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HomeMy WebLinkAbout04-17-17 Board Packet 1 OTAY WATER DISTRICT SPECIAL MEETING OF THE BOARD OF DIRECTORS DISTRICT BOARDROOM 2554 SWEETWATER SPRINGS BOULEVARD SPRING VALLEY, CALIFORNIA MONDAY April 17, 2017 3:00 P.M. AGENDA 1. ROLL CALL 2. PLEDGE OF ALLEGIANCE 3. APPROVAL OF AGENDA 4. ADOPT RESOLUTION NO. 4333 A RESOLUTION OF THE BOARD OF DIREC- TORS OF THE OTAY WATER DISTRICT TO CENSURE DIRECTOR HECTOR GASTELUM FOR OFFICIAL MISCONDUCT (Presented by Directors Smith and Thompson) 5. 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 ACTION ITEMS 6. ENGINEERING AND WATER OPERATIONS a) APPROVE A CONSTRUCTION CONTRACT WITH ACE ELECTRIC, INC. FOR THE OWD ADMINISTRATION AND OPERATIONS PARKING LOT IMPROVEMENTS AND PH. I-LIGHTING & ELECTRIC VEHICLE CHARG- ING STATION PROJECT IN AN AMOUNT NOT-TO-EXCEED $369,495 (MARTIN) WORKSHOP 7. WORKSHOP ON THE RESULTS OF THE 2017 WATER COST OF SERVICE STUDY (BEACHEM/KOEPPEN) 8. ADJOURNMENT 2 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 website 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 attachments are also available through the District Secretary by contacting her at (619) 670-2280. 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 670-2280 at least 24 hours prior to the meeting. Certification of Posting I certify that on April 14, 2017, 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 14, 2017. /s/ Susan Cruz, District Secretary RESOLUTION NO. 4333 RESOLUTION OF THE BOARD OF DIRECTORS OF THE OTAY WATER DISTRICT TO CENSURE DIRECTOR HECTOR GASTELUM FOR OFFICIAL MISCONDUCT WHEREAS, the Otay Water District endeavors to foster public respect, confidence, and trust between its elected officials and the constituents whom it represents pursuant to Code of Ordinances, Board of Directors Policy, No. 40, Ethics, and; WHEREAS, the Otay Water District’s elected officials are required to be independent, impartial and responsible to the people and to conduct themselves in a manner above reproach, and; WHEREAS, the Otay Water District’s elected officials are expected to set an example which always demonstrates respect, confidence, and trust between themselves and the community they serve; and WHEREAS, it is the Otay Water District’s expectation that its elected officials will consistently behave in an ethical manner, show deference to those who disagree, and encourage public respect, confidence, and trust to all segments of the community they endeavor to serve, and; WHEREAS, in February 2017, Director Hector Gastelum posted a series of comments on social media, which comments were considered to be derogatory and offensive in nature, and which violated the Otay Water District’s ethical values of mutual respect and inclusion, and; WHEREAS, during the March 1, 2017 meeting of the Otay Water District’s Board of Directors, Director Gastelum failed to acknowledge the disparaging impact of his words and made further incendiary comments, and; WHEREAS, the Otay Water District’s Board of Directors reaffirmed its intolerance for discrimination, bias, or prejudice by adopting Resolution 4329 during the meeting of the Board of Directors on March 1, 2017 condemning discrimination on the basis of any legally protected status recognized by federal, state, or local laws, and; WHEREAS, by this Resolution the Board of Directors finds it necessary and prudent to publically acknowledge that Director Gastelum’s public behavior is reprehensible and intolerable, and; WHEREAS, by this Resolution the Board of Directors desires again to reinforce its commitment to mutual respect and inclusivity of all constituents of its diverse community; NOW, THEREFORE, BE IT RESOLVED by the Board of Directors of the Otay Water District that the above stated recitals are incorporated herein by reference; IT IS RESOLVED FURTHER that Director Gastelum’s comments to the media, on social media, and at the Board meeting on March 1, 2017, have demonstrated that he is not impartial and responsible to the people he represents and he has not conducted himself in a manner above reproach; and IT IS RESOLVED FURTHER that the Board of Directors hereby reaffirms its commitment to insuring that all constituents of the Otay Water District be treated with respect and integrity, and; IT IS RESOLVED FURTHER that Director Gastelum’s comments to the media, on social media, and at the Board meeting on March 1, 2017, do not set an example or the tone for demonstrating respect, confidence, and trust between the District, and the community it serves, and; IT IS RESOLVED FURTHER that Director Gastelum’s comments to the media, on social media, and at the Board meeting on March 1, 2017, have demonstrated that he has not conducted himself in a professional manner, or shown deference to those who disagree with him, and he has failed to encourage public respect, confidence, and trust, and; IT IS RESOLVED FURTHER that Director Gastelum’s comments to the media, on social media, and at the Board meeting on March 1, 2017,were reprehensible and intolerable, and they violated the Otay Water District’s ethical values of mutual respect and inclusion, and; IT IS RESOLVED FURTHER that Director Gastelum’s comments to the media, on social media, and at the Board meeting on March 1, 2017, violate Board of Directors Policy No. 40, Ethics Policy, and they constitute official misconduct, and; IT IS RESOLVED FURTHER that Director Gastelum’s comments to the media, on social media, and at the Board meeting on March 1, 2017, constitute cause for censure, and; IT IS RESOLVED FURTHER that Director Gastelum is hereby censured for his reprehensible and intolerable comments to the media, on social media, and his further incendiary comments during the March 1, 2017 Board meeting, and; IT IS RESOLVED FURTHER that the Board of Directors intends to monitor the future conduct of Director Gastelum and will consider further future actions should such future actions be deemed warranted, and; IT IS RESOLVED FURTHER that the Board of Directors, pursuant to § 5.03 of the Code of Ordinances, requests that the Board President under the powers granted to him, conduct a review of the current Committee assignments for Director Gastelum and determine whether a temporary or permanent removal of some or all said committee assignments might be appropriate at the present time. FINALLY BE IT RESOLVED that this resolution shall be in full force and effect immediately after its passage and approval. PASSED, APPROVED AND ADOPTED by the Board of Directors of the Otay Water District at a regular meeting held this 17th day of April, 2017. Ayes: Noes: Abstain: Absent: President ATTEST: District Secretary STAFF REPORT TYPE MEETING: Special Board MEETING DATE: April 17, 2017 SUBMITTED BY: Dan Martin Engineering Manager PROJECT: P2555-001103 P2547-001103 DIV. NO. 3 APPROVED BY: Rod Posada, Chief, Engineering German Alvarez, Assistant General Manager Mark Watton, General Manager SUBJECT: Award of a Construction Contract to Ace Electric, Inc. for the OWD Administration & Operations Parking Lot Improvements, PH. I – Lighting & Electric Vehicle Charging Station GENERAL MANAGER’S RECOMMENDATION: That the Otay Water District (District) Board of Directors (Board) award a construction contract to Ace Electric, Inc. (Ace Electric) and to authorize the General Manager to execute a construction contract with Ace Electric for the OWD Administration & Operations Parking Lot Improvements, PH. I – Lighting & Electric Vehicle Charging Station Project in an amount not-to-exceed $369,495.00 (see Exhibit A for Project location). COMMITTEE ACTION: Please see Attachment A. PURPOSE: To obtain Board authorization for the General Manager to enter into a construction contract with Ace Electric for the OWD Administration & Operations Parking Lot Improvements, PH. I – Lighting & Electric Vehicle Charging Station Project in an amount not-to-exceed $369,495.00. 2 ANALYSIS: The District’s Administration and Operations parking lots are in need of new area lighting. The existing lighting is antiquated and inefficient. The Project will involve improvements and upgrading of the parking lot lighting through the replacement of existing pole fixtures, wall mounted sconces, and canopy fluorescent lights with the appropriate LED specifications to provide illumination to meet Title 24 Lighting Compliance. The Project will also provide new lighting for the customer driveway. The lights will be programmed by a photocell to automatically turn on at dusk and off at sunrise. The lighting will also have the ability to dim and return to full intensity with a motion sensor. Another part of the Project will install an electric vehicle charging station. This will be located in the employee parking lot. The pedestal will also have the multifunctional ability to connect and power a temporary trailer which may be needed as part of an emergency response. The design was provided by the District’s As-needed Electrical Engineer, BSE Engineering. The Project was advertised on February 2, 2017 using BidSync, the District’s online bid solicitation website. The Project was also advertised in the Daily Transcript and the District’s website. BidSync provided electronic distribution of the Bid Documents, including specifications, plans, and addendum. A non- mandatory Pre-Bid Meeting was held on February 14, 2017, which was attended by eleven (11) contractors, subcontractors, and suppliers. One (1) addendum was sent out to all bidders and plan houses to address questions and clarifications to the contract documents during the bidding period. Bids were publicly opened on February 23, 2017, with the following results: BID RANK CONTRACTOR TOTAL BID AMOUNT 1 Ace Electric, Inc. San Diego, CA $369,495.00 2 GA Abell, Inc. DBA Precision Electric Co. Lakeside, CA $399,000.00 3 Baker Electric, Inc. Escondido, CA $488,953.70 4 Allstate Electric San Diego, CA $512,246.00* 5 Falcon Construction Co. San Diego, CA $525,250.00** 6 Servitek Solutions, Inc. City of Industry, CA $593,046.94 7 CTE, Inc. El Cajon, CA $638,593.00** * Total Bid Amount corrected due to math error. ** Unit price discrepancy. Bid total based on Unit price per Section 00400 “Bid List Requirements and Understanding” 3 The Engineer’s Estimate is $385,000.00. A review of the bids was performed by District staff for conformance with the contract requirements and determined that Ace Electric was the lowest responsive and responsible bidder. Ace Electric holds both a Class A - General Engineering and a Class C10 - Electrical Contractor’s License in the State of California, which meets the contract document’s requirements. The licenses are valid through March 31, 2018. The reference checks indicated a very good to excellent performance record on similar projects. An internet background search of the company was performed and revealed no outstanding issues with this company. Staff verified that the bid bond provided by Ace Electric is valid. Staff will also verify that Ace Electric’s Performance Bond and Labor and Materials Bond are valid prior to execution of the contract. Subsequent to the bid opening, GA Abell, Inc. DBA Precision Electric Co. (Precision Electric), the second lowest bidder, provided a request to the District for the complete bid package from Ace Electric (the apparent low bidder). District staff provided the requested information to Precision Electric to ensure a transparent bidding process. Staff followed up with Precision Electric who confirmed receipt of the requested information and also confirmed that they found no issues with Ace Electric’s bid package. FISCAL IMPACT: Joe Beachem, Chief Financial Officer The total budget for CIP P2555, as approved in the FY 2017 budget, is $500,000.00. Total expenditures, plus outstanding commitments and forecast, including this contract, are $498,842. See Attachment B-1 for the budget detail. The total budget for CIP P2547, as approved in the FY 2017 budget, is $125,000.00. Total expenditures, plus outstanding commitments and forecast, including this contract, are $87,770. See Attachment B-2 for the budget detail. Based on a review of the financial budget, the Project Manager anticipates that the budgets are sufficient to support the Project. The Finance Department has determined that, under the current rate model, 100% of the funding will be available from the Replacement Fund for CIP P2555, and for CIP P2547, 60% of the funding will be available from the Betterment ID 22 Fund and 40% of the funding will be available from the Expansion Fund. STRATEGIC GOAL: This Project supports the District’s Mission statement, “To provide high quality and reliable water and wastewater services to the 4 