Agenda — Hillsborough City Council, November 14, 2022 (part 3 of 4)

Hillsborough - Base Model 16Jun2022.xlsm
COS Comm Yr 1 (H5) -388-
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B C D E F G H I J K LM N O P Q R S T U
Town of Hillsborough
Solid Waste Rate StudyCommercial Rate Tables and Revenue 32 64 96 1 2 3 6 32 64 96 1 2 3 6
1 /week $53.10 $66.88 $79.97 $131.96 $249.06 $404.91 $1,027.39 1 /week $26.55 $33.44 $39.99 $65.98 $124.53 $202.45 $513.702 /week $79.57 $107.12 $133.31 $246.66 $480.86 $792.54 $2,037.52 2 /week $39.78 $53.56 $66.66 $123.33 $240.43 $396.27 $1,018.763 /week $106.03 $147.36 $186.65 $361.35 $712.65 $1,180.18 $3,047.64 3 /week $53.02 $73.68 $93.33 $180.67 $356.33 $590.09 $1,523.824 /week $132.50 $187.61 $239.99 $476.04 $944.45 $1,567.82 $4,057.77 4 /week $66.25 $93.80 $119.99 $238.02 $472.22 $783.91 $2,028.885 /week $158.96 $227.85 $293.33 $590.74 $1,176.24 $1,955.45 $5,067.89 5 /week $79.48 $113.92 $146.66 $295.37 $588.12 $977.73 $2,533.956 /week $185.43 $268.09 $346.67 $705.43 $1,408.04 $2,343.09 $6,078.02 6 /week $92.71 $134.05 $173.33 $352.72 $704.02 $1,171.54 $3,039.01 Additional Containers Additional Containers
1 /week $12.73 $26.59 $39.73 $97.35 $215.47 $372.32 $998.86 1 /week $6.36 $13.29 $19.87 $48.68 $107.73 $186.16 $499.432 /week $39.19 $66.83 $93.07 $212.04 $447.26 $759.96 $2,008.98 2 /week $19.60 $33.41 $46.53 $106.02 $223.63 $379.98 $1,004.493 /week $65.66 $107.07 $146.41 $326.74 $679.05 $1,147.59 $3,019.11 3 /week $32.83 $53.54 $73.20 $163.37 $339.53 $573.80 $1,509.554 /week $92.12 $147.31 $199.74 $441.43 $910.85 $1,535.23 $4,029.23 4 /week $46.06 $73.66 $99.87 $220.72 $455.42 $767.61 $2,014.625 /week $118.59 $187.56 $253.08 $556.13 $1,142.64 $1,922.87 $5,039.36 5 /week $59.29 $93.78 $126.54 $278.06 $571.32 $961.43 $2,519.686 /week $145.05 $227.80 $306.42 $670.82 $1,374.44 $2,310.50 $6,049.48 6 /week $72.53 $113.90 $153.21 $335.41 $687.22 $1,155.25 $3,024.74 32 64 96 1 2 3 6 32 64 96 1 2 3 6
1 /week $55.49 $69.89 $83.57 $137.90 $260.27 $423.13 $1,073.63 1 /week $27.75 $34.94 $41.79 $68.95 $130.14 $211.56 $536.812 /week $83.15 $111.94 $139.31 $257.76 $502.50 $828.21 $2,129.21 2 /week $41.57 $55.97 $69.66 $128.88 $251.25 $414.10 $1,064.603 /week $110.80 $154.00 $195.05 $377.61 $744.72 $1,233.29 $3,184.79 3 /week $55.40 $77.00 $97.53 $188.81 $372.36 $616.64 $1,592.394 /week $138.46 $196.05 $250.79 $497.47 $986.95 $1,638.37 $4,240.37 4 /week $69.23 $98.02 $125.39 $248.73 $493.47 $819.18 $2,120.185 /week $166.12 $238.10 $306.53 $617.32 $1,229.17 $2,043.45 $5,295.95 5 /week $83.06 $119.05 $153.26 $308.66 $614.59 $1,021.72 $2,647.976 /week $193.77 $280.16 $362.27 $737.17 $1,471.40 $2,448.53 $6,351.53 6 /week $96.89 $140.08 $181.13 $368.59 $735.70 $1,224.26 $3,175.76 Additional Containers Additional Containers
1 /week $13.30 $27.78 $41.52 $101.73 $225.16 $389.07 $1,043.81 1 /week $6.65 $13.89 $20.76 $50.87 $112.58 $194.54 $521.902 /week $40.96 $69.84 $97.26 $221.59 $467.39 $794.15 $2,099.39 2 /week $20.48 $34.92 $48.63 $110.79 $233.69 $397.08 $1,049.693 /week $68.61 $111.89 $153.00 $341.44 $709.61 $1,199.23 $3,154.97 3 /week $34.31 $55.94 $76.50 $170.72 $354.81 $599.62 $1,577.484 /week $96.27 $153.94 $208.73 $461.30 $951.84 $1,604.32 $4,210.55 4 /week $48.13 $76.97 $104.37 $230.65 $475.92 $802.16 $2,105.275 /week $123.92 $196.00 $264.47 $581.15 $1,194.06 $2,009.40 $5,266.13 5 /week $61.96 $98.00 $132.24 $290.58 $597.03 $1,004.70 $2,633.066 /week $151.58 $238.05 $320.21 $701.01 $1,436.29 $2,414.48 $6,321.71 6 /week $75.79 $119.02 $160.10 $350.50 $718.14 $1,207.24 $3,160.85 32 64 96 1 2 3 6 32 64 96 1 2 3 6
1 /week $57.99 $73.03 $87.33 $144.11 $271.98 $442.17 $1,121.94 1 /week $28.99 $36.52 $43.67 $72.05 $135.99 $221.08 $560.972 /week $86.89 $116.98 $145.58 $269.35 $525.11 $865.48 $2,225.02 2 /week $43.44 $58.49 $72.79 $134.68 $262.55 $432.74 $1,112.513 /week $115.79 $160.93 $203.83 $394.60 $778.24 $1,288.78 $3,328.10 3 /week $57.90 $80.46 $101.91 $197.30 $389.12 $644.39 $1,664.054 /week $144.69 $204.87 $262.07 $519.85 $1,031.36 $1,712.09 $4,431.18 4 /week $72.35 $102.44 $131.04 $259.93 $515.68 $856.05 $2,215.595 /week $173.59 $248.82 $320.32 $645.10 $1,284.49 $2,135.40 $5,534.26 5 /week $86.80 $124.41 $160.16 $322.55 $642.24 $1,067.70 $2,767.136 /week $202.49 $292.76 $378.57 $770.35 $1,537.61 $2,558.71 $6,637.35 6 /week $101.25 $146.38 $189.28 $385.17 $768.81 $1,279.36 $3,318.67 Additional Containers Additional Containers
1 /week $13.90 $29.03 $43.39 $106.31 $235.29 $406.58 $1,090.78 1 /week $6.95 $14.52 $21.69 $53.16 $117.65 $203.29 $545.392 /week $42.80 $72.98 $101.63 $231.56 $488.42 $829.89 $2,193.86 2 /week $21.40 $36.49 $50.82 $115.78 $244.21 $414.95 $1,096.933 /week $71.70 $116.92 $159.88 $356.81 $741.54 $1,253.20 $3,296.94 3 /week $35.85 $58.46 $79.94 $178.40 $370.77 $626.60 $1,648.474 /week $100.60 $160.87 $218.13 $482.05 $994.67 $1,676.51 $4,400.02 4 /week $50.30 $80.44 $109.06 $241.03 $497.34 $838.25 $2,200.015 /week $129.50 $204.82 $276.37 $607.30 $1,247.80 $2,099.82 $5,503.10 5 /week $64.75 $102.41 $138.19 $303.65 $623.90 $1,049.91 $2,751.556 /week $158.40 $248.76 $334.62 $732.55 $1,500.92 $2,523.13 $6,606.19 6 /week $79.20 $124.38 $167.31 $366.28 $750.46 $1,261.56 $3,303.09 Frequency FrequencyFrequency Frequency
PROPOSED Monthly Commercial Solid Waste Rates (eff. 1/1/2023 ) PROPOSED Monthly Commercial Organics Rates (eff. 1/1/2023) Cart Size (Gallons) Bin Size (Cubic Yards) Cart Size (Gallons) Bin Size (Cubic Yards) PROPOSED Monthly Commercial Solid Waste Rates (eff. 1/1/2024 ) PROPOSED Monthly Commercial Organics Rates (eff. 1/1/2024) Cart Size (Gallons) Bin Size (Cubic Yards) Cart Size (Gallons) Bin Size (Cubic Yards) PROPOSED Monthly Commercial Solid Waste Rates (eff. 1/1/2025 ) PROPOSED Monthly Commercial Organics Rates (eff. 1/1/2025) Cart Size (Gallons) Bin Size (Cubic Yards) Cart Size (Gallons) Bin Size (Cubic Yards) Frequency Frequency
HF&H Consultants, LLC7/26/2022
Attachment B

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Commercial Rates (2023-2027)
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B C D E F G H I J K LM N O P Q R S T U
Town of Hillsborough
Solid Waste Rate Study
Commercial Rate Tables and Revenue
565758596061626364656667686970717273747576777879808182838485868788 32 64 96 1 2 3 6 32 64 96 1 2 3 6
1 /week $60.31 $75.96 $90.83 $149.87 $282.86 $459.85 $1,166.82 1 /week $30.15 $37.98 $45.41 $74.94 $141.43 $229.93 $583.412 /week $90.37 $121.66 $151.40 $280.13 $546.11 $900.09 $2,314.02 2 /week $45.18 $60.83 $75.70 $140.06 $273.06 $450.05 $1,157.013 /week $120.42 $167.36 $211.98 $410.39 $809.36 $1,340.34 $3,461.23 3 /week $60.21 $83.68 $105.99 $205.19 $404.68 $670.17 $1,730.614 /week $150.48 $213.07 $272.56 $540.65 $1,072.62 $1,780.58 $4,608.43 4 /week $75.24 $106.53 $136.28 $270.32 $536.31 $890.29 $2,304.225 /week $180.54 $258.77 $333.13 $670.90 $1,335.87 $2,220.82 $5,755.63 5 /week $90.27 $129.39 $166.57 $335.45 $667.93 $1,110.41 $2,877.826 /week $210.59 $304.47 $393.71 $801.16 $1,599.12 $2,661.06 $6,902.84 6 /week $105.30 $152.24 $196.85 $400.58 $799.56 $1,330.53 $3,451.42 Additional Containers Additional Containers
1 /week $14.45 $30.19 $45.12 $110.56 $244.71 $422.85 $1,134.41 1 /week $7.23 $15.10 $22.56 $55.28 $122.35 $211.42 $567.212 /week $44.51 $75.90 $105.70 $240.82 $507.96 $863.09 $2,281.62 2 /week $22.26 $37.95 $52.85 $120.41 $253.98 $431.54 $1,140.813 /week $74.57 $121.60 $166.28 $371.08 $771.21 $1,303.33 $3,428.82 3 /week $37.28 $60.80 $83.14 $185.54 $385.60 $651.66 $1,714.414 /week $104.62 $167.30 $226.85 $501.34 $1,034.46 $1,743.57 $4,576.02 4 /week $52.31 $83.65 $113.43 $250.67 $517.23 $871.78 $2,288.015 /week $134.68 $213.01 $287.43 $631.60 $1,297.71 $2,183.81 $5,723.23 5 /week $67.34 $106.50 $143.71 $315.80 $648.85 $1,091.91 $2,861.616 /week $164.74 $258.71 $348.00 $761.85 $1,560.96 $2,624.05 $6,870.43 6 /week $82.37 $129.36 $174.00 $380.93 $780.48 $1,312.03 $3,435.22 32 64 96 1 2 3 6 32 64 96 1 2 3 6
1 /week $62.72 $78.99 $94.46 $155.87 $294.18 $478.25 $1,213.49 1 /week $31.36 $39.50 $47.23 $77.93 $147.09 $239.12 $606.742 /week $93.98 $126.53 $157.46 $291.33 $567.96 $936.10 $2,406.58 2 /week $46.99 $63.26 $78.73 $145.67 $283.98 $468.05 $1,203.293 /week $125.24 $174.06 $220.46 $426.80 $841.74 $1,393.95 $3,599.67 3 /week $62.62 $87.03 $110.23 $213.40 $420.87 $696.97 $1,799.844 /week $156.50 $221.59 $283.46 $562.27 $1,115.52 $1,851.80 $4,792.77 4 /week $78.25 $110.79 $141.73 $281.14 $557.76 $925.90 $2,396.385 /week $187.76 $269.12 $346.46 $697.74 $1,389.30 $2,309.65 $5,985.86 5 /week $93.88 $134.56 $173.23 $348.87 $694.65 $1,154.83 $2,992.936 /week $219.02 $316.65 $409.46 $833.21 $1,663.08 $2,767.50 $7,178.95 6 /week $109.51 $158.33 $204.73 $416.60 $831.54 $1,383.75 $3,589.48 Additional Containers Additional Containers
1 /week $15.03 $31.40 $46.93 $114.99 $254.49 $439.76 $1,179.79 1 /week $7.52 $15.70 $23.46 $57.49 $127.25 $219.88 $589.892 /week $46.29 $78.93 $109.93 $250.45 $528.27 $897.61 $2,372.88 2 /week $23.15 $39.47 $54.96 $125.23 $264.14 $448.81 $1,186.443 /week $77.55 $126.47 $172.93 $385.92 $802.05 $1,355.46 $3,565.97 3 /week $38.77 $63.23 $86.46 $192.96 $401.03 $677.73 $1,782.994 /week $108.81 $174.00 $235.93 $521.39 $1,075.84 $1,813.31 $4,759.07 4 /week $54.40 $87.00 $117.96 $260.70 $537.92 $906.66 $2,379.535 /week $140.07 $221.53 $298.92 $656.86 $1,349.62 $2,271.16 $5,952.16 5 /week $70.03 $110.76 $149.46 $328.43 $674.81 $1,135.58 $2,976.086 /week $171.33 $269.06 $361.92 $792.33 $1,623.40 $2,729.01 $7,145.25 6 /week $85.66 $134.53 $180.96 $396.16 $811.70 $1,364.51 $3,572.63 PROPOSED Monthly Commercial Solid Waste Rates (eff. 1/1/2026 ) PROPOSED Monthly Commercial Organics Rates (eff. 1/1/2026) Cart Size (Gallons) Bin Size (Cubic Yards) Cart Size (Gallons) Bin Size (Cubic Yards) Frequency FrequencyFrequency Frequency
PROPOSED Monthly Commercial Solid Waste Rates (eff. 1/1/2027 ) PROPOSED Monthly Commercial Organics Rates (eff. 1/1/2027) Cart Size (Gallons) Bin Size (Cubic Yards) Cart Size (Gallons) Bin Size (Cubic Yards) HF&H Consultants, LLC7/26/2022
Attachment B

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Hillsborough - Base Model 16Jun2022.xlsm
Commercial Rates (2023-2027)
-390-
1 2346789
101112131415161718192021222324252627282930313233343536373839414243444546474849505152535455565758596061626364656667686970

A B CDEFG H
Recology 2023 Compensation - SBWMA ApprovedFinal Single Family DwellingCost Category Solid Waste
Targeted
Recyclable
Materials
Organic
Materials
On-call /
Abandoned
Material
Single
Family
Dwelling
Total
Annual Cost of Operations

10.1 Direct Labor-Related Costs10.1 Wages for CBAs $229,226 $201,523 $197,279 $32,726 $660,75410.2 Benefits for CBAs $99,888 $91,647 $87,599 $16,743 $295,87710.2 Payroll Taxes $18,567 $16,323 $15,980 $2,651 $53,52110.2 Workers Compensation Insurance $16,332 $14,358 $14,055 $2,537 $47,282 Total Direct Labor Related-Costs $364,013 $323,851 $314,913 $54,657 $1,057,434

20.3 Direct Fuel Costs $36,218 $38,162 $38,256 $2,333 $114,969 20 Other Direct Costs $32,013 $33,731 $34,235 $2,379 $102,358

20.4 Depreciation - Collection Vehicles $33,255 $32,172 $38,001 $2,033 $105,461

20.41 Depreciation - Containers $10,563 $10,810 $15,008 $0 $36,381 Depreciation for Collection Equipment $43,818 $42,982 $53,009 $2,033 $141,842Lease $0 $0 $0 $0 $0Allocated Indirect Costs excluding Depreciation and Interest (Form 9) $0

20.5 General and Administrative $73,301 $75,504 $75,704 $2,081 $226,590 20 Operations $21,288 $22,811 $26,833 $425 $71,357

20.1 Vehicle Maintenance $40,687 $43,597 $51,284 $811 $136,37920.2 Container Maintenance $10,679 $11,022 $12,439 $299 $34,439 Total Allocated Indirect Costs excluding Depreciation and Interest $145,955 $152,934 $166,260 $3,616 $468,765

20.4 Total Allocated Indirect Depreciation Costs (Form 9) $1,207 $1,297 $1,564 $24 $4,092 Annual Implementation Cost Amortization (Form A) $0 $0 $0 $0 $0Total Annual Cost of Operations $623,224 $592,957 $608,237 $65,042 $1,889,460

20.7 Profit (insert Operating Ratio below) $65,421 $62,244 $63,848 $6,828 $198,341

0.905
Total Proposed Costs before Pass-Through Cost Allocation $688,645 $655,201 $672,085 $71,870 $2,087,801Contractor Pass-Through Costs Lift Adjustments/Disincentive Pymts to Town -$3,261 -$3,261

20.8 Interest Expense $10,873 $10,664 $13,145 $479 $35,161 Total Contractor Pass-Through Costs $7,612 $10,664 $13,145 $479 $31,900TOTAL BASE CONTRACTOR'S COMPENSATION $696,257 $665,865 $685,230 $72,349 $2,119,701commercialCost Category Solid Waste
Targeted
Recyclable
Materials
Organic
Materials Drop Box
On-call /
Abandoned
Material
MFD &
Commercial
Total
Annual Cost of Operations

10.11 Direct Labor-Related Costs10.11 Wages for CBAs $5,240 $929 $5,485 $0 $5,275 $16,92910.21 Benefits for CBAs $2,354 $392 $1,629 $0 $2,468 $6,84310.21 Payroll Taxes $424 $75 $444 $0 $427 $1,37010.21 Workers Compensation Insurance $373 $66 $391 $0 $409 $1,239 Total Direct Labor Related-Costs $8,391 $1,462 $7,949 $0 $8,579 $26,381

20.31 Direct Fuel Costs $907 $144 $1,102 $0 $865 $3,018 20A Other Direct Costs $843 $156 $895 $0 $759 $2,653

20.42 Depreciation - Collection Vehicles $547 $113 $1,317 $0 $556 $2,53320.43 Depreciation - Containers $63 $125 $374 $0 $100 $662 Depreciation for Collection Equipment $610 $238 $1,691 $0 $656 $3,195Lease $0 $0 $0 $0 $0 $0Allocated Indirect Costs excluding Depreciation and Interest (Form 9) $0

20.51 General and Administrative $588 $794 $3,533 $0 $856 $5,771 20A Operations $269 $96 $2,285 $0 $175 $2,825

20.11 Vehicle Maintenance $514 $184 $4,367 $0 $334 $5,39920.21 Container Maintenance $76 $177 $633 $0 $123 $1,009 Total Allocated Indirect Costs excluding Depreciation and Interest $1,447 $1,251 $10,818 $0 $1,488 $15,004

20.42 Total Allocated Indirect Depreciation Costs (Form 9) $16 $7 $139 $0 $10 $172 Annual Implementation Cost Amortization (Form A) $0 $0 $0 $0 $0 $0Total Annual Cost of Operations $12,214 $3,258 $22,594 $0 $12,357 $50,423

20.71 Profit (insert Operating Ratio below) $1,282 $342 $2,372 $0 $1,297 $5,293

0.905
Total Proposed Costs before Pass-Through Cost Allocation $13,496 $3,600 $24,966 $0 $13,654 $55,716Contractor Pass-Through Costs

20.81 Interest Expense $270 $91 $721 $0 $300 $1,382
Total Contractor Pass-Through Costs $270 $91 $721 $0 $300 $1,382TOTAL BASE CONTRACTOR'S COMPENSATION $13,766 $3,691 $25,687 $0 $13,954 $57,098 HF &H Consultants, LLC7/26/2022
Attachment A

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Hillsborough - Base Model 16Jun2022.xlsm
Collection Costs 2023 (C2)
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1 2

A B CDEFG H
Recology 2023 Compensation - SBWMA Approved
71727375767778798081828384858687888990919293949596979899 100101102103104
agency facilitiesCost Category
Cart and Bin
Solid Waste
Cart and Bin
Organic
Materials
Cart and Bin
Recyclable
Materials
Drop Box Venues and Events Agency Facilities Total
Annual Cost of OperationsDirect Labor-Related CostsWages for CBAs $62 $222 $424 $1,437 $80 $2,225Benefits for CBAs $27 $98 $187 $634 $35 $981Payroll Taxes $5 $18 $34 $116 $6 $179Workers Compensation Insurance $4 $16 $30 $102 $6 $158Total Direct Labor Related-Costs $98 $354 $675 $2,289 $127 $3,543Direct Fuel Costs $11 $39 $75 $255 $15 $395Other Direct Costs $14 $50 $95 $323 $19 $501Depreciation - Collection Vehicles $16 $78 $169 $778 $28 $1,069Depreciation - Containers $0 $0 $0 $0 $0 $0Depreciation for Collection Equipment $16 $78 $169 $778 $28 $1,069Lease $0 $0 $0 $0 $0 $0Allocated Indirect Costs excluding Depreciation and Interest (Form 9)General and Administrative (using $34 $142 $322 $1,414 $588 $2,500Operations $10 $41 $93 $409 $18 $571Vehicle Maintenance $19 $79 $178 $782 $34 $1,092Container Maintenance (using lifts for Agency Costs) $5 $20 $46 $203 $84 $358Total Allocated Indirect Costs excluding Depreciation and Interest $68 $282 $639 $2,808 $724 $4,521Total Allocated Indirect Depreciation Costs (Form 9) $1 $3 $6 $28 $1 $39Annual Implementation Cost Amortization (Form A) $0 $0 $0 $0 $0 $0Total Annual Cost of Operations $208 $806 $1,659 $6,481 $914 $10,068Profit (insert Operating Ratio below) $22 $85 $174 $681 $96 $1,058

0.905
Total Operating Costs before Pass-Through Cost Allocation $230 $891 $1,833 $7,162 $1,010 $11,126Contractor Pass-Through Costs $0Interest Expense $4 $18 $39 $180 $7 $248Total Contractor Pass-Through Costs $4 $18 $39 $180 $7 $248TOTAL BASE CONTRACTOR'S COMPENSATION $234 $909 $1,872 $7,342 $1,017 $11,374 HF &H Consultants, LLC7/26/2022
Attachment A

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Collection Costs 2023 (C2)
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C EFGH I
Hillsborough and Processing Cost Projections
456789
101112
13141516171819202122232425262728293031323334444546474849505152535455565758596061626364656667 Per‐Ton Tip Fees projected projected projected projected projected 2023 2024 2025 2026 2027

5.0% 4.0% 4.0% 4.0%
Material Type
Solid Waste $137 $144 $150 $156 $162
Organics $145 $152 $158 $165 $171Recycling $0 $0 $0 $0 $0Commercial Food Waste $145 $152 $158 $165 $171 Agency C&D ‐ Self‐haul $120 $126 $131 $136 $142
Tons projected projected projected projected projected
2023 2024 2025 2026 2027
Residential
Solid Waste 2,580 2,580 2,580 2,580 2,580
Organics 5,345 5,345 5,345 5,345 5,345Recycling 1,884 1,884 1,884 1,884 1,884 Total Residential 9,809 9,809 9,809 9,809 9,809Commercial Solid Waste 163 163 163 163 163
Organics 77 77 77 77 77Recycling 50 50 50 50 50
Total Residential 290 290 290 290 290Agency
Solid Waste 246 246 246 246 246
Organics 157 157 157 157 157Recycling 250 250 250 250 250Agency C&D ‐ Self‐haul 140 140 140 140 140 Total Residential 793 793 793 793 793
Total Tip Fee Expenses projected projected projected projected projected 2023 2024 2025 2026 2027
Residential
Solid Waste $353,460 $371,133 $385,978 $401,417 $417,474 Organics $775,025 $813,776 $846,327 $880,180 $915,388Recycling $0 $0 $0 $0 $0 Total Residential $1,128,485 $1,184,909 $1,232,306 $1,281,598 $1,332,862Commercial Solid Waste $22,331 $23,448 $24,385 $25,361 $26,375
Organics $11,165 $11,723 $12,192 $12,680 $13,187Recycling $0 $0 $0 $0 $0 Total Residential $33,496 $35,171 $36,578 $38,041 $39,562Agency Solid Waste ‐ Coll Route $33,702 $35,387 $36,803 $38,275 $39,806Organics ‐ Coll Route $22,765 $23,903 $24,859 $25,854 $26,888Recycling $0 $0 $0 $0 $0Agency C&D ‐ Self‐haul $16,800 $17,640 $18,346 $19,079 $19,843 Total Residential $73,267 $76,930 $80,008 $83,208 $86,536GRAND TOTAL TIP FEES $1,235,248 $1,297,010 $1,348,891 $1,402,846 $1,458,960 HF &H Consultants, LLC7/26/2022
Attachment A

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TOWN OF HILLSBOROUGH
San Mateo County
1600 Floribunda Avenue
Hillsborough, CA 94010
7 PUBLIC HEARING

CITY COUNCIL MEETING
NOVEMBER 14, 2022

AGENDA STAFF REPORT
ITEM SUBJECT: PROPOSITION 218 HEARING: RESOLUTION ADOPTING MAXIMUM RATES

FOR WATER SERVICE CHARGES AND AUTHORIZING THE IMPLEMENTATION OF

REVENUE STABILIZATION FACTORS TO THE VOLUME CHARGE RATES, AS NECESSARY PURSUANT TO CEQA GUIDELINE 15378, 15273 AND PUBLIC RESOURCES CODE SECTION 21080(B)(8)
SUMMARY: The Town undertook a water cost of service and rate study to determine the rates necessary to determine the water rate adjustments and increases needed for the next five-year period to proportionately recover the Town’s cost of providing water service. The water cost of service and rate study was conducted by HF&H Consultants. If there is no majority protest, the City Council may consider adopting a resolution adopting the new maximum water rate schedule.

Based on HF&H’s evaluation, it has been determined that rate adjustments and increases are necessary for the Town’s water service charges to enable the Town to:
• Recover current and long-term projected costs of operating and maintaining the water system, including significant increases in the costs of the wholesale water the Town purchases from the SFPUC;
• Fund capital infrastructure improvements needed to repair and update the Town’s aging water system;
• Maintain the operational and financial stability of the water utility; • Comply with State mandated drinking water regulatory requirements; meet and comply with annual debt service requirements; and
• Avoid operational deficit and depletion of reserves.

Water Rate Cost-of-Service Study
The Town of Hillsborough is a mostly residential city located in San Mateo County, California. The Town operates and maintains a potable water distribution system to serve its residents and water users. It is a complex system with varying topography and 19 separate but interconnected pressure zones. The infrastructure network includes 108 miles of water mains, 18 water tanks, 14 water pump stations and over 7,500 various assets, such as water meters, fire hydrants, and valves. The San Francisco Public Utilities Commission (SFPUC) delivers treated wholesale water to the Town from its Hetch Hetchy system. This water is delivered through ten master meter locations from the SFPUC’s 42-inch and 60-inch transmission pipelines. The Town purchases treated water from the San Francisco Water Department’s (SFWD) Hetch-Hetchy system under a long-term supply contract last renewed on July 1, 2009, and amended December 1, 2018, with a 25-year term through June 30, 2034. From these connections, the Town pumps and delivers water to approximately 4,270 customers, of which nearly all are single-family residential. Several public -397-
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and private schools and three private clubs represent the balance of the customer base. The Town operates and maintains its own water distribution facilities. Most the Town’s water customers are billed on a bi-monthly basis.

The current water rate schedule was implemented and took effect on May 1, 2017, with annual reviews conducted each year to determine if the proposed rate increase included in the financial plan was necessary for that year. The first year of the series was implemented on May 1, 2017 and included various rate changes but were revenue neutral in total. An 8% increase was implemented on January 1, 2018. There were no adjustments in 2019 through 2020, and a 3% increase was implemented on January 1, 2022.

Rate Study Projection and Technical Report
The Town sent a Request for Proposal (RFP) for consulting services for a water Cost-of-Service rate study. After a competitive selection process, HF&H Consultants, LLC (HF&H) were determined to be the most qualified consultant based on their relevant experience in rate studies.

HF&H was awarded the contract and has prepared the Water Cost-of-Service Rate Study Report that calculates projected rates for a five-year planning period (2023-2027).

A five-year financial projection was prepared to analyze and establish a rate plan that supports the projected revenue requirement. The Town’s water rate revenues are used to fund provision of potable water to the customers of the Town’s water system. Projections and key assumptions are outlined in the HF&H Draft Water Cost-of-Service Rate Study Report.

Proposed Cost-of-Service Five-Year Water Rate Series
The Water Cost-of-Service rate study reviews and determines the rates necessary to fund the revenue requirement in the water enterprise commencing January 1, 2023, with increases proposed each January 1 thereafter through and including January 1, 2027. The study focuses on the funding necessary for provision of potable water to all Town customers.

Over the projection period, the Town’s revenue requirement is primarily driven by increases in water purchase costs and capital improvement expenditures.

The Town’s water supply source, SFPUC, intends to raise rates from $4.10 per hundred cubic feet (HCF) to $5.32 per HCF over the next five years. On July 1, 2022, wholesale rates increased from $4.10 to $4.75 per HCF, a 15.9% increase.

The Town’s capital improvement plans include an average annual expense of $3.2 million over the projection period, demonstrating the Town’s priority to continue to invest in its water system.

Improvements include water mains, storage and pumping, and higher elevation connection of the water system.

The State of California continues to experience drought conditions. In May 2022, Bay Area Water Supply & Conservation Agency (BAWSCA) issued reduced allocations to each member agency in order to reduce cumulative water purchase volume by 15% relative to FY 2019-20, and the Town is expected to reduce 16.2%. Drought considerations have been factored into the projection and fixed charges have been maintained at 30% of revenue to support revenue stability.

Revenue Stabilization Factors and Reserves
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The projection reflects the use of reserves for the first years of the rate series with reserves at target level by the end of the five years. The use of reserves in the early years is in part due to the assumption that consumption will reduce to the target levels for two years and then resume to historical level. In this way, the water enterprise reserves are reduced to temper the full rate impact to customers. Should the drought conditions vary from the assumptions in the rate study, the proposed Revenue Stabilization Factors can be used and applied to the corresponding volume charge rates so that the Town can maintain revenue neutrality during any stage of a water shortfall.

Pass-Through Adjustment
The proposed rate series includes authorization for “pass through adjustments” which would allow the Town to annually pass-through of adjustments to the SFPUC water purchase cost into its volume charge rates. Volume charge rates can be adjusted to track any difference between the SFPUC rates that were included in the model and actual rates adopted each year by SFPC, up or down. Any increase as a result of a pass-through adjustment would be in addition to the rates published in the Proposition 218 notice and will be implemented in accordance with Government Code section 53756.

Process for Implementation – Water Rates
The cost-of-service study calculated projected rate adjustments for a five-year planning period.

The rates would be effective starting January 1, 2023. The proposed rates cover the revenue requirements outlined in the HF&H Water Cost-of-Service Rate Study Report.

The proposed rate adjustments and increases have been reviewed and presented at public meetings held in August and September 2022. The Financial Advisory Committee reviewed the Water Rate Cost-of-Service study at its’ August 2, 2022 meeting and recommends the proposed rate study. The City Council conducted a public Study Session and reviewed the proposed Water Rate Cost-of-Service Study in detail on August 8, 2022. The City Council accepted the Proposition 218 procedures and the HF&H Water Rate Cost-of Service Report at the September 12, 2022 City Council meeting.

The adoption of any new or increase in any existing water service charges are subject to the public hearing, noticing and majority protest requirements of Proposition 218. The required 45-day Proposition 218 notice was mailed to the Town property owners and water customers on September 15, 2022 in accordance with California Constitution article XIII D, Section 6 (commonly referred to as “Proposition 218”). Information on the number of written protests to the proposed rates and charges received by the Town will be presented by the City Clerk at the conclusion of the public hearing.

The Proposition 218 process requires the Town to hold a public hearing on the proposed rates for the charges and to mail notice of the public hearing to property owners who are directly liable for the payment of water charges not less than 45 days before the public hearing to adopt the rates for the service fees or charges. They are subject to the protest proceeding wherein the adoption of any new or increase in any existing charge cannot be adopted if the Town receives written protests to the proposed fees and charges from a majority (50% + 1) of the record owners of parcels upon which the charges are proposed for imposition, or from tenants of such parcels who are directly liable for the payment of the proposed water charges, with only one protest counted per parcel. -399-
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If there is no majority protest, the City Council may consider adopting the resolution to adopt the proposed increased rates for water service charges.

FISCAL IMPACT: Revenues from the proposed water service charges are expected to increase in a range of 2% to 6% to cover the projected costs of providing water service over the five-year period.

