WATER COST OF SERVICE STUDY
B
LACK
&
V
EATCH
PROJECT NO.
412083
PREPARED FOR
City of Napa, CA
7 SEPTEMBER 2023
EXHIBIT A TO ATTACHMENT 1
R2023-__
City
of Napa, CA
|
Water Cost of Service Study
BLACK & VEATCH
|
Table of Contents
i
Table of Content
s
Disclaimer
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1 1.0
Executive Summary
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1 -
1 1.1
Water System
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1 -
1 1.2
Financial P
lan
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1 -
1 1.3
Adequacy of Existing Rates to Achieve Financial Plan
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1 -
2 1.4
Revenue Required to Achieve Financial Plan
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1 -
3 1.5
Cost of Service Analysis
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1 -
3 1.6
Rate Design
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1 -
4 1.6.1
Fixed Service Charge
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1 -
4 1.6.2
Quantity Charge
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1 -
5 1.6.3
Pumped Zone Charge
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1 -
5 1.6.4
Treat & Wheel Charge
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1 -
5 1.6.5
Treat Only Charge
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.
1 -
5 1.6.6
Fire Service Charge
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1 -
5 1.7
Study Recommendations
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1 -
6 2.0
Revenue and Revenue Requirements
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2 -
1 2.1
Customer and Water Consumption Projections
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2 -
1 2.2
Revenue under Existing Rates
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2 -
4 2.3
Other Revenue
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2 -
6 2.4
Operating and Maintenance Expenses
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2 -
6 2.5
Debt Service Requirements
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2 -
7 2.6
Capital Improvement Program
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2 -
8 2.6.1
Capital Improvement Financing Plan
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2 -
9 2.7
Transfers
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2 -
10 2.8
Reserves
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2 -
10 2.9
Projected Operating Results
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2 -
11 3.0
Cost of Service Allocation
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3 -
1 3.1
Functional Cost Components
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3 -
2 3.2
Allocation to Cost Components
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3 -
2 3.2.1
System Base, Max Day, and Max Hour Allocations
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3 -
3 3.2.2
Allocation of Operating and Maintenance
Expenses
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3 -
3 3.2.3
Allocation of Capital Investments
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3 -
4 3.3
Units of Service
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3 -
4 3.4
Cost of Service Allocations
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3 -
4 3.4.1
Units Costs of Service
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3 -
4 3.4.2
Distribution of Costs of Serv
ice to Customer Classes
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3 -
4 4.0
Proposed Water Rate Adjustments
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4 -
1
EXHIBIT A TO ATTACHMENT 1
R2023-__
City
of Napa, CA
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Water Cost of Service Study
BLACK & VEATCH
|
Table of Contents
ii
4.1 Existing Rates
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4 -
1 4.2
Proposed Water Rates
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4 -
1 4
.2.1
Inside City and Outside City
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4 -
2 4.2.2
Fixed Service Charge
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4 -
2 4.2.3
Fire Service
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4 -
3 4.2.4
Retail Quantity Charge
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4 -
4 4.2.5
Pump Zone Charge
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4 -
11 4.2.6
Contract Quantity Charge
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4 -
12 5.0
Summary of Proposed Rates and Typical Monthly Costs
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5 -
13 5.1
Proposed Rate
Schedule
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5 -
13 5.2
Typical Monthly Costs under Proposed Charges
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5 -
14 5.3
Summary of Cost
-
of
-
Service Study
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5 -
15 LIST OF
TABLES
Table 1
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1 Proposed Five
-
Year Rate Schedules
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1 -
7 Table 2
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1 Number of Customer Connections
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2 -
2 Table 2
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2 Billed Water Consumption
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2 -
4 Table 2
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3 Existing Water Rates
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2 -
5 Table 2
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4 Projected Revenue under
Existing Water Rates
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..
2 -
6 Table 2
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5 O&M Expenses
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2 -
7 Table 2
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6 Debt Service
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2 -
8 Table 2
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7 Capital Improvement Projects
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2 -
9 Table 2
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8 CIP Financing Plan
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2 -
10 Table 2
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9 Reserve Balances
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2 -
11 Table 2
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10 Operating Fund
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2 -
14 Table 3
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1 Cost of Service Revenue from Rates
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3 -
1 Table 3
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2 Allocation of O&M Expenditures
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3 -
1 Table 3
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3 Allocation of Capital Costs
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3 -
3 Table 3
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4 Units of Service
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3 -
6 Table 3
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5 Units Cost of Service
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3 -
7 Table 3
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6 Distribution of Costs to Customer Classes
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3 -
8 Table 4
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1 Costs within the Fixed Charge for FY 2024
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4 -
3 Table 4
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2 Proposed Fixed Service Charge
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4 -
3 Table 4
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3 Costs within the Fire Service Charge for FY 2024
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4 -
4 Table 4
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4 Proposed Fire Service Charge
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4 -
4 Table 4
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5 Water Supply Unit Costs
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4 -
5 Table 4
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6 Water Sold by Customer Class
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4 -
5
EXHIBIT A TO ATTACHMENT 1
R2023-__
City
of Napa, CA
|
Water Cost of Service Study
BLACK & VEATCH
|
Table of Contents
iii
Table 4
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7 Water Supply Unit Costs by Customer Class
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4 -
6 Table 4
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8 SFR Water Supply Unit Costs by Tier
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4 -
7 Table 4
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9 Water Delivery Unit Costs
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4 -
7 Table 4
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10 Common Water Pea
king Unit Costs
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4 -
8 Table 4
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11 Inside City Water Peaking Unit Costs
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4 -
8 Table 4
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12 Outside City Water Peaking Unit Costs
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4 -
8 Table 4
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13 Water Conservation Unit Costs
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4 -
9 Table 4
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14 Common Water Unit Costs
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4 -
10 Table 4
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15 Inside City Water Unit Costs
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4 -
10 Table 4
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16 Outside City Water Unit Costs
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4 -
10 Table 4
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17 Proposed Quantit
y Charge
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4 -
11 Table 4
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18 Pump Zone Unit Costs
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4 -
11 Table 4
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19 Proposed Pump Zone Charges
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4 -
12 Table 4
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20 Treat & Wheel and Treat Only Unit Costs
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4 -
12 Table 4
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21 Proposed Treat & Wheel and Treat Only Charges
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12 Table 5
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1 Proposed Rate Schedule
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13 Table 5
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2 Typical Monthly Water Costs
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14 LIST OF FIGURES
Figure 1
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1 Status Quo Operating Cash Flow
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1 -
3 Figure 1
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2 Proposed Operating Cash Flow
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1 -
3 Figure 2
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1 Water Demand per Year
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2 -
3 Figure 2
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2 Status Quo Operating Cash Flow
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12 Figure 2
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3 Status Quo Debt Service Coverage
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2 -
12 Figure 2
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4 Proposed
Operating Cash Flow
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2 -
15 Figure 2
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5 Proposed Debt Service Coverage
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2 -
15 Figure 5
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1 Comparison of Costs for Customers in the Bay Area
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5 -
16
EXHIBIT A TO ATTACHMENT 1
R2023-__
City
of Napa, CA
|
Water Cost of Service Study
BLACK & VEATCH
|
Disclaimer
LN
-
1 Disclaimer
Black & Veatch has prepared this report for the City
of Napa (City)
and it is based on information
not within the control of Black & Veatch. The City has not requested Black & Veatch to make an independent analysis, to verify the information provided to us , or to render an independent judgment of
the validity of the information provided by others. Because of this, Black & Veatch cannot, and does not, guarantee the accuracy thereof to the extent that such information, data, or opinions were based on informat
ion provided by others.
In conducting these analyses and in forming an opinion of the projection of future financial operations summarized in this report, Black & Veatch made certain assumptions on the conditions, events, and circumstances that may occur i
n the future. The methodology utilized in performing the analyses follows generally accepted practices for such projections. Such assumptions and methodologies are reasonable and appropriate for the purpose for which they are used. While we believe the ass
umptions are reasonable and the projection methodology valid, actual results may differ materially from those projected, as influenced by the conditions, events, and circumstances that actually occur.
Such factors may include the Water Division’s ability t o execute the capital improvement program as
scheduled and within budget, regional climate and weather conditions affecting the demand for water, and adverse legislative, regulatory, or legal decisions (including environmental laws and regulations) affecti
ng the Water Division’s ability to manage the system and meet water quality requirements.
EXHIBIT A TO ATTACHMENT 1
R2023-__
City
of Napa, CA
|
Water Cost of Service Study
BLACK & VEATCH
|
Executive Summary
1 -
1 1.0
Executive Summary
The City of Napa (City) commissioned Black & Veatch Management Consulting, LLC (Black & Veatch) to conduct a Water Rate Study (Study) for the Water Division. The Study included the development of a multi
-
year financial plan, a cost
-
of
-
service
analysis,
and
the design of a rate structure
for the City’s Water Division. The specific objectives and goals of the Study were to:
◼
Evaluate the adequacy of projected revenues under existing rates to meet projected revenue requirements.
◼
Develop a sound financial plan f
or the Water Division covering a five
-
year Study period for both
ongoing operations and planned capital improvements.
◼
Allocate the Water Division’s projected Fiscal Year 20
23 -
20 24
(FY 20
24 ) revenue requirements to the
various customer classes in accordance
with the respective service requirements.
◼
Develop a suitable rate schedule that produces revenues adequate to meet financial needs while recognizing customer costs of service and local and state policy considerations such as Proposition 218 and applicable
judicial decisions.
◼
Allocate costs in the fixed element to more accurately reflect the level of service that is provided to customers each billing cycle
,
the costs incurred to maintain a reliable system
,
and
e
nsure it is
available 24/7 for drinking water
and fire protection
to structures on properties served
City water
whether water is used or not.
◼
Allocate costs in tiers to reflect more accurately changed usage patterns among customers that e
nsure cost recovery and corresponding allocation of system compo nents.
