2a - powerpoint workshop #6

Study Workshops are designed to be both educational and to seek broad direction from the Board

Workshop #1 Financial Forecast & Cost of Service•Water, recycled water, & sewer services

• Revenue requirement• Cost of service

Workshop #1 Financial Forecast & Cost of Service•Water, recycled water, & sewer services

• Revenue requirement• Cost of service

Workshop #2 & 3 Customer Data Analysis & Rate Design Alternatives• Customer data analysis & forecasted trends

• Rate design alternatives

Workshop #2 & 3 Customer Data Analysis & Rate Design Alternatives• Customer data analysis & forecasted trends

• Rate design alternatives

Workshop #4, 5, & 6 Resulting Rates & Customer Impacts• Rate design and calculation

• Review of customer impacts

Workshop #7 Review & Public Comment• Address received feedback

• Overview of previous presentations

Workshop #7 Review & Public Comment• Address received feedback

• Overview of previous presentations

The Board provided general direction on the following items:

• Rates to be increased gradually rather than “just in time”• Greater recovery of fixed expenditures• General Rate Structure Revisions

– Simplify existing structure– Stabilize revenues & cost recovery– Updates based on Cost of Service

Board provided specific direction throughout Workshops 3, 4, and 5.

• Sewer Rate Considerations– SFR: Fixed structure with 3 volumetric blocks– SFR: Sewer usage proxy based on Winter Quarter Average– Commercial: Simplify 20 classes to 3 categories

• Water Rate Structure Alternatives– SFR: Revise structure to 3 tiers (from 5) – Unique uniform rates for MFR, commercial, potable irrigation– Affirmed outlined Fixed & Demand Charge methodology

• Recycled Water– Fixed + Variable structure, with no demand charge

• Preliminary Revenue Requirement Analysis– Desire to move forward assuming funding of O&M, R&R CIP, and both

the Tunnel and Desal Projects– Requested funding alternative if Desal was not moved forward

Workshop #5 outlined three high level revenue scenarios for discussion

• Revenue Requirement Scenarios1. Operation & Maintenance (O&M) and

Repair & Replacement (R&R)2. O&M, R&R, and Tunnel Project Only3. O&M, R&R, Tunnel, and Desal Projects

• Received general consensus for Scenario #3– Although the decision to move forward with Desal is not final,

Scenario #3 provides greater flexibility• Additionally, Board requested Staff review the following:

– Forecasted Draft 5‐year CIP– Reserve Policy– District Debt Policy

Revenue RequirementsAnalysis

Based on input of the CIP and Cash, asking for input on DRAFT rate adjustments

Planned Capital Improvement Plan $8M/yr in rate funded capital (FYE 2017 – 2022)Remainder to be paid from Cash position

$6$8 $8 $8

$4 $4 $4$6 $6 $6

$9

$8

$3$5

$8$5 $5

$5 $5 $5

$0

$2

$4

$6

$8

$10

$12

$14

$16

$18

FYE2016

FYE2017

FYE2018

FYE2019

FYE2020

FYE2021

FYE2022

FYE2023

FYE2024

FYE2025

Millions

Proposed Capital Improvement PlanTotals Exclude Debt Funded Projects (Tunnel & Desal)

Funded by Cash

Funded by RatesDrop in Blue Bars offset by

increase in assumed debt service

Without increases, existing Rates and Cash are insufficient to support proposed O&M & CIP

$0

$10

$20

$30

$40

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$70

FYE2016

FYE2017

FYE2018

FYE2019

FYE2020

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FYE2023

FYE2024

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Millions

Status Quo: Forecast at Existing RatesOperating Expenditures Capital (Rate Funded & Reserve Funded)Non‐Operating Expenditures Capital (Annual Debt Service)Total Revenue Without Increases

Tunnel and Desal Project Costs (Debt) are shown in Dark Blue Bars (above)

Proposed Increases support O&M + CIP + Desal & TunnelUse of Cash supports Board objective of rate smoothing

$0

$10

$20

$30

$40

$50

$60

$70

FYE2016

FYE2017

FYE2018

FYE2019

FYE2020

FYE2021

FYE2022

FYE2023

FYE2024

FYE2025

Millions

Preliminary Results: 10% (2017‐2019), 8%, 7%, 6%, then 3% starting in 2023 Operating Expenditures Capital (Rate Funded & Reserve Funded)Non‐Operating Expenditures Capital (Annual Debt Service)Total Revenues

Increases necessary to support Debt Coverage. Low DSCR of 1.30x in FYE 2022.

Should Desal not move forward following proposed adjustments, increases could be lessened without new 218 Process

Min forecasted DSCR is 1.63x.