ENVIRONMENTAL ISSUES: In accordance with the California Environmental Quality Act (CEQA) and the CEQA Guidelines, the increases in the water service charges are exempt from CEQA pursuant to Section 15378 and Section 15273 of the CEQA Guidelines and Public Resources Code Section 21080(b)(8) because (i) the increase charges are for the purpose of meeting operational and maintenance expenses of the aforementioned services and (ii) the charges constitute the creation of a funding mechanism/other governmental fiscal activity which does not involve any commitment to any specific project that may result in potential significant physical impact on the environment.

ATTACHMENTS:

1. Resolution

2. HF&H Rate Study Report
PREPARED BY: Jan Cooke, Finance Director
RECOMMENDATION:

1. Open the public hearing and receive comments;

2. Close the public hearing;

3. Acknowledge information on protest received and presented by the City Clerk at the conclusion of the public hearing; and

4. If majority protest does not exist, adopt the resolution adopting maximum water rates for the fiveyear period starting January 1, 2023. -400-
RESOLUTION NO. 22-

RESOLUTION OF THE CITY COUNCIL OF THE TOWN OF HILLSBOROUGH

ADOPTING MAXIMUM RATES FOR WATER SERVICE CHARGES

AND AUTHORIZING THE IMPLEMENTATION OF REVENUE STABILIZATION

FACTORS TO THE VOLUME CHARGE RATES, AS NECESSARY PURSUANT TO CEQA GUIDELINE 15378, 15273 AND PUBLIC RESOURCES CODE SECTION 21080(B)(8)
WHEREAS, the Town of Hillsborough (“Town”) provides water service to properties within the Town’s service area, and is authorized under Health and Safety Code section 5471 et seq. as well as other applicable law to impose fees and charges for such service; and
WHEREAS, the Town engaged HF&H Consultants, LLC (“HF&H”) to perform an independent cost of service and water rate study (“Study”) and evaluate the infrastructure, programs, and operations and maintenance costs of the Town’s water services and the rates necessary to recover the costs of those services for the next five years; and
WHEREAS, the Study, a copy of which is on file with the City Clerk, forms the basis for the water rates and charges to be adopted by the City Council pursuant to this resolution, indicates the need to increase the existing rates for the Town’s water rates and charges and to provide authority to adjust the rates and charges, when mandatory water conservation measures are in effect by a formula, (revenue stabilization factors), when necessary to safeguard against significant financial losses resulting from greater than projected reductions in water usage by Town customers to enable the water utility to meet its projected operations and maintenance costs, including debt service obligations, and capital repair and replacement costs; and
WHEREAS, the water rate structure has two customer categories—residential and non-residential—and two components—a water service charge and a volume charge; and
WHEREAS, the water service charge is a fixed bi-monthly charge calculated to recover a portion of the Town’s fixed costs of operating and maintaining the water system, and delivering water. The rates for the water service charge are established on the basis of the size of the meter (in inches) serving a property to recover the incremental costs of sizing and maintaining facilities to sufficiently deliver water to properties served by larger meters; and
WHEREAS, the volume charge is a variable charge imposed per unit of delivered water, with one unit equal to one hundred cubic feet (HCF), or 748 gallons, and is calculated to recover a portion of the Town’s fixed costs and its variable costs of providing water service; and
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ATTACHMENT 1
61236.02000\40798371.1
2 WHEREAS, the water rate structure is designed to proportionately allocate the cost of service to each parcel, will generate sufficient revenue to provide water service, and such revenues will be used only for providing water service to parcels within the Town; and
WHEREAS, the City Council determined to hold a public hearing to consider the adoption of the water rates and charges and revenue stabilization factors, and notices of the public hearing were mailed to the record owner of any parcel upon which the water rates and charges are proposed for imposition, and any tenant who is directly liable for the payment of water rates and charges (i.e., a customer of record who is not a property owner); and
WHEREAS, the notices were mailed on September 15, 2022, not less than 45 days prior to the public hearing on the proposed water rates and charges; and WHEREAS, the City Council held a public hearing on November 14, 2022, to consider the proposed water rates and charges, and at the public hearing the City Council considered the Study, heard all oral testimony and considered all written materials and written protests concerning the adoption and imposition of, and the proposed adjustments and increases to the rates for the water rates and charges and the revenue stabilization factors; and WHEREAS, at the close of the public hearing, the City did not receive written protests against the establishment and imposition of the proposed rates and charges and revenue stabilization factors from a majority of the record owners of the parcels upon which the rates and charges are proposed for imposition or tenants directly liable for the payment of the water rates and charges; and
WHEREAS, the City Council is authorized and has determined to approve the proposed water rates and charges and act accordingly on the matter.

NOW, THEREFORE, BE IT RESOLVED that the City Council of the Town of Hillsborough hereby finds that the matters set forth in the Recitals to this Resolution are true and correct statements and are made legislative findings and determinations of the City Council, and by this reference made an operative part of this Resolution.

BE IT FURTHER RESOLVED that the City Council has evaluated and hereby approves the maximum rates and charges for water service and the revenue stabilization factors to be applied to the rates of the volume charge as set forth below.

BE IT FURTHER RESOLVED that the Town may impose the water service charge on or after the dates and at or below the adopted maximum rates set forth for each year in the tables below. The rates for the water service charge are established on the basis of the size of the meter (in inches) serving a property. Each year the City Council will review the need to increase the rates for the water service charge based on the prevailing financial requirements of the water utility. The rate increases will only occur if it is determined that the need still exists and in no event will they exceed the maximum -402-
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3 rates set forth in the following table. The table below reflects the rates for the water service charge that will be billed bi-monthly. The finance director has the authority to change the billing from bi-monthly to monthly upon written notice to the ratepayers. The rates shall be in effect for services provided on and after January 1, 2023, and shall be similarly imposed and increased on or after each January 1 thereafter, through and including January 1, 2027, up to the maximum increased rates set forth below.

Proposed Service Charges
Service Size eff. 1/1/2023 eff. 1/1/2024 eff. 1/1/2025 eff. 1/1/2026 eff. 1/1/2027 3/4" $144.82 $153.50 $161.18 $167.63 $170.98
1" $171.34 $181.62 $190.70 $198.33 $202.29
1-1/2" $231.01 $244.87 $257.12 $267.40 $272.75
2" $310.58 $329.22 $345.68 $359.50 $366.69
3" $522.76 $554.12 $581.83 $605.10 $617.21
6" $1,424.52 $1,509.99 $1,585.49 $1,648.91 $1,681.88
8" $2,220.18 $2,353.40 $2,471.07 $2,569.91 $2,621.31
BE IT FURTHER RESOLVED that the Town may impose the volume charge on or after the dates and at or below the adopted maximum rates set forth for each year in the table below. The volume charge is a variable charge imposed per unit of delivered water, with one unit equal to one hundred cubic feet (HCF), or 748 gallons. The rates for residential customers consists of four tiers. The rates for non-residential customers are uniform. The table below reflects the rates for the volume charge that will be billed bimonthly. If the Town bills customers for water services monthly, the rates for the volume charge, and the volume of water within each tier applicable to residential customers, set forth below will be half.

Proposed Volume Rates
Breakpoints eff. 1/1/2023 eff. 1/1/2024 eff. 1/1/2025 eff. 1/1/2026 eff. 1/1/2027 Residential (hcf)
Tier 1 0-22 $6.39 $6.77 $7.11 $7.39 $7.54
Tier 2 23-44 $8.47 $8.98 $9.43 $9.80 $10.00
Tier 3 45-78 $13.61 $14.43 $15.15 $15.76 $16.07
Tier 4 79+ $18.40 $19.50 $20.48 $21.30 $21.72
Non-Residential uniform $8.99 $9.53 $10.01 $10.41 $10.62 BE IT FURTHER RESOLVED that, during locally declared water shortages, state mandated reductions in the level of potable water usage, or other natural disaster or event that requires reductions in water usage, the City Council may implement revenue stabilization factors to adjust the rates of the volume charge. The revenue stabilization factors to be implemented will be determined on the basis of the level of potable water use reduction required and the revenue required by the water utility to ensure that it recovers sufficient revenue to meet its expenditures and debt obligations. The City Council may terminate the revenue stabilization factor if no longer required. If -403-
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4 implemented by the City Council, the revenue stabilization factors will be applied to the rates of the volume charge.

The formula for the revenue stabilization factors is comprised of a conservation and a variable cost component. The conservation component adjusts the volume charge rates to account for the reduction in water usage caused by conservation. The variable component adjusts the rates for the volume charge to account for the Town’s specific water shortage conditions. The rates for the volume charge then in effect will be multiplied by the applicable revenue stabilization factor to derive the volume charge rates to be in effect until changed by the City Council. The maximum revenue stabilization factors are set forth in the table below:

Water Emergency Shortage Stage Stage 1 Stage 2 Stage 3 Stage 4 Stage 5 Stage 6 10% 20% 30% 40% 50% >50%
Residential Revenue Stabilization Factors 1.050 1.113 1.194 1.302 1.452 1.552 Non-Residential Revenue Stabilization Factors 1.059 1.135 1.237 1.381 1.603 1.764 Proposed Rates with Revenue Stabilization Factors Applicable to % Reductions 2023 Rates Stage 1 Stage 2 Stage 3 Stage 4 Stage 5 Stage 6 Residential
Tier 1 $6.39 $6.71 $7.11 $7.63 $8.32 $9.27 $9.91
Tier 2 $8.47 $8.90 $9.43 $10.11 $11.03 $12.30 $13.14
Tier 3 $13.61 $14.30 $15.16 $16.26 $17.72 $19.76 $21.12 Tier 4 $18.40 $19.33 $20.49 $21.97 $23.95 $26.71 $28.55 Non-Residential $8.99 $9.52 $10.20 $11.12 $12.42 $14.41 $15.86 BE IT FURTHER RESOLVED that the proposed rates are based on the rates imposed on the Town by the San Francisco Public Utilities Commission (SFPUC), the Towns’ wholesale water provider. SFPUC’s projected increases in its wholesale water rates on July 1 of each year from the current cost of $4.75 per HCF in 2022, $5.28 per HCF in FY 2023, $5.28 per HCF in 2024, $5.32 per HCF in FY 2025, and $5.32 per HCF in FY 2026. The Town is proposing to pass through any additional increases or decreases in the SFPUC wholesale water rates that are above or below these projected SFPUC wholesale water rates. A pass through will be implemented by increasing or decreasing the Town’s proposed Volume Charge rates by the amount of the SFPUC wholesale water rate increase or decrease in cents per HCF in excess of or below the projected SFPUC wholesale rate. Prior to increasing the volume charge as a result of a pass through of an increase in the SFPUC wholesale water rate above what is already included in the volume charge, the Town will send written notification to all customers at least 30 days prior to the effective date.

BE IT FURTHER RESOLVED that if any section, subsection, sentence, clause, phrase, or portion of this Resolution is for any reason held to be unconstitutional or otherwise invalid by the decision of any court of competent jurisdiction, such decision shall not affect the validity of the remaining portions of this Resolution. The City Council of the Town of Hillsborough hereby declares that it would have adopted the remainder of this ordinance, including each section, subsection, sentence, clause, phrase, or portion irrespective of the invalidity of any other article, section, subsection, sentence, clause, phrase, or portion.
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5 BE IT FURTHER RESOLVED that, in accordance with the California Environmental Quality Act (CEQA) and the CEQA Guidelines, the City Council has determined that the increases in the water service charges are exempt from CEQA pursuant to Section 15378 and Section 15273 of the CEQA Guidelines and Public Resources Code section 21080(b)(8) because: (i) the increased charges are for the purpose of meeting operational and maintenance expenses of the aforementioned services; and (ii) the charges constitute the creation of a funding mechanism/other governmental fiscal activity which does not involve any commitment to any specific project which may result in a potentially significant physical impact on the environment. The documents and materials that constitute the record of proceedings on which these findings have been based are located in the Office of the City Clerk located at 1600 Floribunda Ave., Hillsborough, CA 94010. The custodian for these records is the City Clerk.

BE IT FURTHER RESOLVED that this Resolution shall take effect immediately, and that all resolutions, ordinances, or administrative actions by the City Council, or parts thereof that are inconsistent or in conflict with any provision of this Ordinance are hereby superseded only to the extent of such inconsistency or conflict.

Mayor of the Town of Hillsborough
Attest: City Clerk
This resolution was adopted by the City Council of the Town of Hillsborough at its regular meeting held on the 14th day of November 2022, by the following vote of the members thereof:

AYES: Councilmembers _______________________________
NOES: Councilmembers
ABSENT: Councilmembers
ABSTAIN: Councilmembers ______
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September 16, 2022 – Final Report
Revised November 1, 2022

TOWN OF HILLSBOROUGH
Water Rate Cost-of-Service Study
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ATTACHMENT 2
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TOWN OF HILLSBOROUGH
1600 Floribunda Avenue
Hillsborough, CA 94010

WATER RATE COST-OF-SERVICE STUDY
November 1, 2022

HF&H CONSULTANTS, LLC
590 Ygnacio Valley Rd, Suite 105
Walnut Creek, CA 94596
© HF&H CONSULTANTS, LLC All rights reserved.
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-409-

HF&H CONSULTANTS, LLC
Managing Tomorrow’s Resources Today
201 North Civic Drive, Suite 230 Robert D. Hilton, CMC
Walnut Creek, California 94596 John W. Farnkopf, PE
Tel: (925) 977-6950 Laith B. Ezzet, CMC
Fax: (925) 977-6955 Richard J. Simonson, CMC
hfh-consultants.com Marva M. Sheehan, CPA
Robert C. Hilton, CMC
November 1, 2022
Ms. Jan Cooke
Finance Director
Town of Hillsborough
1600 Floribunda Avenue
Hillsborough, CA 94010
Subject: Water Rate Cost-of-Service Study – Final Report Dear Ms. Cooke:

HF&H is pleased to submit this cost-of-service report to the Town of Hillsborough (Town). The previous rate study was completed in 2017 during the Statewide water shortage emergency. The current study makes the following major recommendations.
• Revenue increases. Rate increases are recommended due to increases in the cost of purchased water from the San Francisco Public Utilities Commission (SFPUC) and the need to fund capital improvements, including ongoing repairs and replacements of aging infrastructure. In addition, rate increases are needed to allow the Town’s Water Fund to continue compliance with debt service requirements and to avoid operational deficits and depletion of reserves. Over the next five years, the revenue increases average approximately 4.6% per year. • Service Charge rate structure modifications. The proposed rates are adjusted to reflect a greater percentage of fixed than variable costs attributed to service charges. Higher overhead costs, distributed to every account regardless of meter size, account for the greater proportion of fixed costs.
• Volume Charge rate structure modifications. The proposed tiered rates are restructured based on projected single-family residential demand patterns, which results in adjustments to the current tier breakpoints. All non-single family residential customers are charged a uniform volume charge rate.
• Revenue Stabilization Factors. The revenue stabilization factors adopted during the last study are adjusted to reflect updated patterns of usage specific to Residential and Non-residential customer classes. Customer class revenue stabilization factors are applied to the corresponding volume charge rate(s) so that the Town can maintain revenue neutrality during any stage of water shortfall. • Pass-through Adjustment. We recommend that the Town incorporate annual pass-through adjustments of the SFPUC water purchase cost into its volume charge rates. Volume charge rates can be adjusted to track any difference between the SFPUC rates that were included in the model and the actual rates adopted each year by SFPUC.

The rates proposed in this report reflect the current and projected cost of providing service for the next five years. We greatly appreciate your assistance in developing the cost-of-service analysis. -410-
Ms. Jan Cooke
November 1, 2022

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Please note a revised version of the final report, issued November 1, 2022, is necessary to correct several references to “monthly charges” to “bi-monthly charges.” These non-substantive edits reflect the Town’s practice of billing residential customers on a bi-monthly basis. No rates or calculations have been changed in the analysis.

Sincerely,

HF&H CONSULTANTS, LLC
Rick Simonson, Senior Vice President
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Town of Hillsborough Water Rate Cost-of-Service Study
Final Report- Revised Table of Contents
HF&H Consultants, LLC Page i November 1, 2022

TABLE OF CONTENTS
I. EXECUTIVE SUMMARY.............................................................................................1 Background.................................................................................................................. 1 Revenue Requirements ................................................................................................. 2 Rate Structure.............................................................................................................. 5 Current Rate Structure............................................................................................. 5 Service Charges...................................................................................................... 5 Volume Charges...................................................................................................... 5 Revenue Stabilization Factors ................................................................................. 5 Proposed Volume Charge Rates ................................................................................ 5 Tiered Volume Charge Rates .................................................................................. 6 Uniform Volume Charge Rate.................................................................................. 7 Summary of Volume Charge Rates ......................................................................... 7 Proposed Service Charge Rates ................................................................................ 8 Summary of Service Charge Rates.......................................................................... 8 II. INTRODUCTION .....................................................................................................9 Study Purpose.............................................................................................................. 9 Study Process............................................................................................................... 9 Report Organization.....................................................................................................10 III. REVENUE REQUIREMENTS .................................................................................12 Demand Projections.....................................................................................................12 Revenue Requirement Assumptions and Projections .......................................................14 SFPUC Purchased Water Costs.................................................................................14 Operating Expenses................................................................................................15 Contributions to Capital Reserves.............................................................................15 Debt Service ..........................................................................................................17 Reserves.....................................................................................................................19 Operating Reserve Component ................................................................................19 Capital Improvement Reserve Component................................................................19 Revenue Increases ......................................................................................................19 Debt Coverage ............................................................................................................21 Reserve Fund Balance..................................................................................................21 IV. COST-OF-SERVICE ANALYSIS..............................................................................23 General Approach ........................................................................................................23 Base/Extra Capacity Method....................................................................................23 Customer Classes ...................................................................................................23 Rate Structure........................................................................................................24 Cost-of-Service Allocations ...........................................................................................25 Analytical Procedure ...............................................................................................26 Service Function Cost Classification.......................................................................26 Demand Service Function ......................................................................................27 Customer Service Function ....................................................................................28 Demand Service Function Allocation Factors .............................................................30 -412-
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Final Report - Revised Table of Contents
HF&H Consultants, LLC Page ii November 1, 2022
Base Day Demand .................................................................................................31 Average Day demand.............................................................................................31 Maximum Day demand...........................................................................................31 Maximum Hour demand .........................................................................................31 Load Factors ..........................................................................................................32 Service Function Allocations ....................................................................................33 Customer Class Allocations......................................................................................35 Summary Of Cost-Of-Service Allocations........................................................................36 V. RATE DESIGN........................................................................................................38 Volume Charge Design.................................................................................................38 Residential Volume Charge Rates.............................................................................38 Breakpoints Between Tiers.....................................................................................38 Rates Per Tier ........................................................................................................39 Non-Residential Volume Charge Rates......................................................................42 Volume Charge Rate Summary ................................................................................43 Revenue Stabilization Charge ..................................................................................43 Analysis..................................................................................................................44 Implementation.......................................................................................................47 Pass-Through Adjustment .......................................................................................48 Service Charge Design .................................................................................................49 Fixed And Variable Costs and Charges ...........................................................................51 VI. CUSTOMER BILL IMPACTS...................................................................................54 Bill Comparison............................................................................................................54 Bills Under Proposed and Approved Rates.................................................................54

APPENDIX

WATER RATE MODEL
Tab 1a. Summary
Tab 1b. Assumptions and Policies
Tab 2. Revenue Requirements
Tab 3a. Revenue Increase Summary
Tab 3b. Service Charge Revenue
Tab 3c. Volume Charge Revenue
Tab 4. Reserves Summary and Fund Balance
Tab 5. Capital Improvement Projects
Tab 6a. Debt Service
Tab 6b. SRF Cash Flow
Tab 7. Loading Factors
Tab 8. FY 2022-23 Allocations
Tab 9a. Service Charge Allocations
Tab 9b. Quantity Charge Calculations
Tab 10. Pass-Through Costs
Tab 11a. Revenue Stabilization Historic Use
Tab 11b. Revenue Stabilization Tables
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Town of Hillsborough Water Rate Cost-of-Service Study
Final Report - Revised Table of Contents
HF&H Consultants, LLC Page iii November 1, 2022

TABLE OF FIGURES
Figure I-1. Total Revenue Requirement Projections............................................................... 3 Figure I-2. Projected Revenue Increases .............................................................................. 4 Figure I-3. Projected Fund Balance...................................................................................... 4 Figure I-4. Revenue Stabilization Factors.............................................................................. 7 Figure I-5. Current and Proposed Bi-Monthly Volume Charge Rates ........................................ 8 Figure I-6. Current and Proposed Bi-Monthly Service Charge Rates ........................................ 8 Figure II-1. Summary of Rate Analysis ................................................................................11 Figure III-1. Per Capita Residential Water Use Comparison (FY 2020-21)...............................13 Figure III-2. Projection Assumptions...................................................................................14 Figure III-3. Historical and Projected SFPUC Wholesale Rate.................................................15 Figure III-4. Projected Capital Improvement Program ..........................................................17 Figure III-5. Current Debt-Funded Capital Projects...............................................................17 Figure III-6. Projected Debt Service Requirements...............................................................18 Figure III-7. Total Revenue Requirement Projections ...........................................................18 Figure III-8. Rate Increase Calculations ..............................................................................20 Figure III-9. Projected Revenue Increases...........................................................................20 Figure III-10. Debt Service Coverage..................................................................................21 Figure III-11. Projected Year-End Fund Balance ..................................................................22 Figure IV-1. Revenue Requirements by Function (FY 2022-23)..............................................29 Figure IV-2. Revenue Requirement by Service Function........................................................30 Figure IV-3. Service Level Demands and Load Factors..........................................................32 Figure IV-4. Pipeline Capacity Needed For Demand Service Levels.........................................32 Figure IV-5. Demand Related Allocation Percentages ...........................................................33 Figure IV-6. Service Function Allocations.............................................................................34 Figure IV-7. Allocations Factors ..........................................................................................35 Figure IV-8. Cost-of-Service Revenue Summary...................................................................35 Figure IV-9. Customer Class Allocations for Demand Service Levels .......................................36 Figure IV-10. Customer Class Projected FY 2022-23 Demands ..............................................36 Figure IV-11. Allocation Summary.......................................................................................37 Figure V-1. Breakpoint Locations – Residential.....................................................................39 Figure V-2. Incremental Unit Cost – Residential ...................................................................40 Figure V-3. Calculation of Proposed Volume Charge Rates – Residential.................................40 Figure V-4. Cost-of-Service Increments Per Tier – Residential ...............................................41 Figure V-5. Volume Charge Structure Comparison................................................................42 Figure V-6. Calculation of Non-Residential Uniform Volume Charge .......................................42 Figure V-7. Proposed Volume Charge Rates.........................................................................43 Figure V-8. WSCP Required Water Use Reductions by Class ..................................................44 Figure V-9. Calculation of Shortage Reductions by Stage and Customer Class.........................45 Figure V-10. Revenue Stabilization Factors by WSCP-Defined Shortage Stage.........................47 Figure V-11. Sample Rates With Revenue Stabilization Factors – 2023...................................48 Figure V-12. Service Charge Units of Service .......................................................................50 Figure V-13. Service Charge Unit Costs ...............................................................................50 Figure V-14. Proposed Bi-Monthly Service Charge Rates – FY 2022-23...................................51 Figure V-15. Proposed Bi-Monthly Service Charge Rates .......................................................51 Figure V-16. Balance of Fixed and Variable Costs and Charges..............................................52 Figure VI-1. Sample Customer Bills - Residential (with 1” Meter)...........................................54 Figure VI-2. Residential Bill Comparison..............................................................................55 -414-
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Figure VI-3. Non-Residential Bill Comparison .......................................................................56

GLOSSARY
AMI - automated metering infrastructure.

ARPA – American Rescue Plan Act
AWWA – American Water Works Association.

BAWSCA – Bay Area Water Supply and Conservation Agency.

Breakpoint – The volume of water per billing period separating tiers in tiered rate structures.

CWS – California Water Service Company.

CCF – Hundred cubic feet (see HCF below).

CIP - Capital Improvement Program.

COS - Cost of Service.

CY - Calenda Year
EMU – Equivalent Meter Unit.

FY - Fiscal Year.

FAC - Financial Advisory Committee.

Flat rates - Fixed charges per account that do not vary based on metered water use. Flat rates are found in unmetered water systems and in wastewater rates. Flat rates are not uniform rates (see below).

GCD – Gallons per Capita per Day, in reference to the amount of water used per person.

GPD - Gallons Per Day.

HCF - Hundred cubic feet of metered water; 748 gallons; a cube of water 4.6 feet on edge. One HCF per month is about 25 gallons per day.

Meter charges - One-time charges for the purchase of a meter. Meter charges are not Service Charges (see below).

O&M - Operating and Maintenance, in reference to the costs of running facilities.

PAYGo - Pay-As-You-Go, in reference to funding capital improvements from cash rather than from borrowed sources such as bonds or loans.

Revenue Stabilization Factors – Factors applied to Volume Charges to stabilize revenue to meet the Town’s water revenue requirement during periods of conservation when there are significant reductions in water usage, and hence in water revenues.

Service Charges – Fixed charges paid per account regardless of the amount of water used. The charge is proportionate to the capacity of the customer’s service, which is the capacity of the pipe connecting from the main to the meter, or the meter, whichever is smaller. Service Charges are not meter charges (see above). The Town’s Service Charges are called “Fixed Service Charges.” SFPUC - San Francisco Public Utilities Commission.

Uniform rates - Constant charges per unit of consumption that do not change depending on the amount used. Uniform rates are not flat rates (see above).

Volume Charges – The product of rates per unit of metered water consumption multiplied by a customers metered water use during the bi-monthly billing period.

WSCP – Water Shortage Contingency Plan.
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WSIP – Water Supply Improvement Plan, which is prepared by the SFPUC.

REFERENCES

1. New and Existing Source Capacity. 22 CCR § 64554.

2. Principles of Water Rates, Fees, and Charges. American Water Works Association Manual M1. 2017.

3. Annual Survey. Bay Area Water Supply and Conservation Agency. April 2022.

4. Urban Water Management Plan. Town of Hillsborough. July 2020.

5. Water Shortage Contingency Plan. Town of Hillsborough. July 2020.

6. California Water Code. Div. 1, Sec. 1, Ch. 3.3 Excessive Residential Water Use During Drought. Added August 2016.

ACKNOWLEDGEMENTS
City Council
Alvin Royse, Mayor
Christine Krolik, Vice Mayor
Marie Chuang, Councilmember
Sophie Cole, Councilmember
Laurence May, Councilmember
Financial Advisory Committee
Charles “Chick” Adams, Chair
Richard Kuersteiner, Member
Jeffrey Baxter, Member
Joel Friedman, Member
Michele Gutierrez, Member
Catherine Lee, Member
Tom Maloney, Member
D. Paul Regan, Member Emeritus
Town Staff
Ann Ritzma, City Manager
Jan Cooke, Finance Director
Paul Willis, Public Works Director
Rich Santiago, Assistant Finance Director
Legal Counsel
Lutfi Kharuf, Esq.

HF&H Consultants, LLC
Rick Simonson, C.M.C., Senior Vice President
Gabe Sasser, P.E., Senior Associate
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LIMITATIONS
This document was prepared solely for the Town of Hillsborough in accordance with the contract between the Town and HF&H and is not intended for use by any other party for any other purpose.

In preparing this study, we relied on information from the Town, which we consider accurate and reliable.

Our analysis is based on the best available information at the time of the study.

Rounding differences caused by stored values in electronic models may exist.

This document represents our understanding of relevant laws, regulations, and court decisions but should not be relied upon as legal advice. Questions concerning the interpretation of legal authorities referenced in this document should be referred to a qualified attorney. -417-

WATER RATE COST-OF-SERVICE STUDY
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I. EXECUTIVE SUMMARY

BACKGROUND
The Town operates and maintains a potable water distribution system to serve its residents and water users. It is a complex system with varying topography and 19 separate but interconnected pressure zones.

The infrastructure network includes 108 miles of water mains, 18 water tanks, 14 water pump stations and over 7,500 various assets, such as water meters, fire hydrants, and valves. The San Francisco Public Utilities Commission (SFPUC) delivers treated wholesale water to the Town from its Hetch Hetchy system.

This water is delivered through ten master meter locations from the SFPUC’s 42-inch and 60-inch transmission pipelines. From these connections, the Town pumps and delivers water to approximately 4,270 customers, of which nearly all are single-family residential.

The Town is currently facing the challenge of reduced water allocations in FY 2022-23. Following curtailment orders of water diversions, affecting SFPUC’s water supply, BAWSCA issued reduced allocations to each of the member agencies. Most recently in May, BAWSCA issued reduced allocations to each member agency in order to reduce BAWSCA-wide cumulative water purchase volumes by 15% relative to FY 2019- 20 volumes. For its share, Hillsborough is expected to reduce its purchased water by 16.2%. Drought considerations are factored into expense and revenue projections, and the recommended rates .

The water rates in this study were developed using rate-making principles set forth by the American Water Works Association in Principles of Water Rates, Fees and Charges (M1 Manual). This Manual’s cost-ofservice principles endeavor to distribute costs to customer classes (also referred to as classes) and to individual customers in proportion to the way customers use the water system. Pursuant to the M1 Manual, rate studies generally contain three elements: (1) a revenue requirements analysis, which determines how much revenue is needed from rates to recover a utility’s projected costs; (2) a cost-of-service analysis, which allocates the revenue requirements to the rate components;1 and (3) a rate design analysis, which determines any modifications that are required to align the rate structure with the cost of service.

Rate studies always include a revenue requirements analysis. A cost-of-service analysis is typically only conducted periodically. It is recommended that a cost-of-service analysis be conducted at least every five years to account for any material differences in the costs of providing service and in the water usage among customer classes, which will affect their respective shares of the cost of service. In the interval between cost-of-service studies, revenue requirements may be updated to determine how much to increase rates annually without modifying the rate structure. The Town has updated the revenue requirement and reviewed its water rates annually since the previous adoption of the cost-of-service study in 2017.

Since the previous cost-of-service analysis, changes in demand patterns among customer classes has occurred, which affects the factors that are used to allocate costs. The costs to which the allocation factors are applied also change. Hence, there will be differences between the previous and current cost-of-service analyses. Adjustments are made to reflect the differences and rates are set accordingly. 1 The cost-of-service analysis in the current study tailors the base/extra capacity method to account for unique conditions, circumstances, and factors related to the Town’s cost of providing water service, which the M1 Manual does not specifically address.
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The cost-of-service analysis proportionately allocates the revenue that is required from rates to the components of the rate structure and to the customer classes. Costs are classified corresponding to the function they serve. Each function’s costs are further allocated to each component of the rates in proportion to the level of service required by customers. The levels of service are related to volumes of peak and nonpeak demand, infrastructure capacity, and customer service. Ultimately, a cost-of-service analysis ensures that the rates yield charges that are proportional to the cost of providing service to each customer.

The following discussion summarizes HF&H’s findings and recommendations.

REVENUE REQUIREMENTS
The revenue requirements were updated to reflect projected customer demands and the costs associated with meeting those demands. The five-year projections are shown in Figure I-1.

Over the projected five-year study period, the Town’s revenue requirement is driven by increases to water purchase costs and capital improvement expenditures. The Town’s water supply source, SFPUC, intends to raise rates from $4.10 per hundred cubic feet (HCF)
2 to $5.32 per HCF over the next five years. On July
1 2022, wholesale rates increased from $4.10 to $4.75 per HCF. Increases to the purchase price and a projected rebound in water demand to pre-drought levels beginning FY 2024-25 compound the water purchase increases over the study period. The Town’s capital improvement plans include an average annual expense of $3.2 million over the projection period, demonstrating the Town’s priority to continue to invest in its water system. The bulk of project expenditures are planned to support water main replacement, as well as storage and pumping infrastructure. 2 HCF (Hundred Cubic Feet) = 748.052 gallons
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Figure I-1. Total Revenue Requirement Projections
Source: Figure III-8.

The rate and revenue increases are shown in Figure I-2. The rate increases would become effective every January 1, starting January 1, 2023.

In FY 2022-23, the percentage rate increase varies by charge because of the rate structure modifications.

The total revenue increases 3.0% because the rate adjustments are only in effect for six months. In subsequent years, the rate increases yield different revenue increases in some years because of mid-year adjustments and increase in projected water sales starting in FY 2024-25. The rate increases, beginning January 1, 2024, are applied as equal percentages across the board to all rates.

City Council has approved $1.2 million of American Rescue Plan Act (ARPA) funding to support the ”Highline” Water Pipeline development in FY 2022-23. These funds have been considered in the Town’s reserve fund balance and serve to reduce the rate adjustments proposed and shown in Figure I-2.

FY 2022-23 FY 2023-24 FY 2024-25 FY 2025-26 FY 2026-27
Water Purchases $5,690,991 $6,259,563 $6,914,499 $6,965,726 $6,969,460 Admin & O&M Costs $6,866,590 $6,607,136 $6,800,396 $6,991,616 $7,214,208 Debt Service $1,165,776 $1,214,298 $1,194,266 $1,177,068 $1,207,289 Capital Projects $3,197,787 $3,197,787 $3,197,787 $3,197,787 $3,197,787 Total 16,921,145 17,278,784 18,106,949 18,332,197 18,588,744

2.1% 4.8% 1.2% 1.4%
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Figure I-2. Projected Revenue Increases
Source: Figure III-9.