1.1 Water System
The City of Napa’s Water Division provides water services to over 2 4 ,
650
residential, commercial,
irrigation, schools, and agricultural accounts. In addition, the City maintains contracts to treat and deliver potable water to the cities
of American Canyon
,
Calistoga
,
and other entities. The City obtains
raw
water
from two
local
sources: surface water impounded at Lake Hennessey and Milliken reservoirs ,
and from
the State Water Project (SWP) operated by the California State Department of Water Resources
. The
SWP
contract
ed entitlements are
administered
through the Napa County Flood Control and Water
Conservation District.
Surface water at Lake Hennessey and Milliken Reservoir provide the City a storage capacity of 31,000 and 1,390 acre
-
f
eet respectively. The City receives SWP water through the North Bay Aqueduct (NBA) and it provides the City with
an annual allocation or portion of its
21,900 acre
-
feet
of
entitlements
.
Local treatment plants with a total capacity of 43.5 million gallons p er day (MGD) treat the surface and
SWP water. The City delivers all treated water through an extensive system of 350 miles of transmission and distribution pipelines.
1.2 Financial Plan
The City operates the Water Division as a self
-
supporting enterprise. As s
uch, the Water Division
must develop a financial plan (also known as revenue requirements) that provides sufficient levels of revenue to meet all operation and maintenance expenses, debt service requirements, routine annual renewal and
replacement of
aging
assets
funded from current revenues, and
consistent investments
in
capital improvements
.
EXHIBIT A TO ATTACHMENT 1
R2023-__
City
of Napa, CA
|
Water Cost of Service Study
BLACK & VEATCH
|
Executive Summary
1 -
2 The Study develops a financial plan that projects operating revenue, expenses, and capital financing costs for the Water Division over a five
-
year planning period beginning July 1,
2023
and ending
June 30, 202
8 . The financial plan projected future rate rev
enues under existing rates, operations and
maintenance (O&M) expense, principal and interest expense on bonded debt, and capital improvement requirements.
In the projection of rate revenues, annual projections of customers and water use rely upon City esti
mates based on a reasonable increase from
recent drought
-
constrained
demands while
considering the public’s desire to conserve and the
urban water use targets
established by the State
’s
Senate Bill (
SB
)
606/
Assembly Bill (
AB
)
1668. This legislative package
, also known as “Making Water
Conservation a California Way of Life,” creates unique community budgets for indoor residential use, outdoor residential use, irrigation of landscapes with dedicated irrigation meters, and water losses. It is the aggregate sum
of the four budgets that must be met, with escalating enforcement by the State Water Board through the decade. Even with growth projections, the Water Division is expected to remain under these targets set forth by SB 606/AB 1668.
The Water Division’s
revenue requirements are shown in
Table
2 -
10 and key areas summarized
below:
◼
Operation and Maintenance Expenses: O&M expenses as shown in Table
2 -
5 , range from $
35.2 M in
FY 20
24 to $
39.0 M in FY202
8 ◼
Debt Service:
Existing d
ebt service is projected to remain stable at $3.
1 M per fiscal year.
In FY 2027,
the City antici
pates the issuance of Revenue Bonds for $100.0M
, for improvements to the Hennessey
Water Treatment Plant and
Spillway
,
which will add an additional $7.2M of annual debt service.
◼
Capital Improvements: The identified capital needs average $
16.9 M per year over the five
-
year study
period.
The Study
incorporates
the
known
capital needs; however,
the City is in the process of
updating the Water Master Plan which will
prioritize
capital
investmen
ts
for a 30
-
year timeframe. The
Water Master Plan is e
xpected to be complete by
July 2024
.
1.3 Adequacy of Existing Rates to
Achieve Financial Plan
The last rate study was conducted in 2017 and set rates that took effect on October 1 of each
year in 2017
through
2021
.
Rates
remained flat in
2022 and
2023 with no increases.
Over the past couple
of years, water sales have decreased due to
two years of drought in 2021 and 2022
requiring restrictions
on outdoor irrigation practices. In 2023 water supplies
were replenished locally and regionally ending the
drought restrictions
,
however
a wet spring and unseasonably cool temperatures
through the end of June
resulted in suppressed sales through the end of FY23.
C
ustomer habits
have changed in the wake of
increased concern over climate change
and observations
of extreme weather patterns
.
In addition,
the
pandemic and inflationary period
s
were not predicted during the 2017 cost of service analysis. The costs
of critical consumables including chemicals, pipe
, and repair clamps have increased
beyond what was
projected
in 2017.
The
project
ed
increase in revenues from existing rates
are relatively flat at
an
average of 1.0%
over the Study
period.
Figure
1 -
1 shows
the projected cost of providing reliable water service and investing in
capital improvements
exceeds the rev
enue generated from existing rates
and depletes the
c
ash
b
alance
in 2025
.
Since the existing
rates
do not
recover sufficient revenue to provide
th
e necessary
service, rates must be
adjusted
to recover revenue commensurate with the
cost to provide
service.
EXHIBIT A TO ATTACHMENT 1
R2023-__
City
of Napa, CA
|
Water Cost of Service Study
BLACK & VEATCH
|
Executive Summary
1 -
3 Figure
1 -
1 Status Quo Operating Cash Flow
1.4 Revenue
Required to Achieve Financial Plan
To meet the projected revenue requirements, including the desired operating and debt service coverage levels, the Water Division proposed revenue adjustments which would allow the Water Division to operate the enterprise
on a revenue
-
neutral basis as shown in
Figure
1 -
2 .
Figure
1 -
2 Proposed Operating Cash Flow
1.5 Cost of Service Analysis
The
cost
-
of
-
service analysis is the process of allocating the costs to the various customer classes of service in a fair and equitable manner. The cost -
of
-
service allocations performed in this Study
are
based on the base
-
extra capacity method endorsed by the A
merican Water Works Association
(AWWA)
Principles of Water Rates, Fees and Charges
, M1 (M1) manual. We allocate costs to the different
customer classes in proportion to their use of the water system. As recommended by AWWA, Black &
EXHIBIT A TO ATTACHMENT 1
R2023-__
City
of Napa, CA
|
Water Cost of Service Study
BLACK & VEATCH
|
Executive Summary
1 -
4 Veatch distributed funct
ional costs to base (average load conditions), extra capacity (peaking) and customer
-
related parameters
such as
whether service to the customer requires a pump station to reach
higher elevations
. This allocation methodology produces unit costs for allocati on to individual customer
classes based on the projected customer service requirements.
1.6 Rate Design
The final step of a cost
-
of
-
service analysis involves the design of rates. This step balances rate design with allocated cost
-
of
-
service, state regulations
and local policy considerations. Policy makers
must also evaluate the extent to which the existing rate structure recovers revenues from customer classes in accordance with cost
-
of
-
service allocations.
The existing rates consist of
a
fixed bi
-
monthly
service
charge
,
a consumption charge
, pumped
zone charge and a fixed service charge for private fire service connections . The single family residential
have three
tiers
of
quantity charge
s
and t
he multi
-
family residential, commercial, irrigation, and contr
act
customers have
a
uniform quantity charge
. All customer
classe
s
var
y
whether they are located
I
nside
City
or Outside
City
.
1.6.1 Fixed Service Charge
The fixed service charge is to
recover the
numerous costs incurred by the water system whether
water is cons
umed each billing cycle or not.
The water system must be pressurized, monitored, and
analyzed for water quality to ensure it
is always clean and safe
. It is composed of major infrastructure
that must be maintained and cannot be reduced in size or neglecte d due to lower consumption.
Customers expect 24
-
hour reliable service that is provided to them and therefore appropriate staffing levels are required to provide that level of service.
The recent drought has emphasized that the water
system incurs numerous
costs regardless of
the volume of
water consumption.
There is a reduction in
the volume of chemicals required in the treatment process, but cost elements such as staffing required to operate the treatment plants 24/7 and monitor water quality 24 hours per day are not impacted by a
reduction in consumption.
Costs associated with infrastructure do not reduce during a period of reduced production (i.e., pipes and tanks don’t temporarily reduce in size.) Engineers size the system to meet the peak demand that f
lows through the system and this parameter does not vary during periods of reduced production.
Debt service payments on capital improvements including the recently upgraded Barwick Jamieson Treatment Plant do not change if the City produces less water. The
need to invest in capital
improvements and maintain the massive infrastructure does not go down if customers use less water. In fact, even if the City sells no water in a given billing period, the City still continues to incur many costs. For example, sta
ff must monitor and keep the system pressurized, maintain infrastructure, ensure fire -
flow is
available to protect structures and properties that are served City water, make emergency repairs of leaking pipes, read meters, monitor water quality in the syst em and ensure it is safe, and the City must
maintain licensed, credentialed staff to ensure the water is clean, safe, and reliable at all times.
In the past, customer water demands were consistently higher and lower fixed cost elements were recovered thro
ugh higher demand periods.
In
years
of consistently lower consumption a shift in the
way the service provided is charged to customers
is warranted
to
ensure
cost recovery.
The
fixed service
charge
was derived
by allocating traditional cost components that
do not vary with consumption.
EXHIBIT A TO ATTACHMENT 1
R2023-__
City
of Napa, CA
|
Water Cost of Service Study
BLACK & VEATCH
|
Executive Summary
1 -
5 1.6.2
Quantity Charge
The consumption charge for the
single
-
family
residential class
has
tier breakpoints
that
align with
usage patterns and the relative costs to deliver service. Tier 1 rate is charged for consumption of 1 through 14 units which represents typical winter consumption. Based on fiscal year 2023
customer billing
data, the Tier 1 breakpoint accounts f
or
73 %
of billed consumption of
I
nside
City
single family residential
(ISFR) users. Tier 2 rate is charged for consumption of 15 through 27 units and represents typical summer consumption. Based on
the
customer billing data, the Tier 2 breakpoint accounts
for
90 %
of
billed consumption of ISFR users. Tier 3 rate is charged for consumption of 28 or more units and represents the remaining
10 %
of users’ summer consumption. The high summer demands drive the size of the system infrastructure (pipes, tanks, treatm
ent capacity) and volume of water supply that must be
available to meet customer needs. Section 1.
