Introduction to the Water & Sewer Rate Studies
Transcript of Introduction to the Water & Sewer Rate Studies
1
Mountain House Community Service
District January 11, 2017
Introduction to the Water & Sewer Rate
Studies Presented by:
Ed Pattison – General Manager Sarah Ragsdale – Administrative
Services Director Greg Clumpner – Director, NBS Greg Henry – Consultant, NBS
2
Overview of the Presentation:
“Rates 101” – Overview of a Rate Study
Rate History & Current Status
Initial Study Results
Summary of Board Direction Needed
3
1. Rates 101 Overview of a “Rate Study”
4
30,000-Foot Overview of Water Rates: • Enterprise Utilities are:
– Intended to be Self-Sufficient (Rate Revenue Cover Costs) – Fire-walled from General Fund Activities (Cannot fund GF)
• Mountain House CSD: – Is Special Case (i.e., a Master-Planned Community) –
Resulted in the General Fund Subsidizing Water and Sewer Utilities
– Unique in How the Community and Finances were Set Up – Long-Term Plan is to Reach Self-Sufficiency as Planned
Growth is Achieved; MHCSD is not a Typical Water Utility
1. Overview of a Rate Study
5
Water Rates – Background and Industry Trends: Major Factors Influencing Rates: • Drought: Supply Shortages and Conservation Mandates • Legal Constraints (San Juan Capistrano, Palmdale, etc.) • Results: Most California Water Agencies are Raising Rates
1. Overview of a Rate Study (Cont.)
6
Water Rates – Background and Industry Trends: • Legal Requirements:
– Compliance with Prop 218 (“Right to Vote on New Taxes”) • No Subsidies between Customer Classes • “Parcel” has been Legally Defined as Customer Classes (Not
Individual Parcels) • Rate Calculation must Be Cost-Based, but are not Required to
be “Precise” (i.e., they need to reasonably reflect actual costs) – SB 814 (new Drought/Excessive Water Use Act) – Must
adopt measures to prevent “Excessive Use” and Wasting Water, Including Conservation Rates and Penalties for “Excessive Use”
– Cost-Basis, Particularly for “Tiered” Volumetric Rates (Recently filed Hillsborough Lawsuit is about this Issue)
1. Overview of a Rate Study (Cont.)
7
Considers what rate structure alternative best meets the District’s need to collect rate revenue from each customer
class.
Allocates revenue requirements to the
customer classes in a “fair and equitable"
manner that complies with Prop 218.
Compares current sources and uses of
funds and determines the revenue needed from
rates and projected rate adjustments.
FINANCIAL PLAN
COST-OF-SERVICE
ANALYSIS
RATE DESIGN a b c
1. Overview of a Rate Study (Cont.)
8
How are Annual Rate Revenue Requirements
Determined?
1a. Financial Plan
9
1. O&M Req’t
2. Debt Req’t
3. Capital Req’t
4. Reserve
Req’t Rates
Funding Priorities:
1a. Financial Plan (Cont.)
10
Funding Priorities: 1. O&M Req’t
– Budgeted Expenses – Identified by type (labor cost, electricity) and projected
forward with a unique inflation factor – Non-Rate Revenue is deducted – For MHCSD, the GF subsidizes O&M Expenses – Pass Through Costs (Water Purchases)
2. Debt Req’t – Existing Debt Schedules – For MHCSD this is paid using the “pledge” revenue – Includes payment to developer
1a. Financial Plan (Cont.)
11
Funding Priorities (cont.): 3. Capital Improvement Costs
– Based upon Capital Improvement Program – Inflated using Construction Cost Index – Can be financed or Pay-As-You-Go with reserves or rate
revenue – Can be reduced / extended at the direction of the Board
1a. Financial Plan (Cont.)
12
Funding Priorities (cont.): 4. Reserve Requirements:
– Enterprise-Funded Utilities are supposed to be self-sufficient, so reserves are intended to avoid needing additional GF subsidies in the future.
