 $1,100 $1,122 $1,144 $1,167 Contractual Services 70,818 63,445 64,740 66,035 67,356 68,703 Power 25,000 30,000 31,000 30,900 30,900 30,900 Bank Charges 10,000 11,000 11,000 11,220 11,444 11,673 Maintenance - Vehicles 8,000 8,200 8,400 8,568 8,739 8,914 Maintenance - Office Equipment 500 600 600 612 624 636 Maintenance - Machinery and Equip 10,000 10,300 10,600 10,812 11,028 11,249 Gas & Oil 7,000 7,200 7,400 7,548 7,699 7,853 Maintenance Lines & Pumps 30,000 31,000 32,000 32,640 33,293 33,959 Debt Principal - 8,000 - - - - Debt Interest - 500 - - - - Lease Purchase Payments - - - - 100,000 100,000 Personnel Transfers 303,000 331,700 321,600 334,172 347,242 360,829 Cost Allocation Transfers 96,000 126,100 126,100 128,622 131,194 133,818 Transfers Out - CIP Fund 91,600 25,940 90,000 91,800 93,636 95,509 Transfers Out - USDA City Hall Loan 5,000 5,000 5,000 5,100 5,202 5,306 All Other 22,500 5,200 5,200 5,304 5,409 5,517 Subtotal Operations $680,518 $665,285 $714,740 $734,455 $854,910 $876,033 Capital Outlay Machinery & Equipment 34,500 3,500 2,500 2,575 2,652 2,732 Subtotal Capital Outlay $34,500 $3,500 $2,500 $2,575 $2,652 $2,732 Total Wastewater O&M Expense $965,118 $913,785 $957,040 $1,030,233 $1,164,793 $1,200,958 Item 10.a. - Page 66 Water and Wastewater Rate Study  City of Arroyo Grande Tuckfield & Associates DRAFT 38 Wastewater Capital Improvement Program The City has developed a CIP that lists wastewater capital expenditures for FY 2021-22 through FY 2025-26, presented in Table 34. The majority of the CIP includes trenchless rehabilitation projects. The City projects that it would expend approximately $1.3 million over this period. The CIP is funded through funds from the Sewer Fund. Wastewater Financial Plan A financial plan has been prepared for the wastewater utility that includes the revenues and revenue requirements that were identified for the wastewater system. The plan is presented in Table 35 and incorporates specific financial planning goals to provide guidance to maintain the health of the wastewater utility on an on-going basis. The goals included the following items.  Generat`e positive levels of income in each year of the Study period  Maintain the operating and capital reserves at or greater than target levels  Maintain debt service coverage ratios at or greater than the minimum required  Meet the annual capital funding requirement Proposed Revenue Adjustments Table 35 provides the annual revenue increases recommended to meet the financial planning goals for the five- year Study period. The financial plan indicates that 8.3 percent revenue increases are recommended beginning on March 21, 2022 and on each January 1 through FY 2025-26, with 2.0 percent revenue increases thereafter for the next five years. The increases are necessary to meet the financial planning goals discussed above. Table 34 Wastewater Capital Improvement Program Fiscal Year Description FY 21-22 FY 22-23 FY 23-24 FY 24-25 FY 25-26 Current Capital Improvement Program (CIP) Projects [1] Fuel Management System/Dispenser Replacement $10,940 $0 $0 $0 $0 Corporation Yard Renovations 15,000 15,000 15,000 15,000 15,000 Financial Managment Software - 75,000 20,000 - - Rate Study Update - - - - 30,000 Maintenance Hole Rehabilitation 60,000 - - - - The Pike Sewer Line Replacement 24,977 - - - - Trenchless Rehab - Alpine/Halcyon/Wood/Vernon 217,200 - - - - Trenchless Rehab - Woodland/Ash - 120,412 - - - Trenchless Rehab - Woodland Backyards - 50,000 - - - Trenchless Rehab - Alder/Cameron - - 254,315 - - Wastewater Master Plan Update - - 100,000 - - Trenchless Rehab - Pilgrim/Orchard/Cherry/California - - - 282,000 - Total Wastewater CIP $328,117 $260,412 $389,315 $297,000 $45,000 [1] CIP Source: FY 21-22 City CIP document. Represents only Sewer Fund portion of project. Item 10.a. - Page 67 Water and Wastewater Rate Study  City of Arroyo Grande Tuckfield & Associates DRAFT 39 A graphical depiction of the revenue and revenue requirements from Table 35 are presented in Figure 4. Revenue using the current rates is shown as the black line while revenue with increases is shown as the red line. The green line represents the cash reserve balance at the end of year while the purple line indicates the Target Reserve level. The figure shows that the revenue received from the current rates need to be increased to meet annual obligations, fund the CIP program, and maintain reserves. The figure shows that the operating and capital fund reserve balance (green line) is below the Target Reserve (purple