As shown in Figure I-3, the projected increases in the revenue requirements include the replenishment and maintenance of adequate reserves. The Town’s reserve policy states that the minimum Operating Reserve balance (red line) will equal 20% of annual O&M expenses. The bond reserve required under debt covenants of $375,000 is added to the 20% Operating Reserve. An additional allowance for capital projects is shown. This Capital Reserve component is recommended to provide working capital for pay-as-you-go construction projects. The sum of the Operating and Capital Reserve components equals the Target Balance (blue line). The projected fund balance shows the use of reserves over the first three years of the rate series, attributable to the assumption of a two-year drought that then lifts in year three. The use of reserves balances the need for charging larger rate increases to customers. The projected fund balance (green solid line) is replenished above the Target Balance by the end of the proposed five-year rate series, which indicates additional reserves that provide rate stabilization. With these proposed rate increases, debt service coverage remains strong and improves during the five-year period.

Figure I-3. Projected Fund Balance
Source: Figure III-11.

Effective Date Revenue Fiscal Year
Rate of Rate After Rate Increase in
Fiscal Year Adjustments Adjustments Adjustments Revenue Revenue at 2022 Rates $14,881,123
FY 2022-23 varies 1/1/2023 $15,327,561 3.0%
FY 2023-24 6.0% 1/1/2024 $16,247,211 6.0%
FY 2024-25 5.0% 1/1/2025 $17,848,986 9.9%
FY 2025-26 4.0% 1/1/2026 $19,357,093 8.4%
FY 2026-27 2.0% 1/1/2027 $19,934,010 3.0%
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RATE STRUCTURE
Current Rate Structure
The Town’s current rate structure is composed of three components: Service Charges, Volume Charges, and Revenue Stabilization Factors.

Service Charges
The Service Charges are fixed bi-monthly rates that are graduated in proportion to the capacity of the service provided. Some of the Service Charge rates vary by customer class. The Town’s Service Charges are called “Fixed Service Charges.” For ease of discussion, we refer to them as simply “Service Charges.” 3 Volume Charges
The Volume Charges are the product of rates per unit of metered water consumption multiplied times the metered water consumption during the bi-monthly billing period. Water is metered in “units” of hundred cubic feet (HCF or CCF) whereby one unit or HCF equals 748 gallons. Volume Charge rates are charged to two separate customer classes, single-family residential customers (Residential), and non-single family customers consisting of municipal and school customers (Non-Residential). For Residential customers, the Volume Charge rates consist of four tiers that charge higher rates as the level of consumption increases.

For the Non-Residential customer class (a small number of customers), the Volume Charge rate is a uniform rate4 per unit of metered water consumption.

Revenue Stabilization Factors
The Revenue Stabilization Factors are combined with the Volume Charges and are designed to ensure there is sufficient revenue to meet the Town’s water revenue requirement during periods of conservation when there are significant reductions in water usage, and hence in water revenues. These factors are not utilized to meet the projected revenue requirement in the rate study. If drought conditions vary from the assumptions used in the study and revenue is impacted, the factors can be implemented during the period needed to stabilize revenue.

All components of the rate structure were reviewed, including the composition of the customer classes, the structures of the Service Charges and Volume Charges, and the need for the Revenue Stabilization Charges.

Proposed Volume Charge Rates
About 68% of the current water rate revenue is generated by the Volume Charges. 3 The service is the connection between the public water system and the property served. The service includes the pipes, valves, and meter set (i.e., box, lid, yoke, meter, valve); in some cases, there are multiple meters. The service is installed at the property owner’s expense. After the meter is purchased and installed, customers pay Service Charge rates. It is the Town’s practice to charge a Service Charge for each meter. The terminology in this report refers to the capacity of the service and the capacity of the meter interchangeably. 4 This report distinguishes between uniform rates and flat rates. Uniform rates are constant charges per unit of consumption that do not change depending on the amount used. Flat rates are fixed amounts that do not vary based on metered water use. Flat rates are most commonly used in unmetered water systems and for residential wastewater rates.
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Tiered Volume Charge Rates
Approximately 96% of the customer water use is currently billed based on tiered Volume Charge rates (the remaining 4% is billed based on the uniform Volume Charge rate). All of this demand is from Residential customers. Based on changes in customer demands since the last cost-of-service analysis was completed for the Town, we recommend changes in the breakpoints between the tiers in the Volume Charge structure. The recommended bi-monthly breakpoints of 20, 44, and 70 HCF would shift to 22, 44, and 78 HCF.

The cost-of-service analysis represents the cost of providing service to increasing levels of demand ranging from the lowest demand that places the least peak demand on the system to the highest peak demand, the cost of which is nearly three times the Tier 1 rate.

We recommend revising the Revenue Stabilization Factors that could be applied to the Volume Charge rates during water shortages to compensate for changes in water use and varying levels of discretionary water use among the Residential and Non-Residential customer classes. There should be a Revenue Stabilization Factor corresponding to each reduction stage in the Town’s Water Shortage Contingency Plan, which contains conservation requirements for each stage of water shortage. The Revenue Stabilization Factors are designed only to offset the amount of revenue shortfall caused by conservation in effect in the Town during the specific water shortage stage, state mandated reductions in the level of potable water usage, or other natural disaster or event that results in a water shortage and an unforeseen drop in water demand. As such, they are revenue neutral and not a means to increase rate revenue beyond the amount that would have been generated under non-water shortage conditions.

Figure I-4 summarizes the Revenue Stabilization Factors that correspond to the water shortage stages in the Town’s Water Shortage Contingency Plan. The Volume Charge rates derived in this study accounted for changes to consumption driven by the current water shortage. However, if the Town experiences a water shortage beyond the level of consumption projected, the normal-year Volume Charge rates would be multiplied times the corresponding Revenue Stabilization Factor to determine the Volume Charge rates.

For example, if customers are required to cut back 20% (a Stage 2 water shortage) , a Revenue Stabilization Factor of 1.113 would be multiplied times the normal-year Volume Charge rates that are in effect for Residential customers(summarized in Figure I-4). If the water shortage stage increased to 40%, a Revenue Stabilization Factor of 1.302 would be multiplied times the normal-year Volume Charge rates. If the water shortage stage then decreased to 30%, the Revenue Stabilization Factor would be reduced from 1.302 to

1.194.

The formula5 for calculating Revenue Stabilization Factors corresponding to other levels of cutback is provided in Chapter V of this study. The Revenue Stabilization Factors only apply to the tiered and uniform Volume Charge rates and not to Service Charge rates, which are independent of water demand. 5 Following Figure V-9 of this study.
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Figure I-4. Revenue Stabilization Factors
Source: Figure V-12
Uniform Volume Charge Rate
Approximately 4% of customer water use is currently billed a Volume Charge at a uniform rate (i.e., the same dollar amount per hundred cubic feet regardless of how much water is used during the billing period). This class currently includes all non-single family residential customers and is denoted as Non-Residential in this study and in the Town’s water rates.

This small, heterogeneous customer class comprises a variety of demand patterns. In cases like this, we recommend continuing to charge a uniform rate, which is simple to derive and fairly stable. With such a small class of disparate water use patterns, tiered rates are not advised. The continued use of a uniform rate, therefore, is appropriate because customer usage patterns are not homogenous. We also recommend applying Revenue Stabilization Factors specific to the Non-Residential customer class during the declared water shortage stages, state mandated reductions in the level of potable water usage, or other natural disaster or event that results in a water shortage and an unforeseen drop in water demand.

Summary of Volume Charge Rates
Figure I-5 summarizes the current and proposed Volume Charge rates. The proposed rate analysis was derived using calendar year (CY) 2021 water demand patterns. Assumptions of total water use were reduced to coincide with the Town’s reduced purchase water allocation for CY 2022. More detail is discussed in the Demand Projections section of Section III of this report.

For the proposed, tiered Volume Charge rates for the Residential class, the number of tiers remains the same, however the breakpoints have been adjusted. The Tier 1 and Tier 3 breakpoints are increasing, thus, compressing the width of Tier 2. The expansion of Tier 3 results in larger incremental rate increases to Tier 3 and Tier 4 level customers than those customers with average or below-average use. Overall, the more water a Residential customer uses, the greater the increase to the Volume Charge portion of their bill.

The uniform Volume Charge rate for the Non-Residential customer class increases 8.9% in the first year to re-align with the cost-of-service. After the first year, the Non-Residential rate increases uniformly according to the recommended revenue increases of 6%, 5%, 4%, and 2%. -426-
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Figure I-5. Current and Proposed Bi-Monthly Volume Charge Rates Source: Figure V-7.

Proposed Service Charge Rates
Currently, about 32% of the rate revenue is generated by the current Service Charges. For a bill of average monthly water use, the Service Charge represents slightly more than one-third of the total bill.

The current rates for the Service Charges have been set according to the capacity of the service, regardless of what class of customer is connected. The capacity provided by services (i.e., water meters) of the same size is the same regardless of how much water is used and for what purpose. We recommend the Town continue with this same structure. Adjustments in CY 2023 are recommended to re-align the Service Charge rates with the cost-of-service, which would shift rate revenues so that the proposed Service Charges generate 30% of the overall rate revenue, which provides adequate revenue stability when combined with the relatively fixed revenue from non-seasonal water demand.

Note that the recommended Revenue Stabilization Factors only apply to the Volume Charge rates. Revenue from Service Charges is not influenced by water demand and is therefore unaffected by conservation or fluctuations in customer demand.

Summary of Service Charge Rates
Figure I-6 summarizes the current and proposed rates to re-align with the cost of service. The “Proposed” rates are calculated for adoption January 1 of each year.

Figure I-6. Current and Proposed Bi-Monthly Service Charge Rates Source: Figure V-15.

Current Current Proposed
Breakpoints Rate Breakpoints CY 2023 CY 2024 CY 2025 CY 2026 CY 2027 Residential (hcf) (hcf)
Tier 1 0-20 $6.16 0-22 $6.39 $6.77 $7.11 $7.39 $7.54
Tier 2 21-44 $7.82 23-44 $8.47 $8.98 $9.43 $9.80 $10.00 Tier 3 45-70 $10.74 45-78 $13.61 $14.43 $15.15 $15.76 $16.07 Tier 4 71+ $16.40 79+ $18.40 $19.50 $20.48 $21.30 $21.72 Non-Residential uniform $8.26 uniform $8.99 $9.53 $10.01 $10.41 $10.62 Current
Proposed
Service Size Charge CY 2023 CY 2024 CY 2025 CY 2026 CY 2027 3/4" $141.48 $144.82 $153.50 $161.18 $167.63 $170.98
1" $172.32 $171.34 $181.62 $190.70 $198.33 $202.29
1-1/2" $241.66 $231.01 $244.87 $257.12 $267.40 $272.75
2" $334.13 $310.58 $329.22 $345.68 $359.50 $366.69
3" $580.73 $522.76 $554.12 $581.83 $605.10 $617.21
6" $1,628.74 $1,424.52 $1,509.99 $1,585.49 $1,648.91 $1,681.88 8" $2,553.45 $2,220.18 $2,353.40 $2,471.07 $2,569.91 $2,621.31 -427-
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II. INTRODUCTION

STUDY PURPOSE
The purpose of this study is to conduct a cost-of-service analysis that will determine rates that proportionally recover the cost of providing the Town’s water service. Toward that end, the cost-of-service analysis determines how much revenue should be generated by each component of the rate structure so that rate payers within each customer class are charged for their proportionate share of the cost of providing service on a parcel basis. The cost-of-service analysis is tailored specifically to the Town’s customer classes and the rate structures that are appropriate for each class.

STUDY PROCESS
HF&H Consultants (HF&H) completed a water rate study for the Town in December 2016. At a public hearing on March 13, 2017, the City Council adopted the recommended rates from the study. The study projected the Water Enterprise’s operating and capital expense projections, for a five-year planning period, and recommended restructuring the Town’s fixed service charges and tiered volume charges for water service. The restructuring included reducing the size and number of tiers for Residential customers from five tiers to four tiers.

The Town conducted annual reviews of the adopted rate increases. The first two (of five) increases were implemented, taking effect on May 1, 2017 (revenue neutral adjustment) and then again on January 1, 2018. Annual rate reviews in 2019-2021 recommended forgoing the original rate increase. To summarize, the rate increases were planned as follows (and implemented where noted):
• May 1, 2017 – various rate changes; revenue neutral in total (implemented) • January 1, 2018 – 8% (implemented)
• January 1, 2019 – 8% planned increase; no increase was implemented • January 1, 2020 – 5% planned increase; no increase was implemented • January 1, 2021 – 5% planned increase; no increase was implemented Previously adopted rate increases that were not implemented were due to savings from anticipated SFPUC wholesale rate increases that were ultimately not adopted by the SFPUC.

HF&H conducted an annual rate update last year to assess the need for a rate increase in 2022. A 3% increase was recommended and adopted, effective January 1, 2022.

The Town requested HF&H to update the cost-of-service study for 2023 to ensure that rates continue to reflect the current cost of providing water service. A comprehensive rate study comprises three steps: 1) revenue requirement projections; 2) cost-of-service analysis; and 3) rate design. Revenue requirement projections identify how much revenue is needed from rates. The cost-of-service analysis determines how much of the revenue should come from the fixed and variable charges. This step also confirms the proportionate amount to be paid by each customer class. The final step, rate design, establishes the structure of the fixed service charges and the variable volum charges for each customer class. -428-
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The cost-of-service analysis was conducted following industry practices promulgated by the American Water Works Association.6 At the outset of the analysis, the types of customer classes were reviewed, as were the types of rate structures that are appropriate to the Town’s customer class.

REPORT ORGANIZATION
Figure II-1 diagrams the rate-making analysis beginning with the revenue projections, followed by the cost-of-service analysis, rate design, and analysis of bill impacts. The diagram identifies the key figures in the report to guide the reader to specific parts of the analysis.

An appendix contains a copy of the rate model. A Glossary of technical terms and acronyms is provided following the Table of Contents. The major documents cited in this report are listed in the References or are on file with the Town.
6 Principles of Water Rates, Fees, and Charges. American Water Works Association Manual M1. 2017. -429-
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Figure II-1. Summary of Rate Analysis

MULTI-YEAR REVENUE REQUIREMENT PROJECTIONS

COST-OF-SERVICE ALLOCATIONS
FY 2022-23 Revenue Requirement

RATE DESIGN
Monthly Billing Period
Five-year projections
FY 2022-23 to FY 2026-27
Fig. III-7
Classify costs by function
Demand
Water supply
Transmission
Pumping
Storage
Distribution
Service
Fig. IV-1
Allocate demand functions to
service levels
Demand
Base Day
Average Day
Maximum Day
Maximum Hour
Service
Account
Capacity
Fig. IV-6
Develop allocation percentages
for demand service levels
Base Day
Average Day
Maximum Day
Maximum Hour
Fig. IV-5
Allocate demand service levels
to customer categories
Non-Residential
Residential
Fig. IV-9
Develop allocation percentages
for customer categories
Fig. IV-8
Volume Charges - Residential
Four tiers
0 - 22 hcf $ 6.39/hcf
23 - 44 hcf $ 8.47/hcf
45 - 78 hcf $ 13.61/hcf
Over 78 hcf $18.40/hcf
Fig. V-3
Volume Charges - Non-Residential
Uniform untiered
$8.99/hcf
Fig. V-6
Service Charges - Per Account
3/4" $ 144.82
1" $ 171.34
1 1/2" $ 231.01
2" $ 310.58
3" $ 522.76
6" $ 1,424.52
8" $ 2,220.18
Fig. V-14
Bill Impacts - Residential
Low
Average
High
Very high
Fig. VI-1
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III. REVENUE REQUIREMENTS
The revenue requirements analysis starts by determining the FY 2022-23 revenue requirements based on the budgeted O&M and capital expenditures. Revenue requirements for each fiscal year are then projected over a five-year planning period.7 Revenue increases needed to cover the projected revenue requirements are then determined. Over a five-year period, it is possible to derive a relatively smooth series of rate increases that minimize annual fluctuations.

DEMAND PROJECTIONS
The revenue requirements projected during the study period are based on the Town’s unique circumstances. Projected customer demand is particularly significant because it affects certain variable expenses such as the cost of purchased water as well as the revenue from water sales. Customer demand depends on the types of customers, the nature of their demands, the trendsin their water use, growth, and climate, among others.

The Town consists almost entirely of single-family residences built on large parcels. There are no significant residential developments in process at the time of this writing. The Town has public schools, private schools, a golf course,small public parks, and a Caltransrest stop. The Town has no commercial, industrial, or institutional parcels planned for new development. The service area is largely developed, and population growth is expected to be very low. For purposes of this rate study, it is assumed that there will be no growth in accounts or in water demand.

Water service varies from customer class to customer class. For the Residential class, most indoor water use is essential and fairly constant during the year. There is very little seasonal variation in indoor water use compared to outdoor water use, which in the Town’s case is the majority of the Residential water use.
8 Most of the outdoor water use is for landscape irrigation. Irrigation is largely a discretionary use of water compared with indoor water use.9 People have more choice in deciding how much vegetation to irrigate, the type of vegetation, the manner of irrigation, the duration of irrigation, and when to irrigate. Irrigation varies by season, which in the Town’s case is accentuated by its dry summer climate.

Figure III-1 shows that the Town’s water use per capita of 219 GCD in FY 2020-21 was 3.3 times the 65.8 GCD average for the collective SFPUC wholesale customers. For reference, the Town’s previous water use per capita as of FY 2014-15 was 231 GCD. Thus, some level of conservation has occurred since the previous cost-of-service study.
7 Demand projections are a key driver in determining both expenditures and revenues from water sales. 8 CY 2021 billing data indicate that seasonal water use was 53% of total annual demand (i.e., more than half). However, that data may have been influenced by conservation. 9 Arguably, people also exercise discretion with their indoor water usage, as reflected by the number of residents in each single-family home.
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Figure III-1. Per Capita Residential Water Use Comparison (FY 2020-21) Source: BAWSCA Annual Survey FY 2020-21.

The Town is currently facing the challenge of reduced water allocations in FY 2022-23. Following curtailment orders of water diversions, affecting SFPUC’s water supply, BAWSCA issued reduced allocations to each of the member agencies. Most recently in May 2022, BAWSCA issued reduced allocations to each member agency in order to reduce cumulative water purchase volumes by 15% relative to FY 2019-20 volumes. For its share, Hillsborough is expected to reduce its purchased water by 16.2%.

Water demand projections are an important consideration in the study, as the cost to purchase water is 36% of the annual costs to operate the Town’s water system. Assumptions of projected water use directly affect the level of revenue increase needed. Over the study period, the Town has assumed water demand will rebound after back-to-back years of conservation ending in FY 2024-25.

Water demand projections used in this study are shown in Figure III-2. If demand over the next five years is higher than projected, the Town may find that it does not need to implement the proposed maximum rates in any given year or years. The Town does not have to increase the proposed rates if they are not needed and can adopt lower rates without undergoing a full Proposition 218 notification and protest hearing process. If, on the other hand, demand continues below projected level of demand, the Town would run a deficit, the consequences of which are problematic. The Town’s reserves could be depleted unless and until it increased rates that are higher than the proposed maximum rates.10 10 If a reduction in demand is the result of mandatory water use restrictions during a declared water shortage stage, the Town may offset revenue losses by implementing the Revenue Stabilization Factors. -432-
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REVENUE REQUIREMENT ASSUMPTIONS AND PROJECTIONS
Expense projections combined with contributions to reserves become the revenue requirements. The Town’s operating and capital budgets were relied on for the majority of FY 2022-23 expenses in the firstyear revenue requirement. The assumptions shown in Figure III-2 were used to project revenue requirements through FY 2026-27.

Figure III-2. Projection Assumptions
Source: Model tab 1b. Assumptions & Policies
SFPUC Purchased Water Costs
The Town is entirely reliant on the SFPUC for its water supply. As a member of the Bay Area Water Supply and Conservation Agency (BAWSCA), the vast majority of the Town’s water supply expenses are driven by two usage-based rates: 1) SFPUC’s annual rate and 2) BAWSCA’s bond surcharge rate11 . Figure III-3 plots the SFPUC wholesale rates and BAWSCA surcharges, since FYE 2008. SFPUC’s annual rate (shown in dark blue) has not changed since FYE 2017. This is a primary reason that the Town did not implement previously adopted rate increases under the previous rate study. However, SFPUC provided notice to increase the current rate of $4.10 per HCF to $4.75 per HCF beginning July 1, 2022. Further, the SFPUC’s notice forecasted rates would increase to $5.32 per HCF by FYE 2027, an additional 12% increase to the July 1, 2022 rate increase.

Beginning FYE 2014, the BAWSCA bond surcharge rate (shown in light blue) was added so that each agency could pay its proportionate share of debt issuance based on purchased water have increased as bonds have been sold to fund the WSIP projects. The bond surcharge rate has been assumed to remain flat until FYE 2028 in the revenue requirement projections.

Since 1984, the SFPUC’s wholesale rates have been set in compliance with rate-making agreements. The agreements contain provisions that annually reconcile projected expenses and demands with actual expenses and demands. The difference is rolled forward into the ensuing year’s rates. In this way, both the SFPUC and the 26 wholesale customers are protected. However, it also means that the annual adjustment 11 The SFPUC charges a fixed service charge, currently 2% of total purchased water costs, which is not impacted by the amount of water the Town purchases
FY 2022-23 FY 2023-24 FY 2024-25 FY 2025-26 FY 2026-27
Assumptions
(1) General Inflation Budget 2.5% 2.5% 2.5% 2.5%
(2) Salaries & Benefits Budget 4.5% 4.5% 4.5% 4.5%
(3) Interest on Earnings Budget 0.5% 0.5% 0.5% 0.5%
(4) Non-rate Revenues Budget 0.0% 0.0% 0.0% 0.0%
(5) SFPUC Water Rates ($/HCF) $4.75 $5.28 $5.28 $5.32 $5.32 (6) SFPUC Service Charge 2.5% 2.5% 2.5% 2.5% 2.5%
(7) SFPUC Water Purchases (HCF) 1,110,662 1,110,662 1,239,171 1,239,171 1,239,171 (8) % Change in Demand (cumulative) -10.4% 0.0% 11.6% 0.0% 0.0% (9) SFPUC Water Purchase Losses 4.0% 4.0% 4.0% 4.0% 4.0% (10) SFPUC BAWSCA Bond Surcharge ($/HCF $0.40 0.0% 0.0% 0.0% 0.0% (11) Construction Cost Inflation Budget 2.5% 2.5% 2.5% 2.5% -433-
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can either increase or decrease rates, which leads to some short-term volatility in the wholesale rates that can accentuate annual rate fluctuations.

Figure III-3. Historical and Projected SFPUC Wholesale Rate Source: BAWSCA data.

The rising SFPUC rates and current BAWSCA bond surcharge rate were built into the revenue requirement projections. The cost of SFPUC water is 36% of the annual revenue requirement – the largest single item.

The impact of these significant increases in wholesale rates on the revenue requirements over the study period cannot be overstated.

Operating Expenses
This cost category includes direct salaries and benefits, materials and services, contract services, and overhead. These expenses are projected to increase gradually at about 3% during the projection period, according to Town estimates.

Contributions to Capital Reserves
Rates need to generate enough revenue to cover unfunded annual operating and capital expenses. However, rates are not set to exactly match cash expenditures because the timing of cash expenditures can fluctuate. If rates were set to exactly match expenditures, rates would also fluctuate. To avoid increasing and decreasing rates from year to year, reserves are used to cover the difference so that rate increases are smooth and gradual. In order to maintain adequate reserves to help modulate rates, the revenue requirements include contributions to reserves. The contributions to reserves represent additional revenue from rates that is needed to maintain adequate operating and capital reserves. -434-
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The Town’s current level of reserves has enabled it to maintain a strong credit rating, which reduces its financing costs.12 The Town uses its reserves to stabilize rates against annual fluctuations in capital expenditures, variances between projected and actual water demands, and unanticipated expenditures and other expenditure variances. In some years, there is surplus revenue that is available to replenish reserves.

In other years, reserves are drawn down to cover the cost of service.

Rates are set to generate a constant level of revenue to maintain reserves at adequate levels. At the same time that revenue from rates is added to reserves, reserves are drawn down to fund capital projects whose costs vary from year to year. In effect, reserves are used to buffer rates from varying levels of capital expenditures and unforeseen variances in operating expenditures. For the most part, however, the variances are due to capital projects (see Figure III-4).

Even though the Town has constructed facilities to provide water service, these facilities will depreciate and eventually need to be replaced. It is unrealistic to think that the system has already been built and paid for and that there will be no future capital costs. The Town has in place a Water Master Plan and in 2014 prepared an updated thirty-year Capital Improvement Project Plan to prioritize and address longterm capital projects. Based on this Plan, the revenue requirement projections show an increase in the contribution to reserves in FYE 2023 needed to fund the capital improvement program, which contains approximately $16.5 million in cash-funded capital projects over the next five years as shown in Figure III4. An average annual expenditure of $3.2 million is the amount that is contributed to reserves from revenue requirements beginning in FYE 202313.

City Council has approved $1.2 million of American Rescue Plan Act (ARPA) funding to support the ”Highline” Water Pipeline development in FY 2022-23. This develop includes the Darrell Tank Improvement projects specified in Figure III-4. These funds have been considered in the Town’s reserve fund balance and serve to reduce the overall amount of capital improvement expenditures to be funded via rate revenues. 12 See Figure III-11 and adjoining text for additional discussion of the policies and assumptions related to minimum and target balances for the reserves.
13 Refer to the note in Figure III-4 for an explanation of why the reserve contribution varies from the five-year average. -435-
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Figure III-4. Projected Capital Improvement Program
Source: Model tab 5 CIP. Note: For purposes of analysis a 7-year average of $3.1 million was assumed as the escalated, annual PAYGo CIP in the cost-of-service analysis. The Town assumed $2.5 million per year would be spent toward PAYGo CIP in FY 2027-28 and FY 2028-29.

Debt Service
The Town has four outstanding bond obligations totaling $21.9 million that the Water Fund contributes to. The annual debt service is approximately $2.1 million of which the Water Fund’s share is $1.1 million.

The bonds funded the projects summarized in Figure III-5. The majority of these capital projects are storage and distribution facilities that are needed to meet peak demands. Although these projects were constructed and are in service, the debt service on these bonds will not be repaid for many years. Thus, it is not the case that the system has been built and already paid for.

Figure III-5. Current Debt-Funded Capital Projects
For ratemaking purposes, the Town has assumed future issuance of debt to fund the “Highline” Water pipeline project. The “Highline” Water Pipeline is a noteworthy project that will provide an alternative connection to the SFPUC at a higher elevation. When completed, the project is expected to reduce pumping costs and provide a more reliable source of water for emergencies (e.g., earthquake, fire). While the cost will be shared among multiple agencies, the term of the cost sharing agreement remains undetermined. The analysis assumes the Town will fund $6.5 million of the overall project. The financial analysis assumes the Town receives a low-interest State Revolving Fund (SRF) loan, payable over a 30-year term, Capital Improvement Projects FY 2022-23 FY 2023-24 FY 2024-25 FY 2025-26 FY 2026-27 5-Year Total PAYGo-Funded Projects $0
Demolish Forrestview Tanks #1 and #2 $449,500 $449,500 $899,000 Demolish Major Hayes Tank and Piping $253,500 $253,500
Water Main Replacement Program $1,000,000 $1,000,000 $1,000,000 $1,000,000 $1,000,000 $5,000,000 Darrell Pump Line Rehab and Replacement $1,000,000 $1,600,000 $2,600,000 Darrell Tank Improvements $3,650,000 $3,650,000
Clark Concar Pump Station Generator $900,000 $900,000 $900,000 $2,700,000 SCADA Improvements $75,000 $75,000 $75,000 $75,000 $75,000 $375,000 Future Projects $0
Total $4,725,000 $2,424,500 $3,678,000 $3,575,000 $1,075,000 $15,477,500 ENR Constrution Cost Index adjustment 1.025 1.051 1.077 1.104 1.131 $5 Escalated PAYGo Funded CIP $4,843,125 $2,547,240 $3,960,804 $3,946,131 $1,216,264 $16,513,564 Average Annual CIP $3,302,713
Debt-Funded Projects $0
"Highline" Water Pipeline $100,000 $500,000 $1,700,000 $3,000,000 $700,000 $6,000,000

1.025 1.051 1.077 1.104 1.131
Escalated Debt-Funded CIP $102,500 $525,313 $1,830,714 $3,311,439 $791,986 $6,561,951 0 Total Escalated CIP $4,945,625 $3,072,553 $5,791,518 $7,257,570 $2,008,250 $23,075,515 Category ECE 2012 Series 2006A Series 2003A Series 2000 A&B Total Water Distribution System $2,700,000 $2,680,000 $398,000 $5,778,000 Water Storage System $3,000,000 $2,350,000 $5,350,000
Tank Replacement/Upgrades $908,700 $2,770,000 $3,678,700 Misc Improvements $500,000 $690,000 $1,190,000
$908,700 $6,200,000 $5,720,000 $3,168,000 $15,996,700
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which results in annual debt service payments of approximately $285,000 per year. Because payments on the SRF loan will not begin until the project is completed in FY 2026-27, the first payment would begin in FY 2027-28. The current debt service is summarized in Figure III-6.

Figure III-6. Projected Debt Service Requirements
Note: Assumed future debt service to fund the Town’s portion of the “Highline” Water Pipeline project assumed to begin FY 2027-28.

The major expenses described above that comprise the revenue requirements are shown in Figure III-7.

It can be seen that cost of wholesale water is the largest individual cost among these four cost categories.

In the Town’s case 36% of its revenue requirement is for the cost of water, which will vary in direct proportion to demand.

Figure III-7. Total Revenue Requirement Projections
Source: Model tab 2. Revenue Requirement; data from Town’s FY 2022-23 Budget.

FY 2022-23 FY 2023-24 FY 2024-25 FY 2025-26 FY 2026-27
Total Existing Debt Service $1,165,776 $1,214,298 $1,194,266 $1,177,068 $1,207,289 FY 2022-23 FY 2023-24 FY 2024-25 FY 2025-26 FY 2026-27
Water Purchases $5,690,991 $6,259,563 $6,914,499 $6,965,726 $6,969,460 Admin & O&M Costs $6,866,590 $6,607,136 $6,800,396 $6,991,616 $7,214,208 Debt Service $1,165,776 $1,214,298 $1,194,266 $1,177,068 $1,207,289 Capital Projects $3,197,787 $3,197,787 $3,197,787 $3,197,787 $3,197,787 Total 16,921,145 17,278,784 18,106,949 18,332,197 18,588,744

2.1% 4.8% 1.2% 1.4%
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RESERVES
Reserves are required to stabilize rates and to provide for contingencies. Reserves can be drawn on in years when the Town’s Water Fund experiences above average costs and augmented during years when costs are below average. The Town’s reserves are used for operating and capital purposes. Each of these purposes has its own requirements that lead to minimum and optimum target balance. Rates must be set so that the fund balance achieves the target balance.

Operating Reserve Component
The operating component of the reserves provides working capital for month-to-month O&M expenses.

With sufficient working capital, the Town can operate without cash flow constraints. The Town’s reserve policy states that the minimum operating reserve balance will equal 20% of annual O&M expenses. As in past years, a bond reserve of $375,000 was added to this amount. This reserve policy tracks with HF&H’s recommendation of a minimum operating reserve that is equal to at least 1.5 times the billing frequency (or three months in the Town’s case). The Town’s reserves should never drop below this minimum balance.

Capital Improvement Reserve Component
The capital improvement component of the reserves provides cash funding for the Town’s capital improvement program. The fund balance needs to be sufficient to pay contractors and purchase materials without delays caused by cash flow limitations. HF&H has assumed a seven-year average annual amount for this reserve component. The cash-funded capital amount, $3,197,787, was derived in Figure III-7 and accounts for planned capital expenditures between FY 2022-23 and FY 2028-29.

REVENUE INCREASES
Rates are set to generate sufficient revenue to cover annual expenses. In addition, rates are set to maintain adequate reserves. The revenue from rates does not need to match each year’s revenue requirement.

For example, the annual increases in the revenue requirements shown at the bottom of Figure III-7 are different from the revenue increases in Figure III-8. Annual fluctuations in revenue requirements are typically uneven because they are harder to control, whereas it is desirable to have smooth annual increases in rates. The annual differences cause the fund balance to fluctuate from year to year.

Revenue increases were derived to cover the Town’s Water Fund costs and to maintain adequate reserves. Figure III-9 summarizes the projected revenue from current rates, annual revenue requirements, annual variances, and the rate increases necessary to cover the Town’s costs. -438-
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Figure III-8. Rate Increase Calculations
Rate increases account for rate revenue, growth, and future revenue requirements. The revenue requirement (shown in greater detail in Figure III-7) increases due to a rebound in water demand and increasing water supply costs. Also, the Town’s capital improvement program projects a higher average annual level of expense than the historic average of $2.0 million. Figure III-9 summarizes the resulting annual increases in rates and revenues from the proposed Service and Volume Charge rates. In FY 2022-23, the percentage rate adjustment varies by charge because of the rate structure modifications. The fiscal year increase in revenue and rate adjustment columns typically do not match. This is the result of two factors. First, the Town implements rate increases mid-fiscal year. Thus, any changes to the rates apply to six months instead of the whole fiscal year period. In effect, the rates of one calendar year are made up of rates set in adjoining fiscal years. Second, fluctuations in projected water use result in larger revenue increases than the given fiscal year rate adjustment. Beginning FY 2024-25, the rate increases are applied as equal percentages across the board to all rates.

