3. Customer Costs: Costs associated with serving customers, such as meter reading, billing, customer service, etc.
4. Direct Fire Protection Costs: Costs related solely to the fire protection function of a water system, such as fire hydrants and related branch mains and valves.
Chapter 4 of the 2016 RFC Study provides details on the legal framework and rate setting methodology used in that study. This Water Rate Study Update utilizes the methodologies used in the 2016 RFC Study pertaining to cost functionalization, user classification, cost-of-service analysis, and rate derivation practices to prepare updated water rates for the next five years.
Essentially, updated Water Fund revenue requirements and scheduled capital project expenditures are incorporated into the methodologies presented in the 2016 RFC Study.
1. Water Revenue Requirement
This section describes the assumptions used in projecting operating and capital expenses as well as reserve coverage requirements. These assumptions determine the overall revenue adjustments, and therefore the total amount of revenue required from rates. The revenue covers operating and capital expenses as well as reserve funding. Revenue adjustments represent the average rate increase for the City as a whole.
1.1 Inflationary Assumptions
The 2016 RFC Study established forecast inflation percentages for the various major expense categories in the Water Fund. Collectively, the inflation was forecast to be about 4.5% per year. Actual overall Water Fund inflation was about 7.5% per year between FY16-17 and FY20-21.
The approved budget for FY21-22 was about 8.4% higher overall than actual expenditures in FY20-21. Approximately 2.0% of this overall increase was due to the increase in Water Purchase costs associated with the lingering drought. For comparison, the Municipal Cost Index (MCI) tracks inflationary costs for providing municipal services and was developed in 1978 by American City & County. In year 2021, the MCI increased by 10.2%, while the Consumer Price Index (CPI) increased by 7.1%.
Municipal service expenditures are heavily influenced by the cost of energy and labor, while CPI is influenced by consumer goods.
Moving forward and given the uncertainty surrounding needed precipitation to refill Shasta Lake, it is prudent for the City to assume future Water Purchase costs will remain high. Water Purchase costs for FY22-23 are budgeted to be about $600,000, which is about $326K higher than FY20-21 only two years prior.
Water Purchase costs have the largest impact on forecasting the City’s revenue needs.
The City’s FY23-24 budget forecasts overall Water Fund expenditures to be about 2.0% higher than FY22-23, assuming a high Water Purchase cost requirement moving 176
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forward. Therefore, the following inflationary percentages on major Water Fund expenditures are assumed for FY24-25 through FY27-28, see Table 1.1.
Table 1.1 – Projected Inflation (FY23-24 to FY27-28)
FY23-24
(Budget) FY24-25 FY25-26 FY26-27 FY27-28
General 2.0% 3.0% 3.0% 3.0% 3.0%
Salaries/Benefits 2.0% 5.0% 5.0% 5.0% 5.0%
All Water
Wholesalers¹
2.0% 0.0% 0.0% 0.0% 0.0%
Power 2.0% 3.0% 3.0% 3.0% 3.0%
Chemical 2.0% 3.0% 3.0% 3.0% 3.0%
Capital 5.0% 5.0% 5.0% 5.0% 5.0%
1. Future inflation on Water Purchases assumes the high cost budgeted for FY22-23 will remain moving forward.
1.2 Total Operating Budget
The City’s projected operating budget is shown by fiscal year in Table 1.2. FY23-24 is the year in which rates are calculated and is referred to as the “Test Year.” FY21-22 and FY22-23 are shown for comparison. The Financial Plan study period is from FY23-24 to FY27-28. The operating budget incorporated the inflationary factors discussed hereinbefore.
Table 1.2 – Operating Expenses
Function Actual
FY21-22
Budgeted
FY22-23
Budgeted
FY23-24
Water Administration $920,065 $958,658 $1,116,763
Water Distribution $1,026,869 $1,062,160 $1,067,876
Water Treatment Plant $742,558 $1,022,972 $1,047,505
Water Purchases $205,150 $600,000 $620,000
Total Operating Expenses: $2,894,642 $3,643,790 $3,852,144
1.3 Capital Improvement Plan (CIP)
The City’s 2016 Water Master Plan (WMP) recommended $96.2M worth of improvements to the water system, categorized as follows:
Capacity-Related Improvements: $49.2M
Rehabilitation-Related Improvements: $12.5M
Developer Specific: $34.5M
TOTAL CAPITAL PROJECTS: $96.2M
The majority of the $49.2M capacity-related improvements are required to (1) replace old steel water mains and (2) improve fire flows throughout the City. In addition, there are recommended improvements to the City’s pumping, storage, and water treatment plant infrastructure.
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The City has done well in recent years to secure sizable grants to make improvements to its water infrastructure. It continues to seek any and all potential grant opportunities to ease the financial burden on rate payers. Working with City engineering and operations staff, the capital improvements shown in Table 1.3 are planned over the next five years.
Table 1.3 – Capital Improvement Plan
Function Budgeted
FY22-23
Budgeted
FY23-24
Projected
FY24-25
Projected
FY25-26
Projected
FY26-27
Projected
FY27-28
Toyon Water Plan Demo $250,000 $0 $0 $0 $0 $0
Storage Tank Maintenance
Contract $275,000 $275,000 $275,000 $275,000 $275,000 $275,000 Centimudi Tank (100% Grant) $500,000 $4,800,000 $0 $0 $0 $0 Pressure Reducing Valve
Replacement/Rehab $100,000 $100,000 $100,000 $100,000 $100,000 $100,000 Misc. Budgeted CIP’s $425,000 $0 $0 $0 $0 $0
Ranchera Water
Improvements $1,400,000 $1,400,000 $0 $0 $0 $0
WTP Centrifuge Skid Unit $0 $350,000 $0 $0 $0 $0
WTP Filter, Meter, UCMR5
Testing, Clarifier Beads $75,000 $115,000 $0 $0 $0 $0
WTP Filter-to-Waste
Improvements $0 $0 $0 $500,000 $0 $0
Lake Blvd. Water Transmission
Main Design (100% Grant) $0 $0 $1,000,000 $0 $0 $0
Water Master Plan (WMP)
Update $0 $0 $0 $200,000 $0 $0
Water Meter ERT Replacement $0 $0 $250,000 $250,000 $250,000 $0 BOR Raw Water PS
SCADA/Com Upgrade $0 $0 $0 $100,000 $0 $0
2027 Water Improvements $0 $0 $0 $0 $650,000 $0
2028 Water Improvements $0 $0 $0 $0 $0 $750,000
Total CIP: $3,025,000 $7,040,000 $1,625,000 $1,425,000 $1,275,000 $1,125,000 Grant Funding: $500,000 $4,800,000 $1,000,000 $0 $0 $0
Net CIP Funded w/Rates: $2,525,000 $2,240,000 $625,000 $1,425,000 $1,275,000 $1,125,000
1.4 Existing and Proposed Debt Service
The City has two debt obligations associated with the Water Fund. There are no plans to incur additional debt within the five-year planning period. Table 1.4 shows a summary of the City’s debt obligations over the next five years. Note, the CalPERS loan will be paid off during FY23-24.
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Table 1.4 – Existing and Proposed Debt Service
Function Projected
FY23-24
Projected
FY24-25
Projected
FY25-26
Projected
FY26-27
Projected
FY27-28
I-Bank Water Loan (Principal
and Interest)
$264,613 $271,938 $271,272 $270,586 $269,878
CalPERS Loan (Principal and
Interest)
$12,929 $0 $0 $0 $0
Total Debt Service: $277,542 $271,938 $271,272 $270,586 $269,878
1.5 Reserve Targets
Historically, the City maintained two reserves: (1) an Operating Reserve and (2) a Capital Projects Reserve. City staff has recommended the Water Fund manage one combined single reserve and that a minimum balance of $1.6M be maintained at all times. At the end of this current fiscal year (FY22-23), it is anticipated the City will have about $3.72M in combined reserve.
Operating Reserve: The Operating Reserve is used primarily to meet ongoing cash flow requirements resulting from the disparity in water use and corresponding revenue stream throughout the year. The City’s Operating Reserve target is currently at 25% (three months) of budgeted Operating Expenses and will remain the same.
Capital Projects Reserve: The Capital Projects Reserve is used to fund scheduled capital improvement projects as identified in the City’s 2016 WMP. In addition, it covers any unexpected and unplanned infrastructure repairs and replacements. To fund planned capital improvements, the City will need to generate about $1.34M per year over the next five years.
To meet established reserve balance goals, the amounts shown in Table 1.5 should be accounted for in the Water Fund revenue requirements. Note, the $511,079 is not enough to fund $1.34M/year in planned capital improvements. The deficit will come from current reserve funds and the balance managed to not go below $1.6M in any given year.
Table 1.5 – Reserve Fund Allocations
Reserve Name FY23-24 Reserve
Allocation
Operating Reserve $852,150
Capital Projects Reserve $511,079
Total Reserve FY23-24 Allocation: $1,363,229
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1.6 Proposed Financial Plan and Revenue Adjustments
The proposed revenue adjustments help ensure adequate revenue to fund operating expenses and capital expenditures. Financial plan modelling assumes the first revenue adjustment will occur on July 1, 2023, and subsequent adjustments on July 1 of subsequent years. The proposed revenue adjustments would enable the City to execute the CIP shown in Table 1.3.
Table 1.6 shows the proposed revenue adjustments for the course of the study period.
Table 1.6 – Proposed Revenue Adjustments
Effective Date Proposed Water
Revenue Adjustments
July 1, 2023 6.0%
July 1, 2024 6.0%
July 1, 2025 6.0%
July 1, 2026 6.0%
July 1, 2027 6.0%
Table 1.7 shows the cash flow detail over the next five years assuming the selected Financial Plan.
Table 1.7 – Five-Year Water Operating Cash Flow
Budgeted
FY22-23
Projected
FY23-24
(Test Year)
Projected
FY24-25
Projected
FY25-26
Projected
FY26-27
Projected
FY27-28
Revenue from Current Rates $4,053,512 $4,053,512 $4,053,512 $4,053,512 $4,053,512 $4,053,512 Revenue Adjustments:
FY23-24 – 6.0% $243,211 $243,211 $243,211 $243,211 $243,211 FY24-25 – 6.0% $257,803 $257,803 $257,803 $257,803
FY25-26 – 6.0% $273,272 $273,272 $273,272
FY26-27 – 6.0% $289,668 $289,668
FY27-28 – 6.0% $307,048
Total Additional Rate Revenue: $0 $243,211 $501,014 $774,286 $1,063,954 $1,371,001 Total Rate Revenue: $4,053,512 $4,296,723 $4,554,526 $4,827,798 $5,117,466 $5,424,513 Other Revenue:
Service Connection Fees $32,500 $32,500 $32,500 $32,500 $32,500 $32,500 Interest on Investments $25,000 $25,000 $25,000 $25,000 $25,000 $25,000 Misc. Revenue $9,000 $9,000 $9,000 $9,000 $9,000 $9,000 TOTAL REVENUE: $4,120,012 $4,363,223 $4,621,026 $4,894,298 $5,183,966 $5,491,013 180
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Table 1.7 – Five-Year Water Operating Cash Flow - Continued Budgeted
FY22-23
Projected
FY23-24
(Test Year)
Projected
FY24-25
Projected
FY25-26
Projected
FY26-27
Projected
FY27-28
Operating Expenses (Incl. Debt):
Water Administration $958,658 $1,116,763 $1,149,428 $1,174,861 $1,201,048 $1,228,039 Water Distribution $1,062,160 $1,067,876 $1,118,980 $1,172,570 $1,228,769 $1,287,705 Water Treatment Plant $1,022,972 $1,047,505 $1,093,878 $1,142,385 $1,193,129 $1,246,214 Water Purchases $600,000 $620,000 $400,000 $400,000 $400,000 $400,000 Total Operating Expenses: $3,643,790 $3,852,144 $3,762,285 $3,889,816 $4,022,946 $4,161,958 Rate-Funded Capital Projects $2,525,000 $2,240,000 $625,000 $1,425,000 $1,275,000 $1,125,000 TOTAL EXPENSES: $6,168,790 $6,092,144 $4,387,285 $5,314,816 $5,297,946 $5,286,958 Net Cash Flow ($2,048,778) ($1,728,921) $233,741 ($420,519) ($133,980) ($204,055)
2. Cost-of-Service Analysis
A cost-of-service analysis requires two primary components:
1. Functionalize expenses.
2. Allocation of functionalized expenses to cost causation components.
The 2016 RFC Study functionalized Water Fund expenses into the following categories:
• Administrative
• Distribution
• Water Treatment Plant
• Water Purchases
The next task is to functionalize these expense categories to cost components. The 2016 RFC Study allocated the functionalized Water Fund expenses into the following cost components:
• Water Supply
• Delivery
• Maximum Day
• Maximum Hour
• Fire Protection
• Meter
• Customer
• General
• Lifeline
• Conservation
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The cost components consider the cost impacts for delivering water during various usage patterns such as at average (uniform) rates or maximum day or hour conditions. To determine the percentage allocation of the functionalized expenses, shown above, water system peak usage factors are used. These peak factors were established based on actual water use patterns determined during preparation of the City’s 2016 WMP. Refer to Table 2.1.
Table 2.1 – System-Wide Peaking Factors and Allocation to Cost Components Line
Peaking
Factors Base Max Day
Max
Hour
Fire
Protection
A B C D E
1 Base 1.00 100% 0% 0% 0%
2 Max Day 2.18 41% 49% 0% 10%
3 Max Hour 3.63 23% 28% 35% 14%
4 Peak Usage Average
(Max Day + Max Hour / 2)
32% 39% 17% 12%
Base = (1 – Fire Protection) x (Base / Max Day)
Max Day = (1 – Fire Protection) x ((Max Day – Base) / Max Day) Max Hour = (1 – Fire Protection) x ((Max Hour – Max Day) / Max Hour) Where,
Max Day Fire Protection = 10%
Max Hour Fire Protection = 14%
The percentages shown in Table 2.1 are determined by the formulas shown on page 24 of the 2016 RFC Study. The formulas consider the proportional relationship between the varying water delivery costs based on actual water usage peaking factors experienced in the City’s water system. As indicated, “Base” cost components will be allocated 100% toward the base charge.
During a “Max Day” water demand period, which occurs frequently during the summer months, the overall water usage for that day is 2.18 times that of an average day. However, a portion of costs during the “Max Day” delivery period are allocated to “Base” costs. In this case, the costs are split 41% to “Base” and 49% to “Max Day,” respectively. Similarly, water conveyed during peak hour usage is allocated 23%, 28%, and 35% toward “Base,” “Max Day,” and “Max Hour” costs, respectively.
The “Base-Extra Capacity Method” assumes the “Base” costs are those incurred while supplying water at a perfect load factor (i.e., at a continuous, uniform rate) without costs incurred for providing extra infrastructure capacity to account for the increase in use beyond the uniform rate. Extra capacity costs for maximum day and maximum hour service are incurred in providing facilities to furnish water at varying rates above the average. 182
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Peaking costs are further divided into maximum day demand (MDD) and maximum hour demand (MHD). The MDD is the maximum amount of water used in a single day in a year. The MHD is the maximum usage in an hour on the maximum usage day. Different infrastructure, such as distribution and storage facilities, and the operating costs associated with these facilities are designed to meet the peaking demands of customers. Therefore, extra capacity costs include the operating and capital costs associated with meeting peak customer demand.
This method is consistent with AWWA Manual M1 and is widely used in the water industry to perform a cost-of-service analysis.
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Table 2.2 – Adjusted Cost of Service
Line O&M Functions
Supply Delivery Max Day Max Hour Fire Meter Customer General Lifeline Conservation Total
A B C D E F G H I J K
1 Operating Expenses -
Percent Allocation1 10% 21% 26% 11% 8% 1% 6% 16% - 1% 100% 2 Operating Expenses -
FY23-24 Test Year $386,214 $811,050 $1,004,157 $424,836 $308,972 $38,621 $231,729 $617,943 ($10,000) $38,621 $3,852,144 3 Capital Expenses -
Percent Allocation1 5% 37% 24% 18% 9% 0% 0% 7% - 0% 100% 4 Capital Expenses -
FY23-24 Test Year2 $25,554 $189,099 $122,659 $91,994 $45,997 $0 $0 $35,776 - $0 $511,079 5 Total Cost of Service $411,768 $1,000,149 $1,126,816 $516,830 $354,969 $38,621 $231,729 $653,719 ($10,000) $38,621 $4,363,223 6 Allocation of General
Costs3 $73,129 $177,625 $200,121 $91,788 $63,042 $6,859 $41,155 ($653,719) 7 Allocation of Peaking
Cost to Meter4
($768,489) ($352,478) $1,120,967
8 Total Adjusted Cost of
Service $484,898 $1,177,774 $558,448 $256,140 $418,010 $1,166,447 $272,883 $0 ($10,000) $38,621 $4,363,223
1. Operating and Capital Expenditure allocation percentages are based on the 2016 RFC Study.
2. Annual Capital Expenditure based on five-year average of planned rate-funded capital expenditures, less grant allocations.
3. General Costs are allocated to the cost components, shown, in proportion to the dollar value of the Total Cost of Service, shown in Line 5.
4. It is desirable to shift a portion of the peaking costs (Max Day and Max Hour) to "Meter" cost to minimize revenue volatility and transfer a portion of the peaking costs into the meter rate. 184
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Table 2.2 shows the adjusted cost of service calculation, using the operating expense allocation percentages derived in the 2016 RFC Study and updated Water Fund financial data collected as part of this study. Note the allocation of General and Peaking Costs at the bottom of the table, as completed in the 2016 RFC Study.
In general, the base water meter, consumption, and private fire meter rates are established using the cost causation considerations established in the 2016 RFC Study, see Table 2.3.