6 presents the full rate schedule.
1.6.3 Pumped Zone Charge
The
pumped zone
charge
includes costs for
electricity and pumping costs. The City service area
is separated into five pressure zone. The first three zones are served from water directly pumped from all the water sources into the water system. Zones 4 and 5 required additional pumping stations to elevate
water to service the customers at higher elevations. Therefore, the are additional costs incurred which are specific to these customers which are recovered through the surcharge.
1.6.4 Treat
&
Wheel Charge
The
consumption charge for contract customers
includes
operating and capital
costs
associated
with treatment at the Barwick Jamieson treatment plant and transmission pipeline that transports water from Barwick Jamieson to the
cities of
Calistoga
and American Canyon
.
In 1998, the City entered into
agre
ement with the cities of Calistoga and American Canyon to treat the cities of Calistoga and American Canyon’s S
WP
entitlements at Barwick Jamieson. Once treated, the water is transported (wheeled)
via a
transmission pipeline to the respective cities.
1.6.5 Treat
Only Charge
The
consumption charge for the contract customer
includes costs
associated with treatment at
Barwick Jamieson treatment facility.
The City of American Canyon has a treatment facility
adjacent to
Barwick Jamieson which treats
a portion of their
S
WP
entitlements. Unfortunately, American Canyon
cannot process the full amount and therefore relies on the City for treatment. American Canyon is in the planning stages of expanding their treated water
clear
well to
allow the City
to transfer treated water
directly into their clear
well and thus eliminated the transporting
costs
to American Canyon.
1.6.6 Fire Service Charge
The
fire service
charge
includes costs of issuing bills, maintenance and capacity costs associated with private fir
e protection costs. These customers have a
dedicated
water line connection to
the water system that is specifically for fire protection. To meet fire protection demands, the water
system
must
be
design
ed
, operate
d
, and maintain
ed
so
that
it
can meet peak f
ire demand requirements.
The
fire service
charges
for
private accounts a
re
based on the diameter of the line that connects their fire
EXHIBIT A TO ATTACHMENT 1
R2023-__
City
of Napa, CA
|
Water Cost of Service Study
BLACK & VEATCH
|
Executive Summary
1 -
6 protection system to the water system. These charges are solely
for services specifically benefiting those
properties and
not a service available to the
public
.
1.7 Study Recommendations
Through the cost
-
of
-
service analysis, the allocation of costs to customer classes must follow Proposition 218, the regulatory guidelines to ensure cost recovery proportionate to cost of serving t hose
customer classes. Over the recent rate period, customer habits have changed, largely because of
the
State of California’s drought mandates. Section 2.
1 provides detailed information on the Regulations and
Napa customer response to the drought mandates
.
As
described above,
the City’s operating costs did not
exhibit a commensurate percentage reduction
during this period of reduced consumption
.
To retain simplicity
in
structure
, ensure reasonable stability of revenue, Black & Veatch recommends the follow
ing rate structure
components:
◼
Fixed Service Charge
: The Water Division should
retain the
fixed service charge based on meter sizes
for all customer classes. The fixed service charge help s
recover portions of fixed cost elements such
as operating and capi
tal components associated with SWP, meter maintenance and services, meter reading, issuing bills, and maintenance and capacity costs associated with available fire protection.
◼
Quantity Charge
: The Water Division should
retain the
quantity charges
for all c
ustomer classes. F
or
the
single
-
family
residential
the three
-
tier
quantity charges and for
multi
-
family residential,
commercial and irrigation
the
quantity charges will remain at a uniform rate. The quantity charge helps recover costs associated with
base, extra capacity, and conservation.
◼
Pumped Zone Charge
:
The Water Division should retain the quantity charge
for customers in zones 4
and 5 which rely on pump stations to receive water service. The pumped zone charge will help recover costs from electr
icity and pumping costs specific to these customers.
◼
Treat
&
Wheel Charge
:
The Water Division should retain the quantity charge
for contract customers
that the City provides treat
&
wheel water service. The treat
&
wheel charge will help recover costs
ass
ociated with treatment and transporting the water the contract customers.
◼
Treat Only Charge
:
The Water Division should retain the quantity charge
for the contract customer
that the City provides treat only water service. The treat only charge will help r ecover the costs
associated with treatment if the water for the contract customer.
◼
Fire Service Charge
: The Water Division should
retain
the fire service charge based on meter size for
private fire service connections. The fire service charge will help r ecover costs of issuing bills and
maintenance and capacity costs associated with private fire protection availability
.
Table
1 -
1 summarizes the recommended 5
-
year rat
e schedules for all
four
components.
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1 -
1 Proposed Five
-
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1 2.0
Revenue and Revenue Requirements
To meet the costs associated with providing water services to its customers, the Water Division derives revenue from a variety of sources including water user charges, capacity fees, interest earned from the investment of available funds, meter installatio n fees, late penalties, and
a few minor
miscellaneous revenues
including leases for cell towers at elevated tank sites . Black & Veatch has
projected the level of future revenue generated in the Study through a combination of an analysis of historical and f
uture system growth in terms of number of accounts and water consumption. This section also projects the expenses, or revenue requirements, necessary to operate and maintain the system, invest in capital improvements, make debt service payments,
and cover
other expenses of the
system.
2.1 C
ustomer and Water Consumption Projections
The Water Division provides water services to various customer classes. The following provides a brief description of the customer classes per the definitions of the respective dwelling units in Napa
Municipal Code Section 17.06.030:
◼
The Retail Class consists of single
-
family residential, multi
-
family residential, commercial and
irrigation customers.
The following are descriptions of the classes
.
●
Single
-
family residen
tial
is each parcel on which a dwelling unit is served by an individual water meter. For this Study, a dwelling unit is a structure with one or more rooms used as a residence for one household with facilities for living, sleeping, cooking, dining,
and sani
tation. For this Study,
a dwelling unit may include either: (a) one single
-
family dwelling, or (b) one single
-
family dwelling
and one accessory dwelling on the same parcel.
●
Multi
-
family residential
is each structure in which two or more separate dwelling units are served
by one water meter. This definition includes, but is not limited to, duplexes and triplexes, apartments, and townhomes under a common ownership.
●
Commercial
are properties that serve business, industrial, or institutional uses, and are
desi
gnated as commercial, office districts, residential office districts, industrial districts, public and quasi
-
public in the Zoning Ordinance.
●
Irrigation
are properties with a dedicated water meter used for irrigation purposes.
Interruptible
Agricultural are
now considered irrigation, yet the Water Division maintains the right to interrupt water service to these customers at any time because of water supply restrictions.
●
Fire Services
are commercial or multi
-
family residential properties with dedicated serv
ices for a
private fire system and typically include fire sprinklers.
In addition, the retail customers are differentiated as
properties that are
Inside
both the
Sphere of
Influence
(SOI)
and
Rural Urban Limit
(RUL)
(In
side
City
) or
Outside either the SOI
or the RUL
(
Outside
City
)
.
The SOI
is a line defined by the City and approved by
Local Agency Formation Commission
(LAFCO) to define the geographical boundaries within which the City i s
required to plan for public
infrastructure.
The RUL is a line defined
by the voters that limits the City’s authority outside the line.
◼
The Contract Class of customers consists of the cities of American Canyon, Calistoga, St Helena, and Yountville. This Class receives water from the City based on the services provided and t erms
pursuant to individual agreements. American Canyon and Calistoga, for example, receive only treat and wheel services because they own their own water
supplies
such as SWP entitlements
,
and the
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2 City provides treatment and conveyance of their water thro ugh the City’s system to a metered
connection with their respective system
s
. Service to the City of St Helena is subject to terms of an individual agreement that ties to the
Outside
City
residential
rate subject to phased implementation of
price changes (up or down) to accommodate budget cycles. Town of Yountville is also subject to the terms of the individual contract agreement and tied to
Outside
City
commercial rate.
◼
Congress Vall
ey Water District
(CVWD)
and Carneros Mutual Water Company
(CMWC)
are also
contract customers with individual wholesale water service agreements with the City, however they are billed under the
Retail Class
based on the type of service provided. CVWD is primarily single fa
mil
y
residential and a few irrigation accounts and CMWC is
commercial
.
◼
Pumped Zone
s
are properties in the water system pressure zone 4 and pressure zone 5 located at elevations that require the City to
operate and maintain
pump
stations to boost
water
pres
sure
to
reach these properties.
Based on a review of historical patterns within the City, the projected total number of customer accounts
are expected to remain flat
for the remainder of the Study Period. Development in Napa is predominantly infill develop
ment. Although Napa has been and continues to undergo significant redevelopment, particularly in the downtown area, this type of development does not result in a significant increase in the number of water customer accounts but shifts current retail uses t o hotels,
restaurants, and
mixed
-
use
customers.
In addition, d
ue to local and state policies, specifically City
Charter Section 180, and LAFCO Government Code 56133, the Outside
City
accounts
are
restricted from
growth
.
Table
2 -
1 summarizes the projected customer accounts for the system.
Table
2 -
1 Number of Customer Connections
Table
2 -
2 shows the projected water sales volumes for the Study Period. In determining the projected water sales volume, Black & Veatch an
al
yzed historical patterns of
water consumption in
conjunction with
the Urban Water Management Plan and
future water conservation requirements set
forth by the State of California
under SB
606/AB 1668
. The City has a robust conservation program and
has been consistently educating cust
omers, offering rebate programs, toilet retrofits and free low flow
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3 fixtures since the early 2000s. As a result, the City has experienced steady decline in consumption and increased efficiency in water use by its customers. As shown in Figure
2 -
1 below,
annual
water
consumption, measured in
acre
-
feet
(
AF
) has decreased over time.
Figure
2 -
1 Water Demand
per
Year
The period between
2014
and 201
6 and again in 2021 and 2022
, the City
experienced
drought
conditions
and state mandated cutbacks which significantly reduced consumption
as shown in
Figure
2 -
1 . The City had to develop short
-
term and
long
-
term
conservation measures
to
encourage customers to
conserve to
meet the mandates. These conservation measures
worked and now the City has
experienced
lower
patterns of
consumption.