Figure III-9. Projected Revenue Increases
Source: Model tab 3. Revenue Increase
It is assumed that the rate increases will occur January 1 of each year. Hence, the revenue from each year’s rate increase is generated for half of the fiscal year.

Projected
FY 2022-23 FY 2023-24 FY 2024-25 FY 2025-26 FY 2026-27
Revenue from Current Rates $14,881,123 $14,881,123 $16,045,751 $16,045,751 $16,045,751 Revenue Requirement ($16,921,145) ($17,278,784) ($18,106,949) ($18,332,197) ($18,588,744) Non-Operating Revenue $56,500 $56,500 $56,500 $56,500 $56,500 Net Revenue Requirement ($16,864,645) ($17,222,284) ($18,050,449) ($18,275,697) ($18,532,244) Revenue Surplus/(Shortfall) ($1,983,521) ($2,341,160) ($2,004,698) ($2,229,946) ($2,486,493) Proposed Rate Increase 6% 6% 5% 4% 2%
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The rates are derived in Chapter V. With these rate increases, the Water Fund is able to cover its annual O&M and capital expenses, maintain adequate debt service coverage, and maintain adequate reserves, as further discussed below.

DEBT COVERAGE
Figure III-10 shows the debt service coverage provided by the revenue increases in Figure III-9. The Town is required to maintain a minimum coverage ratio of 1.20. A higher ratio provides a greater margin of safety to bondholders and enhances the credit rating on bonds. This is particularly true with water utilities whose revenues are vulnerable to periods of conservation, such as the Town recently experienced. The Town’s long-term rating is currently AAA with S&P and AA+ with Fitch Ratings, which is partially attributable to a coverage ratio that is well above the minimum required by the bonds. Again, a higher credit rating benefits rate payers by reducing the cost of borrowing.

Figure III-10. Debt Service Coverage
Source: Model tab 6a. Debt Service

RESERVE FUND BALANCE
Figure III-11 shows the annual fluctuations (solid green line) in the fund balance that are caused by the differences between the revenue requirement and revenue from rates with the rate increases; the dashed green line is the projected fund balance without rate increases. The revenue and rate increases in Figure III-9 were derived to achieve the target reserves balance by FY 2026-27. Maintaining a fund balance close to the present level helps to protect the Town’s credit rating, which lowers the cost of financing, thereby benefiting rate payers.

Figure III-11 contains three reserve lines. First, the Town has a minimum Operating Reserve balance (red line) to cover O&M expenses and a bond reserve. Second, the Town has a capital reserve component. Just as working capital is needed to pay salaries and on-going O&M expenses, working capital is also needed to fund construction of cash-funded (i.e., as opposed to debt-funded) capital projects. When added to the minimum Operating Reserve this establishes the Target Reserve (blue line). Finally, the Town’s rate stabilization target (dashed, black line) provides funding to weather unexpected reductions in revenue or Debt Coverage Ratio Calculation
FY 2022-23 FY 2023-24 FY 2024-25 FY 2025-26 FY 2026-27
Gross Rate Revenue
Service Charges $4,777,242 $4,881,032 $5,148,778 $5,379,845 $5,540,186 Volume Charges $10,550,319 $11,366,178 $12,700,208 $13,977,247 $14,393,824 Total Gross Rate Revenue $15,327,561 $16,247,211 $17,848,986 $19,357,093 $19,934,010 Operating Expenses
Purchased Water $5,690,991 $6,259,563 $6,914,499 $6,965,726 $6,969,460 Other Operating Expenses $6,866,590 $6,607,136 $6,800,396 $6,991,616 $7,214,208 Non-Operating Revenue ($56,500) ($56,500) ($56,500) ($56,500) ($56,500) Net Operating Expenses $12,501,081 $12,810,198 $13,658,396 $13,900,842 $14,127,168 Net Available Revenues $2,826,480 $3,437,012 $4,190,590 $5,456,251 $5,806,842 Debt Service $1,165,776 $1,214,298 $1,194,266 $1,177,068 $1,207,289 Debt Coverage Ratio 2.42 2.83 3.51 4.64 4.81
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unexpected increases in expenses. The sum of the Operating Reserve, Target Reserve, and rate stabilization reserves equals the current reserve balance of $9.0 million as of FY 2021-22.

As shown in Figure III-11, the projected year-end fund balance with rate increases (solid green line) initially dips below the blue line, as the Town uses reserves to fund the projected revenue requirement, which includes major capital projects. After FY 2025-26, the Town begins adding to reserves, increasing the fund balance to meet the Target Reserve by the end of FY 2026-27.

Figure III-11. Projected Year-End Fund Balance
Source: Model tab 1a. Summary
The recommended rate increases are balanced with the use of reserves. Reserves help offset the increased costs projected, reducing the potential for larger increases to be borne by ratepayers. -441-
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IV. COST-OF-SERVICE ANALYSIS

GENERAL APPROACH
Base/Extra Capacity Method
The revenue requirement analysis establishes how much revenue is required from rates. The next step in the analysis is determining the cost of service (see Figure II-1). Cost-of-service analysis is used to derive rates that proportionally allocate the cost of service. The cost-of-service analysis performed in this study follows a procedure described by the American Water Works Association (AWWA), which is referred to as the “base/extra capacity method.” This method allocates the revenue requirements to the components of the rate structure.

The base/extra capacity method in the AWWA M1 Manual contains three categories: base, maximum day, and maximum hour. Base capacity is determined by the average daily flow during the year. The average daily flow determines how much base capacity is needed to provide that flow. Maximum day capacity is determined by the flow on the maximum day of the year. In other words, the maximum day capacity is greater than the base capacity, including the base capacity plus the additional capacity needed to provide for the maximum day flow of the year. Maximum hour capacity is determined by the flow during the maximum hour on the maximum day. In other words, the maximum hour capacity is greater than the maximum day capacity by the amount of peak hour that occurs during the maximum day flow.

We have refined AWWA’s version of the base/extra capacity method. What AWWA considers “base” capacity is not purely base capacity because AWWA defines “base” as average day capacity. Average day capacity includes average peaking, which is greater than how “base” is defined in this report. In this report, “base” demand does not include peaking. We have introduced a fourth category that corresponds to base demand with no peaking, which we call Base Day. This Base Day demand is derived from average winter demand, when there is the least amount of peaking. Hence, in addition to Average Day, Maximum Day, and Maximum Hour categories, we have added Base Day. We have calculated the proportional cost of providing service for each of these four categories in this report.

The need for four categories is driven by the use of the base/extra capacity method beyond its typical use.

Historically, the base/extra capacity method was used only for allocating the cost of service to rate components. Once the revenue requirement associated with volume charges was apportioned, it was common industry practice to structure tiered rates using discretion to achieve a balanced price signal.

For purposes of this study, the base/extra capacity method is first used for allocating the cost of service to the fixed and variable rate components. It is also used for determining the tiered Volume Charge rates.

It was appropriate to refine the base/extra capacity method in this way to address the specific circumstances within the Town to ensure that rates were derived that are proportional to the cost of providing service.

Customer Classes
The cost-of-service analysis distributes the revenue requirements among customer classes in proportion to their service requirements. There is also no industry standard that specifies which customer classes -442-
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should be used. The law allows utilities to exercise discretion in determining the appropriate customer classes provided the rates yield charges that are proportional to the cost of providing service for each category. As a result, the base/extra capacity method needs to be tailored to the customer classes.

The Town currently has two customer classes: Residential and Non-Residential. These classes were adopted as part of the previous cost-of-service study in 2016 to differentiate single-family customers from non-residential customers. The contrast stems from the typical pattern of usage between these two customer classes. Residential use varies according to indoor and outdoor needsthroughout the year, producing periods of peak demands for which the system must be designed to meet. Non-Residential customers use produces fewer peak periods due to less homogenous use.

Rate Structure
There is also no industry standard that specifies what rate structure must be used. The law allows utilities to exercise discretion in determining their rate structure as long as the rates yield charges that are proportional to the cost of providing the service. As a result, the base/extra capacity method needs to be tailored to the rate structure under consideration.

In the Town’s case, its water rate structure consists of a fixed Service Charge component and a variable Volume Charge component. The use of a pair of Service and Volume Charges is the most common standard in the industry. There is no reason for the Town to change.

The fixed bi-monthly Service Charge rates are billed per account. The charge is graduated in proportion to the capacity of the service (i.e., meter-size), which is an industry standard for metered water systems. As the name implies, this charge is related to the customer’s service, which provides a fixed, upper limit on the amount of capacity that is available in the water system.

The rates for the Service Charges are not dependent on customer class – an inch of capacity is the same capacity regardless of what kind of customer is connected to it or how much water is used at what time.

The cost-of-service analysis determines how much of the revenue requirement should be recovered from the Service Charge.

The Volume Charge rates are billed based on metered water use during the billing period. In the Town’s case, water is metered in hundred cubic feet (HCF or CCF, see the Glossary at the beginning of this report).

As such, the charge will vary from bill to bill depending on the amount of water used. The Town has two types of Volume Charge rates that are charged to its two customer classes. The cost-of-service analysis also determines how much of the revenue requirement should be recovered from the Volume Charge rates for each customer class.

Volume charges can be structured in a variety of ways: uniform, increasing block, decreasing block, seasonal, etc. The appropriate type of Volume Charge rate structure depends on the customer classes. Generally speaking, increasing block tiered rates are most suitable for homogeneous classes of customers with similar water uses and demand patterns (including similar peaking demand patterns), such as Residential customers. Residential customers are a homogeneous class that uses water for indoor and outdoor needs and not for other purposes, such as providing services or for commercial production.

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to summer season only, and whose types of water use vary widely (e.g., part of a product such as beverages, for cleaning, for irrigation). For non-single family residential customers, demand patterns are not limited to the number of occupants and size of irrigated landscape. Their water use may have very little discretionary use.

In the Town’s case, the minimal Non-Residential water use consists of schools, CalTrans, a country club, and a racquet club . For such a small, mixed group of customers, a uniform Volume Charge rate is appropriate. Disparate customer usage patterns do not justify tiered rates. Moreover, more sophisticated tiered rate structures rely on a large population of bills to derive breakpoints based on statistical averages. The Town’s Non-Residentialsample size is too small for deriving statistically valid tiered rate structures for this customer class.

The Town should continue to charge tiered Residential and uniform Non-Residential Volume Charge rates.

The design of the tiered rates is further discussed in Chapter V of this report.

Although the Town has different pressure zones, we do not recommend that the Town charge rates by zone. The Town’s water facilities are an integral distribution network, not a series of isolated zones served by separately dedicated reservoirs, pumps, and distribution pipelines. Water facilities are designed as integral networks that balance pressures and keep water from stagnating. Water that is pumped to the highest zones not only benefits customers in the highest zones but can also benefit customers in lower zones to which the water also flows.

COST-OF-SERVICE ALLOCATIONS
As the name implies, cost-of-service analysis is a process of determining how much services cost. The service that water systems provide is obviously water. In order to provide that service, infrastructure must be constructed, operated, and maintained, which must be paid for from cash or debt. The type and size of infrastructure depends on how much service customers require. Water systems are designed to provide sufficient capacity to meet customer demands for service wherever, whenever, and for as long as demanded.

Although each customer places unique demands on the system, water system design is based on the maximum or peak demand for service placed on the system by all customers during the peak demand period.

The size of the infrastructure that is needed will depend on the maximum demand. Higher demands will obviously require larger, more costly infrastructure as well as increased operating and O&M costs. Here, the goal of a cost-of-service analysis is to allocate the cost of the capacity to meet the peak demand in proportion to how much of the capacity is required by each customer. The proportions correspond to the maximum amount of capacity provided by the infrastructure. This means that customers that place greater demands on the infrastructure – customers with greater service needs (i.e., higher peak demands) – will be apportioned a greater share of the operating and capital costs of the infrastructure required to meet that demand.

It is important to realize that once the peak demand is used to design the infrastructure, the capacity is available at all times, not just during peak demands. The capacity is available for the potential peak when it occurs. During off-peak demands, the same facilities are being used, but the capital cost of the facilities is determined by the peak demand only, and it is the peak demand that is used to allocate costs. Note that the costs are not allocated only to those who peak. Those who do not peak as much are also using -444-
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the same facilities. Consequently, they are allocated a share of the costs of the facilities in proportion to their contribution to the peak demand, even though their contribution may be significantly less.

Analytical Procedure
The cost-of-service analysis in this study involved a series of four steps that allow for reasonable cost allocations (see Figure II-1). Costs must first be classified according to the associated function. Functions provide the level of service required by customers. The cost of functions can be allocated in proportion to the service provided.

1. Service function cost classification – Revenue requirements need to be converted into service function cost categories, which conversion is needed for allocating costs that will be used for calculating rates. (See Figure IV-1.)

2. Demand service function allocation percentages – Base and extra capacity allocation factors are needed to apportion costs related to the demand service functions and to customer classes. (See Figure IV-5 and Figure IV-7.)

3. Service function allocations – Costs from Step 1 are allocated to the demand and customer service functions from Step 2. The demand service function costs are further allocated among the demand service levels. (See Figure IV-6.)

4. Customer class allocations – The costs allocated to the demand service function in Step 3 are further apportioned between the two customer classes. (See Figure IV-8.) This sequence of steps is further explained below. The steps constitute the cost-of-service analysis, which converts the revenue requirement for FY 2022-23 in Figure IV-2 into the eventual cost of service for setting Service Charge rates and Volume Charge rates in Figure IV-6.

Service Function Cost Classification
After determining a utility’s revenue requirements, the cost-of-service analysis begins by aligning the budget items with the associated function. For example, some cost items are related to functions that support the ability to meet base and peak water demands while other costs are incurred to provide customer service. In other words, “function” refers to the type of operational activity or capital cost needed to provide service. Organizing the budget by functions correlates budget items with the rate that will fund the cost.

For both indoor and outdoor water use, customers expect water to be available when they want it. The service they receive ranges from non-seasonal demand for essential indoor uses (Base Day) to discretionary peak hour outdoor water use and irrigation demands (Maximum Hour). To provide this “readiness to serve,” the Town’s water system needs to have pipes, pumps, and storage reservoirs that are sized and operated to transmit and distribute water whenever it is needed. As previously mentioned, the capacity required to provide the required flows for facilities as well as the elevation differentials within the pressure zone determine how reservoirs, valves, and appurtenances are designed. Water main design is also influenced by the number of connections along a pipeline. Peak demands create larger flows for which larger and more costly infrastructure is needed and for which there are more operations and maintenance costs.
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The Town’s water system is complex for a system of its size. The steep topography results in numerous pressure zones that require more storage reservoirs and pumps whose operations must be coordinated with sophisticated instrumentation and staff. Moreover, the Town’s studies indicate that the lot size in Hillsborough is more than twice as large as neighboring communities. Sparser development means that there is more infrastructure required per connection, which raises the cost per service connection. Moreover, the higher cost of service must be borne by fewer customers.

The service functions for each cost category determine how the capital and O&M costs are allocated. The service functions fall into two categories:
• Demand service function - functions related to delivering water to customers at varying levels of demand. These costs will be recovered from the proposed Volume Charges. • Customer service function - functions related to customer service. These costs will be recovered from the proposed Service Charges.

Demand Service Function
There is a sequence of five demand service functions beginning with the origin of the water through pipelines that convey the water to pumps that lift the water for
storage until customers demand it. In describing each of these demand service functions, the corresponding allocation factors are indicated. The definition of each demand service function allocation factor is provided below in the discussion under Demand Service Function Allocation Factors. • Water Supply – The Town does not have its own
surface water or groundwater resources; the
Town is not supplied by lakes, river diversions,
or wells. Instead, the Town purchases treated
water from the SFPUC. Other than the cost of
the master meters at the SFPUC’s turnouts, the
Town has very little of its own capital cost for its
water supply. The cost of its water supply is included in the cost paid to the SFPUC, which is the Town’s single largest O&M expense. In addition to the cost of water, this category also includes the Town’s water quality O&M expenses related to personnel. This cost category is allocated to customers in proportion to their Base Day demand. Base Day costs vary with the total
quantity of water used and are independent of rates of demand. • Transmission – Pipelines 12” and larger in diameter convey water from the SFPUC’s master meters to the Town’s pumps, which lift the water to distribution reservoirs. These 12” or larger pipes are sized for Maximum Day demands. Both the capital and O&M costs are allocated in proportion to Maximum Day demands.

Fire Flow Cost Allocations
The distribution system also includes hydrants
for fire suppression. The design of the distribution system to meet peak hour demands provides the capacity that is also required for fire flows. The capacity for fire protection is not the
governing criterion for designing the distribution
system. The distribution system was not sized
for fire flows with the expectation that the fire
flow would be sufficient to meet Maximum Hour
demands. Hence, there are no identifiable extra
costs to allocate to a separate charge for fire service.

In systems where the cost of fire flow capacity is
significant enough to track, the cost is often either combined with the customer capacity component of the Service Charge or with the Maximum Hour costs.

In systems where there are separate charges for
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• Pumping Stations – Water is pumped to distribution reservoirs at a rate equal to the Maximum Day demand. Both the capital and O&M costs are allocated in proportion to Maximum Day demands. • Storage – Distribution reservoirs are located at high points in the system so that water can flow to customers by gravity as demanded. Water fills the reservoirs from pump stations at a fairly steady rate compared to the outflow to customers, which occurs at the peak hour of the peak day. Both the capital and O&M costs are allocated in proportion to Maximum Hour demands. • Distribution – Water flows out of reservoirs under gravity to the customer tap through distribution pipelines (less than 12” inches in diameter). The distribution system is sized for peak hour flows and therefore the capital and O&M costs are allocated in proportion to Maximum Hour demands. The Maximum Hour flow is based on the Maximum Day flow (i.e., Maximum Hour flow is deemed to be two times Maximum Day flow based on engineering design principles), not on independent calculations of fire flows.

Customer Service Function
There is one customer service function.
• Customer Service – This category includes two types of costs that are not related to rates of flow.

One type is related to customer accounts, processing meter reads for billing, billing activities, and general administration. These costs are independent of rates of flow and are apportioned on the basis of the number of accounts. The other type of costs included in this category are related to the capacity of a service connection. These costs are apportioned in proportion to the capacity of each meter.

The cost of these service functions is derived from the Town’s FY 2022-23 budget. The budget is formatted using the Town’s chart of accounts, which is different from the service function cost categories that are needed for the cost-of-service analysis. It is possible, however, to convert the budget’s chart of accounts into the service function categories. Figure IV-1 shows the classification of the budgeted operating and capital expenses and non-operating revenues by function. -447-
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Figure IV-1. Revenue Requirements by Function (FY 2022-23) Source: Model tab 8. Allocations.

Some expenses, like Purchased Water, SFPUC Service Charge, BAWSCA Surcharge, fall within a single functional category. Others were classified by the Town across multiple functional categories:
• Salaries and Benefits – These costs were classified based on the function performed by personnel to operate facilities or to manage and administer the system. • Materials and Services – The classification of these costs followed the associated personnel. • Transfer to Capital Reserves – The classification of these pay-as-you-go capital costs was based on the functions performed by the facilities budgeted in the five-year capital improvement program. A portion of the costs (36%) were assigned to customer capacity to be included as part of the Fixed Service Charge.
• Debt Service - The classification of debt service was based on the functions performed by the facilities that were debt funded. Some of the facilities were categorized as customer service functions and assigned to customer capacity so that customers reserving a greater capacity within the system would pay proportionately more via the Fixed Service Charge. • Transfers (from) Reserves – The use of reserves to fund the revenue requirement was divided among the demand and service functions according to the ratio of each functions portion of the revenue requirement to the overall O&M and Capital revenue requirement.

Figure IV-2 summarizes the costs by service function, organizing them into O&M and capital categories.

Functions
Water Supply Customer Service
Revenue Requirements Variable Fixed Transmission Pumping Storage Distribution Customer
Accounts
Customer
Capacity Total
O&M Expenses
Purchased Water $5,064,621 - - - - - - - $5,064,621
SFPUC Service Charge - - - - - - - $138,683 $138,683
BAWSCA Surcharge - - - - - - - $487,687 $487,687
Salaries & Benefits - $159,484 $155,375 $94,318 $219,142 $568,742 $67,959 $1,265,020 Materials & Services - $414,954 $501,356 $706,955 $415,215 $640,124 $148,264 $2,826,866 Internal Service Fund Transfer - - - - - - $265,000 - $265,000 Overhead Allocation - - - - - - $2,509,704 - $2,509,704 Subtotal - O&M Expenses $5,064,621 $574,438 $656,731 $801,273 $634,357 $1,208,866 $2,774,704 $842,592 $12,557,581 Capital Expenses
Transfer to Capital Reserves - - $73,239 $1,035,118 $937,953 - - $1,151,477 $3,197,787 Debt Service - - $346,257 - $462,545 - - $356,974 $1,165,776 Subtotal Capital Expenses $0 $0 $419,497 $1,035,118 $1,400,498 $0 $0 $1,508,451 $4,363,564 Non-Operating Revenue
Reconnect, Service Charges - - - - - - ($56,500) - ($56,500) Transfer to/(from) Reserves ($363,466) - ($69,335) ($117,887) ($131,668) ($77,918) ($178,844) ($151,537) ($1,090,654) Subtotal Non-Op Revenue ($363,466) $0 ($69,335) ($117,887) ($131,668) ($77,918) ($235,344) ($151,537) ($1,147,154) Net Revenue Requirement $4,701,155 $574,438 $1,006,893 $1,718,503 $1,903,188 $1,130,948 $2,539,360 $2,199,507 $15,773,991 -448-
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Figure IV-2. Revenue Requirement by Service Function
Once the costs are organized by service function, it is possible to allocate them based on the allocation percentages that correspond to each service function. The allocation percentages are derived from the units of service associated with each service function.

Demand Service Function Allocation Factors
A cost-of-service analysis categorizes costs between the demand and customer service functions. Within the demand service function, further allocations are made to varying levels of service ranging from base, non-seasonal, indoor demand, which are the least discretionary, to the highest level of seasonal peak demand for outdoor water use and irrigation during the peak hour of the peak day, which are the most discretionary. With these further allocations, rates can be designed for each customer class’s Volume Charges.

The costs allocated to the customer service function are differentiated between those that are related to accounts and those that are related to capacity. Those two categories are used in deriving Service Charge rates.

As described below, there are four levels of demand used for the demand service function cost-of-service analysis.

Revenue Requirements FY 2022-23
O&M Expenses
Water Supply - Variable $5,064,621
Water Supply - Fixed $574,438
Transmission $656,731
Pumping $801,273
Storage $634,357
Distribution $1,208,866
Customer Accounts $2,774,704
Customer Capacity $842,592
Subtotal $12,557,581
Capital Expenses
Water Supply $0
Transmission $419,497
Pumping $1,035,118
Storage $1,400,498
Distribution $0
Customer Accounts $0
Customer Capacity $1,508,451
Subtotal $4,363,564
Less: Non-Op Revenue
Demand Functions ($760,273)
Customer Service Functions ($386,880)
Subtotal ($1,147,154)
Total Revenue Requirement $15,773,991
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Base Day Demand
Base Day demand is the average daily demand in the lowest billing period of the year when most of the water use is for indoor needs and when there is the least irrigation and peaking. If there were no seasonal peaking, the Town’s facilities could be designed for Base Day demand, which is only 17.5% of the current peak demand (refer to Figure IV-5).

Average Day demand
Average Day demand includes Base Day demand plus
average seasonal peaking. The value is the average of
2021 customer billing data. The Town’s Average Day
peak is over twice the Base Day demand. This is comparatively high and indicates that the Town has high seasonal peaking; indeed, 52.5% of demand in 2021 was seasonal demand. If peaking were no greater than average, the Town’s facilities could be sized at one-third of current peak demands.

Maximum Day demand
Maximum Day demand includes Average Day demand plus peak day demand in the irrigation season. The total value is based on systemwide flow data maintained by the Town. Maximum Day demand for each customer class was prorated from the total Maximum Day demand using Average Day demands for the two customer classes. If peaking did not exceed Maximum Day demand, the Town’s facilities could be sized at one-half the size of current peak demands.

Maximum Hour demand
Maximum Hour demand represents the Maximum Hour demand on the Maximum Day. The Town does not maintain data on its Maximum Hour demand. Hence, this value is estimated based on the State of California’s design requirements for new and existing source capacity.

14. Facilities that are needed for
Maximum Hour demands are sized at a minimum by 1.5 times Maximum Day demand. As previously discussed, sizing Maximum Hour facilities at 1.5 times the capacity of Maximum Day demands serves to simultaneously provide capacity for both peak hour demands by customers and for fire flows. In effect, Maximum Day demands determine how much capacity should be built into facilities needed for Maximum Hour peaks, which also accommodate fire flow capacity. Assuming a Maximum Hour multiplier greater than the minimum design standard would result in more peaking costs shifting to the highest tier. Our use of the 1.5 multiplier would be considered conservative as not to burden high water users with unsubstantiated costs.

Allocation percentages were calculated for each demand service level using load factors derived from customer billing data for 2021 (Base and Average Day), system-wide flow data (Maximum Day), and engineering design criteria (Maximum Hour). Load factors are the ratio of higher levels of demand to the Base Day demand. Figure IV-3 summarizes the units of service and load factors for each of the service levels based on CY 2021 data.
14 ”If daily water usage data are available, identify the day with the highest usage during the past ten years to obtain MDD; determine the average hourly flow during MDD and multiply by a peaking factor of at least 1.5 to obtain the [peak hour demand].” 22 CCR § 64554.

Designing For Peak Demands
The Town’s Maximum Day flow was measured
at 1.81 times the average daily flow, which is
slightly higher than common design guidelines.

The Town’s Maximum Hour flow was estimated
at 1.5 times the maximum daily flow based on
engineering design standards. This estimate resulted in a Maximum Hour flow of 2.71 times the average daily flow, which is within the range of
common design guidelines.
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Load Factors
The load factors are the ratio of the flows for the peak service levels (i.e., Average Day, Maximum Day, and Maximum Hour) compared to the Base Day, non-seasonal flow. The load factors represent how much higher Average Day, Maximum Day, and Maximum Hour flows are compared with Base Day demand.

Figure IV-3. Service Level Demands and Load Factors
Source: Model tab 7. Load Factors.

The load factors indicate how much additional capacity is required to supply higher levels of service. Maximum Hour peak flows are over five times the Base Day non-seasonal demand. Pipeline diameters are used as an example in Figure IV-4 to underscore and visually illustrate how much more infrastructure is needed to meet peak demands at significantly greater cost to the utility. As service levels increase, so does the capacity of pipelines, pumps, and reservoirs required to meet the demand. 15 Figure IV-4. Pipeline Capacity Needed For Demand Service Levels 15 Note that the need for pipeline capacity increases as flow gets closer to individual customers. For example, Maximum Hour capacity is provided by many miles of small pipelines from storage reservoirs to customers whose aggregated capacity provides for 8,500 HCF of Maximum Hour demand.

Demand Service Levels
Demand by Customer Cat Base Day Average Day
Maximum
Day
Maximum
Hour
Residential 1,453 2,998 5,378 8,067
Non-Residential 36 140 289 433
Total Demand (HCF) 1,489 3,139 5,666 8,500
Load Factor Calculation
Total Demand 1,489 3,139 5,666 8,500
÷ Base Day Demand 1,489 1,489 1,489 1,489
Load Factors 1.00 2.11 3.81 5.71
Not drawn to scale.
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The load factors are the source of the allocation percentages that are needed to allocate costs. They are derived in Figure IV-5. For example, the Average Day load factor for the system is 2.11. Of that total 2.11 load, 1.11 is in excess of Base Day demand and is related to the Average Day peak, which is 53% of the total Average Day load (i.e., 1.11/2.11 = 52.6%). For purposes of allocating costs associated with meeting Average Day demands, 52.6% is allocated to the Average Day service and 47.4% is allocated to the Base Day service.

Maximum Day demand includes Base Day, Average Day, and Maximum Day components. And Maximum Hour demand has all four service levels of demand. While system capacity is essentially designed to meet peak demands, and peak users should assume cost responsibility for the capacity required to serve this peak demand, it is important to understand that the cost of facilities that are sized for peak demands is not borne by only customers that peak.

Figure IV-5. Demand Related Allocation Percentages
Source: Model tab 7. Load Factors.

Using distribution pipelines as an example, they are sized to meet Maximum Hour demands. Even though they are sized for the highest level of service, lower peak demands are also accommodated by these pipelines. Hence, the cost of the pipelines is not allocated 100% to the Maximum Hour service level. The cost is apportioned across the lower service levels, too. Thus, the costs of peaking are shared by all customers and not exclusively allocated to those who peak the most.16 Service Function Allocations
The revenue requirements in Figure IV-2 are allocated to the demand and customer service functions in Figure IV-6. The resulting allocations indicate that about 70% of the revenue requirement is attributable to the demand service function and 30% to the customer service function. As previously mentioned, the Volume Charge rates are designed to recover the costs allocated to the demand service function and the Service Charge rates are designed to recover the customer service function costs. 16 This is further discussed in footnote 19.

Load Base Average Maximum Maximum
Allocation Basis Factor Day Day Day Hour Total %
Base Day 1.00 1.00
Allocation % 100.0% 100%
Average Day 2.11 1.00 1.11
Allocation % 47.4% 52.6% 100%
Maximum Day 3.81 1.00 1.11 1.70
Allocation % 26.3% 29.1% 44.6% 100%
Maximum Hour 5.71 1.00 1.11 1.70 1.90
Allocation % 17.5% 19.4% 29.7% 33.3% 100%
Demand Service Levels
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Figure IV-6. Service Function Allocations
Source: Model tab 8 Allocations.

Figure IV-7 summarizes the allocation factors used in the analysis and within Figure IV-6. The Max Day and Max Hour allocation percentages derived from Figure IV-5 were modified to distribute some peaking costs to the portion of the Service Charge that is variable according to meter capacity. This shift reduced the initial calculated portion of the volumetric charge cost-of-service, creating a more traditional 70/30 split of revenue between volumetric and fixed rate revenue. The increase to fixed service charge revenue assures the Town maintains a similar level of revenue stability. These modified allocations are shown as Max Day Applied and Max Hour Applied in Figure IV-6 and Figure IV-7.

The capacity required of the water system is driven by the peaking habits of the system, as well as the capacity reserved by meters in the system. Therefore, it still is appropriate to shift peaking costs to the capacity-related portion of the Service Charge.

FY 2022-23 Allocation Base Average Maximum Maximum Customer Customer Budget Factor Day Day Day Hour Accounts Capacity
O&M Expenses
Water Supply
Purchased Water 5,064,621 Base $5,064,621 $0 $0 $0 $0 $0 SFPUC Service Charge 138,683 Customer Capacity $0 $0 $0 $0 $0 $138,683 BAWSCA Surcharge $487,687 Customer Capacity $0 $0 $0 $0 $0 $487,687 Water Quality 574,438 Base $574,438 $0 $0 $0 $0 $0
Subtotal - Water Supply 6,265,428 $5,639,059 $0 $0 $0 $0 $626,370 Transmission 699,745 Max Day Applied $172,545 $191,204 $292,982 $0 $0 $43,014 Pump Stations 853,754 Max Day Applied $210,521 $233,286 $357,465 $0 $0 $52,482 Storage 675,906 Max Hour Applied $111,111 $123,126 $188,667 $211,452 $0 $41,549 Distribution 1,288,044 Max Hour Applied $211,740 $234,636 $359,534 $402,955 $0 $79,178 Customer Service $2,774,704 Customer Accounts $0 $0 $0 $0 $2,774,704 $0 Total O&M Expenses 12,557,581 $6,344,976 $782,252 $1,198,648 $614,408 $2,774,704 $842,592 O&M Composite 50.5% 6.2% 9.5% 4.9% 22.1% 6.7%
Capital Expenses (Debt and PayGo)
PAYGo projects $3,197,787 PAYGo Composite $651,206 $457,759 $701,425 $235,922 $0 $1,151,477 Debt Service $1,165,776 D/S Composite $171,991 $190,589 $292,041 $154,182 $0 $356,974 Total Capital Expenses $4,363,564 $823,196 $648,348 $993,466 $390,103 $0 $1,508,451 Subtotal - O&M and Capital $16,921,145 $7,168,173 $1,430,600 $2,192,114 $1,004,511 $2,774,704 $2,351,043 100.0% Exp Composite 42.4% 8.5% 13.0% 5.9% 16.4% 13.9%
Non-Operating Revenue
Reconnection Charges ($50,000) Customer Accounts $0 $0 $0 $0 ($50,000) $0 Service Charges ($6,500) Customer Accounts $0 $0 $0 $0 ($6,500) $0 Transfer to/(from) Op Reserves ($1,090,654) Exp Composite ($462,025) ($92,209) ($141,293) ($64,746) ($178,844) ($151,537) Subtotal - Non-Operating Revenue ($1,147,154) ($462,025) ($92,209) ($141,293) ($64,746) ($235,344) ($151,537) Total Revenue Requirement $15,773,991 $6,706,148 $1,338,391 $2,050,821 $939,765 $4,738,866 $11,035,124 $4,738,866
Volume Charge COS Service Charge COS
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Figure IV-7. Allocations Factors
Source: Model tab 8 Allocations.

