November 19, 2024, Item #6
DATE:
TO:
FROM:
CONTACT:
SUBJECT:
Summary:
AGENDA .RE PO RT City of Poway
November 19, 2024
Honorable Mayor and Members of the City Council
Craig Schmollinger, Director of Finance /-;) Q
Craig Schmollinger, Director of Finance ~
(858) 668-4411 or [email protected]
CITY COUNCIL
Award of Contract to Raftelis Financial Consultants, Inc. to Conduct a Comprehensive Cost-of-Service and Water and Sewer Rate Study
The City has utilized a third-party rate consultant as utility experts in water and sewer rate setting who lead a cost-of-service study update in partnership with staff to help determine fair and equitable rates for services. The studies design a legally compliant rate framework that recovers water and sewer costs across different customer classes within each utility enterprise system. As a best practice, these studies are typically updated every four to six years to ensure the rate design remains fair and equitable. The most recent study was performed in December 2019 and updated in late 2021 for four year rates that went into effect beginning in January 2022. The adopted Fiscal Year 2024-25 Budget includes funding allocated to conduct updated cost-of-service studies for both water and sewer services as part of the next water and sewer rate setting process.
The City has successfully utilized Raftelis Financial Consultants, Inc. (Raftelis) for both the 2019 comprehensive and 2021 updated cost-of-service studies for water and sewer services. Raftelis was also utilized for the recent limited scope analysis of large increases in water purchase costs as a pass through adjustment from the City's wholesale water provider, the San Diego County Water Authority.
Raftelis has intimate knowledge of both the City's water and sewer systems, current cost-of-service studies and models, and are industry experts in California based utility rate setting for over 30 years.
After evaluating a requested proposal, staff is recommending the City Council award a contract to Raftelis.
Recommended Action:
It is recommended the City Council award a contract to Raftelis Financial Consultants, Inc. to conduct a Comprehensive Cost-of-service Study for Water & Sewer services and authorize the City Manager to execute all necessary documents associated with the agreement. 1 of 17
November 19, 2024, Item #6
Discussion: Poway
most
recently
went
through
a comprehensive
water
and
sewer
Cost-of-Service
Study
(COSS)
in
2019,
with
a
major
update
in
2021,
and
limited
scope
San
Diego
County
Water
Authority
rate
pass
through
adjustment
review
in
2024.
It
is
industry
best
practice
to
update
these
studies
every
four
to
six
years,
therefore
funds
are
included
in
the
adopted
FY
2024-25
Budget
to
update
the
water
and
sewer
COSS's.
The
intent
of
the
COSS
is
to
assess
and
evaluate
the
City's
current
water
and
sewer
rates
and
potentially
establish
new
rate
structures(s)
that
adequately
balance
the
short
and
long-term
financial
sustainability
of
the
City's
water
and
sewer
enterprises.
In
addition,
any
proposed
rate
structures
should
demonstrate
each
ratepayer
class
is
paying
its
proportionate
share
of
costs
and
meeting
each
utility's
ongoing
operating
expenditures,
capital
improvement
needs,
fund
reserve
policies,
and
regulatory
requirements.
In
addition
to
evaluating
costs
and
alternative
rate
structures,
there
are
other
goals
associated
with
the
study.
A
new
study
will
provide
the
opportunity
for
current
staff
to
be
involved
in
the
collection
of
data
and
development
of
the
rate
model
which
will
provide
for
a foundational
level
of
knowledge
of
the
information
feeding
into
the
model,
as
well
as
an
understanding
of
how
the
model
can
be
modified
for
different
assumptions
and
scenarios.
The
attached
proposal
specifically
includes
training
for
relevant
City
staff
on
the
new
model.
The
COSS
analysis
will
also
evaluate
the
City's
current
rate
structure
with
regard
to
any
changes
in
state
laws
and
any
applicable
court
cases.
While
the
study
will
evaluate
many
cost
factors,
it
is
not
a
cost
allocation
study.
Overhead
and
administrative
costs
are
allocated
across
the
General
Fund,
Water
and
Sewer
Funds
and
other
funds.
Cost
allocations
benefit
the
Water
and
Sewer
funds
because
ratepayers
only
pay
for
a
portion
of the
administrative
and
overhead
costs
associated
with
operating
the
utilities.
Staff
is
currently
working
with
an
outside
consultant
to
update
the
cost
allocation
plan.
It
is
staffs
intent
to
incorporate
the
updates
to
the
cost
allocation
plan
into
the
new
COSS's.
Staff
is
recommending
Raftelis
be
selected
to
conduct
the
COSS
based
on
their
submitted
proposal,
expertise
and
results
of
their
previous
and
recent
projects,
as
well
as
extensive
experience
performing
similar
studies
for
agencies
throughout
California,
particularly
local
water
agencies,
for
over
30 years.
Poway
Municipal
Code
Chapter
3.28 provides
that
formal
bidding
may
be
waived,
and
selection
of
service
provider
does
not
need
to
follow
bidding
requirements
if
the
services
can
only
be
obtained
from
one
vendor,
or
if the
City
Manager
or
designee
determines
that
competitive
bidding
is
not
in
the
public's
interest.