– GFOA* standards “Start with 90 days of working capital, move up or down based upon specifics, never less that 45 day”
– Capital R&R fund standard is 3% net assets – Can be held for specific purpose (rate stabilization reserve) – Special reserves
• Often are restricted (for example, connection fees)
1a. Financial Plan (Cont.)
* GFOA = Government Finance Officers Association
13
Board Direction Needed: 1. General Fund Subsidies:
– Continue at Current Levels? – Continue at Reduced Level? – Phase Out Over Time? (How fast?)
2. CIP Funding Levels: – 100% of Planned Capital Project? – Something less?
3. Reserve Fund Levels: – Allow to remain below target levels? – Raise rates in order to meet Target levels? How Fast?
1a. Financial Plan (Cont.)
14
How do we determine the cost of serving
individual customers (or customer classes)?
1b. Cost of Service Analysis
15
What are “Defensible” Water Rates?: • Charges Cannot be More Than Actual Cost of
Serving that Customer/Parcel • Cost-Based (Follow Industry Standards and San
Juan Capistrano guidelines) • Non-Discriminatory (One Class is Not Subsidizing
Another Class) • Volumetric Tiers must demonstrate their “cost-
basis” (i.e., not merely set to achieve conservation objectives)
1b. Cost of Service Analysis (Cont.)
16
Allocating Costs to Customer Classes (Part 1):
• Allocated by peak water use & meter size
Capacity Related Costs
• Allocated equally to each meter
Customer Related Costs
• Allocated by meter size to fire meters
Fire Protection Costs Fixe
d C
osts
1b. Cost of Service Analysis (Cont.)
17
• Allocated by consumption
Commodity Costs
• Allocated by consumption
Conservation Costs
Varia
ble
Cos
ts
Allocating Costs to Customer Classes (Part 2):
1b. Cost of Service Analysis (Cont.)
18
Revenue Requirements Allocated Each Customer Class:
Total Fixed Costs by Class
+ Total Variable Costs by Class
= Revenue Requirement by Class
1b. Cost of Service Analysis (Cont.)
19
Board Direction Needed: 1. Should Current Customer Classes be Retained?
– Density-based EDU’s? – Single-Family, Multi-Family & Non-Residential? – Meter sizes as customer classes?
1b. Cost of Service Analysis (Cont.)
20
How should rate revenue be collected from
customers & customer classes?
1c. Rate Design Analysis
21
What are Fixed vs. Variable %’s
30% Fixed
70% Variable
This Promotes Revenue
STABILITY
This Promotes Revenue
INSTABILITY 30% Variable
70% Fixed
Due to Drought/Conservation Impacts, Revenue Stability Now Plays a Bigger Role in Rate Design Than in the Past.
1c. Rate Design Analysis (Cont.)
22
Volumetric & Tiered Rate Designs: The San Juan Capistrano court ruling established (at least for now) that tiered volumetric rates must reflect actual costs.
1c. Rate Design Analysis (Cont.)
23
Board Direction Needed: 1. What % of Rate Revenue Should be Collected from
Fixed vs. Volumetric Rates? – Higher Fixed % provides more revenue stability – Higher Volumetric % Provides more Conservation Incentives – Meter sizes as customer classes?
2. What Volumetric Rate Should be Used? – Uniform Tier (one volumetric rate for all customers & usage) – Tiered Rates (how many, can they be cost-based, etc.) – Meter sizes as customer classes?
3. Rate Design for Sewer Rates? – Should volumetric rates be Used? – If yes, should they be based on average winter water use?
1c. Rate Design Analysis (Cont.)