Re
cognizing that the City will not experience
an elastic rebound in
consumption
over the Study
Period due to educated, conservation
-
minded customers
,
changed customer habits influenced in part by
extensive media coverage,
and expected cooler than usual winters,
Black & Veatch and the Water Division
incorporated
an objective realistic
trend of
a slow, steady increase in
water use projections. For this
a
nalysis,
it is assumed
that
the overall
increase
in
consumption
will average 1.1%
for the remainder of the
Study Period.
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4 Table
2 -
2 Billed Water Consumption
2.2 R
evenue under Existing Rates
Water user rates serve
as the primary source of revenue for the Water Division. Other revenue sources include capacity fees, interest earned from the investment of available funds, meter installation fees, late penalties, and other miscellaneous revenues. The level of future rev enue incorporates the
projected system growth in terms of number of accounts and billed water consumption.
The City bills
water consumption in units of 1,000 gallons (or kgal).
Projections of future water sales revenue are based on the number of customer s and volume of
water sold multiplied by the applicable rates to determine water sales revenue. The City bills customers on a bi
-
monthly basis.
T
he
difference in water demand as shown in
Figure
2 -
1 and
t
otal
w
ater
u
sage in
Table
2 -
2 is
recognized and quantified in
certified a
nnual water loss
audits and includes
water loss due to
meters out of calibration,
flushing
,
and main
repair
activities
.
Table
2 -
3 presents the Water Division’s
current schedule of water charges.
The charges are composed of the following elements:
◼
Fixed Service Charge
: A fixed service charge based on meter sizes fo
r all customer classes. The
fixed service charge helps recover portions of fixed cost elements such as operating and capital components associated with SWP, meter maintenance and services, meter reading, issuing bills, and maintenance and capacity costs as
sociated with available fire protection.
◼
Quantity Charge
: A quantity charges for all customer classes. For the single -
family residential the
three
-
tier quantity charges and for multi
-
family residential, commercial and irrigation the quantity charges will r
emain at a uniform rate. The quantity charge helps recover costs associated with base, extra capacity, and conservation.
◼
Pumped Zone Charge
:
A
quantity charge
for customers in zones 4 and 5 which rely on pump stations to receive water service. The pumped zone charge will help recover costs from electricity and pumping costs specific to these customers.
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5 ◼
Treat
&
Wheel Charge
:
A
quantity charge
for contract custo
mers that the City provides treat
&
wheel
water service. The treat
&
wheel charge will help recover costs associated with treatment and transporting the water the contract customers.
◼
Treat Only Charge
:
A
quantity charge
for the contract customer that the
City provides treat only water
service. The treat only charge will help recover the costs associated with treatment if the water for the contract customer.
◼
Fire Service Charge
:
A
fire service charge based on meter size for private fire service connectio ns.
The fire service charge will help recover costs of issuing bills and maintenance and capacity costs associated with private fire protection availability.
Table
2 -
3 Existing Water Rates
Table
2 -
4 represents a summary of projected water sales revenue under existing rates and charges. As shown, the revenue generated is anticipated to increase in conjunc tion with the increase in number of
accounts and water consumption
because of
the anticipated minor and gradual rebound from the
mandatory water conservation measures imposed by the State. The projected water revenue increases from $
34.8 M in FY 20
24 to $
36.2 M in FY 202
8 .
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Revenue and Revenue Requirements
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6 Table
2 -
4 Projected Revenue under Existing Water Rates
2.3 O
ther Revenue
There are other operating sources which include charges for hydrants, water installation, penalties, interest on investm
ents, rents and royalties, and other miscellaneous revenues. In total other operating revenues represent about
4%
of the Water Division’s total revenue. The City anticipates that these revenues will remain relatively constant
but rents and royalties
by agr
eement
will increase at 3% per
year
for the duration of the Study Period.
2.4 O
perating and Maintenance Expenses
Table
2 -
5 summarizes the Water Division’s projected O&M e
xpense for the Study Period. These
expenses include costs related to salaries and wages, materials and supplies, contract services, purchased water, routine capital outlay
, and transfers
. The City anticipates that all O&M expenditures will
increase on aver
age between 3
%
to
7 %
annually from the Water Division’s FY 20
24 budget. Black &
Veatch has forecasted expenditures based upon historical cost increases , industry indices,
and the Water
Division staff
’s
knowledge of future expenses for the water system.
Th
e following tables provides the escalations factors for FY 2024.
Cost Category
Escalation Factor
Personnel
(Salar
ies
)
3.0%
Benefits
4.0%
Contract Services
3.1%
Materials and Supplies
4.6%
Water Purchase
3.5%
Utilities
7.1%
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Revenue and Revenue Requirements
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7 Cost Category
Escalation Factor
Chemicals
5.2%
Administrative
3.5%
Table
2 -
5 O&M Expenses
The expenses shown in
Table
2 -
5 represent adopted budget in FY
20 24
and pro
jected expenses,
based on previously described escalation percentages, for FY
202
5 –
FY
202
8 . The adopted budget in FY
20 24
is the base for considering O&M expenses that need to be covered by future rates. Total O&M expenses are projected to increase
an average 2.6
% per year
over the Study period
.
As exhibited in
Table
2 -
5 , the budgeted expenditures
increased
approximately $
3.3 M
(10%
) in FY
20 24
when compared to
year
-
end projected
expenditures from FY
2023
. The budget for FY
20 24
is the
result of a detailed process to deter
mine all reasonably expected expenses. Rates must be set based on these projections. The difference between
year
-
end projected
expenses in FY
20 23
and the budgeted
expenses in FY
20 24
predominately occur in Water Administration and
are summarized as foll
ows:
◼
Transfers to General Fund ($1.2M)
–
The City recently updated its cost allocation plan which identifies services provided by the General Fund
to the Water Fund
and identifies the percentages to
be recovered by each receiving department.
◼
Insurance and Liability ($700k)
–
Cost of insurance, workers compensation, and general liability.
◼
Staff Expenses ($1.4M)
–
Overall the City is
experiencing a
high level of staff vacancies and a
backlog of recruitments, leading to
FY 2023 expenses
in the Wa
ter Fund being lower than expected.
These one
-
time savings do not carry on
into
FY 2024 since vacancies are planned to be filled.
2.5 D
ebt Service Requirements
Table
2 -
6 represents the Water Division’s existing debt service obligations. This table shows both principal and interest requirements on the existing debt over the Study Period. It is common practice for
utilities to utilize debt to finance multi
-
year capital improvement projects, but financing options will depend on the utility’s financial conditions. By financing the cost of the projects, the Water Division can
fund major projects immediately and spr
ead the payment over a specified time frame. Debt service represents roughly 11
%
of total expenditures. Based on the revenue bond requirements, the debt service coverage ratio is a minimum of 1.20x net revenues (revenue less operating expenses
and
not incl
uding
capital
) for the Water Division.
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8 The Water Division issued Water Revenue Bonds 2016 to successfully refinance existing Water Revenue Bonds
and State Loans
. By refinancing the existing debt, the City saved a projected $4 .
8 M
to the
Water Division over
the course of the repayment.
Identified in
Table
2 -
6 is a new revenue bond issuance
in 2027. The City anticipates significant CIP that has already been identified and
from the updated
30 -
Year
Master Plan that will be completed by 2024. The debt service amount s
are estimates based on an
$100.0M revenue bond issuance.
Table
2 -
6 Debt Service
2.6 C
apital Improvement Program
The Wate
r Division
last
developed a 20
-
year Master Plan in 2010 to identify system needs
including routine testing, inspections, maintenance, and renewal and replacement requirements.
In 2023,
the City embarked on a new 30
-
year Master Plan that will provide necess
a
ry capital investments
for
treatment, watershed, transmission, distribution, and information technology (IT)/Finance.
The City funds the Capital Improvement Program (CIP) through a combination of debt service, capacity fees or rate generated revenue, which is often referred to as pay as you go or pay -
go. For large
complex projects, the City uses debt financing. Pay
-
go fu
nding through rates is appropriate for the base
CIP to replace aging infrastructure and upgrade facilities. Capacity fees typically generate approximately $
900
,000 annually for the CIP. Current rates
will contribute an average of
$
5. 8
M annually in pay
-
go
f
unding towards CIP which falls well short of funding the average
$
16.9 M annual need.
Recognizing the
shortfall, the City plans to
phase
-
in additional rate generated funding for the CIP; the current proposal includes increasing the annual funds available
fr
om
pay
-
go from $
5.2 M
in 2024
to $
8 .0M in 202
8 .
These are
necessary investment
s
in
the
system
to keep up with
recommended AWWA standards.
Staff prioritizes investments each year according to the greatest need and does its best within these means to maintai
n high quality, reliable water, and contain costs. Deferring capital for long periods of time is not an industry
-
recognized best management practice. Long
-
term deferral results in overall higher
operating costs due to emergency responses need
ed
to address
minor and major failures within the
aging system.
Table
2 -
7 summarizes the Water Division’s CIP for FY 20
24 through FY 202
8 . The Water Division
is projecting a $
84.3 M capital improvement program over the Study Period, which includes both capital and replacement projects. The staff identified short and long -
term capital facilities needs for the system
and developed a schedule and costs for the projects. The City antici pates that over the Study Period, the
Water Division will implement tank improvements to address disinfection byproduct formation, continue annual infrastructure replacement of water mains and
meters, transmission
system valve installation to
decrease
repa
ir
time
and water volumes
required to drain,
flush and refill the large pipes
, and pipe
replacement
to increase reliability
and reduce customer outages,
and
construct
important
dam
,
spillway
,
and
watershed improvements.
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9 Key projects identified in the
CIP of the current FY
2024
and FY
2025
budget cycle are:
Milliken
Water Treatment Plant Upgrades, Barwick Jamieson
Chain and Flight Renovation
, Hennessey Treatment
Plant
Rehabilitation
, and Hennessey Spillway Flow Expansion.