Based
on
the
reasons
stated
above
staff
has
made
this
determination
.
A
detailed
scope
of
work
and
anticipated
project
schedule
are
included
as
part
of
the
attached
agreement
(Attachment
A).
Highlights
include:
1. Data
collection
and
an
evaluation
of
key
information
for
each
utility
(water
and
sewer)
to
understand
current
dynamics
of
the
City's
utility
system,
finances,
customers,
water
and
sewer
usage
characteristics,
and
existing
rate
and
fee
structure.
2. Detailed
analysis
of
the
revenue
requirements
for
the
City's
water
and
sewer
funds,
including
expenses
for
operations,
debt,
and
capital
projects.
2 of
17 November 19, 2024, Item #6
3. Preparation of a water and sewer rate model, including calculation of the impact to rates and ratepayers with each modeled scenario.
4. Staff training on how to use the rate models and adjust inputs to run various scenarios.
5. Develop and recommend water and sewer rates for consideration over a five-year implementation window on an annual basis: FY2026-30
Once the contract is executed, staff will begin working with Raftelis to initiate the development of the COSS's. Raftelis is ready to begin work on the project immediately. Staffis anticipating an eight-month turnaround.
Environmental Review:
This action is not subject to review under the California Environmental Quality Act (CEQA).
Fiscal Impact:
The fiscal impact of awarding the contract to Raftelis to conduct a comprehensive five-year water and sewer rate study rates is $119,599.
The costs of the study and ongoing support will be charged equally to the Water and Sewer Funds.
Sufficient budgeted funds are available in both the Water and Sewer Funds in relevant accounts for the Water Fund (5100) and Sewer Fund (5200) to award the noted contract at the noted level.
Public Notification:
None.
Attachments:
A. Professional Services Agreement with Raftelis Financial Consultants, Inc.
Reviewed/Approved By:
w~1¾.~
Assistant City Manager
3 of 17
Reviewed By:
Alan Fenstermacher
City Attorney
Chris Hazeltine
City Manager
� RAFTELIS
September 30, 2024
Craig Schmollinger
Director of Finance
City of Poway
13325 Civic Center Drive
Poway, CA 92064
Subject: Proposal for a Water and Wastewater Cost-of-Service Study Dear Mr. Schmollinger,
Thank you for the opportunity to submit this proposal for a water, wastewater, and recycled water cost-of-service study (COS Study) for the City of Poway (City). This proposal discusses why we believe that Raftelis can provide superior value to the City and successfully meet the City's objectives.
Project Team
Our proposed project team is composed of experienced rate consulting professionals with extensive financial planning, cost-of-service, and rate design expertise. • Project Manager: Sudhir Pardiwala, PE, will serve as our Project Manager. Sudhir is an Executive Vice President with Raftelis and has more than 40 years of experience serving California water and wastewater utilities. He will be responsible for day-to-day project execution and ensuring that your study objectives are fully met. Sudhir is a registered Municipal Advisor Representative and a contributing author to the Water Environment Federation publication, Manual of Practice No. 27, Financing and Charges for Wastewater Systems (WEF Manual 27). Sudhir led City's 2019 cost-of-service study for the City and has developed rate structure alternatives for dozens of California water and wastewater utilities. • Technical Reviewer: Our project technical reviewer is Mr. Steve Gagnon. Steve is a Vice President with Raftelis and a nationally recognized expert on utility cost-of-service and rate design issues. He has 25 years of industry experience and has been conducting water and wastewater rate studies in Southern California for about 14 years out of my 25 years as an engineering consultant. I am registered as an environmental engineer in Arizona, a Municipal Advisor with the U.S. Securities and Exchange Commission and the chair of the California/Nevada American Water Works Association (CA NV A WW A) Financial Management Committee.
24640 Jefferson Avenue, Suite 207
Murrieta, CA 92562
www.raftelis.com
4 of 17
November 19, 2024, Item #6
ATTACHMENT A
November 19, 2024, Item #6
CITY OF POWAY
2025 COS STUDY PROPOSAL
Project Understanding
Our understanding of the City's primary objectives for the COS Study are:
• Financial Planning: Comprehensive water and wastewater financial plans and revenue requirement projections for the IO-year period FY 2026-FY 2035. • Cost-of-Service Analyses: Water and wastewater cost-of-service analyses that determines the customer class cost-of-service for water, wastewater, and recycled water customer classes. 2 • Proposed Rates: Proposed water, wastewater, and recycled water rates for the five-year period FY 2026 -FY 2030. The rates will be developed in accordance with the intent and requirements of California Proposition 218. The specific effective dates for the proposed rates will be as follows:
Fiscal Year Effective Date
FY 2026 July 1, 2025
FY 2027 July 1, 2026
FY 2028 July 1, 2027
FY 2029 July 1, 2028
FY 2030 July 1, 2029
• Pass-Through Adjustments: The proposed rates developed by Raftelis will explicitly identify rate components for significant costs that are not under direct control of the City. For example, San Diego County Water Authority water supply costs, San Diego Metro JP A wholesale wastewater treatment costs, and electric power costs charged by San Diego Gas & Electric. This will allow the City to implement annual pass-through adjustments for these costs as required. • Rate Benchmarking: Survey of water, wastewater, and recycled water rates and customer bill impacts for up to ten comparable utilities selected by City Staff. • City Council Rate Workshops: Two (2) City Council rate workshops that will be scheduled at dates determined by City Staff. Raftelis will develop proposed presentations for each rate workshop that address the specific topics specified by City Staff. • Microsoft Excel Financial Model and Training: A user-friendly financial model that allows City Staff to conduct financial planning and rate scenario analyses. • Cost-of-Service Report: A comprehensive cost-of-service study report that discusses the assumptions, cost and demand inputs, and calculation methodologies used to develop proposed water, wastewater, and recycled water rates.