24
25
2. Current Status – Current Bill
26
2. Current Status – Current Bill
27
2. Rate History
$-
$20
$40
$60
$80
$100
$120
$140
$160
$180
Total Utility Bill Charges
Water use Water base Wastewater base Stormwater base
Water debt service Wastewater debt service Stormwater debt service Garbage
28
2. Rate History (cont.)
$-
$20
$40
$60
$80
$100
$120
$140
Utility Bill Charges excluding Garbage
Water use Water base Wastewater base Stormwater base
Water debt service Wastewater debt service Stormwater debt service
29
$-
$10
$20
$30
$40
$50
$60
$70
$80
$90
Utility Bill Debt Service Charges
Water debt service Wastewater debt service Stormwater debt service
2. Rate History (cont.)
30
$-
$10
$20
$30
$40
$50
$60
Utility Bill O&M Charges
Water use Water base Wastewater base Stormwater base
2. Rate History (cont.)
31
$-
$5
$10
$15
$20
$25
$30
$35
$40
$45
$50
Water and Wastewater O&M Charges
Water use Water base Wastewater base
2. Rate History (cont.)
32
2. Rate History (cont.)
2002-2003 2016-2017 % IncreaseWater charge (5 units) 2.38$ 2.25$ -5%Water base 14.81 14.08 -5%Water debt service 18.40 37.11 102%Storm debt service 4.42 10.81 145%Storm fee 8.85 7.84 -11%Sewer fee 24.56 25.41 3%Sewer debt service 16.52 32.07 94%Garbage (64 gal toter, bi-weekly recycle) 27.20 38.60 42%
117.14$ 168.17$ 44%
Comparison of Utility Billing for Medium Density Residence
33
2. Rate History (cont.)
General Fund Subsidy Subsidies by Year Cumulative Subsidies
Water Wastewater Stormwater Water Wastewater Stormwater
FY 08-09 593,058 1,338,227 198,012 593,058 1,338,227 198,012 FY 09-10 648,469 483,953 52,380 1,241,527 1,822,180 250,392 FY 10-11 611,624 353,231 - 1,853,151 2,175,411 250,392 FY 11-12 530,515 374,800 - 2,383,666 2,550,211 250,392 FY 12-13 - 261,598 - 2,383,666 2,811,809 250,392 FY 13-14 42,254 217,210 - 2,425,920 3,029,019 250,392 FY 14-15 230,745 112,640 - 2,656,665 3,141,659 250,392 FY 15-16 715,000 17,000 - 3,371,665 3,158,659 250,392
Total - $6,780,716
34
2. Rate History (cont.)
General Fund Subsidy Subsidies by Year Cumulative Subsidies
Water Wastewater Stormwater Water Wastewater Stormwater
FY 08-09 593,058 1,338,227 198,012 593,058 1,338,227 198,012 FY 09-10 648,469 483,953 52,380 1,241,527 1,822,180 250,392 FY 10-11 611,624 353,231 - 1,853,151 2,175,411 250,392 FY 11-12 530,515 374,800 - 2,383,666 2,550,211 250,392 FY 12-13 - 261,598 - 2,383,666 2,811,809 250,392 FY 13-14 42,254 217,210 - 2,425,920 3,029,019 250,392 FY 14-15 230,745 112,640 - 2,656,665 3,141,659 250,392 FY 15-16 715,000 17,000 - 3,371,665 3,158,659 250,392
Total - $6,780,716
35
2. Rate History (cont.)
General Fund Subsidy
$0.0 Mil
$0.5 Mil
$1.0 Mil
$1.5 Mil
$2.0 Mil
$2.5 Mil
FY 08-09 FY 09-10 FY 10-11 FY 11-12 FY 12-13 FY 13-14 FY 14-15 FY 15-16
Utility Subsidies by Year
Water Wastewater Stormwater
36
2. Current Status – Bill Comps
$23.70
$29.51$31.99
$42.27
$51.53 $51.73 $52.00$56.59
$64.63$68.78
$75.58
$-
$20
$40
$60
$80
Regional Water Bill Comparisons (Monthly)Single Family Residential* (12 hcf / month)
Water: VariableWater: Fixed
* Has implemented Penalty/Drought Rates or Surcharges.˜ Water & Wastewater services provided by multiple agencies.
Currently doing a Rate Study. ** Recently completed a Rate Study.
