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HomeMy WebLinkAboutWater Cost of Service and Rate Design Study Draft Report - 07-28-2022 Water Cost of Service and Rate Design Study Draft Report / July 28, 2022 Otay Water District 445 S Figueroa St, Suite 1925 Los Angeles CA 90071 www.raftelis.com August 18, 2022 Mr. Joe Beachem Chief Financial Officer Otay Water District 2554 Sweetwater Springs Blvd. Spring Valley, CA 91978 Subject: Water Cost of Service and Rate Design Study Dear Mr. Beachem, Raftelis is pleased to provide this Water Cost of Service and Rate Study Report to the Otay Water District. The study’s purpose was to review and update the District’s potable and recycled water rates. This report provides a detailed cost of service analysis that reasonably allocates cost to District customers and proposes a water rate schedule that recovers the cost to serve those customers. It has been a pleasure working with you and we thank you, Kevin Koeppen and other District staff for the support provided to Raftelis during this study. Sincerely, Steve Gagnon, PE (AZ) Sr. Manager WATER COST OF SERVICE AND RATE DESIGN STUDY Table of Contents 1. EXECUTIVE SUMMARY................................................................................................................... 1 1.1. Study Overview ................................................................................................................................. 1 1.2. Proposed Rate Structure Changes ................................................................................................... 1 1.2.1. Revised SFR and MFR Tier Definitions ............................................................................................ 1 1.2.2. Creation of Distinct Commercial and Public Customer Classes ....................................................... 2 1.2.3. Creation of Construction Customer Class ......................................................................................... 2 1.3. Proposed Water Rates ...................................................................................................................... 2 1.4. Bill Impacts ........................................................................................................................................ 6 2. INTRODUCTION ............................................................................................................................... 7 2.1. Agency Overview ............................................................................................................................... 7 2.2. Study Overview ................................................................................................................................. 7 2.3. Current Water Rates .......................................................................................................................... 7 2.4. Proposed Rate Structure Changes ................................................................................................... 9 2.4.1. Revised SFR and MFR Tier Definitions ............................................................................................ 9 2.4.2. Creation of Distinct Commercial and Public Customer Classes ..................................................... 10 2.4.3. Creation of Construction Customer Class ....................................................................................... 10 3. LEGAL REQUIREMENTS .............................................................................................................. 11 4. RATE-SETTING METHODOLOGY ................................................................................................ 11 4.1. Rate Setting Process ....................................................................................................................... 11 4.2. Cost of Service Analysis .................................................................................................................. 12 4.2.1. Peaking and Maximum Day Water Use .......................................................................................... 12 4.2.2. Peaking Factor Calculation ............................................................................................................. 13 5. POTABLE COST OF SERVICE ANALYSIS .................................................................................. 15 5.1. Units of Service ............................................................................................................................... 15 5.1.1. Water Use and Peaking Units ......................................................................................................... 15 5.1.2. Customer Units ................................................................................................................................ 16 5.1.3. Fire Protection Units ........................................................................................................................ 18 5.1.4. Units of Service Summary ............................................................................................................... 20 5.2. Revenue Requirement..................................................................................................................... 21 5.3. Functionalization and Allocation of Expenses ................................................................................. 21 5.3.1. O&M Expense Allocation ................................................................................................................. 22 5.3.2. Capital Allocation ............................................................................................................................. 25 5.3.3. Revenue Offset Allocation ............................................................................................................... 27 5.4. Cost of Service Allocation ............................................................................................................... 29 OTAY WATER DISTRICT 5.4.1. Preliminary Cost of Service Allocation ............................................................................................ 29 5.4.2. Adjustments to Cost of Service ....................................................................................................... 30 5.4.3. Final Cost of Service Allocation ....................................................................................................... 30 5.5. Unit Cost Development.................................................................................................................... 31 5.6. Customer Class Costs ..................................................................................................................... 32 5.7. Customer Class Comparison .......................................................................................................... 33 6. PROPOSED POTABLE WATER RATES ...................................................................................... 35 6.1. Proposed Fixed Charges ................................................................................................................. 35 6.1.1. Proposed System Fees ................................................................................................................... 36 6.1.2. Proposed CWA / MWD Charges ..................................................................................................... 37 6.1.3. Proposed Private Fire Line Charges ............................................................................................... 37 6.2. Proposed Volume Rates ................................................................................................................. 39 6.2.1. Commodity Rate Component .......................................................................................................... 39 6.2.2. Demand Rate Component ............................................................................................................... 40 6.2.3. Tax OFfset Rate Component .......................................................................................................... 42 6.2.4. Total Proposed Volume Rate .......................................................................................................... 44 6.2.5. Energy Surcharge ............................................................................................................................ 44 6.3. Monthly Bill Impacts ......................................................................................................................... 44 7. RECYCLED COST OF SERVICE ANALYSIS ............................................................................... 47 7.1. Units of Service ............................................................................................................................... 47 7.1.1. Water Use and Peaking Units ......................................................................................................... 47 7.1.2. Customer Units ................................................................................................................................ 47 7.1.3. Units of Service Summary ............................................................................................................... 50 7.2. Revenue Requirement..................................................................................................................... 51 7.3. Functionalization and Allocation of Expenses ................................................................................. 51 7.3.1. O&M Expense Allocation ................................................................................................................. 52 7.3.2. Capital Allocation ............................................................................................................................. 55 7.3.3. Revenue Offset Allocation ............................................................................................................... 57 7.4. Cost of Service Allocation ............................................................................................................... 59 7.4.1. Preliminary Cost of Service Allocation ............................................................................................ 59 7.4.2. Adjustments to Cost of Service ....................................................................................................... 59 7.4.3. Final Cost of Service Allocation ....................................................................................................... 59 7.5. Unit Cost Development.................................................................................................................... 61 7.6. Customer Class Costs ..................................................................................................................... 62 7.7. Customer Class Comparison .......................................................................................................... 63 8. PROPOSED RECYCLED WATER RATES.................................................................................... 64 WATER COST OF SERVICE AND RATE DESIGN STUDY 8.1. Proposed Fixed Charges ................................................................................................................. 64 8.1.1. Proposed System Fees ................................................................................................................... 64 8.2. Proposed Volume Rates ................................................................................................................. 65 8.2.1. Commodity Rate Component .......................................................................................................... 65 8.2.2. Demand Rate Component ............................................................................................................... 66 8.2.3. Total Proposed Volume Rate .......................................................................................................... 66 8.3. Monthly Bill Impacts ......................................................................................................................... 66 OTAY WATER DISTRICT List of Tables Table 1-1: Proposed Residential and Multi-Residential Tier Changes ......................................................................... 2 Table 1-2: Proposed Rates ........................................................................................................................................... 3 Table 2-1: Current FY 2022 System Fees .................................................................................................................... 8 Table 2-2: MWD / CWA Fixed Charges ........................................................................................................................ 8 Table 2-3: FY 2022 Volume Rates ............................................................................................................................... 9 Table 2-4: Proposed Tier Changes ............................................................................................................................. 10 Table 4-1: Peaking Factors ......................................................................................................................................... 14 Table 5-1: Water Use and Peaking Units ................................................................................................................... 16 Table 5-2: Customer Accounts ................................................................................................................................... 17 Table 5-3: Equivalent Meter Ratios ............................................................................................................................ 17 Table 5-4: AWWA Capacity Equivalent Meters .......................................................................................................... 18 Table 5-5: Cost Equivalent Meters ............................................................................................................................. 18 Table 5-6: Fire Protection Requirements .................................................................................................................... 19 Table 5-7: Public and Private Fire Connections ......................................................................................................... 19 Table 5-8: Units of Service Summary ......................................................................................................................... 20 Table 5-9: FY 2023 Projected Revenue Required from Rates ................................................................................... 21 Table 5-10: Summary of O&M Expenses by Functional Category ............................................................................. 23 Table 5-11: Allocation of O&M Expenses to Cost Causation Components ............................................................... 24 Table 5-12: Summary of Capital Assets by Functional Category ............................................................................... 25 Table 5-13: Allocation of Functionalized Capital Assets to Cost Causation Components\ ........................................ 26 Table 5-14: Allocation of Capital Costs to Cost Causation Components ................................................................... 26 Table 5-15: Non-Rate Revenue Allocations ............................................................................................................... 28 Table 5-16: Cost of Service Allocation ........................................................................................................................ 29 Table 5-17: Fire Cost Reallocation ............................................................................................................................. 30 Table 5-18: Development of Unit Costs ...................................................................................................................... 31 Table 5-19: Customer Class Cost of Service .............................................................................................................. 32 Table 5-20: Public Fire Reallocation ........................................................................................................................... 33 Table 5-21: Cost of Service Comparison .................................................................................................................... 34 Table 6-1: Fixed Charge Components ........................................................................................................................ 35 Table 6-2: System Fees .............................................................................................................................................. 36 Table 6-3: Public Fire Protection................................................................................................................................. 36 Table 6-4: Total System Fees ..................................................................................................................................... 37 Table 6-5: CWA / MWD Charges ................................................................................................................................ 37 Table 6-6: Private Fire Charges .................................................................................................................................. 38 Table 6-7: Commodity Rate Component .................................................................................................................... 39 Table 6-8: Demand Rate Component ......................................................................................................................... 42 Table 6-9: Tax Offset Rate Component ...................................................................................................................... 43 Table 6-10: Total Proposed Volume Rates ................................................................................................................. 