• Proposition 218 Notice and Public Hearing: Assistance drafting the City's Proposition 218 notice. Onsite attendance and presentation at the formal Proposition 218 hearing. 5 of 17
November 19, 2024, Item #6
CITY OF POWAY
2025 COS STUDY PROPOSAL
Project Approach
Task 1: Project Initiation, Project Management, and Data Collection
1.1 Initial Data Request
Immediately upon receiving the notice to proceed, Raftelis will submit a comprehensive data request seeking the following types of information:
• Customer accounts by land use type, rate code, and meter size. • Purchased water volumes.
• Customer billed water consumption.
• Operating budgets for each utility service.
• Long-term CIP expenditure projections.
• Recent engineering master plans for each utility service.
1.2 Project Kick-off Meeting
The onsite kick-off meeting will include a discussion of the following types of information:
• Discussion of the effectiveness of the City's existing water, wastewater, and recycled water rate structures.
• Customer demographics, consumption characteristics, and land-use patterns. • Rate structure concerns and rate structure pricing objectives. • Major infrastructure additions and projected capital expenditures. • Outstanding debt principal balances.
• Engineering master plans.
• Financial policies.
• Legal/regulatory issues.
• Key City Council and external stakeholder concerns/perspectives. • Confirmation of project objectives, deliverables, and schedule. • City and Raftelis points of contact and communications protocols.
1.3 Project Management
We believe in a now surprises approach to project management. This includes:
• A commitment to provide quick responses to emails and telephone calls. • Regularly scheduled bi-weekly project check-in meetings. • Immediate identification of challenges/issues that might impair successful project completion.
• Virtual meetings throughout the project to review analyses and results.
1.4 Quality Assurance/ Quality Control Process
3 In every project, we implement a systematic quality assurance program to ensure consistency, accuracy, and validity. Our proposed Technical Reviewer, Steve Gagnon, will ensure that the cost-of-service and rate model developed functions properly and is based on sound rate-making principles and standard industry practice.
MEETINGS:
• Onsite kick-off meeting
6 of 17
November 19, 2024, Item #6
CITY OF POWAY
2025 COS STUDY PROPOSAL
DELIVERABLES:
• Data request; kick-off meeting agenda, presentation materials, and minutes.
Task 2: Analysis of Customer Demand Characteristics and Demand Forecasting
2.1 Analysis of Customer Water Consumption Characteristics 4 The analysis of customer water consumption characteristics is critical to developing the demand forecast that underlies the water and wastewater financial plans, the allocation of costs to customer classes, and the development of proposed rates. After obtaining the City's actual historical customer billing data for the period FY 2022 -FY 2024, Raftelis will seek to analyze the following types of information for each major customer type/land use:
• Account growth by meter size and land use type.
• Monthly, seasonal, and annual water consumption.
• Average day, maximum day, and maximum hour water consumption. • Winter average water consumption as a proxy for indoor water use. • Estimates of wastewater return flows transported to the San Diego Metro JPA. • Historical consumption declines during weather changes and drought stage emergencies.
2.2 Demand Forecasting
Raftelis will prepare comprehensive demand forecasts for the water and wastewater utilities for the IO-year period FY 2026-FY 2035. It will be developed using Microsoft Excel to allow for scenario modeling.
MEETINGS:
• Virtual meetings as required.
DELIVERABLES:
• Detailed understanding of customer water consumption characteristics. • Comprehensive forecast of billed water consumption and billed wastewater demand for the 10-year period FY 2026 -FY 2035.
Task 3: Financial Planning and Revenue Requirement
Forecasting
3.1 Raftelis Approach to the Financial Planning Process Utility financial planning is an iterative process in which the "optimal" capital financing strategy must be identified. This requires achieving the correct balance between CIP financing provided by rate revenues, capacity fees, grants, and external debt financing.
A comprehensive and correctly developed financial plan must be based on a realistic projection of customer water and wastewater demand under normalized climate conditions and reasonable assumptions of customer account growth. The Microsoft Excel financial model developed for the water and wastewater utilities will allow City Staffto vary inputs for items such as customer account growth, average billed water consumption per account, average contributed wastewater 7 of 17
November 19, 2024, Item #6
CIT
Y
OF
POWA
Y
5 2025
COS
STUD
Y
PROPOSAL
flow
per
account,
CIP
expenditures
and
financing
strategies,
operating
expenses
, inflation
rates
,
etc
.