customers of the Otay Water District, in a professional, effective, and efficient manner” and the General Manager’s Vision, "A District that is innovative in providing water services at competitive rates, with a reputation for outstanding customer service." LEGAL IMPACT: None. DM:jf P:\WORKING\CIP P2555 Administration & Operations Parking Lot Improvements\Staff Reports\BD 04-17-17, Staff Report Admin & Ops Parking Lot Lighting & Vehicle Charging Station.doc Attachments: Attachment A – Committee Action Attachment B1 – P2555 Budget Detail Attachment B2 - P2547 Budget Detail Exhibit A – Project Location ATTACHMENT A SUBJECT/PROJECT: P2555-001103 P2547-001103 Award of a Construction Contract to Ace Electric, Inc. for the OWD Administration & Operations Parking Lot Improvements, PH. I – Lighting & Electric Vehicle Charging Station COMMITTEE ACTION: No Committee Meeting. NOTE: The “Committee Action” is written in anticipation of the Committee moving the item forward for Board approval. This report will be sent to the Board as a Committee approved item, or modified to reflect any discussion or changes as directed from the Committee prior to presentation to the full Board. ATTACHMENT B-1 – P2555 Budget Detail SUBJECT/PROJECT: P2555-001103 P2547-001103 Award of a Construction Contract to Ace Electric, Inc. for the OWD Administration & Operations Parking Lot Improvements, PH. I – Lighting & Electric Vehicle Charging Station Date Updated: 2/23/2017 Budget 500,000 Planning Standard Salaries 100 87 13 100 Total Planning 100 87 13 100 Design Standard Salaries 43,000 41,946 1,054 43,000 Equipment Charges 50 40 10 50 EQUIPMENT CHARGES Service Contracts 33,760 22,505 11,255 33,760 BSE ENGINEERING INC 4,850 4,850 - 4,850 INLAND AERIAL SURVEY INC Total Design 81,660 69,341 12,319 81,660 Construction Standard Salaries 40,000 9,812 30,188 40,000 Construction Contract 330,565 - 330,565 330,565 CONSTRUCTION CONTRACTOR - ACE ELECTRIC, INC. 10,000 - 10,000 10,000 ALLOWANCE - UNKNOWN UTILITES 10,000 - 10,000 10,000 ALLOWANCE - REPLACEMENT HARDWARE OR SIGNAGE Service Contracts 10,000 - 10,000 10,000 ALYSON CONSULTING-CM 750 - 750 750 MAYER 100 - 100 100 DAILY JOURNAL CORP Standard Materials 1,000 - 1,000 1,000 STANDARD MATERIALS Equipment Charges 1,000 30 970 1,000 EQUIPMENT CHARGE Regulatory Agency Fees 150 - 150 150 PETTY CASH CUSTODIAN Project Closeout 3,000 - 3,000 3,000 CLOSEOUT Project Contingency 10,517 - 10,517 10,517 3% CONTINGENCY Total Construction 417,082 9,842 407,240 417,082 Grand Total 498,842 79,270 419,572 498,842 Vendor/Comments Otay Water District P2555 - Admin & Operations Parking Lot Committed Expenditures Outstanding Commitment & Projected Final Cost ATTACHMENT B-2 – P2547 Budget Detail SUBJECT/PROJECT: P2555-001103 P2547-001103 Award of a Construction Contract to Ace Electric, Inc. for the OWD Administration & Operations Parking Lot Improvements, PH. I – Lighting & Electric Vehicle Charging Station Date Updated: 2/23/2017 Budget 125,000 Planning Standard Salaries 400 365 35 400 Total Planning 400 365 35 400 Design Standard Salaries 20,000 15,797 4,203 20,000 Service Contracts 13,600 9,350 4,250 13,600 BSE ENGINEERING INC Total Design 33,600 25,147 8,453 33,600 Construction Standard Salaries 25,000 - 25,000 25,000 Construction Contract 13,400 - 13,400 13,400 CONSTRUCTION CONTRACTOR - Ace Electric, Inc. 5,000 - 5,000 5,000 ALLOWANCE - UNKNOWN UTILITES Service Contracts 5,000 - 5,000 5,000 ALYSON CONSULTING-CM 250 - 250 250 MAYER 50 - 50 50 DAILY JOURNAL CORP Standard Materials 1,500 1,500 1,500 STANDARD MATERIALS Equipment Charges 500 500 500 EQUIPMENT CHARGE Regulatory Agency Fees 150 - 150 150 PETTY CASH CUSTODIAN Project Closeout 2,000 - 2,000 2,000 CLOSEOUT Project Contingency 920 - 920 920 5% CONTINGENCY Total Construction 53,770 - 53,770 53,770 Grand Total 87,770 25,512 62,258 87,770 Vendor/Comments Otay Water District P2547 - Electric Vehicle Charging Station Committed Expenditures Outstanding Commitment & Projected Final Cost OTAY WATER DISTRICTOWD ADMINISTRATION & OPERATIONS PARKING LOTIMPROVEMENTS, PH. I - LIGHTING & VEHICLE CHARGING STATION LOCATION MAP CIP P2555 F P:\WORKING\CIP P2555 Administration & Operations Parking Lot Improvements\Graphics\Exhibits-Figures\Exhibit A - Staff Report.mxd !\ VICINITY MAP PROJECT SITE NTSDIV 5 DIV 1 DIV 2 DIV 4 DIV 3 ?ò Aä%&s ?p ?Ë F 0 250125 Feet EXHIBIT A CIP P2547 AU S T I N D R B LV D B L V D SPRIN GS JAMACHA ADMINISTRATIONPROJECT SITE OPERATIONSPROJECT SITE S W E ET WATER 1 STAFF REPORT TYPE MEETING: Special Board Meeting MEETING DATE: April 17, 2017 SUBMITTED BY: Kevin Koeppen, Finance Manager PROJECT: DIV. NO. All APPROVED BY: Joseph R. Beachem, Chief Financial Officer German Alvarez, Assistant General Manager Mark Watton, General Manager SUBJECT: Present to the Board the Results the Current Water and Sewer Cost of Service Study Prepared by HDR Engineering, Inc. and Obtain Direction to Prepare the Fiscal Year 2018 Budget Using the Recommended Rate Structure GENERAL MANAGER’S RECOMMENDATION: This is an informational item only. COMMITTEE ACTION: See Attachment A. PURPOSE: Present to the Board the results of the current water and sewer cost of service study prepared by HDR Engineering, Inc. and obtain direction to prepare the Fiscal Year 2018 Budget using the recommended rate structure. BACKGROUND: 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. This cost of service study is an important tool when setting retail rates because as water use and cost drivers change over time, imbalances may occur in the equity of how various customer classes pay for water. It has been four years since the District’s last water rate study was performed. Since then changes in usage patterns and the legal environment have occurred that warrant the study be updated at this time. Since 2014, the District has experienced changes in usage patterns due to the drought. While the Governor has since lifted the drought declaration, the removal of lawns and transition to drought tolerant landscaping is expected to have a long-term impact on usage patterns. This change has been incorporated into the rate design. The State of California has certain well-established legal constraints regarding utility rate making, of which the California Constitution Article XIII D, Section 6 (commonly referred to as “Proposition 218”), is at the forefront. Proposition 218 requires a water (and sewer) utility to establish cost-based rates for the services provided. At the time of the last comprehensive water rate study conducted for the District in 2013, the technical analysis was structured and developed to comply with the requirements of Proposition 218. However, since the completion and adoption of the District’s rates in 2013, additional court cases within California have further clarified the issue of defining a “cost-based” rate structure which meets the legal requirements of Proposition 218. When performing a rate study it is important to note that revenue neutrality is maintained. This means that an agency collects the same amount of total revenue through fees and charges, but the individual customer bill may vary based on changes to the rate structure. Customers that drive costs higher pay more and customers that keep cost low pay less. 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 set by the findings of the rate study, higher budgeted costs such as water and power along with sales volume changes, determine the necessary rate increases. The District’s FY 2017 Budget and rate model were used for this cost of service calculation. Setting rates based on cost of service in compliance with Proposition 218 was the primary goal of this cost of service study. The current rate study examined the equity and assigned 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, reservoirs, etc.) must be sized to meet peak demands. The costs associated with servicing peak demand capacity is greater than the costs associated with base usage; therefore, the customers that drive the peaking pay for the costs associated with the sizing of the infrastructure necessary to meet those demands. This study calculated peaking factors using the actual FY 2015 customer usage as it more accurately represented the annual usage levels staff is expecting over the next five years. Staff did not use FY 2017 usage data due to a lack of data being available when the cost of service study began. FY 2016, usage data was not used due to the reduced usage as a result of the Governor’s drought mandate. As part of this study the District also looked to:  Recommend a rate structure that is compliant with Proposition 218 requirements and is the least disruptive to the District’s customers.  Simplify the District’s rate structure, where possible.  Evaluate the water tiered rate structure(s).  Evaluate cost allocation to various customer classes and tiers.  Evaluate the fixed cost revenues to ensure they match the fixed cost charges.  Evaluate the assignment of pressure zones to fairly charge energy costs related to pumping.  Evaluate water meter equivalencies using AWWA’s hydraulic capacity factors for water customers. Tom Gould and his team from HDR Engineering performed the cost of service 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 equitably allocated between the various usage types, customer classes of service, and tiers. 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 being presented include the following changes. Subsequent to the listing is a discussion regarding the impact each of these changes will have on each of the customer classes.  The conservation tier for residential customers has been eliminated reducing the number of residential tiers from 4 tiers to 3 tiers.  Modify the system fees from the current flat rate for all customers based on meter size to a fee based on customer type and meter size. Costs associated with certain customer characteristics (fire flow, required flow rate, etc.) differ between customer types and meter sizes. For example: Residential fire flow, flow rates and flow duration are substantially different from multi-residential or commercial customers. The later customers require greater gallon-per- minute flow and duration, which requires the system to be upsized. Therefore, the additional costs associated with upsizing the facility should be equitably allocated to these customers.  Irrigation, Commercial, and Public customer’s variable rate structures have been changed from a tiered rate structure to a unitary or flat rate structure. The current pricing structure has minor differences between tiers, which more closely resembles a unitary rate. For these customer types, the tiered rate cost differential is minimal and provides no discernable benefit. Changing the rate structure for these customers will simplify the District’s rate structure. Residential The elimination of the conservation tier will increase the average monthly bill for those users in the lowest water use tiers. The table below summarizes the impact of the changes in the water rate structure to customers at their respective usage levels. Multi-Family There were no recommended changes to the tiered rate structure for multi-family customers. The change in the system fee structure will, on average, increase the monthly costs of multi-family customers with a meter that is 1.5” or smaller and use less than 11 units of water per dwelling unit per month. Multi-family customers with meters 2” or greater will likely see a decrease in the monthly charge. In general, lower use customers will see an increase in their monthly bill due to the increase fixed charges. This increase is partially offset by decreases in the rate structure’s variable rate component. The table below summarizes the fee impact per dwelling unit for multi-residential customers. Average Monthly Usage Range (Units) Average Usage # of Customers Current Proposed Increase/ (Decrease) 0 - 5 3.2 6,456 $39 $42 $3 6 - 9 7.4 158,990 $53 $55 $2 10 - 20 14.1 17,430 $91 $86 ($5) 21 - 30 25.7 3,579 $161 $153 ($8) 31 - 50 42.3 1,307 $294 $270 ($24) Average Monthly Fees Commercial/Public Staff is recommending that the commercial and public customer class rate structure be changed to a unitary rate, which would eliminate the current tiered rate structure. The current tiered pricing has little pricing variation between the first tier and the third tier, which provides no significant benefit. This modification will have a minimal impact on customer fees. The modification of the system fees will have a greater impact on the commercial and public customers. The table below summarizes the fee impact to these customers with meter sizes from ¾” to 2”, which represents approximately 95% of