Table
2 -
7 Capital Improvement Projects
2.6.1 Capital Improvement Financing Plan
The City funds annual expenditures for the CIP from a combination of available funds on hand, capacity fees,
long
-
term debt,
interest earnings, and revenues derived fro
m user rates. As shown in
Table
2 -
8 the annual CIP expenditure
averages
$
16.9 M throughout the Study Period. Capacity fees, which can only be used for capital improveme
nts, are typically $
90 0,000 per fiscal year
.
C
ontribution from
O
ther
A
gencies
in 2024 accounts for reimbursements from FEMA for disaster related projects.
The current
annual CIP contribution from the operating fund or pay
-
go
averages
$
5.8M
per year over the Study Period
and peaks at $8.0M in 2028
.
The Water Division follows the practice of using bond funds for major projects ready for immediate construction and then having customers that benefit from the improvements paying for these proje
cts over decades. The City of Napa
last
sold bonds for major treatment plant and other capital
improvements in 2007 and consolidated and refinanced all debt in 2016
resulting in debt service
payments of $3.
2 M per year. Given the size and age of the City’s
system, it is more fiscally responsible
for ratepayers to fund
major
capital investments
through a combination of funds on hand, capacity fees,
user rate revenues and long
-
term debt.
In 2027, the City will seek a substantial bond sale in the magnitude of
$100.0M to execute the
identified CIP
, primarily improvements to the Hennessey Water Treatment Plant in 2028 –
2030
. The City
anticipates completing its 30
-
year Master Plan by mid
-
2024 which will identify
and prioritize a broad
range of
necessary capital
investments. These investments are expected to be significant, therefore, the bond sale
amount
may
differ upon completion of the Water Master Plan.
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10 Table
2 -
8 CIP Financing Plan
2.7 Transfers
The Water Division performs various transfers throughout the course of the year to and from the operating fund and other funds. Since such transfers do not represent direct operating expenses for the Water Division, Black & Veatch includes these costs as “ below
-
the
-
line” (i.e., after the payment of debt
service) cash flow items and not included as O&M expenses in the calculation of projected debt service coverage. General Fund transfers are the equivalent costs charged for services provided to the water ope
ration that would otherwise be paid for directly such as legal services and human resources. These costs are considered operating costs and are factored into the debt service calculation but are shown as a transfer for accounting purposes.
Table
2 -
10 represents these transfers on an annual basis throughout the Study Period. The following are a brief description of the transfers.
◼
Rate Funded CIP Contribution Fund tran
sfers represent funds to an internal Water Division fund to cover planned CIP project expenditures.
◼
Non
-
Recurring Fund transfers represent funds to an internal Water Division fund for periodic,
studies
and plans that are required
on 5
-
and 10
-
year interva
ls
such as
the Urban Water Master Plan (UWMP)
as required by the State Department of Water
Resources,
or the Sanitary Survey as required by the
State Water Resources Board Division of Drinking Water
.
2.8 Reserves
Like
transfers, the Water Division performs various transfers throughout the course of the year to and from reserves. The Water Enterprise Fund’s fiscal policy reserve requirements have been most recently
reviewed by
Water Division
staff
and Black & Veatch
to
ensure that there are sufficient funds on
hand for unforeseen costs. Reserves are important in helping maintain good bond ratings, especially for a
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11 water system comprised of hundreds of millions of dollars of infrastructure to have the ability to secure fu
nding for long
-
term projects that exceed the capacity of
ratepayers
to support on a pay
-
go basis.
It is
recommended that the
Water Division ha
ve
four
reserves designated for various activities. The
recommended
reserves consist of the following:
◼
Operating R
eserve represents working capital maintained by the operating fund to cover day -
to
-
day
expenses and maintain sufficient funds to cover accounts payable
if there are supplier issues,
periods of low water sales, or unforeseen cost increases. The
recommendati
on is to
maintain a
level
between 12% to 25% (45
–
90 days) of
annual
operating expenses
excluding transfers to CIP
.
◼
Emergency Reserve represents funds used to fund operating or capital expenditures required because of
unbudgeted financial liability. The
recommendation is to
maintain
a
level of 10
%
of annual
operating expen
ses
excluding
transfers to CIP
.
◼
Long Term Water Supply Reserve represents funds set aside to invest in future water supplies
or to
purchases supplemental supplies during a drought
. The
recommendation is to initially fund this
reserve with a starting balance of $1.
7 M
in FY2024
and then transfer
$200,000 annually from the
operating fund.
◼
Rate Stabilization Reserve represents funds used to absorb revenue shortfall due to short -
term
decreas
es in water sales. The
recommendation is
to maintain
a level of
1 0
%
of
annual operating
expen
ses
excluding
transfers to CIP
.
Regardless of the type of reserve, appropriate reserve levels help the Water Division maintain a
stable financial position and
atta
in better bond ratings, which in turn, leads to lower borrowing costs.
Reserve levels are recommended to be funded at or near the fully funded level over the rate study period and therefore transfers to reserves are accounted for as operating expenses incr ease.
As shown in
Table
2 -
9 , total reserve levels over the 5
-
year study period will be maintained between $
19.0 M and $
26.9 M.
Table
2 -
9 Reserve Balances
2.9 P
rojected Operating Results
The revenue requirements of the Water Division consist of system O&M expenses, routine capital expenditures for equipment and improvements, the CIP, debt service requirements on existing debt,
transfers, and reserve requirements.
In the analysis, staff sought to examine the state of the Water Division if no revenue increases were to occur. Under the status quo scenario, the Water Division would not impose any revenue increases over the Study Pe
riod and continue to execute the planned CIP. As shown in Figure
2 -
2 the status quo
conditions mean that the Water Division will operate at an annual deficit position
thus tapping into its
reserves. By FY 202
5 , both the operating fund and reserves run out of funds. In addition, since the Water Division has debt service commitments, the debt service coverage will be in violation of debt covenants
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12 starting FY 20
24 as sh
own in
Figure
2 -
3 . The debt service coverage will fluctuate year
-
over
-
year based on
operating results.
Figure
2 -
2 Status Quo Operating Cash Flow
Figure
2 -
3 Status Quo Debt Service Coverage
To
avoid deficit positions, revenue increases as shown in
Table
2 -
10 are required. The revenue
increases represent the overall total revenue adjustment needed to meet revenue requirements. The revenue adjustment does not represent adjustments to the individual
rates but reflects the overall level of
revenue needed to meet the Water Division’s obligations.
The suggested revenue increases help the Water Division to meet the following goals:
●
Meets budgeted
and projected
obligations through FY202
8 for investments i
n operations
and maintenance
.
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13 ●
Meets the need to increase
annual level of pay
-
as
-
you
-
go
investments in Capital
Improvements
by increasing the annual transfer to CIP from $5M in FY2024 to $8M in FY2028
.
●
Meets the need to issue debt financing for $100M in FY
2027 to invest in Hennessey Water
Treatment Plant improvements in FY2028
-
FY2030.
●
Meets the Bond debt coverage ratio of 1.20x
for existing debt and 1.25x for proposed debt
●
Maintains total reserves described in Section 2.8.
Shown in
Table
2 -
10 is a summary of the proposed operating fund for the Study Period. The operating fund consists of two parts: revenue and revenue requirements. Line 1 is the revenue under existing r
ates while Lines 2 through 7 is the additional revenue generated from the required annual revenue increases. Lines 9 through 11 represent other operating revenues which include revenue from St.
Helena. Line 13 shows the total revenues generated from existi ng rates, revenue from increases and
other operating revenue.
As discussed earlier, O&M, water purchase, debt service, and transfers make up the revenue requirements section. Line 2
5 represents the total revenue requirement. Line 2
8 presents the net
cumul
ative working capital
residual
balance.
(Left Intentionally Blank)
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14 Table
2 -
10 Operating Fund
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15 Figure
2 -
4 presents the proposed
operating cash flow
and
Figure
2 -
5 presents the proposed debt
service coverage r
atio.
Figure
2 -
4 Proposed Operating Cash Flow
Figure
2 -
5 Proposed Debt Service Coverage
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1 3.0
C
ost of Service Allocation
The revenue requirements recovered from rates for water service are synonymous with the definition of the Cost
-
of
-
Service. In developing equitable rate structures, revenue requirements are allocable to the various customer classifications according to the service rendered. Proper allocation of
these requirements to customer classes should consider the quantity of water consumed, peak flows, number of customer connections, and other relevant factors.
In analyzing the Water Division’s cost of service for all ocation to its customer classes, Black &
Veatch selected the annual revenue requirements for FY 20 24 as the Test Year (TY) requirements to
demonstrate the development of cost
-
of
-
service water rates.
Table
3 -
1 summarizes the total costs of
service recovered from water user rates for the TY 20
24 .
Table
3 -
1 Cost of Service Revenue from Rates
Shown in Line
7 is the total reven
ue requirement that corresponds with
Table
2 -
10 ,
Line
25 .
To
derive the revenue requirement recovered via rates, it is necessary to deduct revenues from other sources as shown in Lines
11 and 1
4 . Line 1
2 represents the net annual cash balance for the Water Division during the TY. In this case, the $
3 .6
M
figure indicates that the Water Division is projecting a negative cash balance for the year. Since the City expects to
implement the revenue adjustment across
six
months
starting in
January
, the final cost of service recovered from rates requires an adjustment. Line 1 3 represents the additional revenues generated if the revenue increase was effective for a full year, versus
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2 only
6 months.
Line 15
represents the
total amount of
funds
needed in r
evenue from rate
s
that
will
offset
the total revenue requirement.
3.1 F
unctional Cost Components
The first step in conducting a cost
-
of
-
service analysis involves analyzing the cost of providing water service by system function
to
properly allocate the costs to the various customer classes and then
subsequently design
ing
rates
. As a basis for allocating costs of service among customer classes, we separate costs into the following four basic functional cost components: (1) “Base”; (2) “Extra Capacity”; (3) “Customer”; and (4) “Direct Assignment,”, described as follows:
◼
Base cos
ts represent operating and capital costs of the system associated with service to customers to the extent required under constant or average annual load conditions without the elements necessary to meet water use variations or peak demands.