Figure
I illustrates
the
financial
planning
process
that will
be
used
by
Raftelis
for
each
of
the
City's
utility
services.
I'
'
Financial
Data
.
Rate
revenue
proj
ections
.
O
th
er incom
e
.
Op
Ex/
CapE
x
Bud
ge
t
\. I'
'\
Assumptions
.
Cus
to
m
er gro
w
t11
.
OpE
x i
nflation
>--
.
CapE
x infla
tion
.
Changes
in
usage
pattern
s
'-/'
'
Financial
Polic
i<>s
.
O
pe
ratin
g
rese
rve
.
Cap
ital rese
rve
.
Debt
se
rvice
cove
ra
ge
.
O
th
er
fisc
al policies
'-
. .
➔
. . . .
Figure
1:
Financial
Planni
ng
Process
Financial
Pl
an
Foroc;i
st
Ra
te
revenu
e
Oth
er oper
ating
reve
nu
e
O
per
at
ing
-expe
nses
Capital ex
pend
itu
res
Existing
debt
serv
ic
e
Tr
ansfers
Apply
Con
straints
•
Rese
rve
targe
ts
• D
eb
t se
rvice
co
ver
age
requ
irem
ent
s
•
Fun
din
g o
ption
s
Apply
Revonuo
Adjustmonts
•
Equ
al ann
ual
•
As
-nee
ded
•
St
aggere
d
Financial
Plan
Altorn,1tivo
1 Financ
ia
l Plan
Altornativo
2 Financial
Plan
A
ltern
ati
ve
3 3.2
Review
and
Evaluation
of
City
Financial
Policies
Raftelis
will review,
and
as
appropriate,
make
recommendations
regarding
the
City's
financial
policies
for
its
water
and
wastewater
utilities.
These
policies
will
include
items
such
as
your
minimum
and
maximum cash
reserve
targets
, the
use
of
external
debt
financing
for
repair
and
replacement
versus
growth-related
CIP
projects,
and
the
appropriate target
debt
service
coverage
ratios
for
senior
and
subordinated
debt.
3.3 Comprehensive
Cash
Flow
Projection
and
Revenue
Requirement
Forecasting Raftelis
will
develop
water
and
wastewater
financial
plans
for
the
I 0-year
period
FY
2026-2035.
This
will
allow
the
City
to
assess
its
financial
position
in
years
6-10
of
the
projection
period
considering
potential
long-term
changes
in
customer
water
consumption
characteristics,
water
supply
costs
, regulatory
requirements,
etc
. The
comprehensive
cash
flow
projection
will
include:
•
Revenue
Under
Existing
Rates:
A
projection
of
rate
revenues
generated
under
existing
rates
based
on
the
updated
demand
forecast
completed
in
Task
2. The
projection
will
include
billed
water
consumption
across
all
tiers,
customer
types
, and
meter
sizes.
•
Operations
and
Maintenance
Expenses
(O&M):
O&M
expenses
including
inflation
adjustments
and
potential
changes
in
the
profile
of
out-year
O&M
caused
by
system
technological
changes.
•
Potential
Pass-Through
Costs
: The
identification
of
on-going
costs
that
are
not
under
City
control
and
thus
potentially
appropriate
for
recovery
via
a water
and
wastewater rate
"pass
through
" adjustments.
Key
among
these
will
be
San
Diego
County
Water
Authority
8 of17
November 19, 2024, Item #6
CIT
Y
OF
POWAY
2025
COS
STUDY
PROPOSAL
water
supply
costs,
San
Diego
Metro
JP
A
wastewater
treatment
costs,
and
the
electric
power
costs
charged
by
San
Diego
Gas
&
Electric.
•
Debt
Service:
Existing
and
projected
debt
service
expenditures
used
for
CIP
funding,
pension
obligation
funding,
etc.
6 •
CIP
Expenditures:
All
CIP
expenditures,
regardless
of
funding
source,
developed
as
part
of
the
water
and
wastewater
master
planning
process
and
the
City's
long-term
CIP
plan.
3.4 Scenario
Analysis
-Financial
Plan
Optimization
Scenario
analysis
involves
the
determination
of
required
rate
revenue
increases
under
different
utility
sales
for
each
service,
CIP
expenditure,
and
debt
service
alternatives.
It
includes
the
modeling
of
projected
cash
reserve
and
debt
service
coverage
for
each
year
of
the
planning
horizon.
As
instructed
in
the
City's
RFP,
a minimum
of
three
financial
planning
scenarios
will
be
developed.
•
"No
Rate
Increase"
Scenario:
Comprehensive
financial
plans
that
assume
no
rate
increases
over
the
I 0-year
financial
planning
horizon.
•
"More
of
the
Same"
Scenario:
Comprehensive
financial
plans
that
assume
annual
rate
revenue
increases
if
the
City
was
to
replicate
its
previously
approved
historical
rate
increases
over
the
I 0-year
planning
horizon.