this customer class. Potable Irrigation Staff is recommending that the potable irrigation customer class rate structure be changed to a unitary rate, which would eliminate the current tiered rate structure. Similar to commercial and public customer classes, the current tiered pricing has little pricing variation between the first tier and the third tier, which provides no significant benefit. This modification will have a minimal impact on customer fees. The modification of the system fees will have a greater impact on the irrigation customers. The table below summarizes the fee impact to these customers. Average Monthly Usage Range (Units) Average Usage # of Customers Current Proposed Increase/ (Decrease) 0 - 5 3.8 338 $20 $23 $3 6 - 9 7.2 177 $46 $49 $3 10 - 20 13.0 51 $93 $92 ($1) 21 - 30 22.4 9 $166 $152 ($13) Average Fees per Dwelling Unit Average  Usage per  Month  (Units) Average Usage # of Customers Current Proposed Increase/ (Decrease) 0 > 10 4.6 402 $94 $129 $35 11 ‐ 75 30.0 644 $221 $249 $28 76 ‐ 300 146.0 235 $785 $771 ($15) 301 ‐ 1000 494.0 66 $2,438 $2,267 ($171) Average Fees per Month Recycled Irrigation Staff is recommending that the recycled irrigation customer class rate structure be modified to a unitary rate, which would eliminate the current tiered rate structure and the system fee be calculated based on the characteristics of the class. The current tiered pricing has little pricing variation between the first tier and the third tier, which provides no significant benefit. The modification in the calculation of the system fee will provide a more precise method of charging customers based on their specific characteristics. The table below summarizes the impact of this change to these customers. Recycled Commercial Staff is recommending that the recycled commercial customer class rate structure be modified to a unitary rate, which would eliminate the current tiered rate structure and that the system fee be calculated based on the characteristics of the class. The current tiered pricing has little pricing variation between the first tier and the third tier, which provides no significant benefit. The modification in the calculation of the system fee will provide a more precise method of charging customers based on their specific characteristics. The below table demonstrates the impact of this change to these customers. Average Usage  per Month  (Units) Average Usage # of Customers Current Proposed Increase/ (Decrease) 0 > 10 5.0 89 $99 $123 $24 11 - 75 38.5 475 $313 $329 $16 76 - 300 148.9 491 $974 $948 ($26) 301 - 1000 422.5 75 $2,578 $2,416 ($162) Average Fees per Month Average  Usage per  Month  (Units) Average Usage # of Customers Current Proposed Increase/ (Decreas e) 0 > 10 5.0 22 $103 $127.94 $25 11 - 75 39.0 189 $286 $288.44 $3 76 - 300 159.9 352 $898 $811.66 ($86) 301 - 1000 471.9 122 $2,476 $2,135.00 ($341) Average Fees per Month 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 2018 rate model and budget. In May of 2018, staff will request the Board approve the FY 2018 budget and direct staff to move forward with the Proposition 218 process. Only after the Proposition 218 hearing can the Board approve the rates and rate structure changes. In 2013 the District did a five-year Proposition 218 notice. The District as well as many other agencies has used this five-year process with very positive results. 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 also approves a separate maximum rate increase for the portion of rates due to increases in internal costs. Supplier costs have historically been defined as costs charge by SDG&E, CWA, MWD, and Metro. As part of the FY 2018 budget process, staff will again recommend a five-year Proposition 218 notice. In mid-2017, staff will prepare the Proposition 218 notices and in mid to late 2017 a Proposition 218 hearing will be held to adopt the rates. After the Proposition 218 hearing, the proposed rate structures and rate increase provisions would be effective in January 2018, giving the required lead time to customers and allowing staff the time to test and implement the various changes. FISCAL IMPACT: Joe Beachem, Chief Financial Officer None. STRATEGIC GOAL: The District ensures its continued financial health through sound policies and procedures. Average  Usage per  Month (Units) Number of  Customers Current Proposed Increase/ (Decrease) 11000 2 $41,464 $34,275 ($7,189) Average Fees per Month LEGAL IMPACT: None. Attachments: A) Committee Action Form B) HDR Memorandum – Water Rates C) Presentation ATTACHMENT A SUBJECT/PROJECT: Present to the Board the Results the Current Water and Sewer Cost of Service Study Prepared by HDR Engineering, Inc. and Obtain Direction to Prepare the Fiscal Year 2018 Budget Using the Recommended Rate Structure COMMITTEE ACTION: This is an informational item only. NOTE: The “Committee Action” is written in anticipation of the Committee moving the item forward for board approval. This report will be sent to the Board as a committee approved item, or modified to reflect any discussion or changes as directed from the committee prior to presentation to the full board.    Review of the District’s Potable and Recycled Water Rates 1 Otay Water District                Introduction The District currently has four different potable water rate schedules; residential, multi‐family,  commercial/public agency and irrigation.  Each of these distinct and individual rate schedules  utilizes a tiered water rate structure.  At the same time, the District also has recycled water rates  for recycled commercial and irrigation customers.  The District requested that HDR review the  District’s tiered rates in the context of the recent court decisions interpreting Proposition 218  and the need to continue to maintain cost‐based water rates.    The State of California has certain well established legal constraints regarding utility ratemaking,  of which California Constitution article XIII D, section 6 (commonly referred to as “Proposition  218”)1 is at the forefront.  At its very core, Proposition 218 requires a water (and sewer) utility to  establish cost‐based rates for the services provided.  At the time of the last comprehensive water  rate study conducted for the District in 2013, the technical analysis was structured and developed  to comply with the requirements of Proposition 218, as they were known and understood at that  time.  However, since the completion and adoption of the District’s rates in 2013, additional court  cases within California have further clarified the issue of defining a “cost‐based” rate structure  which meets the legal requirements of Proposition 218.      Tiered Pricing, Conservation and Efficient Use California has always recognized the importance and value of water supply.  Efficient water use,  and discouragement of inefficient or wasteful use, has been at the heart of many water utility  conservation programs.  In particular, one of the important conservation tools historically used  by water utilities is conservation pricing and conservation‐oriented rate structures to encourage  efficient use through price signals2.  Tiered rate structures impose progressively higher rates for  water service as the relative level of consumption increases.  They are designed to allocate a  greater proportional share of the cost of providing service to those customers whose water usage  creates greater demands and burdens on the water system and water resources and therefore  generates additional costs to a local agency for providing water service.  Tiered rates also have  the incidental effect of encouraging conservation.  It is a well‐recognized economic principle that  as the price of a commodity increases, the demand for the commodity will go down.  By creating  water rate structures which increase in per unit price, as consumption becomes less efficient, the  high use or inefficient water user is provided with a “price signal” to be more efficient in their  usage.                                                            1 Proposition 218, enacted by California's voters in 1996, imposes certain procedures, requirements and voter  approval mechanisms for local government assessments, fees and charges.  2 The California Urban Water Conservation Council (CUWCC) has best management practices (BMP) as they relate  to conservation pricing. The 2013 Atkins report discussed the conservation rate design BMPs (Section 2.0, p. 9).  Technical Memorandum Review of the District’s Water Rates Attachment B    Review of the District’s Potable and Recycled Water Rates 2 Otay Water District    Since the District’s last rate study, the Capistrano Taxpayers Association vs. City of San Juan  Capistrano has provided greater clarity with regard to tiered rate structures and the need to  demonstrate the cost‐basis for the pricing of the tiers.  The study undertaken herein was  designed to review the District’s existing rates and, where appropriate, to provide a rate design  that is intended to be compliant with the requirements of Proposition 218, as it is currently  understood.  In those instances where a tiered rate was to be maintained, the study is designed  to provide a clear cost basis for the tiered rate structures. The following discussion provides an  overview of the approach taken to analyze the District’s rates.   Overview of the District’s Current Rates The District currently has in place potable and recycled water rates.  The potable water rates are  segregated by customer classes of service; residential, multi‐residential, commercial and  irrigation.  Each of these rates is a tiered rate structure (increasing price per unit with increasing  consumptive use) and the size of each tier (volume of water included within the tier) varies by  class of service and by meter size.  The current structure for irrigation and commercial customers  has very little difference in the pricing of tiers, which more closely resembles a uniform rate  structure.  The use of a tiered rate structure in this manner adds a level of complexity to the  District’s rates with no discernible benefit from a customer equity or conservation perspective.   Given that, this study has been developed to consider a more simplified approach to the District’s  rate structures, while still maintaining equity and the cost‐basis for each.     The District’s recycled water rates, for recycled irrigation and recycled commercial customers,  are similar in structure to the potable water rates for irrigation and commercial customers in that  they also utilize a tiered rate structure.  The tier sizes for each rate varies by meter size with very  little difference in the pricing of the tiers.  Similar to the potable water rate structures, HDR  concluded that the recycled water rates could also be simplified by collapsing the tiers with little  impact to equity and the cost‐basis for the rates.    It is also important to gain an understanding of the District’s current rates since the cost of service  analysis, undertaken herein, will need to be structured to provide the cost information needed  to design cost‐based rates, which includes the pricing of any tiered (increasing block price) rate  structures.    Technical Analyses Utilized in the Review of the District’s Costs/Rates A comprehensive rate study is generally comprised of the three interrelated analyses shown  below in Figure 1.         Review of the District’s Potable and Recycled Water Rates 3 Otay Water District    Figure 1 Overview of the Comprehensive Rate Study Process   The study conducted by HDR included the three technical analyses discussed above. In  establishing cost‐based rates the revenue requirement determines the overall revenue needs of  the utility. The cost of service provides an equitable allocation of the cost to the different types  of customers served, while also providing per unit costs which become the basis for the final rate  designs. The rate design analysis utilizes the unit costs from the cost of service study to establish  the final proposed rates.  Each of these elements of the technical analysis is discussed in more  detail below.    Summary of the Revenue Requirement Analysis A revenue requirement analysis was assembled based upon the District’s financial planning/rate  model.  The revenue requirement was developed using a “cash basis” methodology which is a  generally accepted3 rate making practice. Under this methodology, the District’s operation and  maintenance expenses, rate funded capital, debt service, and any change in working capital are  summed to equal the total revenue requirement.  A summary of the District’s revenue  requirement analysis is shown below in Table 1.                                                             