44 Table 6-11: Energy Surcharge .................................................................................................................................... 44 Table 6-12: SFR Bill Impacts ...................................................................................................................................... 45 Table 6-13: MFR Bill Impacts...................................................................................................................................... 45 Table 6-14: Commercial Bill Impacts .......................................................................................................................... 45 Table 6-15: Commercial Irrigation Bill Impacts ........................................................................................................... 45 Table 6-16: Construction Bill Impacts ......................................................................................................................... 46 Table 6-17: Temporary Construction Bill Impacts....................................................................................................... 46 Table 6-18: Public Bill Impacts .................................................................................................................................... 46 Table 6-19: Public Irrigation Bill Impacts .................................................................................................................... 46 Table 7-1: Water Use and Peaking Units ................................................................................................................... 47 WATER COST OF SERVICE AND RATE DESIGN STUDY Table 7-2: Customer Accounts ................................................................................................................................... 48 Table 7-3: AWWA Capacity Equivalent Meters .......................................................................................................... 48 Table 7-4: Cost Equivalent Meters ............................................................................................................................. 49 Table 7-5: Units of Service Summary ......................................................................................................................... 50 Table 7-6: FY 2023 Projected Revenue Required from Rates ................................................................................... 51 Table 7-7: Summary of O&M Expenses by Functional Category ............................................................................... 52 Table 7-8: Allocation of O&M Expenses to Cost Causation Components .................................................................. 54 Table 7-9: Summary of Capital Assets by Functional Category ................................................................................. 55 Table 7-10: Allocation of Functionalized Capital Assets to Cost Causation Components\ ........................................ 56 Table 7-11: Allocation of Capital Costs to Cost Causation Components ................................................................... 56 Table 7-12: Non-Rate Revenue Allocations ............................................................................................................... 58 Table 7-13: Cost of Service Allocation ........................................................................................................................ 60 Table 7-14: Development of Unit Costs ...................................................................................................................... 61 Table 7-15: Customer Class Cost of Service .............................................................................................................. 62 Table 7-16: Cost of Service Comparison .................................................................................................................... 63 Table 8-1: Fixed Charge Components ........................................................................................................................ 64 Table 8-2: System Fees .............................................................................................................................................. 65 Table 8-3: Commodity Rate Component .................................................................................................................... 65 Table 8-4: Demand Rate Component ......................................................................................................................... 66 Table 8-5: Total Proposed Volume Rates ................................................................................................................... 66 Table 8-6: Recycled Bill Impacts................................................................................................................................. 66 Table 8-7: Public Recycled Bill Impacts ...................................................................................................................... 67 Table 8-8: Recycled Commercial Bill Impacts ............................................................................................................ 67 List of Figures Figure 1-1: SFR Bill Impacts ......................................................................................................................................... 6 Figure 6-1: Pipe Sizes Required for Average, Max Day and Max Hour Flows ........................................................... 41 OTAY WATER DISTRICT This page intentionally left blank to facilitate two-sided printing. WATER COST OF SERVICE AND RATE DESIGN STUDY 1 1. Executive Summary 1.1. Study Overview Public water agencies in California typically conduct cost-of-service and rate studies to ensure there is a strong nexus between rates charged to customers and costs incurred to provide service, as required by Proposition 218. The District engaged Raftelis in 2021 to conduct this Water Cost of Service and Rate Design Study to establish a proposed water rate structure based on FY 2023 test data. Note that the rates in this report do not include an annual revenue adjustment (or rate increase) for FY 2023. The proposed rates herein will be updated at a later date by District staff according to the revenue adjustment approved by the District Board of Directors. 1.2. Proposed Rate Structure Changes After reviewing the District’s current rates and cost structure, Raftelis recommends several changes to the proposed rate structure. All proposed changes to the rates and rate structure are revenue neutral. In other words, the proposed rates detailed in this report are designed to collect the same revenue as the currently effective rates. 1.2.1. REVISED SFR AND MFR TIER DEFINITIONS Raftelis conducted a detailed review of the District’s billing data for all customer classes, with a special emphasis on single family residential (SFR) and multifamily residential (MFR) customers in FY 2019, which staff considers to be a typical year with normal usage patterns before the pandemic altered commercial and residential use. Raftelis and the rate study team proposes to update the tier breakpoints to those shown in Table 1-11. The volumetric rate tier breakpoint for MFR is per dwelling unit, not per account, while the MFR system fee is per account. The billing data analysis showed that the average monthly water used by the combined SFR and MFR classes on an annual basis is 9 Ccf. Tier 1 is set at the average residential use. The average monthly bill during the summer months (June, July, and August) is 12 Ccf per month. Tier 2 is set at this maximum summer use. Thus the tiers were set at the average use and maximum summer use which is correlates with the Commodity Demand method in which costs are separated into costs to serve water during average flows and maximum (peak) flows. All additional use will be charged in the third tier. 1 The SFR and MFR residential classes were combined because census data for Spring Valley, CA shows that the housing density (people per home or apartment) for MFR and SFR have similar number of people per home or apartment and therefore should not be treated differently for the purpose setting tier breakpoints. Furthermore, most MFR accounts have separate irrigation meters for outdoor water use. 2 OTAY WATER DISTRICT Table 1-1: Proposed Residential and Multi-Residential Tier Changes 1.2.2. CREATION OF DISTINCT COMMERCIAL AND PUBLIC CUSTOMER CLASSES The District currently has one rate for commercial and public customers. However, there is an additional government surcharge of 42 cents per Ccf applied to water used by public accounts to recognize that public entities do not pay property taxes while all other customers do (the District receives a share of property taxes); the surcharge is intended to equalize the overall revenue (rate and property tax revenue) collected between public and non-public customers. Raftelis recommends eliminating the government surcharge; however, public customers will not receive a tax revenue offset, yielding rates that are slightly higher than the commercial classes. This recommendation also applies to the separation of commercial and public irrigation accounts within the currently combined irrigation and commercial agriculture rate. 1.2.3. CREATION OF CONSTRUCTION CUSTOMER CLASS Water used by permanent construction accounts is currently charged the irrigation rate, while water used by temporary construction accounts is charged two times the irrigation rate. Raftelis recommends creating a new Construction customer class that encompasses both types of customers and proposes a separate rate based on their own water use characteristics. 1.3. Proposed Water Rates Table 1-2 shows the proposed rate schedule, arranged by customer class. All potable customers are subject to the proposed MWD/CWA fixed charges. SFR 1 Tier 1 1 - 10 1 - 9 2 Tier 2 11 - 22 10 - 12 3 Tier 3 > =23 > =13 MFR 4 Tier 1 1 - 4 1 - 9 5 Tier 2 5 - 9 10 - 12 6 Tier 3 > = 10 > =13 Line Customer Class Current Tiers (Ccf) Proposed Tiers (Ccf) WATER COST OF SERVICE AND RATE DESIGN STUDY 3 Table 1-2: Proposed Rates A B C D E F G H Current Proposed $ Change % Change Current Proposed $ Change % Change Volume Rate Volume Rate 1 Tier 1 3.52$ 5.03$ 1.51$ 42.9% 1 Tier 1 3.29$ 4.99$ 1.70$ 51.7% 2 Tier 2 6.30 5.46 (0.84) -13.3% 2 Tier 2 5.97 5.41 (0.56) -9.4% 3 Tier 3 8.12 6.08 (2.04) -25.1% 3 Tier 3 7.35 5.60 (1.75) -23.8% System Fee System Fee 4 5/8" 20.08$ 17.29$ (2.79)$ -13.9% 4 5/8" 44.17$ 15.95$ (28.22)$ -63.9% 5 3/4" 20.08 17.29 (2.79) -13.9% 5 3/4" 44.17 15.95 (28.22) -63.9% 6 1" 28.39 21.50 (6.89) -24.3% 6 1" 62.37 19.27 (43.10) -69.1% 7 1 1/2" 49.11 32.27 (16.84) -34.3% 7 1 1/2" 107.92 27.81 (80.11) -74.2% 8 2" 73.98 45.01 (28.97) -39.2% 8 2" 162.53 37.87 (124.66) -76.7% 9 3" 308.22 79.98 (228.24) -74.1% 10 4" 472.17 134.77 (337.40) -71.5% 11 6" 927.63 264.45 (663.18) -71.5% 12 8" 1,474.12 408.31 (1,065.81) -72.3% 13 10" 2,111.67 626.10 (1,485.57) -70.4% Line SFR Rates Line MFR Rates 4 OTAY WATER DISTRICT A B C D E F G H Current Proposed $ Change % Change Current Proposed $ Change % Change 14 Volume Rate 4.17$ 5.28$ 1.11$ 26.6% 14 Volume Rate 6.09$ 6.09$ -$ 0.0% System Fee System Fee 15 5/8" 41.61$ 17.43$ (24.18)$ -58.1% 15 5/8" 35.13$ 15.43$ (19.70)$ -56.1% 16 3/4" 41.61 17.43 (24.18) -58.1% 16 3/4" 35.13 15.43 (19.70) -56.1% 17 1" 58.75 21.74 (37.01) -63.0% 17 1" 49.62 18.41 (31.21) -62.9% 18 1 1/2" 101.66 32.74 (68.92) -67.8% 18 1 1/2" 85.86 26.08 (59.78) -69.6% 19 2" 153.11 45.76 (107.35) -70.1% 19 2" 129.28 35.11 (94.17) -72.8% 20 3" 290.34 97.23 (193.11) -66.5% 20 3" 245.19 73.93 (171.26) -69.8% 21 4" 444.76 165.82 (278.94) -62.7% 21 4" 375.63 123.89 (251.74) -67.0% 22 6" 873.81 333.46 (540.35) -61.8% 22 6" 737.94 240.26 (497.68) -67.4% 23 8" 1,388.56 526.62 (861.94) -62.1% 23 8" 1,172.69 366.86 (805.83) -68.7% 24 10" 1,989.08 813.42 (1,175.66) -59.1% 24 10" 1,679.86 560.46 (1,119.40) -66.6% A B C D E F G H Current Proposed $ Change % Change Current Proposed $ Change % Change 25 Volume Rate*4.59$ 5.82$ 1.23$ 26.8% 25 Volume Rate* 6.51$ 6.64$ 0.13$ 2.0% System Fee System Fee 26 5/8" 41.61$ 16.24$ (25.37)$ -61.0% 26 5/8" 35.13$ 15.43$ (19.70)$ -56.1% 27 3/4" 41.61 16.24 (25.37) -61.0% 27 3/4" 35.13 15.43 (19.70) -56.1% 28 1" 58.75 19.75 (39.00) -66.4% 28 1" 49.62 18.41 (31.21) -62.9% 29 1 1/2" 101.66 28.76 (72.90) -71.7% 29 1 1/2" 85.86 26.08 (59.78) -69.6% 30 2" 153.11 39.40 (113.71) -74.3% 30 2" 129.28 35.11 (94.17) -72.8% 31 3" 290.34 83.32 (207.02) -71.3% 31 3" 245.19 73.93 (171.26) -69.8% 32 4" 444.76 140.79 (303.97) -68.3% 32 4" 375.63 123.89 (251.74) -67.0% 33 6" 873.81 277.83 (595.98) -68.2% 33 6" 737.94 240.26 (497.68) -67.4% 34 8" 1,388.56 431.27 (957.29) -68.9% 34 8" 1,172.69 366.86 (805.83) -68.7% 35 10" 1,989.08 662.44 (1,326.64) -66.7% 35 10" 1,679.86 560.46 (1,119.40) -66.6% * Current Rate Includes Government Surcharge Line Public Rates Line Public Irrigation Rates Line Commercial Rates Line Commercial Irrigation Rates A B C D A B C D Current Proposed $ Change % Change Current Proposed $ Change % Change 36 Volume Rate 12.18$ 6.05$ (6.13)$ -50.3% 36 0.063$ 0.068$ 0.005$ 7.9% System Fee 37 5/8" 35.13$ 15.86$ (19.27)$ -54.9% 38 3/4" 35.13 15.86 (19.27) -54.9% 39 1" 49.62 19.12 (30.50) -61.5% 40 1 1/2" 85.86 27.51 (58.35) -68.0% 41 2" 129.28 37.40 (91.88) -71.1% 42 3" 245.19 78.95 (166.24) -67.8% 43 4" 375.63 132.92 (242.71) -64.6% 44 6" 737.94 260.34 (477.60) -64.7% 45 8" 1,172.69 401.27 (771.42) -65.8% 46 10" 1,679.86 614.94 (1,064.92) -63.4% Volume Rate, per 100 ft Line Construction Rates Line Potable Energy Charge WATER COST OF SERVICE AND RATE DESIGN STUDY 5 E F G H Current Proposed $ Change % Change CWA/MWD Fee 47 5/8" 17.00$ 16.49$ (0.51)$ -3.0% 48 3/4" 17.00 16.49 (0.51) -3.0% 49 1" 31.57 27.49 (4.08) -12.9% 50 1 1/2" 71.36 54.97 (16.39) -23.0% 51 2" 121.39 87.94 (33.45) -27.6% 52 3" 258.17 192.37 (65.80) -25.5% 53 4" 413.41 346.27 (67.14) -16.2% 54 6" 846.28 769.48 (76.80) -9.1% 55 8" 1,366.65 1,319.10 (47.55) -3.5% 56 10" 1,967.12 2,088.58 121.46 6.2% Line CWA/MWD Fees A B C D A B C D Current Proposed $ Change % Change Current Proposed $ Change % Change 57 Volume Rate 5.05$ 5.10$ 0.05$ 1.0% 57 Volume Rate 5.48$ 5.20$ (0.28)$ -5.1% System Fee System Fee 58 5/8" 36.93$ 34.31$ (2.62)$ -7.1% 58 5/8" 36.93$ 34.31$ (2.62)$ -7.1% 59 3/4" 36.93 34.31 (2.62) -7.1% 59 3/4" 36.93 34.31 (2.62) -7.1% 60 1" 52.16 46.46 (5.70) -10.9% 60 1" 52.16 46.46 (5.70) -10.9% 61 1 1/2" 90.25 77.28 (12.97) -14.4% 61 1 1/2" 90.25 77.28 (12.97) -14.4% 62 2" 135.90 113.93 (21.97) -16.2% 62 2" 135.90 113.93 (21.97) -16.2% 63 3" 257.73 249.69 (8.04) -3.1% 63 3" 257.73 249.69 (8.04) -3.1% 64 4" 394.84 435.78 40.94 10.4% 64 4" 394.84 435.78 40.94 10.4% 65 6" 787.55 907.15 119.60 15.2% 65 6" 787.55 907.15 119.60 15.2% 66 8" 1,232.66 1,472.09 239.43 19.4% 66 8" 1,232.66 1,472.09 239.43 19.4% 67 10" 1,765.77 2,294.50 528.73 29.9% 67 10" 1,765.77 2,294.50 528.73 29.9% Line Recycled Line Recycled Public A B C D A B C D Current Proposed $ Change % Change Current Proposed $ Change % Change 68 Volume Rate 3.58$ 4.68$ 1.10$ 30.7% 68 0.063$ 0.082$ 0.019$ 30.2% System Fee 69 5/8" 43.74$ 34.31$ (9.43)$ -21.6% 70 3/4" 43.74 34.31 (9.43) -21.6% 71 1" 61.76 46.46 (15.30) -24.8% 72 1 1/2" 106.89 77.28 (29.61) -27.7% 73 2" 160.98 113.93 (47.05) -29.2% 74 3" 305.28 249.69 (55.59) -18.2% 75 4" 467.65 435.78 (31.87) -6.8% 76 6" 918.73 907.15 (11.58) -1.3% 77 8" 1,459.97 1,472.09 12.12 0.8% 78 10" 2,091.41 2,294.50 203.09 9.7% Volume Rate, per 100 ft Line Recycled Commercial Line Recycled Energy Charge 6 OTAY WATER DISTRICT 1.4. Bill Impacts Figure 1-1 compares proposed SFR monthly bills with current bills at various water use levels. Many residential customers will see a bill increase due to the higher Tier 1 volume rate; however, this is partially offset by the reduction in the fixed meter charge. The average monthly bill for a SFR customer is 11 Ccf; this customer will see a bill increase of approximately 14.5 percent, before adjusting for the additional cost of service to be collected through the January 1, 2023 proposed rate increase. Additional bill impacts for other customer classes can be found in Section 5. Figure 1-1: SFR Bill Impacts WATER COST OF SERVICE AND RATE DESIGN STUDY 7 2.Introduction 2.1. Agency Overview Otay Water District is a water, recycled water, and sewer service provider. The State Legislature authorized the establishment of the Otay Water District in 1956 as a California Special District under the provisions of the Municipal Water District Law of 1911, Division 20 (commencing with Section 71000) of the Water Code of the State of California. Otay Water District is a public agency that does not make a profit, where each end user pays only his or her fair share of the District’s costs to operate and maintain the public water, recycled water, or sewer facilities. Five directors, elected by voters to serve respective divisions, set the District’s ordinances, policies, taxes, and rates for service. Members of the Board of Directors serve four-year terms of office. The Board of Directors typically meets in open public session on the first Wednesday of each month at 3:30 p.m. at District headquarters. The public is welcome to attend these meetings. The District provides water service to customers within roughly 125 square miles of southeastern San Diego County, California. Its facilities serve the water, recycled water, and the sewer needs of customers residing in the communities of Spring Valley, La Presa, Rancho San Diego, Jamul, eastern Chula Vista, and eastern Otay Mesa along the international border with Mexico. The potable water delivered by Otay Water District is purchased from the San Diego County Water Authority (CWA) or the Helix Water District through an exchange agreement with Helix and CWA. Imported water is a mix of waters from the Colorado River and Northern California. Most of the water is originally purchased from the region’s primary importer, the Metropolitan Water District of Southern California (MWD). 