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HomeMy WebLinkAbout04-27-22 Board Packet1 OTAY WATER DISTRICT SPECIAL MEETING OF THE BOARD OF DIRECTORS DISTRICT BOARDROOM 2554 SWEETWATER SPRINGS BOULEVARD SPRING VALLEY, CALIFORNIA WEDNESDAY April 27, 2022 12:00 P.M. AGENDA 1.ROLL CALL 2.PLEDGE OF ALLEGIANCE 3.APPROVAL OF AGENDA 4.PUBLIC PARTICIPATION – OPPORTUNITY FOR MEMBERS OF THE PUBLIC TO SPEAK TO THE BOARD ON ANY SUBJECT MATTER WITHIN THE BOARD’S JURISDICTION BUT NOT AN ITEM ON TODAY’S AGENDA The District’s meeting is live streamed. Information on how to watch and listen to the Dis- trict’s meeting can be found at this link:https://otaywater.gov/board-of-directors/agenda-and- minutes/board-agenda/ WORKSHOP 5.DISCUSSION OF THE FISCAL YEAR 2023 BUDGET KEY FIGURES AND ASSUMPTIONS (BEACHEM/KOEPPEN) ACTION ITEMS 6.FINANCE a)REVIEW THE RESULTS OF THE WATER COST OF SERVICE STUDY AND OBTAIN BOARD DIRECTION TO INCORPERATE THE COST OF SERVICE STUDY RESULTS INTO THE FISCAL YEAR 2023 BUDGET (KOEPPEN) 2 7. BOARD a) AUTHORIZE STAFF TO CONDUCT REMOTE TELECONFERENCE MEETINGS OF THE BOARD OF DIRECTORS, INCLUDING COMMITTEE MEETINGS, PURSUANT TO RESOLUTION NO. 4401 WHICH THE BOARD ADOPTED AT A SPECIAL BOARD MEETING ON SEPTEMBER 27, 2021, AND IN ACCORDANCE WITH THE PROVISIONS OF GOVERNMENT CODE § 54953(e) FOR THE NEXT 30 DAYS BECAUSE (1) A STATE OF EMERGENCY RELATED TO COVID-19 IS CURRENTLY IN EFFECT; (2) LOCAL OFFICIALS IN SAN DIEGO COUNTY HAVE IMPOSED OR RECOMMENDED MEASURES TO PROMOTE SOCIAL DISTANCING IN CONNECTION WITH COVID-19; AND (3) DUE TO THE COVID-19 EMERGENCY, MEETING IN PERSON WOULD PRESENT IMMINENT RISKS TO THE HEALTH AND SAFETY OF ATTENDEES (MARTINEZ) RECESS TO CLOSED SESSION 8. CLOSED SESSION a) CONFERENCE WITH LEGAL COUNSEL – ANTICIPATED LITIGATION SIGNIFICANT EXPOSURE TO LITIGATION PURSUANT TO §54956.9(b): FOUR (4) CASES i. COST OF SERVICE STUDY RETURN TO OPEN SESSION 9. REPORT ON ANY ACTIONS TAKEN IN CLOSED SESSION. THE BOARD MAY ALSO TAKE ACTION ON ANY ITEMS POSTED IN CLOSED SESSION. 10. ADJOURNMENT All items appearing on this agenda, whether or not expressly listed for action, may be deliberated and may be subject to action by the Board. The Agenda, and any attachments containing written information, are available at the District’s web- site at www.otaywater.gov. Written changes to any items to be considered at the open meeting, or to any attachments, will be posted on the District’s website. Copies of the Agenda and all attach- ments are also available by contacting the District Secretary at (619) 670-2253. If you have any disability which would require accommodation in order to enable you to participate in this meeting, please call the District Secretary at 670-2253 at least 24 hours prior to the meeting. Certification of Posting I certify that on April 25, 2022, I posted a copy of the foregoing agenda near the regular meeting place of the Board of Directors of Otay Water District, said time being at least 24 hours in advance of the special meeting of the Board of Directors (Government Code Section §54954.2). Executed at Spring Valley, California on April 25, 2022. /s/ Tita Ramos-Krogman, District Secretary STAFF REPORT TYPE MEETING: Budget Workshop MEETING DATE: April 27, 2022 SUBMITTED BY: Kevin Koeppen, Assistant Chief of Finance PROJECT: DIV. NO.All APPROVED BY: (Chief) Joseph R. Beachem, Chief Financial Officer Jose Martinez, General Manager SUBJECT: Informational Item to Present FY 2023 Budget Key Figures and Assumptions Impacting the Upcoming Budget Proposal GENERAL MANAGER’S RECOMMENDATION: This is an informational item presenting the FY 2023 budget key figures and assumptions. PURPOSE: The purpose of this informational item is to present to the Board key figures and assumptions impacting the FY 2023 budget. BACKGROUND: The District’s budget process begins in January and ends with the adoption of the next fiscal year budget at the June Board meeting, and implementation of rates the following January. This Budget Workshop represents the second and third of four presentations related to the FY 2023 budget. The first presentation, the 2022 Economic Study, was given to the Board on April 6, 2022. Today, staff will be giving two presentations, this first presentation covers key figures and assumptions, and the second presentation will cover the Water Cost of Service Study which is the third presentation overall. The final presentation of the consolidated budget is scheduled for the June 8 Board meeting. At the June 8 Board meeting, staff will be presenting the consolidated FY 2023 budget and requesting that the Board: •Approve the FY 2023 Operating and Capital Improvement Program (CIP) Budget. •Approve the fund transfers for potable, recycled, and sewer. •Adopt the Salary Schedule. •Approve the continued advance funding of the District’s unfunded pension liability forwarding OPEB retiree medical reimbursement funds to CalPERS. AGENDA ITEM 5 2 •Approve the continued advance funding of the District’s unfunded pension liability through forwarding OPEB annual cost funds to CalPERS. •Direct staff to draft and mail rate increase notices for sewer and Proposition 218 hearing notices for a 218 public hearing in October 2022 for water. The budget is put together presenting the most realistic set of factors and assumptions based on information received from various sources including: the wholesale water suppliers, the Metropolitan Water District of Southern California (MWD), the San Diego County Water Authority (CWA), and the City of San Diego (the City); vendors such as SDG&E, and an economic report prepared this year by Vertex. Staff uses this information in conjunction with other economic indicators affecting taxes and revenues, such as inflation and interest rates, to prepare the budget. FY 2022 Projected Results Through February 28, 2022, the District has an operating surplus of $3.5 million, primarily due to a $2.5 million refund from CWA as part of CWA’s lawsuit against MWD. Staff is projecting the surplus will remain close to this level for the remainder of the fiscal year. Staff is proposing that the surplus benefit be utilized to offset pressure on rates in FY 2023 and the six-year projection including increasing CIP, increasing potable water purchase costs, and rising inflation. Budget Strategy The culmination of the budget process is the recommendation of changes to water and sewer rates, which meet the following primary budget objectives: •Recommend rates that are compliant with the requirements of Proposition 218, •Maintain reserve levels above minimum or target levels in each of the next six (6) years, •Maintain debt coverage, excluding growth, above minimum or target levels for the next six (6) years, •Maintain debt coverage, including growth, above the target of 150% for water and sewer for the next six (6) years, and •Support the Strategic Plan initiatives. 3 Strategic Planning In addition to the budget and rate setting process, the District’s ongoing focus on strategic planning continues to play a positive role in the financial strength of the agency. By managing staffing, leveraging business and operating technologies, and implementing best management practices, the District has become more efficient and cost effective. The Strategic Plan is essential to the budget process as it drives and prioritizes funding for many of the District’s service and operational programs. Proposition 218 The State of California has well-established legal constraints regarding utility rate setting, of which California Constitution Article XIII D, Section 6 (commonly referred to as “Proposition 218”), is at the forefront. Proposition 218 requires that water and sewer utilities establish cost-based rates for the services provided. To comply with this requirement, the District performs periodic cost of service studies and Proposition 218 hearings. Prior to the current water cost of service study, the last study was completed and presented to the Board on April 17, 2017. A sewer cost of service study was completed and presented to the Board on May 6, 2020. Subsequent to the completion of the 2017 and 2020 cost of service studies, Proposition 218 hearings were held on October 4, 2017, for water and October 7, 2020, for sewer. At the conclusion of the 218 hearings, the Board approved the terms of the 218 Notices which allowed for rate increases to pass-through 100% of cost increases from the District’s suppliers, and up to 10% rate increases for internal costs for a period of up to five (5) years. The five-year period for water has expired; therefore, staff has completed a cost of service study that is projected to be incorporated into the FY 2023 budget. A Proposition 218 hearing is planned for October 5, 2022, with the new rates and charges being effective January 1, 2023. A sewer cost of service study is scheduled to be performed in FY 2025, with a Proposition 218 hearing projected to be held in October 2025 and will affect the January 1, 2026 rates. 