line) in the interim years of the Study Period, however, returns to meet or exceed the target reserve in later years. Table 35 Wastewater Financial Plan Projected Description FY 21-22 FY 22-23 FY 23-24 FY 24-25 FY 25-26 Proposed Revenue Increase (March 21)8.3% Proposed Revenue Increase (January 1)8.3% 8.3% 8.3% 8.3% Sewer Fund - 612 Revenue Rate-based Revenues, Existing Rates [1] $946,701 $950,613 $954,552 $958,434 $962,453 Total Additional Wastewater Revenue [2] 13,096 114,505 203,750 301,109 407,352 Miscellaneous Income 224,200 57,000 7,000 289,200 7,000 Interest Income [3]6,725 6,474 5,831 5,541 6,314 Total Revenue $1,190,722 $1,128,592 $1,171,133 $1,554,284 $1,383,119 Expenditures Operation and Maintenance Expense $913,785 $957,040 $1,030,233 $1,164,793 $1,200,958 Capital Improvement Funding 328,117 260,412 389,315 297,000 45,000 Total Expenditures $1,241,902 $1,217,452 $1,419,548 $1,461,793 $1,245,958 Net Funds Available ($51,180) ($88,860) ($248,415) $92,491 $137,161 Available Reserves Beginning available reserves [4]$1,011,446 $960,266 $871,406 $622,991 $715,482 Ending available reserves $960,266 $871,406 $622,991 $715,482 $852,643 Target Reserves [5]$728,000 $739,000 $758,000 $791,000 $800,000 [1] Projected using the existing rates. [2] Additional revenue from rate adjustments. [3] Interest earnings on the average fund balance calculated at 0.5% plus Sewer Facility Fund interest income. [4] The available FY 21-22 cash balance provided by the City. Includes operating and capital fund reserves [5] Target reserve estimated at 90 days of operation and maintenance expense plus capital reserve. Item 10.a. - Page 68 Water and Wastewater Rate Study  City of Arroyo Grande Tuckfield & Associates DRAFT 40 Wastewater Cost of Service This section of the report discusses how the wastewater system’s operating and capital costs are allocated for use in designing rates. Establishing rates in California requires that the agency responsible for imposing property- related fees create a nexus between the cost of providing service and the rates to be imposed. Industry Methodology Methodology from the Water Environment Federation (WEF) is used in this Study to allocate wastewater costs in an appropriate manner. Similar to AWWA, WEF is an industry trade organization that provides guidance on operations, technical training, education, and management of wastewater utilities. General principles are provided to assist agencies with the design of wastewater rates and charges that are consistent with local requirements while also recognizing state laws and legal framework. Costs of Service to be Allocated The annual revenue requirements for FY 2021-22 are defined as the Test Year and are the cost of providing service for wastewater rate setting. The annual costs this year will be used to evaluate the fairness and equity of the current wastewater rates and will form the basis for the proposed rates. Figure 4 Wastewater Financial Plan Comparison of Revenue with Annual Obligations $0.0 $0.5 $1.0 $1.5 $2.0 $2.5 $3.0 $3.5 $4.0 $0.0 $0.2 $0.4 $0.6 $0.8 $1.0 $1.2 $1.4 $1.6 $1.8 FY 21-22 FY 22-23 FY 23-24 FY 24-25 FY 25-26 FY 26-27 FY 27-28 FY 28-29 FY 29-30 FY 30-31 Target and Ending Cash ($ Millions)Sources and Uses ($ Millions)Operating Exp Capital Improvement Funding Revenue with Increases Revenue w/o Increases Target Reserve Operating Reserve Item 10.a. - Page 69 Water and Wastewater Rate Study  City of Arroyo Grande Tuckfield & Associates DRAFT 41 The cost of service consists of O&M expense and capital funding needs. To establish the cost of providing service to the users of the wastewater system, costs need to first be allocated to wastewater parameters. Cost Allocation to Wastewater Parameters For the approach used for this Study, the cost allocation components for wastewater service are Flow and Customer. The SSLOCSD provides wastewater collection (for the trunk sewer only), wastewater treatment, and disposal services to City customers which are billed separately for these services on the customer bill. Because the City does not provide these services, the City’s costs are only related to Flow (wastewater collection) and Customer (billing). Operating and capital costs are assigned to each parameter based on the functional operation and design of the facilities. The total cost to be recovered in FY 2021-22 from the users of the wastewater system is presented in Table 36. The annual revenue requirements are allocated to each wastewater parameter based on a detailed review of expenses and