•
"Optimal"
Capital
Financing
Scenario
: Development
of
an
"optimal"
capital
financing
strategy
that
balances
the
projected
mix
of
rate
revenues,
capacity fees,
grants,
and
external
debt
funding
to
fund
capital
improvements.
•
Drought
Risk
Assessment:
Assessment
of
the
risk
of
water
sales
revenue
shortfalls
due
to
short-
and
long-term
drought
events.
The
financial
planning
model
will
be
capable
of
performing
different
scenarios
based
on
the
City's
preferences.
3.5 Revenue
Requirement
Projection
Based
on
the
optimal
financial
planning
scenario
developed
in
Task
3.4,
Raftelis
will
project
total
system
revenue
requirement
from
rates
for
the
I 0-year
period
FY
2026
-
FY
2035
for
the
City's
water
and
wastewater
utilities
MEETINGS
:
•
Virtual
meetings
as
required.
DELIVERABLES
:
•
Development
of
the
optimal
financial
planning
scenario
in
consultation
with
City
Staff.
•
Water
and
wastewater
financial
plans
and
revenue
requirement
projections
for
the
10-
year
period
FY
2026-
FY
2035.
9 of
17 November 19, 2024, Item #6
CIT
Y
OF
POWA
Y
7 2025
CO
S
STUD
Y
PROPOS
A
L
•
Potential
recommendations
for
changes
in
financial
policies.
Task
4:
Cost-of-Service
Analysis
4.1 Raftelis
Approach
to
the
Cost-of-Service
Process
The
procedures
used
by
Raftelis
in
water
and
wastewater
cost-of-service
studies
are
based
on
industry
standard
methods
presented
in
the
American
Water
Works
Association
publication,
Manual
of
Water
Supply
Practices
Ml,
Principles
of
Water,
Rates,
Fees,
and
Charges
(AWWA
Manual
Ml)
and
the
Water
Environment
Federation
publication
, Manual
o(Practice
No.
27,
Financing
and
Charges
for
Wastewater
Systems
(WEF
Manual 27).
The
use
of
industry-standard
procedures
corresponds
to
the
cost-of-service
mandate
contained
in
California
Proposition
218.
Figure
2 illustrates
the
multi-step
cost
allocation
process
used
by
Raftelis
for
a water
cost-of
service
study. Step
1 Revenue
Requirement
from
Financial
Plan
Operation
and
Maintenance
Expense
Debt
service
Capital
Costs
Transfers
Figure
2:
Water
Cos
t-of-Service
Process
Step
2 Functionalize
Costs
Source
of
Supply
Treatment
Storage
&
Distribution
Meters
and
Billing
Step
3 Allocate
Functions
to
Demand
Characteristics Base
Maximum
Day
Maximum
Hour
Metering
Fire
Protection
Step
4 Distribute
Costs
to
Customer
Classes
Residential Multifamily
Commercial/
Industrial
Irrigation
Figure
3 illustrates
the
multi-step
cost
allocation
process
used
by
Raftelis
for
a wastewater
cost
of-service
study.
Step
1 Revenue
Requirement
from
Financial
Plan
Operation
and
Maintenance
Expense
Debt
service
Capital
Costs
Transfers
10 of
17 Figure
3:
W
as
tew
ater Cos
t-o
f-Service
Process
Step
2 Functionalize
Costs
Collection/Conveyance Lift
Stations/Pumping
Treatment
Biosolid
Handling
Step
3 Allocate
Functions
to
Demand
Characteristics Flow
Biochemical
Oxygen
Demand
Suspended
Solids
Customer
Service
Step
4 Distribute
Costs
to
Customer
Classes
Residential Multifamily Comme
rcial
Industrial
November 19, 2024, Item #6
CITY
OF
POWAY
8 2025
COS
STUD
Y
PROPOSAL
4.2 Water
and
Wastewater
Cost-of-Service
Analyses
•
Test-Year
Revenue
Requirement:
Determination
of
the
test
year
revenue
requirement
based
on
the
Task
3 financial
planning
process.
Test
year
is
the
first
year
for
which
rates
will
be
implemented.
•
Cost
Functionalization:
Determination
of
the
net
book
value
or
replacement
cost
of
existing
utility
infrastructure
to
the
correct
functional
categories
to
allocate
annual
capital
costs.
Assignment
oftest-year
capital
costs
(PA
YGO
financing
and
projected
debt
service),
O&M
expenses,
and
non-rate
revenue
offsets
to
the
correct
functional
categories.
•
Allocation
to
Cost
Causation
Components:
Allocation
oftest-year
capital
costs,
O&M
expenses,
and
non-rate
revenue
offsets
to
the
correct
cost
causation
components.
For
a
water
utility,
common
cost
causation
components
are
water
supply,
base
demand,
maximum
day
demand,
maximum
hour
demand,
billing,
and
customer
service. Common
wastewater
utility
cost
causation
components
include
flow
and
strength
characteristics
such
as
biochemical
oxygen
demand,
and
suspended
solids.
•
Customer
Class
Units
of
Service:
Determination
of
the
customer
class
units
of
service.