◼
Extra Capacity
costs represent those operating costs incurred in meeting demands in excess of average and capital
-
related costs for additional plant and system capacity beyond that required for the average rate of use.
◼
Customer costs are those expenditures that tend to
vary in proportion to the number of customers
connected to the system. These include meter reading, billing, collecting,
and accounting, and
maintenance and capital costs associated with meters and services.
◼
Directly assigned costs are costs specifically
identified as those incurred to serve a specific
customer group(s). These costs include fire protection
for customers served City water
, water supply,
pumped zones
, treat & wheel, and treatment only
. Similarly, there are costs specifically for
I
nside
City
and Outside
City
customers. These dedicated costs consist of base, extra capacity, and conservation cost components. Customers that are
Outside
City
are beyond the core function of the water system
and service area. Local reservoirs of Lake Hennessey and M illiken Creek water supplies were
developed in 1948 and 1922 respectively and are under the jurisdiction of the City of Napa, who maintains these assets to serve its residents. Through the years, the City has grown and has developed imported water supplies
through a connection to SWP. To have the ability to
accommodate service to
Outside
City
customers in unincorporated county areas and to meet peak demands, the City maintains all three types of water supplies. The SWP supplies are the highest cost supplies
that would decrease if the City did not serve
Outside
City
customers. Geographically, the
Outside
City
customer class encompasses a widespread service area ranging from Rutherford to the north, Silverado and Monticello Park to the east, and Congress Valle y to the west. Therefore, vehicle
and labor costs are higher to provide the same level of service to the collective Outside
City
customer
class.
3.2 Allocation to Cost Components
The next step of the cost
-
of
-
service process involves allocating each element of
cost to
functional cost components
based on
the parameter or parameters having the most significant influence on the magnitude of that element of cost. We allocate O&M expense items directly to appropriate cost components. We use a detailed allocation of r
elated capital investment as a proxy for allocating capital and replacement costs. The separation of costs into functional components provides a means for
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3 distributing such costs to the various classes of customers based on
their respective responsibilitie
s for
each particular type of service.
3.2.1 System Base, Max Day, and Max Hour Allocations
The water system
is
comprise
d
of various
facilities; each designed and operated to fulfill a given function. For the system to provide adequate service to its customers always, it must be capable of
meeting not only the annual volume requirements, but also the maximum demand rates placed on the system. Because not all customers and types of customers exert maximum demand at the same time, the capacities of the various fac
ilities must meet the maximum coincidental demand of all classes of customers. Each water service facility within the system has an underlying average demand, exerted by the customers for whom the base cost component applies. For those facilities designed solely to meet
average day demand, 100
%
of the costs go to the base cost component. Extra capacity requirements associated with coincidental demands in excess of average use consist of maximum daily and maximum hourly demand subcomponents.
For volume
-
rela
ted cost allocations, the first step in determining the allocation percentages is to assign system peaking factors. The base element is equal to the average daily demand (ADD) and assigned a value of 1.0. Based on
consumption
figures from the
2017 to 2022
,
the Water Division’s
maximum day (max day) demand is 1.
63 times the ADD. Thus, we assign the max day factor a value of
1. 63
. The maximum hourly (max hour) consumption approximates the maximum instantaneous consumption and is 3.6 times the ADD. Thus, we as
sign the max hour factor a value of 3.6. These peaking
factors are based on the Water Division’s daily treated water production logs.
The costs associated with facilities required to meet maximum day demand are allocable to base and maximum day extra capa
city as follows:
●
Base = (1.0/1.
63 ) x 100 =
61.3 %
●
Max Day = (1.
63 .
–
1.0)/1.9 x 100 =
38.7 %
These calculations indicate that the average or base use requires
61.3 percent of the capacity of
facilities designed and generated to meet maximum day demand and the remaining
38.7 percent meets
maximum day extra capacity requirements.
The costs associated with facilities required to meet maximum hour demand are allocable t o
base, maximum day extra capacity
,
and maximum hour extra capacity as follows:
●
Base = (1.0/3.6) x 100 = 27.8
%
●
Max Day = (1.
63 –
1.0)/3.6 x 100 =
17.5 %
●
Max Hour = (3.6
–
1. 63
)/3.6 x 100 =
54.7 %
3.2.2 Allocation of Operating and Maintenance Expense
s
In th
e allocation of O&M expense
s
, we allocate costs directly to cost components to the extent possible. The Water Division accounts for operating costs by functional categories. Therefore, Black & Veatch used the factors noted in Section 3.1 to allocate the op erating expenses to the cost components.
We allocate Administrative and Engineering cost elements based on
the allocation of all other costs.
Table
3 -
2 represents the
allocation of O&M to the cost components. To determine the net O&M costs, we subtract revenues from other sources as shown in
Table
3 -
1 , Lines
11 and 1
4 from the alloc
ated costs.
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4 The direct assignment represents
I
nside
City
,
Outside
City
, fire protection,
pumped zones
, treat & wheel
,
and treatment only
.
3.2.3 Allocation of Capital Investments
Like
O&M expenses, we allocate existing fixed assets (which serve as a proxy for the current capital investments) directly to cost components to the extent possible. The allocation of costs into the costs components provides a basis for annual investment in wa ter system facilities.
Table
3 -
3 shows the
allocation of system investment serving water customers for the Test Year. The total net system investment
of $
116
,
4 57
,
7 00
shown on Lines 1
0 and 2
0 represents the Test Year original cost less
accumulated depreciation of the system in service. The total net system investment reflects the Water Division’s fixed asset listing ending June 30, 20
2 2
grouped with plan
ned CIP. This value represents book
value of the assets. The system valuation under replacement cost ($ 940
,
7 00,000) would represent the
water system’s estimate worth. Using the distribution of total net system investment across the functional cost componen
ts, we can then allocate the planned capital costs.
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1 Table
3 -
2 Allocation of O&M Expenditures
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3 Table
3 -
3 Allocation of Capital Costs
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4 3.3
U
nits of Service
Following the allocation of costs, the total cost responsibility for each customer class results by developing unit costs of service for each cost function and subsequently assigning those costs to the customer classes based on the respective service requi
rements of each. To properly recognize the cost
of service, each customer class receives its share of base, maximum day, and peak hour costs. The number of units of service required by each customer class provides a means for the proportionate distribution
of costs previously allocated to respective cost categories.
Table
3 -
4 summarizes the estimated test year units of service for the various customer classes.
Base co
sts vary with the volume of water used and distributed to customer classes on that basis. Extra Capacity costs are those associated with meeting peak rates of water use and
distributed to customer
classes
based on
the respective class capacity requirements
in excess of average rates of use. Peak
consumption information for each individual customer class is not available; therefore, the bi -
monthly
consumption records in the City’s Customer Information System (CIS) provides the basis for estimating maximum da
y and peak hour ratios for each customer class. The number of bills for each customer class serves as the basis for distributing customer billing requirements. Customer meter requirements are allocated
based on
the number of equivalent meters serving each
customer class. The estimated
number of equivalent meters for each customer class is based on the total number of various sizes of meters serving respective classes and the ratio of the cost of meters for the various sizes to the cost of 5/8
-
inch meters.
The equivalent meter ratios adopted in this analysis are consistent with those established in AWWA M6 Manual, “Water Meters
-
Selection, Installation, Testing and Maintenance”.
Private fire protection costs allocations use equivalent fire hydrants.
3.4 C
ost of
Service Allocations
To determine the cost of service for each customer class, we apply the unit costs of service to each customer classes’ respective service requirements. The total unit costs of service applied to the respective requirements for each cus
tomer class results in the total cost of service for each customer class.
3.4.1 Units Costs of Service
The test year unit cost of service for each functional cost component is based on the total cost divided by the applicable units of service as shown in
Table
3 -
5 . On Lines 1 to 3, the total costs represent
the cost that rates need to recover shown in
Table
3 -
1 Line 1
5 . The total O&M cost includes O&M, water
purchase, transfers less revenue from other sources and adjustments. The total capital cost includes transfers to the capital fund, CIP reserves, and the total debt se rvice, including debt owed to financial
institutions. Line 7 represents the unit costs used in allocating the costs to the specific customer classes.
3.4.2 Distribution of Costs of Service to Customer Classes
Applying the unit costs of service to the number of
units for which the customer class is
responsible produces the customer class responsibility. This process is illustrated in Table
3 -
6 , in which
the unit costs of ser
vice are applied to the customer class units of service. The costs attributable to each customer class are based on the functional cost components described in Section 3.1. Each customer
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5 class places a burden on the system in different ways and thus the al location of the units is
representative of this burden.
For example, the unit cost for the customers/bills functional cost component is $
4.5 6
per bill as
shown in
Table
3 -
5 . The number of bills associated with the class serves as the basis for distributing billing costs. So, for commercial customers within
I
nside
City
,
Table
3 -
6 shows that
I
nside
City
issues
7,704
bills annually. Therefore, the cost of issuing bills for this customer class is 7 ,
704
x $
4.5 6
, which
rounds to about $3
5 ,
1 00.
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6 Table
3 -
4 Units of Service
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7 Table
3 -
5 Units Cost of Service
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8 Table
3 -
6 Distribution of Costs to Customer Classes
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10
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Proposed Water Rate Adjustments
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1 4.0
Proposed Water Rate Adjustments
The initial consideration in the derivation of rate schedules for water service is the establishment of equitable charges to the customers commensurate with the cost of providing that service. While the cost
-
of
-
service
allocations to customer classes should not be construed as literal or exact determinations, they offer a guide to the necessity for, and the extent of, rate adjustments. Practical considerations sometimes modify rate adjustments by considering add itional factors such as the extent
of bill impacts, existing contracts, and historical local policies and practices.
4.1 E
xisting Rates
The Water Division’s existing rates for
all customers
consist of a fixed bi
-
monthly
service c
harge
.