4 FY 2023 Challenges COVID-19 The District anticipates there to be continued impacts of COVID-19 in FY 2023. However, the financial impacts are anticipated to be minimal due to the continued reopening of the economy, declining unemployment, opportunities for grant funding, continuation of arrearage funding programs, and the reinstatement of pre-COVID-19 collection practices. Inflation According to the Bureau of Labor Statistics, in March 2022, the Consumer Price Index (CPI) for all goods rose 1.2% during the month. The gasoline index rose 18.3% in March 2022 and accounted for over half of the monthly CPI increase. While national energy indexes were mixed, effective rates from SDG&E have increased up to 10% year- over-year. The CPI for all urban consumers increased 8.5% over the last 12 months, which is the largest 12-month increase since the period ending December 1981. With gas prices remaining high, the inflationary trend is expected to continue. As gas prices, materials, utilities, and services increase, the District’s budget is proposed to similarly increase to cover these expenses. Staff’s best estimate regarding inflationary increases on the budget, excluding water purchases and labor, is an approximate $850 thousand increase to the annual operating budget beginning in FY 2023 and a $5.6 million increase in the six-year CIP budget. Overall, these increases represent inflationary impacts to the Operating and CIP budgets of 5.5%. Inflationary impacts to the District are partially mitigated through long-term contracts with pricing structures that are fixed for the duration of the contract or include pricing structures whereby annual price increases are for fixed dollar amounts that are less than the CPI. Examples of such contracts that the District has committed to in recently include: the current banking agreement with Union Bank, as well as janitorial, landscaping, and audit contracts approved by the Board this year. CIP Projects The six-year CIP projection is increasing due to the need for newly identified CIP projects. The total six-year CIP budget is increasing $7.3 million from $101.4 million in FY 2022 to $108.7 million in FY 2023. The proposed CIP six-year budget is discussed further in the CIP section of this staff report. 5 Water Costs Water purchase costs from the District’s suppliers are a significant component of the District’s overall budget. Potable and recycled water costs are approximately 64% of the operating budget. For FY 2022, the CWA/MWD purchases budget was approximately $54.2 million. Every 1% increase in CWA/MWD rates equates to an approximately $540 thousand increase cost to the District or a 0.5% increase in District potable rates. For FY 2022, the recycled purchases budget from the City was approximately $4.9 million. A 1% increase in the City’s recycled rates equates to a $50 thousand increase cost to the District or a 0.5% increase in the District’s recycled rates. While the dollar impact is less for recycled, the rate impact to customers is the same because the dollar impacts for potable and recycled are proportionately the same compared to their respective budgets. In addition, there are outstanding items that may impact CWA/MWD future rates and charges. These outstanding items carry uncertainty as to the amount and timing of the impacts to the District. These items include a potential CWA rate redesign, agencies detaching from CWA, and a renegotiated recycled agreement with the City. Sewer Challenges The primary long-term challenge for sewer continues to be the City’s increasing wastewater fees. The City’s Pure Water program, which incorporates a secondary equivalency for the Point Loma WWTP, impacts the wastewater fees paid for by the District’s sewer customers for sewage treatment. The ultimate cost of the City’s Pure Water program remains the most significant cost increase facing the sewer customers over the next six (6) years, and beyond. There is still significant ambiguity on how these costs will affect our customers. As mentioned in an April 3, 2019 Engineering Staff Report, the District’s sewer customer’s share of Pure Water Phase I is estimated at $2.6 million and Phase II is estimated at $5.7 million. The combined effect on rates totaling 29% will need to be phased into the District’s sewer rates over the next 15 years. The District is three (3) years into the 15- year period. While estimates of the Pure Water program are built into the budget projections, the separate billing of the Pure Water program has not been incorporated into the City’s sewage treatment fees; therefore, there is still some risk regarding the ultimate outcome to the District. 6 The City has received grant funding and low-cost State Revolving Fund (SRF) financing for its Pure Water program. These funding sources directly reduce the overall Pure Water cost and reduce the District’s pay-go funding requirement, smoothing out the cashflow impact to the District’s customers. Payments for SRF do not start until a year after construction completion, meaning the Pure Water program cost impacts covered by SRF are expected to be delayed until the 2026 or 2027 timeframe. The District has also mitigated the cost of the Pure Water program by lowering our contracted capacity. A modification in annual average daily metro capacity from 1.287 MGD to 0.38 MGD, under the new Metro amended agreement, has reduced the District’s ultimate Pure Water burden. For the CIP component of Pure Water, staff is assuming a $62 thousand increase of the District’s operating Metro fees in FY 2023 based on an estimate provided by the City. In addition to the operating fees, the District has established a CIP project associated with the capacity under the new amended agreement. The sewer CIP is estimated to cost $8.3 million over the next 15 to 20 years. Based on information from the City, the current six (6) year CIP projection includes $480 thousand for the Pure Water program. The District is also anticipating an increase in costs related to a shared-facility agreement with the County of San Diego (the County). A section of the District’s sewer system is a shared facility owned and operated by the County. The County is undergoing a necessary rehab project of the shared facility, which is estimated to cost the District’s sewer operation approximately $800 thousand over the next four (4) years. Drought Resiliency Following Governor Gavin Newsom’s declaration of a statewide drought and a CWA Board of Directors vote to activate Level 1 under its Water Shortage Contingency Plan (WSCP), on October 29, 2021, the District declared a Shortage Level 1 Drought Alert under its WSCP. A Shortage Level 1 Drought Alert urges customers to voluntarily reduce water use by 10%. At that same time, the District further called for its customers to voluntarily reduce use by 15% to align with the Governor’s July 2021 executive order. The Governor’s July executive order called on Californians to voluntarily reduce water use by 15% from 2020 volumes to protect water reserves and complement local conservation mandates. In August, the State Water Resources Control Board (SWRCB) reported that California reduced urban water use by 5% compared to 2020. The 7 Governor’s October 19 proclamation added the remaining eight counties not included in the previous drought state of emergency declarations and required local water suppliers to implement their WSCPs that are responsive to local conditions and prepare for the possibility of a third dry year. The proclamation also authorized the SWRCB to ban wasteful practices, including the use of potable water for washing sidewalks and driveways. On March 28, 2022, the Governor signed Executive Order N-7-22, which encourages suppliers, “where appropriate, to consider” going above and beyond Level 2 of their WSCPs. The executive order also asks, by May 25, 2022, for the SWRCB to “consider” adopting emergency regulations to include defining “non-functional turf” and a ban on irrigation of decorative/ornamental (non-functional) grass around commercial, industrial, and institutional buildings. The requested considerations include activating Level 2 (up to 20%) if the SWRCB decides this by May 25. The SWRCB will then set the date by which urban water agencies will need to implement this order. The District is already asking its customers to voluntarily save 15%, 5% above its Level 1 conservation. Nevertheless, if the SWRCB requires the 20% savings, the District would then be required to trigger Level 2. If the SWRCB does not mandate that urban agencies activate 20% savings, the District could remain at Level 1, potentially asking customers to voluntarily save up to 20% from 2020 volumes. San Diego County is better prepared for drought than other parts of the state, having invested heavily in water conservation, water recycling, seawater desalination, and transitional storage over the last 20-plus years. However, severe drought in other parts of California can affect the whole state. Despite recent rainfall, consecutive seasons with limited rain and snow melt will force regional wholesale suppliers to begin to draw down key reservoirs serving San Diego County. The San Diego region and its water agencies continue to monitor state direction for the potential need for extraordinary water conservation measures. For now, the order continues to call on Californians to strive to limit summertime water use and to use water more efficiently indoors and out. By May 25, the District should know more about what actions the SWRCB will take per the Governor’s order. Until then, the District will continue to push conservation messaging to its customers through the state’s “Save Our Water” conservation campaign, Metropolitan Water District, and the Water Authority. As part of preparing the FY 2023 budget, staff has performed preliminary sensitivity evaluations of potential drought-related usage reductions on the District’s financial targets and covenants. 