2.2. Study Overview Public water agencies in California typically conduct cost-of-service and rate studies to ensure that there is a strong nexus between rates charged to customers and costs incurred to provide service, as required by Proposition 218. The District engaged Raftelis in 2021 to conduct this Water Cost of Service and Rate Design Study to establish a proposed water rate structure. Proposed rates presented in this study report may not be implemented until formally adopted by the District Board of Directors after a public hearing. 2.3. Current Water Rates District customers are currently subject to two types of charges: 1) fixed monthly System Fees and 2) Volume Charges per hundred cubic feet (Ccf)2 of water delivered. System Fees vary based on meter size and customer class; customers with a larger meter pay a higher System Fee each month. Larger meters impose larger demand, are more expensive to install, maintain, and replace than smaller meters, and require greater capacity within the water system. The current System Fees are shown in Table 2-1. 2 One HCF equals approximately 748 gallons. 8 OTAY WATER DISTRICT Table 2-1: Current FY 2022 System Fees All customers also pay an additional monthly fixed charge to recover certain fixed costs from the District’s wholesale water provider, shown in Table 2-2. These costs are passed-through directly from MWD/CWA to the District’s customers. Table 2-2: MWD / CWA Fixed Charges Current volume rates are shown in Table 2-3. Single Family Residential customers are subject to a three-tier structure. The first 10 Ccf used each month is charged at the lowest rate, the next 12 Ccf at an intermediate rate, and additional use at the highest rate. Multi Family customers have a similar tiered structure with tiers per dwelling unit, shown below. All other customers pay a uniform volume rate for all units of water used. Currently, Public customers (such as cities, counties, or schools) are also subject to a government surcharge because these customers do not pay property taxes, which the District receives a share of. Finally, the District’s energy surcharge applies to all customers based on their elevation and water use; customers pay 6.3 cents per Ccf for every 100 feet SFR MFR Commercial Irrigation Construction Private Fire Service System Fee 1 5/8" 20.08$ 44.17$ 41.61$ 35.13$ 35.13$ 24.00$ 2 3/4" 20.08 44.17 41.61 35.13 35.13 24.00 3 1" 28.39 62.37 58.75 49.62 49.62 24.00 4 1 1/2" 49.11 107.92 101.66 85.86 85.86 24.00 5 2" 73.98 162.53 153.11 129.28 129.28 24.00 6 3" 308.22 290.34 245.19 245.19 24.00 7 4" 472.17 444.76 375.63 375.63 32.34 8 6" 927.63 873.81 737.94 737.94 32.34 9 8" 1,474.12 1,388.56 1,172.69 1,172.69 32.34 10 10" 2,111.67 1,989.08 1,679.86 1,679.86 32.34 Line Description Customer Class MWD / CWA 1 5/8" 17.00$ 2 3/4" 17.00 3 1" 31.57 4 1 1/2" 71.36 5 2" 121.39 6 3" 258.17 7 4" 413.41 8 6" 846.28 9 8" 1,366.65 10 10" 1,967.12 Line Description Current Rates WATER COST OF SERVICE AND RATE DESIGN STUDY 9 of elevation of their pumping zone above 450 feet of elevation. There is no energy surcharge for customers below 450 feet of elevation as the District receives water from its wholesale supplier at a pressure capable of delivering water up to 450 feet of elevation. For customers over 450 feet of elevation; the District incurs additional pumping charges to deliver water which are reflected in the energy surcharge. See section 6.2.5 for details regarding the energy surcharge calculation. Table 2-3: FY 2022 Volume Rates 2.4.Proposed Rate Structure Changes Raftelis recommends a few changes to the proposed rate structure. All proposed changes to the rates and rate structure are revenue neutral. In other words, the proposed rates detailed in this report are designed to collect the same revenue as the currently effective rates. 2.4.1. REVISED SFR AND MFR TIER DEFINITIONS Raftelis conducted a detailed review of the District’s billing data for all customers, with a special emphasis on single family residential (SFR) and multifamily residential (MFR) customers in FY 2019, which staff considers to be a typical year with normal usage patterns. Raftelis and the rate study team proposes to update the tier breakpoints to those shown in Table 1-13. The volumetric rate tier breakpoint for MFR is per dwelling unit, not per account, while the MFR system fee is per account. The billing data analysis showed that the average monthly water used by the combined SFR and MFR classes on an annual basis is 9 Ccf. Tier 1 is set at the average 3 The SFR and MFR residential classes were combined because census data for Spring Valley, CA shows that the housing density (people per home or apartment) for MFR is more than SFR and thus MFR customers should get an equal amount of water in Tier 1. Furthermore, most MFR accounts have separate irrigation meters for outdoor water use. SFR 1 Tier 1 1 - 10 3.52$ 2 Tier 2 11 - 22 6.30 3 Tier 3 > =23 8.12 MFR 4 Tier 1 1 - 4 3.29$ 5 Tier 2 5 - 9 5.97 6 Tier 3 > = 10 7.35 7 Commercial / Public Uniform 4.17$ 8 Irrigation Uniform 6.09 9 Temp. Construction Uniform 12.18 10 Construction Uniform 6.09 11 Gov. Surcharge Uniform 0.42$ 12 Energy Charge Elevation 0.063$ Line Customer Class Tiers (Ccf) Current Rates 10 OTAY WATER DISTRICT residential use. The average monthly bill during the summer months (June, July, and August) is 12 Ccf per month. Tier 2 is set at this maximum summer use. Thus the tiers were set at the average use and maximum summer use which is correlates with the Commodity Demand method in which costs are separated into costs to serve water during average flows and maximum (peak) flows. All additional use will be charged in the third tier. Table 2-4: Proposed Tier Changes 2.4.2. CREATION OF DISTINCT COMMERCIAL AND PUBLIC CUSTOMER CLASSES The District currently has a single, unified set of rates for commercial and public customers. However, there is an additional government surcharge of 42 cents per Ccf applied to water used by public accounts in recognition of the fact that public entities do not pay property taxes while all other customers do (the District receives a share of property taxes); the surcharge is intended to equalize the overall revenue collected between the public and non- public customers. Raftelis proposes to eliminate the government surcharge; however, public customers will not receive a tax revenue offset, yielding rates that are slightly higher than other classes. More detail on this calculation can be found in Section 6.2.3. This recommendation also applies to the separation of commercial and public irrigation accounts within the currently combined irrigation and commercial agriculture rate. 2.4.3. CREATION OF CONSTRUCTION CUSTOMER CLASS Water used by permanent construction accounts is currently charged the irrigation rate, while water used by temporary construction accounts is charged two times the irrigation rate. Raftelis recommends creating a new Construction customer class that encompasses both of these types of customers and allows them a separate rate based on their own water use characteristics. SFR 1 Tier 1 1 - 10 1 - 9 2 Tier 2 11 - 22 10 - 12 3 Tier 3 > =23 > =13 MFR 4 Tier 1 1 - 4 1 - 9 5 Tier 2 5 - 9 10 - 12 6 Tier 3 > = 10 > =13 Line Customer Class Current Tiers (Ccf) Proposed Tiers (Ccf) WATER COST OF SERVICE AND RATE DESIGN STUDY 11 3.Legal Requirements Proposition 218, reflected in the California Constitution as Article XIII D, was enacted in 1996 to ensure that rates and fees are reasonable and proportional to the cost of providing service. The principal requirements, as they relate to public water service are as follows: 1. A property-related charge (such as water rates) imposed by a public agency on a parcel shall not exceed the costs required to provide the property-related service. 2. Revenues derived by the charge shall not be used for any purpose other than that for which the charge was imposed. 3. The amount of the charge imposed upon any parcel shall not exceed the proportional cost of service attributable to the parcel. 4. No charge may be imposed for a service unless that service is actually used or immediately available to the owner of property. 5. A written notice of the proposed charge shall be mailed to the owner of record of each parcel at least 45 days prior to the public hearing, when the agency considers all written protests against the charge. As stated in the American Water Works Association’s (AWWA) Principles of Water Rates, Fees, and Charges: Manual of Water Supply Practices - M1 Seventh Edition (Manual M1), “water rates and charges should be recovered from classes of customers in proportion to the cost of serving those customers.” Raftelis follows industry standard rate setting methodologies set forth by the AWWA Manual M1 to ensure this study meets Proposition 218 requirements and establishes rates that do not exceed the proportionate cost of providing water services on a parcel basis. The methodology in the Manual M1 is a nationally recognized water industry ratemaking standard. 4.Rate-Setting Methodology 4.1.Rate Setting Process This study was conducted using industry-standard principles outlined by the AWWA Manual M1. The resulting cost of service analysis and rate design process follows four key steps, outlined below, to determine proposed rates that meet industry standards and comply with relevant regulations. 1. Revenue Requirement Determination: The rate-making process begins by determining the revenue requirement for the test year, also known as the rate-setting year. The revenue requirement represents the full cost that the District must recover from ratepayers in order to reliably provide water service. The revenue requirement includes the District’s operating costs, annual debt service, capital expenditures, and reserve funding as projected based on the annual budget, including any miscellaneous revenues that offset costs by reducing the total revenue that must be collected from rates. The test year for this study is FY 2023, using the projected FY 2023 budget before adjusting for the additional cost of service to be collected through the January 1, 2023 proposed rate increase. The revenue requirement in this study was previously determined through the District’s internal financial planning process and provided to Raftelis. 2. Cost of Service Analysis: The net annual cost of providing water service, or the revenue requirement, is then distributed to customer classes and tiers commensurate with their use of and burden on the water system. More detail on this process is provided below. 12 OTAY WATER DISTRICT 3. Rate Design: After allocating the revenue requirement to each customer class, we design and calculate rates. This process also includes a rate impact analysis and sample customer bill impacts. 4. Administrative Record Preparation and Rate Adoption: The final step in a rate study is to develop the administrative record in conjunction with the rate adoption process. This report serves as the administrative record for this study. The administrative record documents the study results and presents the methodologies, rationale, justifications, and calculations used to determine the proposed rates. A thorough and methodological administrative record serves two important functions: maintaining defensibility in a stringent legal environment and communicating the rationale for revenue adjustments and proposed rates to customers and key stakeholders. 4.2.Cost of Service Analysis The framework and methodology utilized to develop the COS analysis and to apportion the revenue requirement to each customer class and tier is informed by the framework of Proposition 218 and the processes outlined in the AWWA Manual M1. COS analyses are tailored specifically to meet the unique needs of each water system. However, there are five distinct steps in every COS analysis to recover costs from customers in a proportional and defensible manner: 1. Development of Units of Service: Each class has unit demand characteristics that determine their share of costs in later steps. These units include annual water use, maximum day (peaking) water use, number of accounts, number of ¾” equivalent capacity meters, number of ¾” equivalent cost meters, and annual water use weighted by elevation. 2. Cost functionalization: O&M expenses and capital assets are categorized by their function in the system. Sample functions may include supply, treatment, distribution, transmission, customer service, etc. 3. Cost causation component allocation: Functionalized costs are then allocated to cost causation components based on their burden on the system. The cost causation components include commodity, demand, meter service, customer service, amongst others. The revenue requirement is allocated accordingly to the cost causation components and results in the total revenue requirement for each cost causation component. 4. Unit cost development: The revenue requirement for each cost causation component is divided by the appropriate units of service to determine the unit cost for each cost causation component. The unit cost for a given cost component is the same for all customers.. 5. Revenue requirement distribution: The unit cost is utilized to distribute the revenue requirement for each cost causation component to customer classes based on each customer class’s individual service units. Section 5 of this report provides the full calculation of each of the steps described above. 4.2.1. PEAKING AND MAXIMUM DAY WATER USE An cost of service study recognitions the fact that water systems are designed to deliver water to customers to meet both average and peak usage demands. If all customers used the same amount of water each day, evenly throughout the year, system facilities could be sized to provide exactly that amount of water at any given time. However, very few customers use water in such a uniform manner. Commercial and industrial customers may have busier sales or production periods, irrigation customers generally use very little or no water in the winter months and large quantities of water on the hottest days of the summer, and residential customers may go on vacation and use no water for a period or may also water their lawns in a similar pattern as irrigation customers. WATER COST OF SERVICE AND RATE DESIGN STUDY 13 In this way, a water system is analogous to a highway system. Like a highway, a water system must be designed not only to meet average demands (such as in the middle of the day), but also peak demands (such as during rush hour traffic). The water system must be designed in such a way that it can reliably supply water to all customers simultaneously on the single highest demand day of the year (the maximum day). This often means that system infrastructure must be significantly larger than a system designed to meet average day demand. Larger systems are more expensive to build and operate... Therefore, max day capacity is an additional cost incurred above and beyond a system designed for average flows at the same rate every day and throughout the day. Put another way, if no peak demand existed, a much smaller, less costly system could be built to serve customers. Given that additional costs are incurred to provide this additional capacity, how should costs be recovered from the users of the water system. The Commodity-Demand Method assigns costs to users in proportion to both their average day demands and their peak (max day) capacity demands. An important part of estimating maximum day use is the peaking factor, which is a ratio relating average day use to maximum day use. For example, a hypothetical peaking factor of 2.0 for a given customer class means that the maximum day use for that class is two times higher than the average day use. Peaking factors are used to assign costs to each customer class. The Demand cost causation component includes all costs related to providing service on the peak day; the units of service for this component are each class or tier’s maximum day use. The total costs are divided by the total maximum day use to derive the unit cost, which is then distributed back to the customer classes and tier by multiplying the unit cost by the unique units of service. More detail on this process is shown in Sections 5.3 and 5.5. The end goal being that each class pays in proportion to their contribution to peaks in water demand (max day demand). In this way, water users pay their proportionate share of the system upsizing to serve their peak demand. 4.2.2.PEAKING FACTOR CALCULATION Table 4-1 shows the calculation of the maximum day peaking factor for each customer class and tier. The basis for this calculation is monthly billing data provided by the District. Column E shows the water volumes in the highest month of use; this is converted to a daily average for the month in Column F. A preliminary monthly peaking factor is calculated in Column G by dividing average daily water use in the highest month (Column F) by the average daily water use in the year (Column D). However, this preliminary factor does not yet represent the highest day of water use. Industry guidelines require that this factor be scaled up using daily total system water use data. The highest day of system use in the year is divided by the average daily use in the highest system month of they year. This factor, shown in Column H, is then applied to each of the monthly class peaking factors to derive the final maximum day estimate in Column I. The resulting peaking factors are applied to average day use for each class and tier to derive the estimated maximum day use in Section 4.2.1. 