Figure IV-8 summarizes the shift in the Service Charge revenues to Volume Charge revenues to align with the cost-of-service. The exercise performed in IV-6 indicates Service Charge revenues will decrease from 32% to 30%, while Volume Charge revenues will increase from 68% to 70%.

Figure IV-8. Cost-of-Service Revenue Summary
Customer Class Allocations
The customer service function is independent of the customer class. Once its allocation is derived, rates for the Service Charges are derived without any further allocation to customer classes. The demand service function requires further allocations to customer classes in designing rates. When separate customer classes exist, the cost of service must be allocated proportionately to each class. Figure IV-9 derives the cost of service for the Town’s two customer classes. The revenue requirement for each service function is apportioned between the Residential and Non-Residential customer classes based on the corresponding annual demand in units of service (i.e., flows) for each customer class.

Average Maximum Maximum Customer Customer
System-Wide Allocation Factors Base Day Day Hour Accounts Capacity System-wide
Base 100.0% 0.0% 0.0% 0.0% 0.0% 0.0%
Average Day 47.4% 52.6% 0.0% 0.0% 0.0% 0.0%
Max Day 26.3% 29.1% 44.6% 0.0% 0.0% 0.0%
Max Hour 17.5% 19.4% 29.7% 33.3% 0.0% 0.0%
Max Hour Only 0.0% 0.0% 0.0% 100.0% 0.0% 0.0%
Max Day Applied 24.7% 27.3% 41.9% 0.0% 0.0% 6.1%
Max Hour Applied 16.4% 18.2% 27.9% 31.3% 0.0% 6.1%
Exp Composite 42.4% 8.5% 13.0% 5.9% 16.4% 13.9%
O&M Composite 50.5% 6.2% 9.5% 4.9% 22.1% 6.7%
Customer Accounts 0.0% 0.0% 0.0% 0.0% 100.0% 0.0%
Customer Capacity 0.0% 0.0% 0.0% 0.0% 0.0% 100.0%
Exp Composite 42.4% 8.5% 13.0% 5.9% 16.4% 13.9%
PAYGo Composite 20.4% 14.3% 21.9% 7.4% 0.0% 36.0%
D/S Composite 14.8% 16.3% 25.1% 13.2% 0.0% 30.6%
Components of Rate Structure
Volume Charges
Residential $9,722,825 $10,662,053 $939,228 9.7%
Non-Residential $342,689 $373,071 $30,382 8.9%
$10,065,514 68% $11,035,124 70% $969,610 9.6%
Service/Meter Charge $4,815,618 32% $4,738,866 30% ($76,751) -1.6% Total $14,881,132 100% $15,773,991 100% $892,859 6.0%
Current Revenue Cost Difference
(eff. 1/1/22) of Service COS Minus Current
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Figure IV-9. Customer Class Allocations for Demand Service Levels Source: Model tab 8. Allocations
Note that the Non-Residential class is only 3.9% of the Town’s total demand. Figure IV-10 summarizes the annual demands for the Residential and Non-Residential customer classes.

Figure IV-10. Customer Class Projected FY 2022-23 Demands Source: Model tab 3c. Volumetric Revenue.

SUMMARY OF COST-OF-SERVICE ALLOCATIONS
Figure IV-11 summarizes the flow of the analysis through the four steps in the cost-of-service analysis.

Base Average Maximum Maximum
Volume Rate Cost of Service Day Day Day Hour Total
Revenue Requirement Allocations
O&M (net of Non-Op Revenue) $6,344,976 $782,252 $1,198,648 $614,408 $8,940,285 Capital $823,196 $648,348 $993,466 $390,103 $2,855,113
Non-Op Revenue ($462,025) ($92,209) ($141,293) ($64,746) ($760,273) $6,706,148 $1,338,391 $2,050,821 $939,765 $11,035,124
Units of Service (HCF)
Residential 1,453 2,998 5,378 8,067
Non-Residential 36 140 289 433
1,489 3,139 5,666 8,500
Proportional Allocation Factors
Residential 97.60% 95.53% 94.91% 94.91%
Non-Residential 2.40% 4.47% 5.09% 5.09%
100.00% 100.00% 100.00% 100.00%
Customer Class Allocations
Residential $6,545,245 $1,278,513 $1,946,386 $891,909 $10,662,053 Non-Residential $160,903 $59,878 $104,435 $47,856 $373,071 $6,706,148 $1,338,391 $2,050,821 $939,765 $11,035,124
Customer Class Demand (HCF)
Residential 1,024,748 96.1%
Non-Residential 41,488 3.9%
1,066,236 100.0%
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Figure IV-11. Allocation Summary
Revenue Requirement ($1000s) Functional Costs ($1000s) Service Costs ($1000s) Rate Components ($1000s) O&M Functions Demand Service Volume Charges
SFPUC Water $5,691 Water Supply $5,276 Base Day $6,706 Residential (by tier) $10,662 Salaries & Benefits $1,265 Transmission $1,007 Average Day $1,338 Non-res. (uniform) $373 Materials $2,827 Pump Stations $1,719 Maximum Day $2,051 $11,035 Other $1,628 Storage $1,903 Maximum Hour $940 Service Charges Capital Distribution $1,131 $11,035 By meter $4,739
PAYGo $3,198 Customer Service $4,739 Customer Service Total $15,774 Debt $1,166 Total $15,774 Accounts $2,539
Total $15,774 Capacity $2,200
$4,739
Total $15,774
Budget costs classified
according to functions
performed by the facilities.

Costs of functions
allocated to base and
extra capacity services.

Costs of services allocated
to rates that charge in
proportion to service
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V. RATE DESIGN
The Town has historically charged water customers the combination of a fixed Service Charge and a variable Volume Charge based on metered water use. As previously discussed, this is a common set of charges that is prevalent throughout the water industry. This chapter explains the derivation of the Volume and Service Charge rates that reflect the projected cost of service.

VOLUME CHARGE DESIGN
As previously discussed, the Town’s Volume Charge rates are different for its two customer classes, Residential and Non-Residential.

Residential Volume Charge Rates
The Town’s Residential customers are currently charged a four-tier increasing block rate structure, one outcome of the previous cost-of-service study.
17 The structure is a series of blocks of water whose unit cost increases with each block. The structure is “progressive” in the sense that water is billed sequentially by block up to the highest block. It is not the case that all of the water is billed at the rate for the highest block. All metered water use is at least billed the Tier 1 rate. Water use beyond Tier 1 is only billed the Tier 2 rate for the volume of water allocated to Tier 2, and water use beyond the volume of water allocated to Tier 2 is billed at the Tier 3 rate, and so forth.

Increasing block rates have become more common as the need has grown to set rates that more precisely recover the cost of service. As previously discussed, increasing block rates continue to be well suited for the Town’s Residential customer class.

When increasing block rates are implemented, the number of tiers must be determined. There is no absolute industry standard or law that prescribes how many tiers must be used. Judgment that is supported by facts is allowed. However, no matter how many tiers are used, the rates should yield charges that do not exceed the proportional cost of service.

Breakpoints Between Tiers
The base/extra capacity cost-of-service analysis leads to four distinct services defined by the functions performed by facilities that are designed to provide the services. Each service has an average flow that can be used as the division (i.e., “breakpoint”) between each service, as shown in Figure V-1. 17 For simplicity, we use the term “tiered rates” synonymously with “increasing block rates.” “Inclining block rates” is commonly used for “increasing block rates.” However, because an incline can slope both up or down, it is ambiguous in this context and therefore is not used in this study. -457-
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Figure V-1. Breakpoint Locations – Residential
Source: HCF per day from Figure IV-3. Bi-monthly bills calculated from Residential meter counts provided by Town staff in May 2022.

See Model tab 3a. Service Charge revenue.

The averages for Base Day, Average Day, and Maximum Day yield the following breakpoints:
• Tier 1/Tier 2 breakpoint – 22 HCF (274 GPD) per bi-monthly period. • Tier 2/Tier 3 breakpoint – 44 HCF (549 GPD) per bi-monthly period. • Tier 3/Tier 4 breakpoint – 78 HCF (972 GPD) per bi-monthly period.

Note, a bi-monthly period is assumed to be 60 days. The breakpoints calculated were rounded up to the nearest even integer to facilitate monthly billing for a small portion of the Town’s Residential customer base. Bills for these customers utilize the same rates but breakpoints are halved to compensate for the one-month billing period. Proposed monthly bill subscription tiers are as follows: 11 HCF, 22 HCF, and 39 HCF.

Rates Per Tier
With breakpoints that correspond to the service levels in the cost-of-service analysis, it is possible to calculate the rate per tier by dividing the cost of service per tier by the water demand in each tier. The resulting rates represent the unit cost of service for each tier. 18 Figure V-2 shows the calculations of the incremental cost per tier. Using the Base Day service function as an example, it can be seen how much of the revenue requirement is recovered from Tier 1. The $6,545,245 in Figure IV-8 includes the costs that were directly attributable to the Base Day service function plus the Base Day service function’s share of costs attributable to higher levels of service. The Base Day cost of service is 60% of the aggregated amount of $10,662,053 in Figure IV-7 that is allocated to the Residential Volume Charge. All of the water sold, including water in Tiers 2, 3, and 4, benefits from the Tier 1 costs and shares in paying them. Dividing the Base Day costs by the total demand of 1,024,748 HCF in Figure V2 yields a Tier 1 rate of $6.39 per HCF.

Demand that does not exceed the 22 HCF Tier 1 breakpoint is only charged the Tier 1 rate. Demand that does not exceed Tier 1 is not responsible for the additional costs of peaking that were allocated to the higher service levels. These additional peaking costs are both the initial capital cost, the subsequent 18 In this report, “rates” and “unit costs” are synonymous.

Flow Per Customer (HCF bimonthly) Demand Service Levels Residential Class Base Day Average Day
Maximum
Day
Maximum
Hour
HCF per Day 1,453 2,998 5,378 8,067
HCF/Bi-monthly period 87,183 179,887 322,675 484,012
Load Factors 1.00 2.06 3.70 5.55
Proposed Breakpoints
Bi-Monthly Bills 4,190 4,190 4,190 4,190
Average flow per Bi-Monthly Bill 22 44 78 >78
Average gallons per day 274 549 972 >972
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rehabilitation and renewal costs, and the operations and maintenance costs for larger pipelines, additional pumps, and larger reservoirs. Bills that exceed Tier 1 pay additional rate increments. The next increment of demand is responsible for the costs allocated to Average Day service, $1,278,513 in Figure IV8. This increment of cost is divided by the demand that exceeds Tier 1, 614,073 HCF, resulting in an incremental Tier 2 rate of $2.08 per HCF (Figure V-2).

The calculations of the Tier 3 and Tier 4 rate increments proceed similarly. It can be seen that the incremental rate for Tier 3 and 4 is much higher than Tier 2. The $891,909 in Figure IV-7 allocated to the Maximum Hour service level is only slightly higher, but it is only the highest 186,357 HCF that create the need for this increment of peak capacity. To meet this peak hour demand, storage reservoirs and distribution pipelines are sized twice as large as the Maximum Day demand. The rest of the year, the peak capacity is idle. There is a considerable cost to pay for this peak service.

Figure V-2. Incremental Unit Cost – Residential
Source: Cost of service from Figures IV-8. Demand per tier from Town’s CY 2021 billing system.

The incremental rates are additive. In other words, demand in Tier 1 only pays the Base Day rate. Demand in Tier 2 pays the Base Day rate plus the Average Day increment, and so forth through Tiers 3 and 4. Adding the increments yields the rates per tier, which are summarized in Figure V-3.

Figure V-3. Calculation of Proposed Volume Charge Rates – Residential Source: Figure V-2.

Clearly, as demand progresses through the tiers, the additional costs of peaking are allocated to recover the cost of the higher levels of service. Figure V-4 plots the cost increments per tier. It is evident that the most expensive components of peaking are for storage and distribution pipelines.

Base Average Maximum Maximum
Day Day Day Hour Total
Residential Cost-of-Service $6,545,245 $1,278,513 $1,946,386 $891,909 $10,662,053 Demand per Tier (HCF)
Tier 1: 0-22 410,675
Tier 2: 23-44 235,588 235,588
Tier 3: 45-78 192,129 192,129 192,129
Tier 4: 79+ 186,357 186,357 186,357 186,357
Total HCF per Tier 1,024,748 614,073 378,486 186,357
Cost-of-Service per Unit (HCF) $6.39 $2.08 $5.14 $4.79
Base Average Maximum Maximum
Total Day Day Day Hour Total
Proposed Rates
Tier 1 - 0 - 22 HCF $6.39 $6.39
Tier 2 - 23 - 44 HCF $6.39 $2.08 $8.47
Tier 3 - 45 - 78 HCF $6.39 $2.08 $5.14 $13.61
Tier 4 - 79+ HCF $6.39 $2.08 $5.14 $4.79 $18.40
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Figure V-4. Cost-of-Service Increments Per Tier – Residential Source: Incremental cost components by Tier are calculated on Model Tab. 9b Quantity Charge Calculations.

The $10.40 per HCF average rate is also shown. The average rate is derived by dividing the total Residential cost-of-service of $10,662,053 in Figure V-2 by the total Residential water use of 1,024,748 HCF in Figure IV-9. In effect, the average rate represents the non-tiered, uniform rate, which makes no distinction between various levels of service.

The average rate is the most general form of the cost of service. It treats the cost of water service as though it is linear. A more exacting cost of service analysis derives the average rate for each level of service. In effect,
tiered rates are a sequence of the average rate corresponding to a discrete level of service. As Figure V-5 shows, the unit cost across the range of demand is not
linear. The unit cost increases with each tier.

Plotting the average rate with the tiered rates illustrates the result of tiering the rates. Tier 1 and Tier 2 pay less than the average rate for the below-average level of service that they require. Tiers 3 and 4 pay more than the average rate for the above-average level of service they require. Tiering the rates is a more precise allocation of costs to the levels of demand that create the need for the costs. The rates in Tiers 3 and 4 increase as a result of applying allocation factors derived from flows in each tier to the costs associated with providing the level of service in each tier. All of the costs that are allocated are either related to O&M or capital costs.

Each Service Level Pays Its Share
Even though facilities are designed for the
maximum demand, their cost is allocated to
all customers, not just to the highest peaking
customers. The combination of all use determines the size of facilities. Low-use customers also contribute to the peak. Hence, all customers share in the cost in proportion to
how much they peak.
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Figure V-5 graphically compares the current structure with approved breakpoints with the proposed rate structure and breakpoint adjustments. Note that nearly two-thirds of the bills (65% of the total bills) are within the first two tiers. Approximately 35% of the highest bills are within Tiers 3 and 4. In other words, only slightly more than one-third of the bills are above average.

Figure V-5. Volume Charge Structure Comparison
Non-Residential Volume Charge Rates
We recommend the Town continuing with the same uniform rate structure for all Non-Residential customers. The proposed adjustment for CY 2023 is intended to increase the uniform rate to re-align with the cost of service for this customer class. Of the total revenue requirement for FY 2022-23, $310,294 was allocated to the Non-Residential customer class, which is only 2.3% of the revenue requirement.

The uniform rate is derived by dividing this class’s share of the FY 2022-23 revenue requirement by the class’s projected annual demand based on data in Figure IV-9.

Figure V-6. Calculation of Non-Residential Uniform Volume Charge Source: Revenue requirement from Figure IV-8.

Projected demand from Figure IV-9.

Non-Residential Revenue Requirement $373,071
Projected demand (HCF) 41,488
Uniform Volume Charge per HCF $8.99
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Volume Charge Rate Summary
The five-year schedule of proposed Volume Charge rates for Residential and Non-Residential customers is shown in Figure V-7.

Figure V-7. Proposed Volume Charge Rates
The proposed Volume Charge rate design for the Residential customer includes some initial shifts to the existing breakpoints. The Tier 1 breakpoint increases from 20 to 22 HCF. However, the Tier 2 breakpoint is maintained at 44 HCF, keeping the same dividing line between the top two and bottom two tiers. For the current rates, the $16.40 rate in the highest tier is 2.66 times the $6.16 in the lowest tier. For the proposed rates, the ratio is steeper at 2.88 times. The increasing proportion of the ratio between the highest and lowest tier demonstrates the shift of additional costs toward high water use customers.

The proposed Volume Charge rate for the Non-Residential customer class is an 8.8% increase to the current uniform Volume Charge.

Revenue Stabilization Charge
During prolonged shortages, customers are required to conserve or even ration their water use. The magnitude of the water savings can significantly reduce water sales revenue from quantity charges.

During the previous cost-of-service study HF&H recommend a set of Revenue Stabilization Factors that would be applied to the rates for the Volume Charges and implemented during declared water shortage stages in accordance with the Town’s Water Shortage Contingency Plan (WSCP), state mandated reductions in the level of potable water usage, or other natural disaster or event that results in a water shortage and an unforeseen drop in water demand that requires reductions in water use. The recommended revenue stabilization factors applied uniformly to Residential and Non-Residential Volume Charges.

As part of this study to update the Revenue Stabilization Factors, it is proposed that the shortage reductions will vary by customer class, based on their respective abilities to conserve water. A customer classes’ ability to conserve is directly related to the proportion of their current water use which is highly discretionary and considered a non-beneficial use (e.g., water used for landscape purposes, “outdoor” water use) and less discretionary use for health and safety (e.g., water used for cooking, cleaning, bathing, “indoor” water use). Each class’s reduction will be determined by reducing their proportion of water that is for “outdoor” water use (seasonal water use) 5.0 times more than their “indoor” (average winter water use) water use. As described in more detail under “Implementation” at this end of this section, the calculated factors will be applied to each tier of the Volume Charge rates. The higher rates will generate the Current Current Proposed
Breakpoints Rate Breakpoints CY 2023 CY 2024 CY 2025 CY 2026 CY 2027 Residential (hcf) (hcf)
Tier 1 0-20 $6.16 0-22 $6.39 $6.77 $7.11 $7.39 $7.54
Tier 2 21-44 $7.82 23-44 $8.47 $8.98 $9.43 $9.80 $10.00 Tier 3 45-70 $10.74 45-78 $13.61 $14.43 $15.15 $15.76 $16.07 Tier 4 71+ $16.40 79+ $18.40 $19.50 $20.48 $21.30 $21.72 Non-Residential uniform $8.26 uniform $8.99 $9.53 $10.01 $10.41 $10.62 -462-
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revenue which was lost due to conservation and has been calculated to keep the Town revenue neutral so they can cover the portion of fixed costs which have paid through the Volume Charge Rates Analysis
Based on calendar year 2021 metered consumption data, the resulting reductions are summarized in Figure V-8. The reductions shown represent the customer class reductions required to achieve the reduction associated with each shortage stage. The customer class reductions are greater or less than the overall average for each stage depending on how much of each class’s water demand is seasonal.

Figure V-8. WSCP Required Water Use Reductions by Class Source: Model tab 11b. Revenue Stabilization Tables.

Figure V-9 shows the calculation of each customer class’s respective shortage reduction required during each shortage stage. The annual demand for each class is separated into indoor and outdoor water use where indoor water use is defined as the period from January through February multiplied times 6 to get the annualized indoor water use over 12 months. Subtracting indoor water use from the total annual water use determines the seasonal outdoor water use.

The percentage reductions for each customer class required to achieve the overall reduction for a particular stage are derived so that outdoor consumption is reduced 5.0 times indoor consumption. In a Stage 1 shortage, a 2.8% reduction in indoor water use and a 14.2% reduction in outdoor water use are required to achieve an overall 10% reduction. Applying the same reduction factors to each class results in different overall reductions for the class based on the relative proportions of their indoor and outdoor water use.

In each stage reduction Residential and Non-Residential customers are required to conserve different percentages. This is because Non-Residential customers have higher seasonal use compared to Residential customers, as a result of irrigation demand to water the Town’s school fields. In the example shown in Figure V-9, a 55% reduction is assumed.

Stage 1 Stage 2 Stage 3 Stage 4 Stage 5 Stage 6
Up to Up to Up to Up to Up to Greater than
Class 10% Reduction 20% Reduction 30% Reduction 40% Reduction 50% Reduction 50% Reduction Residential 9.9% 19.9% 29.8% 39.8% 49.7% 54.7%
Non-Residential 11.4% 22.8% 34.1% 45.5% 56.9% 62.6%
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Figure V-9. Calculation of Shortage Reductions by Stage and Customer Class Source: Model tab 11b. Revenue Stabilization Tables.

The service charges are fixed and generate 30% of the total rate revenue regardless of shortages. The remaining 70% of revenue is generated by the volumetric rates. In deriving the Water Shortage Revenue Stabilization Factors, the factors will only apply to the volumetric rates because fluctuations in water use correlate with fluctuations in variable costs. Each customer class has its own set of Revenue Stabilization Factors corresponding to its reduction in each stage of shortage.

The formula for the Revenue Stabilization Factors comprises conservation and variable cost components.

The conservation component adjusts to account for the required reduction in water demand. A portion, not all, of the costs (e.g., power, water purchases) covered by Volume Charge rates are variable and will not be incurred when less water is used. To ensure the Revenue Stabilization Factors do not result in 10% Stage 1 Reduction (up to 10% reduction)
Class Total Indoor Outdoor Indoor Outdoor Indoor Outdoor Total Total Residential 1,182,774 441,198 741,576 2.8% 14.2% 12,511 105,148 117,659 10% Non-Residential 44,908 11,094 33,814 2.8% 14.2% 315 4,794 5,109 11% Total 1,227,682 452,292 775,390 2.8% 14.2% 12,826 109,942 122,768 10.0% 20% Stage 2 Reduction (up to 20% reduction)
Class Total Indoor Outdoor Indoor Outdoor Indoor Outdoor Total Total Residential 1,182,774 441,198 741,576 5.7% 28.4% 25,023 210,295 235,318 20% Non-Residential 44,908 11,094 33,814 5.7% 28.4% 629 9,589 10,218 23% Total 1,227,682 452,292 775,390 5.7% 28.4% 25,652 219,884 245,536 20.0% 30% Stage 3 Reduction (up to 30% reduction)
Class Total Indoor Outdoor Indoor Outdoor Indoor Outdoor Total Total Residential 1,182,774 441,198 741,576 8.5% 42.5% 37,534 315,443 352,977 30% Non-Residential 44,908 11,094 33,814 8.5% 42.5% 944 14,383 15,327 34% Total 1,227,682 452,292 775,390 8.5% 42.5% 38,478 329,826 368,305 30.0% 40% Stage 4 Reduction (up to 40% reduction)
Class Total Indoor Outdoor Indoor Outdoor Indoor Outdoor Total Total Residential 1,182,774 441,198 741,576 11.3% 56.7% 50,046 420,591 470,637 40% Commercial/Recycled Water 44,908 11,094 33,814 11.3% 56.7% 1,258 19,178 20,436 46% Total 1,227,682 452,292 775,390 11.3% 56.7% 51,304 439,769 491,073 40.0% 50% Stage 5 Reduction (up to 50% reduction)
Class Total Indoor Outdoor Indoor Outdoor Indoor Outdoor Total Total Residential 1,182,774 441,198 741,576 14.2% 70.9% 62,557 525,738 588,296 50% Commercial/Recycled Water 44,908 11,094 33,814 14.2% 70.9% 1,573 23,972 25,545 57% Total 1,227,682 452,292 775,390 14.2% 70.9% 64,130 549,711 613,841 50.0% 55% Stage 6 Reduction (greater than 50% reduction)
Class Total Indoor Outdoor Indoor Outdoor Indoor Outdoor Total Total Residential 1,182,774 441,198 741,576 15.6% 78.0% 68,813 578,312 647,125 55% Commercial/Recycled Water 44,908 11,094 33,814 15.6% 78.0% 1,730 26,370 28,100 63% Total 1,227,682 452,292 775,390 15.6% 78.0% 70,543 604,682 675,225 55.0% Baseline Annual Demand (HCF) Reductions
Baseline Annual Demand (HCF) Reductions
Baseline Annual Demand (HCF) Reductions
Baseline Annual Demand (HCF) Reductions
Baseline Annual Demand (HCF) Reductions
Baseline Annual Demand (HCF) Reductions
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excess revenue collection, the variable cost component of the calculation reduces the factor to account for the portion of variable costs, which is covered by the quantity charges, and will not be incurred when demand decreases.

The Revenue Stabilization Factors are the product of the conservation component multiplied by the variable cost component. Each component is defined as follows:

Revenue Stabilization Factor = Conservation Component multiplied times Variable Cost Component, where Conservation Component = 1/(1 - a), where
a = required percentage reduction, which varies by customer class.

Variable Cost Component = (b - (c * a))/b, where
a = required percentage reduction, which varies by customer class. b = percentage of revenue from total service charges and volumetric rates for all customer classes that is attributable to volumetric rates, an amount that is 70% based on the costof-service analysis. c = percentage of total revenue requirement covered by service charges and volumetric rates that varies based on fluctuations in demand, an amount that is currently 38%.19 The following example illustrates how the formula determined the 1.113 Revenue Stabilization Factor in Figure V-10 for the Residential customer class in a Stage 2 shortage in which an overall conservation goal of 5% if required.

Conservation Component: 1/(1 - a) = 1/(1 - 0.19895) = 1.2483, where a = required percentage reduction is 19.895% for the Residential customer class (see Figure V-9 where a rounded 20% is shown).

Variable Cost Component: (b - (c * a))/b = (0.70 - (0.38 * 0.19895))/0.70 = 0.89199, where a = 19.895% reduction for Residential customers in a Stage 1 shortage. b = 70% of total rate revenue is generated by quantity charges; and c = 38% of revenue requirement is related to variable costs.

Revenue Stabilization Factor = 1.2483 * 0.89199 = 1.113, as it is shown in Figure V-10. 19 The cost of SFPUC water is the largest example of a variable cost, which varies with water demand. -465-
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The Residential Volume Charge rates in effect under non-shortage conditions would be multiplied by

1.113 to derive the quantity charge rates to be in effect during a Stage 2 water shortage. Figure V-10 shows the Revenue Stabilization Factors that would be applied to the rates that would normally be in effect absent declared shortages.

Figure V-10. Revenue Stabilization Factors by WSCP-Defined Shortage Stage Source: Model tab 11b. Revenue Stabilization Tables.

Implementation
The recommended Revenue Stabilization Factors in Table V-10 are implemented only during periods of declared water shortage emergencies. Once a mandatory shortage is declared, the City Council has discretion to enact Revenue Stabilization Adjustments corresponding to the level of shortage reduction implemented using the factors provided in Table V-10 or calculated using the formula for a specific level of reduction. The adjustments can go in either direction from stage to stage depending on whether the level of reduction is increasing or decreasing during the shortage. At least 30 days prior to making the adjustment, notice must be provided to rate payers, which can be included in the customer’s bills. No protest process is required. These adjustments would be temporary, and rates would return to the regular schedule at the conclusion of the water shortage emergency.

The Revenue Stabilization Factors could be applied when the Town requires its customers to reduce consumption. At such times, the Revenue Stabilization Factors would be multiplied times the Volume Charge rates proposed in the current rate study. These proposed Volume Charge rates are based on FY 2022-23 demand. The specific demand projections for each year are listed in Figure III-2. Rates have been set assuming fluctuating patterns of usage. The Town can choose to enact Revenue Stabilization Factors when the water emergency demand levels will fall short of the respective year of modeled demand.

The Revenue Stabilization Factors only apply to the tiered and uniform Volume Charge rates and not to Service Charge rates, which are independent of water demand. The Revenue Stabilization Factors are multiplied times the non-water shortage, normal-year Volume Charge rates proposed in this report. The Revenue Stabilization Factors would be adopted as part of the rate notification in the Proposition 218 implementation process. Once adopted, the Town could apply the Revenue Stabilization Factors as needed during conservation stages.

As a further example, Figure V-11 has Volume Charge rates after applying the Revenue Stabilization Factors to the rates proposed for 2017. The table shows the proposed rates followed by the rates that correspond to each stage of conservation.

Stage 1 Stage 2 Stage 3 Stage 4 Stage 5 Stage 6
Up to Up to Up to Up to Up to Greater than
Customer Class 10% Reduction 20% Reduction 30% Reduction 40% Reduction 50% Reduction 50% Reduction Residential 1.050 1.113 1.194 1.302 1.452 1.552
Non-Residential 1.059 1.135 1.237 1.381 1.603 1.764
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Figure V-11. Sample Rates With Revenue Stabilization Factors – 2023 Source: Model tab 11b. Revenue Stabilization Tables.

Note that if reductions in water use are higher or lower than the specified stages set in the WSCP due to state mandated reductions in the level of potable water usage, or other natural disaster or event that results in a water shortage and an unforeseen drop in water demand, the Revenue Stabilization Factors will be adjusted in accordance with the formula above.

Pass-Through Adjustment
The cost of SFPUC water is the single largest component of the Town’s revenue requirements. Because the Town has no control over the SFPUC’s wholesale water rate, this cost is simply passed through to the Town’s customers. The SFPUC provides projections of its future wholesale water rates, which are built into the rate projections in this study. The SFPUC updates its projections each year as part of the ratemaking process legally prescribed in the wholesale Water Supply Agreement. California Government Code Section 53756 authorizes water suppliers to adjust their rates in response to changes in pass-through costs. We recommend that the Town incorporate annual pass-through adjustments in its volumetric rates.

Each year the Town should determine how much, if any, pass-through adjustment is required as soon as the SFPUC submits its updated wholesale rates, which is typically in April or May each year. The wholesale rate used for the projections in this study should be compared with the updated rate and the difference either added or subtracted from the Town’s Volume Charge rates for Residential and Non-Residential customers. The wholesale rates per HCF used in this study20 are as follows:

FY 2022-23 – $4.75
FY 2023-24 – $5.28
FY 2024-25 – $5.28
FY 2025-26 – $5.32
FY 2026-27 – $5.32
For example, if the updated SFPUC rate for FY 2023-24 is $5.38, the $0.10 difference should be added to the Volume Charge rates charged to Residential and Non-Residential water customers. If the updated 20 Rates included in letter from SFPUC to Nicole Sandkulla RE: Fiscal Year 2021-22 Wholesale Water Rates Notice, dated May 7, 2021.

The pass-through adjustment acts similarly to the Revenue Stabilization Factors, which was incorporated into the Proposition 218 notice in the previously adopted cost-of-service study. The pass-through adjustment allows the Town to adjust volumetric rates to track any difference between the SFPUC rates that were included in the model and the actual rates adopted each year by SFPUC. The pass-through adjustment can also be made by providing 30-day notice in the customer bills without triggering the need for a Proposition 218 protest process.

SERVICE CHARGE DESIGN
Service Charge rates are fixed rates charged per account that are billed each billing period to recover the cost of the customer service function. The Service Charge rates are graduated in proportion to the capacity of the service (i.e., water meter) serving a property. Service Charge rates are also independent of customer classes because the capacity of a service does not change depending on what class of customer that is connected to the water system.

The cost-of-service analysis determined how much of the revenue requirement is attributable to the customer service function. The function has two components – customer accounts and customer capacity – each of which is itemized in the cost-of-service analysis in Figure V-12. Costs attributable to customer accounts are allocated to customers in proportion to the number of accounts. Costs attributable to customer capacity are allocated to customers in proportion to the capacity of their services. The sum of the two components equals the Service Charge rate per connection.

Figure V-12 lists the units of service corresponding to each of the cost components. The 4,301 accounts are used for apportioning the customer accounts cost component.

Capacity costs associated with the distribution system are apportioned among the connections in proportion to the capacity associated with each connection. Accounts are converted to Equivalent Meter Units (EMUs) to apportion the customer capacity cost component. An EMU represents the number of ¾-inch meters to which a larger meter is equivalent. For example, a 1-inch meter provides 1.57 times as much capacity as a ¾-inch meter. The capacity multipliers are based on the manufacturer’s nominal capacity of the Town’s new meters that were installed in 2016. The 3,721 1-inch meters equal 5,847 EMUs. There are 7,898 total EMUs. In effect, the 4,268 services of assorted sizes have the equivalent capacity as 7,898 ¾- inch meters.
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Figure V-12. Service Charge Units of Service
Source: Model tab 9a. Service Charge Allocations.
*Capacity multiplier assumes ¾” meter = 1 EMU = 35 gallons per minute.

Capacity multipliers from Town based on new AMI meters.

Figure V-13 derives the unit costs for the customer accounts and customer capacity cost components.

Each account is allocated $98.40 for the customer account cost component. That amount represents the costs the Town incurs to maintain an account regardless of the capacity of the service. Each account is also allocated $46.41 per EMU. That amount represents a portion of the cost of providing distribution system capacity for each account, and increases based on the capacity of the meter.

Figure V-13. Service Charge Unit Costs
Source: Customer Service Expenses from Figure IV-6; Units of Service from Figure V-12.

Figure V-14 combines the customer service and capacity components into a single Service Charge for each size service and compares proposed rates to the current rates.

Service # of Meter Capacity
Size Accounts Ratings (gpm) Multiplier* EMUs
a b c = b ÷ 35 a * c
3/4" 76 35 1.00 76
1" 3,721 55 1.57 5,847
1-1/2" 230 100 2.86 657
2" 272 160 4.57 1,243
3" 0 320 9.14 0
6" 1 1,000 28.57 29
8" 1 1,600 45.71 46
4,301 7,898
Customer Customer
FY 2022-23 Customer Account Capacity
Service Expenses Component Component Total
O&M Expenses $2,774,704 $842,592 $3,617,296
Capital Expenses $0 $1,508,451 $1,508,451
Non-Operating Revenue ($235,344) ($151,537) ($386,880)
Total FY 2022-23 $2,539,360 $2,199,507 $4,738,866
Units of Service 4,301 7,898
Accounts EMUs
Unit Cost (bi-monthly) $98.40 $46.41
per Account per EMU
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Figure V-14. Proposed Bi-Monthly Service Charge Rates – FY 2022-23 Source: Figures V-12 and V-13.