8 Staff will continue to monitor the fiscal impact of conservation on the District. The preliminary sensitivity analysis determined that a 20% reduction in FY 2023 volumes would result in the District’s FY 2023 debt service coverage falling below target but remaining above covenant levels. Reserves would remain above target levels in FY 2023. As a data point, 1% conservation results in a $190 thousand reduction in net revenues. There are several alternatives that the District may utilize to respond to the ongoing financial challenges of conservation, if necessary. These alternatives include implementing savings initiatives, deferring CIP, and an additional rate increase if necessary. CalPERS and OPEB Update As of June 30, 2020, which is the most recent CalPERS actuarial pension valuation, the District’s pension is 84.4% funded and the unfunded pension liability is approximately $23.8 million. The pension and OPEB liabilities carry an interest cost of 7.0%, which is the District’s highest interest cost. By focusing on reducing and eliminating the unfunded pension liability, the District is reducing the highest interest cost liability which represents a savings opportunity to the District. As of June 30, 2020, the OPEB plan was fully funded, and the plan began reimbursing the District for retiree medical costs. In FY 2021, the District received its first reimbursement of retiree medical costs since the plan was expanded in 2010. Prior to FY 2021, the District utilized the approximate $1.2 million per year to advance fund the retiree medical unfunded liability. Based on the most recent OPEB actuarial report, the plan reached 109% funding level. The Board approved for the FY 2022 OPEB actuarial determined contribution to be applied to CalPERS. Staff is recommending that the FY 2023 actuarial determined OPEB contribution of $925 thousand again be redirected to advance fund the District’s CalPERS pension fund. The objective of this advance funding is to save the ratepayers money. The District’s unfunded pension liability is approximately $24 million. Preliminary calculations have determined that continuing the annual advance fundings of the CalPERS plans will save the District approximately $6.0 million over the 12-year advance funding period, which began in 2021. The District has completed two (2) years of the advanced fundings. 9 Major Assumptions Potable Sales Volumes Through March 31, 2022, actual potable water sales were 9.1 million units, which was 2.4% above budget of 8.9 million units. The surplus is due to below average rainfall. Through March 31, 2022, year—to- date rainfall of 6.8 inches was 20% below the historical average. Staff is continuing the practice of using an average of actual historic volumes to determine budgeted volumes. This practice results in budgeted volumes that are in the median range of recent annual high and low volumes. Using this methodology anticipates that, over the long term, rainfall will equal average levels reducing the likelihood of rate spikes due to shifts between wet and dry years. For the FY 2023 budget, staff is using a four-year average from FY 2019 to FY 2022, plus a growth factor based on the Vertex Economic Outlook Study presented at the April Board meeting. Staff recognized FY 2021 volumes were above historic levels due to COVID-19; however, inclusion or exclusion of FY 2021 volumes has less than a 1% impact on the total budgeted volume. The following table contains a chart of historical potable volumes, rainfall, the four-year average, and the FY 2023 volume calculated as the four-year average, plus growth. Following are the projected unit sales assumptions proposed for the FY 2023 six-year rate model. Additional discussion pertaining to the projected volumes can be found immediately following the table. Projected Unit Sales (in million HCF) 6-Year Rate Model Projection FY 2023 FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 6-year Avg Growth % 11.9 12.0 12.0 12.0 12.1 12.1 12.0 0.30% Historical Unit Sales (in million HCF) and Rainfall (in inches) Actual Projected Average Budget FY 2019 FY 2020 FY 2021 FY 2022 4-Year FY 2023 Rainfall 12.6 16.7 4.8 7.3 10.4 N/A Units 11.3 11.4 12.6 11.9 11.8 11.9 10 The following analysis shows historic and projected volumes compared to last year’s projections and ranges. •The green line represents a maximum volume year based on relevant historical actual volume. •The red line represents the minimum volume year based on relevant historical actual volume. •The yellow section represents the volume associated with growth. •The black solid line represents the FY 2023 projection, totaling the existing (blue) plus the growth (yellow) volumes. Recycled Sales Volumes Through March 31, 2022, the actual recycled water sales volume was 1.2 million units, which was 1.8% above budget. The surplus volume is largely due to less than average rainfall discussed in the previous potable sales volume section of this report. The FY 2023 volume projections have been prepared using the same historical average plus growth methodology used to prepare the potable volume projection. The table on the following page contains a chart of historical recycled volumes, rainfall, the four-year average, and the FY 2023 volume calculated as the four-year average, plus growth. 12.2 12.5 11.3 11.6 FY 2023 11.9 12.1 10.5 11.0 11.5 12.0 12.5 13.0 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 Otay Water District Potable Sales Projection Analysis FY 2023 Budget and Six-Year Projection (in million units) Base Volume Cumulative Growth Ceiling Floor 11 Following are the projected unit sales assumptions proposed for the FY 2023 six-year rate model. Additional discussion pertaining to the projected volumes can be found immediately following the table. Projected Unit Sales (in million HCF) 6-Year Rate Model Projection FY 2023 FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 6-year Avg Growth % 1.6 1.6 1.6 1.6 1.6 1.6 1.6 0.25% The following analysis shows historic and projected volumes compared to last year’s projections and ranges. •The green line represents a maximum volume year based on relevant historical actual volume. •The red line represents the minimum volume year based on relevant historical actual volume. •The yellow section represents the volume associated with growth. •The black solid line represents the FY 2023 projection, totaling the existing (blue) plus the growth (yellow). Historical Unit Sales (in million HCF) and Rainfall (in inches) Actual Projected Average Budget FY 2019 FY 2020 FY 2021 FY 2022 4-Year FY 2023 Rainfall 12.6 16.7 4.8 7.3 10.4 N/A Units 1.5 1.5 1.8 1.6 1.6 1.6 12 Capital Improvement Program (CIP) Budget As a component of the annual budget development process, the Engineering staff update the CIP budget using the following process: •CIP projects are selected based on the Water Facilities Master Plan (WFMP), the Urban Water Management Plan (UWMP), Sub Area Master Plans (SAMP), Integrated Water Resources Plan (IRP), Wastewater Management Plan (WWMP), the Cathodic Protection Plan, the District’s Strategic Plan, and other focused or specific planning documents and reports to manage growth, maintenance, and the life extension of assets. •The CIP goes through an iterative process to meet the criteria of growth, service levels, supply targets, and system reliability. •CIP target expenditures for the next six (6) years are refined and used in the rate model. The following general criteria are used to determine the reasonableness of a project before it is considered for inclusion within the CIP budget: 13 •Safety and existing facility conditions •Operating system conditions and energy improvements •Water and sewer system deficiencies •Regulatory and permitting agencies requirements •Developer driven requirements •Economic outlook •Growth projections •Water supply diversification goals •Board and management directives This year, the total six-year CIP budget of $108.7 million is increasing by $7.3 million versus last year. The total water CIP budget for the six-year period is $98.9 million, which is a $5.5 million increase compared to FY 2022. The sewer CIP of $9.8 million is increasing $1.9 million compared to FY 2022. To maintain reserves at target levels for sewer, staff is projecting debt issuances for sewer in 2025 and 2027. As the District approaches the timing of issuing debt, an analysis will be performed to determine the cost benefit of combining the two sewer debt issuances into a single issuance. The following schedule contains a roll-forward of the six- year CIP budget followed by explanations for the roll-forward amounts. FY 2022 Six-Year CIP Budget $ 101.4 New Projects $ 6.1 Completed Projects $ (0.3) Ongoing Project Changes Budget Increases $ 7.8 Budget Decreases $ (0.5) Budget Expenditures for FY 2022 $ (5.8) FY 2023 Six-Year CIP Budget $ 108.7 The $6.1 million for 11 new CIP projects consists mainly of the following: •$2.0 million for Zero Emission Vehicles and Charging Infrastructure to meet regulatory requirements. •$1.3 million for the renovation of three vaults and a pressure reducing station. 14 •$900 thousand total in two (2) CIP budgets for standby power generator replacement equipment to meet regulatory requirements. Budget increases of $7.8 million are due to a combination of increasing scope of work, updates to engineering estimates, natural progression of projects, and inflation. Scope of work increases and updated engineering estimates, which inherently include an inflationary component, are approximately $5.2 million. Increases associated with the natural progression of projects are approximately $1.5 million. Increases associated solely with inflation are $1.1 million. Financing Plan The District uses a comprehensive approach to financing. The Debt Policy provides guidance for debt issuance and refinancing. The Reserve Policy provides guidance on both fund transfers and reserve balances. With these policies, a six-year financing plan is formulated that identifies the timing and amounts of debt issuances, the level of rate increases, debt coverage ratios, reserve balances, and necessary transfers. The District’s comprehensive approach to financing establishes financial targets that add to the financial strengths of the District. Those strengths include: •AA credit rating which saves ratepayers money through reduced debt costs. •Financial stability which allows the District to set rates based on the long-term financial needs of the District. This allows the District to anticipate financial challenges well into the future and prevents unnecessary rate spikes to District customers. Open Items Following is a list of items that are in process and will be presented at the final Budget Board presentation on June 8: •Overall budget summary •Rates and rate increases •Debt service coverage •Sewer annual and winter average updates •CWA Rates and Fixed Charges •Labor and benefits 15 •Materials and maintenance expense •Administrative and legal expense •Salary Schedule •Rate comparison •Fund transfers •Budget approval FISCAL IMPACT: Joseph