3 “Generally accepted” ratemaking methodologies are defined and reviewed within the American Water Works  Association M‐1 Manual, Principles of Water Rates, Fees and Charges.  Revenue Requirement Analysis  Compares the sources of funds (revenues)  to the expenses of the utility to determine  the overall adjustment to rates   Cost of Service Analysis  Allocates the total revenue requirements  to the various customer classes of service  in a “fair and equitable” manner  Rate Design Analysis Design cost‐based rates using the  results of the revenue requirement and  cost of service analyses      Review of the District’s Potable and Recycled Water Rates 4 Otay Water District    Table 1 Summary of the District’s FY 2016/17 Revenue Requirement Analysis ($1,000) [1] Revenue Requirement Components   Total    ($1,000)   Revenues ‐      Total Rate Revenues [2] $77,430    Miscellaneous Revenues     9,777     Total Revenues $87,207       Expenses ‐      O&M Expenses      Water Costs $50,186     Administrative Expenses 4,921     Materials and Maintenance 2,413     Labor and Benefits     19,921           Subtotal O&M Expenses $77,441       Rate Funded Capital $3,347    Debt Service 7,288    Change in Working Capital         (868)     Total Revenue Requirement $87,207     Balance/Deficiency of Funds $0   [1] – The detailed revenue requirement analysis can be found on Exhibit 1 of the Technical Appendix   [2] – Rate Revenues are a blend of the rates implemented March 1, 2016 and those implemented January  1, 2017; final rate designs are based on allocated costs    In viewing Table 1, a few items should be noted. First, the revenues and expenses within this  table were derived from the District’s financial planning/rate model.  HDR utilized the data and  information within that planning model to assemble the revenue requirements shown above.  Next, the rate revenues shown within this table incorporate (i.e., include) the recently adopted  January 1, 2017 water rates. This revenue requirement is based on the FY 2017 budget and  related financial assumptions including a 5.0% rate increase, which was effective January 1, 2017.    On the expense side of the analysis, the major expense item for the District is the cost of water  supply which is approximately 57% of the District’s total revenue requirement.  The District does  incur significant costs associated with the operation and maintenance of their distribution system  and the capital costs associated with infrastructure renewal and replacement.  Finally, the total  revenue requirement shown in Table 1 contains both potable and non‐potable costs. Given that,  the next step of the analysis was to allocate the total revenue requirement between potable and  non‐potable costs.    The allocation of the total revenue requirement between potable and non‐potable costs was  generally provided within the District’s accounting system and their financial planning and rate     Review of the District’s Potable and Recycled Water Rates 5 Otay Water District  model.  The vast majority of the costs are accounted for between these two types of services.  Provided below in Table 2 is a summary of the allocation of the total revenue requirement  between the potable and non‐potable (recycled) utilities.    Table 2 Summary of the District’s FY 2016/17 Revenue Requirement Analysis Allocated Between Potable and Non-Potable Utilities ($1,000) [1] Revenue Requirement Components  Total   ($1,000)  Potable  ($1,000)  Non‐Potable  ($1,000)   Revenues ‐        Total Rate Revenues [2] $77,430 $70,153 $7,277   Miscellaneous Revenues     9,777     8,145    1,632    Total Revenues $87,207 $78,298 $8,909     Expenses ‐     O&M Expenses     Water Costs $50,186 $46,001 $4,185    Administrative Expenses 4,921 4,590 331    Materials and Maintenance 2,413 2,109 305    Labor and Benefits   19,921   18,581   1,339          Subtotal O&M Expenses $77,441 $71,281 $6,160     Rate Funded Capital $3,347 $2,745 $602   Debt Service 7,288 6,095 1,192   Change in Working Capital      (868)    (1,822)     954    Total Revenue Requirement $87,207 $78,298 $8,909    Balance/Deficiency of Funds $0 $0 $0  [1] – The detailed revenue requirement analysis can be found on Exhibit 1 of the Technical Appendix   [2] – Rate Revenues are a blend of the rates implemented 3.1.16 and those implemented 1.1.17; final rate  designs are based on allocated costs    Table 2 provides the costs to be allocated within the cost of service analysis. For the potable  water system the total potable water costs of $78.3 million will be equitably allocated to the  potable water customers. Similar to the potable water analysis, the non‐potable (recycled) water  costs will be equitably allocated to the non‐potable water customers. This process is described  in more detail below.     Analytical Steps of a Cost of Service Analysis Before discussing the results of the cost of service analysis it is important to gain an  understanding of the general approach used within a cost of service analysis.  In general, there  are three analytical steps of a cost of service analysis.  First, costs are functionalized and arranged  in a manner that reflects the operational function of the cost incurred (e.g., supply, treatment,  transmission, distribution, etc.).  Costs are typically functionalized within a utility’s accounting     Review of the District’s Potable and Recycled Water Rates 6 Otay Water District  system (chart of accounts).  Next, the functionalized costs are classified to cost components.  The  cost components are typically assigned on the basis of meeting volume or total flow, capacity  (peak use), customer and/or fire‐protection‐related needs.  For example, water supply costs may  be a function of meeting total flow requirements, but also of meeting the customer demands for  peak capacity use.  Finally, given the classification of the total revenue requirements to the  various cost components, they are allocated to the various customer classes of service on a  proportional basis.  For example, volume or flow‐related costs are allocated to each customer  class of service (e.g., residential, multi‐residential, etc.) in proportion to the total consumption of  a particular class of service.   At the conclusion of the cost of service study, two key pieces of information are provided. First,  the cost of service provides an understanding of the total dollars to be collected from each class  of service. In other words the potable water revenue requirement is $78.3 million and the cost  of service provides an equitable method to assign that total cost between the various customer  classes of service (e.g., residential, multi‐residential, commercial, etc.).  The other important  piece of information provided by the cost of service analysis is the average unit costs. Average  unit costs are the allocated costs divided by the appropriate consumption units. This provides an  understanding of the cost on a $/customer/month and $/hundred cubic feet (CCF) basis.  These  average unit costs are essentially the cost‐based water rates.    A cost of service analysis was conducted for both the potable and non‐potable water systems.  The potable cost of service analysis is the more complex of the two will be discussed first.   Summary of the Potable Water Cost of Service Analysis Provided below is a brief overview and discussion of the three analytical elements undertaken as  a part of the potable water cost of service; functionalization, classification and allocation.  The  potable cost of service analysis utilizes the costs contained in Table 2 to determine the total costs  to be collected from potable water rates.  Table 3 provides a summary of the amount of the total  revenue requirement to be collected from potable water rates.    Table 3 Summary of the District’s FY 2016/17 Revenue Requirement to be Collected From Potable Rate Revenues ($1,000) Revenue Requirement Components  Total   ($1,000)   Total Revenue Requirement $78,298   Less: Miscellaneous Potable Water Revenues      (8,145)    Balance to be Collected From Potable Water  Rates $70,153    Given the target level of potable rate revenue to be collected, the focus shifted to the cost of  service analysis.  Provided below is a brief overview of the analytical steps within the cost of  service analysis of functionalization, classification and allocation of costs.     Review of the District’s Potable and Recycled Water Rates 7 Otay Water District    Functionalization of the Cost Data  The first analytical step of the cost of service analysis is to functionalize the cost data.  Functionalization of the cost data is simply arranging the cost data into categories reflecting their  operational nature.  In this case, the data is functionalized within the District’s accounting system  (i.e. chart of accounts) and provides sufficient detail for purposes of this study.     Classification of the Cost Data  The second analytical step of the cost of service analysis is the classification of the cost data.   Costs incurred by a water system are generally responsive to specific service requirements or  cost drivers.  Classification assigns costs to the various cost drivers or cost components.  The  principle service requirements that drive costs include, but are not limited to, meeting average  demands, peak use demands, the number of customers served by the system and public fire  protection requirements.  Under a base/extra‐capacity cost of service methodology4 the costs  associated with meeting average day demands are considered “base‐related” costs and any costs  associated with meeting peak use demands are considered “extra‐capacity” related costs.  Extra  capacity can be related to meeting peak day or peak hour demand events.  As noted above, extra‐ capacity is defined as the costs associated with meeting peak use demands over and above (i.e.,  in excess of) average (base) demands.    Allocation of the Cost Data  The final step of the cost of service analysis is the allocation of the classified costs.  For each type  of classified cost, an allocation factor must be developed to equitably allocate the classified costs  to the various customer classes of service (e.g., single‐family residential, multi‐family, etc.).  For  example, base or average demand costs are equitably allocated to each customer class of service  based upon their average day use (average demand).  Similar methods were used to equitably  allocate each of the cost classifiers.    In the cost of service analysis, the question arises as to the cost‐basis for tiered rates. In other  words, why does it cost more on a per unit basis to serve the customer consuming water in Tier  3 as opposed to Tier 1?  The major cost difference associated with serving a customer in Tier 3  versus Tier 1 is primarily driven around peak use demands.   A customer in Tier 3 will generally  place a greater demand on the system, compared to their average annual use, than a Tier 1  customer, and their average annual use. This usage characteristic is called a “peaking factor” and  a Tier 3 customer will have a higher peaking factor than a Tier 1 customer.  For example, a Tier 3  customer may have high summer use creating large demands on the District’s system.  In  response to this demand, this requires the District to oversize facilities to meet these peak use  demands, and incur greater capital costs to construct these over‐sized facilities.  A basic economic  principle states that those who create the peak demand costs should pay for the peak demand  costs. By following this basic cost principle, those customers creating the peak demands on the  system in the summer, pay an equitable and proportional share of the cost of those facilities.   Stated in an alternative way, the District’s system would be considerably different (i.e., smaller                                                          4 The base/extra‐capacity cost of service methodology is a generally accepted cost of service methodology.     Review of the District’s Potable and Recycled Water Rates 8 Otay Water District  and less expensive capital investment) if all customers consumed water in a manner similar to  Tier 1 customers.   HDR spent considerable time reviewing individual customer data and information to estimate  and determine reasonable peaking factors by customer class of service.  This information is used  to equitably allocate the capacity related costs within this study.   Summary of the Potable Cost of Service Analysis  Provided below is a summary of the allocation of the total revenue requirements by customer  class of service.     