All meters 1” and larger would receive a rate decrease while customers with a ¾” meter would see an increase. Increased Town overhead allocation expenses are driving a larger increase to the fixed account component portion of the calculated meter charge. As a result, a larger portion of the proposed service charge is fixed, while less of the charge is attributable to the capacity component of the service charge.

For reference, under the previous cost-of-service study, the customer account unit rate of $39.35 per account and the customer capacity component was $24.25 per EMU. This meant for a ¾” meter, the customer account unit rate made up 62% of the overall charge. In contrast, the proposed $98.40 per account is the equivalent of 68% of the overall service charge. A reduced capacity component creates a smaller increment in service charges across the spectrum of available meter sizes.

Figure V-15 shows the proposed five-year schedule of Service Charge rates.

Figure V-15. Proposed Bi-Monthly Service Charge Rates

FIXED AND VARIABLE COSTS AND CHARGES
Balancing the revenue from fixed and variable charges with fixed and variable costs is a consideration in rate design. The differences between fixed and variable costs and charges can affect cash flow, which is also a consideration in determining reserve fund target balances. Greater cash flow differences call for higher target balances to buffer the fluctuations. The following test was made to see how closely the fixed and variable costs match the fixed and variable charges in the rate structure.

Account Total Current
Service Component Capacity Meter Charge Meter Charge $ Change Size ($/bill period) $/EMU Multiplier Total ($/bill period) ($/bill period) ($/Bill period a b c d = b * c e = a + d
3/4" $98.40 $46.41 1.00 $46.41 $144.82 $141.48 $3.34
1" $98.40 $46.41 1.57 $72.94 $171.34 $172.32 ($0.98)
1 1/2" $98.40 $46.41 2.86 $132.61 $231.01 $241.66 ($10.65) 2" $98.40 $46.41 4.57 $212.18 $310.58 $334.13 ($23.55)
3" $98.40 $46.41 9.14 $424.36 $522.76 $580.73 ($57.98)
6" $98.40 $46.41 28.57 $1,326.11 $1,424.52 $1,628.74 ($204.22) 8" $98.40 $46.41 45.71 $2,121.78 $2,220.18 $2,553.45 ($333.27) Capacity Component
Current
Proposed
Service Size Charge CY 2023 CY 2024 CY 2025 CY 2026 CY 2027 3/4" $141.48 $144.82 $153.50 $161.18 $167.63 $170.98
1" $172.32 $171.34 $181.62 $190.70 $198.33 $202.29
1-1/2" $241.66 $231.01 $244.87 $257.12 $267.40 $272.75
2" $334.13 $310.58 $329.22 $345.68 $359.50 $366.69
3" $580.73 $522.76 $554.12 $581.83 $605.10 $617.21
6" $1,628.74 $1,424.52 $1,509.99 $1,585.49 $1,648.91 $1,681.88 8" $2,553.45 $2,220.18 $2,353.40 $2,471.07 $2,569.91 $2,621.31 -470-
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As shown in Figure V-16, the Town’s fixed costs are approximately 62% of the FY 2022-23 revenue requirement. The majority of these fixed costs is for salaries and capital expenditures. 38% of the total revenue requirement is considered to be variable because they vary depending on water demand. 21 Clearly,
the SFPUC volumetric charge is a substantial variable cost.

It is not the practice in the water industry to set the revenue from fixed charges equal to the fixed costs.

The California Urban Water Conservation Council’s best management practice for setting rates recommends limiting the revenue from fixed charges to 30% of total rate revenue because it is recognized that not all fixed revenue comes from fixed charges. A significant amount of revenue comes from Volume Charges associated with non-seasonal water demand (i.e., primarily indoor water use, and minimal outdoor water use and irrigation), which is predictably fixed. In a balanced water rate design, the combination of revenue from fixed charges plus non-seasonal Volume Charges will come close to the fixed costs. If this balance is not met, an allowance for a higher reserve target balance should be made.

As shown in Figure V-16, the revenue from the proposed fixed Service Charges is 30% of the total annual rate revenue. Revenue from the proposed Volume Charges from the highly reliable, non-seasonal Base Day water demand, is 33% of the total annual rate revenue. The sum of the 30% of Service Charge revenue plus the 33% of Base Day Volume Charge revenue is 63% of total revenue, which effectively covers the Town’s fixed costs of 62%. This close match means that cash flows will also match well and that no special provision for additional reserves is warranted. In other words, the rates from Service Charges can be designed to generate less revenue than the fixed costs of the Town because the cumulative revenue received from the Town’s baseline level of demand (i.e., Base Day Demand) and the fixed Service Charges is sufficient to meet its fixed costs.

Figure V-16. Balance of Fixed and Variable Costs and Charges 21 The distinction between fixed and variable costs depends on definitions. Costs that vary based on changes in demand are always considered to be variable. Costs that are unrelated to flow are not necessarily fixed. For example, the amount to spend on annual PAYGo capital improvements or on contributionsto reserves is not as fixed as salaries or debt service, which cannot be deferred.

Fixed Variable Total
$ % of Total $ % of Total $ % of Total
Net Expenses
SFPUC $138,683 1% $5,552,308 35% $5,690,991 36%
Utilties $0 0% $442,075 3% $442,075 3%
Salaries/Benefits $1,265,020 8% $0 0% $1,265,020 8%
Overhead Allocation $2,509,704 16% $0 0% $2,509,704 16% Other O&M (Net of Non-Op Rev.) $1,502,637 10% $0 0% $1,502,637 10% Capital (Debt Service/PAYGo) $4,363,564 28% $0 0% $4,363,564 28% Total $9,779,608 62% $5,994,383 38% $15,773,991 100%
Rate Revenue
Service charges $4,738,866 30% $0 0% $4,738,866 30%
Volume Charges
Non-seasonal Base $5,234,543 33% $0 0% $5,234,543 33%
Seasonal $0 0% $5,800,582 37% $5,800,582 37%
Total $9,973,409 63% $5,800,582 37% $15,773,991 100%
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The correspondence between the fixed and variable costs and charges is not perfectly exact but is certainly reasonable. Customer charges are additive starting with no flow and ending with the highest peak demands. Customers with lower demands do not pay the costs for the highest peak demand but do share in the underlying base costs. Customers with the highest demands only pay the incremental cost of peaking.

It should be noted that the tiered rate structure is applied for entire billing periods, not for increments of time corresponding to seasons, days, or hours. Customers can be charged peak rates for use at any time, not just during the peak hour or peak day. Customers who irrigate during non-peak hours may still be subject to paying peak rates because their total demand during the billing period was so high that their demand was met with the use of peak facilities.

It should also be noted that the high cost of peaking may lead customers to irrigate off the peak or less overall, which could lower peak demands on the system. Although the system is designed to have a certain amount of capacity, the costs of the system are already embedded in the cost structure and will remain until the facilities are replaced.
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VI. CUSTOMER BILL IMPACTS
In the previous chapter, the Volume and Service Charge structures were compared for the current and proposed rates. A further understanding of the differences between the two structures can be gained by comparing bills based on both rate structures.

BILL COMPARISON
Bills Under Proposed and Approved Rates
Customers pay the sum of the Service Charge corresponding to the capacity of their service plus a Volume Charge for water use during the billing period. For purposes of calculating bills, it was assumed that a Service Charge rate for a 1” meter applied; 1” meters are the most common size in the Town. Figure VI-1 provides sample bills for low, average, high (Tier 3), and very high-water users (99th percentile of Residential bills).

Figure VI-1. Sample Customer Bills - Residential (with 1” Meter) Almost two-thirds of bills will see a bi-monthly bill increase of $15.06 or less. That does not mean, however, that two-thirds of customers will see this specific level of increase each billing period. Customers’ bills vary during the year, which means that a customer may have a low bill at one time of the year and pay less and a high bill at another time and pay more. According to 2021 billing data, at least once during the year, 62% of Residential meters recorded a level of consumption that would fall within Tier 3 or Tier 4 levels of demand. Further, during 2021, 35% of Residential meters recorded a level of Tier 4 consumption at least once.

Figure VI-2 provides additional perspective on the impact of the proposed (green line) and approved rates (blue line) .This graph plots bills across a range of consumption. The top of the graph indicates the ranges Low Average High Very High
Demand Assumptions
hcf/bi-monthly period 22 44 78 220
gallons per day 274 549 972 2,743
% of bills up to flow assumption 41% 65% 84% 99%
Bills at Current Rates
Service charge (Meter size) $172.32 $172.32 $172.32 $172.32 Volume Charges $138.84 $310.88 $721.32 $3,050.12
Total Bill $311.16 $483.20 $893.64 $3,222.44
Bills at Proposed Rates
Service charge (Meter size) $171.34 $171.34 $171.34 $171.34 Volume Charges $140.58 $326.92 $789.66 $3,402.46
Total Bi-Monthly Bill $311.92 $498.26 $961.00 $3,573.80 $ Difference $0.76 $15.06 $67.36 $351.36
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of demand corresponding to the tiers developed in the cost-of-service analysis. Customers can expect an increase for a given level of consumption when the proposed rate structure line is above the current rate structure line.

Figure VI-2. Residential Bill Comparison
Source: Town billing data for 2018-2021.

Note: 6% of all Residential customer bills exceed 120 HCF of water use during the bi-monthly billing period.

The scale of the graph makes it difficult to discern the variance between bills at current rates and proposed rates for customers falling within the Tier 1 or Tier 2 range. Customers using 4 HCF or less will see a small savings per bill period while those using between 5 to 44 HCF can expect to see an increase between $0.17 to $15.06 per billing period. Tier 3 Customers using between 45 to 78 HCF will see an increase ranging between $17.93 to $89.68 per bill, as tier breakpoints have shifted under the proposed structure. The cumulative increases to Tier 1 and Tier 2 rates serve to increase Tier 3 and Tier 4 rates. + In these higher tiers, the range of bill increase for a given volume of use depends on the relation of use to the proposed breakpoints. In most cases, the amount of the bill increase grows relative to consumption.

The width of the proposed rates line grows wider from the current rates line. However, customers with usage between 71-78 HCF who pay Tier 4 rates currently will see a smaller increase because of the proposed Tier 3 breakpoint that shifts from 70 to 78 HCF. The incremental unit rate difference between the Tier 3 and Tier 4 rates proposed shrinks from current rates, thus resulting in a smaller increase in slope and a smaller bill increase to customers entering the Tier 4 volume of consumption.

All Non-Residential bills will increase proportionately to the level of consumption. This is reflected by the widening gap between the two lines in Figure VI-3. A 1” meter has been assumed in this comparison, as well.
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Figure VI-3. Non-Residential Bill Comparison
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WATER RATE COST-OF-SERVICE STUDY
Appendix. Water Rate Model
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AB C D E F G H I JK
Town of Hillsborough
Water Rate Cost‐of‐Service Analysis
Tab 1a. Summary
FY 2022‐23 FY 2023‐24 FY 2024‐25 FY 2025‐26 FY 2026‐27 FY 2027‐28 FY 2028‐29 Rate Increases effective Date 1/1/2022 1/1/2023 1/1/2024 1/1/2025 1/1/2026 1/2/2026 1/3/2026 Revenue Increases (before Water Use) 6.0% 6.0% 5.0% 4.0% 2.0% 0.0% 0.0% COS
Service Charge Increase: 6.0% 6.0% 5.0% 4.0% 2.0% 0.0% 0.0% Volumetric Rate Increase: 6.0% 6.0% 5.0% 4.0% 2.0% 0.0% 0.0% Debt Coverage Ratio 2.42 2.83 3.51 4.64 4.81 3.85 3.56
Assumed Water Purchases (HCF) 1,110,662 1,110,662 1,239,171 1,239,171 1,239,171 1,239,171 1,239,171 PAYGo Capital Spending: $4,843,125 $2,547,240 $3,960,804 $3,946,131 $1,216,264 $2,899,234 $2,971,714 7‐ Year Annual Average PAYGo: $3,197,787
Method of Funding "Highline" Water Pipeline Project: SRF Loan Fund Balance with Rate Increases
Fund Balance WITHOUT Rate Changes
$0.0$2.0$4.0$6.0$8.0
$10.0
FY 2021‐22 FY 2022‐23 FY 2023‐24 FY 2024‐25 FY 2025‐26 FY 2026‐27 FY 2027‐28 FY 2028‐29 Ending Fund Balances(in Millions) Operatng Reserve
Target Reserve
Rate Stabilization
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1a. Summary
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Town of Hillsborough
Water Rate Cost‐of‐Service Analysis
Tab 1b. Budget Assumptions and Reserve Fund Policies
FY 2021‐22 FY 2022‐23 FY 2023‐24 FY 2024‐25 FY 2025‐26 FY 2026‐27 FY 2027‐28 FY 2028‐29 Notes Assumptions
(1) General Inflation 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% Town Estimate (2) Salaries
& Benefits 4.5% 4.5% 4.5% 4.5% 4.5% 4.5% 4.5% 4.5% Town Estimate (3) Interest on Earnings 0.5% 0.5% 0.5% 0.5% 0.5% 0.5% 0.5% 0.5% Town Estimate (4) Non‐rate Revenues 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% Town Estimate (5)
% Change in Demand (cumulative) 0.0% ‐10.4% 0.0% 11.6% 0.0% 0.0% 0.0% 0.0% Town Estimate, prior 3 year average (6) SFPUC Water Rates ($/HCF) $4.10 $4.75 $5.28 $5.28 $5.32 $5.32 $5.48 $5.64 Rates adjusted July 1 (7) SFPUC Service Charge Budget 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% % of SFPUC Purchased Water Charge (8) SFPUC Water Purchases (HCF) 1,239,171 1,110,662 1,110,662 1,239,171 1,239,171 1,239,171 1,239,171 1,239,171 Town Estimates (9) SFPUC Water Purchase Losses 5.0% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% Town Estimate (10) SFPUC BAWSCA Bond Surcharge ($/HCF) $0.32 $0.40 0.0% 0.0% 0.0% 0.0% 3.0% 3.0% Town Budget through FY 2026‐27 (11) Construction Cost Inflation 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% Town Estimate Reserve Fund Policies Legend
Minimum balance input assumption
Purpose For O&M cash flow during the year input approved value Minimum balance Cannot go negative calculated valueTarget balance 20% of Annual Operating Expenses (includes $375k bond reserve) COS result Capital Reserve
Purpose For replacement of Equipment/FacilitiesMinimum balance Cannot go negative Target balance Average annual capital expenditures
Model Tabs
Tab 1a. Summary Tab 6b. SRF Cash Flow
Tab 1b. Budget Assumptions and Reserve Fund Policies Tab 7. Load Factors Tab 2. Revenue Requirements Tab 8. FY 2022‐23 Cost Allocations Tab 3a. Revenue Increase Summary Tab 9a. Service Charge Allocations Tab 3b. Service Charge Revenue Tab 9b. Quantity Charge CalculationsTab 3c. Volumetric Rates Revenue Tab 10. Pass‐Through Adjustment Tab 4. Reserves Summary and Fund Balance Tab 11a. Revenue Stabilization Factors Historic Water Use Tab 5. Capital Improvement Projects Tab 11b. Revenue Stabilization TablesTab 6a. Debt Service HF&H Consultants, LLC7/26/2022
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1b. Assumptions
& Policies
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Town of HillsboroughWater Rate Cost‐of‐Service Study
Tab 2. Revenue Requirements
Projected
FY 2022‐23 FY 2023‐24 FY 2024‐25 FY 2025‐26 FY 2026‐27 FY 2027‐28 FY 2028‐29 Notes Water Per Budget
Operating Expenses City budget
SFPUC Water Purchases
Purchased Water 5,064,621 5,629,726 6,281,109 6,328,693 6,328,693 6,518,554 6,714,111 Calculated based on Town losses, historic purchases, Town water loss assumption SFPUC Service Charge 138,683 142,150 145,703 149,346 153,080 156,907 160,829 Town Budget BAWSCA Surcharge 487,687 487,687 487,687 487,687 487,687 502,318 517,387 Town Budget, assume 3% increases in FY 2027‐28, FY 2028‐29 btotal, SFPUC Water Purchases 5,690,991 6,259,563 6,914,499 6,965,726 6,969,460 7,177,778 7,392,327 to Tab 3 Annual Change 4.8% 10.0% 10.5% 0.7% 0.1% 3.0% 3.0%
Subtotal, Salaries
& Benefits 1,265,020 1,339,960 1,395,183 1,444,526 1,521,296 1,589,754 1,661,293 Town budget Annual Change ‐1.4% 5.9% 4.1% 3.5% 5.3% 4.5% 4.5%
Subtotal, Materials
& Services 2,826,866 2,582,181 2,642,669 2,704,669 2,768,219 2,837,424 2,908,360 Town budget Annual Change 21.9% ‐8.7% 2.3% 2.3% 2.3% 2.5% 2.5%
Other
Replacement ‐ ISF Trans $265,000 $100,000 $100,000 $100,000 $100,000 $100,000 $100,000 Equipment Replacement Estimates Overhead Allocation $2,509,704 $2,584,995 $2,662,544 $2,742,421 $2,824,693 $2,951,805 $3,084,636 Town budget Total Operating Expenses 12,557,581 12,866,698 13,714,896 13,957,342 14,183,668 14,656,761 15,146,616 to Tab 3

9.2% 2.5% 6.6% 1.8% 1.6% 3.3% 3.3% 3.4%
Non‐Operating Expenses
Transfer to/(from) Opera $ ‐ (1,090,654) $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ Transfer to Capital Reserv $3,197,787 $3,197,787 $3,197,787 $3,197,787 $3,197,787 $3,197,787 $3,197,787 Avg. Annual CIP Debt Service $1,165,776 $1,214,298 $1,194,266 $1,177,068 $1,207,289 $1,437,923 $1,416,001 from Tab 6a total, Non‐Operating Expenses $ 3,272,910 $ 4,412,085 $ 4,392,054 $ 4,374,855 $ 4,405,076 $ 4,635,711 $ 4,613,788 ‐34.5% 34.8% ‐0.5% ‐0.4% 0.7% 5.2% ‐0.5%
otal, Non‐Operating Revenues ($56,500) ($56,500) ($56,500) ($56,500) ($56,500) ($56,500) ($56,500) to Tab 3; FY 2022‐23 and beyond from Town estimate Net Revenue Requirement 15,773,991 $ $ 17,222,284 $ 18,050,449 $ 18,275,697 $ 18,532,244 $ 19,235,972 $ 19,703,904 to Tab 3 $12,576,203 $14,024,496 $14,852,662 $15,077,910 $15,334,457 $16,038,185 $16,506,116

0.0% 11.5% 5.9% 1.5% 1.7% 4.6% 2.9%
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2. Rev Req
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A B CE F G H I J K L
Town of Hillsborough
Water Rate Cost‐of‐Service Study
Tab 3a. Revenue Increase Summary
Projected
FY 2022‐23 FY 2023‐24 FY 2024‐25 FY 2025‐26 FY 2026‐27 FY 2027‐28 FY 2028‐29 Revenue from Current Rates
Service Charges $4,815,618 $4,815,618 $4,815,618 $4,815,618 $4,815,618 $4,815,618 $4,815,618Volume Charges $11,113,153 $11,113,153 $11,113,153 $11,113,153 $11,113,153 $11,113,153 $11,113,153 FY 2021‐22 baseline(less) Conservation/ plus additional volume ($1,047,647) ($1,047,647) $116,981 $116,981 $116,981 $116,981 $116,981 from tab 3c Net Revenue from Current Rates $14,881,123 $14,881,123 $16,045,751 $16,045,751 $16,045,751 $16,045,751 $16,045,751 Revenue Requirement ($15,773,991) ($17,222,284) ($18,050,449) ($18,275,697) ($18,532,244) ($19,235,972) ($19,703,904) from tab 2 To/(From) Reserves before Rate Increases ($892,867) ($2,341,160) ($2,004,698) ($2,229,946) ($2,486,493) ($3,190,220) ($3,658,152) Proposed Revenue Increases before consumption 6.0
% 6.0
% 5.0
% 4.0
% 2.0
% 0.0
% 0.0
% from tab 1a
Revenue with Increases
Total Current Service Charge Revenue $4,815,618 $4,815,618 $4,815,618 $4,815,618 $4,815,618 $4,815,618 $4,815,618 Service Charge Revenue Increase 6.0
% 6.0
% 5.0
% 4.0
% 2.0
% 0.0
% 0.0
% from tab 1a
Revenue from Service Charge Increases
January 1, 2022 0 $0 $0 $0 $0 $0 $0 $0January 1, 2023 6 $144,469 $288,937 $288,937 $288,937 $288,937 $288,937 $288,937January 1, 2024 6 $153,137 $306,273 $306,273 $306,273 $306,273 $306,273 January 1, 2025 6 $135,271 $270,541 $270,541 $270,541 $270,541 January 1, 2026 6 $113,627 $227,255 $227,255 $227,255
January 1, 2027 6 $59,086 $118,172 $118,172
January 1, 2028 6 $0 $0
January 1, 2029 6 $0
Subtotal, Service Charge Revenue Incr $144,469 $442,074 $730,481 $979,379 $1,152,093 $1,211,179 $1,211,179 Total Current Quantity Charge Revenue $10,065,506 $10,065,506 $11,230,134 $11,230,134 $11,230,134 $11,230,134 $11,230,134 Quantity Charge Revenue Increase 6.0
% 6.0
% 5.0
% 4.0
% 2.0
% 0.0
% 0.0
%
Revenue from Quantity Charge Rate Increases
January 1, 2022 0 $0 $0 $0 $0 $0 $0 $0January 1, 2023 6 $301,965 $603,930 $673,808 $673,808 $673,808 $673,808 $673,808January 1, 2024 6 $320,083 $714,237 $714,237 $714,237 $714,237 $714,237January 1, 2025 6 $315,454 $630,909 $630,909 $630,909 $630,909January 1, 2026 6 $264,982 $529,963 $529,963 $529,963 January 1, 2027 6 $137,791 $275,581 $275,581
January 1, 2028 6 $0 $0
January 1, 2029 6 $0
Subtotal, Vol Charge Revenue Incr $301,965 $924,013 $1,703,499 $2,283,935 $2,686,707 $2,824,498 $2,824,498 Revenue with Increases $15,327,557 $16,247,211 $18,479,731 $19,309,066 $19,884,552 $20,081,428 $20,081,428Revenue Requirement ($15,773,991) ($17,222,284) ($18,050,449) ($18,275,697) ($18,532,244) ($19,235,972) ($19,703,904) Surplus/(Shortfall) ($446,434) ($975,073) $429,282 $1,033,369 $1,352,308 $845,457 $377,525 Projected Revenue with Cost‐of‐Service
Adjusted Service Charge Revenue $4,777,242 $4,881,032 $5,148,778 $5,379,845 $5,540,186 $5,595,039 $5,595,039 from tab 3b Adjusted Volume Charge Revenue $10,550,319 $11,366,178 $12,700,208 $13,977,247 $14,393,824 $14,536,337 $14,536,337 from tab 3c Total Rate Revenue $15,327,561 $16,247,211 $17,848,986 $19,357,093 $19,934,010 $20,131,376 $20,131,376 Overall Revenue Increase ‐3.8% 6.0% 9.9% 8.4% 3.0% 1.0% 0.0% Net Revenue Requirements $15,773,991 $17,222,284 $18,050,449 $18,275,697 $18,532,244 $19,235,972 $19,703,904 from Tab 2 To/(From) Op Reserves after Rate Adjs ($446,430) ($975,073) ($201,463) $1,081,396 $1,401,766 $895,404 $427,472 to Tab 4 HF&H Consultants, LLC7/26/2022
4 of 21
Hillsborough COS Model 6Jun2022
3a. Rev Increase
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A B C D E F G H I J K L M N O P Q R S T U V W X Y Z AA AB AC AD AE AF AG Town of Hillsborough
Water Rate Cost‐of‐Service Study
Tab 3b. Service Charge Revenue
Source: Meter Size and County Query.xls received from Town on 4/25/22 Meter CountsResidential ‐ Bi‐Monthly Residential ‐ Monthly Non‐Residential ‐ Monthly FY 2021‐22 FY 2022‐23 FY 2023‐24 FY 2024‐25 FY 2025‐26 FY 2026‐27 FY 2027‐28 FY 2028‐29 FY 2021‐22 FY 2022‐23 FY 2023‐24 FY 2024‐25 FY 2025‐26 FY 2026‐27 FY 2027‐28 FY 2028‐29 FY 2021‐22 FY 2022‐23 FY 2023‐24 FY 2024‐25 FY 2025‐26 FY 2026‐27 FY 2027‐28 FY 2028‐29 Size Size Size3/4" 69 69 69 69 69 69 69 69 3/4" 0 0000000 3/4" 7 777777 71" 3,644 3,644 3,644 3,644 3,644 3,644 3,644 3,644 1" 5 5 5 5 5 5 5 5 1" 72 72 72 72 72 72 72 721 1/2" 225 225 225 225 225 225 225 225 1 1/2" 2 2 2 2 2 2 2 21 1/2" 3 333333 32" 233 233 233 233 233 233 233 233 2" 12 12 12 12 12 12 12 12 2" 27 27 27 27 27 27 27 273" 0 0 0 0 0 0 0 0 3" 0 0 0 0 0 0 0 0 3" 0 0 0 0 0 0 0 06" 0 0 0 0 0 0 0 0 6" 0 0 0 0 0 0 0 0 6" 1 1 1 1 1 1 1 18" 0 0 0 0 0 0 0 0 8" 0 0 0 0 0 0 0 0 8" 1 1 1 1 1 1 1 1 Total 4,171 4,171 4,171 4,171 4,171 4,171 4,171 4,171 Total 19 19 19 19 19 19 19 19 Total 111 111 111 111 111 111 111 111 Meter RatesResidential ‐ Bi‐Monthly Residential ‐ Monthly Non‐Residential ‐ Monthly FY 2021‐22 FY 2022‐23 FY 2023‐24 FY 2024‐25 FY 2025‐26 FY 2026‐27 FY 2027‐28 FY 2028‐29 FY 2021‐22 FY 2022‐23 FY 2023‐24 FY 2024‐25 FY 2025‐26 FY 2026‐27 FY 2027‐28 FY 2028‐29 FY 2021‐22 FY 2022‐23 FY 2023‐24 FY 2024‐25 FY 2025‐26 FY 2026‐27 FY 2027‐28 FY 2028‐29 Rate Increases Current COS 6.0% 5.0% 4.0% 2.0% 0.0% 0.0% Rate Increases Current COS 6.0% 5.0% 4.0% 2.0% 0.0% 0.0% Rate Increases Current COS 6.0% 5.0% 4.0% 2.0% 0.0% 0.0% 3/4" $141.48 $144.82 $153.50 $161.18 $167.63 $170.98 $170.98 $170.98 3/4" $70.74 $72.41 $76.75 $80.59 $83.81 $85.49 $85.49 $85.49 3/4" $70.74 $72.41 $76.75 $80.59 $83.81 $85.49 $85.49 $85.491" $172.32 $171.34 $181.62 $190.70 $198.33 $202.29 $202.29 $202.29 1" $86.16 $85.67 $90.81 $95.35 $99.16 $101.15 $101.15 $101.15 1" $86.16 $85.67 $90.81 $95.35 $99.16 $101.15 $101.15 $101.151 1/2" $241.66 $231.01 $244.87 $257.12 $267.40 $272.75 $272.75 $272.75 1 1/2" $120.83 $115.51 $122.44 $128.56 $133.70 $136.38 $136.38 $136.38 1 1/2" $120.83 $115.51 $122.44 $128.56 $133.70 $136.38 $136.38 $136.382" $334.13 $310.58 $329.22 $345.68 $359.50 $366.69 $366.69 $366.69 2" $167.07 $155.29 $164.61 $172.84 $179.75 $183.35 $183.35 $183.35 2" $167.07 $155.29 $164.61 $172.84 $179.75 $183.35 $183.35 $183.353" $580.73 $522.76 $554.12 $581.83 $605.10 $617.21 $617.21 $617.21 3" $290.37 $261.38 $277.06 $290.92 $302.55 $308.60 $308.60 $308.60 3" $290.37 $261.38 $277.06 $290.92 $302.55 $308.60 $308.60 $308.606" $1,628.74 $1,424.52 $1,509.99 $1,585.49 $1,648.91 $1,681.88 $1,681.88 $1,681.88 6" $814.37 $712.26 $754.99 $792.74 $824.45 $840.94 $840.94 $840.94 6" $814.37 $712.26 $754.99 $792.74 $824.45 $840.94 $840.94 $840.948" $2,553.45 $2,220.18 $2,353.40 $2,471.07 $2,569.91 $2,621.31 $2,621.31 $2,621.31 8" $1,276.73 $1,110.09 $1,176.70 $1,235.53 $1,284.95 $1,310.65 $1,310.65 $1,310.65 8" $1,276.73 $1,110.09 $1,176.70 $1,235.53 $1,284.95 $1,310.65 $1,310.65 $1,310.65 HF&H Consultants, LLC7/26/2022 5 of 21
Hillsborough COS Model 6Jun2022
3b. Service Charge Revenue
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1 23