R. Beachem, Chief Financial Officer This is an informational item. Each one of the items discussed above will impact the proposed rate increases over the next six-year period. Recommended changes to rates will be based on the District maintaining reserves at minimum or target levels and meeting its debt coverage targets. To the degree that these targets and covenants are met, the financial impact of the items discussed in this staff report will be phased in over multiple years. For both water and sewer, staff is estimating that debt service coverages and the reserve requirements will be above minimum and targeted levels for the six-year period. STRATEGIC OUTLOOK: The District ensures its continued financial health through long- term financial and debt planning. LEGAL IMPACT: None. Attachments: A)Presentation – FY 2023 Budget Workshop OTAY WATER DISTRICT FY 2023 BUDGET WORKSHOP APRIL 27, 2022 1 Attachment A WORKSHOP AGENDA 2 ➢Introduction and Objectives (Joe Beachem) ➢Challenges, Strengths, Drought Resiliency, and District Actions (Jose Martinez) ➢Strategic Plan Initiatives (Adolfo Segura) ➢Capital Improvement Budget (Bob Kennedy) ➢Key Assumptions, Financing Plan, and Conclusion (Kevin Koeppen) BUDGET OBJECTIVES 3 ➢Support Strategic Plan objectives ➢Support essential operations of the District ➢Reserves at or above minimum or target for all six years ➢Debt coverage, excluding growth, above target of 150% for both water and sewer for all six years ➢Fund the Six-Year CIP budget ➢Establish rates that are compliant with Proposition 218 BUDGET SCHEDULE 4 April Board Meeting ➢Economic Studypresented Today, April 27th ➢Budget Workshop ➢Water Cost of Service Study presented June Board Meeting ➢Budget Approval October Board Meeting ➢Proposition 218 Hearingfor Water BUDGET PROCESS 5 Six-Year Rate Model Year-end Balances Operating Budget Input Six-Year CIP Budget Input MWD/CWA & City Sewer Rates Strategic Plan Assumptions Interest Rates Inflation Growth Sales Debt Targets Debt Coverage Reserve Levels Operating Budget CIP Budget Water & Sewer Rates Drought PROPOSITION 218 –WATER 6 ➢Timeline ▪Cost of Service Study Performed –2022 ▪Proposition 218 Hearing –October 5, 2022 ▪Next Cost of Service Study Planned –FY 2025 ▪Next Proposition 218 Hearing –October 2025 ➢Board Approved Terms ▪5-years ▪100% pass-through of supplier-related costs, including SDG&E ▪Up to 10% rate increases for internal costs PROPOSITION 218 –SEWER 7 ➢Timeline ▪Last Cost of Service Study Performed –2020 ▪Completed Proposition 218 Hearing –October 7, 2020 ▪Next Cost of Service Study –FY 2025 ▪Next Proposition 218 Hearing –October 2025 ➢Board Approved Terms ▪5-years ▪100% pass-through of sewer service provider costs and SDG&E ▪Up to 10% rate increases for internal costs CHALLENGES, STRENGTHS, DROUGHT RESILIENCY, AND DISTRICT ACTIONS (JOSE MARTINEZ) 8 CHALLENGES 9 ➢Increase in Six-Year CIP plan ➢Water purchase costs ➢Workforce turnover ➢Proposition 218 challenges/Water Cost of Service study ➢Sewer ▪City of San Diego Pure Water ▪County of San Diego shared facilities rehabilitation projects ➢Inflation ➢Drought DROUGHT RESILIENCY ➢Shortage Level 1 declared October 29, 2021 ▪Urges customers to voluntarily reduce water use by 10%. ▪District further called on customers to voluntarily reduce by 15%, aligning with the Governor’s July 2021 executive order. ➢Executive Order N-7-22 signed on March 28, 2022 ▪Encourages suppliers to consider going above and beyond Level 2 (up to 20% savings vs. 2020). ▪Specifically asks SWRCB to consider adopting emergency regulations including a ban on irrigation of non-functional turf by May 25, 2022. ➢San Diego County water agencies continue to monitor State direction ➢District response to financial impacts 10 STRENGTHS 11 ➢Strategic Planning process ➢CWA diversification of regional supply (drought-proofing San Diego) ➢CWA refunds ▪$3.2 million received in FY 2021 ▪$2.5 million received in FY 2022 ➢Fully-funded OPEB ➢Efficiency Gains (since 2007) ▪35% increase in customers per FTE ➢Bond Rating ▪S&P ‘AA’ rating ➢Sound Financial Management ▪Reserve, Debt, and Investment Policies DISTRICT UNPRECEDENTED ACTIONS ➢Advocating for Customers ▪Engaging CWA/MWD –received over $5.7 million in rebates ▪Engaging MWD –rate reductions from 8% to 5% ▪Arrearage Funding ▪Water –over $500 thousand to date ▪Sewer –over $20 thousand to date ▪In March, District completed registration to access additional arrearage ▪Federal Stimulus –over $70 thousand ▪Coordinated 165 accounts to avoid shutoffs through payment plans (historically payment plans were rare since customer’s past due balance stayed relatively low) ➢FEMA Assistance –Documented and submitted over $320 thousand for reimbursement ➢Grant Efforts 12 BOARD’S PROACTIVE APPROACH TO FINANCIAL AND OPERATIONAL STABILITY 13 ➢Financial strength through establishing debt coverage targets and Reserve Policy ➢Investment in disaster preparation from policies to disaster kits ➢Invested in staffing, software, equipment, and other infrastructure to allow remote operations ➢Efficient use of equipment and vehicles ➢Converted variable bonds to fixed ➢Limited exposure to CalPERS changes in future discount rates by making advanced payments STRATEGIC PLAN FY2023 –FY2026 (ADOLFO SEGURA) 14 OVERVIEW 15 The District’s four-year strategic plan (SP), FY23 –FY26, is a roadmap for how the District will respond to current challenges and improve the essential services it provides its customers. The SP also provides a shared vision for the agency and a new path towards common goals. With the successful execution of multi-year SPs over the past twenty years, the development of this plan reaffirms the District’s mission “To provide exceptional water and wastewater service to its customers, and to manage District resources in a transparent and fiscally responsible manner.” Key areas of focus include: Aging Workforce/Knowledge Transfer Culture (Retention & Recruitment of Top Talent) Customer Service Advancement of Cybersecurity Analysis of Future Storage & Distribution System Needs Advancement of Asset Management Analysis of Long-Term Financial Obligations & Next Generation Business Systems SP: 11 strategies, 35 objectives, and 34 KPIs BALANCE SCORECARD PERSPECTIVES “Alignment of the District’s mission, vision, and plan execution” Employee development/ Retention Financial sustainability Customer satisfaction/ Engagement Operational efficiency Customer Financial Internal Business Processes Learning & Growth 16 CUSTOMER Enhance and build public awareness of the District’s priorities, initiatives,programs,and services.(4 objectives) Answer Rate Technical Water Complaint Potable Water Compliance Rate Customer Opinion Survey STRATEGIES | 1 TOTAL OBJECTIVES | 4 KEY PERFORMANCE INDICATORS (KPIs) | 4 Enhance customer and community engagement to increase public awareness of the water industry and the District, while continuing to provide superior customer service. 17 18 FINANCIAL Maintain a long-range financing plan that sets forth the long-term funding needs of the District. (5 objectives) Invest in technology infrastructure to enhance customer engagement and satisfaction. (2 objectives) STRATEGIES | 2 TOTAL OBJECTIVES | 7 Operate the District in a financially sustainable and transparent manner while maintaining a Fair Rate Structure. CIP Project Expenditures vs. Budget Construction Change Order Incidence Billing Accuracy Sewer Rate Ranking Water Rate Ranking Water Debt Coverage Ratio Sewer Debt Coverage Ratio Reserve Levels KEY PERFORMANCE INDICATORS (KPIs) | 14 Accounts per Full-Time Employee (FTE) Distribution System Loss Planned Potable Water Maintenance Ratio in $ Planned Recycled Water Maintenance Ratio in $ Planned Wastewater Maintenance Ratio in $ Direct Cost of Treatment per MGD INTERNAL BUSINESS PROCESSES STRATEGIES | 6 TOTAL OBJECTIVES | 19 Leverage the use of renewable and clean energy resources and reduce the use of hazardous chemicals. (4 objectives) Implement technologies to improve response time, security, and operational effectiveness. (4 objectives) Develop appropriate water resource mix to meet the water reliability needs of the community. (3 objectives) Respond to anticipated water shortages through rate structure modification, conservation assistance, and outreach. (2 objectives) Advancement of District's Asset Management Program. (4 objectives) Cyber and Physical Security (2 objectives) 19 Practice ongoing infrastructure renewal and organizational improvement through planning and increased operational efficiency. 20 Business Recovery Exercises Vulnerability Assessment Mark-out Accuracy Easement Evaluation and Field Inspection System Valve Exercising Program Potable Water Distribution System Integrity (Leaks) Potable Water Distribution System Integrity (Breaks) Recycled Water System Integrity (Leaks) Recycled Water System Integrity (Breaks) Sewer Overflow Rate Potable Tank Inspection and Cleaning Hydrant Maintenance Program Injury Incident Rate INTERNAL BUSINESS PROCESSES Practice ongoing infrastructure renewal and organizational improvement through planning and increased operational efficiency. KEY PERFORMANCE INDICATORS (KPIs) | 13 21 Coordinate workforce planning activities to determine future needs,identify gaps,and implement actions to close the gaps. (3 objectives) Improve Organization Effectiveness.