For
a water
utility,
units
of
service
often
include
customer
class
average
day
demands,
peak
demands,
number
of
bills,
and
number
of
3/4"
or
I"
meter
equivalents.
For
a
wastewater
utility,
units
of
service
include
volume
of
flows
and
pounds
of
biochemical
oxygen
demand
and
pounds
of
suspended
solids.
Customer
Class
Cost-of-Service:
Distribution
of
the
allocated
test-year
capital
costs,
O&M
expenses,
and
non-rate
revenue
offsets
to
customer
classes
based
on
each
of
their
proportionate
share
of
demands
, bills
, and
equivalent
meters.
MEETINGS
:
•
Virtual
meetings
as
required.
DELIVERABLES
:
•
FY
2026
water
and
wastewater
customer
class
cost-of-service.
Task
5:
Development
of
Proposed
Rates
Raftelis
will
develop
proposed
rates
for
the
5-year
period
FY
2026
-FY
2030
. The
City's
current
water,
wastewater,
and
recycled
water
rates
are
shown
below.
The
current
rate
structures
were
developed
during
the
2019
cost-of-service
study
after
a comprehensive
analysis
of
a variety
of
rate
structure
alternatives.
11 of
17 November 19, 2024, Item #6
CIT
Y
OF
POWA
Y
9 2025
COS
STUD
Y
PROPOS
A
L
Bi-Monthly
Water
Meter
Service
Charges
Bi-Monthly
Wastewater
Service
Charges
METER
SIZE
CUSTOMER
CLASS
5/8"
$72.69
All
customer
classes•
$33.13
3/4"
and
1"
fire
98 .27
• All
customer
classes
except
schools
1"
149.41
11/2"
277.27
Bi-Monthly
Commodity
Rates
($/Unit
Wastewater)
2"
430
.67
CUSTOMER
CLASS
3"
916
.53
Residential
4"
1,632.50
Single
Family
Residential
$5.46
6"
3,345
.71
Multi-family
&
Mobile
Home
6.85 8"
6,158
.49
Non
-Residential
Bi
-Monthly
Water
Commodity
Charges
($/Unit)
General
Commercial
$5.91
CUSTOMER
CLASS
Medium-low
6.61 Single
Family
Residential
Medium
7.42 Tier
1: 1-20
Units
$6.40
Medium-high
7.58 Tier
2: 21-56
Units
7.46 High
10.44 Tier
3:
57+
Units
10 .37
Light
Industry
6.42 Multi-family
Residential
6.56 Industrial
Special
User
6.48 Landscape
Irrigation
9.09 Government
&
Membership
Organizations
4.85 Non-residential
6.97 Churches
5.91 Recycled
Water
5.68 Elementary
School
(ADA)
5.98 City
Potable
Usage
6.97 Secondary
&
High
School
(ADA)
5.93 5.1
Water
and
Wastewater
Rate
Design
Rates
for
the
City's
existing
water,
wastewater
, and
recycled
customer
classes
will
be
developed
for
the
current
rate
structures.
These
rates
will
be
based
on
the
customer
class
revenue
requirements
developed
in
the
Task
4 Cost-of-Service
Analyses
.
5.2 Evaluation
of
Alternative
Rate
Structures
The
effectiveness
of
the
City's
current
rate
structure
will
be
discussed
during
the
project
kick-off
meeting
in
Task
1. As
part
of
the
Task
5 rate
development
process,
Raftelis
will
develop
one
(1)
alternative
water
rate
structure
and
one
(1)
alternative
wastewater
rate
structure
.
5.3 Pass-Through
Adjustments
The
proposed
rates
developed
by
Raftelis
will
explicitly
identify
rate
components
for
significant
costs
not
under
the
City's
direct
control.
For
example
, San
Diego
County
Water
Authority
water
supply
costs
, San
Diego
Metro
JP
A
wholesale
wastewater
treatment
costs,
and
electric
power
costs
charged
by
San
Diego
Gas
&
Electric
. This
will
allow
the
City
to
implement
annual
pass-through
adjustments
for
these
costs
as
required.
5.4 Proposition
218
Requirements
and
Applicable
California
Litigation
Our
awareness
of
litigation
and
changing
regulatory
requirements
enhances
our
ability
to
serve
the
City.
From
the
initial
kick-off
meeting
through
the
development
of
proposed
rates,
Raftelis
will
stay
focused
on
the
need
to
comply
with the
intent
and
requirements
of
Proposition
218.
Although
we
are
not
a law
firm,
we
closely
follow
litigation
that
may
have
a bearing
on
the
water
rate
structures
implemented
by
our
clients
. For
example:
•
The
California
Court
of
Appeals
is
currently
considering
two
cases
related
to
the
validity
of
tiered
rate
structures.
•
Assembly
Bill
1668
and
SB
606,
requires
that
indoor
water
use
be
a maximum
of
55 gallons
per
capita
per
day
(gpcd).