Table 4 Summary of the Potable Revenue Requirement Allocated to the Various Potable Water Customer Classes of Service ($1,000) [1] Customer Class of Service  Present  Rate  Revenues  ($1,000) [1]  Allocated  Revenue  Requirement ($1,000)   Bal./(Defic.)  of Funds  ($1,000)  % Change  in Rates    Residential $40,665 $40,408 $258 0.6%    Multi‐Residential 7,832 7,706 127 1.6%    Commercial 9,145 9,152 (8) 0.1%   Irrigation 10,347 10,693 (346) 3.3%   Energy Fees   2,164     2,195     (31)     1.4%    Total Net Revenue  Requirement $70,153 $70,153 $0 0.0%   [1] – Rate Revenues are a blend of the rates implemented March 1, 2016 and those implemented January 1,  2017; final rate designs are based on allocated costs (i.e., allocated revenue requirement)   The above results indicate that the customer classes of service are at or near their cost of service.   This means that the District’s overall revenues collected from each customer class of service is  reasonably close to their “cost of service.”  In making this statement, it is important to note that  a cost of service study is an analysis of a point in time and the District’s costs, customer  consumption patterns and total usage change over time.  In that respect, a cost of service is a  static analysis of a dynamic and ever‐changing situation.  The recent drought in California has  clearly pointed this fact out.   Summary of the Potable Cost of Service Average Unit Costs  As discussed previously, the cost of service also provides average unit costs, or the starting point  for the design of final cost‐based potable water rates.  Average unit costs are simply the classified  cost (base, extra‐capacity, customer, etc.) divided by the appropriate consumption units (CCF  annual usage or number of customers/meters).    While Table 4 above summarized the results of the cost of service analysis by customer class of  service, the cost of service also contains sufficient detail to understand costs by pricing tier.   Provided below in Table 5 is a summary of the average unit costs for the potable cost of service  analysis.     Review of the District’s Potable and Recycled Water Rates 9 Otay Water District        Table 5 Summary of the Residential and Multi-Residential Potable Cost of Service Average Unit Costs             System Cost Component Average Tier 1Tier 2Tier 3Tier 1Tier 2Tier 3Tier 1Tier 2Tier 3Tier 1Tier 2Tier 3 Consumption Calculated Cost $3.98 $3.03 $5.40 $6.97 $2.83 $5.13 $6.30 $3.58 $3.58 $3.58 $5.23 $5.23 $5.23 Current Tiered Rates (1.1.17) $3.95 $5.13 $7.90 $3.90 $5.05 $7.80 $4.17 $4.23 $4.30 $5.68 $5.74 $5.81 $ / CCF Difference ($0.92) $0.27 ($0.93) ($1.07) $0.08 ($1.50) ($0.59) ($0.65) ($0.72) ($0.45) ($0.51) ($0.58) Fixed Charge ($/Mth ‐ 3/4" Mtr) Calculated Cost $20.63 $17.24 $37.91 $35.71 $30.15 Current Tiered Rates (1.1.17) $15.91 $15.91 $15.91 $15.91 $15.91 $ / CCF Difference $4.72 $1.33 $22.00 $19.80 $14.24 CWA / MWD Charge Calculated Cost $15.18 $15.18 $15.18 $15.18 $15.18 Current Tiered Rates (1.1.17) $15.00 $15.00 $15.00 $15.00 $15.00 $ / CCF Difference $0.18 $0.18 $0.18 $0.18 $0.18 Energy Fee / Charge ($/CCF) Calculated Cost $0.0 Current Tiered Rates (1.1.17)$0.04 $ / CCF Difference $0.0 Irrigation Energ Residential Multi‐Residential Commercial    Review of the District’s Potable and Recycled Water Rates 10 Otay Water District    In viewing the above table, it can be seen that there are differences in the per unit rates which  are currently in effect (effective January 1, 2017) and the calculated average unit costs.  While  Table 4 demonstrated that each class of service appears to be paying their relative cost of service  (total dollars), the average unit costs illustrates cost differences in the various cost components.    One of the main focuses of this study is on the tiered rates for residential and multi‐residential  customers.  The top portion of Table 5 compares the calculated per unit cost to the current rates5.   For residential, the analysis indicates that the current 1st and 3rd tier pricing is too high, and the  2nd tier is below cost.  This result is not particularly surprising since, as noted above, consumption  and usage patterns have dramatically changed over time and in more recent years.  The current  rates were originally developed in 2013 and the consumption and usage patterns of residential  customers have changed in recent years as a result of the drought.  Total consumption has  declined almost 25% over this time period and peak summer use has also declined, resulting in  lower peaking factors for the third tier and lower per unit costs.  The reduction in the cost of the  first tier can be primarily explained in conjunction with the fixed charge.  The calculated fixed  charge has increased for residential which is off‐set by the lower per unit consumption charge  for Tier 1.  Interestingly, multi‐residential has a similar profile in terms of the pricing between  Tiers 1, 2 and 3.     For commercial and irrigation customers it was concluded that a uniform consumption charge  would be appropriate.  The present rates have tiered pricing, but the price differential between  the tiers results in essentially a uniform rate.  For that reason, along with a desire for  simplification in the overall rate structure, a uniform consumption charge approach is used.    The fixed charges, based upon meter size, are the other major component of the District’s  potable water rate structure.  At the present time, the District has a single schedule of meter  charges which vary by meter size (¾” – 10”).  In calculating the average unit costs for fixed  charges, they were calculated on an individual class of service basis and by the overall system  average total.  The overall system average total is $20.63/month for a 3/4” meter.  This compares  to the current fixed meter charge of $15.91/month for a 3/4” meter.   The analysis also calculated  fixed meter charges for each class of service and these range from $17.24/month for a 3/4” meter  to $37.91/month for a 3/4” meter.  The obvious question is why do the fixed meter charges vary  for the different classes of service?  The answer is that certain costs which are collected within  the fixed meter charges were not allocated within the cost of service study on a per meter basis,  but they are collected within the rates on a per meter basis.  A simple example will illustrate this  issue.  Public fire protection costs are related to fire hydrants, along with the over‐sizing of  distribution mains and storage to provide public fire protection.  These costs are classified as  being public fire protection‐related and then allocated to each customer class of service on the  basis of each group’s fire protection requirements (gallons per minute of fire flow and the  duration of flow).  A residential customer does not have the same fire flow requirements as a  large multi‐residential or commercial building.  A large multi‐residential or commercial building                                                          5 Residential currently has four (4) pricing tiers, with the first tier being a “conservation tier.”  This initial  “conservation tier was eliminated, since by definition, it is a below‐cost tier to encourage conservation from low  users.     Review of the District’s Potable and Recycled Water Rates 11 Otay Water District  requires a greater gallon per minute flow and for a longer duration.  Given that, those customers  are equitably allocated a greater proportion of the public fire protection costs.  How these costs,  and other similar costs, are recouped within the rates is what creates the differential in the  monthly fixed meter charge.  While it may appear that the fixed meter charge is increasing  significantly for some customer classes of service, it should be pointed out that the fixed meter  charge is a relatively smaller portion of the multi‐residential and commercial customer’s total  water bill, compared to a residential customer.  This aspect of the analysis will be discussed in  more detail in the rate design section.    The other fixed meter charge is the CWA/MWD Charge.  This is essentially a “pass‐through” cost  within the cost of service study.  In this case, the District incurs the cost on a per meter basis and  it is allocated on a per meter basis.  Given that, the meter charge is the same for all customer  classes of service.  Finally, the energy charges are also a cost which is segregated in the cost of  service and passed directly through and charged on a $/CCF basis.    The above discussion has provided an overview and understanding of the calculated average unit  costs from the cost of service study.  As will be seen below, these average unit costs form the  cost‐basis for the District’s rate design structures developed as a part of this study.   Review of the Potable Rate Design Structures The District currently has four potable water rate schedules (structures).  These are as follows:   Residential   Multi‐Residential   Commercial    Irrigation  Provided below is a detailed discussion for each class of service.  In developing these rate  structures, HDR developed a structure that uses the individual fixed monthly meter charges for  each customer class of service, along with the calculated average unit costs for the consumption  charges.  These unit costs are those shown above in Table 5.                                   Review of the District’s Potable and Recycled Water Rates 12 Otay Water District  Residential Rate Design Structure  Provided below in Table 6 is a summary of the present and proposed residential rate structure.    Table 6 Review of the Residential Rate Design Current Residential Rate Proposed Residential Rate  Monthly System Fee [1] ‐  Monthly System Fee ‐   3/4” $15.91 3/4”$17.24  1” 22.47 1”24.36  1‐1/2” 38.88 1‐1/2”42.15  2” 58.55 2”63.48  Plus: MWD/CWA Fee [1] ‐  Plus: MWD/CWA Fee ‐   3/4” $15.00 3/4”$15.20  1” 27.84 1”28.21  1‐1/2” 62.96 1‐1/2”63.80  2” 107.08 2”108.51  Plus: Usage Charges Plus: Usage Charges  1 – 5 [2] $2.53/CCF 1 –10 $3.03/CCF  6 – 10 $3.95/CCF 11 –22 $5.40/CCF  11 – 22 $5.13/CCF 23 –Over $6.97/CCF  23 – up $7.90/CCF [1] – Current rate schedule has fees for 3” through 10” meters.  Largest residential meter currently installed     is a 2” meter.  [2] – Customers whose total consumption is 10 units or less per month shall receive a benefit of a lower rate     for units 1 – 5.  One unit (CCF) equals 748 gallons.    As can be seen in Table 6, the proposed residential rate has simplified the rate structure and used  the average unit pricing from the cost of service analysis.  The proposed residential rate also uses  the residential monthly system fee of $17.24/month.  The MWD/CWA fee has been adjusted to  the cost of service levels.  Finally, the consumptive units have eliminated the “conservation tier”  in the existing rate and simplified the rate structure to three tiers, using the pricing from the cost  of service average unit cost analysis.          Review of the District’s Potable and Recycled Water Rates 13 Otay Water District  Understanding the impacts to customers from these changes can be determined within a bill  comparison.  Provided below is the residential bill comparison for the current and proposed  rates.  The bill comparison is used to compare the present residential bill to the proposed  residential bills at various levels of consumption.                                                            In reviewing the residential bill comparisons, the blue bar is the average residential use.  This bill  comparison assumes a customer with a 3/4” meter.       Consumption Present Proposed (CCF) Rates Rates $ % 0 $30.91 $32.44 $1.53 4.9% 1 33.44 35.47 2.03 6.1% 2 35.97 38.50 2.53 7.0% 3 38.50 41.53 3.03 7.9% 4 41.03 44.56 3.53 8.6% 5 43.56 47.59 4.03 9.3% 6 47.51 50.62 3.11 6.5% 7 51.46 53.65 2.19 4.3% 8 55.41 56.68 1.27 2.3% 9 59.36 59.71 0.35 0.6% 10 63.31 62.74 (0.57)‐0.9% 25 148.57 148.45 (0.12)‐0.1% 45 306.57 287.85 (18.72)‐6.1% Fixed Charge $/Acct.Fixed Charge $/Acct. 3/4"$15.91 3/4"$17.24 CWA / MWD Fees $/Acct.CWA / MWD Fees $/Acct. 3/4"$15.00 3/4"$15.20 Consumption Charge $/CCF Consumption Charge $/CCF 1 ‐ 5*$2.53 0 ‐ 10 $3.03 5 ‐ 10 3.95 10 ‐ 22 5.40 10 ‐ 22 5.13 22 +6.97 22 +7.90 *Customers must use < 10 CCF to be eligible for tier 1 pricing Present Rates Proposed Rates Proposed Rates: Year 1 ‐ FY 2018 Difference Residential Rates ‐ 3/4"    Review of the District’s Potable and Recycled Water Rates 14 Otay Water District  Multi‐Residential Rate Design Structure  Provided below in Table 7 is a summary of the present multi‐residential rate and the proposed  multi‐residential rate design structure.    