capital requirements and is used in calculating the unit costs of service. A detailed allocation is provided in Appendix B-1. Unit Costs of Service Each customer classification’s responsibility for a portion of the cost of service is established through developing unit costs of service for each of the wastewater parameters described above. Costs of service are then distributed to each user classification by identifying how each group uses the wastewater system, or their units of service. By applying the unit costs to each customer classes units of service, the cost of service by customer class is established. A wastewater mass balance was performed that reconciled estimated wastewater flow from City customers to the influent flow received by SSLOCSD. The units of service for each customer classification are provided in Appendix B-2. The units of service for wastewater flow by customer classification were identified from an analysis of the estimated influent flow received by SSLOCSD from the City for FY 2020-21. Table 37 presents the unit costs of providing service for the wastewater system. Unit costs are determined by dividing the costs by parameter from Table 36 and by the units of service from Appendix B-2. Table 36 Allocation of Wastewater Revenue Requirement to Cost Component Revenue Fiscal Year Requirement Flow Customer FY 21-22 $1,025,277 $763,405 $261,872 Item 10.a. - Page 70 Water and Wastewater Rate Study  City of Arroyo Grande Tuckfield & Associates DRAFT 42 User Class Costs The unit costs from Table 37 are applied to each customer classifications’ flow and customer units of service from Appendix B-2 to establish user class costs. The resulting cost of service responsibility of each class is provided in Table 38. Wastewater Rates The goal of the rate design is to achieve fairness while ensuring that each customer class pays its fair share of costs. Rates should be simple to administer, easy to understand, and comply with regulatory requirements. This section describes how wastewater rates and charges are designed and includes the proposed schedule of wastewater rates for implementation. Table 37 FY 21-22 Development of Wastewater Unit Costs FY 21-22 Description Total Costs Flow Customer Total Costs of Service $1,025,277 $763,405 $261,872 Units of Service 543,508 99,936 Unit Costs of Service $1.40459 $2.62040 Units of Measure HCF Bills Table 38 Distribution of Costs to Customer Classes FY 21-22 Allocated Description Total Cost Flow Customer Unit Costs of Service $1.40459 $2.62040 Units of Measure HCF Bills Single-family Residential Units of Service 355,128 72,444 Allocated Cost of Service $688,641 $498,809 $189,832 Multifamily Residential Units of Service 77,542 20,460 Allocated Cost of Service $162,528 $108,915 $53,613 Non-Residential Units of Service 110,838 7,032 Allocated Cost of Service $174,108 $155,682 $18,427 Total Costs of Service $1,025,277 $763,405 $261,872 Item 10.a. - Page 71 Water and Wastewater Rate Study  City of Arroyo Grande Tuckfield & Associates DRAFT 43 Proposed Wastewater Rate Structure It is proposed to use the current rate structure as the basis for the wastewater rates for the next five years. The rate structure consists of monthly fixed charges for all customers and individual class variable charges based on water consumption applicable to each customer classification. Proposed Wastewater Fixed Charges Fixed charges are stated as the unit cost per bill from Table 37 since these costs do not increase with meter size. All customers are charged the same monthly charge. Proposed Wastewater Variable Charges The wastewater flow costs that were allocated to customer class in Table 38 are divided by metered water consumption of each class to establish the variable rate. Table 39 provides the calculations to establish the variable rates by class. Proposed Water Rates Table 40 presents the proposed fixed charges and variable charges for the wastewater system for the next five years. Table 40 includes the current fixed and variable rates as well as future wastewater rates for implementation beginning on March 21, 2022 and each January 1 through FY 2025-26. Wastewater system fixed and variable charges beyond March 21, 2022 are increased by the percentages shown in the financial plan in Table 35. Table 39 Design of Variable Wastewater Rates FY 21-22 Water Flow Sales Variable Classification Cost [1]Volume Rate $/HCF Single-family Residential $498,809 689,844 $0.72 Multifamily Residential 108,915 104,876 $1.04 Non-Residential 155,682 110,838 $1.40 