Table 2.3 – Water Rate Cost Causation Distribution
Water Rate
Component Cost Causation Component
Base Water Meter
Rates
Meter Costs
Customer
General Costs (in proportion to other base meter-related costs) Fire Protection (public portion only)
Peaking (70% of Max Day and Max Hour)
Consumption Water
Rates
Water Supply
Delivery
General Costs (in proportion to other consumption water-related costs) Peaking (30% of Max Day and Max Hour)
Conservation (excluding Single-Family Resident Tier 1 and 2) Private Fire Meter
Rates Fire Protection (private portion only)
Note that about 70% of the peaking costs are allocated in the base water meter rates. The rationale is all users contribute to the peak demands on the water system especially during the typical peak diurnal periods, i.e., early morning and early evening. This shift in costs to the base water meter rates also creates more stable and predictable revenue streams into the Water Fund and dampens the impacts caused by the typical variation in water use throughout the year.
3. Financial Plan
Utilizing the five-year water operating cash flow in Table 1.7, we prepared a five-year Financial Plan. The Financial Plan considers beginning and ending cash reserve balances. Revenue increases were established to allow coverage for (1) expected expenditures in the Water Fund, (2) proposed rate-funded capital projects, and (3) maintenance of at least $1M in combined unrestricted reserve balance at the end of each fiscal year.
Table 3.1 shows the resulting five-year Financial Plan based on revenue needs shown in Table 1.6. 185
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Table 3.1 – Five-Year Financial Plan
Budgeted
FY22-23
Budgeted
FY23-24
Projected
FY24-25
Projected
FY25-26
Projected
FY26-27
Projected
FY27-28
REVENUE ADJUSTMENTS
Annual Revenue Increase 0.0% 6.0% 6.0% 6.0% 6.0% 6.0%
BEGINNING FUNDS AVAILABLE BALANCE $5,766,440 $3,717,662 $1,988,741 $2,222,482 $1,801,963 $1,687,983
OPERATING REVENUES
01-702 Sales-Utility Services $4,053,512 $4,296,723 $4,554,526 $4,827,798 $5,117,466 $5,424,513 01-720 Service Connection Fees $32,500 $32,500 $32,500 $32,500 $32,500 $32,500 01-851 Interest on Investment $25,000 $25,000 $25,000 $25,000 $25,000 $25,000 - Revenue from Grants $500,000 $4,800,000 $1,000,000 $0 $0 $0 01-910 Miscellaneous Revenue $9,000 $9,000 $9,000 $9,000 $9,000 $9,000 Total Revenue: $4,620,012 $9,163,223 $5,621,026 $4,894,298 $5,183,966 $5,491,013 EXPENSES (Less Depreciation and Debt Service)
Water Administration $693,962 $852,150 $877,490 $903,589 $930,472 $958,161 Water Distribution $1,062,160 $1,067,876 $1,118,980 $1,172,570 $1,228,769 $1,287,705 Water Treatment Plant $1,622,972 $1,667,505 $1,493,878 $1,542,385 $1,593,129 $1,646,214 Total Expenses: $3,379,094 $3,587,531 $3,490,347 $3,618,544 $3,752,370 $3,892,080
DEBT SERVICE
5720 Interest Expense $83,267 $77,687 $79,348 $72,847 $66,149 $59,246 5730 Debt Repayment - Principal $181,429 $186,926 $192,590 $198,425 $204,427 $210,632 Total Debt Service: $264,696 $264,613 $271,938 $271,272 $270,576 $269,878 CAPITAL OUTLAY (Total, Including Grant Allocations) $3,025,000 $7,040,000 $1,625,000 $1,425,000 $1,275,000 $1,125,000 ENDING FUNDS AVAILABLE BALANCES $3,717,662 $1,988,741 $2,222,482 $1,801,963 $1,687,983 $1,892,038
FINANCIAL PLAN PARAMETERS
Debt-Coverage Ratio (Desire 1.25 Min.) 2.8 2.93 4.16 4.70 5.29 5.92 186
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As indicated in Table 3.1, the City will be able to fully fund the Operating Reserve over the five-year Financial Plan. However, the Capital Projects Reserve will be utilized, in part, to fund the planned capital projects. The total reserve balance will reach a low balance of about $1.69M at the end of FY26-27
4. Proposed Water Rates
The required water rate adjustments necessary to fulfill the five-year Financial Plan, shown in Table 3.1, are shown in Tables 4.1, 4.2, and 4.3.
Table 4.1 – Proposed Base Water Meter Rate Adjustments
Proposed Rate Adjustments
Revenue Adjustment 6% 6% 6% 6% 6%
Month Effective July July July July July
Meter Size Current FY23-24 FY24-25 FY25-26 FY26-27 FY27-28 ⅝" $31.08 $32.94 $34.92 $37.02 $39.24 $41.59
1" $70.45 $74.68 $79.16 $83.91 $88.94 $94.28
1½" $136.06 $144.22 $152.88 $162.05 $171.77 $182.08
2" $214.79 $227.68 $241.34 $255.82 $271.17 $287.44
3" $398.52 $422.43 $447,78 $474.64 $503.12 $533.31
4" $660.97 $700.63 $742.67 $787.23 $834.46 $884.53
6” $1,317.12 $1,396.15 $1,479.92 $1,568.71 $1,662.83 $1,762.60 8” $2,104.51 $2,230.78 $2,364.63 $2,506.51 $2,656.90 $2,816.31 10” $3,810.49 $4,039.12 $4,281.47 $4,538.35 $4,810.66 $5,099.30 12” $5,647.71 $5,986.57 $6,345.77 $6,726.51 $7,130.10 $7,557.91 Table 4.2 – Proposed Water Consumption Rate Adjustments Proposed Rate Adjustments
Revenue Adjustment 6% 6% 6% 6% 6%
Month Effective July July July July July
Customer Classes Current FY23-24 FY24-25 FY25-26 FY26-27 FY27-28 Lifeline Tier 1 $1.94 $2.06 $2.18 $2.31 $2.45 $2.60
Lifeline Tier 2 $2.79 $2.96 $3.13 $3.32 $3.52 $3.73
Lifeline Tier 3 $3.50 $3.71 $3.93 $4.17 $4.42 $4.68
Residential Tier 1 $2.44 $2.59 $2.74 $2.91 $3.08 $3.27
Residential Tier 2 $2.79 $2.96 $3.13 $3.32 $3.52 $3.73
Residential Tier 3 $3.50 $3.71 $3.93 $4.17 $4.42 $4.68
Multi-Family Residential and
Mobile $2.58 $2.73 $2.90 $3.07 $3.26 $3.45
Commercial and Industrial $2.63 $2.79 $2.96 $3.13 $3.32 $3.52 Commercial Irrigation and
Government $2.86 $3.03 $3.21 $3.41 $3.61 $3.83
School $3.07 $3.25 $3.45 $3.66 $3.88 $4.11
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Table 4.3 – Proposed Private Fire Meter Rate Adjustments Proposed Rate Adjustments
Revenue Adjustment 6% 6% 6% 6% 6%
Month Effective July July July July July
Meter Size Current FY23-24 FY24-25 FY25-26 FY26-27 FY27-28 2" $6.99 $7.41 $7.85 $8.33 $8.82 $9.35
3" $30.32 $32.14 $34.07 $36.11 $38.28 $40.57
4" $43.29 $45.89 $48.64 $51.56 $54.65 $57.93
6” $125.76 $133.31 $141.30 $149.78 $158.77 $168.30
8” $268.00 $284.08 $301.12 $319.19 $338.34 $358.64
10” $481.96 $510.88 $541.53 $574.02 $608.46 $644.97
12” $778.50 $825.21 $874.72 $927.21 $982.84 $1,041.81
5. Water Bill Comparison
Figure 1 shows a graph comparing water rates for various public agencies in northern California based on consuming the City’s average daily water use. The City’s current water rate and proposed FY23-24 rates are shown in the graph.
Please contact me with any questions.
Sincerely,
Paul J. Reuter, P.E.
Managing Engineer/President
Enclosure
M:\Jobs\0110 City of Shasta Lake\0110.100 Water Rate Study Update\05 Letter Report\2023 Water Rate Study Update-REV-3.docx 188
CITY OF SHASTA LAKE
MONTHLY WATER BILL COMPARISON
(Based on 1,516 Cubic Feet per Month Average Water Use) M:\Jobs\0110 City of Shasta Lake\0110.100 Water Rate Study Update\05 Letter Report\Water Rate Comparison-REV-2.xlsx FIGURE 1 $21.50
$42.65
$49.02 $49.72 $50.65
$52.72
$54.96
$58.50 $60.46
$70.58 $72.39 $72.76
$74.85 $76.11 $77.00 $77.16
$86.07
$95.19
$0
$10$20$30$40$50$60$70$80$90
$100
FY22-23 FY22-23 FY22-23 FY22-23 FY22-23 FY23-24 FY22-23 FY22-23 FY22-23 FY22-23 FY22-23 FY22-23 FY23-24 FY21-22 2022 FY23-24 FY22-23 FY22-23 City of
Anderson
Bella Vista
WD (M&I)
City of
Redding
Centerville
CSD
City of
Weed
City of
Weed
Mountain
Gate CSD
McCloud
CSD
City of Yreka City of
Shasta Lake
Clear Creek
CSD
City of
Dunsmuir
City of
Shasta Lake
City of
Oroville
2022 CA
Ave. (1)
City of
Dunsmuir
City of
Ashland
Shasta CSD
(1) Per World Population Review.
189
190
191
192
193
194
195
Water Rate Study
Final Report / July 15, 2016
CITY OF
SHASTA LAKE
196
August 29, 2016
Subject: Water Rate Study Report
City of Shasta Lake, CA
1650 Stanton Dr.
Shasta Lake, CA 96019
Dear Tony Thomasy,
Raftelis Financial Consultants, Inc. (RFC) is pleased to present this water rate study (Study) to the City of Shasta Lake. The Study involved a comprehensive review of the City’s Financial Plan, user classifications and rate structures. We are confident that the results, based on cost of service principles, result in fair and equitable water rates for the City’s customers and meet the requirements of Proposition 218.
The report includes a brief Executive Summary followed by study assumptions and a detailed rate derivation in subsequent sections. Drought rates are presented in the final Section 8.
It was a pleasure working with you and we wish to express our thanks for your and other staff member support during the study. If you have any questions, please call me at (213) 327-4405.
Sincerely,
RAFTELIS FINANCIAL CONSULTANTS, INC.
Sanjay Gaur Steve Gagnon, PE Victor Smith
Executive Vice President Senior Consultant Consultant
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Contents
1 EXECUTIVE SUMMARY ...................................................................... 1
1.1 BACKGROUND .......................................................................................................... 1
1.2 PROCESS ................................................................................................................... 1
1.3 METHODOLOGY ........................................................................................................ 1
1.4 RESULTS AND RECOMMENDATIONS ..................................................................... 2 Factors Affecting Revenue Adjustments .................................................................................. 2 Proposed Water Rates ................................................................................................................ 2 2 WATER SYSTEM ................................................................................. 4
2.1 WATER SOURCES AND SYSTEM FACILITIES ......................................................... 4
2.2 NUMBER OF ACCOUNTS .......................................................................................... 4
2.3 ACCOUNT AND WATER USE GROWTH ASSUMPTIONS ........................................ 5
2.4 WATER USE ............................................................................................................... 6 3 FINANCIAL PLAN .....................ERROR! BOOKMARK NOT DEFINED.
3.1 INFLATIONARY AND OTHER ASSUMPTIONS ......................................................... 7
3.2 FINANCIAL PLAN .............................................ERROR! BOOKMARK NOT DEFINED.
3.3 CURRENT RATE REVENUE ...................................................................................... 7
3.3.1 FIXED CHARGE REVENUE ...................................................................................... 8
3.3.2 COMMODITY CHARGE REVENUE.......................................................................... 9
3.4 UTILITY EXPENSES ..................................................................................................11 O&M Expenses ..........................................................................................................................11 Pass-through Costs ..................................................................................................................12
3.4.1 TOTAL O&M BUDGET ............................................................................................13
3.5 CAPITAL IMPROVEMENT PLAN ..............................................................................14
3.6 EXISTING AND PROPOSED DEBT SERVICE ..........................................................14
3.7 PROPOSED FINANCIAL PLAN AND REVENUE ADJUSTMENTS ...........................15 4 LEGAL FRAMEWORK AND RATE SETTING METHODOLOGY ......19
4.1 LEGAL FRAMEWORK ...............................................................................................19 California Constitution - Article XIII D, Section 6 (Proposition 218) ....................................19 California Constitution - Article X, Section 2 ..........................................................................19
4.2 COST-BASED RATE-SETTING METHODOLOGY ....................................................20 1) Calculate Revenue Requirement .....................................................................................20 2) Cost Of Service Analysis (COS) ......................................................................................20 198
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3) Rate Design and Calculations ..........................................................................................21 4) Rate Adoption ....................................................................................................................21 5 COST OF SERVICE ANALYSIS .........................................................22
5.1 FUNCTIONALIZATION OF O&M EXPENSES ...........................................................22
5.2 ALLOCATION OF FUNCTIONALIZED EXPENSES TO COST COMPONENTS........23
5.3 REVENUE REQUIREMENT DETERMINATION .........................................................27
5.4 REVENUE OFFSET, GENERAL EXPENES, AND PEAK ALLOCATION ..................28 6 RATE DERIVATION ...........................................................................31
6.1 PROPOSED RATE STRUCTURE AND RATES.........................................................31
6.2 PROPOSED FIRE RATES .........................................................................................31
6.3 PROPOSED READINESS-TO-SERVE (RTS) CHARGE ............................................32
6.4 COMMODITY RATES ................................................................................................34 SFR Tier Definitions ..................................................................................................................34 Non-SFR Commodity Rates .....................................................................................................35 Unit Cost Definitions .................................................................................................................35 Unit Cost Derivation ..................................................................................................................35 Delivery Unit Cost ......................................................................................................................38 Peaking Unit Cost ......................................................................................................................39 Conservation Unit Cost.............................................................................................................40 Lifeline Discount ........................................................................................................................41 Pass-Through Component .......................................................................................................41 Final Rate Derivation .................................................................................................................41 7 BILL IMPACTS ...................................................................................44
7.1 CUSTOMER BILL IMPACTS......................................................................................44 Single Family Bill Impacts ........................................................................................................44 Lifeline Bill Impacts ...................................................................................................................45 Class by Class Bill Impacts ......................................................................................................45 8 DROUGHT RATES .............................................................................49
8.1 DROUGHT RATE BACKGROUND ............................................................................49 Usage During Drought Stages ................................................................................................. 49
8.2 DROUGHT CALCULATION .......................................................................................51 9 APPENDIX A: WATER CONSUMPTION DETAIL ..............................56 10 APPENDIX B: FY 2015 USAGE BY TIER AND CLASS .....................58 199
11 APPENDIX C: FY 2015 USAGE ANALYSIS TIER AND CLASS ........59 12 APPENDIX D: REVENUE PROOF OF VARIABLE RATES ...............60
LIST OF TABLES
Table 1-1: Proposed Water Revenue Adjustments ........................................................................................................ 2 Table 1-2: Current and Proposed Monthly Readiness-to-Serve Charges ....................................................................... 3 Table 1-3: Current and Proposed SFR and Lifeline Tier Widths and Rationale .............................................................. 3 Table 1-4: Current and Proposed Commodity Rates ($/HCF) ......................................................................................... 3 Table 2-1: Potable Water Accounts by Meter Size (Actual - FY 2015) ........................................................................... 5 Table 2-2: Account Growth and Water Use Assumptions .............................................................................................. 5 Table 3-1: Inflationary Assumptions .............................................................................................................................. 7 Table 3-2: FY 2016 through FY 2020 Monthly Service Charges by Meter Size ............................................................... 8 Table 3-3: Meters through FY 2020 by Meter Size ......................................................................................................... 8 Table 3-4: Monthly Fire Meter Charges through FY 2020 .............................................................................................. 9 Table 3-5: Fire Meters through FY 2020 ........................................................................................................................ 9 Table 3-6: Fixed Revenue through FY 2020 .................................................................................................................... 9 Table 3-7: Consumption Rate Structure .......................................................................................................................10 Table 3-8: Commodity Rates Across Study period, in $/HCF ........................................................................................10 Table 3-9: Consumption by Tier across Study period ...................................................................................................10 Table 3-10: Consumption Revenues by Tier across Study period .................................................................................11 Table 3-11: Projected Water Purchases across Study period in Acre Feet ...................................................................11 Table 3-12: Projected Water Purchase Rates in $/Acre Feet .......................................................................................12 Table 3-13: Projected Water Purchases Costs .............................................................................................................12 Table 3-14: WY 2017 Water Purchase Rates in $/Acre Feet, used for Pass-Through Analysis ....................................13 Table 3-15: Water Supply Costs using WY 2017 Rates ................................................................................................13 Table 3-16: Projected Water O&M Expenses ...............................................................................................................13 Table 3-17: Detailed Inflated Capital Improvement Plan ............................................................................................14 Table 3-18: Existing and Proposed Debt Service ..........................................................................................................14 Table 3-19: Proposed Rate Adjustments ......................................................................................................................15 Table 3-20: Five-Year Water Operating Cash Flow ......................................................................................................16 Table 5-1: Functionalization of O&M Expenses ...........................................................................................................23 Table 5-2: System-Wide Peaking Factors and Allocation to Cost Components ...........................................................23 Table 5-3: Allocation of Functionalized O&M and Capital Expenses to Cost Causation Components .........................26 Table 5-4: Revenue Requirement Determination ........................................................................................................28 Table 5-5: Allocation of Offsets....................................................................................................................................29 Table 5-6: Total Adjusted Cost of Service Calculation ..................................................................................................29 Table 6-1: Current and Proposed SFR and Lifeline Tier Widths and Rationale ............................................................31 Table 6-2: Total Adjusted Cost of Service.....................................................................................................................31 Table 6-3: Fire Charge Calculation ...............................................................................................................................32 Table 6-4: Equivalent Meter Unit Calculation ..............................................................................................................33 Table 6-5: Monthly Meter Charge Calculation ............................................................................................................33 Table 6-6: Monthly Customer Service Charge Calculation ...........................................................................................34 200
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Table 6-7: Derivation of the RTS Charge ...................................................................................................................... 34 Table 6-8: Projected Usage in Revised Tiers (FY 2017) ................................................................................................36 Table 6-9: Projected SFR and Lifeline Combined Usage in Revised Tiers (FY 2017) .....................................................36 Table 6-10: Projected Usage in CF (FY 2017) ...............................................................................................................36 Table 6-11: Supply Rate Calculation ............................................................................................................................37 Table 6-12: Differentiated Supply Rate Calculation .....................................................................................................37 Table 6-13: Differentiated Supply Water Allocation ....................................................................................................38 Table 6-14: Differentiated Supply Tier Rate Calculation ..............................................................................................38 Table 6-15: Delivery Unit Cost Calculation ...................................................................................................................39 Table 6-16: Total Peaking Component Calculation ......................................................................................................39 Table 6-17: Peaking Rate Derivation ...........................................................................................................................40 Table 6-18: Peaking Rate Derivation ...........................................................................................................................40 Table 6-19: Derivation of Conservation Unit Costs ......................................................................................................41 Table 6-20: Derivation of Lifeline Discount ..................................................................................................................41 Table 6-21: Derivation of Pass-Through Component ...................................................................................................41 Table 6-22: Derivation of Rates by Tier and Class........................................................................................................42 Table 6-23: Commodity Charges through FY 2021 ......................................................................................................42 Table 6-24: Fixed Charges through FY 2021 ................................................................................................................43 Table 6-25: Fire Meter Charges through FY 2021 ........................................................................................................43 Table 8-1: Drought Use Cutback Goals by Drought Level ............................................................................................50 Table 8-2: Sources of Supply by Drought Level ............................................................................................................50 Table 8-3: Calculation of Revenue Requirement ..........................................................................................................51 Table 8-4: Calculation of Stage 1 Drought Rates .........................................................................................................51 Table 8-5: Calculation of Stage 2 Drought Rates .........................................................................................................52 Table 8-6: Calculation of Stage 3 Drought Rates .........................................................................................................52 Table 8-7: Stage 4 Rate Calculation .............................................................................................................................54 Table 8-8: Stage 5 Rate Calculation .............................................................................................................................54 Table 8-9: Drought Rates and Surcharge Totals ..........................................................................................................55
LIST OF FIGURES
Figure 2-1: Water Use by Customer Class - FY 2015 ...................................................................................................... 6 Figure 3-1: Proposed Revenue Adjustments ................................................................................................................17 Figure 3-2: Proposed Operating Financial Plan ...........................................................................................................17 Figure 3-3: Projected CIP and Funding Sources............................................................................................................18 Figure 3-4: Projected Operating Fund Ending Balances...............................................................................................18 Figure 7-1: Single Family Customer bill Impacts ..........................................................................................................44 Figure 7-2: Multi-family Customer Bill Impacts (5/8” Meter)......................................................................................45 Figure 7-3: SFR Class Impacts ......................................................................................................................................46 Figure 7-4: Lifeline Class Impacts ................................................................................................................................. 46 Figure 7-5: MFR Class Impacts .....................................................................................................................................47 Figure 7-6: Commercial and Industrial Class Impacts ..................................................................................................47 Figure 7-7: Commercial Irrigation and Government Class Impacts .............................................................................48 Figure 7-8: School Class Impacts ..................................................................................................................................48 201
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1 EXECUTIVE SUMMARY
1.1 BACKGROUND
In late 2015, the City of Shasta Lake (City) contracted with Raftelis Financial Consultants (RFC) to conduct a Water Rate Study (Study) to include a five-year Financial Plan. This report presents the Financial Plan and the resulting rates for implementation on October 1, 2016.