The
Dept
of
Water
Resources
and
the
State
Water
12 of
17 November 19, 2024, Item #6
CIT
Y
OF
POWA
Y
10 2025
COS
STUD
Y P
ROPOSAL
Resources
Control
Board
are
proposing
further
reduction to
47 gpcd
by
2025
and
42 gpcd
by
2030.
•
Assembly
Bill
755,
which
was
recently
enacted,
requires
utilities
to
quantify
the
cost
of
serving
the
top
10%
of
water
users.
5.5 Customer
Bill
Impacts
and
Sensitivity
Analysis
Rate
adjustments
stem
from
a
change
in
the
revenue
requirement
, and
/ or
a
change
in
the
rate
structure
. The
total
rate
adjustment
can
sometimes
cause
"rate
shock"
to
customers.
In
our
impact
analysis
graphics
, we
calculate
bills
at
each
level
of
usage
assuming
the
new
proposed
rate
structure
was
already
in
place
to
determine
the
"true"
impact
of
the
new
rate
structure
. The
customer
impact
analysis
will
include
a series
of
tables
and
figures
that
show
projected
rate
impacts
by
customer
class
at
various
levels
of
usage.
Understanding
customer
impacts
and
taking
corrective
action,
if necessary,
allows
us
to
design
public
outreach
strategies
for
generating
customer
buy-in
and
successful
rate
implementation. MEETINGS
:
•
Virtual
meetings
as
required.
DELIVERABLES
:
•
Proposed
5-year
water
and
sewer
rates
for
the
period
FY
2026
-
FY
2030.
•
Consideration
of
one
(1)
alternative
rate
structure
for
water
and
one
(1)
alternative
rate
structure
for
wastewater
service.
•
Comprehensive
customer
bill
impacts.
Task
6:
Rate
Survey
Raftelis
will
compare
the
City's
current
and
proposed
rates
with
five
local
water
and
wastewater
agencies.
We
will
include
recycled
water
rates
where
recycled
water
is
available.
While
a
useful
benchmark,
it is worth
noting
that
such
comparisons
only
paint
a partial
picture
since
many
factors,
such
as
water
sources
, age
and
replacement
of
infrastructure,
service
area,
and
other
local
conditions
affect
the
total
cost
of
providing
water
and
wastewater
services.
Raftelis
regularly
conducts
such
surveys
for
our
clients
. We
also
publish
the
nationally
recognized
biennial
Water
and
Wastewater
Rate
Survey
, which
is
co-published
with
A WW
A,
and
the
California-Nevada
Water
and
Wastewater
Rate
Survey,
which
is
co-published
with
the
CA-NV
A WW
A.
Using
the
rate
survey
data,
Raftelis
will
develop
an
Excel
model
to
compare
the
total
bimonthly
water
and
wastewater
bill
amount
of
a typical
residential
customer
within
each
agency.
The
adjustable
inputs
of
the
model
are
water
usage
and
meter
size.
The
model
will
include
the
appropriate
graphs
and
figures
that
display
the
total
bill
of
a typical
customer
in
each
agency
as
illustrated
above.
MEETINGS
:
•
None
DELIVERABLES
:
•
Rate
survey
model
in
Microsoft
Excel.
13 of
17 November 19, 2024, Item #6
CITY OF POWAY 11
2025 COS STUDY PROPOSAL
Task 7: City Council Rate Workshops
Our proposed consulting fee includes the cost of two (2) onsite City Council rate workshops that will be scheduled at dates determined by City Staff. Raftelis will develop proposed presentations for each rate workshop that address the specific topics specified by City Staff. Any presentation prepared by Raftelis will be subject to the review and approval by City Staff prior to presentation.
MEETINGS:
• Two (2) onsite City Council rate workshops.
DELIVERABLES:
• Workshop presentations subject to the review and approval of City Staff.
Task 8: Microsoft Excel Model and Training
Raftelis will develop a user-friendly Microsoft Excel; financial model that allows City Staff to conduct financial planning and rate scenario analyses. Staff will have the opportunity to review and shape the design of the financial model throughout the duration of the project. Our proposed consulting fee includes four ( 4) hours of onsite model training for City Staff.
MEETINGS:
• One (I) on-site meeting and virtual meetings as required.
DELIVERABLES:
• Microsoft Excel financial training
• Four ( 4) hours of onsite model training.
Task 9: Cost-of-Service Study Report
A comprehensive cost-of-service study report will be developed as an outcome of the COS study process. The report will discuss the assumptions, cost and demand inputs, and calculation methodologies used to develop proposed water, wastewater, and recycled water rates. The COS study report will be subject.to review by City Staff and the City's legal counsel.
MEETINGS:
• Virtual meetings as required.
DELIVERABLES:
• Comprehensive cost-of-service study report
Task 10: Proposition 218 Notice and Public Hearing
Raftelis will assist City Staff draft in the drafting of the Proposition 218 notice describing proposed rates for the period FY 2026 -FY 2030. The notice will outline reason for the proposed rates, explain the pass through adjustments that can be implemented by the City, explain the right to challenge the rates, and will meet and comply with all noticing requirements of Proposition 218. Raftelis will then present the study results at a Proposition 218 hearing. We will address the City Council and public questions and comments. Presentation materials will be provided to City Staff beforehand for review prior to the public hearing.
