Transcript Board of Directors and Committee Meetings

Community Advisory Meeting
Water Rate Study
Habib Isaac – Principal
Greg Tobler – Task Manager
August 7, 2012
Project Initiation - Water Rate Study
• District made decision to conduct a Water Rate Analysis in 2012
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Agencies commonly updates financial plan every five years
Last study completed in 2007
Ensure new objectives / state mandates are incorporated
Determine if existing rates compliment new financial plan and objectives
Opportunity to review and update rate structure
• District went through a competitive bid process and selected Willdan
• Willdan assisted District with 5yr/10yr financial plan as part of
District’s FY 2012-13 budgetary process
– Account for District’s operation and maintenance costs
– Incorporate new reserves policies and capital improvement plan
– Ensure sufficient coverage on debt in compliance with bond covenants
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Financial Plan
• Financial thresholds established
• Multiple scenarios created to reach five year goal
• Met with District Board & Finance Committee
– Developed multiple viable revenue requirement scenarios
• Results illustrated within Willdan’s model (GUIDE)
– Had informative and meaningful policy discussion
• Debt Management
• Reserve policies
• Timing of revenue adjustments – Implementation
– Goal - Minimize revenue adjustments, while ensuring healthy utility
• Next Step - Rate Design
– Engage in discussions with Community Advisory Committee
– Final selection of 5yr plan will consider customer impact
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Holistic Approach to Rate Design
Update Board –
Select Financial Plan
Engage CAC
Revenue
Requirements Analysis
Cost of Service
Analysis
• Determine revenue
needed to meet
utility costs
• Project O&M,
capital and debt
expenses
• Analyzes reserves
Developed Scenarios
Rate Design Analysis
• Allocate utility
costs by function
and customer
demand
• Assign revenue
required to each
customer class in a
proportionate
manner
• Develop rate
structure for each
customer class to
collect appropriate
level of revenues
• Encourage water
conservation
CAC Feedback
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Rate Design – How is revenue recovered
• Revenue broken out into two components
– Fixed revenue (monthly meter charge)
– Variable revenue (charge based on water consumption)
• Fixed revenue
– Costs are either apportioned evenly over all accounts or meter equivalency
– Meter Equivalency – size of meter (flow capacity) determines charge
• Larger meters pay more
– Both criteria are used ; selection depends on type of expenditure
• Variable revenue
– Based on water consumption
– Variable costs are allocated between customer classes based on demand
• Variable characteristics include: total water consumed and peaking
• Peaking – Increase in demand at a specific point in time
– After variable cost are allocated to customer classes, rate design determines
most appropriate method to collect revenue
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Fixed / Variable Revenue Split
• What % of District revenue should come from each component?
– Current split is ~65% fixed / 35% variable
– Percentage split based on District objectives and industry standards
• Revenue stability, debt service coverage; conservation objectives
– Certain costs are strictly designated
• i.e. customer service – fixed; treatment – variable
• Proposed scenarios redistribute cost as follows:
– Fixed / Variable: 60% / 40%
50% / 50%
40% / 60%
– As revenue shifts from fixed to variable the following occurs:
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Lower monthly fixed charge
Per unit cost of water increases
Customers gain greater control over monthly bill by adjusting consumption
One way to assist District in meeting the State’s Goal of (20 x 2020)
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Existing Rate Structure
• 2007 Water Rate Analysis
– One rate structure applied to all accounts
– Last 5 years of revenue adjustments: 32%, 20%, 15%, 3%, 3%, 3%
– 3 years of 3% revenue adjustments were deferred by District
• Actual revenue adjustments implemented : 32%, 20%, 12%, 0%, 0%
• Slow economy in recent years
• Healthy reserves and cost cutting measures utilized to defer adjustments
– Fixed charge – 65% of revenue
– Variable charge (two tiered structure) – 35% of revenue
• Tier 1 – 30 HCF = $1.46
• Tier 2 – >30 HCF = $1.80
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Rate Design
• Use model to develop sound financial plan and rate structure
that minimizes rates to greatest degree possible, while:
– Providing adequate and stable revenues in short and long-term
– Providing adequate revenue for payment of debt and financing of
capital projects from rate revenue (PAYGO)
• District debt is ~25% of budget (Avg = $3.8M)
• Illustrate affect from debt restructuring
– Providing funding for appropriate reserves
– Ensuring rates are compliant with Prop. 218, AWWA guidelines, and
best management practices
• Rates are based upon cost of providing service
• Achieve equity across/within customer classes
• Account for loss in consumption from potential conservation
– Obtaining feedback from CAC
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Balancing Competing Objectives
Rate Design
• Cost of service
• Prop. 218 compliance
• Equity across customer classes
• Meet State mandates
• Feedback from CAC
Financial Stability
• Sufficient revenue
• Short/long term funding
• Reliable projections
• Cost avoidance analysis
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Comprehensive Modeling Dashboard
GUIDE
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Revenue Adjustments
and Financials
Programmed scenarios Visualize impacts on revenue
& rates immediately
for quick comparisons
Variable
Assumptions
and Inputs
Financial
Thresholds
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Next Steps
• Review fixed versus variable split
• Rate structure
– Establish customer classes
– Update residential tiering analysis
• Review revenue requirement scenarios
– Impact on rates
• Engage CAC throughout process
• Update Board and select financial plan / rates
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