(2 objectives) Employee Voluntary Turnover Rate Training Hours per Employee Safety Training Program STRATEGIES | 2 TOTAL OBJECTIVES | 5 LEARNING AND GROWTH Foster a workforce culture of employee development and innovation. KEY PERFORMANCE INDICATORS (KPIs) | 3 22 CAPITAL IMPROVEMENT PROGRAM FY 2023 –FY 2028 (BOB KENNEDY) CONSTRUCTION CLIMATE/MITIGATION Factors Influencing Construction Climate ➢Shortage of skilled and unskilled labor ➢Regional competition for contracting resources ➢Materials cost escalation due to demand and material shortages Mitigation Strategies ➢Value engineering ➢Grouping projects to attract bidders ➢Pre-purchasing of materials ➢Adding no-cost time extension into specs ➢Grant funding 23 CIP BUDGET GUIDELINES ➢Development trend is expected to be unchanged in FY 2023 ➢New development with multi-family dwellings in greater proportion to single-family dwellings ➢In preparing the budgets for the individual CIP projects, the Engineering Department used recent construction and bidding data to adjust costs for each project ➢Reprioritized projects based on District’s planning documents and to control spending to keep rates stable 24 CIP SIX-YEAR BUDGET LOOK FORWARD ($Millions) 25 FY 2022 FY 2022 FY 2023 FY 2024 FY 2025 FY 2026 FY 2027 Totals $ 8.7 $ 15.6 $ 20.0 $ 24.3 $ 20.1 $ 12.6 Six-Year Total: $101.4 FY 2023 FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 Totals $ 13.0 $ 22.0 $ 24.2 $ 18.0 $15.9 $15.6 Six-Year Total: $108.7 FY 2023 $2.6 / 17% Reduction $2.0 / 10% Increase SIX-YEAR BUDGET DIFFERENCES FY 2022 vs. FY 2023 $ Millions (Negative Value) FY 2022 Six-Year CIP Budget $ 101.4 New Projects 6.1 Completed Projects (0.3) Ongoing Project Changes Budget Increases Budget Decreases Budget Expenditures for FY 2022 7.8 (0.5) (5.8) FY 2023 Six-Year CIP Budget $ 108.7 26 HIGH PROFILE CIP PROJECTS Fiscal Year 2023 CIP ($ Millions) Various Waterline Replacements (27 Total) 1004-2 & 485-1 Reservoir Improvements RWCWRF Disinfection System Improvements Pump Station Upgrades & Modifications Sewer Basin Improvements (10 total) $ 4.2 1.3 0.8 0.6 0.6 Total Expenditure Projection % of Total FY 2023 $ 7.5 58% 27 Pipeline Replacement Projects (27 Total) Reservoir Construction or Rehabilitation Projects (17 Total) Pump Station Replacement and Rehabilitation Meter Replacement & AMI Pilot Project Sewer Basin Improvements Pipeline Misc. Appurtenances Equipment & Vehicles RWCWRF Projects (12 Total) $ 34.7 21.1 11.7 8.9 7.4 6.2 4.4 3.6 Total Expenditure Projection $ 98.0 % of Total FY 2023 –FY 2028 Budget 90% 28 HIGH PROFILE CIP PROJECTS Fiscal Year 2023 –2028 CIP ($ Millions) KEY ASSUMPTIONS, FINANCING PLAN, AND CONCLUSION (KEVIN KOEPPEN) 29 FY 2023 ASSUMPTIONS 30 ➢Revenues ▪Budgeted volumes ▪Growth revenues ➢Operating and CIP Costs ▪Impacted by inflation ▪Regulatory creep ➢Pension and OPEB Strategy WATER VOLUMES 31 ➢Average Usage Approach ▪Four-year historic average usage ▪Ceiling based on highest normal volume/driest year ▪Floor based on lowest volume/wettest year ➢Goal = Projected Volumes at the Midpoint ▪Long-term accuracy of rate projections ➢Budget Drought Resiliency ▪20% volume reductions ▪$3.8 million reserve reduction ▪40% debt service coverage reduction ▪Reserves maintained above target and debt service coverage above covenant 32 FY 2023 BUDGET VOLUMES Potable Units (in millions) Recycled Units (in millions) Rainfall (inches)Notes 2019 Actual 11.3 1.5 12.6 Wet year with above average rainfall 2020 Actual 11.4 1.5 16.7 Wet year with above average rainfall 2021 Actual 12.6 1.8 4.8 Dry year with below average rainfall 2022 Projected 11.9 1.6 7.3 Dry year with below average rainfall 4-year Average 11.8 1.6 10.4 Growth 0.30%0.15% FY 2023 Budget 11.9 1.6 POTABLE WATER VOLUMES Unit Sales (in millions) 33 12.2 12.5 11.3 11.6 FY 2023 11.9 12.1 10.5 11.0 11.5 12.0 12.5 13.0 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 Base Volume Cumulative Growth Ceiling Floor RECYCLED WATER VOLUMES Unit Sales (in thousands) 34 1,799 1,817 1,452 1,470 FY 2023 1,572 1,587 1,000 1,200 1,400 1,600 1,800 2,000 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 Base Volume Cumulative Growth Ceiling Floor 35 PENSION & OPEB STRATEGY ➢OPEB –Fully funded ▪OPEB trust will reimburse the general fund for retiree medical costs ▪District will not contribute to OPEB in 2023 ➢Continue advance PERS funding strategy: ▪Transfer $1.2 million retiree medical to advance fund PERS ▪Transfer $0.9 million foregone OPEB contribution to advance fund PERS ▪$6 million estimated savings over 12 years RATE DRIVERS 36 ➢Water ▪Water purchase costs ▪Increase in Six-Year CIP projection ▪Debt coverage above target for six years ▪Reserves above minimum and/or target over six years ➢Sewer ▪City of San Diego Pure Water Project ▪Increase in Six-Year CIP projection ▪County shared facility projects ▪Reserves at target over six years FINANCING PLAN 37 Water ➢No projected debt issuances Sewer ➢2025 debt issuance* ➢2027 debt issuance* *An evaluation will be performed closer to the debt issuance to determine the cost benefit of combining issuances into a single debt issuance. JUNE 8TH PRESENTATION & NEXT STEPS 38 ➢Budget Summary ➢Cost of Service Study Incorporation ➢Rate Increase Recommendation ➢Debt Coverage Projection ➢Winter Average Update Next Steps ➢Proposition 218 and Rate Increase Notices ➢Proposition 218 Hearing ➢Labor and Benefit Costs ➢Admin & Material Costs ➢Salary Schedule ➢Rate Comparison ➢Budget Approval QUESTIONS? 39 STAFF REPORT TYPE MEETING: Budget Workshop MEETING DATE: April 27, 2022 SUBMITTED BY: Kevin Koeppen, Assistant Chief Finance Officer PROJECT: DIV. NO. All APPROVED BY: Joseph R. Beachem, Chief Financial Officer Jose Martinez, General Manager SUBJECT: Review the Results of the Water Cost of Service Study and Obtain Board Direction to Incorporate the Cost of Service Study Results into the FY 2023 Budget GENERAL MANAGER’S RECOMMENDATION: Review the results of the Water Cost of Service Study and obtain Board direction to incorporate the cost of service study results into the FY 2023 budget. COMMITTEE ACTION: This item was not taken to Committee. PURPOSE: To review the results of the Water Cost of Service Study and obtain Board direction to incorporate the cost of service study results into the FY 2023 budget. ANALYSIS: The District performs rate studies every three to five years depending on changes in economic factors, price increases, water use patterns, regulations, infrastructure, and other cost drivers. The cost of service study is a crucial tool when setting retail rates because as water use and cost drivers change over time, and imbalances may occur in the equity of how various customer classes pay for water. It has been five years since the District performed the last water rate study and changes in usage patterns and the legal environment have occurred that warrant the study be updated at this time. AGENDA ITEM 6a The analysis performed in this cost of service study and the proposed rates respond directly to a ruling by the San Diego Superior Court (Court), which determined the District failed to meet its burden of proof of demonstrating that the tiered water rates from 2013 to 2021 for single-family residential customers were proportional to the cost of service attributable to each customer's parcel, as required by Proposition 218. The District may appeal the Court’s decision; however, a response by the District to the ruling was required to mitigate potential future damages. The State of California has certain well-established legal constraints regarding utility rate making and California Constitution Articles XIII C and D (referred to as “Proposition 218”) are at the forefront. Proposition 218 requires water (and sewer) utilities to establish cost-based rates for the services provided. The last comprehensive water rate study that was performed for the District in 2017, developed and structured the technical analysis to comply with the requirements of Proposition 218 as they were known at that time. Since the adoption of the District’s rates in 2017, inconsistent rulings throughout the state have created challenges in determining precisely what meets the requirements of Proposition 218. The current study and technical analysis have been structured to comply with the requirements of Proposition 218 as they are known and understood at this time. Setting rates based on cost of service in compliance with Proposition 218 was the primary goal of this study. The current rate study examined the assignment of costs to the various customer types. The costs assigned to customer types are then allocated to tiers within each customer type. Costs are allocated to tiers based on the necessity to size the system to meet customer peak demands. The system infrastructure (pipes, pump stations, distribution storage reservoirs, etc.) must be sized to meet peak demands. The costs associated with servicing peak demand capacity are greater than the costs associated with average usage; therefore, the customers that drive the peaking pay for the costs associated with the sizing of the infrastructure necessary to meet those demands. The technical analysis of evaluating usage patterns utilized historical actual use. As part of this study and in response to the Court’s ruling, staff: •Is recommending a rate structure that is both compliant with Proposition 218 requirements as they are known and interpreted at this time, and responsive to the current Superior Court decision regarding the District’s residential rates. •Evaluated cost allocation to various customer classes and tiers. •Evaluated tiered and uniform rate structures for all classes. •Evaluated water meter equivalencies using AWWA’s hydraulic capacity factors for water customers. This study will be used to prepare the FY 2023 budget and will be the basis for the rates effective on January 1, 2023. The timeline for performing a cost of service study and incorporating the results into rates is as follows: 1. April – Staff presents the Water Cost of Service Study to the Board and seeks direction from the Board to incorporate the study into the FY 2023 budget. 2. June – Staff presents the Fiscal Year 2023 Operating and Capital Budgets to the Board and requests the Board’s adoption of the Budget which incorporates the Study’s rates. 3. July – August – Staff prepares and delivers Proposition 218 hearing notices to customers. 4. October – The District holds a Proposition 218 hearing and the Board votes on the proposed rates. 