14 OTAY WATER DISTRICT Table 4-1: Peaking Factors A B C D E F G H I Annual Use Avg. Day Max Month Avg. Day in Max Month ADMM / Avg. Day System MD / ADMM Max Day Peak Units Ccf Ccf Ccf Ccf Ratio Ratio Ratio SFR 1 Tier 1 0 9 3,992,200 10,938 354,993 11,833 1.08 1.16 1.26 2 Tier 2 10 12 701,000 1,921 76,824 2,561 1.33 1.16 1.55 3 Tier 3 13 + 1,798,100 4,926 252,089 8,403 1.71 1.16 1.98 4 Subtotal 6,491,300 17,784 683,118 22,771 1.28 1.16 1.49 MFR 5 Tier 1 0 9 1,611,600 4,415 139,485 4,650 1.05 1.16 1.22 6 Tier 2 10 12 93,600 256 10,045 335 1.31 1.16 1.52 7 Tier 3 13 + 152,700 418 17,808 594 1.42 1.16 1.65 8 Subtotal 1,857,900 5,090 166,755 5,559 1.09 1.16 1.27 9 Commercial 1,132,700 3,103 114,370 3,812 1.23 1.16 1.43 10 Irrigation 1,131,900 3,101 159,448 5,315 1.71 1.16 1.99 11 Construction 286,500 785 39,787 1,326 1.69 1.16 1.96 12 Public 744,900 2,041 77,791 2,593 1.27 1.16 1.48 13 Public Irr.262,700 720 38,027 1,268 1.76 1.16 2.05 14 Recycled Irrigation 834,700 2,287 113,033 3,706 1.62 1.60 2.59 15 Recycled Public 581,700 1,594 83,153 2,726 1.71 1.60 2.73 16 Recycled Commercial 155,900 1.25 1.60 1.99 Water Use Statistics Uniform Uniform Uniform Uniform Uniform Ccf Uniform Uniform Uniform Line Tier Boundaries WATER COST OF SERVICE AND RATE DESIGN STUDY 15 5. Potable Cost of Service Analysis Section 5 details the cost of service (COS) analysis performed for FY 2023. The COS analysis allocates the overall rate revenue requirement to customer classes based on their proportion of use of and burden on the District’s water system. The COS analysis is the basis for the proposed water rates. 5.1. Units of Service The first step of the cost of service process is to determine the units of service that will be used to assign costs to each customer class. Each customer class has unique water use characteristics that are quantified and used to assign costs, ensuring that each class pays their share of costs in proportion to the impacts their water use characteristics place on the water system. 5.1.1. WATER USE AND PEAKING UNITS Table 5-1 shows the water use and peaking characteristics for each proposed customer class. The annual use in Column A is the total water, measured in Ccf, forecast to be purchased in FY 2023. This amount is divided by 365 days in column B to calculate the average daily use. Unique peaking factors shown in Column C are multiplied by the average daily use to estimate the water use of each customer class on the highest use day of the year. Detail on the derivation of these peaking factors can be found in Appendix A. Elevation adjusted volumes were determined for each customer account by analyzing the height above sea level for each pumping zone. There is no energy surcharge for customers below 450 feet of elevation as the District receives water from its wholesale supplier at a pressure capable of delivering water up to 450 feet of elevation. For customers over 450 feet of elevation; the District incurs additional pumping charges to deliver water which are reflected in the energy surcharge. The District charges the energy surcharge on each unit of water sold for every 100 feet above 450 feet in elevation. For example, a customer at an elevation of 820 feet would have an “elevation adjustment factor” of four (820-450 /100 = 3.7, rounded to 4). All of this customer’s annual water use is multiplied by four to determine the elevation adjusted Ccf; this process was repeated for each customer in the District’s billing data to determine the total elevation adjusted Ccf. The class level results are shown in Column E of Table 5-1. These units are used to allocate power costs related to pumping water. 16 OTAY WATER DISTRICT Table 5-1: Water Use and Peaking Units 5.1.2. CUSTOMER UNITS Customer units include the number of accounts and number of ¾” equivalent meters for each customer class and are used to develop the District’s monthly System Fees. Table 5-2 shows a forecast of the number of accounts by customer class for FY 2023, provided to Raftelis. Table 5-3 shows the meter equivalent ratio calculation, which is used to allocate meter-related costs appropriately and equitably. Larger meters impose larger demand, are more expensive to install, maintain, and replace than smaller meters, and require greater capacity within the water system. Equivalent meter units in this study are based on AWWA-rated hydraulic capacities and are calculated to represent the potential demand on the water system relative to a base meter size. Capacity ratios are calculated by dividing larger meter capacities by the base meter capacity. The base meter in this study is a 3/4-inch meter. AWWA capacity ratios (Column B) are calculated by dividing the capacity of each meter size (Column A) by the capacity of a 3/4-inch meter (Column A, Line 1). Cost equivalent meter ratios are calculated in a similar way in Column D using the actual cost the District incurs to purchase a meter of each size, shown in Column C. The capacity equivalent ratio, developed in Table 5-3 , is multiplied by the number of accounts in Table 5-2 to determine the number of equivalent meter units in Table 5-4. For example, 1,207 1” SFR accounts (Table 4-2, Column A, Line 3) are multiplied by the capacity equivalent factor of approximately 1.7 (Table 4-3, Column B, Line 3) to derive 2,012 ¾” capacity equivalent meters. The process is repeated using cost equivalent ratios shown in Column D of Table 5-3 to yield the cost equivalent meters shown in Table 4-5. A B C D E Annual Use Average Day Use Max Day Peak Factor Max Day Use Elev. Adj. Ccf SFR 1 Tier 1 3,992,200 10,938 1.26 13,749 14,312,806 2 Tier 2 701,000 1,921 1.55 2,975 2,564,051 3 Tier 3 1,798,100 4,926 1.98 9,763 7,443,277 MFR 4 Tier 1 1,611,600 4,415 1.22 5,402 5,338,420 5 Tier 2 93,600 256 1.52 389 311,241 6 Tier 3 152,700 418 1.65 690 20,578 7 Commercial 1,132,700 3,103 1.43 4,429 4,541,016 8 Irrigation 1,131,900 3,101 1.99 6,175 4,512,290 9 Construction 286,500 785 1.96 1,541 473,143 10 Public 744,900 2,041 1.48 3,013 2,933,246 11 Public Irr.262,700 720 2.05 1,473 719,979 Line Customer Class WATER COST OF SERVICE AND RATE DESIGN STUDY 17 Table 5-2: Customer Accounts Table 5-3: Equivalent Meter Ratios A B C D E F G H SFR MFR Commercial Irrigation Construction Public Public Irr. Total Meter Size 1 5/8" - - - - - - - - 2 3/4" 45,412 37 311 111 6 34 9 45,920 3 1" 1,207 190 308 270 4 64 29 2,072 4 1 1/2" 19 249 277 326 3 32 61 967 5 2" 4 267 304 314 1 84 134 1,108 6 3" - 68 30 - - 11 3 112 7 4" - 69 13 2 172 16 3 275 8 6" - 7 3 2 - 6 - 18 9 8" - 3 - - 3 - - 6 10 10" - - - - - 5 - 5 11 Total 46,642 890 1,246 1,025 189 252 239 50,483 12 Percent 92.4% 1.8% 2.5% 2.0% 0.4% 0.5% 0.5% 100.0% Customer AccountsLine A B C D Capacity Ratio to 3/4" Cost Ratio to 3/4" Meter Size 1 5/8" 20 1.0 259.01$ 1.0 2 3/4" 30 1.0 259.01 1.0 3 1" 50 1.7 334.23 1.3 4 1 1/2" 100 3.3 543.26 2.1 5 2" 160 5.3 778.43 3.0 6 3" 350 11.7 2,425.90 9.4 7 4" 630 21.0 4,213.39 16.3 8 6" 1,400 46.7 7,277.67 28.1 9 8" 2,400 80.0 9,092.91 35.1 10 10" 3,800 126.7 13,077.31 50.5 Line Meter Equivalency AWWA Hydraulic Capacity Otay Meter Cost 18 OTAY WATER DISTRICT Table 5-4: AWWA Capacity Equivalent Meters Table 5-5: Cost Equivalent Meters 5.1.3. FIRE PROTECTION UNITS Water systems provide two types of fire protection: public fire protection for firefighting (i.e. fire hydrants) and private fire protection (i.e. fire lines for private structures with sprinkler systems for fire suppression). Raftelis performed a fire demand analysis to determine Fire Protection peaking units, used to determine the total cost to provide fire protection service, and analyzed the number of public fire hydrants and private fire connections in order to allocate the total fire cost between the two. The District provided Raftelis with a count of fire hydrants and private fire line connections. 5.1.3.1.Fire Protection Demand Table 5-6 shows a methodology4 used to calculate peaking units of service associated with Fire Protection based on assumptions regarding the duration and water use rate associated with typical fires. Line 3 of Table 4-6 is calculated as: Max Day Requirements (Ccf/day) = Duration of Fire (hrs) × Water Use Rate (gpm) × 60 mins/hr ÷ 748.05 gallons/Ccf 4 Per the AWWA Manual M1. A B C D E F G H SFR MFR Commercial Irrigation Construction Public Public Irr. Total Meter Size 1 5/8" - - - - - - - - 2 3/4" 45,412 37 311 111 6 34 9 45,920 3 1" 2,012 317 513 450 7 107 48 3,453 4 1 1/2" 63 830 923 1,087 10 107 203 3,223 5 2" 21 1,424 1,621 1,675 5 448 715 5,909 6 3" - 793 350 - - 128 35 1,307 7 4" - 1,449 273 42 3,612 336 63 5,775 8 6" - 327 140 93 - 280 - 840 9 8" - 240 - - 240 - - 480 10 10" - - - - - 633 - 633 11 Total 47,508 5,417 4,132 3,458 3,880 2,073 1,073 67,541 12 Percent 70.3% 8.0% 6.1% 5.1% 5.7% 3.1% 1.6% 100.0% Line Capacity Equivalent Meters A B C D E F G H SFR MFR Commercial Irrigation Construction Public Public Irr. Total Meter Size 1 5/8" - - - - - - - - 2 3/4" 45,412 37 311 111 6 34 9 45,920 3 1" 1,558 245 397 348 5 83 37 2,674 4 1 1/2" 40 522 581 684 6 67 128 2,028 5 2" 12 802 914 944 3 252 403 3,330 6 3" - 637 281 - - 103 28 1,049 7 4" - 1,122 211 33 2,798 260 49 4,474 8 6" - 197 84 56 - 169 - 506 9 8" - 105 - - 105 - - 211 10 10" - - - - - 252 - 252 11 Total 47,021 3,668 2,780 2,176 2,924 1,220 654 60,443 12 Percent 77.8% 6.1% 4.6% 3.6% 4.8% 2.0% 1.1% 100.0% Line Cost Equivalent Meters WATER COST OF SERVICE AND RATE DESIGN STUDY 19 This study assumes that the water system could need to support fighting two simultaneous fires, corresponding to the expected firefighting water demand at a typical single-family residential home and a fire at a school or hospital as defined by the District’s master plan. The total capacity requirement in Column D, Line 3 represents a peak demand, similar to the maximum day peaking costs for other classes determined in Table 5-1 Table 5-6: Fire Protection Requirements 5.1.3.2. Public and Private Fire Connections Table 5-7 shows the calculation of equivalent fire demand associated with public hydrants and private fire lines. Each connection size has a fire flow demand factor similar to the hydraulic capacity factor of a water meter. The diameter of the connection (in inches) is raised to the 2.63 power to determine the fire flow demand factor (Column F).5 The fire flow demand factor is multiplied by the number of connections by size (Columns A and C) to calculate equivalent fire demand (Columns B and D). Total equivalent fire demand is shown for public hydrants and private fire lines are shown in Lines 11, column D and B, respectively. Table 5-7: Public and Private Fire Connections 5 Hazen-Williams equation and AWWA Manual M1 A B C D Units Fire 1 Fire 2 Total 1 Fire Duration Hours 2 5 2 Flow Rate Gal. / Minute 1,500 5,000 3 MD Capacity Ccf / Day 241 2,005 2,246 Line Fire Service Requirement A B C D E F Units Accounts 6" Eq. Accounts 6" Eq. Meter Size 1 5/8" - - - 0.003 2 3/4" 2 0.0 - 0.0 0.004 3 1" 7 0.1 - 0.1 0.009 4 1 1/2" - - - 0.026 5 2" 20 1.1 - 1.1 0.056 6 3" 2 0.3 - 0.3 0.162 7 4" 87 30.0 - 30.0 0.344 8 6" 170 170.0 7,131 7,131 7,301.0 1.000 9 8" 488 1,039.9 - 1,039.9 2.131 10 10" 112 429.2 - 429.2 3.832 11 Total 888 1,670.6 7,131 7,131 8,801.6 12 Percent 19.0% 81.0% Line Fire Protection Units of Service Public Hydrants Demand Factor Total 6" Eq. Meters Private Fire Connections 20 OTAY WATER DISTRICT 5.1.4.UNITS OF SERVICE SUMMARY Table 5-8 summarizes the units of service developed above and assigns them to each cost causation component. Commodity units in Columns A and J are from Table 5-1, Column A; public and public irrigation classes are not assigned units in the Tax Offset component (Column J) to avoid giving them the benefit of property taxes paid by other customers, as discussed in Section 2.4.2. Demand units (Column B) for most classes are from Table 5-1, Column D. Public and private fire demand units are derived by multiplying the total fire demand (Table 5-6, Column D, Line 3) by the percentages derived in Table 5-7, Line 12. Accounts (Column C) were previously shown in Table 5-2, cost meters (Column D) in Table 5-5, and capacity meters (Column E) in Table 5-4. Costs related to CWA/MWD fixed charges (Column F) are also distributed using capacity meters, as discussed in more detail in Section 5.1.2. Finally, public and private fire equivalent meters (Columns G and H) are from Table 5-7, Line 11. Table 5-8: Units of Service Summary A B C D E F G H I J Commodity Demand Accounts Cost Meters Cap. Meters CWA/MWD Public Fire Private Fire Energy Tax Offset Ccf Ccf/Day Accounts 3/4" Eq. 3/4" Eq. 3/4" Eq. 6" Eq. 6" Eq. Elev. Adj. Ccf Ccf SFR 1 Tier 1 3,992,200 13,749 14,312,806 3,992,200 2 Tier 2 701,000 2,975 2,564,051 701,000 3 Tier 3 1,798,100 9,763 7,443,277 1,798,100 4 Customer 46,642 47,021 47,508 47,508 5 Subtotal 6,491,300 26,487 46,642 47,021 47,508 47,508 - - 24,320,134 6,491,300 MFR 6 Tier 1 1,611,600 5,402 5,338,420 1,611,600 7 Tier 2 93,600 389 311,241 93,600 8 Tier 3 152,700 690 20,578 152,700 9 Customer 890 3,668 5,417 5,417 10 Subtotal 1,857,900 6,481 890 3,668 5,417 5,417 - - 5,670,239 1,857,900 11 Commercial 1,132,700 4,429 1,246 2,780 4,132 4,132 4,541,016 1,132,700 12 Irrigation 1,131,900 6,175 1,025 2,176 3,458 3,458 4,512,290 1,131,900 13 Construction 286,500 1,541 189 2,924 3,880 3,880 473,143 286,500 14 Public 744,900 3,013 252 1,220 2,073 2,073 2,933,246 - 15 Public Irrigation 262,700 1,473 239 654 1,073 1,073 719,979 - 16 Public Fire - 1,820 - - - 7,131 - 17 Private Fire - 426 - - - 1,671 - - 18 Total Units of Service 11,907,900 51,845 50,483 60,443 67,541 67,541 7,131 1,671 43,170,047 10,900,300 19 Units of Service less Fire 11,907,900 49,599 50,483 60,443 67,541 67,541 43,170,047 10,900,300 Line Units of Service Units WATER COST OF SERVICE AND RATE DESIGN STUDY 21 5.2. Revenue Requirement Table 5-9 shows the forecasted rate revenue requirement for FY 2023 (also referred to as the test year or rate-setting year). The revenue requirement is split into operating and capital categories (Columns A and B), which are later allocated based on O&M expenses and capital assets respectively. The expenses (Lines 1-3) are equal to FY 2023 forecast expenses. The miscellaneous revenue (Line 5) includes interest earnings, late fees, tax revenue, and other miscellaneous revenues that are applied as offsets to the final rate revenue requirement. The contribution to reserves adjustment (Line 6) is equal to FY 2023 projected net cash change and represents the increase in the rate revenue requirement resulting from a projected addition to reserves in FY 2023. All aforementioned values are from the District’s internal financial planning forecast for FY 2023 in absence of any additional rate increase. The final rate revenue requirement (Line 9) is calculated as follows: Total revenue required from rates (Line 9) = Revenue requirements (Line 4) + Non-Rate Revenue (Line 5) + Adjustments (Line 8) Table 5-9: FY 2023 Projected Revenue Required from Rates 5.3. Functionalization and Allocation of Expenses After determining the revenue requirement, the next step of the COS analysis is to first functionalize the O&M expenses and capital assets and then allocate the functionalized expenses to cost components. Cost functionalization is required to best allocate costs to the cost components. The cost components are then distributed to customer classes in proportion to how each class uses the system. This study uses the following functional categories: » Supply: Purchased water from Metropolitan Water District (MWD) and San Diego County Water Authority (CWA), as well as other minor miscellaneous supply costs » Treatment: costs associated with the District’s water treatment system » Transmission: costs associated with the District’s water transmission system A B C Operating Capital Total Expenses 1 Operating Expenses 93,437,200$ 93,437,200$ 2 Debt Service 8,169,700 8,169,700 3 Rate Funded Capital 10,114,100 10,114,100 4 Subtotal 93,437,200$ 18,283,800$ 111,721,000$ 5 Non-Rate Revenue (8,904,123)$ (10,928,100)$ (19,832,223)$ Adjustments 6 Contribution to Reserves -$ 1,157,223$ 1,157,223$ 7 Mid-Year Increase - - - 8 Subtotal -$ 1,157,223$ 1,157,223$ 9 Total Revenue Required 84,533,077$ 8,512,923$ 93,046,000$ Revenue RequirementLine 22 OTAY WATER DISTRICT » Distribution: costs associated with the District’s water distribution system » Pumping: costs related to operating the District’s water pumping stations » Storage: costs related to the District’s water storage system » Customer Service: costs of meter reading, billing, and other customer services » Meters and Services: costs of meter maintenance/repair » Direct Public Fire: Costs related to maintenance of fire hydrants » Direct Private Fire: Costs of maintaining backflow devices associated with private fire connections » Energy: Power purchases associated with operating pumping stations » General: costs for general administration and operational expenses or any other costs that do not clearly relate to a specific functional category After functionalization of costs, we allocate the functionalized costs to cost causation components. Allocating the functional costs to the cost components recovers costs from classes based on water use behavior. Each cost causation component is a cost center that is recovered from users based on how they cause the costs in each cost center. Some cost causation components correspond directly to a functional category listed above. The cost causation components include: » Commodity: costs associated with providing water under average water demand conditions, primarily consisting of volumetric water purchases and overhead related to such things as attending wholesale water board meetings and general management of water supply issues » Demand: costs associated with providing water under peak demand conditions, including a small portion of water supply costs related to the District’s overall peaking characteristics and the sizing of assets such as water mains and storage facilities to meet peak summer demand » Customer: directly associated with the Customer functional category » Cost Meters: directly associated with the Meters functional category » Capacity Meters: used for a reallocation of some Demand costs in a later step » CWA/MWD: costs associated with fixed charges levied by CWA on the District » Public Fire: costs associated with providing water to public hydrants for fire protection purposes » Private Fire: costs associated with providing water to private fire lines for fire protection purposes » Energy: directly associated with the Energy function » Tax Offset: revenues from property taxes levied by the District » General: directly associated with the General function 5.3.1. O&M EXPENSE ALLOCATION District staff functionalized FY 2023 forecast operating expenses. Table 5-10 shows the O&M functionalization results. Functionalizing costs is necessary in order to allocate total O&M expenses to the cost causation components. WATER COST OF SERVICE AND RATE DESIGN STUDY 23 Table 5-10: Summary of O&M Expenses by Functional Category Table 5-11 shows the allocation of functionalized FY 2023 O&M expense forecast to each cost causation component according to the criteria described above. Total O&M expenses associated with each function (Column L) were determined in Table 5-10. The total dollar amount allocated to each cost causation component (Line 23) is determined by adding the values in Lines 2 to 22 for each cost component. On Line 24, General and Administrative costs, shown in Column K, are reallocated to other cost causation components proportionally to the component subtotals on Line 23. General and Administrative costs are not allocated to the Commodity component because overhead costs related to water purchases are already included in the supply function. Additionally, components related to a pass-through cost (Energy and CWA/MWD) or tax offset do not receive an allocation of general costs. Note that the reallocation results in a shifting of costs between cost causation components but does not change the total operating expenses. The final O&M Allocation is shown in Line 25. The percentages (Line 26) represent the proportion of total O&M expenses allocated to each cost causation component. These O&M allocation percentages are later used to allocate some miscellaneous revenues. 