Predicting demand “Bounce Back” timing and rate could impact proposed revenue adjustmentsWith 25% cutback, 33% increase would be 100% Bounce Back

Alt #1 (Baseline)No Bounce back

• Maintain CY 2015 levels

• Conservative approach and assumes any uptick in demand will be offset by further efficiency and conservation

• No revenue impact

Alt #2: 25% Bounce Back

• Drought and el Niño continue to impact 2017 demands

• 8% demand increase in 2018

• Est. revenue impact• $1.5M increase in 2018• $7M through 2021

Alt #3: 50% Bounce Back

• Drought and el Niño continue to impact 2017 demands

• 16% demand increase in 2018

• Est. revenue impact• $3M increase in 2018• $14M through 2021

District always maintains the ability to not implement the full proposed increase.

Water Rate Design

Water: Based on previous workshops, modeled water rate design responds to the Board’s request

Existing Rate Design• Two Components

– Fixed + Variable Charge

• SFR – 5 Tiers

• MFR – Uniform

• Commercial – Uniform

• Potable Irrigation – Tiered Allocation

• Recycled Water – 90% of Commercial Rate

Modeled Rate Design• Three Components (Potable)

– Fixed + Demand + Variable

• Class specific variable design– SFR – 3 Tiers – MFR – Uniform– Commercial – Uniform– Potable Irrigation – Uniform

• Recycled Water– Fixed + Variable

Shown at Workshop #4

Water: Rate design philosophy is founded on cost of service principles and SCWD’s system & utilization

Three rate components designed to reflect Cost of Service (pertains to all potable water classes):1. Fixed Charge

– Recovers fixed costs based on provided capacity– Collected on the tax roll

2. Demand Charge– Recovers fixed costs based on utilized capacity– Collected on the tax roll

3. Variable Charge– Volumetric based charge, per CCF, based on variable costs– Billed monthly

Shown at Workshop #4

Water: Proposed Fixed Service Charges are set to recover half of fixed costs

FY ‘17 Fixed Charge CalculationWater Revenue Requirement $18.7 Million

Fixed Allocation $10.7 Million

Allocated to Fixed Charge $5.35 Million

¾” Meter Equivalents 20,176

Annual Rate per ME(Collected on the Tax Roll)

$265.35

FY ‘17 Modeled ChargeMeter Size

CurrentRate

Proposed Ratios**

July 2016(Rate * Ratio)

3/4" $294.20 30/30 = 1 $265.35

1" 529.56 50/30 = 1.67 442.20

1.5" 1,182.69 100/30 = 3.33 884.40

2" 2,100.60 160/30 = 5.33 1,415

3" 4,727.83 350/30 = 11.67 3,095.30

4" 8,399.48 630/30 = 21 5,571.50

6" 18,896.62 1300/30 = 43.33 11,496.70

Based on Full Funding O&M + CIP + Desal & Tunnel

** Ratios based on gallon per minute (gpm) flows relative to a ¾” meter. For example, a 1” meter with a flow of 50 gpm is divided by the ¾” flow of 30 gpm to achieve a 1.67 ratio

Water: Remaining fixed costs to be recovered through the new Demand Charge

FY ‘17 Demand Charge Calculation FY ‘17 Methodology

• Blue area represents underutilized fixed costs (capital and distribution)

• Based on 2nd highest month– Minimizes adjustments

• Individualized per account

• Encourages Conservation

Water Revenue Requirement $18.7 Million

Fixed Expenditures $10.7 Million

Allocated to Demand Charge1 $5.05 Million

Account’s Peak Month Demand (CCF) 314,000

Rate per CCF(2nd Max Month * Rate)Collected on the Tax Roll

$16.10

1 Adjusted for Recycled Water Customers


Water: Tiered rates are sized and designed to reflect SCWD’s SFR demand patterns and system

0%

10%

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30%

40%

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90%

100%

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100

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1,000

1 3 5 7 9 11 13 15 17 19 21 23 25 27 29

Cumulative % of A

ccou

nts

Accoun

ts

Cumulative Demand (CCF)

SFR Monthly Demand Patterns

Sep‐15 Jan‐15

% of Accounts ‐ Sept % of Accounts ‐ Jan

RefinedAllocation % Share

FYE 2017Rate

Tier 1 1 – 5 CCF 49% $3.03Tier 2 6 – 18 44% 3.51Tier 3 19+ 7% 4.56

* Variable Rate billed monthly


Water: Based on the outlined rate design changes, impact will be varied between customers