*Assumed to be a medium density home with a 3/4" meter
37
2. Current Status – Bill Comps
$31.87 $33.76 $34.00
$42.06$44.78
$51.25
$57.12 $57.48
$67.00 $68.76 $69.28
$-
$20
$40
$60
$80
Regional Wastewater Bill Comparisons (Monthly)Single Family Residential
Sewer: VariableSewer: Fixed
* Has implemented Penalty/Drought Rates or Surcharges.˜ Water & Wastewater services provided by multiple agencies.
Currently doing a Rate Study. ** Recently completed a Rate Study.
38
2. Current Status – Bill Comps
$57.70
$76.03$80.76
$94.06 $96.51$100.75
$107.44$114.07
$118.53$125.90
$133.91
$-
$20
$40
$60
$80
$100
$120
$140
$160
Regional Total Water & Wastewater Bill Comparisons (Monthly)
Wastewater
Water
* Has implemented Penalty/Drought Rates or Surcharges.˜ Water & Wastewater services provided by multiple agencies.
Currently doing a Rate Study. ** Recently completed a Rate Study.
39
40
3. Scenarios of Initial Results & Rate Increases
Pledge: • Revenue Excluded from Analysis • Expenses Covered Via Pledge Revenue Excluded
– Bond Service Payments – Repayment to Developer
41
3. Scenarios of Initial Results & Rate Increases
Water Scenario #1: Highest Water Rate Increases: - GF subsidy is phased out - Reserves = Industry Standard
Water Scenario #2 Lowest Water Rate Increases: - GF subsidy continues - GF funds Emergency Reserves - Reserves set at Minimum
Sewer Scenario #1: Highest Sewer Rate Increases: - GF subsidy is phased out - Reserves = Industry Standard
Sewer Scenario #2: Lowest Sewer Rate Increases: - GF subsidy continues - Reserves set at Minimum
42
3. Initial Results Water Scenario #1
$0
$500,000
$1,000,000
$1,500,000
$2,000,000
$2,500,000
$3,000,000
$3,500,000
$4,000,000
$4,500,000
$5,000,000
2017 2018 2019 2020 2021 2022
Annu
al O
blig
atio
ns
Fiscal Year Ending June 30
Water Revenue Requirements vs.Revenue Under Existing and Increased Rates
Reserve Funded Capital Expenses
Rate Funded Capital Expenses
O&M Expenses
Revenues under Existing Rates
Revenues under Increased Rates
43
$-
$500,000
$1,000,000
$1,500,000
$2,000,000
$2,500,000
$3,000,000
$3,500,000
$4,000,000
2017 2018 2019 2020 2021 2022Fiscal Year Ending June 30
Ending Cash Balances vs.Recommended Reserve Targets
Un-Restricted
Ending Cash Balance Minimum Target Reserve Balance
3. Initial Results Water Scenario #1
44
3. Initial Results Water Scenario #1
0.00%
33.02%
11.69%10.65%
8.04%6.13%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
0%
5%
10%
15%
20%
25%
30%
35%
40%
2017 2018 2019 2020 2021 2022
Cum
ulat
ive
Rat
e In
crea
se
Annu
al R
ate
Incr
ease
Fiscal Year Ending June 30
Projected Increases to Rate Revenue
Rate Increases Cumulative Rate Increase
45
$0
$500,000
$1,000,000
$1,500,000
$2,000,000
$2,500,000
$3,000,000
$3,500,000
$4,000,000
$4,500,000
$5,000,000
2017 2018 2019 2020 2021 2022
Annu
al O
blig
atio
ns
Fiscal Year Ending June 30
Water Revenue Requirements vs.Revenue Under Existing and Increased Rates
Reserve Funded Capital Expenses
Rate Funded Capital Expenses
O&M Expenses
Revenues under Existing Rates
Revenues under Increased Rates
3. Initial Results Water Scenario #2
46
$-
$500,000
$1,000,000
$1,500,000
$2,000,000
$2,500,000
$3,000,000
$3,500,000