24 OTAY WATER DISTRICT Table 5-11: Allocation of O&M Expenses to Cost Causation Components A B C D E F G H I J K L Commodity Demand Accounts Cost Meters Cap. Meters CWA/MWD Dir. Pub. Fire Dir. Priv. Fire Energy Tax Offset General Total Function 1 Supply 44,650,904$ 792,000$ -$ -$ -$ 13,581,000$ -$ -$ -$ -$ -$ 59,023,904$ 2 Water Purchases (CWA) 44,171,000 - - - - - - - - - 44,171,000 3 Water Purchases (CSD) - - - - - - - - - - - 4 Transportation - - - - - - - - - - - 5 Infrastructure Access (CWA) - - - - - 3,128,000 - - - - 3,128,000 6 Customer Service (CWA) - - - - - 1,894,000 - - - - 1,894,000 7 Emergency Storage (CWA) - - - - - 4,947,000 - - - - 4,947,000 8 Reliability Charges (CWA) - - - - - 2,947,000 - - - - 2,947,000 9 Capacity Reservation (MWD) - 792,000 - - - - - - - - 792,000 10 RTS Charges (MWD) - - - - - 665,000 - - - - 665,000 11 Additional Overhead Costs 479,904 - - - - - - - - - 479,904 12 Treatment - 1,588,386 - - - - - - - - - 1,588,386 13 Transmission - 743,917 - - - - - - - - - 743,917 14 Distribution - 5,333,208 - - - - - - - - - 5,333,208 15 Treated Water Pumping - 1,920,921 - - - - - - - - - 1,920,921 16 Distribution Storage - 1,750,363 - - - - - - - - - 1,750,363 17 Customer Service - - 3,186,022 - - - - - - - - 3,186,022 18 Meters and Services - - - 1,084,740 - - - - - - - 1,084,740 19 Direct Public Fire - - - - - - 93,678 - - - - 93,678 20 Direct Private Fire - - - - - - - 36,039 - - - 36,039 21 Energy - - - - - - - - 2,949,000 - - 2,949,000 22 General - - - - - - - - - - 15,727,022 15,727,022 23 Subtotal 44,650,904$ 12,128,795$ 3,186,022$ 1,084,740$ -$ 13,581,000$ 93,678$ 36,039$ 2,949,000$ -$ 15,727,022$ 93,437,200$ 24 Reallocation of General 11,540,122$ 3,031,388$ 1,032,092$ -$ 89,132$ 34,289$ (15,727,022)$ -$ 25 Total 44,650,904$ 23,668,917$ 6,217,409$ 2,116,832$ -$ 13,581,000$ 182,810$ 70,328$ 2,949,000$ -$ 93,437,200$ 26 Percent Allocation 47.8% 25.3% 6.7% 2.3% 0.0% 14.5% 0.2% 0.1% 3.2% 0.0% 0.0% Line O&M Allocations WATER COST OF SERVICE AND RATE DESIGN STUDY 25 5.3.2. CAPITAL ALLOCATION Capital assets are utilized in COS analyses to allocate the capital revenue requirement to the cost causation components. The distribution of a short-term capital plan to the cost causation components can be heavily weighted to specific cost causation components based on the type of projects. Using short-term planned capital projects to allocate capital costs would cause rates to fluctuate and cause customer confusion. The overall capital asset base however is considerably more stable in the long-term, and therefore is more representative of long-term capital investment in the District’s water system. Thus, functionalized capital assets are used to allocate capital costs. District staff provided Raftelis with a detailed asset listing that included the original cost less depreciation (OCLD) of each individual asset. As part of the capital asset analysis, Raftelis and District staff assigned each asset to a functional category. Total asset value (OCLD) by functional category is shown in Table 5-12. Table 5-12: Summary of Capital Assets by Functional Category Table 5-13 shows the allocation of capital assets by function to each cost causation component as well as the reallocation of General costs in line 12; this is consistent with the methodology used to determine the allocation of O&M expenses to cost causation components in Table 5-11. The final capital asset allocation percentages (Line 14) represent the proportion of total capital assets allocated to each cost causation component (Line 13). These percentages are used to allocate annual capital costs, including debt service, rate funded capital, and reserve contributions in Table 5-14. Function 1 Supply 1,676,140$ 0.6% 2 Treatment 1,409,004 0.5% 3 Transmission 68,034,845 22.5% 4 Distribution 115,939,701 38.4% 5 Treated Water Pumping 18,921,442 6.3% 6 Distribution Storage 70,747,830 23.4% 7 Customer Service - 0.0% 8 Meters and Services 6,432,846 2.1% 9 Direct Public Fire 49,872 0.0% 10 General 18,726,044 6.2% 11 Total 301,937,724$ 100.0% Line Asset Functionalization Results Percent of Total 26 OTAY WATER DISTRICT Table 5-13: Allocation of Functionalized Capital Assets to Cost Causation Components\ Table 5-14: Allocation of Capital Costs to Cost Causation Components A B C D E F G H I J K L Commodity Demand Accounts Cost Meters Cap. Meters CWA/MWD Dir. Pub. Fire Dir. Priv. Fire Energy Tax Offset General Total Function 1 Supply 1,676,140$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ 1,676,140$ 2 Treatment - 1,409,004 - - - - - - - - - 1,409,004 3 Transmission - 68,034,845 - - - - - - - - - 68,034,845 4 Distribution - 115,939,701 - - - - - - - - - 115,939,701 5 Treated Water Pumping - 18,921,442 - - - - - - - - - 18,921,442 6 Distribution Storage - 70,747,830 - - - - - - - - - 70,747,830 7 Customer Service - - - - - - - - - - - - 8 Meters and Services - - - 6,432,846 - - - - - - - 6,432,846 9 Direct Public Fire - - - - - - 49,872 - - - - 49,872 10 General - - - - - - - - - - 18,726,044 18,726,044 11 Subtotal 1,676,140$ 275,052,821$ -$ 6,432,846$ -$ -$ 49,872$ -$ -$ -$ 18,726,044$ 301,937,724$ 12 Reallocation of General 110,827$ 18,186,578$ -$ 425,342$ -$ -$ 3,298$ -$ (18,726,044)$ -$ 13 Total 1,786,967$ 293,239,400$ -$ 6,858,188$ -$ -$ 53,170$ -$ -$ -$ 301,937,724$ 14 Percent Allocation 0.6% 97.1% 0.0% 2.3% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% Line Asset Allocations A B C D E F G H I J K L Commodity Demand Accounts Cost Meters Cap. Meters CWA/MWD Dir. Pub. Fire Dir. Priv. Fire Energy Tax Offset General Total Expense 1 Debt Service 48,351$ 7,934,344$ -$ 185,566$ -$ -$ 1,439$ -$ -$ -$ -$ 8,169,700$ 2 Rate Funded Capital 59,859 9,822,730 - 229,731 - - 1,781 - - - - 10,114,100 3 Contribution to Reserves 6,849 1,123,885 - 26,285 - - 204 - - - - 1,157,223 4 Mid-Year Adjustment - - - - - - - - - - - - 5 Subtotal 115,058$ 18,880,959$ -$ 441,582$ -$ -$ 3,423$ -$ -$ -$ -$ 19,441,023$ 6 Reallocation of General -$ -$ -$ -$ -$ -$ -$ -$ 7 Total 115,058$ 18,880,959$ -$ 441,582$ -$ -$ 3,423$ -$ -$ -$ 19,441,023$ 8 Percent Allocation 0.6% 97.1% 0.0% 2.3% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% Line Capital Cost Allocations WATER COST OF SERVICE AND RATE DESIGN STUDY 27 5.3.3. REVENUE OFFSET ALLOCATION The District has a substantial amount of revenue from sources other than rates that is used to offset the total revenue requirement. Raftelis and District staff analyzed each non-rate revenue source to determine the most reasonable allocation basis to the cost causation components. The results are shown in Table 5-15.  All Operating Fund rent and lease revenue, grants, and non-rate revenues earned in the Expansion, Betterment, Replacement, and New Water Supply funds are allocated on the same basis as assets using the percentages shown in Table 5-13, Line 14.  Meter and Lateral Fees as well as Backflow Maintenance fees are used to directly offset costs in the Cost Meters component.  Chula Vista Sewer Collection Fees directly offset customer service costs in the Accounts component.  Property taxes and Availability Fees are separated into the Tax Offset component which is discussed in Section 5.  All other non-rate revenues in the Operating Fund are allocated using the total O&M allocation percentages in Table 5-11, Line 26. 28 OTAY WATER DISTRICT Table 5-15: Non-Rate Revenue Allocations A B C D E F G H I J K L Commodity Demand Accounts Cost Meters Cap. Meters CWA/MWD Dir. Pub. Fire Dir. Priv. Fire Energy Tax Offset General Total Operating Fund 1 Late Penalties 429,606 227,729 59,820 20,367 - 130,669 1,759 677 28,374 - - 899,000 2 Meter and Lateral Fees - - - 106,000 - - - - - - - 106,000 3 1% Property Tax - - - - - - - - - 4,503,000 - 4,503,000 4 Availability - - - - - - - - - 654,000 - 654,000 5 Interest 207,874 110,191 28,945 9,855 - 63,227 851 327 13,729 - - 435,000 6 Backflow Maintenance Fees - - - 2,000 - - - - - - - 2,000 7 Billable Work Orders 38,230 20,265 5,323 1,812 - 11,628 157 60 2,525 - - 80,000 8 Rents and Leases 9,860 1,618,027 - 37,842 - - 293 - - - - 1,666,023 9 Chula Vista Sewer Collection Fee - - 477,000 - - - - - - - - 477,000 10 Grants 18 2,914 - 68 - - 1 - - - - 3,000 11 Miscellaneous 37,800 20,037 5,263 1,792 - 11,497 155 60 2,496 - - 79,100 12 Subtotal 723,387$ 1,999,163$ 576,352$ 179,736$ -$ 217,021$ 3,215$ 1,124$ 47,124$ 5,157,000$ -$ 8,904,123$ Expansion Fund 13 Transfer from 2010 COP Reserve 432$ 70,897$ -$ 1,658$ -$ -$ 13$ -$ -$ -$ -$ 73,000$ 14 Capacity Fee - Restricted 15,210 2,495,963 - 58,375 - - 453 - - - - 2,570,000 15 BAB Subsidy 1,332 218,518 - 5,111 - - 40 - - - - 225,000 16 Interest Income (663) (108,871) - (2,546) - - (20) - - - - (112,100) 17 Subtotal 16,310$ 2,676,507$ -$ 62,597$ -$ -$ 485$ -$ -$ -$ -$ 2,755,900$ Betterment Fund 18 Interest Income 126$ 20,686$ -$ 484$ -$ -$ 4$ -$ -$ -$ -$ 21,300$ 19 BAB Subsidy 2,054 337,004 - 7,882 - - 61 - - - - 347,000 20 Availability Fee - Restricted 3,871 635,159 - 14,855 - - 115 - - - - 654,000 21 Subtotal 6,050$ 992,849$ -$ 23,220$ -$ -$ 180$ -$ -$ -$ -$ 1,022,300$ Replacement Fund 22 Transfer from 2010 COP Reserve 5,100$ 836,973$ -$ 19,575$ -$ -$ 152$ -$ -$ -$ -$ 861,800$ 23 BAB Subsidy 278 45,646 - 1,068 - - 8 - - - - 47,000 24 Capacity Fee - Restricted 36,605 6,006,820 - 140,486 - - 1,089 - - - - 6,185,000 25 Subtotal 41,983$ 6,889,439$ -$ 161,128$ -$ -$ 1,249$ -$ -$ -$ -$ 7,093,800$ New Water Supply Fund 26 BAB Subsidy 53$ 8,741$ -$ 204$ -$ -$ 2$ -$ -$ -$ -$ 9,000 27 Interest Income 279 45,743 - 1,070 - - 8 - - - - 47,100 28 Subtotal 332$ 54,484$ -$ 1,274$ -$ -$ 10$ -$ -$ -$ -$ 56,100$ 29 Total 788,063$ 12,612,443$ 576,352$ 427,956$ -$ 217,021$ 5,140$ 1,124$ 47,124$ 5,157,000$ -$ 19,832,223$ Line Non-Rate Revenue Allocations WATER COST OF SERVICE AND RATE DESIGN STUDY 29 5.4.Cost of Service Allocation Table 5-16 shows the allocation of the total FY 2023 projected rate revenue requirement to the various cost causation components. The preliminary COS allocations (Line 4) are subject to further adjustments for fire protection costs and revenue stability, Discussed in Section 4.5.2. The totals in Line 7 reflect the total costs that should be recovered in each cost component. 5.4.1. PRELIMINARY COST OF SERVICE ALLOCATION The results shown in Table 5-16 are calculated as follows based on intermediate results developed in the preceding subsections: 1. Operating Revenue Requirement (Line 1): The total operating revenue requirement consists solely of the District’s O&M expenses. The allocation of the total operating revenue requirement to each cost causation component was previously determined in Table 5-11, Line 25. 2. Capital Revenue Requirement (Line 2): The total capital revenue requirement consists of capital expenditures and debt service payments. The allocation of the total capital revenue requirement was shown in Table 5-14, Line 7. 3. Non-Rate Revenue (Line 3): Total revenue offsets were determined in Table 5-15, Line 29. 4. Preliminary Cost of Service Allocation (Line 4): The preliminary COS allocation to each cost causation component equals the sum of Lines 1 through 3. Note that the total preliminary COS allocation (Column K, Line 4) equals the total FY 2023 projected rate revenue requirement (from Table 5-9, Column C, Line 9). Table 5-16: Cost of Service Allocation A B C D E F G H I J K Commodity Demand Accounts Cost Meters Cap. Meters CWA/MWD Public Fire Private Fire Energy Tax Offset Total Expenses 1 O&M 44,650,904$ 23,668,917$ 6,217,409$ 2,116,832$ -$ 13,581,000$ 182,810$ 70,328$ 2,949,000$ -$ 93,437,200$ 2 Capital 115,058 18,880,959 - 441,582 - - 3,423 - - - 19,441,023 3 Non-Rate Revenue (788,063) (12,612,443) (576,352) (427,956) - (217,021) (5,140) (1,124) (47,124) (5,157,000) (19,832,223) 4 Subtotal Expenses 43,977,900$ 29,937,433$ 5,641,057$ 2,130,457$ -$ 13,363,979$ 181,094$ 69,204$ 2,901,876$ (5,157,000)$ 93,046,000$ 5 Fire Reallocation -$ (1,296,844)$ -$ -$ -$ -$ 1,050,692$ 246,151$ -$ -$ -$ 6 COS Reallocation -$ (2,577,653)$ -$ -$ 2,577,653$ -$ -$ -$ -$ -$ -$ 7 Total Expenses 43,977,900$ 26,062,936$ 5,641,057$ 2,130,457$ 2,577,653$ 13,363,979$ 1,231,786$ 315,356$ 2,901,876$ (5,157,000)$ 93,046,000$ Cost of ServiceLine 30 OTAY WATER DISTRICT 5.4.2.ADJUSTMENTS TO COST OF SERVICE Raftelis proposes a few adjustments to the preliminary cost of service related to fire protection and demand costs. 5.4.2.1.Reallocation of Public and Private Fire Costs. The share of Demand (peaking) costs allocated to the public and private fire protection classes is shown in Table 5-17. The total preliminary demand costs (from Table 5-16, Column B, Line 4) and peaking units (from Table 5-8, Column B) are used to calculate a peaking unit cost, as shown in Line 6. The unit cost is then multiplied by the public and private fire class peaking units in Lines 2 and 3 to derive the fire protection related peaking cost for each in Lines 7 and 8. These fire protection related Demand costs are subtracted from the total Demand cost causation component and reassigned to the public and private fire cost components in Table 5-16, Line 5. This reassignment is revenue neutral. Table 5-17: Fire Cost Reallocation 5.4.2.1.Allocation of Demand Costs to Capacity Meters Raftelis allocated a portion of Demand costs to what is known as the Capacity Meter cost component. As discussed above in Section 4.2.1, Demand costs are operation and maintenance costs for facilities that the District maintains to provide peak capacity. These costs are fixed costs, incurred regardless of water use, and can be recovered in proportion to meter size; therefore, it is appropriate to collect a portion of these fees through the fixed charges. This was the basis for a portion of demand costs, as shown in Line 6 of Table 4-16 to be reallocated to the Capacity Meter component which is collected through the System Fee. 5.4.3. FINAL COST OF SERVICE ALLOCATION The final allocation of the revenue requirement to the cost causation components (i.e. COS allocation, Line 7 of Table 5-16) equals the sum of Lines 4, 5, and 6. 