Table 7 Review of the Multi-Residential Rate Design Current Multi‐Residential Rate Proposed Multi‐Residential Rate  Monthly System Fee ‐  Monthly System Fee ‐   3/4” $15.91 3/4”$37.90  1” 22.47 1”53.53  1‐1/2” 38.88 1‐1/2”92.62  2” 58.55 2”139.47  3” 111.04 3”264.51  4” 170.10 4”405.20  6” 334.18 6”796.07  8 531.05 8 1,265.04  10” 760.72 10”1,812.15  Plus: MWD/CWA Fee ‐  Plus: MWD/CWA Fee ‐   3/4” $15.00 3/4”$15.20  1” 27.84 1”28.21  1‐1/2” 62.96 1‐1/2”63.80  2” 107.08 2”108.51  3” 227.75 3”230.79  4” 364.72 4”369.58  6” 746.59 6”756.54  8 1,205.65 8 1,221.73  10” 1,735.39 10”1,758.53  Plus: Usage Charges Plus: Usage Charges  1 – 4 $3.90/CCF 1 – 4 $2.83/CCF  5 – 9 $5.05/CCF 5 – 9 $5.13/CCF  10 – up $7.80/CCF 10 –up $6.30/CCF    The present multi‐residential rate is similar to the residential rate, but the usage charges do not  contain a “conservation tier” and there are three price tiers with slightly different block sizes to  reflect the usage characteristics of this customer group.6                                                             6 Tier (block) sizes were reviewed in detail as a part of the 2013 comprehensive rate review conducted by Atkins.     Review of the District’s Potable and Recycled Water Rates 15 Otay Water District  The proposed rate for multi‐residential is similar to the residential design rate. The weighting of  the larger sized meters is consistent with the District’s current weighting approach which is  appropriate, equitable and reflective of costs.  Provided below is the bill comparison for the  proposed multi‐residential rate design.        In viewing the above bill comparison it is important to note that the above bill comparison  assumes a customer with a 3” meter and on a per living unit basis.  The bill impacts will vary  between multi‐residential customers by meter size and number of dwelling units.  In other words,  the bill impacts for a customer with a 1” meter and 10 dwelling units will be different than  customer using the same amount of water, but a larger meter and different number of dwelling  units.    It should also be understood that the proposed fees use a monthly system fee which is based  upon the customer class specific costs for these charges.     Consumption per Dwelling Present Proposed Unit (CCF) Rates Rates $ % 1 $10.52 $13.81 $3.29 31.3% 2 $14.32 $17.02 $2.70 18.9% 3 $22.23 $26.05 $3.82 17.2% 4 $24.45 $26.42 $1.97 8.1% 5 $30.05 $32.31 $2.26 7.5% 6 $34.85 $37.00 $2.15 6.2% 7 $39.70 $41.81 $2.11 5.3% 8 $43.56 $45.79 $2.23 5.1% 9 $53.08 $57.17 $4.09 7.7% 10 $58.27 $61.05 $2.78 4.8% 11 $69.27 $72.21 $2.94 4.2% 12 $74.44 $74.64 $0.20 0.3% 15 $92.03 $89.93 ($2.10)‐2.3% 18 $122.20 $120.74 ($1.46)‐1.2% 20 $139.41 $132.86 ($6.55)‐4.7% 22 $155.39 $143.85 ($11.54)‐7.4% 25 $175.96 $161.07 ($14.89)‐8.5% CWA/MWD $/Acct.$/Acct. 3"$111.04 3"$264.51  System Fee $/Acct.$/Acct. 3"$227.75 3"$230.79  $/CCF $/CCF 0 ‐ 4 $3.90 0 ‐ 4 $2.83  5 ‐ 9 $5.05 5 ‐ 9 $5.13  10 +$7.80 10 +$6.30  Otay Water District Water Cost of Service Study Multi‐Family Rates Proposed Rates: Year 1 ‐ FY 2018 Difference PRESENT RATES PROPOSED RATES Consumption Charge Consumption Charge CWA/MWD System Fee    Review of the District’s Potable and Recycled Water Rates 16 Otay Water District  Commercial Rate Design Structure  The proposed commercial rate design structure uses a uniform rate structure, which greatly  simplifies the commercial rate structure.  Provided below in Table 8 is a summary of the present  and proposed commercial rate design structure.     Table 8 Review of the Commercial Rate Design Current Commercial Rate Proposed Commercial Rate  Monthly System Fee ‐  Monthly System Fee ‐   3/4” $15.91 3/4”$35.70  1” 22.47 1”50.42  1‐1/2” 38.88 1‐1/2”87.24  2” 58.55 2”131.38  3” 111.04 3”249.16  4” 170.10 4”381.68  6” 334.18 6”749.86  8 531.05 8 1,191.61  10” 760.72 10”1,706.96  Plus: MWD/CWA Fee ‐  Plus: MWD/CWA Fee ‐   3/4” $15.00 3/4”$15.20  1” 27.84 1”28.21  1‐1/2” 62.96 1‐1/2”63.80  2” 107.08 2”108.51  3” 227.75 3”230.79  4” 364.72 4”369.58  6” 746.59 6”756.54  8 1,205.65 8 1,221.73  10” 1,735.39 10”1,758.53  Plus: Usage Charges Plus: Usage Charges   Less than a 10” Meter All Usage $3.58/CCF   1 – 185 $4.17/CCF  186 – 1,400 $4.23/CCF  1,401 – up $4.30CCF  10” Meter and Greater  0 – 7,426 $4.17/CCF  7,427– 14,616 $4.23/CCF     14,617 ‐ up $4.30CCF   As can be seen in the above table, the present commercial rate is somewhat complicated in that  the tier sizes vary by meter size, yet the pricing of each comparable tier is the same.  At the same  time, the price differential between the tiers is relatively minor, thus, movement to a uniform  rate structure appeared appropriate.       Review of the District’s Potable and Recycled Water Rates 17 Otay Water District    Provided below is the bill comparison for a commercial customer, assuming a customer with a 2”  meter.  The bill impacts will vary by meter size and the specific consumption characteristics of  the customer.                                                          Similar to the prior rate designs discussed, the proposed commercial rate uses the customer class  specific unit cost to establish the monthly system fee.     Irrigation Rate Design Structure  The final potable water rate is the irrigation rate.  The irrigation rate structure uses a uniform  rate structure.  Similar to the discussion related to the commercial rates, the proposed irrigation  rate greatly simplifies the overall structure since the current rate has three meter size categories  for determining the various tier sizes.  Provided below in Table 9 is a summary of the present and proposed irrigation rate design  structure.    Consumption Present Proposed (CCF) Rates Rates $ % 0 $165.63 $239.92 $74.29 44.9% 5 186.48 257.82 71.34 38.3% 10 207.33 275.72 68.39 33.0% 25 269.88 329.42 59.54 22.1% 50 374.13 418.92 44.79 12.0% 75 478.38 508.42 30.04 6.3% 100 582.63 597.92 15.29 2.6% 135 728.58 723.22 (5.36)‐0.7% 170 874.53 848.52 (26.01)‐3.0% 205 1,021.68 973.82 (47.86)‐4.7% 240 1,169.73 1,099.12 (70.61)‐6.0% 275 1,317.78 1,224.42 (93.36)‐7.1% 310 1,465.83 1,349.72 (116.11)‐7.9% 345 1,613.88 1,475.02 (138.86)‐8.6% 380 1,761.93 1,600.32 (161.61)‐9.2% 415 1,909.98 1,725.62 (184.36)‐9.7% 450 2,058.03 1,850.92 (207.11)‐10.1% 485 2,206.08 1,976.22 (229.86)‐10.4% Fixed Charge $/Acct.Fixed Charge $/Acct. 2"$58.55 2"$131.42 Fixed Charge $/Acct.Fixed Charge $/Acct. 2"$107.08 2"$108.51 Consumption Charge $/CCF Consumption Charge $/CCF 0 ‐ 185 $4.17 All Use $3.58 186 ‐ 1,400 4.23 1,400 +4.30 Proposed Rates: Year 1 ‐ FY 2018 Difference PRESENT RATES PROPOSED RATES y Commercial Rates ‐ 2"    Review of the District’s Potable and Recycled Water Rates 18 Otay Water District  Table 9 Review of the Irrigation Rate Design Current Irrigation Rate Proposed Irrigation Rate  Monthly System Fee ‐  Monthly System Fee ‐   3/4” $15.91 3/4”$30.15  1” 22.47 1”42.58  1‐1/2” 38.88 1‐1/2”73.68  2” 58.55 2”110.95  3” 111.04 3”210.42  4” 170.10 4”322.35  6” 334.18 6”633.28  8 531.05 8 1,006.36  10” 760.72 10”1,441.59  Plus: MWD/CWA Fee ‐  Plus: MWD/CWA Fee ‐   3/4” $15.00 3/4”$15.20  1” 27.84 1”28.21  1‐1/2” 62.96 1‐1/2”63.80  2” 107.08 2”108.51  3” 227.75 3”230.79  4” 364.72 4”369.58  6” 746.59 6”756.54  8 1,205.65 8 1,221.73  10” 1,735.39 10”1,758.53  Plus: Usage Charges Plus: Usage Charges   3/4” to 1” Meter All Usage $5.23/CCF   1 – 54 $5.68/CCF  55 –199 $5.74/CCF  200 – up $5.81/CCF  1‐1/2” to 2” Meter   0 – 144 $5.68/CCF  145 – 355 $5.74/CCF  356 ‐ up $5.81/CCF  3” Meter and Greater  0 – 555 $5.68/CCF  551 –  1,200 $5.74/CCF     1,201 ‐ up $5.81/CCF       Review of the District’s Potable and Recycled Water Rates 19 Otay Water District  The proposed irrigation rate has utilized the average unit cost information from the cost of  service analysis to establish the proposed rate.  Provided below is the irrigation bill comparison  for the irrigation rate structure.                                                          In viewing the above irrigation bill comparison it is important to note that the above bill  comparison assumes a customer with a 2” meter.  The bill impacts will vary between customers  by meter size.  In other words, the bill impacts for a customer with a 1” meter will be different  than customer using the same amount of water, but a larger meter.    It should also be understood that proposed rates use the customer class specific unit cost to  establish the monthly system fee.     Summary of the Potable Rate Study HDR has developed a comprehensive review of the District’s potable water rates.  This included  the establishment of a revenue requirement to determine the District’s overall revenue needs.   Next, a cost of service analysis was developed to equitably allocate the revenue requirements to  the customer classes of service, and finally, rate structures were developed to collect the  appropriate level of revenue using the average unit costs derived from the cost of service  Consumption Present Proposed (CCF) Rates Rates $ % 0 $165.63 $219.46 $53.83 32.5% 15 250.83 297.91 47.08 18.8% 30 336.03 376.36 40.33 12.0% 45 421.23 454.81 33.58 8.0% 60 506.43 533.26 26.83 5.3% 75 591.63 611.71 20.08 3.4% 90 676.83 690.16 13.33 2.0% 105 762.03 768.61 6.58 0.9% 120 847.23 847.06 (0.17) 0.0% 135 932.43 925.51 (6.92)‐0.7% 150 1,017.99 1,003.96 (14.03)‐1.4% 165 1,104.09 1,082.41 (21.68)‐2.0% 180 1,190.19 1,160.86 (29.33)‐2.5% 195 1,276.29 1,239.31 (36.98)‐2.9% 210 1,362.39 1,317.76 (44.63)‐3.3% 225 1,448.49 1,396.21 (52.28)‐3.6% 240 1,534.59 1,474.66 (59.93)‐3.9% 255 1,620.69 1,553.11 (67.58)‐4.2% Fixed Charge $/Acct.Fixed Charge $/Acct. 2"$58.55 2"$110.95 Fixed Charge $/Acct.Fixed Charge $/Acct. 2"$107.08 2"$108.51 Consumption Charge $/CCF Consumption Charge $/CCF 0 ‐ 144 $5.68 All Use $5.23 144 ‐ 355 5.74 355 +5.81 Proposed Rates: Year 1 ‐ FY 2017 Difference PRESENT RATES PROPOSED RATES Irrigation Rates ‐ 2"    Review of the District’s Potable and Recycled Water Rates 20 Otay Water District  analysis.  The proposed rates, as developed herein, are in the opinion of HDR, cost‐based and  equitable.     Review of the Recycled Water Cost of Service and Rates Recycled water currently has two rates; a rate for recycled commercial and recycled irrigation  customers.  The analysis of recycled water rates uses the same analytical framework as the  potable study which entailed a revenue requirement analysis, a cost of service analysis and the  design of rates.  Provided below is a discussion of each of these elements.     Recycled Water Revenue Requirement  The discussion above provided the District’s total revenue requirement (Table 1), along with the  allocation of the total revenue requirement between potable and non‐potable (i.e., recycled)  (Table 2).  From Table 2, the target level of recycled rate revenues to be collected can be  determined.  This is summarized below in Table 10.    Table 10 Summary of the District’s FY 2016/17 Revenue Requirement to be Collected From Recycled Rate Revenues ($1,000) Revenue Requirement Components  Total   ($1,000)   Total Recycled Revenue Requirement $8,909   Less: Miscellaneous Recycled Water Revenues      (1,632)    Balance to be Collected From Recycled Water Rates $7,277    Given the recycled revenue requirement, the next step is to the equitable allocation of the  recycled water revenue requirement.    Recycled Water Cost of Service Analysis  As discussed above, the District currently has two different recycled water rates; commercial and  irrigation.  Given that, the recycled water cost of service analysis will allocate the total recycled  water revenue requirement between the recycled commercial and recycled irrigation customers  using a cost of service analysis framework.    The recycled water cost of service is not as complex as the potable water cost of service analysis,  but uses many of the same cost of service principles.  The recycled water cost of service analysis  began by reviewing the total plant assets of the recycled water system.  The plant assets were  assigned between “Common to All” and “Direct Assignment – Recycled Irrigation”.  This  distinction is made since much of the recycled water plant assets are shared by all recycled water  customers, whereas other facilities appear to be primarily benefiting only the recycled irrigation  customers.  Recycled commercial customers have provided their own recycled storage facilities  and, therefore, are not assigned a portion of the District’s recycled water storage facilities.  In     Review of the District’s Potable and Recycled Water Rates 21 Otay Water District  this case, approximately 78% of the District’s recycled water assets are “Common to All” and the  balance, or 22% are directly assigned to recycled irrigation customers.    