¾” Customer Existing Rates ¾” Customer FY ‘17 Modeled Rates

$44

$57

$65 $61

$75

$57

$65

$57

$48 $48 $44 $44

$‐

$10

$20

$30

$40

$50

$60

$70

$80

Jan7 ccf

Mar12 ccf

May14 ccf

Jul12 ccf

Sep8 ccf

Nov7 ccf

Fixed Variable Total

$60

$71 $78 $74

$71 $78

$71

$64 $64 $60 $60

$‐

$10

$20

$30

$40

$50

$60

$70

$80

Jan7 ccf

Mar12 ccf

May14 ccf

Jul12 ccf

Sep8 ccf

Nov7 ccf

Fixed Demand Variable Total

Changes to the Fixed Charge (AWWA Ratios) and creation of a Demand Charge provide greater financial stability – Existing is 44% | Modeled Fixed to 55% Fixed

FY ‘17 Rates include 10% revenue increases

Water: Based on the outlined rate design changes, impact will be varied between customers

1” Customer Existing Rates 1” Customer FY ‘17 Modeled Rates

Proposed rate structure stabilizes revenue volatilityExisting is 59% | Modeled Fixed to 63% Fixed

$64

$76

$85 $80

$95

$76

$85

$76

$68 $68 $64 $64

$‐ $10 $20 $30 $40 $50 $60 $70 $80 $90

$100

Jan…

Feb…

Mar…

Apr…

May…

Jun… Jul…

Aug…

Sep…

Oct…

Nov…

Dec…

Fixed Variable Total

$75

$86 $93

$89 $100

$86 $93

$86 $79 $79

$75 $75

$‐ $10 $20 $30 $40 $50 $60 $70 $80 $90

$100

Jan…

Feb…

Mar…

Apr…

May…

Jun… Jul…

Aug…

Sep…

Oct…

Nov…

Dec…

Fixed Demand Variable Total


Water: Multi Family class and rate created to reflect distinct uses and updated Cost of Service results

MFR Variable Rate• Separate rate better reflects MFR user characteristics

• Uniform rate provides simplicity, ease of understanding, and ease of application

• Existing Rate per CCF: $4.13

FY ‘17 Modeled Rate

MFR Variable Allocation $1.41 MillionMFR Water Usage

(Annual CCF) 433,000

Rate per CCF $3.25


MFR to also pay the proposed Fixed Charge (Slide 15) and

Demand Charge (Slide 16) on the Tax Roll

Water: Commercial class and rate created to reflect distinct uses and updated Cost of Service results

Commercial Variable Rate• Best reflects class’ heterogeneous needs


• Existing Rate per CCF: $4.13

FY ‘17 Modeled Rate

Higher Commercial uniform rate (relative to MFR) reflects commercial’s higher peaking

Comm. Variable Allocation $1.53 MillionCommercial Usage

(Annual CCF) 457,000

Rate per CCF $3.35


Commercial to also pay the proposed Fixed Charge (Slide 15) and


Water: Impact to the 5 largest Commercial users based on May 2015

Existing Rates – 6% Fixed (Annual Cost)

Modeled FY ‘17 Rates – 45% Fixed (Annual Cost)

Proposed rate structure stabilizes revenue volatility

$267,895 $289,305

$257,693

$177,795

$104,544

$‐

$50,000

$100,000

$150,000

$200,000

$250,000

$300,000

$350,000

Existing Fixed Existing Variable Existing Total

$315,832 $331,375

$297,086

$202,587

$121,567

$‐

$50,000

$100,000

$150,000

$200,000

$250,000

$300,000

$350,000

Modeled Fixed Modeled DemandModeled Variable Modeled Total


Water: Potable Irrigation class and rate created to reflect distinct uses and updated Cost of Service results

Potable Irrigation Variable Rate• Existing Tiered Allocation structure is complex and creates greater revenue volatility


Modeled FY ‘17 Rate

Higher uniform rate (relative to MFR) reflects higher peaking

Potable IrrigationVariable Allocation $0.97 Million

Potable Irrigation Usage (Annual CCF) 247,000

Rate per CCF $3.93


Potable Irrigation to also pay the proposed Fixed Charge (Slide 15) and


Recycled Water: Under the One Water approach, costs are blended throughout the water system

One Water Concept One Water: Fixed + Variable• Same Fixed Charge as potable customers