1 Demand Costs 29,937,433$ Peaking Units 2 Public Fire 1,820 3 Private Fire 426 4 All Other Customers 49,599 5 Total Peaking Units 51,845 6 Demand Unit Cost 577.44$ Fire Demand Costs 7 Public Fire 1,050,692$ 8 Private Fire 246,151 9 Total Fire Demand Costs 1,296,844$ ValueLine Fire Cost Reallocation WATER COST OF SERVICE AND RATE DESIGN STUDY 31 5.5.Unit Cost Development Units of service (Table 5-8) are used to convert total adjusted costs allocated to each cost causation component (Table 5-16) into unit costs, which are directly incorporated into the proposed rate calculations in Section 6. The unit cost development identifies, for example, the total purchased water cost (Commodity component) per unit of water sold, or the total customer service cost per customer. Once these units costs are identified, they can be proportionally assigned to each customer class to reflect their unique characteristics. Unit costs comprise the constituent parts from which proposed rates are calculated in Section 6. Table 5-18 shows unit costs for each cost causation component (Column C), which are calculated by dividing the final COS allocation in Column A (from Table 5-16, Line 7) by the relevant units of service in Column B (from Table 5-8). The units of service are based on either projected FY 2023 water use, peaking units, or number of accounts/fire lines/equivalent meter units. Unit costs shown in this Table are rounded to the nearest penny for presentation purposes. Table 5-18: Development of Unit Costs A B C D Cost Component 1 Commodity 43,977,900$ 11,907,900 3.69$ Ccf 2 Demand 26,062,936 49,599 525.47 Ccf/Day 3 Accounts 5,641,057 50,483 111.74 Account/Yr 4 Cost Meters 2,130,457 60,443 35.25 Eq. Meter / Yr 5 Cap. Meters 2,577,653 67,541 38.16 Eq. Meter / Yr 6 CWA/MWD 13,363,979 67,541 197.86 Eq. Meter / Yr 7 Public Fire 1,231,786 7,131 172.74 Eq. Meter / Yr 8 Private Fire 315,356 1,671 188.77 Eq. Meter / Yr 9 Energy 2,901,876 43,170,047 0.067 Adj. Ccf 10 Tax Offset (5,157,000) 10,900,300 (0.47) Ccf 11 Total 93,046,000$ Unit CostDescriptionLineCostUnits of Service Units 32 OTAY WATER DISTRICT 5.6. Customer Class Costs Unit costs developed in Table 5-18 are used to distribute costs to each customer class based on their units of service from Table 5-8. The Unit Costs are multiplied by the service units for each cost causation component to derive the cost to each class for each cost component in Columns A to J, Lines 1 to 17. For example, the Commodity cost of $3.69 per Ccf (Table 5-18, Column C, Line 1) is multiplied by the SFR Tier 1 Commodity units of 3,992,200 (Table 5-8, Column A, Line 1) to derive the cost of $14,743,872 (Column A, Line1). Column L shows the reallocation of public fire costs to the customer classes as detailed below in Table 5-20. The total cost of service for each class is shown in Column M; this total represents the costs the utility incurs to provide service to each unique customer class. The constituent pieces of the total are directly used to calculate the proposed rates in Section 6, ensuring that the rates reflect the costs of the utility and customer characteristics and behaviors. Table 5-19: Customer Class Cost of Service A B C D E F G H I J K L M Commodity Demand Accounts Cost Meters Cap. Meters CWA/MWD Public Fire Private Fire Energy Tax Offset Total Public Fire Adj. Total SFR 1 Tier 1 14,743,872$ 7,224,486$ -$ -$ -$ -$ -$ -$ 962,102$ (1,888,735)$ 21,041,725$ 21,041,725$ 2 Tier 2 2,588,912 1,563,456 - - - - - - 172,355 (331,647) 3,993,075 3,993,075 3 Tier 3 6,640,690 5,130,266 - - - - - - 500,335 (850,692) 11,420,598 11,420,598 4 Customer - - 5,211,857 1,657,373 1,813,121 9,400,222 - - - - 18,082,572 1,059,034 19,141,607 5 Subtotal 23,973,475$ 13,918,207$ 5,211,857$ 1,657,373$ 1,813,121$ 9,400,222$ -$ -$ 1,634,791$ (3,071,075)$ 54,537,971$ 1,059,034$ 55,597,005$ MFR 6 Tier 1 5,951,912$ 2,838,665$ -$ -$ -$ -$ -$ -$ 358,847$ (762,458)$ 8,386,966$ 8,386,966$ 7 Tier 2 345,681 204,428 - - - - - - 20,922 (44,283) 526,748 526,748 8 Tier 3 563,948 362,410 - - - - - - 1,383 (72,243) 855,497 855,497 9 Customer - - 99,450 129,295 206,723 1,071,767 - - - - 1,507,235 33,680 1,540,915 10 Subtotal 6,861,541$ 3,405,503$ 99,450$ 129,295$ 206,723$ 1,071,767$ -$ -$ 381,152$ (878,984)$ 11,276,446$ 33,680$ 11,310,126$ 11 Commercial 4,183,254$ 2,327,554$ 139,230$ 97,981$ 157,695$ 817,577$ -$ -$ 305,246$ (535,887)$ 7,492,649$ 99,019$ 7,591,669$ 12 Irrigation 4,180,299 3,244,931 114,535 76,684 131,959 684,150 - - 303,315 (535,509) 8,200,364 - 8,200,364 13 Construction 1,058,093 809,716 21,119 103,054 148,077 767,715 - - 31,805 (135,545) 2,804,034 20,026 2,824,061 14 Public 2,751,042 1,583,127 28,159 43,019 79,115 410,174 - - 197,172 - 5,091,808 20,026 5,111,834 15 Public Irrigation 970,196 773,897 26,706 23,051 40,963 212,375 - - 48,397 - 2,095,585 - 2,095,585 16 Public Fire - - - - - - 1,231,786 - - - 1,231,786 (1,231,786) - 17 Private Fire - - - - - - - 315,356 - - 315,356 315,356 18 Total Cost of Service 43,977,900$ 26,062,936$ 5,641,057$ 2,130,457$ 2,577,653$ 13,363,979$ 1,231,786$ 315,356$ 2,901,876$ (5,157,000)$ 93,046,000$ -$ 93,046,000$ Class Cost of ServiceLine WATER COST OF SERVICE AND RATE DESIGN STUDY 33 Public fire costs are reallocated to other customer classes based on their unique fire demands as determined by the District’s master plan. The total fire requirement for each class in Column D is the product of multiplying the number of accounts, the required fire flow, and the fire duration in Columns A to C. The percentage distribution of the fire requirement, shown in Column E, is used to allocate the total public fire revenue requirement from Table 5-19, Column G, Line 18 to each class as shown in Column F. Table 5-20: Public Fire Reallocation 5.7.Customer Class Comparison Table 5-21 compares the total proposed revenue requirement for each class (Table 5-19, Column M) under the proposed rates to the total revenue that would be collected from each class under the current rates. Note that the total revenue collected under either rate structure corresponds to the revenue requirement from Table 5-9, indicating that the proposed rates and rate structure changes are revenue neutral. Distributional impacts to the various customer classes are a result of the District’s changing cost structure and water use patterns relative to the prior rate study, and due to refinements to the methodology to maintain adherence to Cost of Service Principles. As mentioned in Section 4.2.2, the equivalent meters are now based on the ¾-inch meter as the base meter. This a major reason for the increased cost allocation to SFR. A B C D E F Number of Meters Required Fire Flow Required Fire Duration Total Fire Requirement Fire Allocation Fire Allocation Accounts gal. per min. Minutes 1,000 Gal. % $ 1 Public Fire Cost 1,231,786$ Customer Class 2 SFR 46,642 1,500 120 8,395,560 86.0% 1,059,034$ 3 MFR 890 2,500 120 267,000 2.7% 33,680 4 Commercial 1,246 3,500 180 784,980 8.0% 99,019 5 Irrigation 1,025 - - - 0.0% - 6 Construction 189 3,500 240 158,760 1.6% 20,026 7 Public 252 3,500 180 158,760 1.6% 20,026 8 Public Irrigation 239 - - - 0.0% - 9 Total 50,483 9,765,060 100.0% 1,231,786$ Units Line Public Fire Cost Reallocation 34 OTAY WATER DISTRICT Table 5-21: Cost of Service Comparison Proposed Current Dollars Percent Customer Class 1 SFR 55,597,005$ 52,722,782$ 2,874,223$ 5.5% 59.8% 56.7% 2 MFR 11,310,126 11,952,634 (642,508) -5.4% 12.2% 12.8% 3 Commercial 7,591,669 7,496,276 95,392 1.3% 8.2% 8.1% 4 Irrigation 8,200,364 9,083,922 (883,558) -9.7% 8.8% 9.8% 5 Construction 2,824,061 4,491,196 (1,667,136) -37.1% 3.0% 4.8% 6 Public 5,111,834 4,616,615 495,219 10.7% 5.5% 5.0% 7 Public Irrigation 2,095,585 2,342,151 (246,566) -10.5% 2.3% 2.5% 8 Private Fire 315,356 340,423 (25,068) -7.4% 0.3% 0.4% 9 Total 93,046,000$ 93,046,000$ -$ 0.0% 100.0% 100.0% Current Percent of Total Line Proposed Percent of Total ChangeCost of Service Summary Revenue WATER COST OF SERVICE AND RATE DESIGN STUDY 35 6. Proposed Potable Water Rates Section 6 details the proposed water rate calculations. The proposed rates are calculated directly from the results of the COS analysis (from Section 5). 6.1. Proposed Fixed Charges Table 6-1 shows the fixed charge component calculations: the System Fee, MWD/CWA charge, and private fire line charges. Costs for the customer, capacity meter, cost meter, and MWD/CWA components are from Table 5-19, Line 18. Public fire costs, subcategorized by class, are from Table 5-19, Column L. Private fire costs have been divided into the Demand (capacity) component and backflow and lateral maintenance costs identified by District staff. The backflow charges are proportional to meter size while the lateral costs do not vary by meter size. The costs identified in Column A are divided by the units in Column B to derive the annual charge in column C; this amount is converted to a monthly charge in Column D by dividing by 12. Table 6-1: Fixed Charge Components A C D Cost Annual Charge Monthly Charge Rate Component 1 Customer 5,641,057$ 50,483 Accounts 111.74$ 9.31$ 2 Cap. Meters 2,577,653 67,541 Cap. Eq 38.16 3.18 3 Cost Meters 2,130,457 60,443 Cost Eq 35.25 2.94 4 Public Fire 5 SFR 1,059,034$ 47,508 Cap. Eq 22.29 1.86 6 MFR 33,680 5,417 Cap. Eq 6.22 0.52 7 Commercial 99,019 4,132 Cap. Eq 23.96 2.00 8 Irrigation - 3,458 Cap. Eq - - 9 Construction 20,026 3,880 Cap. Eq 5.16 0.43 10 Public 20,026 2,073 Cap. Eq 9.66 0.81 11 Public Irrigation - 1,073 Cap. Eq - - 12 CWA/MWD 13,363,979$ 67,541 Cap. Eq 197.86 16.49 13 Private Fire 14 Capacity 246,151$ 1,671 6" Eq. 147.34$ 12.28$ 15 Lateral 44,522 1,671 6" Eq. 26.65 2.22 16 Backflow 25,806 888 Fire Accounts 29.06 2.42 Fixed Charges UnitsLine B 36 OTAY WATER DISTRICT 6.1.1. PROPOSED SYSTEM FEES Table 6-2, Table 6-3, and Table 6-4 show the detailed calculation of proposed System Fees, which are based on Customer and Equivalent meter unit rates. Customer costs do not vary by connection type or size. Therefore, the Customer unit rate, previously derived in Table 6-1, Column D, Line 1 is applied uniformly to all System Fees (Column A). Because Capacity Meters costs vary by meter size based on hydraulic capacity, the unit cost (Table 5-18, Column D, Line 2) is multiplied by the AWWA capacity ratio for each meter size (Table 5-3, Column B). For example, the AWWA capacity ratio for a 1” meter is 1.67, is multiplied by $3.18 to derive the meter component cost of $5.30 (Column B, Line 3). The same process is repeated for the cost meters component in Line C. The three fixed charge components in Columns A, B, and C are added in Column D, showing the subtotal of these components that all customers pay each month. Table 6-2: System Fees Table 6-3 shows the calculation of the monthly public fire protection component of the total System Fee. The unit cost for each class was shown in Table 6-1, Column D, Lines 5 to 11. These costs are scaled to each meter size using AWWA capacity ratios in the same manner as described above. Table 6-3: Public Fire Protection A B C D Customer Cap. Meters Cost Meters Subtotal Meter Size 1 5/8" 9.31$ 3.18$ 2.94$ 15.43$ 2 3/4" 9.31 3.18 2.94 15.43 3 1" 9.31 5.30 3.79 18.40 4 1 1/2" 9.31 10.60 6.16 26.07 5 2" 9.31 16.96 8.83 35.10 6 3" 9.31 37.10 27.51 73.93 7 4" 9.31 66.79 47.78 123.88 8 6" 9.31 148.42 82.53 240.26 9 8" 9.31 254.43 103.12 366.86 10 10" 9.31 402.85 148.30 560.46 System Fee ComponentsLine A B C D E F G SFR MFR Commercial Irrigation Construction Public Public Irr. Meter Size 1 5/8" 1.86$ 0.52$ 2.00$ -$ 0.43$ 0.81$ -$ 2 3/4" 1.86 0.52 2.00 - 0.43 0.81 - 3 1" 3.10 0.86 3.33 - 0.72 1.34 - 4 1 1/2" 6.19 1.73 6.66 - 1.43 2.68 - 5 2" 9.91 2.76 10.65 - 2.29 4.29 - 6 3" 21.67 6.05 23.30 - 5.02 9.39 - 7 4" 39.01 10.88 41.94 - 9.03 16.91 - 8 6" 86.69 24.18 93.19 - 20.07 37.57 - 9 8" 148.61 41.45 159.76 - 34.41 64.40 - 10 10" 235.30 65.63 252.95 - 54.48 101.97 - Line Public Fire Protection WATER COST OF SERVICE AND RATE DESIGN STUDY 37 Table 6-4 shows the final proposed System Fee for each class, calculated by adding the subtotal from Table 6-2, Column D to the corresponding public fire protection component from Table 6-3. These rates are rounded to the next penny. Table 6-4: Total System Fees 6.1.2. PROPOSED CWA / MWD CHARGES The CWA/MWD charges recover wholesale water purchase costs levied by the San Diego County Water Authority and the Metropolitan Water District. These charges are calculated in a similar way to the System Fees. The unit cost in Table 6-1, Column D, Line 12 is scaled according to the AWWA capacity ratios in Table 5-3. Table 6-5: CWA / MWD Charges 6.1.3. PROPOSED PRIVATE FIRE LINE CHARGES Fixed charges for private fire lines are calculated in the same manner as the fixed charges Table 6-2 All Customers pay the same unit rate for backflow maintenance, as calculated in Table 6-1, Column D, Line 16. The capacity and lateral components (Table 6-1, Column D, Lines 14 and 15) are scaled to larger meter sizes using the equivalent demand factors from Table 5-7, Column F. These components for each meter size are added in Table 6-6, Column D. A B C D E F G SFR MFR Commercial Irrigation Construction Public Public Irr. Meter Size 1 5/8" 17.29$ 15.95$ 17.43$ 15.43$ 15.86$ 16.24$ 15.43$ 2 3/4" 17.29 15.95 17.43 15.43 15.86 16.24 15.43 3 1" 21.50 19.27 21.74 18.41 19.12 19.75 18.41 4 1 1/2" 32.27 27.81 32.74 26.08 27.51 28.76 26.08 5 2" 45.01 37.87 45.76 35.11 37.40 39.40 35.11 6 3" 79.98 97.23 73.93 78.95 83.32 73.93 7 4" 134.77 165.82 123.89 132.92 140.79 123.89 8 6" 264.45 333.46 240.26 260.34 277.83 240.26 9 8" 408.31 526.62 366.86 401.27 431.27 366.86 10 10" 626.10 813.42 560.46 614.94 662.44 560.46 Line System Fees A Proposed Meter Size 1 5/8" 16.49$ 2 3/4" 16.49 3 1" 27.49 4 1 1/2" 54.97 5 2" 87.94 6 3" 192.37 7 4" 346.27 8 6" 769.48 9 8" 1,319.10 10 10" 2,088.58 Line CWA/MWD Passthrough 38 OTAY WATER DISTRICT Table 6-6: Private Fire Charges A B C D Backflow Lateral Capacity Total Meter Size 1 5/8" 2.42$ 0.01$ 0.03$ 2.46$ 2 3/4" 2.42 0.01 0.05 2.49 3 1" 2.42 0.02 0.11 2.56 4 1 1/2" 2.42 0.06 0.32 2.81 5 2" 2.42 0.12 0.68 3.23 6 3" 2.42 0.36 1.98 4.77 7 4" 2.42 0.76 4.23 7.42 8 6" 2.42 2.22 12.28 16.93 9 8" 2.42 4.73 26.17 33.33 10 10" 2.42 8.51 47.06 57.99 Private FireLine WATER COST OF SERVICE AND RATE DESIGN STUDY 39 6.2. Proposed Volume Rates Volume Charges are designed to recover the portion of the rate revenue requirement allocated to the following cost causation components: Commodity, Demand, and Tax Offset. 6.2.1. COMMODITY RATE COMPONENT Table 6-7 shows the calculation of the Commodity rate component. Billable water volumes from Table 5-1 are shown in Column A. The cost for each class and tier was previously calculated in Table 5-19, Column A and is restated in Column B. The Commodity rate component in Column C is the result of dividing Column B by Column A. All customers pay the same amount per Ccf since commodity costs primarily consist of water purchases. Table 6-7: Commodity Rate Component A B C Billed Ccf Cost Rate SFR 1 Tier 1 3,992,200 14,743,872$ 3.69$ 2 Tier 2 701,000 2,588,912 3.69 3 Tier 3 1,798,100 6,640,690 3.69 4 Subtotal 6,491,300 23,973,475$ 3.69$ MFR 5 Tier 1 1,611,600 5,951,912$ 3.69$ 6 Tier 2 93,600 345,681 3.69 7 Tier 3 152,700 563,948 3.69 8 Subtotal 1,857,900 6,861,541$ 3.69$ 9 Commercial 1,132,700 4,183,254$ 3.69$ 10 Irrigation 1,131,900 4,180,299 3.69 11 Construction 286,500 1,058,093 3.69 12 Public 744,900 2,751,042 3.69 13 Public Irr.262,700 970,196 3.69 14 Total 11,907,900 43,977,900$ 3.69$ Line Commodity Component 40 OTAY WATER DISTRICT 6.2.2. DEMAND RATE COMPONENT Table 6-8 shows the calculation of the Demand rate component. Billable water volumes from Table 5-1 are shown in Column A. The cost for each class and tier was previously calculated in Table 5-19, Column B and is restated in Column B. The rate component in Column C is the result of dividing Column B by Column A. The demand rate component is different for each customer class because it reflects a particular classes’ cost that is related to the design, sizing, and operation of the water system. Each customer class as well as customers in each tier use water in a different manner – meaning certain customers show little variation in water use throughout the year, while others vary their use greatly during the year. For example, irrigation customers and customers in Tiers 2 and 3, have higher water use at certain times of the year (peak times), and therefore are more responsible for the seasonal and daily water use peaks witnessed by the District6. Peaking factors were derived from District water use data and were shown in Table 5-1 and peaking factors describe how a class uses water. Commercial customers tend to have less variation in daily, monthly and yearly water use and thus have a lower peaking factors as shown in Table 5-1. The infrastructure (pipes, tanks and pumps) required to serve water during peak times of use must be upsized7 compared to a system that is designed to serve water at average flows8. There is a capital and operational cost associated with upsizing infrastructure. The demand rates are calculated to recover the capital and operational costs associated with upsizing infrastructure and charge customers who are more responsible for the upsizing (peaks). Therefore, the demand rate for Irrigation customers and Tiers 2 and 3 for example, are higher than customers with lower peaking factors such as commercial customers or Tier 1 customers. The derivation of unit costs in Section 5.5 and the calculation of class costs in Section 5.6 ensure that each customer class and tier are treated equally in that the unit costs are the same for each class but are applied in proportion to water use during peak times of use, therefore allocating slightly more costs to classes/tiers that demonstrate higher peaking. The District (and most water utilities who set rates according to the guidance provided by the AWWA in their M1 manual: Principles of Water Rates, Fees and Charges) bills its customers based on total water used per period (regardless of the day of use). This requires that costs associated with maximum day use be recovered on an average day basis, resulting in the different Demand Component rates shown in this Table. Ultimately, customers with a higher peaking factor (Table 5-1, Column C) pay a higher Demand rate. In this way, water users pay their proportionate share of the system upsizing to serve their peak demand. Figure 6-1 shows graphically the upsizing of the distribution system (not drawn to scale) to accommodate average flow, max hour flows and max day flows. The District is setting rates using only max day peaking factors and does not use max hour. Larger pipes are more expensive to install and maintain than smaller pipes. This also applies to distribution reservoirs (tanks). Distribution reservoirs designed to meet average flows could be smaller than reservoirs designed to meet max day flows. Larger tanks are more expensive to construct and maintain than smaller tanks. That rates shown in Table 6-8, are calculated to charge those that cause the upsizing of the pipes and tanks (as evidenced by peaking factors) in proportion to their demonstrated max hour water use. 6 All customer classes have variation in use, but certain classes show more variation in use compared to others. 