A B C D E F G H I J K L M N O P Q R S T U V W X Y Z AA AB AC AD AE AF AG Town of Hillsborough
Water Rate Cost‐of‐Service Study
Tab 3b. Service Charge Revenue
35363738394041424344454647484950515253545556575859606162636465666768697071727374757677 Meter RevenuesResidential ‐ Bi‐Monthly Residential ‐ Monthly Non‐Residential ‐ Monthly FY 2021‐22 FY 2022‐23 FY 2023‐24 FY 2024‐25 FY 2025‐26 FY 2026‐27 FY 2027‐28 FY 2028‐29 FY 2021‐22 FY 2022‐23 FY 2023‐24 FY 2024‐25 FY 2025‐26 FY 2026‐27 FY 2027‐28 FY 2028‐29 FY 2021‐22 FY 2022‐23 FY 2023‐24 FY 2024‐25 FY 2025‐26 FY 2026‐27 FY 2027‐28 FY 2028‐29 # of Mo's Rate Adj. Effective 6 6 6 6 6 6 6# of Mo's Rate Adj. Effective 6 6 6 6 6 6 6# of Mo's Rate Adj. Effective 666666 6 3/4" $58,573 $58,573 $59,263 $61,752 $65,140 $68,063 $70,092 $70,786 $70,786 3/4" $0 $0 $0 $0 $0 $0 $0 $0 $0 3/4" $5,942 $5,942 $6,012 $6,265 $6,608 $6,905 $7,111 $7,181 $7,1811" $3,767,604 $3,767,604 $3,756,871 $3,858,523 $4,070,179 $4,252,841 $4,379,593 $4,422,955 $4,422,955 1" $5,170 $5,170 $5,155 $5,294 $5,585 $5,835 $6,009 $6,069 $6,069 1" $74,442 $74,442 $74,230 $76,239 $80,421 $84,030 $86,534 $87,391 $87,3911 1/2" $326,241 $326,241 $319,055 $321,224 $338,845 $354,051 $364,603 $368,213 $368,213 1 1/2" $2,900 $2,900 $2,836 $2,855 $3,012 $3,147 $3,241 $3,273 $3,273 1 1/2" $4,350 $4,350 $4,254 $4,283 $4,518 $4,721 $4,861 $4,910 $4,9102" $467,114 $467,114 $450,652 $447,217 $471,749 $492,920 $507,611 $512,637 $512,637 2" $24,058 $24,058 $23,210 $23,033 $24,296 $25,386 $26,143 $26,402 $26,402 2" $54,131 $54,131 $52,222 $51,823 $54,666 $57,119 $58,822 $59,404 $59,4043" $0 $0 $0 $0 $0 $0 $0 $0 $0 3" $0 $0 $0 $0 $0 $0 $0 $0 $0 3" $0 $0 $0 $0 $0 $0 $0 $0 $06" $0 $0 $0 $0 $0 $0 $0 $0 $0 6" $0 $0 $0 $0 $0 $0 $0 $0 $0 6" $9,772 $9,772 $9,160 $8,804 $9,286 $9,703 $9,992 $10,091 $10,0918" $0 $0 $0 $0 $0 $0 $0 $0 $0 8" $0 $0 $0 $0 $0 $0 $0 $0 $0 8" $15,321 $15,321 $14,321 $13,721 $14,473 $15,123 $15,574 $15,728 $15,728 Total $4,619,532 $4,619,532 $4,585,842 $4,688,716 $4,945,913 $5,167,875 $5,321,898 $5,374,590 $5,374,590 Total $32,128 $32,128 $31,201 $31,182 $32,893 $34,369 $35,393 $35,744 $35,744 Total $163,958 $163,958 $160,199 $161,134 $169,973 $177,601 $182,894 $184,705 $184,705 Grand Total $4,815,618 $4,777,242 $4,881,032 $5,148,778 $5,379,845 $5,540,186 $5,595,039 $5,595,039 Total Meters FY 2021‐22 FY 2022‐23 FY 2023‐24 FY 2024‐25 FY 2025‐26 FY 2026‐27 FY 2027‐28 FY 2028‐29 3/4" 76 76 76 76 76 76 76 761" 3,721 3,721 3,721 3,721 3,721 3,721 3,721 3,7211 1/2" 230 230 230 230 230 230 230 230 2" 272 272 272 272 272 272 272 2723" 0 0 0 0 0 0 0 06" 1 1 1 1 1 1 1 18" 1 1 1 1 1 1 1 1 Total 4,301 4,301 4,301 4,301 4,301 4,301 4,301 4,301
Meter Revenues at Current Rates
Residential ‐ Bi‐Monthly Residential ‐ Monthly Non‐Residential ‐ Monthly FY 2021‐22 FY 2022‐23 FY 2023‐24 FY 2024‐25 FY 2025‐26 FY 2026‐27 FY 2027‐28 FY 2028‐29 FY 2021‐22 FY 2022‐23 FY 2023‐24 FY 2024‐25 FY 2025‐26 FY 2026‐27 FY 2027‐28 FY 2028‐29 FY 2021‐22 FY 2022‐23 FY 2023‐24 FY 2024‐25 FY 2025‐26 FY 2026‐27 FY 2027‐28 FY 2028‐29 # of Mo's Rate Adj. Effective 6 6 6 6 6 6 6# of Mo's Rate Adj. Effective 6 6 6 6 6 6 6# of Mo's Rate Adj. Effective 666666 6 3/4" $58,573 $58,573 $58,573 $58,573 $58,573 $58,573 $58,573 $58,573 $58,573 3/4" $0 $0 $0 $0 $0 $0 $0 $0 $0 3/4" $5,942 $5,942 $5,942 $5,942 $5,942 $5,942 $5,942 $5,942 $5,9421" $3,767,604 $3,767,604 $3,767,604 $3,767,604 $3,767,604 $3,767,604 $3,767,604 $3,767,604 $3,767,604 1" $5,170 $5,170 $5,170 $5,170 $5,170 $5,170 $5,170 $5,170 $5,170 1" $74,442 $74,442 $74,442 $74,442 $74,442 $74,442 $74,442 $74,442 $74,4421 1/2" $326,241 $326,241 $326,241 $326,241 $326,241 $326,241 $326,241 $326,241 $326,241 1 1/2" $2,900 $2,900 $2,900 $2,900 $2,900 $2,900 $2,900 $2,900 $2,900 1 1/2" $4,350 $4,350 $4,350 $4,350 $4,350 $4,350 $4,350 $4,350 $4,3502" $467,114 $467,114 $467,114 $467,114 $467,114 $467,114 $467,114 $467,114 $467,114 2" $24,058 $24,058 $24,058 $24,058 $24,058 $24,058 $24,058 $24,058 $24,058 2" $54,131 $54,131 $54,131 $54,131 $54,131 $54,131 $54,131 $54,131 $54,1313" $0 $0 $0 $0 $0 $0 $0 $0 $0 3" $0 $0 $0 $0 $0 $0 $0 $0 $0 3" $0 $0 $0 $0 $0 $0 $0 $0 $06" $0 $0 $0 $0 $0 $0 $0 $0 $0 6" $0 $0 $0 $0 $0 $0 $0 $0 $0 6" $9,772 $9,772 $9,772 $9,772 $9,772 $9,772 $9,772 $9,772 $9,7728" $0 $0 $0 $0 $0 $0 $0 $0 $0 8" $0 $0 $0 $0 $0 $0 $0 $0 $0 8" $15,321 $15,321 $15,321 $15,321 $15,321 $15,321 $15,321 $15,321 $15,321 Total $4,619,532 $4,619,532 $4,619,532 $4,619,532 $4,619,532 $4,619,532 $4,619,532 $4,619,532 $4,619,532 Total $32,128 $32,128 $32,128 $32,128 $32,128 $32,128 $32,128 $32,128 $32,128 Total $163,958 $163,958 $163,958 $163,958 $163,958 $163,958 $163,958 $163,958 $163,958 Grand Total $4,815,618 $4,815,618 $4,815,618 $4,815,618 $4,815,618 $4,815,618 $4,815,618 $4,815,618 HF&H Consultants, LLC7/26/2022 6 of 21
Hillsborough COS Model 6Jun2022
3b. Service Charge Revenue
-483-
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A B C D E F G H I J K LM N O P Q R S T U V W
Town of Hillsborough
Water Rate Cost‐of‐Service Study Projected Water Purchases 1,239,171 1,110,662 1,110,662 1,239,171 1,239,171 1,239,171 1,239,171 1,239,171 Tab 3c. Volumetric Rates Revenue Projected Demand ‐ 4.0% losses 1,177,212 1,066,236 1,066,236 1,189,604 1,189,604 1,189,604 1,189,604 1,189,604 Source: Meter Size and County Query.xls received from Town on 4/25/22 FY 2021‐22: Assumes 2018‐2021 average consumption adjustments to 2018‐2021 historical consumption: 1.8% ‐7.8% ‐7.8% 2.9% 2.9% 2.9% 2.9% 2.9% Water Sales
Residential ‐ Bi‐Monthly Non‐Residential ‐ Monthly
FY 2021‐22 FY 2022‐23 FY 2023‐24 FY 2024‐25 FY 2025‐26 FY 2026‐27 FY 2027‐28 FY 2028‐29 FY 2021‐22 FY 2022‐23 FY 2023‐24 FY 2024‐25 FY 2025‐26 FY 2026‐27 FY 2027‐28 FY 2028‐29 Tier Consumption
Tier 1 422,135 382,340 410,675 410,675 458,192 458,192 458,192 458,192 458,192 Total 45,806 41,488 41,488 41,488 46,288 46,288 46,288 46,288 46,288 Tier 2 291,392 263,923 235,588 235,588 262,846 262,846 262,846 262,846 262,846 Tier 3 176,229 159,616 192,129 192,129 214,359 214,359 214,359 214,359 214,359 Tier 4 241,650 218,869 186,357 186,357 207,919 207,919 207,919 207,919 207,919 Total 1,131,406 1,024,748 1,024,748 1,024,748 1,143,316 1,143,316 1,143,316 1,143,316 1,143,316 Total 45,806 41,488 41,488 46,288 46,288 46,288 46,288 46,288 Total Water Sales (HCF) 1,177,212 1,066,236 1,066,236 1,189,604 1,189,604 1,189,604 1,189,604 1,189,604 Volumetric RatesResidential ‐ Bi‐Monthly Non‐Residential ‐ Monthly FY 2021‐22 FY 2022‐23 FY 2023‐24 FY 2024‐25 FY 2025‐26 FY 2026‐27 FY 2027‐28 FY 2028‐29 FY 2021‐22 FY 2022‐23 FY 2023‐24 FY 2024‐25 FY 2025‐26 FY 2026‐27 FY 2027‐28 FY 2028‐29 Rate Increases Current 6% 6% 5% 4% 2% 0% 0% Rate Increases Current 6% 6% 5% 4% 2% 0% 0% Tier 1 $6.16 $6.39 $6.77 $7.11 $7.39 $7.54 $7.54 $7.54 3.7% $8.26 $8.99 $9.53 $10.01 $10.41 $10.62 $10.62 $10.62 Tier 2 $7.82 $8.47 $8.98 $9.43 $9.80 $10.00 $10.00 $10.00 8.3%Tier 3 $10.74 $13.61 $14.43 $15.15 $15.76 $16.07 $16.07 $16.07 26.7% Tier 4 $16.40 $18.40 $19.50 $20.48 $21.30 $21.72 $21.72 $21.72 12.2%

2.66 2.88
Volumetric SalesResidential ‐ Bi‐Monthly Non‐Residential ‐ Monthly FY 2021‐22 FY 2022‐23 FY 2023‐24 FY 2024‐25 FY 2025‐26 FY 2026‐27 FY 2027‐28 FY 2028‐29 FY 2021‐22 FY 2022‐23 FY 2023‐24 FY 2024‐25 FY 2025‐26 FY 2026‐27 FY 2027‐28 FY 2028‐29 # of Mo's Rate Adj. Effective 6666666 # of Mo's Rate Adj. Effective 6666666 Tier 1 $2,600,351 $2,529,757 $2,489,133 $2,701,743 $3,018,842 $3,322,394 $3,421,415 $3,455,290 $3,455,290 $378,357 $342,689 $357,880 $384,264 $429,364 $472,538 $486,621 $491,439 $491,439 Tier 2 $2,278,686 $1,842,297 $2,029,557 $2,055,097 $2,296,300 $2,527,199 $2,602,520 $2,628,287 $2,628,287 Tier 3 $1,892,703 $2,063,465 $2,164,745 $2,693,670 $3,009,821 $3,312,467 $3,411,191 $3,444,965 $3,444,965 Tier 4 $3,963,056 $3,056,247 $3,509,004 $3,531,405 $3,945,881 $4,342,649 $4,472,077 $4,516,355 $4,516,355 Total $10,734,796 $9,491,766 $10,192,439 $10,981,915 $12,270,844 $13,504,710 $13,907,203 $14,044,898 $14,044,898 Total $378,357 $342,689 $357,880 $384,264 $429,364 $472,538 $486,621 $491,439 $491,439 Grand Total Volumetric Sales $11,113,153 $9,834,456 $10,550,319 $11,366,178 $12,700,208 $13,977,247 $14,393,824 $14,536,337 $14,536,337 Volumetric Sales at Current Rates, Current Breakpoints ‐ used to determine customer class proportions on Tab 8 FY 2021‐22 FY 2022‐23 FY 2023‐24 FY 2024‐25 FY 2025‐26 FY 2026‐27 FY 2027‐28 FY 2028‐29 FY 2021‐22 FY 2022‐23 FY 2023‐24 FY 2024‐25 FY 2025‐26 FY 2026‐27 FY 2027‐28 FY 2028‐29 TierTier 1 422,135 382,340 382,340 382,340 426,578 426,578 426,578 426,578 426,578 Tier 2 291,392 263,923 263,923 263,923 294,459 294,459 294,459 294,459 294,459Tier 3 176,229 159,616 159,616 159,616 178,084 178,084 178,084 178,084 178,084 Tier 4 241,650 218,869 218,869 218,869 244,194 244,194 244,194 244,194 244,194 Total 1,131,406 1,024,748 1,024,748 1,024,748 1,143,316 1,143,316 1,143,316 1,143,316 1,143,316 45,806 41,488 41,488 41,488 46,288 46,288 46,288 46,288 46,288 1,177,212 1,066,236 1,066,236 1,066,236 1,189,604 1,189,604 1,189,604 1,189,604 1,189,604 Residential ‐ Bi‐Monthly Non‐Residential ‐ Monthly
FY 2021‐22 FY 2022‐23 FY 2023‐24 FY 2024‐25 FY 2025‐26 FY 2026‐27 FY 2027‐28 FY 2028‐29 FY 2021‐22 FY 2022‐23 FY 2023‐24 FY 2024‐25 FY 2025‐26 FY 2026‐27 FY 2027‐28 FY 2028‐29 # of Mo's Rate Adj. Effective 6666666 # of Mo's Rate Adj. Effective 6666666 Tier 1 $2,600,351 $2,355,215 $2,355,215 $2,355,215 $2,491,469 $2,627,724 $2,627,724 $2,627,724 $2,627,724 $378,357 $342,689 $342,689 $342,689 $362,515 $382,340 $382,340 $382,340 $382,340 Tier 2 $2,278,686 $2,063,874 $2,063,874 $2,063,874 $2,183,274 $2,302,673 $2,302,673 $2,302,673 $2,302,673 Tier 3 $1,892,703 $1,714,277 $1,714,277 $1,714,277 $1,813,452 $1,912,626 $1,912,626 $1,912,626 $1,912,626 Tier 4 $3,963,056 $3,589,458 $3,589,458 $3,589,458 $3,797,116 $4,004,774 $4,004,774 $4,004,774 $4,004,774 Total $10,734,796 $9,722,825 $9,722,825 $9,722,825 $10,285,311 $10,847,797 $10,847,797 $10,847,797 $10,847,797 Total $378,357 $342,689 $342,689 $342,689 $362,515 $382,340 $382,340 $382,340 $382,340 Rate Increase FY 22‐23: 6.0%
Grand Total Volumetric Sales at Current Rates, Current Breakpoints $11,113,153 $10,065,514 $10,065,514 $10,065,514 $10,647,825 $11,230,137 $11,230,137 $11,230,137 $11,230,137 HF&H Consultants, LLC7/26/2022 7 of 21
Hillsborough COS Model 6Jun2022
3c. Volumetric Revenue
-484-
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101112131415161718192021222324252627282930313233343536373839404142434445464748

A B CD E F G H I J K
Town of Hillsborough
Water Rate Cost‐of‐Service Study
Tab 4. Reserves Summary and Fund Balance
FY 2021‐22 FY 2022‐23 FY 2023‐24 FY 2024‐25 FY 2025‐26 FY 2026‐27 FY 2027‐28 FY 2028‐29 Notes Operations Reserve with Rate Increases
Beginning Balance 4,991,007 $4,676,642 $3,720,077 $4,170,106 $5,229,492 $6,614,709 $7,497,466 Operations Surplus/(Deficit) ($446,434) ($975,073) $429,282 $1,033,369 $1,352,308 $845,457 $377,525 from Tab 3a Subtotal 4,544,573 3,701,569 4,149,359 5,203,475 6,581,800 7,460,165 7,874,991 Interest Income $22,723 $18,508 $20,747 $26,017 $32,909 $37,301 $39,375 Transfers (To)/From:

ARPA $1,200,000
Revenue Requirements ($1,090,654) to Tab 2
Capital Reserves $0 $0 $0 $0 $0 $0 $0 to/From Below
Ending Balance 4,991,007 4,676,642 3,720,077 4,170,106 5,229,492 6,614,709 7,497,466 7,914,366 FY 2021‐22 ending balance includes CIP Target Balance $2,886,516 $2,886,516 $2,948,340 $3,117,979 $3,166,468 $3,211,734 $3,306,352 $3,404,323 20% of Annual OpExp (from Tab 2) + $375k Bond Reserve
Capital Reserve
Beginning Balance $4,048,302 $3,014,234 $878,584 ($266,583) ($1,847,511) ($41,402) $1,084,138 Revenues
Connection Fee Revenue $35,000 $35,000 $35,000 $35,000 $35,000 $35,000 $35,000 Connection fees included in Tab 2 Non‐ Expenses
PayGo Projects ($4,164,355) ($4,843,125) ($2,547,240) ($3,960,804) ($3,946,131) ($2,899,234) ($2,971,714) From Tab 5 Cash Needs for SRF Projects ($102,500) ($525,313) ($1,830,714) ($852,912) $2,519,453 $791,986 $0 From Tab 6b Subtotal ($183,553) ($2,319,203) ($3,464,370) ($5,045,298) ($3,239,189) ($2,113,650) ($1,852,577)Interest Income $0 $0 $0 $0 $0 $0 $0 Transfers (To)/From:

Operations Fund To/From Above
Revenue Requirements ‐ PayGo Projects $3,197,787 $3,197,787 $3,197,787 $3,197,787 $3,197,787 $3,197,787 $3,197,787 To Tab 2 Ending Balance $4,048,302 $3,014,234 $878,584 ($266,583) ($1,847,511) ($41,402) $1,084,138 $1,345,211 Target Balance $3,197,787 $3,197,787 $3,197,787 $3,197,787 $3,197,787 $3,197,787 $3,197,787 $3,197,787 Average annual CIP; from Tab 5 FY 2021‐22 FY 2022‐23 FY 2023‐24 FY 2024‐25 FY 2025‐26 FY 2026‐27 FY 2027‐28 FY 2028‐29 Fund Balance WITHOUT Rate Changes $9,039,309 $7,135,097 $2,676,795 ($452,324) ($4,237,180) ($4,884,655) ($6,912,035) ($10,269,739) row 44 + row 28 Fund Balance WITH Rate Changes $9,039,309 $7,690,877 $4,598,662 $3,903,523 $3,381,981 $6,573,307 $8,581,604 $9,259,576 row 14 + row 28 Target Reserve Balance (Operations + Capital) $6,084,304 $6,084,304 $6,146,127 $6,315,767 $6,364,256 $6,409,521 $6,504,140 $6,602,111 row 15 + row 29 Minimum Reserve Balance (Operations) $2,886,516 $2,886,516 $2,948,340 $3,117,979 $3,166,468 $3,211,734 $3,306,352 $3,404,323 row 15 Rate Stabilization $9,039,309 $9,039,309 $9,039,309 $9,039,309 $9,039,309 $9,039,309 $9,039,309 $9,039,309 FY 2021‐22 FY 2022‐23 FY 2023‐24 FY 2024‐25 FY 2025‐26 FY 2026‐27 FY 2027‐28 FY 2028‐29 Operations Reserve without Rate Increases
Beginning Balance $4,991,007 $4,120,862 $1,798,210 ($185,741) ($2,389,669) ($4,843,253) ($7,996,172) Interest Income $22,723 $18,508 $20,747 $26,017 $32,909 $37,301 $39,375 Operations Surplus/(Deficit) ($892,867) ($2,341,160) ($2,004,698) ($2,229,946) ($2,486,493) ($3,190,220) ($3,658,152) From Tab 3a Ending Balance $4,991,007 $4,120,862 $1,798,210 ($185,741) ($2,389,669) ($4,843,253) ($7,996,172) ($11,614,950) HF&H Consultants, LLC7/26/2022
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4. Reserves
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Town of Hillsborough
Water Rate Cost‐of‐Service Study
Tab 5. Capital Improvement Projects
Actual
Capital Improvement Projects FY 2021‐22 FY 2022‐23 FY 2023‐24 FY 2024‐25 FY 2025‐26 FY 2026‐27 FY 2027‐28 FY 2028‐29 7‐Year Total Facility Type Allocation Factor Funding Sourc Demolish Forrestview Tanks #1 and #2 $26,190 $449,500 $449,500 $899,000 Storage Base PAYGo Demolish Major Hayes Tank and Piping $253,500 $253,500 Storage Base PAYGo Water Main Replacement Program $1,000,000 $1,000,000 $1,000,000 $1,000,000 $1,000,000 $1,000,000 $5,000,000 Distribution Customer Capacity PAYGo "Highline" Water Pipeline $100,000 $500,000 $1,700,000 $3,000,000 $700,000 $0 $0 $6,000,000 Transmission Max Day Applied SRF Loan Darrell Pump Line Rehab and Replacement $1,000,000 $1,600,000 $2,600,000 Pumping Max Day Applied PAYGo Darrell Tank Improvements $2,115,000 $3,650,000 $3,650,000 Storage Max Hour Applied PAYGo Clark Concar Pump Station Generator $625,000 $900,000 $900,000 $900,000 $2,700,000 Pumping Max Day Applied PAYGo SCADA Improvements $398,165 $75,000 $75,000 $75,000 $75,000 $75,000 $375,000 Transmission Max Day Applied PAYGo Misc Projects $2,500,000 $2,500,000 $5,000,000 PAYGo
Total $4,164,355 $4,825,000 $2,924,500 $5,378,000 $6,575,000 $1,775,000 $2,500,000 $2,500,000 $26,477,500 Total PAYGo Projects $4,164,355 $4,725,000 $2,424,500 $3,678,000 $3,575,000 $1,075,000 $2,500,000 $2,500,000 $20,477,500 Construction Cost Index 1.000 1.025 1.051 1.077 1.104 1.131 1.160 1.189 $4,164,355 $4,843,125 $2,547,240 $3,960,804 $3,946,131 $1,216,264 $2,899,234 $2,971,714 $22,384,512 ÷ 7 years
Average Annual PAYGo CIP (FY 2022‐23 through FY 2028‐29) $3,197,787 Total SRF Loan Projects $0 $100,000 $500,000 $1,700,000 $3,000,000 $700,000 $0 $0 $6,000,000 From above Construction Cost Index 1.000 1.025 1.051 1.077 1.104 1.131 1.160 1.189 $0 $102,500 $525,313 $1,830,714 $3,311,439 $791,986 $0 $0 $6,561,951 To tab 6a, 6b Escalated Total CIP $4,164,355 $4,945,625 $3,072,553 $5,791,518 $7,257,570 $2,008,250 $2,899,234 $2,971,714 $28,946,463 FY 2022‐23 Allocations
Facility Allocation Base Average Maximum Maximum Customer Customer Type Factor Day Day Day Hour Accounts Capacity Total
Demolish Forrestview Tanks #1 and #2 Storage Base $899,000 $0 $0 $0 $0 $0 $899,000 Demolish Major Hayes Tank and Piping Storage Base $253,500 $0 $0 $0 $0 $0 $253,500 Water Main Replacement Program Distribution Customer Capacity $0 $0 $0 $0 $0 $5,000,000 $5,000,000 "Highline" Water Pipeline Transmission $0 $0 $0 $0 $0 $0 $0 Darrell Pump Line Rehab and Replacement Pumping Max Day Applied $641,116 $710,443 $1,088,615 $0 $0 $159,826 $2,600,000 Darrell Tank Improvements Storage Max Hour Applied $600,019 $664,902 $1,018,832 $1,141,876 $0 $224,371 $3,650,000 Clark Concar Pump Station Generator Pumping Max Day Applied $665,774 $737,768 $1,130,485 $0 $0 $165,973 $2,700,000 SCADA Improvements Transmission Max Day Applied $92,469 $102,468 $157,012 $0 $0 $23,052 $375,000 Total $3,151,878 $2,215,581 $3,394,943 $1,141,876 $0 $5,573,222 $15,477,500 PAYGo Composite 20.4% 14.3% 21.9% 7.4% 0.0% 36.0% 100.0% Base Average Maximum Maximum Customer Customer
System‐Wide Allocation Factors Day Day Day Hour Accounts Capacity System‐wide
Base 100% 0% 0% 0% 0% 0%Average Day 47% 53% 0% 0% 0% 0% Max Day 26% 29% 45% 0% 0% 0%Max Hour 18% 19% 30% 33% 0% 0%Max Hour Only 0% 0% 0% 100% 0% 0% Customer Accounts 0% 0% 0% 0% 100% 0%
Customer Capacity 0% 0% 0% 0% 0% 100%
HF&H Consultants, LLC7/26/2022
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5. CIP
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Town of Hillsborough
Water Rate Cost‐of‐Service Study
Tab 6a. Debt Service
FY 2022‐23 FY 2023‐24 FY 2024‐25 FY 2025‐26 FY 2026‐27 FY 2027‐28 FY 2028‐29 Total Future Debt Service
Begin Loan Period FY 2027‐28
Bond Proceeds $6,561,951
Bond Issuance Cost 3.00%
Loan Amount 6,758,810
Payment Term (years) 30
Interest Rate 1.60%
Principal $0 $0 $0 $0 $177,121 $179,966 $357,087
Interest $0 $0 $0 $0 $107,435 $104,590 $212,025
Total Future Debt Service $0 $0 $0 $0 $284,556 $284,556 $569,112 COP 2000 Series A
Principal $62,902 $94,353 $94,353 $94,353 $94,353 $94,353 $94,353 $629,022Interest $7,885 $7,199 $6,171 $5,142 $4,114 $3,085 $2,057 $35,653Total $70,787 $101,552 $100,524 $99,496 $98,467 $97,439 $96,410 $664,675COP 2000 Series B Principal $125,804 $157,255 $157,255 $157,255 $157,255 $188,707 $188,707 $1,132,239Interest $53,608 $49,575 $45,196 $40,779 $36,311 $31,501 $26,352 $283,321Total $179,412 $206,830 $202,452 $198,034 $193,566 $220,207 $215,058 $1,415,560COP 2003 Series A Principal $286,504 $286,504 $286,504 $286,504 $334,255 $334,255 $334,255 $2,148,782Interest $139,042 $128,581 $117,224 $105,768 $94,178 $81,703 $68,348 $734,845Total $425,546 $415,085 $403,728 $392,272 $428,433 $415,958 $402,603 $2,883,626COP 2006 Series A Principal $271,186 $283,513 $292,758 $305,085 $317,411 $329,738 $342,065 $2,141,757Interest $153,203 $141,676 $129,163 $116,540 $103,770 $90,024 $75,309 $809,684Total $424,389 $425,189 $421,921 $421,624 $421,181 $419,763 $417,373 $2,951,441ECE Energy Conservation Loan 2012 Principal $62,604 $63,225 $63,865 $64,505 $65,152 $0 $0 $319,350Interest $3,038 $2,416 $1,776 $1,136 $489 $0 $0 $8,856Total $65,641 $65,641 $65,641 $65,641 $65,641 $0 $0 $328,207Total Principal $809,001 $884,851 $894,736 $907,703 $968,427 $947,053 $959,379 $6,371,149Total Interest $356,776 $329,447 $299,530 $269,365 $238,862 $206,314 $172,065 $1,872,359 Total Existing Debt Service $1,165,776 $1,214,298 $1,194,266 $1,177,068 $1,207,289 $1,153,367 $1,131,444 $8,243,509 Total Combined Debt Service $1,165,776 $1,214,298 $1,194,266 $1,177,068 $1,207,289 $1,437,923 $1,416,001 $8,812,621 HF&H Consultants, LLC7/26/2022 10 of 21
Hillsborough COS Model 6Jun2022
6a. Debt Service
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A B C D E F G H I JK
Debt Coverage Ratio Calculation
FY 2022‐23 FY 2023‐24 FY 2024‐25 FY 2025‐26 FY 2026‐27 FY 2027‐28 FY 2028‐29 Gross Rate Revenue
Service Charges $4,777,242 $4,881,032 $5,148,778 $5,379,845 $5,540,186 $5,595,039 $5,595,039 from Tab 3a Volume Charges $10,550,319 $11,366,178 $12,700,208 $13,977,247 $14,393,824 $14,536,337 $14,536,337 from Tab 3a Total Gross Rate Revenue $15,327,561 $16,247,211 $17,848,986 $19,357,093 $19,934,010 $20,131,376 $20,131,376 Operating Expenses
Purchased Water $5,690,991 $6,259,563 $6,914,499 $6,965,726 $6,969,460 $7,177,778 $7,392,327 from Tab 2 Other Operating Expenses $6,866,590 $6,607,136 $6,800,396 $6,991,616 $7,214,208 $7,478,983 $7,754,289 from Tab 2 Non‐Operating Revenue ($56,500) ($56,500) ($56,500) ($56,500) ($56,500) ($56,500) ($56,500) from Tab 2 Net Operating Expenses $12,501,081 $12,810,198 $13,658,396 $13,900,842 $14,127,168 $14,600,261 $15,090,116 Net Available Revenues $2,826,480 $3,437,012 $4,190,590 $5,456,251 $5,806,842 $5,531,115 $5,041,260 Debt Service $1,165,776 $1,214,298 $1,194,266 $1,177,068 $1,207,289 $1,437,923 $1,416,001 from Row 46 Debt Coverage Ratio 2.42 2.83 3.51 4.64 4.81 3.85 3.56
Existing Water Enterprise Debt Service
Category Future SRF Loan ECE 2012 Series 2006A Series 2003A Series 2000 A&B Total Water Distribution System 6,758,810 ‐ 2,700,000 2,680,000 398,000 12,536,810 Water Storage System ‐ ‐ 3,000,000 ‐ 2,350,000 5,350,000 Tank Replacement/Upgrades ‐ 908,700 2,770,000 3,678,700 Misc Improvements ‐ ‐ 500,000 690,000 1,190,000 6,758,810 908,700 6,200,000 5,720,000 3,168,000 22,755,510 Allocations
Facility Allocation Average Maximum Maximum Customer Customer Category Type Factor Base Day Day Hour Accounts Capacity Total Water Distribution System Customer Service Customer Capacity ‐ ‐ ‐ ‐ ‐ 5,778,000 5,778,000 Water Distribution System Transmission Max Day 1,775,767 1,967,790 ‐ 3,015,252 ‐ ‐ 6,758,810 Water Storage System Storage Max Hour 937,084 1,038,415 1,591,168 ‐ 1,783,333 ‐ 5,350,000 Tank Replacement/Upgrades Storage Max Hour 644,346 714,022 1,094,099 ‐ 1,226,233 ‐ 3,678,700 Misc Improvements Customer Service Customer Capacity ‐ ‐ ‐ ‐ ‐ 1,190,000 1,190,000 3,357,196 3,720,228 5,700,519 ‐ 3,009,567 6,968,000 22,755,510 Composite 14.8% 16.3% 25.1% 13.2% 0.0% 30.6% 69.4%
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6a. Debt Service
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A B CD E FGH I J
Town of Hillsborough
Water Rate Cost‐of‐Service Study
Tab 6b. SRF Cash FlowSRF Cash Flo
w FY 2022‐23 FY 2023‐24 FY 2024‐25 FY 2025‐26 FY 2026‐27 FY 2027‐28 FY 2028‐29 SRF Project Costs ($102,500) ($525,313) ($1,830,714) ($3,311,439) ($791,986) $0 $0 SRF Disbursements $2,458,527 $3,311,439 $791,986 $0
Total Cash Needs from Capital Reserve ($102,500) ($525,313) ($1,830,714) ($852,912) $2,519,453 $791,986 $0 to Tab 4 HF&H Consultants, LLC7/26/2022 12 of 21
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6b. SRF Cash Flow
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A B CD E F G H I J K
Town of Hillsborough
Water Rate Cost‐of‐Service Study
Tab 7. Load Factors
CY 2021 Non‐Seasonal Seasonal Peak Period Peak Day
Customer Category Total Demand Demand Demand Demand
Residential 1,094,314 530,364 563,950 145,004 1,576 Non‐seasonal Demand = Average of January and Commercial 51,251 13,038 38,213 7,780 85 February 2021 Billed Usage Annualized Total 1,145,565 543,402 602,163 152,785 1,661 Seasonal Demand = Total Demand minus In Units of HCF 0.044738622 0.47435283 0.52564717 Non‐seasonal Demand Peak Period Demand = Average of July, August, and
Demand Characteristics HCF/Day September Billed Usage from 2021 per Monthly Customer Class Non‐Seasonal Average Day Maximum Day Maximum Hour Usage Report PDFs provided by Town.