14 of 17
November 19, 2024, Item #6
CITY
OF
PO
WAY
2025
CO
S
STUDY
PROPOSAL
MEETINGS
:
•
Onsite
attendance
at
the
City
Council
Proposition
218
hearing.
DELIVERABLES
:
•
Proposition
218
hearing
presentation.
Proposed
Schedule
Our
proposed
schedule
is
designed
to
result
in
the
implementation
of
new
water,
wastewater,
and
recycled
water
rates
on
July
1,
2025
(i.e.,
at
the
start
of
FY
2026).
2024
2025
12 OCT
NOV
DEC
JAN
FEB
MAR
APR
MAY
JUN
Task
1;
Project
Initiation,
Project
Management,
and
Data
Collection
Task
2:
Analysis
of
Customer
Demand
Characteristics
and
Demand
Forecasting
Task
3:
Financial
Planning
and
Revenue
Requirement
Forecasting
Task
4:
Cost-of-Service
Analys
is
Task
6:
Development
of
Proposed
Rates
Task
6:
Rate
Survey
Task
7:
City
Council
Rate
Workshops
Task
8:
Microsoft
Excel
Model
and
Training Task
9:
Cost-of-Service
Study
Report
Task
10:
Proposition
218
Notice
and
Public
Hearing
•
In-person
Meetings
•
Web
Meetings
•
Deliverables
15 of
17 •
•• •• •• •• •
Dates
of
two
(2)
City
Council
Rate
Workshops
determined
by
C lty
Staff
.~
to
attend
onslte
.
•• •• •
•
November 19, 2024, Item #6
CIT
Y
OF
POWAY
13 2025
COS
STUD
Y
PROPOSAL
Proposed
Consulting
Fee
Our
proposed
not-to-exceed
consulting
fee
is
shown
below.
The
hourly
billing
rates
shown
in
this
detail
are
listed
below,
along
with
the
hourly
rates
for
staff
on
the following
page.
Our
proposed
fee
also
includes
an
hourly
technology
charge
of$10/hour
for
each
consulting
hour
and
estimated
expenses
for
travel to
on-site
meetings.
----
--
-
•
1 T~tal
Fees
I
Web
1 1 In-person
I
Hours
~
.------,
--
Ad~n
I
-:;:;aj
Exp:nses
J
Tasks
Meetings
Meetings
I
SP
I
SG
I
SC
-
---,
-
-
,.
--•
Task
1:
Project
Initiation,
Project
I
I
Management,
and
Data
12 3
10 26
$8,776
Collection
I
-
-
--,
-
Task
2:
Analysis
of
Customer
Demand
Characteristics
and
4 16
20 $5,320
Demand
Forecasting
-------
-
-
I--
-
Task
3:
Financial
Planning
and
Revenue
Requirement
2 24
4 80
108
$29,720
Fo
_recasting
Task
4:
Cost-of-Service
Analysis
1 I
12 2
32 46
I
$13,020
_
_j_
---
I
Task
5:
Development
of
2 16
4 40
60 -
i-;
17,240
l
Proposed
Rates
I
I _j
ask
6:
Rate
:urvey
---
-1
-
-
--1
I
-
-
I ---
·-
I
I
1 I
8 9
I
$2,250
'
I
-
-
,.
I
Task
7:
City
Council
Rate
I
I
Workshops
2 16
1 8
25 $9,442
,.
i
Task
8:
Microsoft
Excel
Model
and
Training
1 1
10 11
I
$3,006
_J
Task
9:
Cost-of-Service
Study
16 2
70 2
90 $23,620
Report
,.
I -
-
Task
10:
Proposition
218
Notice
$7,206
and
Public
Hearing
12 8
21 j
-
---
416
-
-
--·-
Total
Meetings/
Hours
8 5
113
17 '
282
4 Hourly
Billing
Rate
$400
$360
$220 $100
I
Total
Professional
Fees
$45,200
$6,120
$62,040
$400
$113,760
SP
-Sudhir
Pardiwa/a
, Project
Manager
SG
-Steve
Gagnon
, Technical
Reviev.er
SC
-Staff
Consultant
Adm
in
-Administrative
16 of
17 I_
Total
Fees
$113,760
Total
Expenses
$5,839
Total
Fees
&
Expenses
-
November 19, 2024, Item #6
CITY OF POWAY
2025 COS STUDY PROPOSAL
Proposed Consulting Fee
Hourly Rates for Raftelis Staff:
$400 -Executive Vice President
$360 -Vice President
$320 -Senior Manager
$285 -Manager
$250 -Senior Consultant
$220 -Consultant
$185 -Associate Consultant
$100 -Administration
$IO-Technology/Communications Charge**
Conclusion
14 Raftelis is excited to have the opportunity to assist the City of Poway with this important project.
If you have any questions, please don't hesitate to contact me using the following contact information.
Sincerely,
~
Sudhir Pardiwala, PE Executive Vice President
0 626 583 1894 / M 626 827 8931 / E [email protected] 17 of 17