7 This is evidenced by the District’s Water Master Plan prepared by Atkins which discusses how certain functions (distribution, storage) of the water system are designed/sized to serve water during peak times of use. 8 The Commodity Demand method and the Base-Extra Capacity method are rate setting methods described in the AWWA M1 Manual, and both seek to separate costs into costs associated with serving water at average flows (commodity costs or base costs) and costs to serve water during peak times of use (demand costs or extra capacity costs). These costs are then collected via rates such as those shown in Table 6-8. WATER COST OF SERVICE AND RATE DESIGN STUDY 41 Figure 6-1: Pipe Sizes Required for Average, Max Day and Max Hour Flows (Not Drawn to Scale) 42 OTAY WATER DISTRICT Table 6-8: Demand Rate Component 6.2.3.TAX OFFSET RATE COMPONENT Table 6-9 shows the calculation of the Tax Offset rate component. Billable water volumes from Table 5-1 are shown in Column A. The cost for each class and tier was previously calculated in Table 5-19, Column J and is restated in Column B. The rate component in Column C is the result of dividing Column B by Column A. All customers who pay property taxes receive the same offset in which lowers their volume rates. Public and public irrigation customers, who do not pay property taxes, do not receive this rate offset. A B C Billed Ccf Cost Rate SFR 1 Tier 1 3,992,200 7,224,486$ 1.81$ 2 Tier 2 701,000 1,563,456 2.23 3 Tier 3 1,798,100 5,130,266 2.85 4 Subtotal 6,491,300 13,918,207$ 2.14$ MFR 5 Tier 1 1,611,600 2,838,665$ 1.76$ 6 Tier 2 93,600 204,428 2.18 7 Tier 3 152,700 362,410 2.37 8 Subtotal 1,857,900 3,405,503$ 1.83$ 9 Commercial 1,132,700 2,327,554$ 2.05$ 10 Irrigation 1,131,900 3,244,931 2.87 11 Construction 286,500 809,716 2.83 12 Public 744,900 1,583,127 2.13 13 Public Irr.262,700 773,897 2.95 14 Total 11,907,900 26,062,936$ 2.19$ Line Demand Component WATER COST OF SERVICE AND RATE DESIGN STUDY 43 Table 6-9: Tax Offset Rate Component A B C Billed Ccf Cost Rate SFR 1 Tier 1 3,992,200 (1,888,735)$ (0.47)$ 2 Tier 2 701,000 (331,647) (0.47) 3 Tier 3 1,798,100 (850,692) (0.47) 4 Subtotal 6,491,300 (3,071,075)$ (0.47)$ MFR 5 Tier 1 1,611,600 (762,458)$ (0.47)$ 6 Tier 2 93,600 (44,283) (0.47) 7 Tier 3 152,700 (72,243) (0.47) 8 Subtotal 1,857,900 (878,984)$ (0.47)$ 9 Commercial 1,132,700 (535,887)$ (0.47)$ 10 Irrigation 1,131,900 (535,509) (0.47) 11 Construction 286,500 (135,545) (0.47) 12 Public - - - 13 Public Irr.- - - 14 Total 10,900,300 (5,157,000)$ (0.47)$ Line Tax Offset Component 44 OTAY WATER DISTRICT 6.2.4. TOTAL PROPOSED VOLUME RATE The proposed volume rates in Table 6-10 are the result of adding each of the constituent components derived in Table 6-7, Table 6-8, and Table 6-9. The total rate for each class and tier is shown in Column D. Table 6-10: Total Proposed Volume Rates 6.2.5.ENERGY SURCHARGE The proposed energy surcharge in Table 6-11, Column D is the result of dividing the cost in Column B (from Table 5-19, Column I) by the total elevation adjusted volume units (Table 5-8, Column I). Table 6-11: Energy Surcharge 6.3. Monthly Bill Impacts The following Tables show sample monthly bills for each customer class using the most common meter sizes for the class and a range of water use volumes to provide a representative sample of impacts across many customers. A B C D Commodity Demand Tax Offset Total SFR 1 Tier 1 3.69$ 1.81$ (0.47)$ 5.03$ 2 Tier 2 3.69 2.23 (0.47) 5.46 3 Tier 3 3.69 2.85 (0.47) 6.08 MFR 4 Tier 1 3.69$ 1.76$ (0.47)$ 4.99$ 5 Tier 2 3.69 2.18 (0.47) 5.41 6 Tier 3 3.69 2.37 (0.47) 5.60 7 Commercial 3.69$ 2.05$ (0.47)$ 5.28$ 8 Irrigation 3.69 2.87 (0.47) 6.09 9 Construction 3.69 2.83 (0.47) 6.05 10 Public 3.69 2.13 - 5.82 11 Public Irr.3.69 2.95 - 6.64 Line Volume Charge A B D E Energy Surcharge Cost Unit Rate Current 1 Energy Cost 2,901,876$ 43,170,047 Adj. Ccf 0.068$ 0.063$ Line Units C WATER COST OF SERVICE AND RATE DESIGN STUDY 45 Table 6-12: SFR Bill Impacts Table 6-13: MFR Bill Impacts Table 6-14: Commercial Bill Impacts Table 6-15: Commercial Irrigation Bill Impacts System MWD / CWA Volume Total System MWD / CWA Volume Total Dollar Percent Meter Size Ccf 3/4" 3 20.08$ 17.00$ 10.56$ 47.64$ 17.29$ 16.49$ 15.09$ 48.87$ 1.23$ 2.6% 3/4" 5 20.08 17.00 17.60 54.68 17.29 16.49 25.15 58.93 4.25 7.8% 3/4" 11 20.08 17.00 41.50 78.58 17.29 16.49 56.19 89.97 11.39 14.5% 3/4" 14 20.08 17.00 60.40 97.48 17.29 16.49 73.81 107.59 10.11 10.4% 1" 28 28.39 31.57 159.52 219.48 21.50 27.49 158.93 207.92 (11.56) -5.3% Current Charges Proposed Charges Change SFR Fixed MWD / CWA Volume Total Fixed MWD / CWA Volume Total Dollar Percent Meter Size Ccf 3" 40 308.22$ 258.17$ 131.60$ 697.99$ 79.98$ 192.37$ 199.60$ 471.95$ (226.04)$ -32.4% 1" 18 62.37 31.57 59.22 153.16 19.27 27.49 89.82 136.58 (16.58) -10.8% 2" 45 162.53 121.39 172.17 456.09 37.87 87.94 224.55 350.36 (105.73) -23.2% 1" 35 62.37 31.57 155.35 249.29 19.27 27.49 174.65 221.41 (27.88) -11.2% 1" 36 62.37 31.57 195.18 289.12 19.27 27.49 183.42 230.18 (58.94) -20.4% Current Charges Proposed Charges Change MFR Fixed MWD / CWA Volume Total Fixed MWD / CWA Volume Total Dollar Percent Meter Size Ccf 3/4" 1 41.61$ 17.00$ 4.17$ 62.78$ 17.43$ 16.49$ 5.28$ 39.20$ (23.58)$ -37.6% 3/4" 5 41.61 17.00 20.85 79.46 17.43 16.49 26.40 60.32 (19.14) -24.1% 1" 17 58.75 31.57 70.89 161.21 21.74 27.49 89.76 138.99 (22.22) -13.8% 1 1/2" 55 101.66 71.36 229.35 402.37 32.74 54.97 290.40 378.11 (24.26) -6.0% 2" 305 153.11 121.39 1,271.85 1,546.35 45.76 87.94 1,610.40 1,744.10 197.75 12.8% Current Charges Proposed Charges Change Commercial Fixed MWD / CWA Volume Total Fixed MWD / CWA Volume Total Dollar Percent Meter Size Ccf 3/4" 0 35.13$ 17.00$ -$ 52.13$ 15.43$ 16.49$ -$ 31.92$ (20.21)$ -38.8% 3/4" 6 35.13 17.00 36.54 88.67 15.43 16.49 36.54 68.46 (20.21) -22.8% 1" 43 49.62 31.57 261.87 343.06 18.41 27.49 261.87 307.77 (35.29) -10.3% 1 1/2" 124 85.86 71.36 755.16 912.38 26.08 54.97 755.16 836.21 (76.17) -8.3% 2" 366 129.28 121.39 2,228.94 2,479.61 35.11 87.94 2,228.94 2,351.99 (127.62) -5.1% Current Charges Proposed Charges Change Commercial Irrigation 46 OTAY WATER DISTRICT Table 6-16: Construction Bill Impacts Table 6-17: Temporary Construction Bill Impacts Table 6-18: Public Bill Impacts Table 6-19: Public Irrigation Bill Impacts Fixed MWD / CWA Volume Total Fixed MWD / CWA Volume Total Dollar Percent Meter Size Ccf 1" 5 49.62$ 30.45$ 80.07$ 19.12$ 27.49$ 30.25$ 76.86$ (3.21)$ -4.0% 4" 55 375.63 334.95 710.58 132.92 346.27 332.75 811.94 101.36 14.3% 4" 402 375.63 2,448.18 2,823.81 132.92 346.27 2,432.10 2,911.29 87.48 3.1% Current Charges Proposed Charges Change Construction Fixed MWD / CWA Volume Total Fixed MWD / CWA Volume Total Dollar Percent Meter Size Use 3/4" 5 35.13$ 60.90$ 96.03$ 15.86$ 16.49$ 30.25$ 46.11$ (49.92)$ -52.0% 4" 10 375.63 121.80 497.43 132.92 346.27 60.50 193.42 (304.01) -61.1% 4" 50 375.63 609.00 984.63 132.92 346.27 302.50 435.42 (549.21) -55.8% 4" 100 375.63 1,218.00 1,593.63 132.92 346.27 605.00 737.92 (855.71) -53.7% 4" 400 375.63 4,872.00 5,247.63 132.92 346.27 2,420.00 2,552.92 (2,694.71) -51.4% 4" 900 375.63 10,962.00 11,337.63 132.92 346.27 5,445.00 5,577.92 (5,759.71) -50.8% 4" 1300 375.63 15,834.00 16,209.63 132.92 346.27 7,865.00 7,997.92 (8,211.71) -50.7% Current Charges Proposed Charges Change Temp. Construction Fixed MWD / CWA Volume Total Fixed MWD / CWA Volume Total Dollar Percent Meter Size Ccf 3/4" 3 41.61$ 17.00$ 13.77$ 72.38$ 16.24$ 16.49$ 17.46$ 50.19$ (22.19)$ -30.7% 3/4" 11 41.61 17.00 50.49 109.10 16.24 16.49 64.02 96.75 (12.35) -11.3% 1" 24 58.75 31.57 110.16 200.48 19.75 27.49 139.68 186.92 (13.56) -6.8% 2" 76 153.11 121.39 348.84 623.34 39.40 87.94 442.32 569.66 (53.68) -8.6% 3" 601 290.34 258.17 2,758.59 3,307.10 83.32 192.37 3,497.82 3,773.51 466.41 14.1% Current Charges Proposed Charges Change Public Fixed MWD / CWA Volume Total Fixed MWD / CWA Volume Total Dollar Percent Meter Size Ccf 3/4" 0 41.61$ 17.00$ -$ 58.61$ 15.43$ 16.49$ -$ 31.92$ (26.69)$ -45.5% 3/4" 2 41.61 17.00 13.02 71.63 15.43 16.49 13.28 45.20 (26.43) -36.9% 1 1/2" 17 101.66 71.36 110.67 283.69 26.08 54.97 112.88 193.93 (89.76) -31.6% 2" 74 153.11 121.39 481.74 756.24 35.11 87.94 491.36 614.41 (141.83) -18.8% 2" 402 153.11 121.39 2,617.02 2,891.52 35.11 87.94 2,669.28 2,792.33 (99.19) -3.4% Change Public Irrigation Current Charges Proposed Charges WATER COST OF SERVICE AND RATE DESIGN STUDY 47 7.Recycled Cost of Service Analysis Section 6 details the recycled water cost of service (COS) analysis performed for FY 2023. The COS analysis allocates the overall rate revenue requirement to customer classes based on their proportion of use of and burden on the District’s water system. This provides the basis for the development of proposed water rates. 7.1. Units of Service The first step of the cost of service process is to determine the units of service that will be used to assign costs to each customer class. 7.1.1. WATER USE AND PEAKING UNITS Table 7-1 shows the water use and peaking characteristics of each of the proposed customer classes. The annual use in Column A is the total amount of water, measured in Ccf, forecasted to be purchased in FY 2023. This amount is divided by 365 days in column B to estimate the average daily use. Unique peaking factors shown in Column C are multiplied by the average daily use to estimate the water use of each customer class on the highest use day of the year. Detail on the derivation of these peaking factors can be found in Appendix A. Elevation adjusted volumes were determined for each customer account by analyzing the height above sea level for each pumping zone. The District charges the energy surcharge on each unit of water sold for every 100 feet above 450 feet in elevation. For example, a customer at an elevation of 820 feet would have an “elevation adjustment factor” of four (820-450 /100 = 3.7, rounded to 4). All of this customer’s annual water use is multiplied by four to determine the elevation adjusted Ccf; this process was repeated for each customer in the District’s billing data to determine the elevation adjusted Ccf. The class level results are shown in Column E of Table 7-1. Table 7-1: Water Use and Peaking Units 7.1.2. CUSTOMER UNITS Customer units include the number of accounts and number of ¾” equivalent meters of each customer class and are used to develop the District’s monthly System Fees. Table 7-2 shows a forecast of the number of accounts by customer class for FY 2023, provided to Raftelis by the District. A B C D E Annual Use (Ccf) Avg. Day (Ccf /day)MD Peak MD Total (Ccf /day)Elev. Adj. Ccf 1 Recycled Irrigation 834,700 2,287 2.59 5,913 3,344,148 2 Recycled Public 581,700 1,594 2.73 4,350 1,971,123 3 Recycled Commercial 155,900 427 1.99 852 893,880 4 Total 1,572,300 4,308 2.58 11,115 6,209,151 Line Test Year Units of Service 48 OTAY WATER DISTRICT The capacity equivalent ratio for each meter size from Table 5-3 is multiplied by the number of accounts in Table 7-2 to determine the number of equivalent meter units in Table 7-3. The process is repeated using cost equivalent ratios in Table 7-4. Table 7-2: Customer Accounts Table 7-3: AWWA Capacity Equivalent Meters A B C D Recycled Public Rec. Rec. Comm. Total Meter Size 1 5/8" - - - - 2 3/4" 7 1 - 8 3 1" 65 59 - 124 4 1 1/2" 214 198 - 412 5 2" 110 96 - 206 6 3" 2 2 - 4 7 4" 5 2 - 7 8 6" 2 - - 2 9 8" - - - - 10 10" - - 1 1 11 Total 405 358 1 764 12 Percent 53.0% 46.9% 0.1% Customer AccountsLine A B C D Recycled Public Rec. Rec. Comm. Total Meter Size 1 5/8" - - - - 2 3/4" 7 1 - 8 3 1" 108 98 - 207 4 1 1/2" 713 660 - 1,373 5 2" 587 512 - 1,099 6 3" 23 23 - 47 7 4" 105 42 - 147 8 6" 93 - - 93 9 8" - - - - 10 10" - - 127 127 11 Total 1,637 1,337 127 3,100 12 Percent 52.8% 43.1% 4.1% Capacity Equivalent MetersLine WATER COST OF SERVICE AND RATE DESIGN STUDY 49 Table 7-4: Cost Equivalent Meters A B C D Recycled Public Rec. Rec. Comm. Total Meter Size 1 5/8" - - - - 2 3/4" 7 1 - 8 3 1" 84 76 - 160 4 1 1/2" 449 415 - 864 5 2" 331 289 - 619 6 3" 19 19 - 37 7 4" 81 33 - 114 8 6" 56 - - 56 9 8" - - - - 10 10" - - 50 50 11 Total 1,027 832 50 1,909 12 Percent 33.1% 1.6% 61.6% Line Cost Equivalent Meters 50 OTAY WATER DISTRICT 7.1.3.UNITS OF SERVICE SUMMARY Table 7-5 summarizes the units of service developed above and assigns them to each cost causation component. Commodity units in Column A are from Table 7-1, Column A. Demand units (Column B) are from Table 5-1, Column D. Accounts (Column C) were previously shown in Table 7-2, cost meters (Column D) in Table 7-4, and capacity meters (Column E) in Table 7-3. Table 7-5: Units of Service Summary A B C D E F Commodity Demand Accounts Cost Eq. Meters Capacity Eq. Meters Energy Ccf Ccf/Day Accounts 3/4" Eq. 3/4" Eq. Adj. Ccf 1 Recycled 834,700 5,913 405 1,027 1,637 3,344,148 2 Public Rec.581,700 4,350 358 832 1,337 1,971,123 3 Rec. Comm.155,900 852 1 50 127 893,880 4 Total Units of Service 1,572,300 11,115 764 1,909 3,100 6,209,151 Line Unit Cost of Service Units WATER COST OF SERVICE AND RATE DESIGN STUDY 51 7.2. Revenue Requirement Table 7-6 shows the rate revenue requirement for FY 2023 (also referred to as the test year or rate-setting year). The revenue requirement is split into operating and capital categories (Columns A and B), which are later allocated based on O&M expenses and capital assets respectively. The expenses (Lines 1-3) are equal to FY 2023 forecast expenses. The miscellaneous revenue (Line 5) includes interest earnings, late fees, tax revenue, and other miscellaneous revenues that are applied as offsets to the final rate revenue requirement. The contribution to reserves adjustment (Line 6) is equal to FY 2023 forecast net cash change and represents the increase in the rate revenue requirement resulting from a projected increase to reserves in FY 2023 in the absence of any additional rate increase. All aforementioned values are from the District’s internal financial planning forecast for FY 2023. The final rate revenue requirement (Line 9) is calculated as follows: Total revenue required from rates (Line 9) = Revenue requirements (Line 4) + Non-Rate Revenue (Line 5) + Adjustments (Line 8) Table 7-6: FY 2023 Projected Revenue Required from Rates 7.3. Functionalization and Allocation of Expenses After determining the revenue requirement, the next step of the COS analysis is to allocate O&M expenses and capital assets to the following functional categories: » Supply: Purchased water from the City of San Diego as well as other minor miscellaneous supply costs » Treatment: costs associated with the District’s water treatment system » Transmission: costs associated with the District’s water transmission system » Distribution: costs associated with the District’s water distribution system » Pumping: costs related to operating the District’s water pumping stations » Storage: costs related to the District’s water storage system » Customer Service: costs of meter reading, billing, and other customer services A B C Operating Capital Total Expenses 1 Operating Expenses 8,535,500$ 8,535,500$ 2 Debt Service 1,233,300 1,233,300 3 Rate Funded Capital 2,000,000 2,000,000 4 Subtotal 8,535,500$ 3,233,300$ 11,768,800$ 5 Non-Rate Revenue (756,000)$ (1,476,000)$ (2,232,000)$ Adjustments 6 Contribution to Reserves -$ (193,800)$ (193,800)$ 7 Mid-Year Increase - - - 8 Subtotal -$ (193,800)$ (193,800)$ 9 Total Revenue Required 7,779,500$ 1,563,500$ 9,343,000$ Revenue RequirementLine 52 OTAY WATER DISTRICT » Meters and Services: costs of meter maintenance/repair » Energy: Power purchases associated with operating pumping stations » General: costs for general administration and operational expenses or any other costs that do not clearly relate to a specific functional category After functionalization of costs, we allocate the functionalized costs to cost causation components. Some cost causation components correspond directly to a functional category listed above. The cost causation components include: » Commodity: costs associated with providing water under average water demand conditions, primarily consisting of volumetric water purchases and overhead related to such things as attending wholesale water board meetings and general management of water supply issues » Demand: costs associated with providing water under peak demand conditions, including a portion of water supply costs related to the District’s overall peaking characteristics and the sizing of assets such as water mains and storage facilities to meet peak summer demand » Customer: directly associated with the Customer functional category » Cost Meters: directly associated with the Meters functional category » Capacity Meters: used for a reallocation of some Demand costs in a later step » Energy: directly associated with the Energy function » General: directly associated with the General function 7.3.1. O&M EXPENSE ALLOCATION District staff functionalized FY 2023 operating expenses. Table 7-7 shows a summary of the O&M functionalization results. Functionalizing costs is necessary in order to allocate total O&M expenses to the cost causation components. Table 7-7: Summary of O&M Expenses by Functional Category Function 1 Supply 5,698,041$ 66.8% 2 Treatment 448,294 5.3% 3 Transmission 179,734 2.1% 4 Distribution 371,211 4.3% 5 Recycled Water Pumping 242,660 2.8% 6 Distribution Storage 97,393 1.1% 7 Customer Service 88,129 1.0% 8 Meters and Services 94,807 1.1% 9 Fire Service - 0.0% 10 Energy 562,000 6.6% 11 General 753,231 8.8% 12 Total 8,535,500$ 100.0% Line Budget Functionalization Results Percent of Total WATER COST OF SERVICE AND RATE DESIGN STUDY 53 Table 7-8 shows the allocation of functionalized projected FY 2023 O&M expenses to each cost causation component according to the criteria described above. Total O&M expenses associated with each function (Column H) were determined in Table 7-7. The total dollar amount allocated to each cost causation component (Line 12) is the sum of values in Lines 1 to 11 for each cost component. The total General revenue requirement (Column G, Line 12) is fully reallocated to other cost causation components on a proportional basis. General and Administrative costs are not allocated to the Commodity component because overhead costs related to water purchases are already included in the supply function. Additionally, components related to a pass-through cost (Energy) or tax offset do not receive an allocation of general costs. Note that the reallocation results in a shifting of costs between cost causation components but does not change the total rate revenue requirement. The final O&M Allocation is shown in Line 14. The percentages (Line 15) represent the proportion of total O&M expenses allocated to each cost causation component. These O&M allocation percentages are later used to allocate some miscellaneous revenues. 