This Executive Summary displays the water rates and contains a description of the rate study process, methodology, results and recommendations for the City’s water rates. The City’s last rate adjustment was effective on October 1, 2014. The City wishes to establish fair and equitable rates that:
» Meet the City’s fiscal needs in terms of operational expenses, reserve goals and capital investment to maintain the system;
» Revise rates to reflect a new normal level of water use; » Proportionately allocate the costs of providing service in accordance with California Constitution article XIII D, section 6 (commonly referred to as Proposition 218).
1.2 PROCESS
RFC first developed a Financial Plan for the City, which set forth the total revenue adjustments, capital investment, and debt proposed during the five-year Study period. After developing the Financial Plan, RFC performed a cost of service analysis to determine the rates based on the selected Financial Plan.
RFC met with City staff to discuss study goals. Upon completion of the Financial Plan, RFC met with City staff to review the resulting rates. RFC also presented the resulting rates to the four largest City water users before presenting the Financial Plan and rates to the City Council.
The proposed rate alternative consists of a 3-tier rate structure for the residential commodity rate and a uniform rate for all other customers, as well as a monthly service charge that collects a portion of capacity related costs through the fixed monthly service charge.
1.3 METHODOLOGY
The water rates were developed using cost of service principles set forth by the American Water Works Association M1 Manual titled Principles of Water Rates, Fees and Charges (AWWA M1 Manual). Cost of service principles endeavor to distribute costs to customer classes in accordance with the way each class uses the water system. This methodology is described in detail in Sections 4 and 5 of this report. For this Study, the Base-Extra Capacity Method of the AWWA M1 Manual was used for distributing costs. This method separates costs into four components: “(1) base costs, (2) extra capacity costs, (3) customer costs, and (4) direct fire protection costs.” Base costs are costs that are associated with meeting average daily demand needs and include operations and maintenance costs and capital costs designed to meet average load conditions. Extra capacity costs are costs associated with meeting peak demand. Customer costs are costs associated with serving customers, such as meter reading, billing, customer service, etc. Direct fire 203
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protection costs are related solely to the fire protection function of a water system, such as fire hydrants and related branch mains and valves.
1.4 RESULTS AND RECOMMENDATIONS
Table 1-1 shows the yearly revenue adjustments selected by the City Council. The percentages shown in Table 1-1 are the yearly increases in rate revenue required to maintain a financially viable water utility.
Table 1-1: Proposed Water Revenue Adjustments
Effective Date Proposed Water Revenue Adjustments
FY 2017 30 percent
FY 2018 15 percent
FY 2019 10 percent
Factors Affecting Revenue Adjustments
The following items affect the City’s revenue requirement (i.e. costs) and thus its water rates. The City’s expenses include Operation and Maintenance (O&M) expenses and capital expenses. » O&M expenses: Overall, the City’s O&M expenses are expected to increase just under 7% from FY 2016 to FY 2017 and continue to grow between 4% and 5% throughout the Study period.
However, between FY 2015 and FY 2016 the City’s O&M expenses increased 21%. This high level of O&M growth is being largely driven by increases in water treatment costs, which are expected to increase by an average of 7% throughout the Study period. » Water System Capital Investment: The City anticipates spending an average of $700,000 on capital improvement annually throughout the Study period. » Reserve Funding: The City plans to use reserves through FY 2018 in addition to rate increases in order to meet capital improvement needs. However, depleted reserves should be returned to target levels in the long term. Section 3 shows the reserve balances with the proposed Financial Plan.
» Reduced Water Sales: State and local public outreach efforts to conserve water are affecting City water use and revenues. The City has seen a 39% decrease in water use in FY 2016 relative to FY 2014 and projects that usage will remain between 21% and 13% lower than FY 2014’s use through FY 2021. This results in increased water rates as the City’s (mostly fixed) costs are spread over fewer units of water sold.
Proposed Water Rates
The City’s water service fees are comprised of two components: (1) a monthly service charge, and (2) a consumption charge. The monthly service charge is a fixed charge based on the size of the meter serving a property, and is calculated to recover a portion of the City’s fixed costs, such as the costs of billing and collections, customer service, meter reading, meter maintenance all of which do not vary with water use.
The monthly service charge also collects a portion of capacity related costs. The consumption rate recovers all remaining costs associated with meeting base and extra capacity costs.
Table 1-2 shows the current and proposed charges for the monthly service charge by meter size. 204
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Table 1-2: Current and Proposed Monthly Readiness-to-Serve Charges Meter Size FY 2017 Monthly Charge Proposed Monthly Charge 5/8" $20.69 $24.56
1" $51.72 $55.68
1.5" $103.44 $107.55
2" $165.50 $169.79
3" $310.31 $315.03
4" $517.18 $522.50
6" $1,034.36 $1,041.20
8" $1,654.97 $1,663.64
10" $2,999.62 $3,012.24
12" $4,447.72 $4,464.59
Table 1-3 shows the current and proposed tier widths for the single family residential (SFR) and lifeline classes.
Table 1-3: Current and Proposed SFR and Lifeline Tier Widths and Rationale Tier Current Range
(cubic feet)
Proposed Range
(cubic feet )
Rationale
Tier 1 0-1,000 0-800 minimum average winter use
Tier 2 1001-5,000 801-2,000 average summer use
Tier 3 (Excess
Consumption Rate) 5,001+ 2,001+
Table 1-4 shows the proposed consumption rates. RFC recommends implementing a uniform consumption rate for all non-single family-residential customers. Cost of service principles justify higher rates for classes with higher peaking characteristics as shown in Table 1-4. The rates are fully derived in Sections 5 and 6 of this report.
Table 1-4: Current and Proposed Commodity Rates ($/HCF
Customer Classes Total Rate ($/ HCF*)
FY 2017 Current Rate
($ / HCF)
Lifeline Tier 1 $1.53 $1.07
Lifeline Tier 2 $2.20 $1.54
Lifeline Tier 3 $2.76 $1.87
Single Family Residential Tier 1 $1.92 $1.34
Single Family Residential Tier 2 $2.20 $1.54
Single Family Residential Tier 3 $2.76 $1.87
MFR & Mobile $2.03 Same as SFR Tiers 1 & 2
Commercial and Industrial $2.07 Same as SFR Tiers 1 & 2 Commercial Irrigation and Govt. $2.26 Same as SFR Tiers 1 & 2 School $2.42 Same as SFR Tiers 1 & 2
*HCF = hundred cubic feet
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Together, the two components of the City’s proposed water service fees are structured to recover the proportionate costs of providing water service to each customer class and to deter waste, encourage water use efficiency, and manage the City’s water resources. 2 WATER SYSTEM
This section briefly describes the water system and the City provided customer account and water use data for FY 2014.
2.1 WATER SOURCES AND SYSTEM FACILITIES
The City provides water service to 3,800 accounts and has roughly 60 miles of pipeline, and 9 treated water storage tanks. The City's water treatment plant is capable of distributing roughly 9.72 million gallons of treated water per day (MGD).
Water is procured from six potential sources: (1) the Central Valley Project (CVP); (2) The McConnell Foundation; (3) Shasta County Water District; (4) Anderson Cottonwood Irrigation District; (5) MCM Properties, and; (6) Centerville Community Services District. However, in line with historical purchases, we assumed water is procured from sources 1 and 3 during normal times and source 2 during times of drought.
On January 17, 2014, Governor Jerry Brown issued a drought state of emergency declaration in response to record-low water levels in California’s rivers and reservoirs as well as an abnormally low snowpack. On April 1, 2015, Governor Brown issued an Executive Order calling for statewide mandatory water reductions of up to 25%. Additionally, on May 5, 2015, the State Water Resources Control Board approved regulations, based on Governor Brown’s Executive Order, mandating the City to reduce its water consumption by 28% percent for June 2015 through February 2016, as compared to the same months in 2013. The drought impacted the availability of water from the CVP. In fiscal years 2015 and 2016, the City’s available CVP water decreased by 70% and 50% respectively. Compared to FY 2014 usage, the City is estimated to use 39% less water in FY 2016.
2.2 NUMBER OF ACCOUNTS
Table 2-1 shows the estimated number of potable water accounts by meter size and customer class for FY 2016. RFC estimated the number of accounts by tabulating FY 2015 (actual) account data provided by the City and escalating the number of accounts using the growth factors described in Section 2.3. The number of accounts are used to forecast the amount of fixed revenue the City will receive from the monthly service charge.
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Table 2-1: Potable Water Accounts by Meter Size (Actual - FY 2015) Meter
Size Lifeline SFR1 MFR2
Mobile
Homes CSF3 Comm.
4 Ind5
Comm
Irr6 School Gov7 Total
5/8" 392 3,001 47 26 12 88 0 14 2 3 3,585
3/4" 0 0 0 0 0 0 0 0 0 0 0
1" 0 15 39 4 3 13 3 9 1 5 92
1.5" 0 0 2 0 0 8 0 4 0 0 14
2" 0 0 13 1 2 8 5 7 6 1 43
3" 0 0 0 0 0 0 0 1 0 0 1
4" 0 0 0 0 0 0 0 0 2 1 3
6" 0 0 0 0 0 0 1 0 0 0 1
8" 0 0 0 0 0 0 0 0 0 0 0
10" 0 0 0 1 0 0 1 0 0 0 2
12" 0 0 0 0 0 0 0 0 0 0 0
Total 392 3,016 101 32 17 117 10 35 11 10 3,741
2.3 ACCOUNT AND WATER USE GROWTH ASSUMPTIONS
The revenue calculated for each fiscal year in the Financial Plan is a function of the number of accounts, account growth, water use, and existing rates. The City has realized very low account growth for the past few years, therefore RFC assumed no account growth throughout the Study period as shown in Table 2-2.
Like most water purveyors, the City has realized reduced water use due to conservation. RFC and City Staff expect conservation to continue and that the drought will have a long-term effect on water sales which many call a “new normal” water use. Table 2-2 shows the recent and assumed water sales in acre-feet.
The “Year to Year Change” line shows that fiscal year’s consumption in relation to the previous fiscal year.
For example, FY 2015 shows -28% which was a 28% reduction compared to FY 2014 usage.
Table 2-2: Account Growth and Water Use Assumptions
FY 2014 FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 FY 2020 Account Growth (All Classes) 0% 0% 0% 0% 0%
Water Sold (Acre Feet) 2,297 1,645 1,402 1,810 1,859 1,908 1,958 Percentage Change from FY 2015 -15% 10% 13% 16% 19%
Year to Year Change -28% -15% 29% 3% 3% 3%
1 Single Family Residential
2 Multi-family Residential
3 Communal, Social and Fraternal organizations
4 Commercial
5 Industrial
6 Commercial Irrigation
7 Government
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2.4 WATER USE
Figure 2-1 shows the FY 2016 water use by customer class. This pie chart shows the percentage of total projected water use by customer class for FY 2016. Total projected water sales were 61,090,084 cubic feet (CF) or 1,402 acre feet (AF).
Figure 2-1: Water Use by Customer Class - FY 2016
10% 63%
7%
16%
3%
1%
SFR
MFR & Mobile Home
Lifeline
Commercial & Industrial
Commercial, Irrigation, & School
Government
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3 FINANCIAL PLAN
This section describes the assumptions used in projecting operating and capital expenses as well as reserve coverage requirements. These assumptions determine the overall revenue adjustments and therefore the total amount of revenue required from rates. The revenue covers O&M and capital expenses as well as reserve funding. Revenue adjustments represent the average rate increase for the City as a whole; rate changes for individual classes will depend on the cost of service analysis.
3.1 INFLATIONARY AND OTHER ASSUMPTIONS
To ensure that future costs are reasonably projected, RFC makes informed assumptions regarding inflationary factors including general and salary inflation and water cost inflation as shown in Table 3-1.
Note that the City has decided to pass-through water wholesaler cost increases. Therefore, the water wholesaler inflation shown in Table 3-1 is for modeling purposes; actual wholesaler water purchase costs will be passed-through to customers after the wholesalers (Bureau of Reclamation, McConnell Foundation, Shasta County Water Agency etc.) publish their rates. Salaries and Benefits cost inflation were provided by City Staff and take into account upcoming salary increases.
Table 3-1: Inflationary Assumptions
INFLATION FACTORS FY 2016 FY 2017 FY 2018 FY 2019 FY 2020 General 3.0% 3.0% 3.0% 3.0% 3.0%
Salaries/Benefits 3.0% 11.0% 6.0% 4.0% 4.0%
All Water Wholesalers 5.0% 5.0% 5.0% 5.0% 5.0%
Power 4.0% 3.2% 3.2% 3.2% 3.2%
Chemical 3.0% 3.0% 3.0% 3.0% 3.0%
Capital 3.1% 3.1% 3.1% 3.1% 3.1%
Miscellaneous Revenue 1.0% 1.0% 1.0% 1.0% 1.0%
3.2 FINANCIAL PLAN
The assumptions shown in Table 3-1 were incorporated into the five-year Financial Plan. To develop the Financial Plan, RFC projected annual expenses and revenues, modeled reserve balances and transfers between funds, capital expenditures and calculated debt service coverage ratios to estimate the amount of additional rate revenue needed per year. This section of the report provides a discussion of O&M expenses, the Capital Improvement Plan (CIP), reserve funding, projected revenue under existing rates and the revenue adjustments needed to ensure fiscal sustainability.
3.3 CURRENT RATE REVENUE
The City’s rate structure consists of two different types of charges: fixed charges, known as a monthly service charge and variable charges, which are dependent on water use, known as the consumption rate. 209
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3.3.1 FIXED CHARGE REVENUE
The City collects a fixed monthly service charge from its customers based on meter size. For this Study, the FY 2017 rates were used to project future revenues since the City had previously adopted these rates and these rates would be implemented in the absence of this Study. The proposed monthly service charges are shown in Table 3-2 below.