The plant asset assignments were used to equitably assign the recycled water costs (i.e., the  revenue requirements).  Similar to the potable water study, the “Common to All” costs were  further classified between base (volumetric use) and capacity (peak use).  This classification was  based upon the recycled water system’s average use to peak use characteristics.  The costs are  then equitably allocated between recycled commercial and recycled irrigation based upon their  volumetric use and peak use.  In analyzing peak use, the District had detailed daily metered  information for the recycled commercial customers.  The peak use for the recycled irrigation was  developed in a manner similar to the potable water peaking analysis which used average month  and peak month data to establish reasonable estimates.  The results of the analysis clearly  indicated that recycled commercial customers have a lower peaking factor (i.e. peak use impact  on the system) than recycled irrigation customers.  This result was not surprising since recycled  commercial customer have their own recycled storage which allows them to manage their  demands and minimize their peak use on the District’s system.    A summary of the recycled water cost of service analysis is shown below in Table 11.    Table 11 Summary of the Recycled Water Cost of Service Analysis ($1,000) Customer Class of Service  Present  Rate  Revenues  ($1,000)[1]  Allocated  Revenue  Requirement ($1,000)  Bal./(Defic.)  of Funds  ($1,000)  % Change  in Rates    Recycled Commercial $745 $692 $53 7.1%    Recycled Irrigation 6,153 6,016 137 2.2%    Energy Fees     379      569       (190)      50.1%    Total Net Revenue Requirement $7,277 $7,277 $0 0.0%   [1] – Rate Revenues are a blend of the rates implemented March 1, 2016 and those implemented January 1,  2017; final rate designs are based on allocated costs    As can be seen, the cost of service analysis indicates cost differences between recycled  commercial and recycled irrigation customers on a per unit basis (i.e., $/CCF).  These cost  differences will be reflected in the development of the recycled water rates.    Recycled Water Rate Design  There currently are two recycled water rate designs.  Each recycled water rate design is  structured in a manner similar to the corresponding potable water rate.  There is a difference in  the tier block sizes between the potable commercial and recycled commercial rate.  Given the  similarities between the current rates, the recycled water rate structures developed as part of  this study are similar to the potable water rates for commercial and irrigation.       Review of the District’s Potable and Recycled Water Rates 22 Otay Water District  Recycled Commercial Water Rates – Provided below in Table 12 is a summary of the recycled  commercial water rate design structure.      Table 12 Review of the Recycled Commercial Rate Design Current Recycled Comm. Rate Proposed Recycled Comm. Rate  Monthly System Fee ‐  Monthly System Fee ‐   3/4” $15.91 3/4”$35.71  1”22.47 1”50.43  1‐1/2” 38.88 1‐1/2”87.27  2”58.55 2”131.42  3”111.04 3”249.23  4”170.10 4”381.79  6”334.18 6”750.07  8 531.05 8 1,191.94  10” 760.72 10”1,707.44  Plus: Usage Charges Plus: Usage Charges   Less than a 10” Meter All Usage $2.89/CCF   1 – 173 $3.53/CCF  174 – 831 $3.60/CCF  832 – up $3.65/CCF  10” Meter and Greater  0 – 7,426 $3.53/CCF  7,427–  14,616 $3.60/CCF     14,617 ‐ up $3.65/CCF   As can be seen, this rate design utilizes the same monthly system fee (meter charge) design as  the potable commercial rates.  Recycled water customers are not assessed the CWA/MWD fee.   The usage charge is designed to collect the appropriate level of revenue for this particular  customer class of service.        Review of the District’s Potable and Recycled Water Rates 23 Otay Water District  Provided below is the bill comparison for the recycled commercial water customers.                              The above bill comparison has assumed a 6” meter.  There are only two customers currently  associated with this recycled water rate schedule.  The bill impacts will vary between customers  by meter size.  In other words, the bill impacts for a customer with a 1” meter will be different  than customer using the same amount of water, but a larger meter.         Consumption Present Proposed (CCF) Rates Rates $ % 0 $334.18 $749.86 $415.68 124.4% 2,000 7,580.47 6,529.86 (1,050.61)‐13.9% 2,500 9,405.47 7,974.86 (1,430.61)‐15.2% 3,000 11,230.47 9,419.86 (1,810.61)‐16.1% 3,500 13,055.47 10,864.86 (2,190.61)‐16.8% 4,000 14,880.47 12,309.86 (2,570.61)‐17.3% 4,500 16,705.47 13,754.86 (2,950.61)‐17.7% 5,000 18,530.47 15,199.86 (3,330.61)‐18.0% 5,500 20,355.47 16,644.86 (3,710.61)‐18.2% 6,000 22,180.47 18,089.86 (4,090.61)‐18.4% 6,500 24,005.47 19,534.86 (4,470.61)‐18.6% 7,000 25,830.47 20,979.86 (4,850.61)‐18.8% 7,500 27,655.47 22,424.86 (5,230.61)‐18.9% 8,000 29,480.47 23,869.86 (5,610.61)‐19.0% 8,500 31,305.47 25,314.86 (5,990.61)‐19.1% 9,000 33,130.47 26,759.86 (6,370.61)‐19.2% 9,500 34,955.47 28,204.86 (6,750.61)‐19.3% 10,000 36,780.47 29,649.86 (7,130.61)‐19.4% Fixed Charge $/Acct.Fixed Charge $/Acct. 6"$334.18 6"$749.86 Consumption Charge $/CCF Consumption Charge $/CCF 0 ‐ 144 $3.53 All Use $2.89 144 ‐ 355 3.60 355 +3.65 Proposed Rates: Year 1 ‐ FY 2017 Difference PRESENT RATES PROPOSED RATES y Recycled Commercial Rates ‐ 6"    Review of the District’s Potable and Recycled Water Rates 24 Otay Water District    Recycled Irrigation Water Rates –  Provided below in Table 13 is a summary of the recycled irrigation water rate design structure.                                                                      Similar to the recycled commercial rate design, the proposed rate design has simplified the  structure and moved to a uniform consumption charge based upon the average unit costs  obtained from the recycled cost of service analysis.       Table 13 Review of the Recycled Irrigation Rate Design Current Recycled Irrigation Rate Proposed Recycled Irrigation   Monthly System Fee ‐  Monthly System Fee ‐   3/4” $15.91 3/4”$30.15  1” 22.47 1”42.58  1‐1/2” 38.88 1‐1/2”73.68  2” 58.55 2”110.95  3” 111.04 3”210.42  4” 170.10 4”322.35  6” 334.18 6”633.28  8 531.05 8 1,006.36  10” 760.72 10”1,441.59  Plus: Usage Charges Plus: Usage Charges   3/4” to 1” Meter All Usage $4.09/CCF   1 – 32 $5.68/CCF    33 – 75 $5.74/CCF    76 – up $5.81/CCF    1‐1/2” to 2” Meter    0 – 130 $5.68/CCF    131 – 325 $5.74/CCF    326 ‐ up $5.81/CCF    3” – 4”  Meter    0 – 440 $5.68/CCF    441 – 1,050 $5.74/CCF    1,051 ‐up $5.81/CCF    6” Meter and Greater    0 – 4,000 $5.68/CCF    4,001–  10,000 $5.74/CCF     10,001 – up $5.81/CCF      Review of the District’s Potable and Recycled Water Rates 25 Otay Water District  Provided below is a bill comparison for this rate structure.      The above bill comparison for the recycled irrigation customers has assumed a 1.5” meter.  The  bill impacts will vary between customers by meter size.  In other words, the bill impacts for a  customer with a 1” meter will be different than customer using the same amount of water, but  a larger meter.     This concludes the discussion of the recycled water rates.    Summary This technical memorandum has discussed the technical analysis undertaken to review the  District’s potable and recycled water rates.  The rates, as developed herein, have been developed  utilizing generally accepted ratemaking principles and methodologies and they have been  developed and are intended to comply with the requirements of Proposition 218, as it is currently  defined and understood.   Consumption Present Proposed (CCF) Rates Rates $ % 0 $38.88 $73.68 $34.80 89.5% 15 111.63 135.03 23.40 21.0% 30 184.38 196.38 12.00 6.5% 45 257.13 257.73 0.60 0.2% 60 329.88 319.08 (10.80)‐3.3% 75 402.63 380.43 (22.20)‐5.5% 90 475.38 441.78 (33.60)‐7.1% 105 548.13 503.13 (45.00)‐8.2% 120 620.88 564.48 (56.40)‐9.1% 135 693.63 625.83 (67.80)‐9.8% 150 766.38 687.18 (79.20)‐10.3% 165 839.13 748.53 (90.60)‐10.8% 180 912.37 809.88 (102.49)‐11.2% 195 986.17 871.23 (114.94)‐11.7% 210 1,059.97 932.58 (127.39)‐12.0% 225 1,133.77 993.93 (139.84)‐12.3% 240 1,207.57 1,055.28 (152.29)‐12.6% 255 1,281.37 1,116.63 (164.74)‐12.9% Fixed Charge $/Acct.Fixed Charge $/Acct. 1 1/2" $38.88 1 1/2" $73.68 Consumption Charge $/CCF Consumption Charge $/CCF 0 ‐ 144 $4.85 All Use $4.09 144 ‐ 355 4.92 355 +4.99 Recycled Irrigation Rates ‐ 1 1/2" Proposed Rates: Year 1 ‐ FY 2017 Difference PRESENT RATES PROPOSED RATES Review of the District’s Water Rates Presented by:Tom Gould HDR Engineering, Inc. Attachment C Introduction and Overview Discuss the District’s current water rates and their cost-basis Review the District’s current rates Proposition 218 and rate setting Review the technical analysis undertaken Summarize the findings and conclusions Review the rate design Gain study feedback and policy direction 2 Overview of the District’s Current Potable Water Rates 3 3/4”$15.91  1”22.47 1‐1/2”38.88 2”58.55 3” ‐ 10" Varies * 3/4”$15.00  1”27.84 1‐1/2”62.96 2”107.08 3” ‐ 10" Varies *       1 – 185 $4.17/CCF       186 – 1,400 $4.23/CCF        1,401 – up $4.30CCF        0 – 7,426 $4.17/CCF        7,427– 14,616 $4.23/CCF        14,617 ‐ up $4.30CCF  * ‐ Same as Multi ‐Residential    Less than a 10” Meter    10” Meter and Greater Current Commercial Rate  Monthly System Fee ‐   Plus: MWD/CWA Fee ‐   Plus: Usage Charges 3/4”$15.91  1”22.47 1‐1/2”38.88 2”58.55 3”111.04 4”170.10 6”334.18 8531.05 10”760.72 3/4”$15.00  1”27.84 1‐1/2”62.96 2”107.08 3”227.75 4”364.72 6”746.59 81,205.65 10”1,735.39 1 – 4$3.90/CCF 5 – 9$5.05/CCF 10 – up $7.80/CCF Current Multi‐Residential Rate    Monthly System Fee ‐     Plus: MWD/CWA Fee ‐     Plus: Usage Charges 3/4”$15.91  1”22.47 1‐1/2” 38.88 2”58.55 3/4”$15.00  1”27.84 1‐1/2” 62.96 2”107.08 1 – 5** $2.53/CCF 6 – 10 $3.95/CCF 11 – 22 $5.13/CCF 23 – up $7.90/CCF * Conservation tier Current Residential Rate    Monthly System Fee  ‐     Plus: MWD/CWA Fee [1] ‐     Plus: Usage Charges 3/4”$15.91  1”22.47 1‐1/2”38.88 2”58.55 3” ‐ 10" Varies * 3/4”$15.00  1”27.84 1‐1/2”62.96 2”107.08 3” ‐ 10" Varies *        1 – 54 $5.68/CCF        55 – 199 $5.74/CCF        200 – up $5.81/CCF        0 – 144 $5.68/CCF       145 – 355 $5.74/CCF        356 ‐ up $5.81/CCF        0 – 555 $5.68/CCF        551 – 1,200 $5.74/CCF        1,201 ‐ up $5.81/CCF Current Irrigation Rate    Monthly System Fee ‐     Plus: MWD/CWA Fee ‐     3/4” to 1” Meter    1‐1/2” to 2” Meter    3” Meter and Greater * ‐ Same as Multi‐Residential    Plus: Usage Charges Overview of the District’s Current Recycled Water Rates 4 3/4”$15.91  1”22.47 1‐1/2”38.88 2”58.55 3” ‐ 10" Varies *          1 – 32 $5.68/CCF          33 – 75 $5.74/CCF          76 – up $5.81/CCF          0 – 130 $5.68/CCF         131 – 325 $5.74/CCF         326 ‐ up $5.81/CCF          0 – 440 $5.68/CCF          441 – 1,050 $5.74/CCF          1,051 ‐up $5.81/CCF          0 – 4,000 $5.68/CCF          4,001– 10,000 $5.74/CCF          10,001 – up $5.81/CCF * ‐ Same as Recycled Comm.   