$4,000,000
2017 2018 2019 2020 2021 2022Fiscal Year Ending June 30
Ending Cash Balances vs.Recommended Reserve Targets
Un-Restricted
Ending Cash Balance Minimum Target Reserve Balance
3. Initial Results Water Scenario #2
47
3. Initial Results Water Scenario #2
0.00% 0.00% 0.00% 0.00% 0.00% 0.92%0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
0%
5%
10%
15%
20%
25%
30%
35%
40%
2017 2018 2019 2020 2021 2022
Cum
ulat
ive
Rat
e In
crea
se
Annu
al R
ate
Incr
ease
Fiscal Year Ending June 30
Projected Increases to Rate Revenue
Rate Increases Cumulative Rate Increase
48
$0
$500,000
$1,000,000
$1,500,000
$2,000,000
$2,500,000
$3,000,000
$3,500,000
$4,000,000
2017 2018 2019 2020 2021 2022
Annu
al O
blig
atio
ns
Fiscal Year Ending June 30
Wastewater Revenue Requirements vs.Revenue Under Existing and Increased Rates
Reserve Funded Capital Expenses
Rate Funded Capital Expenses
O&M Expenses
Revenues under Existing Rates
Revenues under Increased Rates
3. Initial Results Wastewater Scenario #1
49 $-
$200,000
$400,000
$600,000
$800,000
$1,000,000
$1,200,000
$1,400,000
$1,600,000
2017 2018 2019 2020 2021 2022Fiscal Year Ending June 30
Ending Cash Balances vs.Recommended Reserve Targets
Wastewater Fund - Un-Restricted Reserves
Ending Cash BalanceMinimum Target Reserve Balance
3. Initial Results Wastewater Scenario #1
50
3. Initial Results Wastewater Scenario #1
0.0%
31.9%
22.3%
1.6%
7.7%
16.1%
0%
20%
40%
60%
80%
100%
120%
0%
5%
10%
15%
20%
25%
30%
35%
2017 2018 2019 2020 2021 2022
Cum
ulat
ive
Rat
e In
crea
se
Annu
al R
ate
Incr
ease
Fiscal Year Ending June 30
Projected Increases to Rate Revenue Rate Increases Cumulative Rate Increases
51
$0
$500,000
$1,000,000
$1,500,000
$2,000,000
$2,500,000
$3,000,000
$3,500,000
$4,000,000
2017 2018 2019 2020 2021 2022
Annu
al O
blig
atio
ns
Fiscal Year Ending June 30
Wastewater Revenue Requirements vs.Revenue Under Existing and Increased Rates
Reserve Funded Capital Expenses
Rate Funded Capital Expenses
O&M Expenses
Revenues under Existing Rates
Revenues under Increased Rates
3. Initial Results Wastewater Scenario #2
52 $-
$200,000
$400,000
$600,000
$800,000
$1,000,000
$1,200,000
$1,400,000
$1,600,000
2017 2018 2019 2020 2021 2022Fiscal Year Ending June 30
Ending Cash Balances vs.Recommended Reserve Targets
Wastewater Fund - Un-Restricted Reserves
Ending Cash BalanceMinimum Target Reserve Balance
3. Initial Results Wastewater Scenario #2
53
3. Initial Results Wastewater Scenario #2
0.0%
5.1% 5.0% 4.8% 4.7% 4.6%
0%
20%
40%
60%
80%
100%
120%
0%
5%
10%
15%
20%
25%
30%
35%
2017 2018 2019 2020 2021 2022
Cum
ulat
ive
Rat
e In
crea
se
Annu
al R
ate
Incr
ease
Fiscal Year Ending June 30
Projected Increases to Rate Revenue Rate Increases Cumulative Rate Increases
54
55
4. Summary of Board Direction Needed
• Financial Plan – Continue, Reduce, Eliminate General Fund Subsidy? – CIP Funding Level (100%, 50%, 25%?) – Strive to Meet Industry Standard Reserve Targets?
• Cost of Service – Customer Classes (EDU’s, SFR/MFR/Commercial, or
Meter Sizes)? • Rate Design
– % of Rate Revenue from Fixed vs % Variable Charges? – Volumetric Rates (Uniform, Tiered)? – Wastewater Rates with volumetric component?
56
Questions