5. January 1, 2023 – The proposed rates become effective for all billing after January 1,2023 and may apply to water used as early as the beginning of December 2022. When performing a cost of service study, it is important to note that revenue neutrality is maintained for the study year. This means that, based on the study data provided, an agency collects the same amount of total revenue through fees and charges. However, due to changes in usage patterns and rate structures, the impact to individual customer bills may vary. Customers’ usage patterns that drive costs higher, pay the higher costs incurred for their usage patterns. Customer usage patterns that drive lower costs, pay lower costs for those usage patterns. It also means that specific cost drivers, such as energy for pumping, should match the revenue collected through energy fees charged to customers. Once the rate structure is determined by the findings of the rate study, higher budgeted costs including water and power, higher meter counts, and sales volume changes determine the necessary rate increases. The study year used to prepare this cost of service study was the District’s draft FY 2023 budget (excluding any proposed FY 2023 rate increase) and volumes. For the current study the District’s rates have been updated based on evaluations of usage patterns, updated meter data, and updated functional cost allocations. Evaluations and cost allocations were performed in accordance with standard AWWA rate setting practices established for the reasonable allocation of costs and in response to the Court’s ruling. The following tables summarize the shifts in revenues between classes and the revenue neutrality between the proposed and current rates for potable and recycled. Potable Revenue by Customer Class Recycled Revenue by Customer Class Steve Gagnon, PE (AZ) and his team from Raftelis performed the current study and assisted with the evaluation of the rate structures. The rate study process consists of the following steps: 1. Establish the Revenue Requirement - This step compares the revenues of the District to the expenses to determine the overall level of the rate adjustment. 2. Prepare the Cost of Service – During this process, the revenues and costs are functionalized, assigned to cost components, and then distributed to customer classes. 3. Rate Design – Design rates for each class of service to reflect the cost of providing service to the individual customer groups and tiers. The proposed rates include the following rate structure changes: • Raftelis evaluated the use of either a uniform or tiered rate structure for all classes of service. Raftelis supports the use of a tiered rate structure for residential and multi-residential as an acceptable methodology to recover costs from customer classes as required by Proposition 218. The use of a tiered rate structure for residential customers is common in California and is appropriate for residential and multi-residential classes because, respectively as classes, water use for these customer classes is more homogeneous compared to other classes. Raftelis also supports the use of a uniform rate for the all the District’s other classes because it is also an acceptable methodology to recover costs from non-residential classes. It is common to have a uniform rate for non-residential classes whose water use is not homogeneous, which makes defining tiers difficult. • For this study, the tier breakpoints and breakpoint methodology were updated for residential and multi-residential customers. Tier breakpoints were developed based on the combined usage patterns of residential and multi-residential customers, and the same breakpoints are used for both classes. Both residential and multi-residential classes use water in a similar manner. A change to the methodology for establishing the tier 1 upper breakpoint from a calculation based on winter average use to one based on annual average use is recommended as part of this study as the breakpoints based on average annual use aligns more with how the system was built. Residential Tier Breakpoints Tier Current Breakpoint Proposed Breakpoint Tier 1 0 – 10 0 - 8 Tier 2 11 – 22 9 – 12 Tier 3 >=23 >=13 Multi-Residential Tier Breakpoints Tier Current Breakpoint Proposed Breakpoint Tier 1 0 - 4 0 - 8 Tier 2 5 – 9 9 – 12 Tier 3 >=10 >=13 • The government fee currently charged to government (“public”) customers was eliminated. Commercial and public customer classes have now been separated into their own distinct classes. For example: Irrigation which currently includes both commercial and public customers was separated into Commercial Irrigation and Public Irrigation. The public rates exclude the property tax benefit as public customers do not pay property taxes. The rates for all other classes, including commercial, that pay property taxes include a benefit related to property taxes paid by these classes. • The temporary class, which was a separate class of customers who need water service on a temporary basis, has been replaced in the study by a construction class. The rate for the construction class is not twice the irrigation rate and construction customers will be charged the CWA/MWD fixed charge, which was not previously charged to temporary customers. The majority of CWA/MWD fixed charges are based on purchased water volumes, which includes temporary customer volumes; therefore, it was determined that this customer class should also contribute towards covering those fixed costs. • Separate energy charges for potable and recycled customers were updated in this study. The cost of service study uses a draft FY 2023 budget and does not include the impact of a rate increase. These cost of service study rates will be the basis for the rates in the proposed budget, with the proposed rates incorporating changes due to the following: • The proposed rate increases necessary to meet the District’s debt coverage and reserve targets, • Changes to the CWA variable rate from estimates to the actual rates, • Changes in CWA/MWD fixed fees from estimates to the actual charges from CWA/MWD, and • Modifications to energy fees to recover the applicable SDG&E power costs. The calculations of average monthly bills in the following tables were prepared using actual meter sizes and usages by tier for each customer. The changes presented may differ from those presented by Raftelis due to differing customer meter sizes and differences in actual month-to-month usage compared to average monthly usage. Overall, the estimated changes in monthly bills of users are driven by changes in the fixed and variable rates. Changes in rates were due to updated technical evaluations, which included evaluations of usage patterns, updated meter data, and updated functional cost allocations, which were performed in accordance with standard AWWA rate setting practices established for the reasonable allocation of costs and in response to the Court’s ruling. While the overall revenue for the District remains neutral, the individual monthly bills for customers will be impacted differently as a result of the listed updates. The following tables summarize the impacts the proposed rates will have on average monthly customer bills based on usage levels and customer class. Average Monthly Usage (hcf) # of Customers Average Usage Average Current Bill Average Proposed Bill $ Increase (Decrease) % Increase (Decrease) 0 - 2 Units 1,821 1 43.24$ 41.38$ (1.86)$ -4% 3 - 5 Units 7,157 4 52.90$ 55.60$ 2.70$ 5% 6 - 8 Units 10,133 7 63.86$ 70.50$ 6.63$ 10% 9 - 12 Units 11,716 10 80.54$ 89.62$ 9.08$ 11% 13 - 20 Units 11,008 16 114.28$ 121.84$ 7.56$ 7% > 20 Units 4,467 29 221.48$ 208.80$ (12.68)$ -6% Total 46,302 11 92.77$ 97.44$ 4.67$ 5% Residential Average Monthly Usage per Dwelling Unit (hcf) # of Customers Average Usage per Dwelling Unit Average Current Bill per Dwelling Unit Average Proposed Bill per Dwelling Unit $ Increase (Decrease) per Dwelling Unit % Increase (Decreas e) 0 - 10 Units 749 5 35.50$ 33.37$ (2.13)$ -6% 11 - 15 Units 61 12 80.16$ 69.27$ (10.88)$ -14% 16 - 20 Units 15 17 117.56$ 97.77$ (19.79)$ -17% > 20 Units 7 27 216.03$ 167.77$ (48.26)$ -22% Total 832 6 1,186.70$ 1,092.02$ (94.68)$ -8% Multi-Residential Average Monthly Usage (hcf) # of Customers Average Usage Average Current Bill Average Proposed Bill $ Increase (Decrease) % Increase (Decrease) 0 - 50 496 4 131.27$ 81.32$ (49.94)$ -38% 11-20 201 15 216.71$ 161.92$ (54.79)$ -25% 21-30 122 25 263.82$ 218.69$ (45.13)$ -17% 31-50 123 39 354.91$ 308.65$ (46.25)$ -13% 51-100 126 71 506.73$ 488.77$ (17.95)$ -4% 101-500 159 197 1,142.27$ 1,226.31$ 84.04$ 7% 501-1,000 17 683 3,452.19$ 4,032.60$ 580.41$ 17% > 1,000 13 2,258 10,489.33$ 12,813.00$ 2,323.66$ 22% Total 1,257 75 497.23$ 500.57$ 3.34$ 1% Commercial Average Monthly Usage (hcf) # of Customers Average Usage Average Current Bill Average Proposed Bill $ Increase (Decrease) % Increase (Decrease) 0 - 10 81 5 257.04$ 156.25$ (100.79)$ -39% 11-20 41 16 371.29$ 262.22$ (109.08)$ -29% 21-30 30 25 302.68$ 249.05$ (53.63)$ -18% 31-50 30 39 390.40$ 339.42$ (50.98)$ -13% 51-100 24 75 672.30$ 603.24$ (69.06)$ -10% 101-500 30 223 1,622.87$ 1,654.71$ 31.85$ 2% 501-1,000 8 641 3,603.64$ 4,154.23$ 550.59$ 15% 1,001-5,000 6 2,561 14,100.39$ 16,604.56$ 2,504.16$ 18% 5001-10,000 1 8,484 45,232.41$ 54,556.19$ 9,323.78$ 21% >10,000 1 17,010 86,711.33$ 106,615.79$ 19,904.46$ 23% Total 252 228 1,456.48$ 1,584.18$ 127.70$ 9% Public Average Monthly Usage (hcf) # of Customers Average Usage Average Current Bill Average Proposed Bill $ Increase (Decrease) % Increase (Decrease) 0 - 10 185 3 136.58$ 81.17$ (55.41)$ -41% 11-20 70 16 216.44$ 161.93$ (54.51)$ -25% 21-30 60 26 281.77$ 225.94$ (55.83)$ -20% 31-50 101 40 379.97$ 319.71$ (60.26)$ -16% 51-100 199 72 619.41$ 540.67$ (78.74)$ -13% 101-500 386 202 1,464.04$ 1,372.58$ (91.45)$ -6% 501-1,000 15 618 4,129.73$ 4,040.93$ (88.80)$ -2% > 1,000 1 1,908 12,504.79$ 12,427.73$ (77.07)$ -1% Total 1,017 109 844.18$ 769.57$ (74.61)$ -9% Irrigation Average Monthly Usage (hcf) # of Customers Average Usage Average Current Bill Average Proposed Bill $ Increase (Decrease) % Increase (Decrease) 0 - 10 82 4 195.22$ 111.61$ (83.61)$ -43% 11-20 29 15 291.36$ 199.21$ (92.15)$ -32% 21-30 19 25 353.48$ 265.72$ (87.76)$ -25% 31-50 28 40 475.31$ 374.99$ (100.32)$ -21% 51-100 34 71 661.22$ 577.82$ (83.40)$ -13% 101-500 64 239 1,848.13$ 1,755.73$ (92.40)$ -5% 501-1,000 4 804 5,734.39$ 5,614.03$ (120.36)$ -2% >1,000 2 1,212 8,969.25$ 8,818.13$ (151.11)$ -2% Total 262 98 863.05$ 773.21$ (89.84)$ -10% Public Irrigation Average Monthly Usage (hcf) # of Customers Average Usage Average Current Bill Average Proposed Bill $ Increase (Decrease) % Increase (Decrease) 0 - 10 16 5 113.27$ 101.54$ (11.73)$ -10% 11-20 14 16 154.05$ 146.59$ (7.46)$ -5% 21-30 15 27 214.17$ 207.44$ (6.73)$ -3% 31-50 27 41 286.18$ 280.35$ (5.83)$ -2% 51-100 76 76 489.07$ 483.87$ (5.20)$ -1% 101-500 225 208 1,195.76$ 1,201.93$ 6.17$ 1% 501-1,000 18 654 3,571.81$ 3,624.47$ 52.65$ 1% >1,000 4 2,791 15,074.55$ 15,392.82$ 318.27$ 2% Total 395 196 1,128.39$ 1,135.13$ 6.74$ 1% Recycled Irrigation Average Monthly Usage (hcf) # of Customers Average Usage Average Current Bill Average Proposed Bill $ Increase (Decrease) % Increase (Decrease) 0 - 10 26 4 114.39$ 100.42$ (13.97)$ -12% 11-20 20 15 173.33$ 157.54$ (15.79)$ -9% 21-30 31 26 229.35$ 212.48$ (16.88)$ -7% 31-50 35 41 315.20$ 294.04$ (21.16)$ -7% 51-100 86 83 504.37$ 475.23$ (29.14)$ -6% 101-500 134 232 1,421.54$ 1,352.81$ (68.73)$ -5% 501-1,000 23 655 3,903.31$ 3,745.38$ (157.93)$ -4% >1,000 3 1,128 6,649.46$ 6,397.05$ (252.41)$ -4% Total 358 166 1,028.41$ 977.99$ (50.41)$ -5% Recycled Irrigation - Public Average Monthly Usage (hcf) # of Customers Average Usage Average Current Bill Average Proposed Bill $ Increase (Decrease) % Increase (Decrease) 14,353 1 14,353 58,268.92$ 75,519.68$ 17,250.76$ 30% Total 1 14,353 58,268.92$ 75,519.68$ 17,250.76$ 30% Recycled Commercial Average Monthly Usage (hcf) # of Customers Average Usage Average Current Bill Average Proposed Bill $ Increase (Decrease) % Increase (Decrease) 0 - 10 46 5 393.45$ 453.14$ 59.69$ 15% 11-20 30 16 576.53$ 576.51$ (0.02)$ 0% 21-30 15 26 661.21$ 580.80$ (80.41)$ -12% 31-50 24 39 863.50$ 704.56$ (158.93)$ -18% 51-100 38 72 1,297.76$ 937.12$ (360.64)$ -28% 101-500 63 225 3,260.80$ 1,896.25$ (1,364.54)$ -42% 501-1,000 15 714 9,477.22$ 4,915.26$ (4,561.96)$ -48% > 1,000 10 1,576 20,447.70$ 10,245.07$ (10,202.63)$ -50% Total 241 188 2,769.37$ 1,639.07$ (1,130.30)$ -41% Construction (Temporary) The cost of service study results will cause the District’s residential customers to move from the 5th lowest to the 9th lowest in a comparison with other agencies. Conclusion Today we are bringing rate structure modifications to the Board’s attention. The next step will be to incorporate these changes into the FY 2023 rate model and budget. In June of 2022, staff will request that the Board approve the FY 2023 budget and direct staff to move forward with the Proposition 218 process. The Board can only approve the rates after the completion of the Proposition 218 hearing. The District’s historic practice is to propose a five-year Proposition 218 notice. The District and many other agencies have used this five-year process with positive results. While the District will be proposing a five-year period, it is currently planning to implement a meter reading system that will provide the District with customer usage data on a more frequent basis. The District’s current metering system stores hourly usage, but the District does not have a cost-effective means of pulling the hourly information. The new meter reading system will report hourly customer usage data via cell signal. Staff will be monitoring the hourly usage data. If changes in rates are necessary because of this data evaluation, staff will recommend a new study be performed prior to the five-year timeframe. In the past, to make these notices effective for five-years, the Board has approved a pass-through component of future rate increases for supplier costs and a separate maximum rate increase for the portion of rates due to increases in internal costs. Supplier costs have historically been defined as costs charged by SDG&E, CWA, MWD, the City of San Diego, and Metro. As part of the FY 2023 budget process, staff will again recommend a five-year Proposition 218 notice. In mid-2022, staff will prepare the Proposition 218 notices and in mid to late 2022 a Proposition 218 hearing will be held to adopt the rates. If the Board adopts the proposed rates after the Proposition 218 hearing, the proposed rate structures and rate increase provisions will be effective in January 2023, giving the required lead time to customers and allowing staff the time to evaluate and implement the various changes. FISCAL IMPACT: Joe Beachem, Chief Financial Officer None. STRATEGIC GOAL: The District ensures its continued financial health through long-term financial planning. LEGAL IMPACT: Since its adoption in 1996, Proposition 218 has been and is likely to continue to be the subject of ongoing litigation, judicial interpretation, constitutional amendment, and statutory clarification. The cost of service study will be used to demonstrate compliance with Proposition 218 if the District’s rates are challenged. Attachments: A)Presentation Otay Water District Water Rate Study April 27, 2022 Attachment A Otay Water District Steve Gagnon, PE (AZ) Project Manager 25 years experience Extensive southern CA water and wastewater rate setting experience E: sgagnon@raftelis.com P: 714.351.2013 Rate Study Project Team 2 Theresa Jurotich, PE, PMP Technical Reviewer 23 years experience Extensive national water and wastewater rate setting experience E: tjurotich@raftelis.com P: 206.707.9155 Joe Collins Lead Consultant 5 years experience National water and wastewater rate setting experience E: jcollins@raftelis.com P: 816.285.9017 Presentation Outline 1.Summarize Cost of Service and Rate Derivation 2.Present Bill Impacts 3.Discussion and Questions 3 Notes •We are using the Commodity Demand method ›Fully recognized and described in the AWWA M1 Manual ›Reasonably allocates costs to parcels •Max Day (Demand) allocations only –no max hour 4 How do we set rates under Cost- -of-Service principles? 5 Design Rates Tiered or Uniform rates collect the cost to serve each class Distribute to Classes Single Family Residential, Multi-family Residential, Commercial, Irrigation, Public, Public Irrigation, Construction Cost Components Commodity, Demand, Customer Service, Meter Maintenance, Direct Fire Protection, General Functionalize Supply, Transmission, Treatment, Distribution, Storage, Customer Service, Meter Maintenance, General How Much Money?Determine revenue requirement (Costs) 6 Potable Water Revenue Requirement 7 A B C Operating Capital Total Expenses 1 Operating Expenses 93,437,200$ 93,437,200$ 2 Debt Service 8,169,700 8,169,700 3 Rate Funded Capital 10,114,100 10,114,100 4 Subtotal 93,437,200$ 18,283,800$ 111,721,000$ 5 Non-Rate Revenue (8,904,123)$ (10,928,100)$ (19,832,223)$ Adjustments 6 Contribution to Reserves -$ 1,157,223$ 1,157,223$ 7 Mid-Year Increase - - - 8 Subtotal -$ 1,157,223$ 1,157,223$ 9 Total Revenue Required 84,533,077$ 8,512,923$ 93,046,000$ Revenue RequirementLine Functionalize and Allocate Costs •The cost component allocations (right table) summarize the O&M revenue requirement ($93.0M) after functions have been allocated to cost components 8 Function Supply 59,023,904$ 63.2% Treatment 1,588,386 1.7% Transmission 743,917 0.8% Distribution 5,333,208 5.7% Treated Water Pumping 1,920,921 2.1% Distribution Storage 1,750,363 1.9% Customer Service 3,186,022 3.4% Meters and Services 1,084,740 1.2% Direct Public Fire 93,678 0.1% Direct Private Fire 36,039 0.0% Energy 2,949,000 3.2% General 15,727,022 16.8% Total 93,437,200$ 100.0% Budget Functionalization Results % Cost Component Commodity 44,650,904$ 47.8% Demand 23,668,917 25.3% Accounts 6,217,409 6.7% Cost Meters 2,116,832 2.3% Cap. Meters - 0.0% CWA/MWD 13,581,000 14.5% Public Fire 182,810 0.2% Private Fire 70,328 0.1% Energy 2,949,000 3.2% Total 93,437,200$ 100.0% Initial O&M Allocation to Cost Components % Cost to Serve Each Class 9 •Increase to SFR is mostly attributed to calculating the AWWA hydraulic capacity ratios in proportion to the ¾” meter instead of the 5/8” meter Proposed Current Dollars Percent Customer Class 1 SFR 55,597,005$ 52,722,782$ 2,874,223$ 5.5%59.8%56.7% 2 MFR 11,310,126 11,952,634 (642,508) -5.4%12.2%12.8% 3 Commercial 7,591,669 7,496,276 95,392 1.3%8.2%8.1% 4 Irrigation 8,200,364 9,083,922 (883,558) -9.7%8.8%9.8% 5 Construction 2,824,061 4,491,196 (1,667,136) -37.1%3.0%4.8% 6 Public 5,111,834 4,616,615 495,219 10.7%5.5%5.0% 7 Public Irrigation 2,095,585 2,342,151 (246,566) -10.5%2.3%2.5% 8 Private Fire 315,356 340,423 (25,068) -7.4%0.3%0.4% 9 Total 93,046,000$ 93,046,000$ -$ 0.0%100.0%100.0% Current Percent of Total Line Proposed Percent of Total Change Cost of Service Summary Revenue Max Day Peaking Factors 10 A B C Annual Use Average Day Use Max Day Peak Factor SFR 1 Tier 1 3,992,200 10,938 1.26 2 Tier 2 701,000 1,921 1.55 3 Tier 3 1,798,100 4,926 1.98 4 Customer 5 Subtotal 6,491,300 17,784 1.49 MFR 6 Tier 1 1,611,600 4,415 1.22 7 Tier 2 93,600 256 1.52 8 Tier 3 152,700 418 1.65 9 Customer 10 Subtotal 1,857,900 5,090 1.27 11 Commercial 1,132,700 3,103 1.43 12 Irrigation 1,131,900 3,101 1.99 13 Construction 286,500 785 1.96 14 Public 744,900 2,041 1.48 15 Public Irr.262,700 720 2.05 16 Public Fire 17 Private Fire 18 Total 11,907,900 32,624 1.59 Line Customer Class Rate Structure Changes •Updated the tier breakpoints for residential and multi-residential •Separated commercial and public customers into distinct classes for both the potable and recycled utilities –Public customers do not receive a tax offset to lower their rates since they don’t pay taxes •Created a Construction class to separate Construction & Temporary Construction customers from the Irrigation class (currently Construction and Irrigation pay the same rate, Temporary Construction pays 2X irrigation rate) •Changed meter equivalency from 5/8” equivalent meters to 3/4” equivalent meters 11 Residential Rate and Bill Impacts 12 