Table 3-2: FY 2016 through FY 2020 Monthly Service Charges by Meter Size Meter Size FY 2016 FY 2017 FY 2018 FY 2019 FY 2020
5/8" $20.18 $20.69 $20.69 $20.69 $20.69
1" $30.27 $31.03 $31.03 $31.03 $31.03
1.5" $50.46 $51.72 $51.72 $51.72 $51.72
2" $100.91 $103.44 $103.44 $103.44 $103.44
3" $161.46 $165.50 $165.50 $165.50 $165.50
4" $302.74 $310.31 $310.31 $310.31 $310.31
6" $504.56 $517.18 $517.18 $517.18 $517.18
8" $1,009.13 $1,034.36 $1,034.36 $1,034.36 $1,034.36
10" $1,614.60 $1,654.97 $1,654.97 $1,654.97 $1,654.97
12" $2,926.46 $2,999.62 $2,999.62 $2,999.62 $2,999.62
In order to determine annual revenues from the monthly service charges, RFC multiplied the monthly service charges by the number of accounts in each meter size in each year and multiplied by twelve. As mentioned in Section 2.2, the number of accounts is not projected to grow through the course of the Study period. The number of accounts for the Study period is shown in Table 3-3.
Table 3-3: Meters through FY 2020 by Meter Size
Meter Size FY 2016 FY 2017 FY 2018 FY 2019 FY 2020
5/8" 3,585 3,585 3,585 3,585 3,585
1" 92 92 92 92 92
1.5" 14 14 14 14 14
2" 43 43 43 43 43
3" 1 1 1 1 1
4" 3 3 3 3 3
6" 1 1 1 1 1
8" 0 0 0 0 0
10" 2 2 2 2 2
Total 3,741 3,741 3,741 3,741 3,741
In addition to the monthly service charge assessed on water meters shown in Table 3-2, the City also assesses a Fixed Debt Charge on every account of $.80 per account per month, regardless of meter size.
The last source of fixed revenue that the City collects is Private Fire Meter Charge revenue. This is a monthly fixed charge assessed on fire meters by meter size. A summary of monthly Fire Meter Charges is shown in Table 3-4 below.
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Table 3-4: Monthly Fire Meter Charges through FY 2020
Meter Size FY 2016 FY 2017 FY 2018 FY 2019 FY 2020
4" $15.00 $15.00 $15.00 $15.00 $15.00
6" $20.00 $20.00 $20.00 $20.00 $20.00
8" $25.00 $25.00 $25.00 $25.00 $25.00
10" $30.00 $30.00 $30.00 $30.00 $30.00
The number of fire meters by meter size through the Study period is shown in Table 3-5 below.
Table 3-5: Fire Meters through FY 2020
Meter Size FY 2016 FY 2017 FY 2018 FY 2019 FY 2020
4" 5 5 5 5 5
6" 8 8 8 8 8
8" 4 4 4 4 4
10" 2 2 2 2 2
Total 19 19 19 19 19
Referring to the monthly fixed rates and account totals in Table 3-2 and Table 3-3 respectively, the monthly fixed charge revenue from all single family homes with a 5/8" meter for FY 2017 is calculated as follows:
𝑓𝑖𝑥𝑒𝑑 𝑐ℎ𝑎𝑟𝑔𝑒 𝑟𝑎𝑡𝑒 𝑓𝑜𝑟 5/8" 𝑚𝑒𝑡𝑒𝑟 × 𝑛𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑎𝑐𝑐𝑜𝑢𝑛𝑡𝑠 𝑤𝑖𝑡ℎ 5/8" 𝑚𝑒𝑡𝑒𝑟 × 12 𝑚𝑜𝑛𝑡ℎ𝑠 $20.69 × 3,585 × 12 = $890𝐾
The same calculation is repeated for all meter sizes and then added together to determine the total monthly fixed charge revenue for all customers (including Fire Line meters). The result of this calculation and the sum of all fixed revenue through FY 2020 is shown in Table 3-6.
Table 3-6: Fixed Revenue through FY 2020
Meter Size FY 2016 FY 2017 FY 2018 FY 2019 FY 2020
Fixed Revenue
Monthly Service Charge Revenue $1,128,259 $1,156,704 $1,156,704 $1,156,704 $1,156,704 Private Fire Meter Charge Revenue $4,740 $4,740 $4,740 $4,740 $4,740 Fixed Debt Charge $35,914 $35,914 $35,914 $35,914 $35,914 Total Fixed Revenue $1,168,913 $1,197,357 $1,197,357 $1,197,357 $1,197,357
3.3.2 COMMODITY CHARGE REVENUE
In addition to fixed charge revenue from the monthly service charge, the City also collects revenue based on water use. The City has a tiered consumption rate structure for all customers. Lifeline and SFR have a three tiered rate while all other classes have a two tiered rate except for 5/8 inch meters which all have a three tiered rate. The third tier rate is called the “Excess Consumption” rate. The tier width for Lifeline, SFR, CSF and other customers with 5/8” meters is shown below in Table 3-8. All other customers have a first tier of up to 10 hundred cubic feet (HCF) and then pay the tier 2 rate for consumption beyond Tier 1. 211
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Table 3-7: Consumption Rate Structure
Tier Current SFR, CSF, Lifeline and 5/8”
Meter Tier width (CF)
Tier Width for All Other Customers
(CF)
Tier 1 0-1,000 0-1,000
Tier 2 1,001-5,000 1,001+
Tier 3/ Excess Consumption 5,001+ N/A
Lifeline customers pay a separate Tier 1 rate, while all other customers pay the same rate for Tier 1 and Tier 2. The “Excess Consumption” rate applies only to 5/8 inch meters and Residential 1” meters. The current consumption rates are shown below in Table 3-8.
Table 3-8: Commodity Rates Across Study period, in $/HCF FY 2016 FY 2017 FY 2018 FY 2019 FY 2020
Lifeline $1.04 $1.07 $1.07 $1.07 $1.07
Tier 1 $1.30 $1.34 $1.34 $1.34 $1.34
Tier 2 $1.50 $1.54 $1.54 $1.54 $1.54
Tier 3/Excess Consumption Rate $1.82 $1.87 $1.87 $1.87 $1.87 RFC calculated tiered usage based on FY 2015 consumption data and projected it across the Study period.
This process resulted in the following consumption data, presented in cubic feet in Table 3-9. A breakdown of usage by customer class is available in the appendix.
Table 3-9: Consumption by Tier across Study period
FY 2016 FY 2017 FY 2018 FY 2019 FY 2020
Expressed in CF
Lifeline 2,633,993 3,208,022 3,295,514 3,383,005 3,470,497 Tier 1 24,268,662 29,712,446 30,522,786 31,333,125 32,143,465 Tier 2 32,753,573 43,537,254 44,724,634 45,912,014 47,099,393 Tier 3/Excess Consumption 1,433,856 2,368,192 2,432,779 2,497,366 2,561,953 Total 61,090,084 78,825,915 80,975,713 83,125,510 85,275,308 Expressed in HCF
Lifeline 26,340 32,080 32,955 33,830 34,705
Tier 1 242,687 297,124 305,228 313,331 321,435
Tier 2 327,536 435,373 447,246 459,120 470,994
Tier 3/Excess Consumption 14,339 23,682 24,328 24,974 25,620 Total 610,901 788,259 809,757 831,255 852,753
The consumption revenues shown for FY 2016 through FY 2020, shown in Table 3-10, are calculated by multiplying the projected consumption found Table 3-9 by the rates found in Table 3-8. For example, the commodity charge revenue from Tier 1 usage for FY 2016 can be calculated as follows:
𝑃𝑟𝑜𝑗𝑒𝑐𝑡𝑒𝑑 𝑇𝑖𝑒𝑟 1 𝑈𝑠𝑎𝑔𝑒 𝑓𝑜𝑟 𝐹𝑌 2016 × 𝑇𝑖𝑒𝑟 1 𝑅𝑎𝑡𝑒
242,687 × $1.30 = $315𝐾
The same calculation is repeated for all tiers and the other customer classes (including Fire Line) to determine the total consumption revenue for each year.
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Table 3-10: Consumption Revenues by Tier across Study period FY 2016 FY 2017 FY 2018 FY 2019 FY 2020
Lifeline $27,394 $34,198 $35,130 $36,063 $36,995
Tier 1 $315,493 $398,147 $409,005 $419,864 $430,722
Tier 2 $491,304 $669,385 $687,641 $705,897 $724,153
Tier 3/Excess Consumption Rate $26,096 $44,179 $45,383 $46,588 $47,793 Total $860,286 $1,145,908 $1,177,160 $1,208,412 $1,239,664
3.4 UTILITY EXPENSES
The City’s expenses include O&M expenses, capital expenses, and debt service payments. Section 3.4 through 3.6 discuss the details of each of these expenses.
O&M Expenses
In order to project the City’s O&M expenses, RFC first calculated the costs of purchasing water. The City has six potential sources of water, but is projected to only purchase from two (during normal times) throughout the Study period (although the City did purchase from a third source, McConnell Foundation, in FY 2016 due to the drought). Note that the information below is presented in Water Years (WY), which begins on March 1, and ends on February 28. These purchase amounts are in AF, one AF is approximately 435,600 hundred cubic feet, or 325,851 gallons.
Table 3-11: Projected Water Purchases across Study period in Acre Feet Water Wholesaler WY
8 2017 WY 2018 WY 2019 WY 2020
Central Valley Project 1,896 1,949 2,002 2,055
McConnell Foundation - - - -
Anderson Cottonwood Irrigation District - - - -
MCM Properties - - - -
Shasta County Water Agency 50 50 50 50
Centerville Community Services District - - - -
Total Potable Supply (AF) 1,946 1,999 2,052 2,105
The City provided RFC with the WY 2016 rates for each water wholesaler, and RFC escalated these prices according to the percentages shown in Table 3-1. Table 3-12 shows projected costs by wholesaler throughout the Study period.
8 WY = Water Year
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Table 3-12: Projected Water Purchase Rates in $/Acre Feet Water Wholesaler WY 2017 WY 2018 WY 2019 WY 2020
Central Valley Project $120.88 $126.92 $133.27 $139.93
McConnell Foundation $262.50 $275.63 $289.41 $303.88
Anderson Cottonwood Irrigation District $238.61 $250.54 $263.07 $276.22 MCM Properties $224.78 $236.02 $247.82 $260.22
Shasta County Water Agency $131.44 $138.01 $144.91 $152.16 Centerville Community Services District $236.25 $248.06 $260.47 $273.49 RFC then calculated the total water purchase cost for each FY by multiplying the purchased water projections by the purchased water costs. Note that Table 3-13 shows the costs for the FY and not for the WY. The water purchase cost takes into account the fact that the fiscal year occurs over two WYs - nine months of the first WY and three months in the next WY. Therefore, for each fiscal year ¾ of water purchase costs are in the first WY, and that the remaining ¼ of water purchase costs are in the second WY. Water purchase costs were estimated at for this Study, however the City is implementing a passthrough of its water purchase costs (costs the City incurs to buy water from its wholesalers). When the City knows its wholesale water purchase costs it will pass-through these costs to City customers as discussed in the Pass-through section below.
Table 3-13: Projected Water Purchases Costs
Water Wholesaler FY 2017 FY 2018 FY 2019 FY 2020
Central Valley Project $233,710 $252,215 $271,987 $293,105 McConnell Foundation $0 $0 $0 $0
Anderson Cottonwood Irrigation District $0 $0 $0 $0
MCM Properties $0 $0 $0 $0
Shasta County Water Agency $6,654 $6,987 $7,336 $7,703
Centerville Community Services District $0 $0 $0 $0
Water Supply Cost $240,364 $259,202 $279,323 $300,807
Pass-through Costs
The City has elected to pass-through its wholesale water purchase costs. RFC has estimated the passthrough costs of water supply cost increases based on the inflationary factors discussed in Table 3-1. The City will calculate actual pass-through rates once wholesaler water rates are known. RFC estimated the pass-through cost using the following steps:
1. Freeze the wholesaler rates from WY 2017 (Table 3-14) and applied them to all water purchases throughout the Study period.
2. The total water purchases costs calculated from the increasing wholesale rates (Table 3-12) are subtracted from the water purchase costs from the frozen rates (Table 3-14Table 3-12)
3. Divide the difference (shown in Line 9 in Table 3-15) by the total HCF sold in that FY.
Table 3-14 shows the WY 2017 Water Purchase Rates.
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Table 3-14: WY 2017 Water Purchase Rates in $/Acre Feet, used for Pass-Through Analysis Water Wholesaler WY 2017 WY 2018 WY 2019 WY 2020
Table 3-12
Central Valley Project $120.88 $120.88 $120.88 $120.88
McConnell Foundation $262.50 $262.50 $262.50 $262.50
Anderson Cottonwood Irrigation District $238.61 $238.61 $238.61 $238.61 MCM Properties $224.78 $224.78 $224.78 $224.78
Shasta County Water Agency $131.44 $131.44 $131.44 $131.44 Centerville Community Services District $236.25 $236.25 $236.25 $236.25 Using the same calculation methodology as described for the water purchase cost in Table 3-13, RFC calculated the water purchase costs using WY 2017 rates for all years. This cost was then subtracted from the water supply cost from Table 3-13 to get the projected pass-through. By dividing the projected passedthrough cost by the total HCF sold (from Table 3-9), RFC arrived at the pass-through cost per HCF shown in line 11.
Table 3-15: Water Supply Costs using WY 2017 Rates
Line Source FY 2017 FY 2018 FY 2019 FY 2020
1 Central Valley Project $229,162 $235,576 $241,991 $248,406 2 McConnell Foundation $0 $0 $0 $0
3 Anderson Cottonwood Irrigation District $0 $0 $0 $0
4 MCM Properties $0 $0 $0 $0
5 Shasta County Water Agency $6,572 $6,572 $6,572 $6,572 6 Centerville Community Services District $0 $0 $0 $0
7 Water Supply Cost using WY 2017 Rates $235,734 $242,148 $248,563 $254,978 8 Water Supply Cost from Table 3-13 Table 3-13 $240,364 $259,202 $279,323 $300,807 9 Projected Passed-Through Cost Line 8 – Line 7 $4,631 $17,054 $30,760 $45,830 10 Total HCF Sold Table 3-9 788,259 809,757 831,255 852,753 11 Cumulative Pass-Through Cost per HCF Line 9 ÷ Line 10 $0.01 $0.02 $0.04 $0.05 12 Incremental Pass-Through Cost per HCF
Line 11-
Previous Year $0.01 $0.01 $0.02 $0.01
3.4.1 TOTAL O&M BUDGET
The City’s projected O&M budget is shown by fiscal year in Table 3-16. FY 2017 is the year with which rates were calculated (this is known as the test year) and FY 2016 is shown for comparison. The Financial Plan Study period is from FY 2016 to 2020. The O&M budget incorporates the inflationary factors discussed in Section 3.1, and purchased water costs from Table 3-13.
Table 3-16: Projected Water O&M Expenses
FY 2016 FY 2017 FY 2018 FY 2019 FY 2020
General and Administrative $542,905 $563,080 $580,457 $598,371 $616,837 Distribution $709,954 $736,635 $759,406 $782,881 $807,080 Water Treatment Plant $677,872 $795,928 $849,272 $889,054 $930,660 Water Purchases $247,570 $240,364 $259,202 $279,323 $300,807 TOTAL O&M EXPENSES $2,178,301 $2,336,007 $2,448,337 $2,549,628 $2,655,384 215
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3.5 CAPITAL IMPROVEMENT PLAN
Table 3-17 shows the City’s detailed five-year Note that the values shown in Table 3-17 are inflated according to the assumed Capital inflation figure found in Table 3-1.
Table 3-17: Detailed Inflated Capital Improvement Plan
FY 2016 FY 2017 FY 2018 FY 2019 FY 2020 FY 2021
Chlorine Analyzer $0 $0 $0 $0 $0 $0
City Hall Transfer $450,000 $0 $0 $0 $0 $0
Raw Water Pump - Filter Plant (BOR) $0 $309,300 $0 $0 $0 $0 Refurbish Tank II $0 $0 $0 $0 $0 $0
2013\2014\2015 Water Improvements $14,982 $0 $0 $0 $0 $0 Water Master Plan Update $150,000 $0 $0 $0 $0 $0
Sludge Dewatering (Net of Grant expense) $50,000 $51,550 $0 $0 $0 $0 Pensacola Transmission Main Replacement $0 $0 $0 $0 $0 $0 Water Maintenance $0 $0 $0 $0 $0 $0
Software and server $0 $0 $0 $0 $0 $0
Water Feasibility Study $0 $0 $0 $0 $0 $0
Filter No 2 Media Replacement $100,000 $0 $0 $0 $0 $0
Storage Tank Replacement $0 $257,750 $265,740 $273,978 $282,472 $291,228 Westside Water Project (3 phase) $0 $0 $318,888 $328,774 $338,966 $349,474 Chlorine Gas Detector Monitor $0 $0 $0 $0 $0 $0
Toyon Water Plan Demolition $0 $51,550 $0 $0 $0 $0
Retaining Wall $0 $128,875 $0 $0 $0 $0
Reserve Allocation $0 $0 $0 $0 $0 $0
Filter No 1 Rehab $0 $0 $106,296 $109,591 $0 $0
TOTAL CIP - INFLATED $764,982 $799,025 $690,925 $712,343 $621,437 $640,702
3.6 EXISTING AND PROPOSED DEBT SERVICE
Table 3-18 shows the City’s existing debt service payments. The City does not anticipate issuing more debt in the Study period.