Monthly System Fee ‐    Plus: Usage Charges      3/4” to 1” Meter      1‐1/2” to 2” Meter      3” – 4”  Meter      6” Meter and Greater Current Recycled Irrigation Rate 3/4”$15.91  1”22.47 1‐1/2”38.88 2”58.55 3”111.04 4”170.10 6”334.18 8531.05 10”760.72         1 – 173 $3.53/CCF         174 – 831 $3.60/CCF         832 – up $3.65/CCF         0 – 7,426 $3.53/CCF         7,427– 14,616 $3.60/CCF         14,617 ‐ up $3.65/CCF Current Recycled Comm. Rate    Monthly System Fee ‐     Plus: Usage Charges     Less than a 10” Meter    10” Meter and Greater Proposition 218 and Rate Setting Proposition 218 is a constitutional amendment designed to protect taxpayers by limiting the methods by which local governments can create or increase taxes, fees and charges without taxpayer consent Proposition 218 is not prescriptive in defining a “cost-based” rate In part, Proposition 218 requires Fees shall not exceed the reasonable cost of providing the service Fees shall not exceed the proportional cost of providing the service 5 Cost of Service Rate Design Revenue Requirement Compares the revenues of the utility to its expenses to determine the overall level of rate adjustment Equitably allocates the revenue requirements between the various customer classes of service Design rates for each class of service to reflect the cost of providing service to the customer group Analytical Framework for Establishing Cost-Based Rates 6 Summary of the Revenue Requirement Analysis 7 Establishing the Overall Cost Basis – Revenue Requirement Analysis Revenue requirement compares the District’s overall revenues to its expenses (costs) Considers the proper and adequate funding of the utility Includes both operating costs and capital (infrastructure) costs Takes into consideration other financial planning criteria Debt service coverage covenants Adequacy of reserves The District’s revenue requirement for this study is based upon the FY 2016/17 adopted budget 8 Summary of the FY 16/17 Revenue Requirement Analysis ($000) 9 Revenue Requirement Components  Total   ($1,000)   Revenues ‐      Total Rate Revenues $77,430   Miscellaneous Revenues    9,777    Total Revenues $87,207     Expenses ‐     O&M Expenses    Water Costs $50,186    Administrative Expenses 4,921    Materials and Maintenance 2,413    Labor and Benefits   19,921       Subtotal O&M Expenses $77,441     Rate Funded Capital 3,347   Debt Service 7,288   Change in Working Capital      (868)    Total Revenue Requirement $87,207     Balance/Deficiency of Funds $0 Summary of the Revenue Requirement Analysis Total FY 16/17 revenues balance to total expenses Revenues are a blend of the March 1, 2016 and January 1, 2017 rate adjustments Study is a “revenue neutral” analysis of the rates Major expense for the utility is purchased water (57% of total costs) Total revenue requirement includes the total costs associated with providing both potable and non-potable water supply and delivery Next Step: Allocate costs between potable and non-potable 10 Allocation of Total Costs Between Potable Water and Non-Potable (Recycled) Water ($000) 11 Revenue Requirement Components  Total   ($1,000)  Potable  ($1,000)  Non‐Potable  ($1,000)   Revenues ‐     Total Rate Revenues $77,430 $70,153 $7,277   Miscellaneous Revenues    9,689 8,145   1,632    Total Revenues $87,207 $78,298 $8,909     Expenses ‐     O&M Expenses     Water Costs $50,186 $46,001 4,185    Administrative Expenses 4,921 4,590 331    Materials and Maintenance 2,413 2,109 305    Labor and Benefits   19,921   18,581  1,339          Subtotal O&M Expenses $77,441 $71,281 $6,160     Rate Funded Capital 3,347 2,745 602   Debt Service 7,288 6,095 1,192   Change in Working Capital      (868)(1,822)  954    Total Revenue Requirement $87,207 $78,298 $8,909    Balance/Deficiency of Funds $0 $0 $0 Summary of the Cost of Service Analysis 12 Overview of the Cost of Service Analysis A cost of service analysis is: A method to equitably allocate the revenue requirements of the utility between the various customer classes of service (e.g. residential, commercial, etc.) The cost of service provides two key pieces of information Allocated total costs to each class of service Average unit costs $/Customer/Month (Equivalent Meter Cost) $/CCF 13 ‐Sources of Supply - Treatment - Pumping -Etc. CLASSIFICATION ALLOCATION Revenue Requirements FUNCTIONALIZATION Cost of Service Extra Capacity Related Base (Flow)Related Customer Related Residential Multi-Resid. Commercial Residential Multi-Resid. Commercial Residential Multi-Resid. Commercial Residential Cost of Service Multi-Residential Cost of Service Commercial Cost of Service Simplified Overview of a Cost of Service Analysis -Tier 1 -Tier 2 -Tier 3 -Tier 1 -Tier 2 -Tier 3 14 Summary of the District’s Allocated Potable Costs Customer classes of service are at or near their cost of service – total allocation of costs Total allocated dollars and average unit costs are used to design final proposed rates Pricing by rate tier (i.e., Tiers 1, 2 and 3) 15 Customer Class of Service  Present  Rate  Revenues  ($1,000)  Allocated  Revenue  Requirement ($1,000)  Bal./(Defic.)  of Funds  ($1,000)  % Change  in Rates    Residential $40,665 $40,408 $258 0.6%    Multi‐Residential 7,832 7,706 127 1.6%    Commercial 9,145 9,152 (8)0.1%   Irrigation 10,347 10,693 (346)3.3%   Energy Fees   2,164     2,195     (31)    1.4%    Total Net Revenue Requirement $70,153 $70,153 $0 0.0%  Summary of the Average Unit Costs 16 System Cost Component Average Tier 1Tier 2Tier 3Tier 1Tier 2Tier 3Tier 1Tier 2Tier 3Tier 1Tier 2Tier 3 Consumption Calculated Cost $3.98 $3.03 $5.40 $6.97 $2.83 $5.13 $6.30 $3.58 $3.58 $3.58 $5.23 $5.23 $5.23 Current Tiered Rates (1.1.17)$3.95 $5.13 $7.90 $3.90 $5.05 $7.80 $4.17 $4.23 $4.30 $5.68 $5.74 $5.81 $ / CCF Difference ($0.92) $0.27 ($0.93) ($1.07) $0.08 ($1.50) ($0.59) ($0.65) ($0.72) ($0.45) ($0.51) ($0.58) Fixed Charge ($/Mth ‐ 3/4" Mtr) Calculated Cost $20.63 $17.24 $37.91 $35.71 $30.15 Current Tiered Rates (1.1.17) $15.91 $15.91 $15.91 $15.91 $15.91 $ / CCF Difference $4.72 $1.33 $22.00 $19.80 $14.24 CWA / MWD Charge Calculated Cost $15.18 $15.18 $15.18 $15.18 $15.18 Current Tiered Rates (1.1.17) $15.00 $15.00 $15.00 $15.00 $15.00 $ / CCF Difference $0.18 $0.18 $0.18 $0.18 $0.18 Energy Fee / Charge ($/CCF) Calculated Cost $0.064 Current Tiered Rates (1.1.17)$0.044 $ / CCF Difference $0.020 Irrigation Energy Residential Multi‐Residential Commercial Design of the Potable Water Rate 17 Residential Rate Structure 18 [1] – Current rate schedule has fees for 3” through 10” meters.  Largest residential meter currently installed     is a 2” meter.  [2] – Customers whose total consumption is 10 units or less per month shall receive a benefit of a lower rate     for units 1 – 5.  One unit (CCF) equals 748 gallons.    Current Residential Rate Proposed Residential Rate  Monthly System Fee [1] ‐  Monthly System Fee ‐   3/4”$15.91 3/4”$17.24 1”22.47 1”24.36 1‐1/2”38.88 1‐1/2”42.15 2”58.55 2”63.48 Plus: MWD/CWA Fee [1] ‐  Plus: MWD/CWA Fee ‐   3/4”$15.00 3/4”$15.20 1”27.84 1”28.21 1‐1/2”62.96 1‐1/2”63.80 2”107.08 2”108.51 Plus: Usage Charges Plus: Usage Charges  1 – 5 [2]$2.53/CCF 1 –10 $3.03/CCF 6 –10 $3.95/CCF 11 –22 $5.40/CCF 11 –22 $5.13/CCF 23 –Over $6.97/CCF 23 –up $7.90/CCF     Residential Bill Comparisons 19 Consumption Present Proposed (CCF) Rates Rates $ % 0 $30.91 $32.44 $1.53 4.9% 1 33.44 35.47 2.03 6.1% 2 35.97 38.50 2.53 7.0% 3 38.50 41.53 3.03 7.9% 4 41.03 44.56 3.53 8.6% 5 43.56 47.59 4.03 9.3% 6 47.51 50.62 3.11 6.5% 7 51.46 53.65 2.19 4.3% 8 55.41 56.68 1.27 2.3% 9 59.36 59.71 0.35 0.6% 10 63.31 62.74 (0.57)‐0.9% 25 148.57 148.45 (0.12)‐0.1% 45 306.57 287.85 (18.72)‐6.1% Fixed Charge $/Acct.Fixed Charge $/Acct. 3/4"$15.91 3/4"$17.24 CWA / MWD Fees $/Acct.CWA / MWD Fees $/Acct. 3/4"$15.00 3/4"$15.20 Consumption Charge $/CCF Consumption Charge $/CCF 1 ‐ 5* $2.53 0 ‐ 10 $3.03 5 ‐ 10 3.95 10 ‐ 22 5.40 10 ‐ 22 5.13 22 +6.97 22 +7.90 *Customers must use < 10 CCF to be eligible for tier 1 pricing Present Rates Proposed Rates Difference Multi-Residential Rate Structure 20 Current Multi‐Residential Rate Proposed Multi‐Residential  Rate  Monthly System Fee ‐  Monthly System Fee ‐   3/4”$15.91 3/4”$37.90 1”22.47 1”53.53 1‐1/2”38.88 1‐1/2”92.62 2”58.55 2”139.47 3”111.04 3”264.51 4”170.10 4”405.20 6”334.18 6”796.07 8 531.05 8 1,265.04 10”760.72 10”1,812.15 Plus: MWD/CWA Fee ‐  Plus: MWD/CWA Fee ‐   3/4”$15.00 3/4”$15.20 1”27.84 1”28.21 1‐1/2”62.96 1‐1/2”63.80 2”107.08 2”108.51 3”227.75 3”230.79 4”364.72 4”369.58 6”746.59 6”756.54 8 1,205.65 8 1,221.73 10”1,735.39 10”1,758.53 Plus: Usage Charges Plus: Usage Charges  1 – 4 $3.90/CCF 1 – 4 $2.83/CCF 5 – 9 $5.05/CCF 5 – 9 $5.13/CCF 10 –up $7.80/CCF 10 –up $6.30/CCF   Multi-Residential Bill Comparisons (Calculated based on a weighted-average consumption per dwelling unit) 21 Consumption per Dwelling Present Proposed Unit (CCF) Rates Rates $ % 1 $10.52 $13.81 $3.29 31.3% 2 $14.32 $17.02 $2.70 18.9% 3 $22.23 $26.05 $3.82 17.2% 4 $24.45 $26.42 $1.97 8.1% 5 $30.05 $32.31 $2.26 7.5% 6 $34.85 $37.00 $2.15 6.2% 7 $39.70 $41.81 $2.11 5.3% 8 $43.56 $45.79 $2.23 5.1% 9 $53.08 $57.17 $4.09 7.7% 10 $58.27 $61.05 $2.78 4.8% 11 $69.27 $72.21 $2.94 4.2% 12 $74.44 $74.64 $0.20 0.3% 15 $92.03 $89.93 ($2.10)‐2.3% 18 $122.20 $120.74 ($1.46)‐1.2% 20 $139.41 $132.86 ($6.55)‐4.7% 22 $155.39 $143.85 ($11.54)‐7.4% 25 $175.96 $161.07 ($14.89)‐8.5% CWA/MWD $/Acct.$/Acct. 3"$111.04 3"$264.51  System Fee $/Acct.$/Acct. 3"$227.75 3"$230.79  $/CCF $/CCF 0 ‐ 4 $3.90 0 ‐ 4 $2.83  5 ‐ 9 $5.05 5 ‐ 9 $5.13  10 +$7.80 10 +$6.30  Difference PRESENT RATES PROPOSED RATES Consumption Charge Consumption Charge CWA/MWD System Fee Commercial Rate Structure 22 Current Commercial Rate Proposed Commercial Rate  Monthly System Fee ‐  Monthly System Fee ‐   3/4”$15.91 3/4”$35.70 1”22.47 1”50.42 1‐1/2”38.88 1‐1/2”87.24 2”58.55 2”131.38 3”111.04 3”249.16 4”170.10 4”381.68 6”334.18 6”749.86 8 531.05 8 1,191.61 10”760.72 10”1,706.96 Plus: MWD/CWA Fee ‐  Plus: MWD/CWA Fee ‐   3/4”$15.00 3/4”$15.20 1”27.84 1”28.21 1‐1/2”62.96 1‐1/2”63.80 2”107.08 2”108.51 3”227.75 3”230.79 4”364.72 4”369.58 6”746.59 6”756.54 8 1,205.65 8 1,221.73 10”1,735.39 10”1,758.53 Plus: Usage Charges Plus: Usage Charges  Less than a 10” Meter All Usage $3.58/CCF 1 –185 $4.17/CCF   186 –1,400 $4.23/CCF   1,401 –up $4.30CCF   10” Meter and Greater   0 –7,426 $4.17/CCF    7,427– 14,616 $4.23/CCF   14,617 ‐up $4.30CCF     Commercial Bill Comparisons (Assumes 2” Meter) 23 Irrigation Rate Structure 24 Current Irrigation Rate Proposed Irrigation Rate  Monthly System Fee ‐  Monthly System Fee ‐   3/4”$15.91 3/4”$30.15 1”22.47 1”42.58 1‐1/2”38.88 1‐1/2”73.68 2”58.55 2”110.95 3”111.04 3”210.42 4”170.10 4”322.35 6”334.18 6”633.28 8 531.05 8 1,006.36 10”760.72 10”1,441.59 Plus: MWD/CWA Fee ‐  Plus: MWD/CWA Fee ‐   3/4”$15.00 3/4”$15.20 1”27.84 1”28.21 1‐1/2”62.96 1‐1/2”63.80 2”107.08 2”108.51 3”227.75 3”230.79 4”364.72 4”369.58 6”746.59 6”756.54 8 1,205.65 8 1,221.73 10”1,735.39 10”1,758.53 Plus: Usage Charges Plus: Usage Charges  3/4” to 1” Meter All Usage $5.23/CCF 1 –54 $5.68/CCF   55 –199 $5.74/CCF   200 –up $5.81/CCF   1‐1/2” to 2” Meter   0 –144 $5.68/CCF   145 –355 $5.74/CCF   356 ‐up $5.81/CCF   3” Meter and Greater   0 –555 $5.68/CCF   551 – 1,200 $5.74/CCF    1,201 ‐up $5.81/CCF     Irrigation Bill Comparisons (Assumes 2” Meter) 25 Summary of the Potable Water Rates Proposed rates have been developed using generally accepted rate setting methodologies Proposed rates are reflective of the revenue requirement and cost of service findings and conclusions (i.e., cost- based rates) 26 Review of the Recycled Water Rates 27 Overview of the Recycled Water Analysis Costs were segregated from potable water Current two classes of service – commercial recycled and irrigation recycled Differing levels of service and rates 28 Summary of the Recycled Water Cost of Service Analysis 29 Customer classes of service are updated based on their current cost of service – total allocation of costs Total allocated dollars and average unit costs are used to design final proposed rates Pricing by rate tier (i.e., Tiers 1, 2 and 3) Customer Class of Service  Present  Rate  Revenues  ($1,000)[1]  Allocated  Revenue  Requirement ($1,000)  Bal./(Defic.)  of Funds  ($1,000)  % Change  in Rates    Recycled Commercial $745 $692 $53 7.1%    Recycled Irrigation 6,153 6,016 137 2.2%    Energy Fees      379        569       (190)    50.1%    Total Net Revenue Requirement $7,277 $7,277 $0 0.0%   [1] – Rate Revenues are a blend of the rates implemented March 1, 2016 and those implemented  January 1, 2017; final rate designs are based on allocated costs Recycled Commercial Rate Structure 30 Current Recycled Comm. Rate Proposed Recycled Comm. Rate  Monthly System Fee ‐  Monthly System Fee ‐   3/4”$15.91 3/4” $35.71 1”22.47 1” 50.43 1‐1/2”38.88 1‐1/2” 87.27 2”58.55 2” 131.42 3”111.04 3” 249.23 4”170.10 4” 381.79 6”334.18 6” 750.07 8 531.05 8 1,191.94 10”760.72 10” 1,707.44 Plus: Usage Charges Plus: Usage Charges   Less than a 10” Meter All Usage $2.89/CCF  1 –173 $3.53/CCF  174 –831 $3.60/CCF  832 –up $3.65/CCF  10” Meter and Greater  0 –7,426 $3.53/CCF  7,427– 14,616 $3.60/CCF  14,617 ‐up $3.65/CCF Recycled Commercial Bill Comparisons (Assumes 6” Meter) 31 Recycled Irrigation Rate Structure 32 Current Recycled Irrigation Rate Proposed Recycled Irrigation   Monthly System Fee ‐  Monthly System Fee ‐   3/4”$15.91 3/4”$30.15 1”22.47 1”42.58 1‐1/2” 38.88 1‐1/2” 73.68  2”58.55 2”110.95 3” 111.04 3” 210.42  4” 170.10 4” 322.35  6” 334.18 6” 633.28  8 531.05 8 1,006.36 10” 760.72 10” 1,441.59  Plus: Usage Charges Plus: Usage Charges   3/4” to 1” Meter All Usage $4.09/CCF   1 –32 $5.68/CCF  33 – 75 $5.74/CCF     76 – up $5.81/CCF     1‐1/2” to 2” Meter     0 –130 $5.68/CCF  131 – 325 $5.74/CCF     326 ‐ up $5.81/CCF     3” – 4”  Meter     0 –440 $5.68/CCF  441 –1,050 $5.74/CCF  1,051 ‐up $5.81/CCF     6” Meter and Greater  0 – 4,000 $5.68/CCF     4,001– 10,000 $5.74/CCF     10,001 – up $5.81/CCF    Recycled Irrigation Bill Comparisons (Assumes 1-1/2” meter) 33 Summary of the Recycled Water Rates Proposed recycled water rates have been developed using generally accepted rate setting methodologies Proposed rates are reflective of the recycled water revenue requirement and cost of service findings and conclusions (i.e., cost-based rates) 34