Residential 1,453 2,998 5,378 8,067 Peak Day Demand = Peak Period Demand ÷ 92 days Commercial 36 140 289 433
Total 1,489 3,139 5,666 8,500
*Base Day = Non‐seasonal Demand ÷ 365 days
Customer Class Average Day = CY 2021 Total ÷ 365
Residential 98% 96% 95% 95% Maximum Day = Average Day * Ratio of Maximum Day Commercial 2% 4% 5% 5% Flow to Average Day
Total 100% 100% 100% 100% Maximum Hour = Maximum Day * 2 Ratio of Flows to Average Day 5,666 Max Daily Demand ‐ Dailysave Residential 0.48 1.00 1.79 2.69 3,139 Average Day 0.53Commercial 0.25 1.00 2.06 3.08 1.81 MDD: ADD 0.60 Total 1.81 2.71 0.53
Ratio of Flows to Base Day
Total Load Factors 1.00 2.11 3.81 5.71 Total
Base Day 100.0% 100.0% To AllocationsAvg Day 47.4% 52.6% 100.0% To Allocations Max Day 26.3% 29.1% 44.6% 100.0% To Allocations
Max Hour 17.5% 19.4% 29.7% 33.3% 100.0% To Allocations
Flow Per Customer (HCF bimonthly)
Residential Class Base Day Average Day Maximum Day Maximum Hour Notes HCF per Day 1,453 2,998 5,378 8,067 From Above
HCF/Bi‐monthly period 87,183 179,887 322,675 484,012 Prior row x 60 days Proposed BreakpointsBi‐Monthly Bills 4,190 4,190 4,190 4,190 Sum of all residential meters Average flow per Bi‐Monthly Bill 22 44 78 116 HCF/month ÷ monthly bills Average gallons per day 274 549 972 1,440 average flow per bill x 748.052 ÷ 30 days HF&H Consultants, LLC7/26/2022 13 of 21
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7. Factors
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A B C D E FGH I J
Town of Hillsborough
Water Rate Cost‐of‐Service Study
Tab 8. FY 2022‐23 Cost Allocations
FY 2022‐23 Allocation Base Average Maximum Maximum Customer Customer Budget Factor Day Day Day Hour Accounts Capacity
O&M Expenses
Water Supply
Purchased Water 5,064,621 Base $5,064,621 $0 $0 $0 $0 $0SFPUC Service Charge 138,683Customer Capacit $0 $0 $0 $0 $0 $138,683 BAWSCA Surcharge $487,687Customer Capacit $0 $0 $0 $0 $0 $487,687Water Quality 574,438 Base $574,438 $0 $0 $0 $0 $0 Subtotal ‐ Water Supply 6,265,428 $5,639,059 $0 $0 $0 $0 $626,370 Transmission 699,745 Max Day Applied $172,545 $191,204 $292,982 $0 $0 $43,014 Pump Stations 853,754 Max Day Applied $210,521 $233,286 $357,465 $0 $0 $52,482Storage 675,906 Max Hour Applied $111,111 $123,126 $188,667 $211,452 $0 $41,549Distribution 1,288,044 Max Hour Applied $211,740 $234,636 $359,534 $402,955 $0 $79,178Customer Service $2,774,704 ustomer Accoun $0 $0 $0 $0 $2,774,704 $0 Total O&M Expenses 12,557,581 $6,344,976 $782,252 $1,198,648 $614,408 $2,774,704 $842,592 O&M Composite 50.5% 6.2% 9.5% 4.9% 22.1% 6.7%
Capital Expenses (Debt and PayGo)
PAYGo projects $3,197,787 PAYGo Composite $651,206 $457,759 $701,425 $235,922 $0 $1,151,477 Debt Service $1,165,776 D/S Composite $171,991 $190,589 $292,041 $154,182 $0 $356,974 Total Capital Expenses $4,363,564 $823,196 $648,348 $993,466 $390,103 $0 $1,508,451 Subtotal ‐ O&M and Capital $16,921,145 $7,168,173 $1,430,600 $2,192,114 $1,004,511 $2,774,704 $2,351,043 100.0% Exp Composite 42.4% 8.5% 13.0% 5.9% 16.4% 13.9%
Non‐Operating Revenue
Reconnection Charges ($50,000) ustomer Accoun $0 $0 $0 $0 ($50,000) $0 Service Charges ($6,500) ustomer Accoun $0 $0 $0 $0 ($6,500) $0 Transfer to/(from) Op Reserves ($1,090,654) Exp Composite ($462,025) ($92,209) ($141,293) ($64,746) ($178,844) ($151,537) Subtotal ‐ Non‐Operating Revenue ($1,147,154) ($462,025) ($92,209) ($141,293) ($64,746) ($235,344) ($151,537) Total Revenue Requirement $15,773,991 $6,706,148 $1,338,391 $2,050,821 $939,765 $4,738,866 $11,035,124 $4,738,866
Volume Charge COS Service Charge COS
Average Maximum Maximum Customer Customer
System‐Wide Allocation Factors Base Day Day Hour Accounts Capacity System‐wide
Base 100.0% 0.0% 0.0% 0.0% 0.0% 0.0%Average Day 47.4% 52.6% 0.0% 0.0% 0.0% 0.0%Max Day 26.3% 29.1% 44.6% 0.0% 0.0% 0.0% Max Hour 17.5% 19.4% 29.7% 33.3% 0.0% 0.0%Max Hour Only 0.0% 0.0% 0.0% 100.0% 0.0% 0.0% Max Day Applied 24.7% 27.3% 41.9% 0.0% 0.0% 6.1%
Max Hour Applied 16.4% 18.2% 27.9% 31.3% 0.0% 6.1%
Exp Composite 42.4% 8.5% 13.0% 5.9% 16.4% 13.9%O&M Composite 50.5% 6.2% 9.5% 4.9% 22.1% 6.7%Customer Accounts 0.0% 0.0% 0.0% 0.0% 100.0% 0.0%Customer Capacity 0.0% 0.0% 0.0% 0.0% 0.0% 100.0%Exp Composite 42.4% 8.5% 13.0% 5.9% 16.4% 13.9%PAYGo Composite 20.4% 14.3% 21.9% 7.4% 0.0% 36.0%D/S Composite 14.8% 16.3% 25.1% 13.2% 0.0% 30.6% HF&H Consultants, LLC7/26/2022 14 of 21
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8. Allocations
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A B C D E FGH I J
Base Average Maximum Maximum
Volume Rate Cost of Service Day Day Day Hour Total
O&M (net of Non‐Op Revenue) $6,344,976 $782,252 $1,198,648 $614,408 $8,940,285 Capital $823,196 $648,348 $993,466 $390,103 $2,855,113Non‐Op Revenue ($462,025) ($92,209) ($141,293) ($64,746) ($760,273) Total COS $6,706,148 $1,338,391 $2,050,821 $939,765 $11,035,124 Units of Service (HCF)
Residential 1,453 2,998 5,378 8,067
Non‐Residential 36 140 289 433
1,489 3,139 5,666 8,500
Proportional Allocation Factors
Residential 97.60% 95.53% 94.91% 94.91%Non‐Residential 2.40% 4.47% 5.09% 5.09% 100.00% 100.00% 100.00% 100.00%
Cost of Service
Residential
O&M (net of Non‐Op Revenue)
Source of Supply $5,503,759 $0 $0 $0 $5,503,759
Transmission $168,405 $182,649 $278,062 $0 $629,117
Pump Stations $205,470 $222,849 $339,262 $0 $767,581Storage $108,445 $117,618 $179,059 $200,684 $605,807Distribution $206,659 $224,139 $341,225 $382,435 $1,154,459 O&M Subtotal $6,192,740 $747,256 $1,137,609 $583,120 $8,660,724 Capital
PAYGo projects $635,581 $437,279 $665,706 $223,908 $1,962,474Debt Service $167,864 $182,062 $277,169 $146,330 $773,426 Capital Subtotal $803,445 $619,342 $942,875 $370,238 $2,735,899 Non‐Operating Revenue ($450,940) ($88,084) ($134,098) ($61,449) ($734,570) Total Residential COS $6,545,245 $1,278,513 $1,946,386 $891,909 $10,662,053Total Non‐Residential COS $160,903 $59,878 $104,435 $47,856 $373,071 Total Volume Charge COS $6,706,148 $1,338,391 $2,050,821 $939,765 $11,035,124 Units of Service 1,489 3,139 5,666 8,500
Average Unit Cost of Service ($/HCF) $4,504 $426 $362 $111 1 Components of Rate Structure
2 Volume Charges3 Residential $9,722,825 $10,662,053 $939,228 9.7%4 Non‐Residential $342,689 $373,071 $30,382 8.9%5 $10,065,514 68% $11,035,124 70% $969,610 9.6% 6 Service/Meter Charge $4,815,618 32% $4,738,866 30% ($76,751) ‐1.6% 7 Total $14,881,132 100% $15,773,991 100% $892,859 6.0% 1 Based on Average of CY 2018‐2021 consumption data adjusted so that the total HCF ties to purchased water and water loss assumptions for FY 2022‐23.

Current Revenue Cost Difference
(eff. 1/1/22) of Service COS Minus Current
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8. Allocations
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A B CDE F G H I
Town of Hillsborough
Water Rate Cost‐of‐Service Study
Tab 9a. Service Charge Allocations
Account and EMU Summary
Service # of Meter Capacity
Size Accounts Ratings (gpm) Multiplier* EMUs
ab c = b ÷ 35 a * c
3/4" 76 35 1.00 76
1" 3,721 55 1.57 5,847
1‐1/2" 230 100 2.86 657
2" 272 160 4.57 1,2433" 0 320 9.14 06" 1 1,000 28.57 298" 1 1,600 45.71 46 4,301 7,898
* Capacity multiplier assumes 3/4" meter = 1 EMU = 35 gals/min Meter capacities used in previous study, per AWWA Table B‐1.

Meter Charge Unit Cost Calculation
Customer Customer
FY 2022‐23 Customer Account Capacity
Service Expenses Component Component Total
O&M Expenses $2,774,704 $842,592 $3,617,296
Capital Expenses $0 $1,508,451 $1,508,451
Non‐Operating Revenue ($235,344) ($151,537) ($386,880)
Total FY 2022‐23 $2,539,360 $2,199,507 $4,738,866
Units of Service 4,301 7,898
Accounts EMUs
Unit Cost (bi‐monthly) $98.40 $46.41
per Account per EMU
Expenses from Tab 8. Allocations
Account Total Current
Service Component Capacity Meter Charge Meter Charge $ Change Size ($/bill period) $/EMU Multiplier Total ($/bill period) ($/bill period) ($/Bill period a b cd = b * ce = a + d
3/4" $98.40 $46.41 1.00 $46.41 $144.82 $141.48 $3.34
1" $98.40 $46.41 1.57 $72.94 $171.34 $172.32 ($0.98)
1 1/2" $98.40 $46.41 2.86 $132.61 $231.01 $241.66 ($10.65) 2" $98.40 $46.41 4.57 $212.18 $310.58 $334.13 ($23.55)
3" $98.40 $46.41 9.14 $424.36 $522.76 $580.73 ($57.98)
6" $98.40 $46.41 28.57 $1,326.11 $1,424.52 $1,628.74 ($204.22) 8" $98.40 $46.41 45.71 $2,121.78 $2,220.18 $2,553.45 ($333.27) Bill period assumed to be Bi‐monthly.

Capacity Component
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AB C D E F G H
Town of Hillsborough
Water Rate Cost‐of‐Service Study
Tab 9b. Quantity Charge Allocations
SFR Rate Calculation
Tier 1 Tier 2 Tier 3 Tier 4 Total
0‐22 HCF 23‐44 HCF 45‐78 HCF 78+ HCF
Base Day $6,545,245
Average Day $1,278,513Max Day $1,946,386Max Hour $891,909Single Family Revenue Requirement by $6,545,245 $1,278,513 $1,946,386 $891,909Single Family Flow (HCF/yr) 1,024,748 614,073 378,486 186,357 From SF Bill Analysis Incremental Rate $6.39 $2.08 $5.14 $4.79Unit Cost per HCF $6.39 $8.47 $13.61 $18.40Comm Rate Calculation Tier 1 Tier 2 Tier 3 Tier 4 Total
All
Base Day $160,903Average Day $59,878
Max Day $104,435Max Hour $47,856Single Family Revenue Requirement by $160,903 $59,878 $104,435 $47,856Comm Flow (HCF/yr) 41,488 Incremental Rate $8.99Unit Cost per HCF $8.99
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AB C D E F G H I J K
Town of Hillsborough
Water Rate Cost‐of‐Service Analysis
Tab 10. Pass Through Adjustment
Rates highlighted in blue were adopted in the 218 and were based on the SFPUC rates in column D Enter the Actual SFPUC rates when they are adopted by the SFPUC.

The difference between the original and adopted SFPUC rates adjust the District's rates, which are shown in green.

Actual SFPUC Rate SFPUC
Effective SFPUC Adopted in Minus Non‐Res
Date Rate 218 Notice Adopted Tier 1 Tier 2 Tier 3 Tier 4 All 1/1/2023 $4.75 $4.75 $0.00 $6.39 $8.47 $13.61 $18.40 $8.99 Adjustment for difference $0.00 $0.00 $0.00 $0.00 $0.00 Adjusted District rate for SFPUC pass‐through $6.39 $8.47 $13.61 $18.40 $8.99 1/1/2024 $5.28 $5.28 $0.00 $6.77 $8.98 $14.43 $19.50 $9.53 Adjustment for difference $0.00 $0.00 $0.00 $0.00 $0.00 Adjusted District rate for SFPUC pass‐through $6.77 $8.98 $14.43 $19.50 $9.53 1/1/2025 $5.28 $5.28 $0.00 $7.11 $9.43 $15.15 $20.48 $10.01 Adjustment for difference $0.00 $0.00 $0.00 $0.00 $0.00 Adjusted District rate for SFPUC pass‐through $7.11 $9.43 $15.15 $20.48 $10.01 1/1/2026 $5.28 $5.32 ($0.04) $7.39 $9.80 $15.76 $21.30 $10.41 Adjustment for difference ($0.04) ($0.04) ($0.04) ($0.04) ($0.04) Adjusted District rate for SFPUC pass‐through $7.35 $9.76 $15.72 $21.26 $10.37 1/1/2027 $5.45 $5.32 $0.13 $7.54 $10.00 $16.07 $21.72 $10.62 Adjustment for difference $0.13 $0.13 $0.13 $0.13 $0.13 Adjusted District rate for SFPUC pass‐through $7.67 $10.13 $16.20 $21.85 $10.75 Residential
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10. Pass Through Costs
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A B C D E F G H I J K LMNO P
Town of HillsboroughWater Rate Cost‐of‐Service Analysis Tab 11a. Revenue Stabilization Historic Water Use
Source: UB Hisotry ‐ Date Ranged Usage by Parcel 2021
2021 Notes:

Read Month Jan Feb Mar Apr May Jun Jul Aug Sept Oct Nov Dec Total (HCF) Residential
Single Family 40,012 33,521 59,393 54,886 83,146 112,840 158,662 141,455 166,666 129,402 127,523 75,268 Subtotal, Res 40,012 33,521 59,393 54,886 83,146 112,840 158,662 141,455 166,666 129,402 127,523 75,268 1,182,774 To Tables tab, Residential Annual Baseline Demand
Non‐Residential
Commercial 637 1,212 2,149 1,489 3,627 5,299 7,213 7,192 5,580 5,232 3,563 1,715 Subtotal, Non‐Res 637 1,212 2,149 1,489 3,627 5,299 7,213 7,192 5,580 5,232 3,563 1,715 44,908 To Tables tab, Commercial Annual Baseline Demand
40,649 34,733 61,542 56,375 86,773 118,139 165,875 148,647 172,246 134,634 131,086 76,983 1,227,682 Jan Feb
Non‐
Seasonal
Avg (HCF)
Residential
Single Family 40,012 33,521
Subtotal, Res 40,012 33,521 36,767 To Tables tab, annualize to calculate Residential Indoor Baseline Annual DemandCommerical Commercial 637 1,212
Subtotal, Comm 637 1,212 925 To Tables tab, annualize to calculate Commercial Indoor Baseline Annual Demand 40,649 34,733 37,691
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A B CDE FG H IJ K
Town of Hillsborough
Water Rate Cost‐of‐Service Analysis
Tab 11b. Revenue Stabilization Factor Tables
Calendar Year 2021 Water Use Data
Ratio of outdoor reduction to indoor reduction = 5.00 to 1.00 10% Stage 1 Reduction (up to 10% reduction)
Class Total Indoor Outdoor Indoor Outdoor Indoor Outdoor Total Total Residential 1,182,774 441,198 741,576 2.8% 14.2% 12,511 105,148 117,659 10% Non‐Residential 44,908 11,094 33,814 2.8% 14.2% 315 4,794 5,109 11% Total 1,227,682 452,292 775,390 2.8% 14.2% 12,826 109,942 122,768 10.0% 20% Stage 2 Reduction (up to 20% reduction)
Class Total Indoor Outdoor Indoor Outdoor Indoor Outdoor Total Total Residential 1,182,774 441,198 741,576 5.7% 28.4% 25,023 210,295 235,318 19.8955%Non‐Residential 44,908 11,094 33,814 5.7% 28.4% 629 9,589 10,218 23% Total 1,227,682 452,292 775,390 5.7% 28.4% 25,652 219,884 245,536 20.0% 30% Stage 3 Reduction (up to 30% reduction)
Class Total Indoor Outdoor Indoor Outdoor Indoor Outdoor Total Total Residential 1,182,774 441,198 741,576 8.5% 42.5% 37,534 315,443 352,977 30%Non‐Residential 44,908 11,094 33,814 8.5% 42.5% 944 14,383 15,327 34% Total 1,227,682 452,292 775,390 8.5% 42.5% 38,478 329,826 368,305 30.0% 40% Stage 4 Reduction (up to 40% reduction)
Class Total Indoor Outdoor Indoor Outdoor Indoor Outdoor Total Total Residential 1,182,774 441,198 741,576 11.3% 56.7% 50,046 420,591 470,637 40%Commercial/Recycled Water 44,908 11,094 33,814 11.3% 56.7% 1,258 19,178 20,436 46% Total 1,227,682 452,292 775,390 11.3% 56.7% 51,304 439,769 491,073 40.0% 50% Stage 5 Reduction (up to 50% reduction)
Class Total Indoor Outdoor Indoor Outdoor Indoor Outdoor Total Total Residential 1,182,774 441,198 741,576 14.2% 70.9% 62,557 525,738 588,296 50%Non‐Residential 44,908 11,094 33,814 14.2% 70.9% 1,573 23,972 25,545 57% Total 1,227,682 452,292 775,390 14.2% 70.9% 64,130 549,711 613,841 50.0% 55% Stage 6 Reduction (greater than 50% reduction)
Class Total Indoor Outdoor Indoor Outdoor Indoor Outdoor Total Total Residential 1,182,774 441,198 741,576 15.6% 78.0% 68,813 578,312 647,125 55% Non‐Residential 44,908 11,094 33,814 15.6% 78.0% 1,730 26,370 28,100 63% Total 1,227,682 452,292 775,390 15.6% 78.0% 70,543 604,682 675,225 55.0% Baseline Annual Demand (HCF) Reductions
Baseline Annual Demand (HCF) Reductions
Baseline Annual Demand (HCF) Reductions
Baseline Annual Demand (HCF) Reductions
Baseline Annual Demand (HCF) Reductions
Baseline Annual Demand (HCF) Reductions
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A B CDE FG H IJ K
Town of Hillsborough
Water Rate Cost‐of‐Service Analysis
Tab 11b. Revenue Stabilization Factor Tables
4344454647484950515253545556575859606162636465666768697071 Stage 1 Stage 2 Stage 3 Stage 4 Stage 5 Stage 6
Up to Up to Up to Up to Up to Greater than
Class 10% Reduction 20% Reduction 30% Reduction 40% Reduction 50% Reduction 50% Reduction Residential 9.9% 19.9% 29.8% 39.8% 49.7% 54.7%Non‐Residential 11.4% 22.8% 34.1% 45.5% 56.9% 62.6% Ratio of outdoor reduction to indoor reduction = 5.00 to 1.00 Water Expenses Water Purchases $5,064,621
Rev. Stabilization Factors =1/(1‐a) *(b‐(c*a))/b BAWSCA Surcharge $487,687 varies a = assumed percentage of reduction in water usage Gas & Oil $26,605
70% b = proportion of revenue from volumetric rates, from model Utilities $415,470 38% c = proportion of water utility expenses that are variable $5,994,383 (see calculation to the right) FY 2022‐23 Reve Req. $15,773,991 38%
Stage 1 Stage 2 Stage 3 Stage 4 Stage 5 Stage 6
Up to Up to Up to Up to Up to Greater than
Customer Class 10% Reduction 20% Reduction 30% Reduction 40% Reduction 50% Reduction 50% Reduction Residential 1.050 1.113 1.194 1.302 1.452 1.552Non‐Residential 1.059 1.135 1.237 1.381 1.603 1.764 To be applied to the non‐shortage rates in effect at the time of the shortage declaration Stage 1 Stage 2 Stage 3 Stage 4 Stage 5 Stage 6
Up to Up to Up to Up to Up to Greater than
10% Reduction 20% Reduction 30% Reduction 40% Reduction 50% Reduction 50% Reduction WSCP‐ EstimatedWater Use Reduction
10% 20% 30% 40% 50% 55%
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TOWN OF HILLSBOROUGH
San Mateo County
1600 Floribunda Avenue
Hillsborough, CA 94010
8 NEW BUSINESS

CITY COUNCIL MEETING
NOVEMBER 14, 2022

AGENDA STAFF REPORT
ITEM SUBJECT: APPROVAL TO PROCEED WITH THE CENTER FOR AGE- FRIENDLY

EXCELLENCE'S TECHNICAL ASSISTANCE TO APPLY FOR THE AGE-FRIENDLY

COMMUNITIES (AFC) CERTIFICATION UNDER THE AARP/WORLD HEALTH ORGANIZATION (WHO) NETWORK OF AGE FRIENDLY COMMUNITIES PURSUANT TO CEQA GUIDELINE 15378
SUMMARY: The County of San Mateo has arranged for the Center for Age-Friendly Excellence (CAFE) to work with eight cities during the next 16 months to provide technical assistance with their Age-Friendly Communities (AFC) certification under the AARP/WHO Network of Age Friendly Communities. These cities are Atherton, Belmont, East Palo Alto, Hillsborough, Menlo Park, Millbrae, Portola Valley, and San Bruno.

The Global Network of Age-Friendly Cities offers opportunities to address the aging population in a positive and inclusive way. The program provides resources to help communities actively help people live easily and comfortably in their homes and communities, and also encourages older residents to take an active role and have their voices heard.

The concept of Global Age-Friendly Cities was developed in 2005 by the World Health Organization (WHO) to help cities consider and implement policies and services to support older adults as they grow older to live healthy and vibrant lives. According to WHO, population aging and urbanization are two global trends that comprise major forces shaping the 21st Century.

WHO also recognizes that older people often require supportive and enabling living environments to compensate for physical and social changes associated with aging. Thus, in order to retain a vibrant and enriching population of older adults, cities must provide the structures and services to support their wellbeing and productivity. Making cities more age friendly is a necessary and logical response to promote the wellbeing and contributions of older urban residents and to keep cities thriving. WHO has identified eight (8) key domains requiring a conscious effort to create an agefriendly community.

1. Housing

2. Transportation

3. Social Participation

4. Respect and Social Inclusion

5. Civic Participation and Employment

6. Communication and Information

7. Community Support and Health Services

8. Outdoor Spaces and Buildings
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Agenda Staff Report - Hillsborough City Council
November 14, 2022

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To become designated as an "Age-Friendly City" through the WHO, Hillsborough must demonstrate that it is committed to providing places for older adults to be engaged, as well as providing for social opportunities and services that ensure older adults can thrive and be part of the community.

ANALYSIS:

Many cities are experiencing rapid increases to their aging population, particularly the proportion of people aged 65 years old and over. According to the U.S. Census Bureau' s American Community Survey Program, the population of persons 65 years old and over in Hillsborough was estimated at 19% in 2020. The Association of Bay Area Governments (ABAG) also provides forecasting projections of demographic, economic, and land use changes in coming decades -- the most recent of which covers the period between 2010 and 2040.

In 2018, the Board of Supervisors for the County of San Mateo committed to joining WHO’s AgeFriendly Global Network and established the San Mateo County Age-Friendly Initiative. The County also then partnered with the Center for Age-Friendly Excellence (CAFE) to help achieve this designation over the coming years. CAFE is a project of the Los Altos Community Foundation whose mission is to create vibrant, sustainable, supportive, and inclusive communities for all generations.

During the upcoming months, Hillsborough will work closely with CAFE, who will be providing technical assistance, consultation, applied research access, community organizing synergy, coordination of the assessment process, and will also help write the official application to be submitted to AARP for Hillsborough to receive the Global Age-Friendly Cities Designation.

The process begins with identifying a task force with various stakeholders to oversee the process, which will include City Council members, Town staff, and other community leaders and residents.

The next steps will then be to conduct a series of focus groups to assess the baseline “agefriendliness” of a city or community in the key domains mentioned above. The focus group and survey results will then be reviewed; identifying indicators so progress can be monitored against an action plan. As CAFE helps in guiding this process, the task force will need to recommend potential projects and services to address unmet needs that will be implemented over the next 1 to 2 years.

This will lead up to the completion of the Age-Friendly City application, which includes a letter of intent signed by the Mayor. Communities that actively demonstrate a commitment to foster the full participation of older people in community life and that promote healthy and active aging are invited to become members of the Network and receive formal designation as an "Age-Friendly City."
It should be noted that the expected duration of the task force is for the initial five-month planning stage at the very minimum. Once the five-month planning stage is over, the task force will continue to meet monthly or, less often, as needed to assist with and guide implementation of inaugural Hillsborough Age-Friendly Community Projects. CAFE will be available for consultation, as needed. -500-
Agenda Staff Report - Hillsborough City Council
November 14, 2022

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If the Town of Hillsborough applies to AARP to participate in the WHO Global Network of AgeFriendly Cities and Communities and the application is approved, the Town is making a five-year commitment to assess the age friendliness of Hillsborough and to create a plan to make the Town more livable for people of all ages.

FISCAL IMPACT: There is no direct fiscal impact associated with the acceptance of this report. If related projects are identified in the future that require additional resources, these would be brought to City Council for consideration.

ENVIRONMENTAL ISSUES: The proposed action is exempt from environmental review pursuant to the California Environmental Quality Act (CEQA) Guidelines sections 15378(b)(2) and 15378(b)(5) as ongoing administrative or organizational activities that will not result in direct or indirect physical changes in the environment.

ATTACHMENTS:

1. Center for Age-Friendly Excellence (CAFE) Community Development Process

2. World Health Organization Eight Domains of Livability PREPARED BY: Ann Ritzma, City Manager
RECOMMENDATION: Direct staff to proceed with the Center for Age-Friendly Excellence' s technical assistance to apply for the Age-Friendly Communities (AFC) certification under the AARP/WHO Network of Age Friendly Communities.
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1. CAFE contacts City Mayor,
Councils, and Senior Advisory
groups. County Core Team
recommends Community
Contacts.

4. Focus group qualitative data is
collated and analyzed. Focus
group reports are submitted to
County Core Team and task
force members.

3. Task Force Reaches out to
focus group candidates. Diversity
and inclusion are essential.

CAFE conducts multiple diverse
and inclusive focus groups to
identify unmet needs, strengths
and suggested solutions.

5. CAFE conducts a variety of
educational presentations to
community organizations. (joined
by a task force member)

6. CAFE provides guidance to
task forces toward the selection
of data informed projects to
address unmet needs.

8. CAFE assists task force in
selecting subcommittee to focus
on next steps and future
implementation of projects once
CAFE is finished.

7. CAFE assists task forces in
filling out application for
AARP/WHO certification.

2. CAFE reaches out to task
force candidates. Diversity and
inclusion are essential. Task
Force Develops plan for
recruiting diverse and inclusive
list of candidates for focus
groups.

Theory of Change: Our overarching explanatory framework is the Ecological Model of Aging (Lawton and Nahemow, 1973, 1986, 2000), an integrative, person - environment perspective.

Cfafe.org
CAFE Community Development Process
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ATTACHMENT 1
CAFE: The Center for Age-Friendly Excellence
Advancing Livable Communities for all Generations
A Project of the Los Altos Community Foundation, 183 Hillview Ave, Los Altos, CA 94022 World Health Organization
Eight Domains of Livability: Brief Descriptions and Examples Built Environment
The built environment has a strong influence on personal mobility, safety from injury, security from crime, health behaviour and social participation.

Outdoor Spaces and Buildings
“People need public places to gather — indoors and out. Green spaces, safe streets, sidewalks, outdoor seating and accessible buildings (think elevators, stairs with railings, etc.) can be used and enjoyed by people of all ages.”
Examples: Availability of outdoor seating, covered shelters with seating if waiting for transportation, clean and safe public restrooms, adequate lighting and signage.

Transportation
“Driving shouldn't be the only way to get around. Public transit options can be as expansive and as infrastructure dependent as a train system or as targeted as a taxi service that provides non-drivers with rides to and from a doctor's office.” Examples: Affordable and accessible transportation, city is walkable, has bike paths and parking, there are curb cuts for wheelchairs as well as baby carriages, adequate lighting at night.

Housing
“…older adults want to stay in their homes and communities for as long as possible. Doing so is possible if a house is designed or modified for aging in place and if a community includes housing options for varying life stages (and varying bank accounts).” Examples: Affordable and available housing, availability of vetted home repair professionals, offering housing model for mixed-use (intergenerational) resident i.e. elder and student.
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ATTACHMENT 2
A Project of the Los Altos Community Foundation, 183 Hillview Ave, Los Altos, CA 94022 Social Environment
There are different aspects of the social environment and of culture that affect participation and mental wellbeing.

Social Participation
“Regardless of a person's age, loneliness is often as debilitating a health condition as having a chronic illness or disease. Sadness and isolation can be combatted by the availability of accessible affordable and fun social activities.” Examples: Social activities and places to hang out for older persons, promoting shared use of school and community recreational resources for day or evening activities, offering culturally sensitive exchanges, talks or events.

Respect and Social Inclusion
“Everyone wants to feel valued. Intergenerational activities are a great way for young and old to learn from one another, honor what each has to offer and, at the same time, feel good about themselves.

Examples: Intergenerational activities and promoting shared use of school and community recreational resources, Friendly Visitor and Meals on Wheels programs, linking older persons with their grandchildren or other young adults to learn how to use their high-tech devices.

Civic Participation and Employment
“An age-friendly community provides ways older people can (if they choose) continue to work for pay, volunteer their skills and be actively engaged in community life.” Examples: Promoting volunteer opportunities to increase awareness, have a central program that assists older adults with finding resources, classes, jobs, and civic engagement.

Community and Health Support
Involves both social environments and health and social service determinants.

Communication and Information
“Age-friendly communities recognize that not everyone has a smartphone or Internet access and that information needs to be disseminated through a variety of means.” Examples: Free Wi-Fi for older persons, programs that engage non-English speakers, increased promotion of available services such as door-to-door mobile libraries, emergency preparedness training.
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A Project of the Los Altos Community Foundation, 183 Hillview Ave, Los Altos, CA 94022 Community Support and Health Services
“At some point, every person of every age gets hurt, becomes ill or simply needs some help. While it's important that care be available nearby, it's essential that residents are able to access and afford the services required.

Examples: Increase health promotion disease prevention programming for older adults, availability of a centrally located care or case manager to help connect with resources, availability of mobile screening and dental services.

World Health Organization Age Friendly Cities Guide
https://www.who.int/ageing/publications/Global_age_friendly_cities_Guide_English.pdf AARP
https://www.aarp.org/livable-communities/network-age-friendly-communities/info-2015/8- domains-of-livability-resources.html
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TOWN OF HILLSBOROUGH
San Mateo County
1600 Floribunda Avenue
Hillsborough, CA 94010
9 NEW BUSINESS

CITY COUNCIL MEETING
NOVEMBER 14, 2022

AGENDA STAFF REPORT
ITEM SUBJECT: HILLSBOROUGH CONCOURS D ‘ELEGANCE 2022 – POLICE SERVICES – PURSUANT TO CEQA GUIDELINE 15378
SUMMARY: Hillsborough Concours d ‘Elegance was established in 1956 and has built and maintained a proud tradition of honoring and celebrating excellence in automotive design and engineering. The dedication of the Concours leadership and volunteers, pride of its entrants, and devotion of its attendees has earned Hillsborough the proud record as the longest continually running Concours in the world.

The Hillsborough Concours Foundation was established in 2010 to significantly extend the philanthropic reach and impact of the Concours organization. Hillsborough Schools Foundation is a major recipient of the Foundation’s funding efforts, thereby providing a public purpose to the broader Town of Hillsborough community through increased funding for the Town’s schools, the Town’s school children, and the entire Town by creating a more educated and enlightened resident base. Additionally, the Foundation contributes to two other non-profits: Abilitypath, which provides local services for adults and children with developmental challenges, and the Guardsmen, a San Francisco-based volunteer organization dedicated to mobilizing member talents and resources to enhance and improve the lives of at-risk youth. These organizations serve children throughout the Bay Area including Hillsborough.

The Town’s Police Department provides support services on Saturday for the Tour d ’Elegance and on Sunday for the Concours d ‘Elegance at Crystal Springs Golf Course. In 2022, the police department provided eighty-four hours of police staffing. In the past, the Town has absorbed the cost of providing the services and staff is seeking Council approval to waive the costs in consideration of the community benefit and broader public purpose provided to the Hillsborough community.

FISCAL IMPACT: The cost of police services for the 2022 Hillsborough Concours d ‘Elegance was $16,820.50.

ATTACHMENTS: None
PREPARED BY: Ann Ritzma, City Manager
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November 14, 2022

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RECOMMENDATION: Approve a waiver of the costs associated with police services for the 2022 Hillsborough Concours d ‘Elegance in the amount of $16,820.50 in recognition of the philanthropic public benefit.
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TOWN OF HILLSBOROUGH
San Mateo County
1600 Floribunda Avenue
Hillsborough, CA 94010
10 INFORMATIONAL

CITY COUNCIL MEETING
NOVEMBER 14, 2022

AGENDA STAFF REPORT
ITEM SUBJECT: TOWN OF HILLSBOROUGH ARCHITECTURE AND DESIGN REVIEW BOARD BYLAWS PURSUANT TO CEQA GUIDELINE 15378
SUMMARY: Chapter 2.12 of the Hillsborough Municipal Code (HMC) outlines the appointment, purpose, quorum, rules, duties, and appeals process for the Architecture and Design Review Board (ADRB), however, to date the ADRB has never adopted bylaws. Bylaws serve as the legal guidelines of a Board and are essential to establish a Board’s purpose, structure, and procedures.

Over the past several months, staff has worked with the City Attorney’s office to draft the attached bylaws of the Town of Hillsborough Architecture and Design Review Board. These bylaws establish and define board officers and duties, meeting schedule and quorum, agendas and minutes, meeting conduct, board member conduct, conflicts of interest, and code of ethics.

The bylaws are consistent with the laws of the State of California and with the ordinances, resolutions, policies or regulations of the Town. Any modifications to these bylaws must be consistent with the underlying provisions of the HMC, as well as all applicable laws. The intent of these bylaws is to assist and be used by the Board in performing its duties and conducting its meetings. Failure to adhere strictly to a provision of the bylaws shall not, in and of itself, invalidate any action of the Board, nor shall it constitute a violation of law or procedure nor provide a basis for any claim or cause of action against the Town. If a conflict arises between these bylaws and the HMC, the HMC shall control.

At the regular meeting of the ADRB on October 3, 2022, staff presented the draft bylaws to the ADRB as a discussion item. Overall the Board expressed support for the bylaws with no recommendations for revisions. While the bylaws do not require City Council approval, staff is bringing the draft bylaws before the City Council as an informational item. Following City Council review, staff will bring the draft bylaws back to the ADRB for formal adoption. The bylaws would go into effect immediately following adoption.

FISCAL IMPACT: There is no fiscal impact associated with this item.

ENVIRONMENTAL ISSUES: California Environmental Quality Act (CEQA) Guidelines sections 15378(b)(2) and 15378(b)(5) provide that ongoing administrative activities and organizational or administrative activities of governments that will not result in direct or indirect physical changes in the environment do not constitute a “project” as defined by the State CEQA Guidelines (Cal. Code Regs., tit. 14, § 15000 et seq.) and are therefore exempt from CEQA and no further environmental review is required.
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Agenda Staff Report - Hillsborough City Council
November 14, 2022

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Hillsborough City CouncilNovember 14, 2022

Hillsborough City Council
November 14, 2022