• No Demand Charge– Demand Charge allocation

built into Variable rate

• Recycled water costs are treated similar to Groundwater Recovery Facility

• Recycled Water is simply another customer class

Recycled Water Allocation $1.28 Million

RW Demand Charge Allocation $0.3 Million

Recycled Water Usage (CCF) 384,000

Annual Cost per CCF $4.11

Recycled Water unit cost roughly equal to commercial rate, Discount

from Potable Irrigation Rate

Water: Five year rate schedule defines the maximum allowable rate for each year

Fixed Service Charge All Customers

FYE 2017 FYE 2018 FYE 2019 FYE 2020 FYE 2021

3/4" $265.35 $291.65 $320.60 $346.05 $370.10

1" 442.20 486.05 534.30 576.75 616.85

1.5" 884.40 972.10 1,068.60 1,153.45 1,233.70

2" 1,415.00 1,555.35 1,709.70 1,845.50 1,973.85

3" 3,095.30 3,402.30 3,739.95 4,037.05 4,317.80

4" 5,571.50 6,124.15 6,731.90 7,266.65 7,772.05

6" 11,496.70 12,637.05 13,891.20 14,994.70 16,037.50

Demand ChargePer ccf of 2nd highest monthPotable Customers Only

$16.10 $17.70 $19.45 $21.00 $23.80


Water: Five year rate schedule defines the maximum allowable rate for each year

Variable Rate ($/CCF) FYE 2017 FYE 2018 FYE 2019 FYE 2020 FYE 2021

SFR – Tier 1 $3.03 $3.33 $3.65 $3.94 $4.22

SFR – Tier 2 $3.51 $3.86 $4.24 $4.58 $4.90

SFR – Tier 3 $4.56 $5.01 $5.51 $5.94 $6.36

MFR $3.25 $3.57 $3.93 $4.24 $4.53

Commercial $3.35 $3.68 $4.04 $4.36 $4.67

Potable Irrigation $3.93 $4.32 $4.75 $5.13 $5.48

Recycled Water $4.11 $4.52 $4.97 $5.36 $5.74


Sewer Rate Design

Sewer: Existing sewer rates are comprised of two components and vary by customer class

Fixed ChargeCustomer Type

Existing Equivalents

Existing Annual Cost

SFR 1.00 $446.46 Duplex 0.66 296.53 Triplex 0.69 309.89 Fourplex 0.70 314.19 MFR 0.52 231.91

Variable Charge• Residential (SFR & MFR)

– $1.20 per CCF

• Non Residential– 20 separate classes with 14

unique rates– Rates vary by strength– Minimum charge of 1 EDU

Sewer: Assumptions can be made to better estimate sewer flows and to improve financial stability

13

12 13

12

11

8

7 7

8

9

8

9 9 9 9

AVERAGE CONSUMPTION PER SFR ¾” ACCOUNT

Dec – Feb could be used as Winter Quarter Average (WQA) Baseline to define sewer demand

WQA distribution analysis reveals forecasted sewer demands vary within SFR

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100

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1,000

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

Accoun

ts

WQA Demand (CCF)

Accounts by WQA Demands

*20 includes all accounts greater than or equal to 20 CCF** Only includes accounts with calculable WQA

Sewer: Proposed sewer rate methodology refine existing approach to provided increased stability and clarity

Single FamilyWQA

AllocationFY ‘17 Charge

% of Accounts

Block 1 0 – 5 CCF $617 28%Block 2 6 – 10 $652 49%Block 3 11+ $714 22%

Note: 1) Block 2 is account default. 2) No Rate per CCF. Billed completely on Tax Roll

Multi Family & Commercial• Multi Family

– $426 per dwelling unit (Tax Roll)– $0.74 per ccf (Billed Monthly)

• Commercial– Simplified structure– Low Strength: $7.15/ccf– Medium Strength: $8.05/ccf– High Strength: $10.12/ccf– Minimum Payment $652


Sewer: Five year rate schedule defines the maximum allowable rate for each year

FYE 2017 FYE 2018 FYE 2019 FYE 2020 FYE 2021

SFR – Block 1 $617 $678 $745 $ 804 $860

SFR – Block 2 652 $717 $788 $ 851 $910

SFR – Block 3 714 $785 $863 $ 932 $997

MFR – Fixed $426 $468 $515 $556 $594

MFR ‐ Variable 0.74 0.81 0.89 0.97 1.03

Commercial ‐ Low Strength $7.15 $7.86 $8.64 $9.33 $9.98

Commercial – Med Strength 8.05 8.85 9.73 10.5 11.23

Commercial – High Strength 10.12 11.12 12.22 13.19 14.11


Next Steps

• Finalize Revenue Requirements Analysis• Finalize Rate Design (based on Board direction)• Proposed 5 year rate schedule to Board• Drafting of Administrative Record (report)• QA/QC Process

Future workshops will continue to refine the overall cost of service process and address next steps

Workshop #7 (New)TBDReview & Public Comment• Final Overview and Recommendations

Workshop #7 (New)TBDReview & Public Comment• Final Overview and Recommendations

Next Steps• Review & Public Comment• Prepare Draft Cost of Service Report• Outline Schedule for Proposition 218 Process

Next Steps• Review & Public Comment• Prepare Draft Cost of Service Report• Outline Schedule for Proposition 218 Process

2a - powerpoint workshop #6

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