The single
-
family reside
ntial customers have a three
-
tier quantity charge based on
units of consumption
(1 unit = 1,000 gallons). The multi
-
family residential, commercial, irrigation, agricultural and contract customers have uniform quantity charge which varies by
I
nside
City
, Ou
tside
City
,
and customer class. In
addition, there is a fixed service charge for fire service connections.
Table
2 -
3 presented earlier in this
report summarized the e
xisting water rates.
4.2 P
roposed Water Rates
The costs of service analyses described in preceding sections of this report provide a basis for the design of water rates.
The water rates for all
I
nside
City
and Outside
City
customers will
remain the same in
structure
but change in
value. The
single
-
family
residential rate will
keep the
fixed bi
-
monthly service charge based
on meter size plus an inclining three
-
tiered rate structure
for consumption
.
The
inclining tiered rate
structure
consis
t of
Tier 1 0
-
14 units, Tier 2 15
-
27 units and Tier 3 over 27 units. Under an inclining tier rate structure, users pay different commodity rates for different block usages.
The inclining tier rate structure applies solely to single family residential cus tomers as this
customer class represents the class with the highest variability between winter and summer demands based primarily on additional discretionary use in the summer. The promotion of efficient use of water has long term benefits to the water sys
tem and to the customer classes in avoidance of future capital costs such as additional in
-
system tank/reservoir storage and pipe size upgrades required by AWWA standards to meet peak daily requirements. During summer months the single
-
family
residential w
ater
demand nearly doubles when compared to winter water demand. As a result, it costs more to operate the water system because the Water Division must maintain higher priced SWP water entitlements to ensure ample reliable water supply. If the City did not
need to accommodate higher water demand users, the
Water Division could sell these higher cost water entitlements and reduce operating costs. Water supply costs are the main driver of higher costs in Tiers 2 and 3.
In addition to water supply costs, pe
aking costs are allocated to the higher users because they determine the capacity required and therefore size of the infrastructure that must be available to always
provide water
throughout the year. Aside from the major capital requirements for the infra structure this
affects operating costs. The high water demands above
wintertime
averages require two and even all
three treatment plants to run simultaneously, thereby requiring more maintenance costs, staffing and capital resources. Treatment plant asset
s including pumps, chemicals, laboratory and testing capabilities ,
and associated staffing are required
to
provide 24/7 operation of the treatment plants to meet maximum
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2 day demand. These high water demands also drive the need for additional system assets including higher
tank storage volumes and the maximum pipeline conveyance capacity. Grouped all together, these additional operating costs are allocated to the respective proposed three -
tier system.
The rates for multi
-
family residential, commercial
,
and
irrigation customers will
remain the same
with
a fixed bi
-
monthly service charge plus uniform consumption rate. Tiered rates are not applied to these customer classes because, unlike single family residential customers, their consumption habits do not have
strong ties to seasonal variations when the costs to provide service increases. For example, multi
-
family residential customers that have separate irrigation services demonstrate indoor use that is more consistent throughout the year. The City charges hig her variability irrigation services at a higher
rate. Commercial users pay a uniform rate because their demands are more dependent on the nature of their businesses and they generally do not fluctuate tremendously during the summer and winter months other
than their separate irrigation accounts, which pay a higher rate accordingly.
In addition, the contract customers will keep their existing uniform consumption rate structure and the pumped zone surcharge which will remain in effect as a
surcharge on top o
f the consumption
rate for all customers in zones 4 and 5.
4.2.1 Inside
City
and Outside
City
Within the customer classes, the Water Division separates I
nside
City
and Outside
City
. The
separation exists because there are different costs associated with providi ng services to customers
residing
I
nside
City
or Outside
City
boundaries. The different costs vary by function throughout the water system. For example, the Water Division maintains additional S WP
entitlements to meet
Outside
City
obligations. Based on water demands in the Study period, Outside
City
customers use ne
arly 1,400 acre
feet of water. SWP allocations vary annually as a function of water availability within the project.
To
meet
demands of
Outside
City
customers at 100
%
reliability, an additional SWP supply of 4,000 acre feet are maintained. The City incurs
these added costs for the benefit to outside customers and therefore, these costs belong to this customer class.
Additionally, Black & Veatch notes that there are costs that are shared by both types of customers, but there are allocation factors unique to
each. For example, the transmission and distribution
costs for
Outside
City
customers are greater because the locations are more widely spread out, requiring greater linear footage per service than
I
nside
City
customers who are located in relatively dense
and
closer geographic proximity;
therefore,
the costs are separated based on the miles of mains dedicated to serving
I
nside
City
and mains serving only
Outside
City
and would not otherwise exist to serve
I
nside
City
customers.
4.2.2 Fixed Service Charge
The
City incurs fixed cost elements, such as operating and capital components associated with connectivity to the SWP, meter maintenance and services, meter reading, bill issuance, and maintenance and capacity costs associated with fire protection
to City wate
r customers
regardless of the level of
water consumed. Therefore, the fixed bi
-
monthly service charge recover
s
portions of these fixed cost
elements. SWP capital components are charged according to the amount of total water entitlements held by the City (2
1,900 acre feet.) The City maintains SWP entitlements at sufficient levels to insure reliability of supplies during years of low delivery allocations from the State Department of Water Resources. The
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3 City incurs these costs to ensure reliability of the wat er system to the benefit of customers connected to
the system, even if there is no water consumption.
The fixed service charge increases with increasing meter size. Black & Veatch used meter ratios based on maximum operating capacities by meter size as sh own in AWWA M1, Table B
-
1, which
recognizes that as meter size increases, so does the capacity. For example, customers with a 4” meter have an expectation of being able to use more water (at a higher flow capacity) than customers are with a ¾” meter. Conse
quently, the City’s water system must maintain assets sized accordingly and capable of providing customers the level of service expected from their meter connection when the tap turns on.
Table
4 -
1 demonstrates the cost elements incorporated into the fixed service charge for FY 20 24 .
Table
4 -
2 shows the five
-
year fixed service charg
e rate schedule, based on unit costs in future years.
Table
4 -
1 Costs within the Fixed Charge for FY 20
24 Table
4 -
2 Proposed Fixed Service Charge
4.2.3 Fire
Service
Like
the meter service charge, the fire service charge includes costs of issuing bills, maintenance and capacity costs associated with private fire protection costs. The fire service charge increases with increasing pipeline diameter size. The Wate
r Division provides fire service to about
660
private fire
accounts. These customers have a water line connection to the water system that is specifically for fire protection. To meet fire protection demands, the Water Division must design, operate, and ma intain a
water system that can meet peak fire demand requirements. The Water Division charges private
accounts
a fire service charge based on the diameter of the line that connects their fire protection system to the water system.
These charges are for ser
vices specifically benefiting those properties and not a service available to the public.
Table
4 -
3 demonstrates the costs incorporated into the fire service charge an d
Table
4 -
4 shows the five
-
year meter charge rate schedule based on unit costs in future years.
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4 Table
4 -
3 Costs
within the Fire Service Charge for FY 20
24 Table
4 -
4 Proposed Fire Service Charge
4.2.4 Retail
Quantity Charge
4.2.4.1 Base Costs
The base costs represent costs associated with water supply costs and delivery costs. Water
supply costs are the costs associated with obtaining and treating water. The Water Division obtains water from the SWP via the North Bay Aqueduct and surface water at Lake Hennessey and Milliken Reservoir.
The City treats the SWP water at the Barwick Jami
eson treatment plant, while site
-
specific treatment
plants handle the Hennessey and Milliken waters. Delivery costs are the operating and capital costs associated with delivering water through the transmission and distribution system to all customers at ba
se use (average daily demand) conditions.
Water Supply Unit Costs
The determination of unit water supply costs associated with each customer class is a function of the cost and amount of water allocated from the three water sources. Black & Veatch used the
following 4
-
steps to derive the water supply unit costs:
◼
Step 1: Determine the weighted average unit costs for produced water. Produced water represent s
the amount of treated potable water produced by the Water Division. It incorporates both water sold a
nd unaccounted water. Unaccounted water represents water used to systematically flush and clean the system, fight fires
on
structures
located on
propertie
s that are served City water
, and water loss
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4 -
5 through the system that occurs as a part of routine opera tions such as main breaks and associated
flushing of the lines for water quality purposes after each repair.
Table
4 -
5 identifies the amount of water produced by water supply source, the associated costs and the unit costs. The production allocation is based on the average of actual water produced at the thre
e facilities between FY 20
19 and FY 20
21 . The costs represent actual cost per gallon for each source of water provided to customers. The water supply and treatment costs vary as shown according to chemical usage and energy consumed to process water at eac h of our three treatment
plants. For example, in FY20
24 , total costs for SWP water, chemicals and electricity are $ 10 ,
151
,
300
to produce 2,
492
,
377
thousand gallons of water resulting in a unit cost of $
4.07 . Due to SWP supply
costs and energy consumption associated with ozone treatment, the cost of treated water from the Barwick Jamieson Treatment Plant is higher than the limited processes and wate r costs from our
other two local sources.
Table
4 -
5 Water Supply Unit Costs
◼
Step 2: Determine the amount of water sold to each customer class.
Table
4 -
6 identifies the amount
of water sold by customer class based on customer information system records. Note that the difference between water sold and water produced is unaccounted water.
Table
4 -
6 Water Sold by Customer Class
◼
S
tep 3: Allocate the water supply sources to each customer class and determine the weighted average costs by customer class.
Table
4 -
7 identifies the amount of water sold by water source and the associated unit costs. Each year, all three treatment plants treat water supplies, taking into consideration multiple factors including water supply availability, water quality,
operational
restrictions
because of
emergency repairs
,
or planned capital improvement projects. Based on the
different costs associated with inside and outside city customers, the Water Division allocates water supply as follows:
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Water Cost of Service Study
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Proposed Water
Rate Adjustments
4 -
6 ●
Hennessy water supply is
allocated to inside city single family, multi
-
family
,
and commercial
customers proportionate to their water demand.
●
Milliken water supply is allocated to
I
nside
City
and
O
utside
City
single family, multi
-
family
,
and commercial customers proportionate to their water demand.