Table 3-18: Existing and Proposed Debt Service
FY 2016 FY 2017 FY 2018 FY 2019 FY 2020
Safe Drinking Water Loan
Principal $49,597 $51,673 $53,837 $56,098 $0
Interest $8,244 $6,167 $4,004 $1,750 $0
Total Debt Service $57,841 $57,840 $57,841 $57,848 $0
iBank Water Loan
Principal $147,217 $151,678 $156,274 $161,009 $165,888
Interest $117,996 $113,468 $108,803 $103,996 $99,043
Total Debt Service $265,213 $265,146 $265,077 $265,005 $264,931 Cal PERS Loan from the Electric Fund
Principal $11,034 $11,255 $11,480 $11,709 $11,944
Interest $1,894 $1,673 $1,448 $1,218 $984
Total Debt Service $12,928 $12,928 $12,928 $12,927 $12,928 TOTAL EXISTING DEBT SERVICE $335,982 $335,914 $335,846 $335,780 $277,859 216
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3.7 RESERVE TARGETS
Currently, the City maintains three reserves: an operating reserve, a capital reserve, and a debt service reserve.
Operating Reserve – The Operating Reserve is used primarily to meet ongoing cash flow requirements.
The City’s Operating Reserve target is currently at 25% (three months) of budgeted Operating Expenses and will remain the same.
Capital Reserve – The Capital Reserve is used to cover any unexpected and unplanned infrastructure repairs and replacements not included in the budget. It is recommended that the City maintain a Capital Reserve equivalent to one year’s CIP spending based on the study period’s average CIP expenditure, roughly $700,000. RFC used this recommended reserve target to develop the rate adjustments shown in this financial plan.
Debt Service Reserve – The City holds the final principal payment of its retiring debt service in reserve.
3.8 PROPOSED FINANCIAL PLAN AND REVENUE ADJUSTMENTS
The proposed revenue adjustments help ensure adequate revenue to fund operating expenses, capital expenditures and compliance with bond covenants. Financial Plan modelling assumes the first revenue adjustment occurs on October 1, 2016 with the subsequent ones in March of 2018 and 2019. The proposed revenue adjustments would enable the City to execute the CIP shown in Table 3-17, while exceeding its debt service coverage requirement of 110% over the five-year Study period.
Table 3-19 shows the proposed revenue adjustments for the course of the Study period.
Table 3-19: Proposed Rate Adjustments
Effective Date Proposed Water Revenue Adjustments
October 2016 30 percent
March 2018 15 percent
March 2019 10 percent
Table 3-20 shows the cash flow detail over the next five years assuming the selected Financial Plan. Line 7 shows the additional revenue from the revenue adjustments. Line 26 shows the City meets debt service coverage requirements during the Study period.
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Table 3-20: Five-Year Water Operating Cash Flow
Line FY 2016 FY 2017 FY 2018 FY 2019 FY 2020
1 Revenue from Current Rates $2,029,199 $2,343,266 $2,374,518 $2,405,770 $2,437,022 Fiscal Year Revenue
Adjustments
Month
Effective
2 2016 0.0% July $0 $0 $0 $0 $0
3 2017 30.0% October $527,235 $712,355 $721,731 $731,107 4 2018 15.0% March $154,344 $469,125 $475,219
5 2019 10.0% March $119,888 $364,335
6 2020 0.0% March $0
Additional Rate Revenue $0 $527,235 $866,699 $1,310,744 $1,570,661 7 Total Rate Revenue $2,029,199 $2,870,500 $3,241,217 $3,716,513 $4,007,682 8 Other Revenue
9 Interest Revenue $17,709 $13,537 $9,609 $18,738 $25,596 10 Transfer from General Fund $0 $11,000 $11,000 $11,000 $11,000 11 Pass-through Revenue $0 $4,631 $17,054 $30,760 $45,830 12 Drought Rate Revenue (Penalty Rates) $495,000 $0 $0 $0 $0 13 TOTAL REVENUE $2,541,908 $2,899,668 $3,278,880 $3,777,011 $4,090,108 O&M Expenses
14 General and Administrative $542,905 $563,080 $580,457 $598,371 $616,837 15 Distribution $709,954 $736,635 $759,406 $782,881 $807,080 16 Water Treatment Plant $677,872 $795,928 $849,272 $889,054 $930,660 17 Water Purchases $247,570 $240,364 $259,202 $279,323 $300,807 18 Total O&M Expenses $2,178,301 $2,336,007 $2,448,337 $2,549,628 $2,655,384 19 Existing Debt Service $335,982 $335,914 $335,846 $335,780 $277,859 20 Proposed Debt Service $0 $0 $0 $0 $0
21 Rate Funded Capital Projects $764,982 $799,025 $690,925 $712,343 $621,437 22 General Admin Transfer $0 $11,000 $11,000 $11,000 $11,000 23 TOTAL EXPENSES $3,279,265 $3,481,946 $3,486,108 $3,608,752 $3,565,681 24 Net Cash Flow ($737,357) ($582,278) ($207,228) $168,259 $524,428 26 Calculated Debt Coverage 108% 168% 247% 366% 516%
26 Required Debt Coverage 125% 125% 125% 125% 125%
Figures 3-1 through 3-5 display the FY 2016 through FY 2020 Financial Plan in graphical format. Figure 3- 1 shows the modeled revenue adjustments (blue bars) for the next four years. RFC notes that the City is setting rates and adjusting revenues through FY 2019. Revenue adjustments beyond FY 2019 will be evaluated on an as-needed basis in the future. Figure 3-1 also graphs the calculated and minimum debt coverage requirements as shown by the green and red Lines respectively. 218
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Figure 3-1: Proposed Revenue Adjustments
Figure 3-2 graphically illustrates the operating Financial Plan – it compares existing and proposed revenues with projected expenses. The expenses include O&M, purchased water, debt service, and reserve funding and are shown by the stacked bars; and total revenues at existing and proposed rates are shown by the horizontal orange and blue Lines, respectively. Current revenue from existing rates, in orange, does not meet future total expenses and shows the need for revenue adjustments.
Figure 3-2: Proposed Operating Financial Plan
Figure 3-3 summarizes the projected CIP and its funding sources – debt or rate/reserve funded. As shown, the City plans to pay for all its CIP via rate revenue-; the City will not issue debt to pay for future CIP. 219
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Figure 3-3: Projected CIP and Funding Sources
Figure 3-4 displays the total of all funds (operating and capital) yearly ending balance (green bars). The red line is the total fund target balance, which is the combination of 3 months of O&M expenses based on currently adopted City policy and the average of a year’s worth of CIP spending over the course of the Study period. As shown, the operating fund is anticipated to dip below the target in FY 2017 through FY 2019 – this is due to anticipated water sales and capital project expenditures. As shown in Figure 3-4, the operating fund recovers by the end of the Study period.
Figure 3-4: Projected Operating Fund Ending Balances
$0.8 $0.8
$0.7 $0.7
$0.6
$0.0
$0.1
$0.2
$0.3
$0.4
$0.5
$0.6
$0.7
$0.8
$0.9
FY 2016 FY 2017 FY 2018 FY 2019 FY 2020
Millions
Capital Financing Plan
Bond Funded CIP Rate Funded CIP
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4 LEGAL FRAMEWORK AND RATE SETTING
METHODOLOGY
4.1 LEGAL FRAMEWORK
This section of the report describes the legal framework that was considered to ensure that the calculated cost of service rates provide a fair and equitable allocation of costs to customer classes.
California Constitution - Article XIII D, Section 6 (Proposition 218) Proposition 218, reflected in the California Constitution as Article XIII D, was enacted in 1996 to ensure that rates and fees are reasonable and proportional to the cost of providing service. The principal requirements for fairness of the fees, as they relate to public water service are as follows:
1. A property-related charge (such as water rates) imposed by a public agency on a parcel shall not exceed the costs required to provide the property related service.
2. Revenues derived by the charge shall not be used for any other purpose other than that for which the charge was imposed.
3. The amount of the charge imposed upon any parcel shall not exceed the proportional cost of service attributable to the parcel.
4. No charge may be imposed for a service unless that service is actually used or immediately available to the owner of property.
5. No fee or charge may be imposed for general governmental services including, but not limited to, police, fire, ambulance or library services, where the service is available to the public at large in substantially the same manner as it is to property owners.
6. A written notice of the proposed charge shall be mailed to the record owner of each parcel at least 45 days prior to the public hearing, when the agency considers all written protests against the charge.
As stated in AWWA’s M1 Manual, “water rates and charges should be recovered from classes of customers in proportion to the cost of serving those customers.” Prop 218 requires that water rates cannot be “arbitrary and capricious,” meaning that the rate-setting methodology must be sound and that there must be a nexus between costs and the rates charged. RFC followed industry standard rate setting methodologies set forth by the AWWA M1 Manual to ensure this study meets Proposition 218 requirements and creates rates that do not exceed the proportionate cost of providing water services.
California Constitution - Article X, Section 2
Article X, Section 2 of the California Constitution (established in 1976) states the following:
- “It is hereby declared that because of the conditions prevailing in this State the general welfare requires that the water resources of the State be put to beneficial use to the fullest extent of which they are capable, and that the waste or unreasonable use or unreasonable method of use of water be prevented, and that the conservation of such waters is to be exercised with a view to the reasonable and beneficial use thereof in the interest of the people and for the public welfare.”
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As stated above Article X, section 2 of the State Constitution institutes the need to preserve the State’s water supplies and to discourage the wasteful or unreasonable use of water by encouraging conservation.
As such, public agencies are constitutionally mandated to maximize the beneficial use of water, prevent waste, and encourage conservation.
In addition, Section 106 of the Water Code declares that the highest priority use of water is for domestic purposes, with irrigation secondary. To meet the objectives of Article X, section 2, Water Code Section 375 et seq., a water purveyor may utilize its water rate design to incentivize the efficient use of water.
The City established single family tiered rates to incentivize customers to conserve water. The tiered rates (as well as rates for the remaining classes) need to be based on the proportionate costs incurred to provide water to customer classes to achieve compliance with Proposition 218.
Tiered Rates – “Inclining” block rate structures (which are synonymous with “increasing” block rate structures and tiered rates) when properly designed and differentiated by customer class, allow a water utility to send consistent conservation price incentives to customers. Due to heightened interest in water conservation, tiered rates have gained widespread use, especially in relatively water-scarce regions, such as Southern California. Tiered rates meet the requirements of Proposition 218 as long as the tiered rates reflect the proportionate cost of providing service.
4.2 COST-BASED RATE-SETTING METHODOLOGY
As stated in the AWWA M1 Manual, “the costs of water rates and charges should be recovered from classes of customers in proportion to the cost of serving those customers.” To develop utility rates that comply with Proposition 218 and industry standards while meeting other emerging goals and objectives of the utility, there are four major steps discussed below. 1) Calculate Revenue Requirement
The rate-making process starts by determining the test year revenue requirement - which for this study is FY 2016. The revenue requirement should sufficiently fund the utility’s O&M, debt service, and capital expenses, and reserve funding.
2) Cost Of Service Analysis (COS)
The annual cost of providing water service is distributed among customer classes commensurate with their service requirements. A COS analysis involves the following:
1. Functionalizing costs. Examples of functions are supply, treatment, transmission, distribution, storage, meter servicing and customer billing and collection.
2. Allocating functionalized costs to cost components. Cost components include base, maximum day, maximum hour9
, meter service, customer servicing and conservation costs.
3. Distributing the cost components. Distribute cost components, using unit costs, to customer classes in proportion to their demands on the water system. This is described in the M1 Manual published by AWWA.
9 Collectively maximum day and maximum hour costs are known as peaking costs or capacity costs. 222
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A COS analysis considers both the average quantity of water consumed (base costs) and the peak rate at which it is consumed (peaking or capacity costs as identified by maximum day and maximum hour demands).10 Peaking costs are costs that are incurred during peak times of consumption. There are additional costs associated with designing, constructing, and operating and maintaining facilities to meet peak demands. These peak demand costs need to be allocated to those imposing such costs on the utility.
In other words, not all customer classes share the same responsibility for peaking related costs. 3) Rate Design and Calculations
Rates do more than simply recover costs. Within the legal framework and industry standards, properly designed rates should support and optimize a blend of various utility objectives, such as conservation, affordability for essential needs and revenue stability among other objectives. Rates may also act as a public information tool in communicating these objectives to customers. 4) Rate Adoption
Rate adoption is the last step of the rate-making process to comply with Proposition 218. RFC documented the rate study results in this Study Report to help educate the public about the proposed changes, the rationale and justifications behind the changes and their anticipated financial impacts in lay terms.
10 System capacity is the system’s ability to supply water to all delivery points at the time when demanded.
Coincident peaking factors are calculated for each customer class at the time of greatest system demand. The time of greatest demand is known as peak demand. Both the operating costs and capital asset related costs incurred to accommodate the peak flows are generally allocated to each customer class based upon the class’s contribution to the peak month, day and hour event.
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5 COST OF SERVICE ANALYSIS
The principles and methodology of a cost of service analysis were described in Section 4.2. A cost of service analysis distributes a utility’s revenue requirements (costs) to each customer class. After determining a utility’s revenue requirement, the next step in a cost of service analysis is to functionalize its O&M costs to the following functions:
1. General and Administrative Costs
2. Distribution Costs
3. Water Treatment Plant (Treatment) Costs
4. Water Supply
5. Customer Service
6. Meter Service
The functionalization of costs allows us to better allocate the functionalized costs to the cost causation components. The cost causation components include:
1. Supply costs
2. Base Delivery (Base) costs11
3. Peaking costs (maximum day and maximum hour)
4. Fire Protection (Fire) costs12
5. Meter Service (Meter) costs
6. Customer Service (Customer) costs
7. General and Administrative (General) costs
8. Conservation costs
9. Lifeline costs
Peaking costs are further divided into maximum day and maximum hour demand. The maximum day demand is the maximum amount of water used in a single day in a year. The maximum hour demand is the maximum usage in an hour on the maximum usage day. Different facilities, such as distribution and storage facilities, and the O&M costs associated with those facilities, are designed to meet the peaking demands of customers. Therefore, extra capacity13 costs include the O&M and capital costs associated with meeting peak customer demand. This method is consistent with the AWWA M1 Manual, and is widely used in the water industry to perform cost of service analyses.
5.1 FUNCTIONALIZATION OF O&M EXPENSES
Table 5-1 shows the functionalization of the City’s O&M expenses. Functionalizing O&M expenses allows RFC to follow the principles of rate setting theory in which the end goal is to allocate the City’s O&M expenses to cost causation components. This is further explained in Section 5.2. We note that the
11 Base Delivery costs are the average costs of supply
12 Fire Protection Costs will be used interchangeably with Fire Costs 13 The terms extra capacity, peaking, and capacity costs are used interchangeably. 224
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functionalized expenses shown in Table 5-1 match with the O&M FY 2017 O&M expenses shown in Table 3-16.
Table 5-1: Functionalization of O&M Expenses
Function Budgeted FY 2017
General and Administrative $563,080
Distribution $736,635
Water Treatment Plant $795,928
Water Purchases $240,364
TOTAL O&M EXPENSES $2,336,007
5.2 ALLOCATION OF FUNCTIONALIZED EXPENSES TO COST COMPONENTS After functionalizing expenses, the next step is to allocate the functionalized expenses to cost causation components. To do so we must identify system wide peaking factors which are shown in Column A, Table 5-2. The system-wide peaking factors are used to derive the cost component allocation basis (i.e., percentages) shown in Columns B through D of Table 5-2. Functionalized expenses are then allocated to the cost components using these allocation bases. To understand the interpretation of the percentages shown in Columns B through Column D we must first establish the base use as the average daily demand during the year.
Examples of how the percentages shown in Table 5-2 were derived are shown below the table. As shown in the example calculations, we first remove fire protection from the total percentage before the remaining calculations are performed.
As an example, the functionalized expenses that are allocated to the cost components using the maximum day basis (Line 2) attribute 41% of the demand (and therefore costs) to base (average daily demand) use and the remaining 49% to maximum day (peaking) use. Expenses allocated using the maximum hour basis assume 23% of costs are due to base demands with the remaining proportion (100%-23%) of costs allocated to the maximum day cost component. Collectively the maximum day and hour cost components are known as peaking costs. These allocation bases are used to assign the functionalized costs in Table 5- 3 to the cost components. A summary of the calculations made to generate Table 5-2 are shown on the following page.
Table 5-2: System-Wide Peaking Factors and Allocation to Cost Components Line Peaking
Factors Base Max Day Max Hour
A B C D
1 Base 1.00 100% 0% 0%
2 Max Day 2.18 41% 49% 0%
3 Max Hour 3.63 23% 28% 35%
4 Average 32% 39% 17%
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24 | City of Shasta Lake
𝐵𝑎𝑠𝑒 = (1 − 𝐹𝑖𝑟𝑒 𝑃𝑟𝑜𝑡𝑒𝑐𝑡𝑖𝑜𝑛) ×
𝐵𝑎𝑠𝑒
𝑀𝑎𝑥 𝐷𝑎𝑦
𝑀𝑎𝑥 𝐷𝑎𝑦 = (1 − 𝐹𝑖𝑟𝑒 𝑃𝑟𝑜𝑡𝑒𝑐𝑡𝑖𝑜𝑛) ×
𝑀𝑎𝑥 𝐷𝑎𝑦 − 𝐵𝑎𝑠𝑒
𝑀𝑎𝑥 𝐷𝑎𝑦
𝑀𝑎𝑥 𝐻𝑜𝑢𝑟 = (1 − 𝐹𝑖𝑟𝑒 𝑃𝑟𝑜𝑡𝑒𝑐𝑡𝑖𝑜𝑛) ×
𝑀𝑎𝑥 𝐻𝑜𝑢𝑟 − 𝑀𝑎𝑥 𝐷𝑎𝑦
𝑀𝑎𝑥 𝐻𝑜𝑢𝑟
These peaking characteristics result in the following Cost Components allocations for Max Day:
𝐵𝑎𝑠𝑒 = (1 − 𝐹𝑖𝑟𝑒 𝑃𝑟𝑜𝑡𝑒𝑐𝑡𝑖𝑜𝑛) ×
𝐵𝑎𝑠𝑒
𝑀𝑎𝑥 𝐷𝑎𝑦 = (1 − .10) ×
1 2.18 ≈ 41%
𝑀𝑎𝑥 𝐷𝑎𝑦 = (1 − .10) ×
2.18 − 1
2.18 ≈ 49%
For the Max Hour Component, the calculations are shown below.