54 OTAY WATER DISTRICT Table 7-8: Allocation of O&M Expenses to Cost Causation Components A B C D E F G H Commodity Demand Accounts Cost Eq. Meters Capacity Eq. Meters Energy General Total Function 1 Supply 5,698,041$ -$ -$ -$ -$ -$ -$ 5,698,041$ 2 Treatment - 448,294 - - - - - 448,294 3 Transmission - 179,734 - - - - - 179,734 4 Distribution - 371,211 - - - - - 371,211 5 Recycled Water Pumping - 242,660 - - - - - 242,660 6 Distribution Storage - 97,393 - - - - - 97,393 7 Customer Service - - 88,129 - - - - 88,129 8 Meters and Services - - - 94,807 - - - 94,807 10 Energy - - - - - 562,000 - 562,000 11 General - - - - - - 753,231 753,231 12 Subtotal 5,698,041$ 1,339,292$ 88,129$ 94,807$ -$ 562,000$ 753,231$ 8,535,500$ 13 Reallocation of General 662,711$ 43,608$ 46,912$ -$ (753,231)$ -$ 14 Total 5,698,041$ 2,002,003$ 131,737$ 141,719$ -$ 562,000$ 8,535,500$ 15 Percent Allocation 66.8% 23.5% 1.5% 1.7% 0.0% 6.6% 0.0% Line O&M Allocations WATER COST OF SERVICE AND RATE DESIGN STUDY 55 7.3.2. CAPITAL ALLOCATION Capital assets are utilized in COS analyses to allocate the capital revenue requirement to the various cost causation components. The distribution of a short-term capital plan can be heavily weighted to specific cost causation components based on the type of projects. Using short-term planned capital projects to allocate capital costs would cause rates to fluctuate and cause customer confusion. The overall capital asset base however is considerably more stable in the long-term, and therefore is more representative of long-term capital investment in the District’s water system. Thus, functionalized capital assets are used to allocate capital costs. District staff provided Raftelis with a detailed asset listing that included the original cost less depreciation (OCLD) of each individual asset. As part of the capital asset analysis, Raftelis and District staff assigned each asset to a functional category. Total asset value (OCLD) by functional category is shown in Table 7-9. Table 7-9: Summary of Capital Assets by Functional Category Table 7-10 shows the allocation of capital assets by function to each cost causation component as well as the reallocation of General costs in line 12; this is consistent with the methodology used to determine the allocation of O&M expenses to cost causation components in Table 7-8. The final capital asset allocation percentages (Line 14) represent the proportion of total capital assets allocated to each cost causation component (Line 13). These percentages are used to allocate annual capital costs, including debt service, rate funded capital, and reserve contributions in Table 7-11. Function 1 Supply 1,423,205$ 1.8% 2 Treatment 5,505,372 6.8% 3 Transmission 35,223,822 43.7% 4 Distribution 17,159,176 21.3% 5 Recycled Water Pumping 9,541,998 11.9% 6 Distribution Storage 10,602,163 13.2% 7 Customer Service - 0.0% 8 Meters and Services 345,746 0.4% 9 Fire Service 0.0% 10 Energy 0.0% 11 General 720,001 0.9% 12 Total 80,521,483$ 100% Line Asset Functionalization Results Percent of Total 56 OTAY WATER DISTRICT Table 7-10: Allocation of Functionalized Capital Assets to Cost Causation Components\ Table 7-11: Allocation of Capital Costs to Cost Causation Components A B C D E F G H Commodity Demand Accounts Cost Eq. Meters Capacity Eq. Meters Energy General Total Function 1 Supply 1,423,205$ -$ -$ -$ -$ -$ -$ 1,423,205$ 2 Treatment - 5,505,372 - - - - - 5,505,372 3 Transmission - 35,223,822 - - - - - 35,223,822 4 Distribution - 17,159,176 - - - - - 17,159,176 5 Recycled Water Pumping - 9,541,998 - - - - - 9,541,998 6 Distribution Storage - 10,602,163 - - - - - 10,602,163 7 Customer Service - - - - - - - - 8 Meters and Services - - - 345,746 - - - 345,746 10 General - - - - - - 720,001 720,001 11 Subtotal 1,423,205$ 78,032,531$ -$ 345,746$ -$ -$ 720,001$ 80,521,483$ 12 Reallocation of General 12,841$ 704,041$ -$ 3,119$ -$ 13 Total 1,436,046$ 78,736,572$ -$ 348,866$ -$ -$ 80,521,483$ 14 Percent Allocation 1.8% 97.8% 0.0% 0.4% 0.0% 0.0% Line Asset Allocations A B C D E F G H Commodity Demand Accounts Cost Eq. Meters Capacity Eq. Meters Energy General Total Expense 1 Debt Service 21,995$ 1,205,962$ -$ 5,343$ -$ -$ -$ 1,233,300$ 2 Rate Funded Capital 35,669 1,955,666 - 8,665 - - - 2,000,000 3 Contribution to Reserves (3,456) (189,504) - (840) - - - (193,800) 4 Mid-Year Adjustment - - - - - - - - 5 Subtotal 54,207$ 2,972,124$ -$ 13,169$ -$ -$ -$ 3,039,500$ 6 Reallocation of General -$ -$ -$ -$ -$ 7 Total 54,207$ 2,972,124$ -$ 13,169$ -$ -$ 3,039,500$ 8 Percent Allocation 1.8% 97.8% 0.0% 0.4% 0.0% 0.0% Line Capital Cost Allocations WATER COST OF SERVICE AND RATE DESIGN STUDY 57 7.3.3. REVENUE OFFSET ALLOCATION The District has a substantial amount of revenue from sources other than rates that is used to offset the total revenue requirement. Raftelis and District staff analyzed each non-rate revenue source to determine the most reasonable allocation basis. The results of this process are shown in Table 7-12. All non-rate revenues in the Expansion, Betterment, Replacement, and New Water Supply funds are allocated on the same basis as assets using the percentages shown in Table 7-10, Line 14. Meter Fees are used to directly offset costs in the Cost Meters component. All other revenues in the Operating Fund are allocated using the total O&M allocation percentages in Table 7-8, Line 26. 58 OTAY WATER DISTRICT Table 7-12: Non-Rate Revenue Allocations A B C D E F G H Commodity Demand Accounts Cost Eq. Meters Capacity Eq. Meters Energy General Total Operating Fund 1 Reclaim Incentive 445,937 156,680 10,310 11,091 - 43,983 - 668,000 2 Late Fees 22,697 7,975 525 565 - 2,239 - 34,000 3 Meter Fees - - - 5,000 - - - 5,000 4 Interest 32,711 11,493 756 814 - 3,226 - 49,000 5 Subtotal 501,345$ 176,147$ 11,591$ 17,469$ -$ 49,448$ -$ 756,000$ Expansion Fund 6 Capacity Fee - Restricted 5,760 315,840 - 1,399 - - - 323,000 7 BAB Subsidy 2,639 144,719 - 641 - - - 148,000 8 Interest Income 84,781 29,788 1,960 2,109 - 8,362 - 127,000 9 Subtotal 93,181$ 490,347$ 1,960$ 4,149$ -$ 8,362$ -$ 598,000$ Betterment Fund 10 Interest Income 125$ 6,845$ -$ 30$ -$ -$ -$ 7,000$ 11 BAB Subsidy 89 4,889 - 22 - - - 5,000 12 Subtotal 214$ 11,734$ -$ 52$ -$ -$ -$ 12,000$ Replacement Fund 13 Interest Income 1,480$ 81,160$ -$ 360$ -$ -$ -$ 83,000$ 14 Capacity Fee - Restricted 13,839 758,798 - 3,362 - - - 776,000 15 Subtotal 15,320$ 839,959$ -$ 3,722$ -$ -$ -$ 859,000$ New Water Supply Fund 16 BAB Subsidy 36 1,956 - 9 - - - 2,000 17 Interest Income 89 4,889 - 22 - - - 5,000 18 Subtotal 125$ 6,845$ -$ 30$ -$ -$ -$ 7,000$ 19 Total 610,185$ 1,525,032$ 13,551$ 25,423$ -$ 57,810$ -$ 2,232,000$ Line Non-Rate Revenue Allocations WATER COST OF SERVICE AND RATE DESIGN STUDY 59 7.4. Cost of Service Allocation Table 7-13 shows the allocation of the total rate revenue requirement to the various cost causation components. The preliminary COS allocations (Line 4) are subject to further adjustments based on additional reallocations in Lines 5 and 6. 7.4.1. PRELIMINARY COST OF SERVICE ALLOCATION The results shown in Table 5-16 are calculated as follows based on intermediate results developed in the preceding subsections: 5. Operating Revenue Requirement (Line 1): The total operating revenue requirement consists solely of the District’s O&M expenses. The allocation of the total operating revenue requirement to each cost causation component was previously determined in Table 7-8, Line 14. 6. Capital Revenue Requirement (Line 2): The total capital revenue requirement consists of capital expenditures and debt service payments. The allocation of the total capital revenue requirement was shown in Table 7-11, Line 13. 7. Non-Rate Revenue (Line 3): Total revenue offsets were determined in Table 7-12, Line 19. 8. Preliminary Cost of Service Allocation (Line 4): The preliminary COS allocation to each cost causation component equals the sum of Lines 1 through 3. Note that the total COS allocation (Column G, Line 4) equals the total rate revenue requirement (from Table 7-6, Column C, Line 9). 7.4.2. ADJUSTMENTS TO COST OF SERVICE Raftelis proposes a few adjustments to the preliminary cost of service related to Demand costs. 7.4.2.1.Allocation of Demand Costs to Capacity Meters The District collects approximately 10 percent of its non-potable rate revenues from fixed System Fees. It is common for water purveyors to collect fixed capacity related costs in proportion to meter size; the amount collected varies greatly by water purveyor. Raftelis allocated a portion of Demand costs to what is known as the Capacity Meter cost component. Demand costs are operation and maintenance costs for facilities that the District maintains to provide peak capacity. These costs are fixed costs, incurred regardless of water use, and can be recovered in proportion to meter size. Therefore, a portion of demand costs, as shown in Line 5 of Table 6-13 were reallocated to the Capacity Meter component which is collected through the System Fee 7.4.3. FINAL COST OF SERVICE ALLOCATION The final COS allocation (Line 6) equals the sum of Lines 4 and 5. This is the final adjusted allocation of the total revenue requirement (from Table 7-6, Column C, Line 9) to the various cost causation components. 60 OTAY WATER DISTRICT Table 7-13: Cost of Service Allocation A B C D E F G Commodity Demand Accounts Cost Eq. Meters Capacity Eq. Meters Energy Total Expenses 1 O&M 5,698,041$ 2,002,003$ 131,737$ 141,719$ -$ 562,000$ 8,535,500$ 2 Non-Rate Revenue (610,185) (1,525,032) (13,551) (25,423) - (57,810) (2,232,000) 3 Capital 54,207 2,972,124 - 13,169 - - 3,039,500 4 Subtotal Expenses 5,142,063$ 3,449,095$ 118,186$ 129,466$ -$ 504,190$ 9,343,000$ 5 COS Reallocation -$ (586,346)$ -$ -$ 586,346$ -$ 6 Total Expenses 5,142,063$ 2,862,749$ 118,186$ 129,466$ 586,346$ 504,190$ 9,343,000$ Line Unit Cost of Service WATER COST OF SERVICE AND RATE DESIGN STUDY 61 7.5.Unit Cost Development Units of service (Table 7-5) are divided into the total costs for each cost causation component (Table 7-13) to calculate unit costs, which are directly incorporated into the proposed rate calculations in Section 7. Unit costs comprise the constituent parts from which proposed rates are calculated in Section 7. Table 7-14 shows unit costs for each cost causation component (Column C), which are calculated by dividing the final COS allocation in Column A (from Table 7-13, Line 6) by the relevant units of service in Column B (from Table 7-5). The units of service vary by unit cost and are based on either water use, peaking units, or number of accounts /equivalent meter units. Table 7-14: Development of Unit Costs A B C D Cost Units of Service Unit Cost Units Cost Component 1 Commodity 5,142,063$ 1,572,300 3.27$ Ccf 2 Demand 2,862,749 11,115 257.57 Ccf/Day 3 Accounts 118,186 764 154.69 Account/Yr 4 Cost Eq. Meters 129,466 1,909 67.81 Eq. Meter / Yr 5 Capacity Eq. Meters 586,346 3,100 189.12 Eq. Meter / Yr 6 Energy 504,190 6,209,151 0.081 Adj. Ccf 7 Total 9,343,000$ Line Description 62 OTAY WATER DISTRICT 7.6. Customer Class Costs Unit costs developed in Table 7-14 are used to distribute costs to each customer classes based on their units of service from Table 7-5. The Unit Costs are multiplied by the service units to derive the cost to each class for each cost component in Columns A to F, Lines 1 to 3. The total cost of service for each class is shown in Column G. Table 7-15: Customer Class Cost of Service A B C D E F G Commodity Demand Accounts Cost Eq. Meters Capacity Eq. Meters Energy Total 1 Recycled 2,729,810$ 1,522,971$ 62,651$ 69,611$ 309,595$ 271,549$ 4,966,187$ 2 Public Rec.1,902,397 1,120,371 55,380 56,431 252,795 160,057 3,547,432 3 Rec. Comm.509,857 219,406 155 3,424 23,956 72,584 829,381 4 Total Cost of Service 5,142,063$ 2,862,749$ 118,186$ 129,466$ 586,346$ 504,190$ 9,343,000$ Class Cost of ServiceLine WATER COST OF SERVICE AND RATE DESIGN STUDY 63 7.7.Customer Class Comparison Table 7-16 compares the total proposed revenue requirement for each class (Table 7-15, Column G) to the total revenue that would be collected from each class under the current rates. Note that the total revenue collected under either COS corresponds to the revenue requirement from Table 7-6, indicating that the proposed rates and rate structure changes are revenue neutral. Distributional impacts to the various customer classes are a result of the District’s changing cost structure and water use patterns relative to the prior rate study, and due to refinements to the methodology to maintain adherence to Cost of Service Principles. Table 7-16: Cost of Service Comparison Proposed Current Dollars Percent Customer Class 1 Recycled 4,966,187$ 4,953,327$ 12,860$ 0.3% 53.2% 53.0% 2 Public Recycled 3,547,432 3,747,649$ (200,217) -5.3% 38.0% 40.1% 3 Recycled Commercial 829,381 642,024$ 187,358 29.2% 8.9% 6.9% 4 Total 9,343,000$ 9,343,000$ -$ 0.0% 100.0% 100.0% Line Cost of Service Summary Revenue Current % of Total Proposed % of Total Change 64 OTAY WATER DISTRICT 8. Proposed Recycled Water Rates Section 7 details the proposed water rate calculations. Proposed rates are calculated directly from the results of the COS analysis (from Section 6). 8.1. Proposed Fixed Charges Table 6-1 shows the calculation of the components of each fixed charge: costs for the customer, capacity meter, and cost meter components are from Table 7-15, Line 4. The costs identified in Column A are divided by the units in Column B to derive the annual charge in column C; this amount is converted to a monthly charge in Column D by dividing by 12. Table 8-1: Fixed Charge Components 8.1.1. PROPOSED SYSTEM FEES Table 8-2 shows the detailed calculation of proposed System Fees, which are based on Customer and Equivalent meter unit rates. Customer costs do not vary by connection type or size. Therefore, the Customer unit rate, previously derived in Table 8-1, Column D, Line 1 is applied uniformly to all System Fees (Column A). Because Meters costs vary by meter size based on hydraulic capacity, the unit cost (Table 8-1, Column D, Line 3) is multiplied by the AWWA capacity ratio for each meter size (Table 5-3, Column B). For example, the AWWA capacity ratio for a 1” meter is 1.67, which is multiplied by $17.18 to derive the meter component cost of $28.63 (Column C, Line 3). The same process is repeated for the cost meter component in Column B. The three fixed charge components in Columns A, B, and C are added in Column D, showing the total of these components that all customers pay each month. A C D Cost Annual Charge Monthly Charge Component 1 Customer 118,186$ 764 Accounts 154.69$ 12.89$ 2 Cost Eq. Meters 129,466 1,909 5/8" Eq. 67.81 5.65 3 Capacity Eq. Meters 586,346 3,100 5/8" Cap Eq. 189.12 15.76 System Fees UnitsLine B WATER COST OF SERVICE AND RATE DESIGN STUDY 65 Table 8-2: System Fees 8.2. Proposed Volume Rates Volume Charges are designed to recover the portion of the rate revenue requirement allocated to the commodity and demand cost causation components. 8.2.1. COMMODITY RATE COMPONENT Table 8-3 shows the calculation of the commodity rate component. Billable water volumes from Table 7-1 are shown in Column A. The cost for each class and tier was previously calculated in Table 7-15, Column A. The rate component in Column C is the result of dividing Column B by Column A. All customers pay the same amount per Ccf for these costs, which primarily consist of water purchases. Table 8-3: Commodity Rate Component A B C D Customer Cost Eq. Meters Capacity Eq. Meters Total Proposed Meter Size 1 5/8" 12.89$ 5.65$ 15.76$ 34.31$ 2 3/4" 12.89 5.65 15.76 34.31 3 1" 12.89 7.29 26.27 46.46 4 1 1/2" 12.89 11.85 52.53 77.28 5 2" 12.89 16.98 84.05 113.93 6 3" 12.89 52.92 183.87 249.69 7 4" 12.89 91.92 330.97 435.78 8 6" 12.89 158.77 735.48 907.15 9 8" 12.89 198.37 1,260.82 1,472.09 10 10" 12.89 285.30 1,996.30 2,294.50 Line System Fee A B C Billed Ccf Cost Rate 1 Recycled 834,700 2,729,810$ 3.27$ 2 Public Rec.581,700 1,902,397 3.27 3 Rec. Comm.155,900 509,857 3.27 4 Total 1,572,300 5,142,063$ 3.27$ Line Commodity Component 66 OTAY WATER DISTRICT 8.2.2. DEMAND RATE COMPONENT Table 8-4 shows the calculation of the commodity rate component. Billable water volumes from Table 7-1 are shown in Column A. The cost for each class was previously calculated in Table 7-15, Column B. The rate component in Column C is the result of dividing Column B by Column A. This rate component is different for each customer class and tier due to their unique peaking behaviors and demands on the water system. Customers with a higher peaking factor (Table 7-1, Column C) pay a higher demand rate. Table 8-4: Demand Rate Component 8.2.3. TOTAL PROPOSED VOLUME RATE The proposed volume rates in Table 8-5 are the result of adding each of the constituent components derived in Table 8-3 and Table 8-4. The total rate for each class and tier is shown in Column C. Table 8-5: Total Proposed Volume Rates 8.3.Monthly Bill Impacts The following tables show sample monthly bills for each customer class using the most common meter sizes for the class and a range of water use volumes to provide a representative sample of impacts across many customers. Table 8-6: Recycled Bill Impacts A B C Billed Ccf Cost Rate 1 Recycled 834,700 1,522,971$ 1.82$ 2 Public Rec.581,700 1,120,371 1.93 3 Rec. Comm.155,900 219,406 1.41 4 Total 1,572,300 2,862,749 1.82$ Demand ComponentLine A B C Commodity Demand Total 1 Recycled 3.27$ 1.82$ 5.10$ 2 Public Rec.3.27 1.93 5.20 3 Rec. Comm.3.27 1.41 4.68 Volume ChargeLine System Fee Volume Total System Fee Volume Total Dollar Percent Meter Size Use 3/4" 53 36.93$ 267.65$ 304.58$ 34.31$ 270.30$ 304.61$ 0.03$ 0.0% 3/4" 295 36.93 1,489.75 1,526.68 34.31 1,504.50 1,538.81 12.13 0.8% 3/4" 172 36.93 868.60 905.53 34.31 877.20 911.51 5.98 0.7% Proposed Charges ChangeCurrent Charges Recycled Bill Impacts WATER COST OF SERVICE AND RATE DESIGN STUDY 67 Table 8-7: Public Recycled Bill Impacts Table 8-8: Recycled Commercial Bill Impacts System Fee Volume Total System Fee Volume Total Dollar Percent Meter Size Use 1 1/2" 27 90.25$ 147.96$ 238.21$ 77.28$ 140.40$ 217.68$ (20.53)$ -8.6% 1 1/2" 243 90.25 1,331.64 1,421.89 77.28 1,263.60 1,340.88 (81.01) -5.7% 1 1/2" 132 90.25 723.36 813.61 77.28 686.40 763.68 (49.93) -6.1% Current Charges Proposed Charges Change Public Rec. System Fee Volume Total System Fee Volume Total Dollar Percent Meter Size Use 10" 3,000 2,091$ 10,740$ 12,831$ 2,295$ 14,040$ 16,335$ 3,503$ 27.3% 10" 21,000 2,091 75,180 77,271 2,295 98,280 100,575 23,303 30.2% 10" 12,500 2,091 44,750 46,841 2,295 58,500 60,795 13,953 29.8% Proposed Charges Change Rec. Comm. Current Charges