Total $763,405 905,558 [1] From Table 38. Item 10.a. - Page 72 Water and Wastewater Rate Study  City of Arroyo Grande Tuckfield & Associates DRAFT 44 Wastewater Bill Impact Analysis An impact analysis was performed to evaluate the change in SFR customer wastewater bills that would occur from the implementation of the proposed wastewater rates for the March 21, 2022 increase. As shown in Table 41, a SFR customer using the average consumption of 19 HCF bi-monthly will experience a bill that will increase from $68.49 to $69.65, an increase of $1.16 or 1.7 percent. The current and proposed bills include the current South San Luis Obispo County Sanitation District (SSLOCSD) wastewater treatment charge of $25.48 monthly. Table 42 provides future SFR wastewater bills calculated using the proposed rates from Table 40 at the average consumption of 19 HCF bi-monthly. Table 40 Proposed Wastewater Fixed and Variable Charges March 21, January 1, January 1, January 1, January 1, Meter Size Current FY 21-22 FY 22-23 FY 23-24 FY 24-25 FY 25-26 Fixed Charge ($ per month) All Customers [1]$2.40 $2.62 $2.84 $3.08 $3.34 $3.62 Variable Charge ($ per HCF) [2] Single-family Residential $0.67 $0.72 $0.78 $0.84 $0.91 $0.99 Multifamily Residential $0.94 $1.04 $1.12 $1.21 $1.31 $1.42 Non-Residential $1.32 $1.40 $1.52 $1.65 $1.79 $1.94 [1] Fixed charge per month per account and to each additional unit. [2] Charged on the basis of water consumption read through the meter. Table 41 Comparison of Current Single-family Residential Bi-monthly Wastewater Bill with Proposed Bill Using March 2022 Wastewater Rates Current Bill March 21, 2022 Service San District Volume Current Service San District Volume Proposed Dollar Percent Description Use (HCF) Charge Charge Charge Bill Charge Charge Charge Bill Difference Change 0 $4.80 $50.96 $0.00 $55.76 $5.24 $50.96 $0.00 $56.20 $0.44 0.8% Very Low 5 $4.80 $50.96 $3.35 $59.11 $5.24 $50.96 $3.60 $59.80 $0.69 1.2% Low 10 $4.80 $50.96 $6.70 $62.46 $5.24 $50.96 $7.20 $63.40 $0.94 1.5% Median 13 $4.80 $50.96 $8.71 $64.47 $5.24 $50.96 $9.36 $65.56 $1.09 1.7% Average 19 $4.80 $50.96 $12.73 $68.49 $5.24 $50.96 $13.68 $69.88 $1.39 2.0% 20 $4.80 $50.96 $13.40 $69.16 $5.24 $50.96 $14.40 $70.60 $1.44 2.1% High 30 $4.80 $50.96 $20.10 $75.86 $5.24 $50.96 $21.60 $77.80 $1.94 2.6% Very High 50 $4.80 $50.96 $33.50 $89.26 $5.24 $50.96 $36.00 $92.20 $2.94 3.3% Item 10.a. - Page 73 Water and Wastewater Rate Study  City of Arroyo Grande Tuckfield & Associates DRAFT 45 Wastewater Rate Survey A wastewater rate survey was conducted for neighboring communities to the City of Arroyo Grande. Chart 3 compares the Arroyo Grande SFR bi-monthly wastewater bill using 19 HCF with those of neighboring communities. The rate survey includes rate schedules in effect August 2021. Wastewater bills for Arroyo Grande are shown using the current rates and the proposed rates for implementation March 21, 2022. The chart indicates that an Arroyo Grande SFR customer will experience a bill that is among the lowest of the communities listed. Table 42 Single-family Residential Bi-monthly Wastewater Bill Impacts at 19 HCF Note: Assumes constant South San Luis Obispo County Sanitation District (SSLOCSD) charges. Proposed SFR Charges Current FY 21-22 FY 22-23 FY 23-24 FY 24-25 FY 25-26 Fixed Charges $4.80 $5.24 $5.68 $6.16 $6.68 $7.24 Variable Charges $12.73 $13.68 $14.82 $15.96 $17.29 $18.81 SSLOCSD Charge $50.96 $50.96 $50.96 $50.96 $50.96 $50.96 Total Charges $68.49 $69.88 $71.46 $73.08 $74.93 $77.01 Dollar Change $1.39 $1.58 $1.62 $1.85 $2.08 Percent Change 2.0% 2.3% 2.3% 2.5% 2.8% $0 $10 $20 $30 $40 $50 $60 $70 $80 Current FY 20-21 FY 21-22 FY 22-23 FY 23-24 FY 24-25 Fixed Charges Variable Charges $68.49 $69.88 $71.46 $73.08 $74.93 $77.01 Item 10.a. - Page 74 Water and Wastewater Rate Study  City of Arroyo Grande Tuckfield & Associates DRAFT 46 Water and Wastewater Drought Rates The City requested that water and wastewater rates be developed to address the City’s implementation of a Stage 1 drought declaration. The City’s Stage 1 drought declaration includes requesting residential and irrigation customers to reduce consumption from calendar year (CY) 2020 levels by an overall 10 percent as well as other targeted efforts to achieve reductions in water consumption. To compensate for the revenue decline that occurs from the reduction in consumption, Stage 1 drought rates increase the normal water and wastewater rates to recover the lost revenue and to restore the revenue back to the same levels provided in the