𝐵𝑎𝑠𝑒 = (1 − 𝐹𝑖𝑟𝑒 𝑃𝑟𝑜𝑡𝑒𝑐𝑡𝑖𝑜𝑛) ×
𝐵𝑎𝑠𝑒
𝑀𝑎𝑥 𝐻𝑜𝑢𝑟 = (1 − .14) ×
1 3.63 ≈ 23%
𝑀𝑎𝑥 𝐷𝑎𝑦 = (1 − 𝐹𝑖𝑟𝑒 𝑃𝑟𝑜𝑡𝑒𝑐𝑡𝑖𝑜𝑛) ×
𝑀𝑎𝑥 𝐷𝑎𝑦 − 𝐵𝑎𝑠𝑒
𝑀𝑎𝑥 𝐻𝑜𝑢𝑟 = (1 − .14) ×
1.18 3.63 ≈ 28%
𝑀𝑎𝑥 𝐻𝑜𝑢𝑟 = (1 − 𝐹𝑖𝑟𝑒 𝑃𝑟𝑜𝑡𝑒𝑐𝑡𝑖𝑜𝑛) ×
𝑀𝑎𝑥 𝐻𝑜𝑢𝑟 − 𝑀𝑎𝑥 𝐷𝑎𝑦
𝑀𝑎𝑥 𝐻𝑜𝑢𝑟 = (1 − .14) ×
1.45 3.63 ≈ 35%
Table 5-3 allocates the functionalized O&M expenses shown in Column K, Lines 5 through 8, (and also shown earlier in Table 5-1) to each cost component using the basis shown in the upper portion of Table 5-3 (Lines 1-4) – some of which are the same as those shown in Table 5-2. There are several exceptions however: the General and Administrative expenses are mostly allocated to General costs, with the exception of costs that were 1. Related to Meters; 2. Related to Customer Service, or; 3. Related to conservation programs.14 Water purchase costs were allocated solely to the Supply cost causation component.
The functions (Lines 5 through 8) are allocated according to industry standards that are defined based on the nature of the water treatment function. For example: water purchases are associated with getting and treating water – therefore those costs are allocated (100%) to the supply cost component using line 4 of Table 5-3. Treatment costs are mostly associated with meeting base demands, however treatment costs are likely higher during the summertime (the months of June through September when demand is
14 These breakdowns were provided by Staff.
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at its highest) and therefore a portion of treatment costs are allocated to maximum day demands as shown in Line 7. A similar basis is used for the distribution system, which is operated to meet maximum hour and day (peaking) demand and is allocated as such in Line 6 of Table 5-3.
Line 10 of Table 5-3 shows the total resulting cost component allocation for O&M expenses. This resulting allocation is used to allocate the City’s operating revenue requirement (discussed in Section 5.3) to the cost components.
Table 5-3 also shows the total resulting allocation for the City’s assets. The resulting total asset allocation is derived in a similar manner as the O&M allocation - first, RFC functionalized the City’s assets and then allocated them to the cost causation components using the same percentages shown in Lines 1 through 4 of Table 5-3, resulting in the asset total allocation shown in Line 11. Part of the City’s revenue requirement includes rate/reserve funded capital. This capital portion of the revenue requirement is allocated to the cost components using the resulting asset allocation in Line 13. 227
26 | City of Shasta Lake
Table 5-3: Allocation of Functionalized O&M and Capital Expenses to Cost Causation Components O&M Functions
Allocation
Basis Supply Base Max Day
Max
Hour Fire Meter Customer General Conservation TOTAL
Line A B C D E F G H I J K
1 General and Administrative 5% 24% 68% 3% 100%
2 Distribution Max Hour 23% 28% 35% 14% 0% 100%
3 Water Treatment Plant Max Day 41% 49% 0% 10% 0% 100%
4 Water Purchases Supply 100% 100%
O&M Allocation
5 General and Administrative $0 $0 $0 $0 $0 $25,929 $134,932 $383,637 $18,582 $563,080 6 Distribution $0 $168,010 $205,351 $257,682 $105,592 $0 $0 $0 $0 $736,635 7 Water Treatment Plant $0 $324,680 $391,656 $0 $79,593 $0 $0 $0 $0 $795,928 8 Water Purchases $240,364 $0 $0 $0 $0 $0 $0 $0 $0 $240,364 9 TOTAL O&M EXPENSES $240,364 $492,689 $597,007 $257,682 $185,185 $25,929 $134,932 $383,637 $18,582 $2,336,007 10 % Allocation 10% 21% 26% 11% 8% 1% 6% 16% 1% 100%
Capital Allocation Supply Base Max Day
Max
Hour Fire Meter Customer General Conservation TOTAL
11 Functionalized Asset Percentages 4% 37% 24% 18% 9% 0% 0% 7% 0% 100 12 Rate Funded Capital Projects $33,458 $297,759 $194,717 $143,924 $75,239 $603 $0 $53,325 $0 $799,025 13 Allocated by Funct. Assets $33,458 $297,759 $194,717 $143,924 $75,239 $603 $0 $53,325 $0 $799,025 Total Allocation Supply Base Max Day
Max
Hour Fire Meter Customer General Conservation TOTAL
14 O&M Allocated Expenses $240,364 $492,689 $597,007 $257,682 $185,185 $25,929 $134,932 $383,637 $18,582 $2,336,007 15 Capital Allocated Expenses $33,458 $297,759 $194,717 $143,924 $75,239 $603 $0 $53,325 $0 $799,025 228
Water Rate Study Report | 27
5.3 REVENUE REQUIREMENT DETERMINATION
Table 5-4 shows the revenue requirement derivation with the total revenue required from rates shown in C15. The totals shown in Columns C are the total O&M and capital revenue requirements that are allocated to the cost components using the allocation percentages shown in Lines 10 and 13 of Table 5-3.
RFC calculated the revenue requirement using Fiscal Year 2017 expenses, which include water purchases, O&M expenses, capital expenses and existing and proposed debt service15. O&M expenses include costs directly related to the supply, treatment, and distribution of water as well as routine maintenance of system facilities. To arrive at the rate revenue requirement, we subtract revenue offsets (line 8) from other revenues and make adjustments for annual cash balances (line 12) and for the fact that the impending rate adjustment will take place four months into the fiscal year and we must therefore annualize the rate increase (Line 13). The adjustments, shown as negative values are subtracted (therefore added as a result of subtracting a negative number) to arrive at the total revenue required from rates in C15. This is the amount that fixed and consumption rates are designed to collect.
The pass-through revenue in Line 11 is subtracted from the revenue requirement as an adjustment because the revenues from the pass-through are calculated separately and in this way they are not incorporated into the COS.
The transfer from General Fund in Line 7 is the same value as the Lifeline Adjustment in Line 10. The transfer to the General Fund covers services rendered by the General Fund to the water Utility. The General Fund transfers a similar amount to the water enterprise to offset (lower) the Tier 1 rate for Lifeline (lower income and fixed income) customers.
15 There is no proposed debt service for FY 2017 or at any time throughout the Study period. 229
28 | City of Shasta Lake
Table 5-4: Revenue Requirement Determination
Line FY 2017
A B C
Operating Capital Total
Revenue Requirements
1 O&M Expenses $2,336,007 $2,336,007
2 Existing Debt Service $335,914 $335,914
3 Proposed Debt Service $0 $0
4 Rate Funded Capital Projects $799,025 $799,025
5 Total Revenue Requirements Line 1+2+3+4 $2,336,007 $1,134,939 $3,470,946 Less: Revenue Offsets
6 Interest Revenue $13,537 $13,537
7 Transfer from General Fund $11,000 $11,000
8 Total Revenue Offsets Line 6+7 $24,537 $0 $24,537
Less: Adjustments
10 Lifeline Adjustment ($11,000) ($11,000)
11 Pass Through Revenue $4,631 $4,631
12 Adjustment for Cash Balance $582,278 $582,278
13 Adjustment for Midyear Increase ($175,745) ($175,745) 14 Total Adjustments Line 10+11+12+13 ($182,114) $582,278 $400,163 15 Revenue Requirement from Rates Line 5 – Line 8 – Line 14 $2,493,584 $552,661 $3,046,245
5.4 REVENUE OFFSET, GENERAL EXPENES, AND PEAK ALLOCATION Table 5-4 shows several revenue offsets that reduce the total revenues to be recovered from rates. In order to calculate the final rates these offsets have to be allocated as they were in Table 5-3. Table 5-5, shows this allocation to each cost component. Note that Column K in Table 5-5 is a new Column, not found in previous tables. Interest revenue was allocated using the same percentages as the functionalized asset percentages found in Line 11 of Table 5-3. The Transfer from the General Fund is allocated to the new Lifeline cost component so that it can be applied to Lifeline Tier 1 usage. 230
Water Rate Study Report | 29
Table 5-5: Allocation of Offsets
Revenue Offset
Allocation
Basis Supply Delivery Max Day Max Hour Fire Meter Customer General Conservat
ion Lifeline TOTAL
A B C D E F G H I J K L
Interest Revenue Capital 4% 37% 24% 18% 9% 0% 0% 7% $13,537 Transfer from General Fund 100% $11,000
Total Revenue Offsets $567 $5,045 $3,299 $2,438 $1,275 $10 $0 $903 $0 $11,000 $24,537 We then apply the offsets (line 2 in Table 5-6) calculated in Table 5-5 to the Operating Expenses (Table 5-6, Line 1) and then add the capital expenses (line 3, Table 5-6) to yield the total Cost of Service shown in line 4. Note that the total cost of service (line 4) is the same as the revenue requirement shown in C15 of Table 5-4.
These Operating Expenses are allocated according to the allocation found in Table 5-3, Line 10. The Capital Expenses are the total Capital Revenue Requirement from Rates (Table 5-4, B15) allocated according to the percentages found in Table 5-3, Line 11.
Lines 1 through 3 are totaled to equal Line 4 -the Total Cost of Service. We then allocate General Costs and peaking costs (max day and max hour) to the meter cost component in lines 5 and 6. We allocated General Costs in H4 in proportion to the amounts of the other cost components in Line 4 Column A through F. Lifeline and Conservation were left out of this allocation in order to keep Lifeline costs separate, and to maintain the direct correlation between Conservation program costs and the Conservation component. Finally, 64% of peak costs (max day and max hour) were allocated to the Meter cost component in order to achieve the City’s desired level of fixed revenue since Meter and Customer costs are collected through the fixed monthly service charge. The remaining cost components are collected through the consumption rate.
Table 5-6: Total Adjusted Cost of Service Calculation
Supply Delivery Max Day Max Hour Fire Meter Customer General Lifeline Conservation TOTAL Line A B C D E F G H I J K
1 Operating Expenses $259,103 $531,099 $643,550 $277,770 $199,622 $27,950 $145,451 $413,546 $0 $20,030 $2,518,122 2 Revenue Offset ($567) ($5,045) ($3,299) ($2,438) ($1,275) ($10) $0 ($903) ($11,000) $0 ($24,537) 3 Capital Expenses $23,142 $205,951 $134,679 $99,548 $52,040 $417 $0 $36,884 $0 $0 $552,661 4 Total Cost of Service $281,678 $732,006 $774,930 $374,880 $250,388 $28,357 $145,451 $449,526 ($11,000) $20,030 $3,046,245 5 Allocation of General Cost ($) $48,932 $127,162 $134,619 $65,123 $43,497 $4,926 $25,267 ($449,526) $0 6 Allocation of Peaking Cost to Meter ($582,111) ($281,602) $863,713 7 Total Adjusted Cost of Service $330,610 $859,167 $327,438 $158,401 $293,884 $896,997 $170,718 $0 ($11,000) $20,030 $3,046,245 231
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The final Total Adjusted Cost of Service (on Line 7 of Table 5-6) is total to be recovered from the fixed monthly service charge and the consumption rate.. 232
Water Rate Study Report | 31
6 RATE DERIVATION
6.1 PROPOSED RATE STRUCTURE AND RATES
The City’s water service fees are comprised of two components: (1) a Monthly Service Charge, and (2) a Consumption Charge. The Monthly Service Charge is a fixed charge based on the size of meter serving a property, and is calculated to recover a portion of the City’s fixed costs, such as the costs of billing and collection, customer service, meter reading, and meter maintenance. The commodity rate recovers the balance of remaining costs associated with meeting base and extra capacity costs.
Table 6-1 shows the current and proposed commodity rates by user class. RFC recommends a simplification of the current tiered rate structure, and implementing a uniform commodity rate for all non-single family-residential (SFR) customers. Moreover, RFC recommends adjusting SFR tier widths, as shown in Table 6-1.
Table 6-1: Current and Proposed SFR and Lifeline Tier Widths and Rationale Tier Current Range (cubic
feet)
Proposed Range
(cubic feet)
Rationale
Tier 1 0-1,000 0-800 minimum average winter use
Tier 2 1001-5,000 801-2,000 average summer use
Tier 3 5,001+ 2,001+
For all other customer classes, the commodity rate is a distinct uniform rate per HCF of water usage. Cost of service principles justify higher rates for classes with higher peaking ratios.
This section will explain the rate derivation process for Fire Service Charges, Monthly Service Charges, and Commodity Charges, in that order.
The Rate Derivation will recover the costs shown in row 7 of Table 5-6, which is repeated below in Table 6-2, less the Lifeline costs.
Table 6-2: Total Adjusted Cost of Service
Total Adjusted COS Supply Delivery Max Day Max Hour Fire Meter Customer Lifeline Conservat ion.
A B C D E F G H I
$3,046,245 $330,610 $859,167 $327,438 $158,401 $293,884 $896,997 $170,718 ($11,000) $20,030
6.2 PROPOSED PRIVATE FIRE CHARGES
Total Fire Protection costs include public and private fire costs. The monthly service charge includes public fire protection costs, therefore we first determine public fire protection costs which are incorporated into the monthly service charge. The remaining Private Fire Protection costs are incorporated into the Private Fire Charges. Table 6-3 shows this process in two steps. 233
32 | City of Shasta Lake
RFC first calculated Public and Private Fire costs as shown in column D of Table 6-3 . Column A shows the Fire Demand Factor for each Fire Meter. The fire demand factor is calculated using the Hazen Williams equation for flow – which assumes that the flow is equal to the diameter of the pipe raised to the 2.63 power. The Public 4” hydrants each have two 2.5” connections as well, so the potential demand for the public hydrants is higher than the 4” private line. The City provided RFC with the number of hydrants, and the number of private fire connections shown in column B of Table 3-5. The Total Fire Demand Units in Column C are found by multiplying the numbers in Column A by Column B. Column D shows the total percent allocation. Public fire accounts for 89.5% of the City’s fire demand and therefore is allocated
89.5% of the City’s fire cost. The total found in E1 is taken by multiplying D1 by the total in F7 of Table 5-6.
Private Fire Charges collect the remaining 10.5% of the fire revenue requirement. RFC calculated the private fire charges by taking the Private Fire subtotal (E9) and dividing by the annualized Private Fire Demand Units. The annualized Private Fire Demand Units number is equal to the Private Fire Demand Unit Subtotal (C9) divided by 12, since this charge is collected on a monthly basis. This process gives the Monthly Cost per Demand Unit (D10). RFC found the final Rate for each Meter by multiplying the Monthly Cost per Demand Unit by the Meter’s Fire Demand Factor (Column A). The revenue check in Column E confirms that the revenues from the proposed charges are sufficient to cover private fire costs.
Table 6-3: Fire Charge Calculation
Connection Size
Fire
Demand
Factor
No. of
Hydrants
Total Fire
Demand
Units
Percent
Allocation
Fire
Protection
Costs
Monthly
Charge
Line A B C = A × B D = C ÷ C9 E = D × E10 F
Public Hydrants
1 4" 61 405 24,536 89.5% $262,974
Private Fire Lines
2 2" 6 0 0 0.0% $0 $5.53
3 3" 18 0 0 0.0% $0 $16.06
4 4" 38 5 192 0.7% $2,053 $34.22
5 6" 111 8 890 3.2% $9,544 $99.42
6 8" 237 4 949 3.5% $10,169 $211.86
7 10" 427 2 853 3.1% $9,144 $381.00
8 12" 689 0 0 0.0% $0 $615.41
9 Subtotal 19 2,884 10.5% $30,911
10 Monthly Cost per Demand Unit $0.89
11 Total 27,421 100% $293,884
6.3 PROPOSED MONTHLY SERVICE CHARGE
The Proposed Monthly Service Charges are designed to recover three different cost components: The Meter Costs, Customer Costs, and Public Fire Costs. In order to calculate the Monthly Service charges RFC first had to determine the proper denominator to allocate these costs, which was done in an Equivalent Meter Units (EMU) Analysis. The Metering Costs have the public fire costs included in them, and is allocated based on meter Operating Capacity, and the Customer Service Component is allocated equally to all accounts.