●
Barwick Jamieson water supply makes up the remaining water demand for single family, multi
-
family
,
and commercial as well as all irrigation and agricultural. Irrigation and agricultural uses ar
e deemed discretionary use under the State’s Water Action Plan and in state policies such as SB7x
-
7 that are shaping municipal water use in California;
therefore,
they are assigned to Barwick Jamieson.
Table
4 -
7 Water Supply Unit Costs by Customer Class
◼
Step 4: For single
-
family residential, allocate the water supply sources to each tier and determine the
weighted average unit costs by tier.
Table
4 -
8 identify the amount of water sold by water source and the associated unit costs.
EXHIBIT A TO ATTACHMENT 1
R2023-__
City
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Water Cost of Service Study
BLACK & VEATCH
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Proposed Water Rate Adjustments
4 -
7 Table
4 -
8 SFR Water Supply Unit Costs by Tier
Delivery Costs
Next, to determine water delivery unit costs, Black & Veatch subtracted the water supply costs common to all base costs determined in
Table
3 -
5 .
The base costs represe
nt the combined supply and
delivery costs under average daily demand conditions. In addition, Table
4 -
9 also identifies the delivery
unit costs specific to
I
nside
City
.
Table
4 -
9 Water Delivery Unit Costs
4.2.4.2 Extra Capacity Costs
The extra capacity represents costs associated with peak demands in excess of base demand.
Total extra capacity costs are comprised of maximum day a nd maximum hour demands. Peaking factors
derived from customer consumption data serves as the basis for distributing the peaking costs derived in Table 3
-
6 to each customer class.
Table
4 -
10 identified the peaking unit costs common to all by tier and
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R2023-__
City
of Napa, CA
|
W
ater Cost of Service Study
BLACK & VEATCH
|
Proposed Water Rate Adjustments
4 -
8 customer class.
Table
4 -
11 and
Table
4 -
12 identify the peaking unit costs for
I
nside
City and Outside City
customers.
Table
4 -
10 Common Water Peaking Unit Costs
Table
4 -
11 Inside
City Wa
ter Peaking Unit Costs
Table
4 -
12 Outside City
Water Peaking Unit Costs
4.2.4.3 Conservation Costs
The conservation costs represent costs incurred to promote, encoura ge, and enforce water
conservation. These costs represent water use efficiency programs and efforts. The City offers these programs to both
I
nside
City
and Outside
City
residential and commercial customers, but efforts target
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R2023-__
City
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Water Cost of Service Study
BLACK & VEATCH
|
Proposed Water Rate Adjustments
4 -
9 users with high discretionary
use. Black & Veatch allocated conservation costs to tiers 2 and 3, where water consumption is primarily discretionary. The allocation of conservation costs to upper tiers provides
a strong price signal for conservation, consistent with Article X Section 2 of the State of California
Constitution, and proportionately allocates such costs to those customers whose greater demand create the need for conservation and efficiency programs and efforts.
Table
4 -
13 identifies the conservation
costs by tier and customer class.
Table
4 -
13 Water Conservation Unit Costs
4.2.4.4 Summary of Base, Extra
-
Capacity, and Conservation Rates
The
quantity charge includes costs associated with base, extra capacity, and conservation and are shown in
Table
4 -
14 ,
Table
4 -
15 , and
Table
4 -
16 for each customer class.
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R2023-__
City
of Napa, CA
|
Water Cost of Service Study
BLACK & VEATCH
|
Proposed Water Rate Adjustments
4 -
10 Table
4 -
14 Common Water Unit Costs
Table
4 -
15 Inside
City
Water Unit Costs
Table
4 -
16 Outside
City
Water Unit Costs
4.2.4.5 Summary of
Retail
Consumption Rates
Table
4 -
17 shows the results in a five
-
year quantity charge rate schedule for
I
nside
City
and
Outside
City
custome
rs.
EXHIBIT A TO ATTACHMENT 1
R2023-__
City
of Napa, CA
|
Water Cost of Service Study
BLACK & VEATCH
|
Proposed Water Rate Adjustments
4 -
11 Table
4 -
17 Proposed Quantity Charge
4.2.5 Pump Zone Charge
The
pump zone c
osts represent costs
associated with electricity and pumping costs. The City
service area is separated into five pressure zone. The first three zones are served from water directly pumped from all the water sources into the water system. Zones 4 and 5 required additional pumping stations to elevate water to service the customers a
t higher elevations.
Due to the cost difference for
providing service between zones 1
-
3, and 4
-
5, the Water Division enacted a pumped zone surcharge for customers within zones 4 and 5. These operational and facilities costs associated with zones 4 and 5 are
standalone costs for which only those customers benefit.
Therefore, the are additional costs incurred
which are specific to these customers which are recovered through the surcharge.
Table
4 -
18 Pump Zone
Uni
t Costs
EXHIBIT A TO ATTACHMENT 1
R2023-__
City
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Water Cost of Service Study
BLACK & VEATCH
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Proposed Water Rate Adjustments
4 -
12 Table
4 -
19 Proposed
Pump Zone Charges
4.2.6 Contract Quantity Charge
4.2.6.1 Treat
&
Wheel Costs
The
treat
&
wheel
costs represent costs associated with
treatment and
delivery costs
for water
delivered to th
e
cities of
Calistoga
and American Canyon
.
The cities of Calistoga and American Canyon
obtain
water from the SWP via the North Bay Aqueduct
. Calistoga does not have treatment capabilities to
treat SWP water, therefore entered into agreement
in 1998
with th
e City for treatment and delivery of their
water entitlements. American Canyon has the capability to treat a portion of the SWP water but entered into agreement
in 1998
with the City to treat the re
maining portion
of their
SWP
entitlement.
4.2.6.2 Treat Only Cos
ts
The
treat only
costs represent costs associated with
treatment
only
costs
for City of American
Canyon
.
The City of American Canyon has a treatment facility adjacent to Barwick Jamieson which treats a portion of their SWP entitlements. Unfortunately, Ame rican Canyon cannot process the full amount and
therefore relies on the City for treatment. American Canyon is in the planning stages of expanding their treated water clear well to allow the City to transfer treated water directly into their clear well and
thus
eliminated the transporting costs to American Canyon.
Table
4 -
20 Treat
&
Wheel
and Treat Only Unit Costs
Table
4 -
21 Proposed Treat & Wheel and
Treat Only Charges
EXHIBIT A TO ATTACHMENT 1
R2023-__
City
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Water Cos
t of Service Study
BLACK & VEATCH
|
Summary of Proposed Rates and Typical Monthly Costs
5 -
13 5.0
S
ummary of Proposed Rates and Typical Monthly Costs
5.1 P
roposed
R
ate Schedule
Table
5 -
1 Proposed Rate Schedule
EXHIBIT A TO ATTACHMENT 1
R2023-__
City
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Water Cost of Service Study
BLACK & VEATCH
|
Summary of Proposed Rates and Typical Monthly Costs
5 -
14 5.2
T
ypical Monthly Costs under
Proposed Charges
Table
5 -
2 presents a comparison of typical monthly costs under existing rates and the proposed schedule of water user rates derived in this Study.
Th
e
costs
are shown monthly
, although we recognize
that customers receive bi
-
monthly bills (so double the costs in
Table
5 -
2 to get the corresponding bi
-
monthly water b
ill amount)
, because
most people think in terms of monthly expenses.
Table
5 -
2 Typical Monthly Water Costs
EXHIBIT A TO ATTACHMENT 1
R2023-__
City
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|
Water Cost of Service Study
BLACK & VEATCH
|
Summary of Proposed Rates and Typical Monthly Costs
5 -
15 5.3
S
ummary of Cost
-
of
-
Service Study
This
cost
-
of
-
service
s
tudy proposes adjustments to the City of N
apa’s water rates. A summary of
actions and projections are as follows:
◼
Maintain the
fixed service charge to reflect the nature of fixed costs associated with providing 24/7 water service and investments in infrastructure through the capital improvement program.
◼
Project water sales to increase slightly but continue to meet targets set forth by SB 606/AB 1668.
◼
Meet debt service ratio of 1.20
for existing debt and 1.25 for proposed debt
.
◼
Fund
budgeted and projected obligations through FY2028 for investments in operations and maintenance.
◼
I
ncrease annual level of pay
-
as
-
you
-
go investments in Capital Improvements by increasing the annual transfer to CIP from $5
.3
M in FY2024 to $8
.0
M in FY2028.
◼
I
ssue debt financing for $100M in FY2027 to invest in Hennessey Water Treatment Plant improvements in FY2028
-
FY2030.
◼
Operating Reserve.
Maintain
the
maximum
level
of 90
days operating costs
less transfers to CIP
.
◼
Emergency Reserves. Maintain the minimum le
vel of
10 % of operating costs
less transfers to CIP
.
◼
Rate Stabilization Reserve. Drawdown $
240k
of the existing $
3.8 M Rate Stabilization Fund in FY20
24 to address
debt service coverage requirement
.
Maintain
minimum level of 10% of operating costs
less tra
nsfer
s
to CIP
over the
remaining
s
tudy
p
eriod.
◼
Water Supply Reserve.
Start with $1.7M
in Water Supply Reserve
and continue to add $200k per year
over the
5 -
year study period.
◼
Maintain a below average cost of delivering potable drinking water amongst 20 Sa n Francisco Bay
Area urban water providers. Figure 5 shows a comparison of the cost of 8 units of water per month
for single family residential customers in the Bay Area.
Th
is level of monthly water usage is typical for
an average home in the summer. Based on billing
data for City of Napa customers, 77% of all bills
EXHIBIT A TO ATTACHMENT 1
R2023-__
City
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|
Water Cost of Service Study
BLACK & VEATCH
|
Summary of Proposed Rates and Typical Monthly Costs
5 -
16 sent to customers
are for 8 units of water per month or less which means 77% of all bills will be $7 2 or less
in 2024 under the proposed rates.
Figure
5 -
1 Comparison of Costs for Customers in the Bay Area
EXHIBIT A TO ATTACHMENT 1
R2023-__