water and wastewater financial plans in the earlier sections of this report assuming there is a sustained drought at CY 2020 annual consumption levels. The Stage 1 drought rates increase the normal condition water rates by an overall 13.6 percent and increase the normal condition wastewater rates by a an overall 13.7. The drought rates were determined for a five-year period with the same implementation dates of the normal water and wastewater rates with March 21, 2022 for the first year with subsequent increases each January 1. The drought rates apply when the Arroyo Grande City Council declares a Stage 1 drought declaration. Tables 43 and 44 provide Stage 1 drought water rates without and with Central Coast Blue respectively and Table 45 provides wastewater rates under a Stage 1 drought declaration. Chart 3 Single-family Residential Bi-Monthly Wastewater Bills of Local Communties at 19 HCF Note: Above table uses wastewater rates in effect August 2021. Arroyo Grande March 2022 bill is based on the rate structure and rates in Table 40. Item 10.a. - Page 75 Water and Wastewater Rate Study  City of Arroyo Grande Tuckfield & Associates DRAFT 47 Table 43 Proposed Stage 1 Drought Water Fixed and Variable Charges without Central Coast Blue Current March 21, January 1, January 1, January 1, January 1, Rate FY 21-22 FY 22-23 FY 23-24 FY 24-25 FY 25-26 Meter Size Fixed Charge ($ per month) 5/8" $29.51 $32.27 $33.57 $34.91 $36.31 $37.76 3/4" $31.67 $35.39 $36.81 $38.28 $39.82 $41.41 1" $38.12 $44.70 $46.49 $48.35 $50.28 $52.29 1.5" $46.73 $57.14 $59.42 $61.80 $64.27 $66.84 2" $70.41 $91.32 $94.98 $98.78 $102.73 $106.84 3" $244.74 $343.08 $356.81 $371.07 $385.92 $401.36 4" $309.31 $436.33 $453.78 $471.93 $490.81 $510.44 6" $459.96 $653.89 $680.04 $707.25 $735.54 $764.96 8" $632.14 $902.54 $938.64 $976.19 $1,015.23 $1,055.84 Service Fee per Add'l Unit $7.99 $8.92 $9.30 $9.66 $10.04 $10.46 Fireline Size 2" $3.74 $4.16 $4.33 $4.50 $4.68 $4.86 3" $10.88 $12.08 $12.56 $13.06 $13.59 $14.13 4" $23.18 $25.74 $26.76 $27.83 $28.95 $30.10 6" $67.33 $74.76 $77.75 $80.86 $84.10 $87.46 8" $143.48 $159.31 $165.69 $172.31 $179.20 $186.37 10" $258.03 $286.50 $297.96 $309.88 $322.27 $335.17 Variable Charge ($ per HCF) Single-Family Tier 1 - 0 to 18 units $3.78 Tier 2 - 19 to 36 units $4.16 Tier 3 - 37 to 36 units $5.55 Tier 1 - 0 to 10 units $4.46 $4.65 $4.83 $5.02 $5.23 Tier 2 - 11 to 38 units $5.10 $5.31 $5.52 $5.74 $5.96 Tier 3 - Over 38 $6.15 $6.40 $6.66 $6.92 $7.19 Multifamily Tier 1 - 0 to 18 units $3.78 Tier 2 - 19 to 27 units $4.16 Tier 3 - Over 27 $5.55 Tier 1 - 0 to 10 units $4.46 $4.65 $4.83 $5.02 $5.23 Tier 2 - 11 to 38 units $5.10 $5.31 $5.52 $5.74 $5.96 Tier 3 - Over 38 $6.15 $6.40 $6.66 $6.92 $7.19 Commercial $3.95 $4.79 $4.99 $5.19 $5.40 $5.61 Irrigation $4.21 $5.40 $5.61 $5.84 $6.08 $6.32 Hydrant $6.13 $8.75 $9.10 $9.46 $9.84 $10.24 Wheeling $2.04 $2.35 $2.44 $2.54 $2.65 $2.75 Item 10.a. - Page 76 Water and Wastewater Rate Study  City of Arroyo Grande Tuckfield & Associates DRAFT 48 Table 44 Proposed Stage 1 Drought Water Fixed and Variable Charges with Central Coast Blue Current March 21, January 1, January 1, January 1, January 1, Rate FY 21-22 FY 22-23 FY 23-24 FY 24-25 FY 25-26 Meter Size Fixed Charge ($ per month) 5/8" $29.51 $33.46 $36.81 $40.49 $42.92 $42.92 3/4" $31.67 $36.70 $40.37 $44.41 $47.08 $47.08 1" $38.12 $46.43 $51.07 $56.19 $59.56 $59.56 1.5" $46.73 $59.40 $65.34 $71.87 $76.19 $76.19 2" $70.41 $95.06 $104.57 $115.03 $121.94 $121.94 3" $244.74 $357.67 $393.44 $432.78 $458.75 $458.75 4" $309.31 $454.93 $500.43 $550.47 $583.50 $583.50 6" $459.96 $681.88 $750.08 $825.09 $874.60 $874.60 8" $632.14 $941.26 $1,035.38 $1,138.92 $1,207.25 $1,207.25 Service Fee per Add'l Unit $7.99 $9.38 $10.32 $11.34 $12.02 $12.02 Fireline Size 2" $3.74 $5.00 $5.50 $6.04 $6.41 $6.41 3" $10.88 $14.53 $15.98 $17.59 $18.64 $18.64 4" $23.18 $30.96 $34.06 $37.47 $39.71 $39.71 6" $67.33 $89.93 $98.92 $108.82 $115.35 $115.35 8" $143.48 $191.63 $210.80 $231.88 $245.80 $245.80 10" $258.03 $344.63 $379.08 $416.99 $442.01 $442.01 Variable Charge ($ per HCF) Single-Family Tier 1 - 0 to 18 units $3.78 Tier 2 - 19 to 36 units $4.16 Tier 3 - 37 to 36 units $5.55 Tier 1 - 0 to 10 units $4.69 $5.16 $5.67 $6.01 $6.01 Tier 2 - 11 to 38 units $5.48 $6.02 $6.62 $7.02 $7.02 Tier 3 - Over 38 $6.77 $7.45 $8.20 $8.69 $8.69 Multifamily Tier 1 - 0 to 18 units $3.78 Tier 2 - 19 to 27 units $4.16 Tier 3 - Over 27 $5.55 Tier 1 - 0 to 10 units $4.69 $5.16 $5.67 $6.01 $6.01 Tier 2 - 11 to 38 units $5.48 $6.02 $6.62 $7.02 $7.02 Tier 3 - Over 38 $6.77 $7.45 $8.20 $8.69 $8.69 Commercial $3.95 $5.11 $5.62 $6.19 $6.57 $6.57 Irrigation $4.21 $5.79 $6.37 $7.01 $7.43 $7.43 Hydrant $6.13 $9.50 $10.45 $11.50 $12.19 $12.19 Wheeling $2.04 $2.75 $3.02 $3.33 $3.53 $3.53 Item 10.a. - Page 77 Water and Wastewater Rate Study  City of Arroyo Grande Tuckfield & Associates DRAFT 49 Table 45 Proposed Stage 1 Drought Wastewater Fixed and Variable Charges Current March 21, January 1, January 1, January 1, January 1, Rate FY 21-22 FY 22-23 FY 23-24 FY 24-25 FY 25-26 Fixed Charge ($ per month) All Customers [1] $2.40 $2.98 $3.23 $3.50 $3.80 $4.12 Variable Charge ($ per HCF) [2] Single-family Residential $0.67 $0.82 $0.89 $0.96 $1.03 $1.13 Multifamily Residential $0.94 $1.18 $1.27 $1.38 $1.49 $1.61 Non-Residential $1.32 $1.60 $1.73 $1.88 $2.04 $2.21 [1] Fixed charge per month per account and to each additional unit. [2] Charged on the basis of water consumption read through the meter. Item 10.a. - Page 78 Tuckfield & Associates DRAFT 50 Appendix A Water System Operation and Maintenance Expense, Cost of Service Allocation, Water Capital Improvement Program with Central Coast Blue, and Water Financial Plan with Central Coast Blue are provided in Appendix A. Item 10.a. - Page 79 Tuckfield & Associates DRAFT 51 Appendix A-1 Historical and Projected Water Operation and Maintenance Expense Line Budget Projected No. Description FY 21-22 FY 22-23 FY 23-24 FY 24-25 FY 25-26 Water Fund Administration 1 Salaries $63,700 $65,000 $67,275 $69,630 $72,067 2 Benefits 163,100 133,500 144,180 155,714 168,172 3 Contractual Services 221,045 191,140 194,964 198,863 202,840 4 Personnel Transfers 909,621 875,626 910,651 947,077 984,960 5 Personnel Transfers - Utility Billing 94,879 98,674 102,621 106,726 110,995 6 Cost Allocation Transfers 1,156,900 1,156,900 1,180,038 1,203,639 1,227,712 7 Transfers Out - USDA City Hall Loan 8,800 8,800 8,800 8,800 8,800 8 All Other 130,900 133,000 135,660 138,372 141,140 9 Total Water Administration $2,748,945 $2,662,640 $2,744,189 $2,828,821 $2,916,686 Water Production 10 Salaries $75,700 $77,200 $79,902 $82,699 $85,593 11 Benefits 42,500 43,300 46,764 50,505 54,546 12 Power (electricity)56,700 57,400 68,036 74,962 82,470 13 Services and Supplies 30,900 31,800 32,436 33,084 33,746 14 Total Water Production $205,800 $209,700 $227,138 $241,250 $256,355 Water Distribution 15 Salaries $293,400 $296,000 $306,360 $317,083 $328,180 16 Benefits 156,700 163,000 176,040 190,123 205,333 17 Supplies - Water Meters 41,200 42,400 43,248 44,113 44,995 18 Chemicals 25,800 26,500 27,402 28,333 29,301 19 Power 90,000 92,700 95,857 99,113 102,497 20 Maintenance - Vehicles 10,300 10,600 10,812 11,028 11,249 21 Maintenance - Mach & Equip 7,200 7,400 7,548 7,699 7,853 22 Maintenance - Bldgs 5,200 5,400 5,508 5,618 5,730 23 Gas and Oil 20,600 21,200 21,624 22,056 22,497 24 Maintenance - Reservoirs 10,300 10,600 10,812 11,028 11,249 25 Maintenance - Wells/lines/pumps 57,000 59,000 60,180 61,384 62,612 26 Maintenance - Meters 10,000 10,000 10,200 10,404 10,612 27 All Other 117,800 39,000 39,780 40,574 41,386 28 Subtotal $845,500 $783,800 $815,371 $848,556 $883,494 29 Total O&M Expense $3,800,245 $3,656,140 $3,786,698 $3,918,627 $4,056,535 Lopez Fund Lopez Water Supply 30 Lopez Contract O&M $2,239,161 $2,472,198 $2,546,364 $2,622,755 $2,701,438 31 Lopez Dam Bonds - 2011A Debt Service 420,749 434,981 434,981 434,981 434,981 32 SRF Loan Debt Service 845,137 845,137 845,137 845,137 845,137 33 Lopez Capital Outlay 235,066 100,000 100,000 100,000 100,000 34 Total Lopez Water Expense $3,740,113 $3,852,316 $3,926,482 $4,002,873 $4,081,556 35 Total Water System O&M Expense $7,540,358 $7,508,456 $7,713,180 $7,921,500 $8,138,091 Item 10.a. - Page 80 Tuckfield & Associates DRAFT 52 Appendix A-2 Allocation of Water Revenue Requirements to Cost Component FY 21-22 Common to All Except Wheeling Revenue Common to All Direct Fire Water Requirement Delivery Peaking Meters/Serv Customer Protection Supply Delivery Peaking Lopez Debt Administration Salaries and Benefits $226,800 $69,637 $97,756 $11,045 $0 $16,196 $0 $17,109 $15,057 $0 Contractual Services 213,614 65,587 92,074 10,403 - 15,254 - 16,115 14,181 - Contractual Services - Billing 5,464 - - - 5,464 - - - - - Contractual Services - Meter Reading 1,967 - - - 1,967 - - - - - Water Treatment Services (sampling & testing) 21,000 - - - - - 21,000 - - - Personnel Transfers 909,621 279,287 392,072 44,300 - 64,956 - 68,620 60,386 - Personnel Transfers - Utility Billing 94,879 - - - 94,879 - - - - - Cost Allocation Transfers 1,156,900 355,212 498,655 56,343 - 82,614 - 87,274 76,802 - Transfers Out - USDA City Hall Loan 8,800 2,702 3,793 429 - 628 - 664 584 - Other 109,900 25,759 36,163 4,086 26,000 5,992 - 6,330 5,570 - Total General and Administration $2,748,945 $798,184 $1,120,513 $126,606 $128,310 $185,640 $21,000 $196,112 $172,580 $0 Water Production Salaries and Benefits $118,200 $0 $0 $0 $0 $0 $0 $62,872 $55,328 $0 Contractual Services 10,300 - - - - - - 5,479 4,821 - Power (electricity)56,700 - - - - - 56,700 - - - Maintenance - Machinery & Equipment 20,600 - - - - - - 10,957 9,643 - Total Water Production $205,800 $0 $0 $0 $0 $0 $56,700 $79,308 $69,792 $0 Water Distribution Salaries and Benefits $450,100 $113,581 $314,619 $0 $0 $21,900 $0 $0 $0 $0 Supplies - Water Meters 41,200 - - 41,200 - - - - - - Chemicals 25,800 - - - - - 25,800 - - - Contractual Services 20,600 5,465 15,135 - - - - - - - Power 90,000 77,783 12,217 - - - - - - - Maintenance - Vehicles 10,300 2,732 7,568 - - - - - - - Maintenance - Office Equip $0 - - - - - - - - - Maintenance - Mach & Equip 7,200 1,909 5,291 - - - - - - - Maintenance - Bldgs $5,200 1,379 3,821 - - - - - - - Maintenance - Reservoirs 10,300 1,030 9,270 - - - - - - - Maintenance - Wells/lines/pumps $57,000 8,268 7,277 - - 41,455 - - - - Maintenance - Meters 10,000 - - 10,000 - - - - - - Lease Purchaase Payments $13,500 3,581 9,919 - - - - - - - Equipment 67,500 14,795 40,986 - - 11,719 - - - - All Other 36,800 9,764 27,036 - - - - - - - Total Water Distribution $845,500 $240,288 $453,139 $51,200 $0 $75,073 $25,800 $0 $0 $0 Lopez Water Expense $3,740,113 $0 $0 $0 $0 $0 $2,239,161 $0 $0 $1,500,952 Total Operation and Maintenance Expense $7,540,358 $1,038,472 $1,573,652 $177,806 $128,310 $260,713 $2,342,661 $275,420 $242,372 $1,500,952 Capital Costs Capital Improvement Funding $695,616 $157,213 $478,577 $0 $0 $0 $0 $31,822 $28,004 $0 Total Capital Costs $695,616 $157,213 $478,577 $0 $0 $0 $0 $31,822 $28,004 $0 Adjustments Revenue Offsets ($420,107) ($118,014) ($178,834) ($20,207) ($14,581) ($29,629) $0 ($31,299) ($27,543) $0 Adjustments for Annual Cash Balance (1,055,601) (296,535) (449,354) (50,772) (36,639) (74,446) - (78,646) (69,209) - Adjustments to Annualize Rate Increase 223,850 62,882 95,290 10,767 7,770 15,787 - 16,678 14,676 - Total Adjustments ($1,251,858) ($351,667) ($532,898) ($60,212) ($43,450) ($88,288) $0 ($93,267) ($82,076) $0 Total Cost of Service $6,984,116 $844,018 $1,519,331 $117,594 $84,860 $172,425 $2,342,661 $213,975 $188,300 $1,500,952 Item 10.a. - Page 81 Tuckfield & Associates DRAFT 53 Appendix A-3 Water Capital Improvement Program with Central Coast Blue Budget Projected Description FY 21-22 FY 22-23 FY 23-24 FY 24-25 FY 25-26 Current Capital Improvement Program (CIP) Projects [1] Galvanized Service Replacement $96,826 $0 $0 $0 $0 Phased Main Replacement - Fair Oaks, Elm-Alder 232,750 - - - - Andre Drive / Los Ciervos Court Interconnect 100,000 - - - - SCADA Software/Electronics Upgrade 240,100 - - - - Corporation Yard Renovations 15,000 15,000 15,000 15,000 15,000 Reservoir 4 Exterior Coating - 147,500 - - - Financial Managment Software - 75,000 20,000 - - Phased Main Replacement - S Halcyon Road, Cornwall-Fair Oaks - - 673,500 - - Water Master Plan Update - - 100,000 - - Phased Main Replacement - Cornwall, S Halycon-El Camino Real - - - 578,700 - Phased Main Replacement - Hwy 101 Xng, El Camino Real-W Branch - - - - 291,200 Rate Study Update - - - - 30,000 Central Coast Blue Project Pre-Construction 720,000 700,000 - - - Total Water CIP $1,415,616 $937,500 $808,500 $593,700 $336,200 [1] CIP Source: FY 21-22 City CIP document. Represents only Water Fund portion of project. Item 10.a. - Page 82 Tuckfield & Associates DRAFT 54 Table 11 Water Financial Plan Projected Description FY 21-22 FY 22-23 FY 23-24 FY 24-25 FY 25-26 Proposed Revenue Increase (March 21)10.0% Proposed Revenue Increase (January 1)10.0% 10.0% 6.0% 0.0% Water Fund - 640 Revenue Revenues from Existing Water Rates [1]$6,715,496 $6,745,129 $6,775,218 $6,804,617 $6,835,730 Total Additional Water Sales Revenue [2]111,925 983,665 1,764,380 2,478,753 2,808,527 Miscellaneous Income [3]1,114,250 909,000 61,500 640,200 352,700 Interest Income [4]17,526 15,123 7,241 5,356 7,112 Total Revenues $7,959,197 $8,652,917 $8,608,339 $9,928,926 $10,004,069 Expenditures Operation and Maintenance Expense $3,800,245 $3,656,140 $3,718,662 $3,843,665 $3,974,065 Central Coast Blue O&M - 657,111 676,824 697,129 718,043 Transfer to Lopez Fund 