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Table 6-4 shows the EMU calculation process. Column A shows the number of meters for each meter size, this information is taken from Table 3-3. Column B shows each meter’s Operating Capacity as provided by the AWWA M1 Manual in Table B-1.16 Column C shows the ratio of each meter’s operating capacity relative to the base meter, in this case the 5/8” meter. Column D calculates the total number of EMUs by multiplying the values in Column C by the values in Column A. The total EMUs is shown in D11.
Table 6-4: Equivalent Meter Unit Calculation
Meter Size Meter Count
AWWA Operating
Capacity
AWWA Capacity
Ratio
Equivalent Meter
Units
A B C D
Line Source Table 3-3 AWWA M1 Manual Column B ÷ B1 A × C 1 5/8" 3,585 20 1.0 3,585
2 1" 92 50 2.5 230
3 1.5" 14 100 5.0 70
4 2" 43 160 8.0 344
5 3" 1 300 15.0 15
6 4" 3 500 25.0 75
7 6" 1 1,000 50.0 50
8 8" 0 1,600 80.0 0
9 10" 2 2,900 145.0 290
10 12" 0 4,300 215.0 0
11 Total 3,741 4,659
Table 6-5 shows the Monthly Service Charge calculation. This charge was calculated by dividing the sum of the Meter Cost and Public Fire Cost by the number of EMUs per year. Note that EMUs per year is the total number of EMUs multiplied by 12.
Table 6-5: Monthly Meter Charge Calculation
Line Source Total
1 Meter Cost Table 6-2 $896,997
2 Public Fire Cost Table 6-3 $262,974
3 Total of Fire and Meter Cost Line 1 + Line 2 $1,159,970 4 Total EMUs Table 6-4 4,659
5 EMUs per Year Line 4 × 12 55,908
6 Monthly Meter Charge Line 3 ÷ Line 5 $20.75
The Customer Service Costs are allocated evenly to all customers based on the assumption that it costs the City the same amount to bill customers regardless of their meter size. The total Customer Service Costs are spread evenly across all customers, therefore the Monthly Service Charge is calculated by dividing the total Customer Service Costs by the number of Bills per Year (which is the number of meters multiplied by 12). The calculation is shown in Table 6-6.
16 American Water Works Association, Principles of Water Rates, Fees, and Charges 2012 Edition, Table B-1, p. 326 235
34 | City of Shasta Lake
Table 6-6: Monthly Customer Service Charge Calculation
Line Source Total
1 Customer Service Cost Table 6-2 $170,718
2 Total Meters Table 6-4 3,741
3 Bills per year Line 2 × 12 44,892
4 Monthly Customer Service Charge Line 1 ÷ Line 3 $3.80 The Monthly Service Charge is calculated by adding the Monthly Meter Charge to the Monthly Customer Service Charge. However, since the Meter Charge is calculated based on the number of EMUs, the Meter Charge for each meter must be multiplied by the number of EMUs for each meter size (column B in Table 6-7). This calculation is shown in Table 6-7 below.
Column A shows the Monthly Meter Service Charge as derived in Table 6-5 for one equivalent meter.
Column C shows the total Meter Component for each meter size, which is obtained by multiplying the Base Monthly Meter Charge in Column A by the AWWA Capacity Ratios shown in Column B. Column D, shows the Monthly Customer Service Charges from Table 6-6. The Proposed Charges in Column E are calculated by adding Column C to Column D. Note that the charges in Column E, the total proposed Monthly Meter Service Charge, are rounded so some may be one cent higher than one might expect.
Table 6-7: Derivation of the Monthly Meter Service Charge Meter Size Base Charge
AWWA Capacity
Ratio
Meter
Component
Customer
Service
Proposed
Charge
A B C D E
Line Source Table 3-3 Table 6-4 Table 6-5 Table 6-6 C+D 1 5/8" $20.75 1.00 $20.75 $3.80 $24.56
2 1" $20.75 2.50 $51.87 $3.80 $55.68
3 1.5" $20.75 5.00 $103.74 $3.80 $107.55
4 2" $20.75 8.00 $165.98 $3.80 $169.79
5 3" $20.75 15.00 $311.22 $3.80 $315.03
6 4" $20.75 25.00 $518.70 $3.80 $522.50
7 6" $20.75 50.00 $1,037.39 $3.80 $1,041.20
8 8" $20.75 80.00 $1,659.83 $3.80 $1,663.64
9 10" $20.75 145.00 $3,008.44 $3.80 $3,012.24
10 12" $20.75 215.00 $4,460.79 $3.80 $4,464.59
6.4 COMMODITY RATES
SFR Tier Definitions
With direction from the City, RFC redefined the City’s current tier structure.
The proposed breakpoint for the first tier is set at 800 cubic feet (CF) or 8 hundred cubic feet (HCF), which is the minimum average monthly usage in the winter of FY 2015. This amount was chosen as it reflects indoor usage, as it is assumed that outdoor usage is minimized in winter months. The second tier is set at the average summer monthly use – this tier includes outdoor use as it is the summer average use when outdoor water consumption is highest. This tier break point is at 2,000 CF or 20 HCF. The third tier includes any use beyond the second tier.
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Non-SFR Commodity Rates
RFC recommends changing the City’s current tiered system for all customers, and implementing a uniform rate structure for all customers other than Lifeline and SFR customers. However, RFC also recommends separating the other customers by peaking characteristics into the following usage classes:
1. Multi-Family Residential and Mobile
2. Commercial and Industrial
3. Commercial Irrigation and Government
4. School
Unit Cost Definitions
The commodity rates for each class and tier are derived by summing of the unit rates ($ / HCF) for each cost component:
5. Supply
6. Delivery
7. Peaking
8. Conservation
Water Supply costs are the costs associated with obtaining and treating water to make it ready for transmission and distribution. The City has six possible sources of water, shown in Table 3-11 with only three expected to be used in FY 2016 due to drought conditions.
Delivery costs are the operating and capital costs associated with delivering water to all customers at a constant average rate of use – also known as serving customers under average daily demand conditions.
Therefore, delivery costs are spread over all units of water irrespective of customer class or tiers.
Peaking costs, or extra-capacity costs, represent costs incurred to meet customer peak demands in excess of a base use (or average daily demand). Total extra capacity costs are comprised of maximum day and maximum hour demands. The peaking costs are distributed to each tier and class using peaking factors derived from customer use data.
Conservation costs are costs, which cover water conservation and efficiency programs and efforts. These programs are targeted to high volume water users. Therefore, conservation costs were allocated to Tier 3 where water consumption is considered discretionary and for which conservation programs are designed to promote water efficiency. Allocation of conservation costs to upper tiers helps provide 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.
Unit Cost Derivation for each Cost Component
RFC estimated FY 2017 consumption by escalating FY 2015 consumption by the factors shown in Table 2-2. Actual sales in FY 2015 were 1645 AF, whereas projected sales in FY 2017 are 1810 AF, a difference 237
36 | City of Shasta Lake
of 10%. In order to project FY 2017 sales, RFC increased FY 2015 consumption by 10% for all accounts in all months across the board. A summary of the projected water use is shown in Appendix C. Table 6-8 shows the estimated consumption in each tier in CF and HCF for FY 2017.
Table 6-8: Projected Usage in Revised Tiers (FY 2017)
Line SFR Use by Tier Cubic Feet (CF) HCF
1 Tier 1 23,204,573 232,046
2 Tier 2 14,313,908 143,139
3 Tier 3 10,361,855 103,619
4 Total 47,880,336 478,803
5 Lifeline Use by Tier Cubic Feet (CF) HCF
6 Tier 1 2,817,766 28,178
7 Tier 2 1,458,180 14,582
8 Tier 3 941,279 9,413
9 Total 5,217,225 52,172
10 Total SFR and Lifeline 53,097,561 530,976
Table 6-9 shows the sum from each tier of SFR and Lifeline usage from Table 6-8. RFC combined these two customer classes for the purposes of analyzing SFR usage. In essence, Lifeline usage is treated as part of SFR usage for all purposes except that it has a discounted first tier rate.
Table 6-9: Projected SFR and Lifeline Combined Usage in Revised Tiers (FY 2017) Line Residential Tier (Lifeline and SFR) FY 2017 Annual Usage (cf) HCF 1 Tier 1 26,022,339 260,223
2 Tier 2 15,772,088 157,721
3 Tier 3 11,303,134 113,031
4 Total 53,097,561 530,976
Total projected usage for all classes in FY 2017 is shown in Table 6-10.
Table 6-10: Projected Usage in CF (FY 2017)
Line Residential Tier (Lifeline and SFR) FY 2017 Annual Usage (cf) HCF
1 Lifeline Customers 5,217,225 52,172
2 SFR & CSF 47,880,336 478,803
3 4 Lifeline and SFR 53,097,561 530,976
5 MFR & Mobile 7,545,483 75,455
6 Commercial and Industrial 12,601,080 126,011
7 Commercial Irrigation and Government 3,372,674 33,727 8 School 2,209,118 22,091
9 Total 78,825,915 788,259
The first step in calculating commodity rates is to allocate supply costs. Supply costs were allocated in proportion to use as shown in Table 6-11, columns B and C. Column A shows usage by customer class, Column B shows the percentage of usage of each customer class, Column C shows the allocated supply 238
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costs that are equal to Column B multiplied by the total Supply Cost from Table 6-2. Column D shows the unit rate per HCF calculated by dividing Column C by Column A.
Table 6-11: Supply Rate Calculation
Line Customer Class FY 2017 Annual
Usage (HCF)
Percent of
Usage
Allocated
Supply Costs
Unit Rate
($ /HCF)
Table 6-10
Table 6-2,
Col A
A B = A ÷ A9 C D = C ÷ A
1 Lifeline Customers 52,172
2 SFR & CSF 478,803
3 4 Lifeline and SFR 530,976 67% $222,701 Differentiated 5 MFR & Mobile 75,455 10% $31,647 $0.42
6 Commercial and Industrial 126,011 16% $52,851 $0.42
7 Commercial Irr. and Govt. 33,727 4% $14,146 $0.42
8 School 22,091 3% $9,265 $0.42
9 Total 788,259 100% $330,610
The Supply allocation for Lifeline and SFR customers was then allocated to tiers by price, with the cheapest source going to low tiers.
Table 6-12 shows the supply cost by source. Column A shows the total AF purchased from each source in FY 2017 from Table 3-11, while Column B shows the percentage of total water supply from each source Column C shows the total amount of SFR and Lifeline water supplied by each source, which was calculated by multiplying Column B by the total SFR and CF consumption. Column D shows the cost per AF from each source of supply from Table 3-12, while Column E shows the purchase cost, obtained by multiplying Column A by Column D. Column F shows the percentage of total purchase cost for each source of supply, obtained by dividing the cost for each source in Column E by the total. Column G shows allocated supply cost, obtained by multiplying the SFR and Lifeline allocation from Table 6-11 by the percentages in Column F. The cost per HCF in Column H is obtained by dividing the costs in Column G by the HCF usage in Column C.
Table 6-12: Supply Rate Derivation by Source
Line Source of Supply
Total
Supply
(AF)
% of Total
Supply
SFR HCF
Supplied by
Source
Cost Per
AF
Purchase
Cost
% of
Purchase
Cost
Allocated
Supply
Cost
Cost per
HCF
Table
3-11 Table 6-10 Table 3-12
Table
6-11
A B = A ÷ A7 C D E = A × D F = E ÷ E7 G H = G ÷ C
1 Central Valley Project 1,896 97.4% 517,331 $120.88 $229,162 97.21% $216,492 $0.42 2 McConnell Foundation 0 0.0% 0 $262.50 $0 0.00% $0 $0.00 3 Anderson Cottonwood ID 0 0.0% 0 $238.61 $0 0.00% $0 $0.00 4 MCM Properties 0 0.0% 0 $224.78 $0 0.00% $0 $0.00
5 Shasta County Water Agency 50 2.6% 13,644 $131.44 $6,572 2.79% $6,209 $0.46 6 Centerville CSD 0 0.0% 0 $236.25 $0 0.00% $0 $0.00
7 Total Potable Supply (AF) 1,946 100.0% 530,976 $235,734 100.00% $222,701 239
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The next step for determining the rate for each tier is to allocate water to each tier. To do this, RFC allocated the most economical water first. Table 6-13 shows the allocation of water from each source to the tiers. Since Central Valley Project water is most economical, RFC allocated it first to the lower tiers until it is exhausted, at which point water from Shasta County Water Agency is used in Tier 3. Column E shows the rates derived from Table 6-12.
Table 6-13: Differentiated Supply Water Allocation
Line Source of supply Total Supply Tier 1 Tier 2 Tier 3 Rate ($ /HCF)
Source Table 6-12 Table 6-8 Table 6-8 Table 6-8 Table 6-1
A B C D E
1 Central Valley Project 517,331 260,223 157,721 99,387 $0.42 2 Shasta County Water Agency 13,644 0 0 13,644 $0.46
3 Total 530,976 260,223 157,721 113,031
We then determine the rate for each tier based on the above allocation and the cost by source derived in column H of Table 6-12. Columns 1 and 2 show the relative proportion of each source of water used in each tier, calculated from Table 6-13. The rate for each tier is percentage of from each source multiplied by the cost of each source. Since Tiers 1 and 2 receive all their water from the CVP, their rate is equal to the CVP rate derived in column H. The Tier 3 rate is slightly higher since Tier 3 receives a small amount of water from the Shasta County Water Agency. The resulting rates for each tier as shown in line 4 of Table 6-14 (they are very similar since majority of water comes from the CVP, and as such we have shown fractional cents).
Table 6-14: Differentiated Supply Tier Rate Calculation Line Source of supply Total Supply Tier 1 Tier 2 Tier 3 Source Table 6-12 Table 6-13 Table 6-13 Table 6-13
A B C D
1 Central Valley Project 517,331 100% 100% 88%
2 Shasta County Water Agency 13,644 0% 0% 12%
3 Total 530,976 260,223 157,721 113,031
4 Rate ($ / HCF) $0.418 $0.418 $0.423
Delivery Unit Cost
RFC derived the Delivery unit cost in much the same way as the Supply cost for all non-residential classes, delivery costs are spread in proportion to water use in each class. Table 6-15 shows the delivery Unit Cost Calculation. Column A shows usage by customer class, Column B shows the percentage of usage of each customer class, Column C shows the allocated delivery costs which is equal to Column B multiplied by the total delivery Cost from Table 6-2. Column D shows the unit rate per HCF which is calculated by dividing Column C by Column A.
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Table 6-15: Delivery Unit Cost Calculation
Line Customer Class FY 2017 Annual
Usage (HCF)
Percent of
Usage
Allocated
Delivery
Costs
Unit Rate
($ /HCF)
Table 6-8 Table 6-2
A B = A ÷ A9 C D = C ÷ A
1 Lifeline and SFR 530,976 67% $578,740 $1.09
2 MFR & Mobile 75,455 10% $82,242 $1.09
3 Commercial and Industrial 126,011 16% $137,346 $1.09
4 Commercial Irr. and Govt. 33,727 4% $36,761 $1.09
5 School 22,091 3% $24,078 $1.09
6 Total 788,259 100% $859,167
Peaking Unit Cost
The next step in calculating Commodity rates is the allocation of Peaking costs. The costs in Table 6-2 that are associated with Peaking are the Max Day and Max Hour costs. RFC determined the total Peaking cost component by adding these two costs together. Table 6-16, column C, shows this cost by adding the Max Day cost in Column A to the Max Hour cost in Column B.
Table 6-16: Total Peaking Component Calculation
Max Day Max Hour Peaking
Table 6-2 Table 6-2
A B C
$327,438 $158,401 $485,839
Table 6-17 shows the derivation of the Peaking Rate in column H by each customer class. Column A shows the projected FY 2017 usage from Table 6-10. Columns B and C show average monthly usage and peak monthly usage from RFC’s analysis of the City’s usage patterns, found in the appendix. Column D shows the peaking factor for each customer class, which is obtained by dividing the peak monthly usage in Column C by the average monthly usage in Column B. RFC used the coincidental peak month, which is defined as the month with the most usage across all classes. Column E shows the weighted peaking factor, which is a unitless column, but provides an estimate of how much each class contributes to peaking demands on the system by calculating the percentage of peak value in column F - found by determining each class’s percentage of the weighted peaking factor. The peaking rates in Column G were allocated by multiplying the total peaking cost in Table 6-16 by the percentages in Column F. SFR and Lifeline peaking rates are further derived in Table 6-18.
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Table 6-17: Peaking Rate Derivation
Line Customer Classes FY 2017
Usage
Average
Month Use
Peak
Month Use
Peaking
Factor
Weighted
Peak Usage % of Peak Allocated Peak Costs
Peaking
Unit Rate
($ / HCF)
Source Table 6-10 Table 6-16
A B = A ÷ 12 C D E = C × D F = E ÷ E6 G H = G ÷ C
1 Lifeline and SFR 530,976 44,248 80,197 1.81 962,366 70% $339,119 Tiered 2 MFR & Mobile 75,455 6,288 8,720 1.39 104,642 8% $36,874 $0.49 3 Commercial and Industrial 126,011 10,501 15,768 1.50 189,216 14% $66,676 $0.53 4 Commercial Irr. and Govt. 33,727 2,811 5,659 2.01 67,911 5% $23,931 $0.71 5 School 22,091 1,841 4,550 2.47 54,598 4% $19,239 $0.87 6 Total) 788,259 1,378,734 100% $485,839
Table 6-18 shows the derivation of the unit peaking costs for single family and lifeline tiers. Column A shows the annual usage that occurs in each tier, while Column B shows the peaking factor for each tier.
The peaking factors for each tier were calculated in a separate analysis and are available in the Appendix.