A B C D Current Proposed $ Change % Change Volume Rate 1 Tier 1 3.52$ 5.03$ 1.51$ 42.9% 2 Tier 2 6.30 5.46 (0.84) -13.3% 3 Tier 3 8.12 6.08 (2.04) -25.1% System Fee 4 5/8"20.08$ 17.29$ (2.79)$ -13.9% 5 3/4"20.08 17.29 (2.79) -13.9% 6 1"28.39 21.50 (6.89) -24.3% 7 1 1/2"49.11 32.27 (16.84) -34.3% 8 2"73.98 45.01 (28.97) -39.2% CWA/MWD Fee 9 5/8"17.00$ 16.49$ (0.51)$ -3.0% 10 3/4"17.00 16.49 (0.51) -3.0% 11 1"31.57 27.49 (4.08) -12.9% 12 1 1/2"71.36 54.97 (16.39) -23.0% 13 2"121.39 87.94 (33.45) -27.6% Line SFR Rates Multi-Family Rate and Bill Impacts 13 A B C D Current Proposed $ Change % Change Volume Rate 1 Tier 1 3.29$ 4.99$ 1.70$ 51.7% 2 Tier 2 5.97 5.41 (0.56) -9.4% 3 Tier 3 7.35 5.60 (1.75) -23.8% System Fee 4 5/8"44.17$ 15.95$ (28.22)$ -63.9% 5 3/4"44.17 15.95 (28.22) -63.9% 6 1"62.37 19.27 (43.10) -69.1% 7 1 1/2"107.92 27.81 (80.11) -74.2% 8 2"162.53 37.87 (124.66) -76.7% 9 3"308.22 79.98 (228.24) -74.1% 10 4"472.17 134.77 (337.40) -71.5% 11 6"927.63 264.45 (663.18) -71.5% 12 8"1,474.12 408.31 (1,065.81) -72.3% 13 10"2,111.67 626.10 (1,485.57) -70.4% CWA/MWD Fee 14 5/8"17.00$ 16.49$ (0.51)$ -3.0% 15 3/4"17.00 16.49 (0.51) -3.0% 16 1"31.57 27.49 (4.08) -12.9% 17 1 1/2"71.36 54.97 (16.39) -23.0% 18 2"121.39 87.94 (33.45) -27.6% 19 3"258.17 192.37 (65.80) -25.5% 20 4"413.41 346.27 (67.14) -16.2% 21 6"846.28 769.48 (76.80) -9.1% 22 8"1,366.65 1,319.10 (47.55) -3.5% 23 10"1,967.12 2,088.58 121.46 6.2% Line MFR Rates Commercial Rate and Bill Impacts 14 A B C D Current Proposed $ Change % Change 1 Volume Rate 4.17$ 5.28$ 1.11$ 26.6% System Fee 2 5/8"41.61$ 17.43$ (24.18)$ -58.1% 3 3/4"41.61 17.43 (24.18) -58.1% 4 1"58.75 21.74 (37.01) -63.0% 5 1 1/2"101.66 32.74 (68.92) -67.8% 6 2"153.11 45.76 (107.35) -70.1% 7 3"290.34 97.23 (193.11) -66.5% 8 4"444.76 165.82 (278.94) -62.7% 9 6"873.81 333.46 (540.35) -61.8% 10 8"1,388.56 526.62 (861.94) -62.1% 11 10"1,989.08 813.42 (1,175.66) -59.1% CWA/MWD Fee 12 5/8"17.00$ 16.49$ (0.51)$ -3.0% 13 3/4"17.00 16.49 (0.51) -3.0% 14 1"31.57 27.49 (4.08) -12.9% 15 1 1/2"71.36 54.97 (16.39) -23.0% 16 2"121.39 87.94 (33.45) -27.6% 17 3"258.17 192.37 (65.80) -25.5% 18 4"413.41 346.27 (67.14) -16.2% 19 6"846.28 769.48 (76.80) -9.1% 20 8"1,366.65 1,319.10 (47.55) -3.5% 21 10"1,967.12 2,088.58 121.46 6.2% Line Commercial Rates Commercial Irrigation Rate and Bill Impacts 15 A B C D Current Proposed $ Change % Change 1 Volume Rate 6.09$ 6.09$ -$ 0.0% System Fee 2 5/8"35.13$ 15.43$ (19.70)$ -56.1% 3 3/4"35.13 15.43 (19.70) -56.1% 4 1"49.62 18.41 (31.21) -62.9% 5 1 1/2"85.86 26.08 (59.78) -69.6% 6 2"129.28 35.11 (94.17) -72.8% 7 3"245.19 73.93 (171.26) -69.8% 8 4"375.63 123.89 (251.74) -67.0% 9 6"737.94 240.26 (497.68) -67.4% 10 8"1,172.69 366.86 (805.83) -68.7% 11 10"1,679.86 560.46 (1,119.40) -66.6% CWA/MWD Fee 12 5/8"17.00$ 16.49$ (0.51)$ -3.0% 13 3/4"17.00 16.49 (0.51) -3.0% 14 1"31.57 27.49 (4.08) -12.9% 15 1 1/2"71.36 54.97 (16.39) -23.0% 16 2"121.39 87.94 (33.45) -27.6% 17 3"258.17 192.37 (65.80) -25.5% 18 4"413.41 346.27 (67.14) -16.2% 19 6"846.28 769.48 (76.80) -9.1% 20 8"1,366.65 1,319.10 (47.55) -3.5% 21 10"1,967.12 2,088.58 121.46 6.2% Line Commercial Irrigation Rates Construction Rate and Bill Impacts •Most temporary construction customers pay 2X the construction rate but will no longer under the proposed rates 16 A B C D Current Proposed $ Change % Change 1 Volume Rate 12.18$ 6.05$ (6.13)$ -50.3% System Fee 2 5/8"35.13$ 15.86$ (19.27)$ -54.9% 3 3/4"35.13 15.86 (19.27) -54.9% 4 1"49.62 19.12 (30.50) -61.5% 5 1 1/2"85.86 27.51 (58.35) -68.0% 6 2"129.28 37.40 (91.88) -71.1% 7 3"245.19 78.95 (166.24) -67.8% 8 4"375.63 132.92 (242.71) -64.6% 9 6"737.94 260.34 (477.60) -64.7% 10 8"1,172.69 401.27 (771.42) -65.8% 11 10"1,679.86 614.94 (1,064.92) -63.4% CWA/MWD Fee 12 5/8"16.49$ 16.49$ 13 3/4"16.49 16.49 14 1"27.49 27.49 15 1 1/2"54.97 54.97 16 2"87.94 87.94 17 3"192.37 192.37 18 4"346.27 346.27 19 6"769.48 769.48 20 8"1,319.10 1,319.10 21 10"2,088.58 2,088.58 Line Construction Rates Public Rate and Bill Impacts 17 A B C D Current Proposed $ Change % Change 1 Volume Rate 4.59$ 5.82$ 1.23$ 26.8% System Fee 2 5/8"41.61$ 16.24$ (25.37)$ -61.0% 3 3/4"41.61 16.24 (25.37) -61.0% 4 1"58.75 19.75 (39.00) -66.4% 5 1 1/2"101.66 28.76 (72.90) -71.7% 6 2"153.11 39.40 (113.71) -74.3% 7 3"290.34 83.32 (207.02) -71.3% 8 4"444.76 140.79 (303.97) -68.3% 9 6"873.81 277.83 (595.98) -68.2% 10 8"1,388.56 431.27 (957.29) -68.9% 11 10"1,989.08 662.44 (1,326.64) -66.7% CWA/MWD Fee 12 5/8"17.00$ 16.49$ (0.51)$ -3.0% 13 3/4"17.00 16.49 (0.51) -3.0% 14 1"31.57 27.49 (4.08) -12.9% 15 1 1/2"71.36 54.97 (16.39) -23.0% 16 2"121.39 87.94 (33.45) -27.6% 17 3"258.17 192.37 (65.80) -25.5% 18 4"413.41 346.27 (67.14) -16.2% 19 6"846.28 769.48 (76.80) -9.1% 20 8"1,366.65 1,319.10 (47.55) -3.5% 21 10"1,967.12 2,088.58 121.46 6.2% Line Public Rates Public Irrigation Rate and Bill Impacts 18 A B C D Current Proposed $ Change % Change 1 Volume Rate 6.51$ 6.64$ 0.13$ 2.0% System Fee 2 5/8"35.13$ 15.43$ (19.70)$ -56.1% 3 3/4"35.13 15.43 (19.70) -56.1% 4 1"49.62 18.41 (31.21) -62.9% 5 1 1/2"85.86 26.08 (59.78) -69.6% 6 2"129.28 35.11 (94.17) -72.8% 7 3"245.19 73.93 (171.26) -69.8% 8 4"375.63 123.89 (251.74) -67.0% 9 6"737.94 240.26 (497.68) -67.4% 10 8"1,172.69 366.86 (805.83) -68.7% 11 10"1,679.86 560.46 (1,119.40) -66.6% CWA/MWD Fee 12 5/8"17.00$ 16.49$ (0.51)$ -3.0% 13 3/4"17.00 16.49 (0.51) -3.0% 14 1"31.57 27.49 (4.08) -12.9% 15 1 1/2"71.36 54.97 (16.39) -23.0% 16 2"121.39 87.94 (33.45) -27.6% 17 3"258.17 192.37 (65.80) -25.5% 18 4"413.41 346.27 (67.14) -16.2% 19 6"846.28 769.48 (76.80) -9.1% 20 8"1,366.65 1,319.10 (47.55) -3.5% 21 10"1,967.12 2,088.58 121.46 6.2% Line Public Irrigation Rates Energy Surcharge per 100 feet A B D E Energy Surcharge Cost Unit Rate Current 1 Energy Cost 2,901,876$ 43,170,047 Adj. Ccf 0.068$ 0.063$ Line Units C 19 Private Fire Rates 20 •Developed using yearly backflow (A) and lateral replacement (B) costs •Column C is the system capacity to fight fires A B C D E F G H Backflow Lateral Capacity Total Current $ Change % Change No of Connections Meter Size 1 5/8"2.42$ 0.01$ 0.03$ 2.46$ 24.00$ (21.54)$ -89.75%- 2 3/4"2.42 0.01 0.05 2.49 24.00 (21.51) -89.63%2 3 1"2.42 0.02 0.11 2.56 24.00 (21.44) -89.33%7 4 1 1/2"2.42 0.06 0.32 2.80 24.00 (21.20) -88.33%- 5 2"2.42 0.12 0.68 3.23 24.00 (20.77) -86.54%20 6 3"2.42 0.36 1.98 4.77 24.00 (19.23) -80.13%2 7 4"2.42 0.76 4.22 7.42 32.34 (24.92) -77.06%87 8 6"2.42 2.22 12.27 16.92 32.34 (15.42) -47.68%170 9 8"2.42 4.73 26.15 33.31 32.34 0.97 3.00%488 10 10"2.42 8.51 47.03 57.96 32.34 25.62 79.22%112 Line Private Fire 21 Recycled Water Revenue Requirement 22 A B C Operating Capital Total Expenses 1 Operating Expenses 8,535,500$ 8,535,500$ 2 Debt Service 1,233,300 1,233,300 3 Rate Funded Capital 2,000,000 2,000,000 4 Subtotal 8,535,500$ 3,233,300$ 11,768,800$ 5 Non-Rate Revenue (756,000)$ (1,476,000)$ (2,232,000)$ Adjustments 6 Contribution to Reserves -$ (193,800)$ (193,800)$ 7 Mid-Year Increase - - - 8 Subtotal -$ (193,800)$ (193,800)$ 9 Total Revenue Required 7,779,500$ 1,563,500$ 9,343,000$ Revenue RequirementLine Functionalize and Allocate Costs 23 % Function Supply 5,698,041$ 66.8% Treatment 448,294 5.3% Transmission 179,734 2.1% Distribution 371,211 4.3% Recycled Water Pumping 242,660 2.8% Distribution Storage 97,393 1.1% Customer Service 88,129 1.0% Meters and Services 94,807 1.1% Fire Service - 0.0% Energy 562,000 6.6% General 753,231 8.8% Total 8,535,500$ 100% Budget Functionalization Results % Cost Component Commodity 5,698,041$ 66.8% Demand 2,002,003 23.5% Accounts 131,737 1.5% Cost Eq. Meters 141,719 1.7% Capacity Eq. Meters - 0.0% Energy 562,000 6.6% General - 0.0% Total 8,535,500$ 100.0% Cost Allocation to Cost Components Results Recycled Cost to Serve Each Class 24 Proposed Current Dollars Percent Customer Class 1 Recycled 4,966,187$ 4,823,645$ 142,542$ 3.0%53.2%51.6% 2 Public Recycled 3,547,432 3,894,140$ (346,708) -8.9%38.0%41.7% 3 Recycled Commercial 829,381 625,215$ 204,166 32.7%8.9%6.7% 4 Total 9,343,000$ 9,343,000$ -$ 0.0%100.0%100.0% Revenue Current % of TotalLineProposed % of Total ChangeCost of Service Summary Peaking Factors 25 Customer Class Annual Use Avg. Day ADMM / Avg. Day Recycled Irrigation 834,700 2,287 1.62 Recycled Public 581,700 1,594 1.71 Recycled Commercial 155,900 427 1.25 Total 1,572,300 4,308 Energy Rate 26 A B D E Energy Surcharge Cost Unit Rate Current 1 Energy Cost 504,190$ 6,209,151 Adj. Ccf 0.082$ 0.063$ Line Units C Recycled Irrigation Bill Impacts 27 A B C D Current Proposed $ Change % Change 1 Volume Rate 5.05$ 5.10$ 0.05$ 1.0% System Fee 2 5/8"36.93$ 34.31$ (2.62)$ -7.1% 3 3/4"36.93 34.31 (2.62) -7.1% 4 1"52.16 46.46 (5.70) -10.9% 5 1 1/2"90.25 77.28 (12.97) -14.4% 6 2"135.90 113.93 (21.97) -16.2% 7 3"257.73 249.69 (8.04) -3.1% 8 4"394.84 435.78 40.94 10.4% 9 6"787.55 907.15 119.60 15.2% 10 8"1,232.66 1,472.09 239.43 19.4% 11 10"1,765.77 2,294.50 528.73 29.9% Line Recycled Recycled Public Irrigation Bill Impacts 28 A B C D Current Proposed $ Change % Change 1 Volume Rate 5.48$ 5.20$ (0.28)$ -5.1% System Fee 2 5/8"36.93$ 34.31$ (2.62)$ -7.1% 3 3/4"36.93 34.31 (2.62) -7.1% 4 1"52.16 46.46 (5.70) -10.9% 5 1 1/2"90.25 77.28 (12.97) -14.4% 6 2"135.90 113.93 (21.97) -16.2% 7 3"257.73 249.69 (8.04) -3.1% 8 4"394.84 435.78 40.94 10.4% 9 6"787.55 907.15 119.60 15.2% 10 8"1,232.66 1,472.09 239.43 19.4% 11 10"1,765.77 2,294.50 528.73 29.9% Line Recycled Public Recycled Commercial Bill Impacts 29 A B C D Current Proposed $ Change % Change 1 Volume Rate 3.58$ 4.68$ 1.10$ 30.7% System Fee 2 5/8"43.74$ 34.31$ (9.43)$ -21.6% 3 3/4"43.74 34.31 (9.43) -21.6% 4 1"61.76 46.46 (15.30) -24.8% 5 1 1/2"106.89 77.28 (29.61) -27.7% 6 2"160.98 113.93 (47.05) -29.2% 7 3"305.28 249.69 (55.59) -18.2% 8 4"467.65 435.78 (31.87) -6.8% 9 6"918.73 907.15 (11.58) -1.3% 10 8"1,459.97 1,472.09 12.12 0.8% 11 10"2,091.41 2,294.50 203.09 9.7% Line Recycled Commercial Next Steps •Incorporate Study Results into the District’s FY 2023 Budget and Rate Model. 30 Question and Discussion? 31 32 End of Presentation