3,740,113 3,852,316 3,926,482 4,002,873 4,081,556 Capital Improvement Funding 1,415,616 937,500 808,500 593,700 336,200 Central Coast Blue Debt Service - 511,665 511,665 511,665 511,665 Total Expenditures $8,955,974 $9,614,732 $9,642,133 $9,649,032 $9,621,529 Net Funds Available ($996,777) ($961,815) ($1,033,794) $279,894 $382,540 Available Reserves Beginning available reserves [5]$3,923,733 $2,926,956 $1,965,141 $931,347 $1,211,241 Ending available reserves $2,926,956 $1,965,141 $931,347 $1,211,241 $1,593,781 Target Reserves [6]$1,450,000 $1,578,000 $1,599,000 $1,635,000 $1,673,000 Lopez Fund - 641 Revenues Transfer In from Water Fund $3,740,113 $3,852,316 $3,926,482 $4,002,873 $4,081,556 Interest Income [4]8,500 8,600 8,600 8,700 8,700 Total Lopez Revenues $3,748,613 $3,860,916 $3,935,082 $4,011,573 $4,090,256 Expenditures Lopez Water Expense $2,239,161 $2,472,198 $2,546,364 $2,622,755 $2,701,438 Lopez Dam Bonds - 2011A Debt Service 420,749 434,981 434,981 434,981 434,981 SRF Loan Debt Service 845,137 845,137 845,137 845,137 845,137 Lopez Capital Outlay 235,066 100,000 100,000 100,000 100,000 Total Lopez Expenditures $3,740,113 $3,852,316 $3,926,482 $4,002,873 $4,081,556 Net Lopez Funds Available $8,500 $8,600 $8,600 $8,700 $8,700 Lopez Available Reserves Lopez Beginning available reserves $1,703,434 $1,711,934 $1,720,534 $1,729,134 $1,737,834 Lopez Ending available reserves $1,711,934 $1,720,534 $1,729,134 $1,737,834 $1,746,534 Lopez Target Reserves [7]$1,265,900 $1,280,100 $1,280,100 $1,280,100 $1,280,100 Combined Reserves Total Reserves (Fund 640 and 641)$4,638,890 $3,685,675 $2,660,481 $2,949,075 $3,340,315 Target Total Reserves (Fund 640 and 641) $2,715,900 $2,858,100 $2,879,100 $2,915,100 $2,953,100 Debt Service Coverage Total Revenues (Fund 640 and 641)$7,967,697 $8,661,517 $8,616,939 $9,937,626 $10,012,769 Total Expenses (Fund 640 and 641)($7,540,358) ($8,165,567) ($8,321,968) ($8,543,667) ($8,773,664) 25% Coverage Factor Lopez 2011A Bonds [8] ($105,187) ($108,745) ($108,745) ($108,745) ($108,745) Net Revenues $322,152 $387,205 $186,226 $1,285,214 $1,130,360 Lopez Coverage [9]104% 105% 102% 115% 113% Central Coast Blue Debt Service $0 $511,665 $511,665 $511,665 $511,665 Debt Service Coverage [10]n/a 76% 36% 251% 221% [1] Projected using the existing rates. [2] Additional revenue from proposed rate adjustments. [3] Includes collection fees, meter installations, late fees, ARPA Funds, and Water Availbility Transfers In. [4] Interest earnings on the average fund balance calculated at 0.5%. [5] The available beginning FY 21-22 cash balance provided by City. Includes operating and capital funds. [6] Target reserve estimated at 90 days of operation and maintenance expense and capital reserves target. [7] Equal to Lopez annual debt service. [8] For Lopez 2011A Bonds, pledge of gross revenues requires Coverage Factor of 25 percent of Lopez 2011A Bonds debt service. [9] Minimum coverage is 100 percent. [10] Minimum coverage is 125 percent. Item 10.a. - Page 83 Tuckfield & Associates DRAFT 55 Appendix B Wastewater System Cost of Service Allocation and Units of Service are provided in Appendix B. Item 10.a. - Page 84 Tuckfield & Associates DRAFT 56 Appendix B-1 Allocation of Wastewater Revenue Requirements to Cost Component FY 21-22 Description Total Cost Flow Customer General Direct Operation and Maintenance Expense Salaries and Benefits $245,000 $217,511 $27,489 $0 Power 30,000 30,000 0 0 Maintenance Lines & Pumps 31,000 27,522 3,478 0 Personnel Transfers - Billing 13,746 0 13,746 0 Capital Outlay 3,500 3,175 325 0 All Other O&M 590,539 0 49,974 540,565 Total Operation and Maintenance Expense $913,785 $278,208 $95,012 $540,565 Reallocation of General Expense 0 404,142 136,423 (540,565) Total Operation and Maintenance Expense $913,785 $682,350 $231,435 $0 Capital Improvement Funding $328,117 $297,680 $30,437 $0 Adjustments Revenue Offsets ($230,925) ($230,925)$0 $0 Adjustments for Annual Cash Balance (51,180) (51,180)0 0 Adjustments to Annualize Rate Increase 65,480 65,480 0 0 Total Adjustments ($216,625) ($216,625)$0 $0 Total Revenue Requirement $1,025,277 $763,405 $261,872 $0 Item 10.a. - Page 85 Tuckfield & Associates DRAFT 57 Appendix B-2 FY 21-22 Units of Service Overall Total FY 21-22 Return Wastewater Customer Class Annual Use Factor Volume Bills HCF HCF Bills Single-family Residential 689,844 51% 355,128 72,444 Multifamily Residential 104,876 74% 77,542 20,460 Non-Residential 110,838 100% 110,838 7,032 Total System 905,558 543,508 99,936 Item 10.a. - Page 86