The weighted peaking factor in Column C is determined by multiplying the usage in Column A by the peaking factor in Column B. Column C shows the weighted peaking factor, which is a unitless number. The percentage of peak value in Column D is found by determining each tier’s percentage of the weighted peaking factor. The costs that were allocated to tiers in Table 6-17 (in G1) are then allocated to each tier using the percentages in Column D. The unit rate in Column F is derived by dividing the allocated peak costs in Column E by the usage in Column A.
Table 6-18: Peaking Rate Derivation
Line Residential Tier
(Lifeline & SFR)
FY 2017
Usage
Peaking
Factor
Weighted
Peak Usage % of Peak Allocated Peak Costs
Unit Rate
($ / HCF)
Source Table 6-10 Table 6-16
(A) (B) C = A × B D = C ÷ C5 (E) F = E ÷ C
1 Total SFR and Lifeline 530,976 1.81 962,366 100% $339,119 2 Tier 1 260,223 1.15 298,297 31% $105,114 $0.40
3 Tier 2 157,721 1.93 304,642 32% $107,350 $0.68
4 Tier 3 113,031 3.18 359,428 37% $126,655 $1.12
5 Total 530,976 962,366 100% $339,119
Conservation Unit Cost
Table 6-19 shows the derivation of the conservation unit costs. The conservation costs for the single family class is calculated by taking the conservation costs derived in the cost of service analysis, shown in Column I of Table 6-2, and allocating these costs to each tier and class in proportion to use in column B. This results in that amount shown in C5 for SFR and Lifeline. The amount in C5 is then allocated to the tiers using the allocation factors, shown in Column D, to allocate the total conservation costs to Tier 3. Tier 3 containing the highest volume users, has a 100% allocation factor, signifying that all conservation costs go to Tier 3, to recognize the fact that conservation and efficiency programs are targeted at these users who create the need, and therefore generate the costs, for these programs. The conservation rate is derived by dividing the conservation costs in Column E by the use in Column A and is shown in Column F.
The conservation rate for the remaining user classes is calculated by dividing their allocated conservation costs (column C) by the use (column A ) to yield the conservation rate in Column F. We note that the total conservation costs shown in Column C matches with that derived in Column I of Table 6-2. 242
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Table 6-19: Derivation of Conservation Unit Costs
Line Customer Class FY 2017
Annual Usage (HCF)
Percent of
Usage
Allocated Cons.
Costs
%
Responsibility
Reallocated
Cons. Cost
Unit Rate
($ /HCF)
Table 6-9 & Table 6-10 Table 6-2
(A) B = A ÷ A11 (C) (D) E = C × D F = D ÷ A
1 SFR and Lifeline
2 Tier 1 260,223 33% $6,612 0% $0 $0.00
3 Tier 2 157,721 20% $4,008 0% $0 $0.00
4 Tier 3 113,031 14% $2,872 100% $13,492 $0.12
5 530,976 $13,492 100% $13,492
6 7 MFR & Mobile 75,455 10% $1,917 $1,917 $0.03
8 Commercial and Industrial 126,011 16% $3,202 $3,202 $0.03 9 Commercial Irr. & Govt. 33,727 4% $857 $857 $0.03
10 School 22,091 3% $561 $561 $0.03
11 Total 788,259 100% $20,030 $20,030
Lifeline Discount
The City has historically offered a discounted first tier rate for low income customers called a Lifeline rate.
This discount is available due to a transfer from the General Fund, which is shown in Column H of Table 6-2. The City has decided to allocate all of this transfer to the first tier of Lifeline usage only. As a result, the discount in Column F is calculated by dividing the general fund transfer in its entirety by the Tier 1 Lifeline usage.
Table 6-20: Derivation of Lifeline Discount
Line Lifeline
Reduction
FY 2017
Annual Usage
(HCF)
Allocate General
Fund Transfer
Discounted
Usage
Percentage of
Lifeline
Total
Allocation
Discount
($ / HCF)
Source Table 6-8 Table 6-2
A B C D E F = E ÷ C
1 Lifeline Tier 1 28,178 Yes 28,178 100% ($11,000) ($0.39) 2 Lifeline Tier 2 14,582 No 0 0% $0 $0.00
3 Lifeline Tier 3 9,413 No 0 0% $0 $0.00
4 Total 52,172 28,178 ($11,000)
Pass-Through Component
The final rate component is the pass-through component. Its calculation is discussed in Section 3.4 and therefore will not be discussed here, but Table 6-21 shows a quick recap of the calculation.
Table 6-21: Derivation of Pass-Through Component
Line Pass-Through
Total
Total Water
Usage (HCF)
Passed-through
$ / HCF
Pass-Through
Total
1 Total Pass-through $4,631 788,259 $0.01 $4,631
Final Rate Derivation
RFC calculated the unit rates for supply, delivery, peaking, conservation, Lifeline discounts, and the passthrough component for single family tiers and for each class in Table 6-11 through Table 6-21. Table 6-22 243
42 | City of Shasta Lake
shows the final Commodity rate derivation by summing each unit cost to derive the total rate for each tier and class, as shown in Column G.
Table 6-22: Derivation of Rates by Tier and Class
Line Customer Classes Supply ($ /
hcf)
Delivery
Component
Peaking
Component
Lifeline
Component
Pass-through
Component
Conservation
Component
Total Rate
($/ HCF)
Table 6-12 &
Table 6-14 Table 6-15 Table 6-16Table 6-18 Table 6-20 Table 6-21 Table 6-19 A B C D E F G = A+B+C+D+E+F
1 Lifeline Tier 1 $0.42 $1.09 $0.40 ($0.39) $0.01 $0.00 $1.53 2 Lifeline Tier 2 $0.42 $1.09 $0.68 $0.00 $0.01 $0.00 $2.20 3 Lifeline Tier 3 $0.42 $1.09 $1.12 $0.00 $0.01 $0.12 $2.76 4 Residential Tier 1 $0.42 $1.09 $0.40 $0.01 $0.00 $1.92 5 Residential Tier 2 $0.42 $1.09 $0.68 $0.01 $0.00 $2.20 6 Residential Tier 3 $0.42 $1.09 $1.12 $0.01 $0.12 $2.76 7 MFR & Mobile $0.42 $1.09 $0.49 $0.01 $0.03 $2.03
8 Comm. & Industrial $0.42 $1.09 $0.53 $0.01 $0.03 $2.07 9 Comm. Irr. & Govt. $0.42 $1.09 $0.71 $0.01 $0.03 $2.26 10 School $0.42 $1.09 $0.87 $0.01 $0.03 $2.42
The next three tables show the proposed commodity rates, fixed charges, and fire charges through FY 2021, escalated according to the proposed Financial Plan in Table 1-1. The values shown in the FY 2017 column of Table 6-23 are from column G of Table 6-22.
Table 6-23: Commodity Charges through FY 2021
Revenue Adjustment 30% 15% 10% 0% 0%
Month Effective October March March March March
Customer Classes FY 2017 FY 2018 FY 2019 FY 2020 FY 2021 Lifeline Tier 1 $1.53 $1.76 $1.94 $1.94 $1.94
Lifeline Tier 2 $2.20 $2.53 $2.79 $2.79 $2.79
Lifeline Tier 3 $2.76 $3.18 $3.50 $3.50 $3.50
Residential Tier 1 $1.92 $2.21 $2.44 $2.44 $2.44
Residential Tier 2 $2.20 $2.53 $2.79 $2.79 $2.79
Residential Tier 3 $2.76 $3.18 $3.50 $3.50 $3.50
MFR & Mobile $2.03 $2.34 $2.58 $2.58 $2.58
Commercial and Industrial $2.07 $2.39 $2.63 $2.63 $2.63 Commercial Irr. and Govt. $2.26 $2.60 $2.86 $2.86 $2.86 School $2.42 $2.79 $3.07 $3.07 $3.07
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Table 6-24: Fixed Charges through FY 2021
Meter Size FY 2017 FY 2018 FY 2019 FY 2020 FY 2021
Table 6-7
5/8" $24.56 $28.25 $31.08 $31.08 $31.08
1" $55.68 $64.04 $70.45 $70.45 $70.45
1.5" $107.55 $123.69 $136.06 $136.06 $136.06
2" $169.79 $195.26 $214.79 $214.79 $214.79
3" $315.03 $362.29 $398.52 $398.52 $398.52
4" $522.50 $600.88 $660.97 $660.97 $660.97
6" $1,041.20 $1,197.38 $1,317.12 $1,317.12 $1,317.12
8" $1,663.64 $1,913.19 $2,104.51 $2,104.51 $2,104.51
10" $3,012.24 $3,464.08 $3,810.49 $3,810.49 $3,810.49
12" $4,464.59 $5,134.28 $5,647.71 $5,647.71 $5,647.71
Table 6-25: Fire Meter Charges through FY 2021
Meter Size FY 2017 FY 2018 FY 2019 FY 2020 FY 2021
2" $5.53 $6.36 $6.99 $6.99 $6.99
3" $16.06 $18.47 $20.32 $20.32 $20.32
4" $34.22 $39.36 $43.29 $43.29 $43.29
6" $99.42 $114.33 $125.76 $125.76 $125.76
8" $211.86 $243.64 $268.00 $268.00 $268.00
10" $381.00 $438.14 $481.96 $481.96 $481.96
12" $615.41 $707.72 $778.50 $778.50 $778.50
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7 BILL IMPACTS
7.1 CUSTOMER BILL IMPACTS
Single Family Bill Impacts
Figure 7-1 shows the single family bill impacts for various use points. The graph shows two sets of bars at different usage points. The blue bars represent the bill assuming the existing rate structure is unchanged yet rates are increased by the current adopted adjustments. The purple bars show the proposed rates that result with the proposed Financial Plan and proposed rate structure. This color scheme remains unchanged for the graphs in this section.
Figure 7-1: Single Family Customer Bill Impacts
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Lifeline Bill Impacts
Figure 7-2 shows Lifeline bill impacts. This class has a discounted tier 1commodity rate relative to SFR customers, but pays the same rate for all usage above tier 1.
Figure 7-2: Multi-family Customer Bill Impacts (5/8” Meter) Class by Class Bill Impacts
Figures 7-3 through 7-8 show the percentage of accounts that will realize the bill impact shown at the bottom of the figure. For example, Figure 7-3 shows that 40% of SFR customers will see a 5$ to $10 increase in their bill. The left axis shows number of bills for each dollar impact bin along with the percentage of customers on top of the blue bar.
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Figure 7-3: SFR Class Impacts
Figure 7-4: Lifeline Class Impacts
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Figure 7-5: MFR Class Impacts
Figure 7-6: Commercial and Industrial Class Impacts
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48 | City of Shasta Lake
Figure 7-7: Commercial Irrigation and Government Class Impacts Figure 7-8: School Class Impacts
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8 DROUGHT RATES
8.1 DROUGHT RATE BACKGROUND
As of late June, 2016, the City was experiencing a level 3 drought, defined as a 30% reduction in water use17. City Staff informed RFC that during drought conditions, the City often has to purchase water from additional sources compared to the plan outlined in Table 3-11. RFC’s worked with City Staff to develop Drought Rates and to determine how a drought would likely affect water supply availability and purchase costs during different stages of drought. The drought rates below are based on the increased costs to the City in the event of necessary water purchases from additional sources of supply – which would likely be the McConnell Foundation
The City’s “new normal” level of water use is expected to be around 1,810 AF for FY 2017 which is equal to the current Stage 3 drought.
Water Use in each Drought Stage
There are several different stages of drought. RFC estimated the water use cutback needed in Residential (SFR and Lifeline) Tiers 2 and 3 in order to yield the reduction desired in a stage 4 and 5 drought. These percentages are shown in Column B and C. For example, a 21% reduction in Residential Tiers 2 and 3 and no reduction in Tier 1, along with a 12% in non-SFR classes would yield the desired 12% reduction in use during a stage 4 drought as is shown in Column C. Column C also shows the cutbacks relative to drought stage 3. Column D shows the estimated demand in these stages, which is the result of multiplying the percentages in Column C by the “New Normal”18 value of 1810 AF. The values in Column E show the supply amount needed in order to account for 7.5% water loss.
17 As of July 5, the City is in a Stage 1 drought, which calls for a 10% reduction in use. 18 Provided by City Staff.
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Table 8-1: Drought Use Cutback Goals by Drought Level
Drought
Stage
Drought
Stage
Reduction Needed
in SFR Tiers 2, 3
% Reduction Relative to Stage
3 for Non-SFR (1815 AF)
Total Customer
Demand (Sales -
AF)
Total Supply Needed
(Inc. Water Loss)
[AF]
(A) (B) (C) (D) (E)
1 10% 0% No Reduction 2,324 2,499
2 20% 0% No Reduction 2,066 2,221
3 30% 0% No Reduction 1,810 1,946
4 40% 21.% 12%% 1,602 1,723
5 50% 30.% 18%% 1,488 1,600
The drought charges are designed to recover the cost of McConnell Foundation water purchases. The price of McConnell Foundation water is projected to be $400 per AF, which is notably higher than the rate of other supply sources. The drought rates for stages 1 through 3 are designed to recover the additional cost of purchasing McConnell water should CVP reduce the amount of water available.
RFC worked with City Staff to estimate supply sources at different drought levels. These are shown in Table 8-2. Note that the column lettering in this table continues from Table 8-1 into Table 8-2.
Table 8-2: Sources of Supply by Drought Level
Drought
Stage
Total Supply Needed
(Inc. Water Loss) [AF]
McConnell Purchases
(AF)
Shasta County Water
Agency Supply (AF) ACID Supply (AF) CVP Supply (AF)
(E) (F) (G) (H) I = E - F - G- H
1 2,499 138 50 - 2,310
2 2,221 277 40 - 1,905
3 1,946 415 30 - 1,501
4 1,723 553 12 140 1,018
5 1,600 430 12 140 1,018
Table 8-3 shows the calculation of the drought revenue requirement at different stages of drought. The revenue requirement from the first three stages is simply the additional revenue required to meet the cost of McConnell Foundation water purchases. The revenue requirement for the next two drought stages is in Table 8-7 and 8-8. The rates for stages 4 and 5 also recover the loss of revenue due to reduced sales as well. Column J shows McConnell Foundation water purchase costs per AF, Column K shows CVP costs per AF. During stage 1 through 3 droughts, we assumed that the Bureau of Reclamation would limit CVP water and the City would therefore purchase McConnell Foundation water to meet demand. Column L shows the difference between the costs of these two water sources (Column J and K). Column M shows the drought revenue requirement for recovering McConnell water purchase costs, obtained by multiplying Column L of Table 8-3 by the value in Column F of Table 8-2. Finally, the revenue requirement as a percentage of proposed variable revenue is calculated by dividing the values found in Column M by the total projected variable revenue of the proposed rates, found in Appendix D. 252
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Table 8-3: Calculation of Revenue Requirement
Drought
Stage
McConnell Cost
($/AF)
CVP Cost
($/AF) Difference Drought Rate Revenue Requirement
Revenue Requirement as %
of Variable Revenue
(J) (K) L = J-K M = F x L (N)
1 $400.00 $120.88 $279.12 $38,589 2.3%
2 $400.00 $120.88 $279.12 $77,177 4.6%
3 $400.00 $120.88 $279.12 $115,766 6.8%
4 $400.00 $120.88 $279.12 $154,354
5 $400.00 $120.88 $279.12 $120,022
8.2 DROUGHT CALCULATION
The rates for the first three stages of drought are calculated by multiplying the non-drought proposed rates (Column A) by the values found in Column N of Table 8-3. These three next tables all share the same basic structure. Table 8-4 Column A shows the proposed rates derived in Section 6. Column B shows projected usage in FY 2017. Column C shows projected commodity revenue in FY 2017. Column D shows the rate for the relative stage of drought, which is found by increasing the non-drought rates (column A) by in the percentages shown in Column N of Table 8-3 Column E shows the revenue recovered by those rates. Table 8-5 and Table 8-6 follow the same format.
Table 8-4: Calculation of Stage 1 Drought Rates
Class
Non-Drought
Proposed Rate
($/ hcf)
No Reduction
Use (cf)
Non Drought
Revenue
Stage 1 Rates
($ / hcf)
Stage 1
Recovery
(A) (B) (C) (D) (E)
Tier 1 (Lifeline) $1.53 2,817,766 $43,112 $1.56 $44,095 Tier 1 (SFR) $1.92 23,204,573 $445,528 $1.96 $455,693
Tier 2 $2.20 15,772,088 $346,986 $2.25 $354,903
Tier 3 $2.76 11,303,134 $311,966 $2.82 $319,084
MFR & Mobile $2.03 7,545,483 $153,173 $2.08 $156,668
Commercial and Industrial $2.07 12,601,080 $260,842 $2.12 $266,794 Commercial Irr. & Govt. $2.26 3,372,674 $76,222 $2.31 $77,962 School $2.42 2,209,118 $53,461 $2.48 $54,680
Total $1,691,291 $1,729,879
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Table 8-5: Calculation of Stage 2 Drought Rates
Class
Non-Drought
Proposed Rate
($/ hcf)
No Reduction
Use (cf)
Non Drought
Revenue
Stage 2 Rates ($
/ hcf)
Stage 2
Recovery
(A) (B) (C) (D) (E)
Tier 1 (Lifeline) $1.53 2,817,766 $43,112 $1.60 $45,079 Tier 1 (SFR) $1.92 23,204,573 $445,528 $2.01 $465,858
Tier 2 $2.20 15,772,088 $346,986 $2.30 $362,820
Tier 3 $2.76 11,303,134 $311,966 $2.89 $326,202
MFR & Mobile $2.03 7,545,483 $153,173 $2.12 $160,163
Commercial and Industrial $2.07 12,601,080 $260,842 $2.16 $272,745 Commercial Irr. & Govt. $2.26 3,372,674 $76,222 $2.36 $79,701 School $2.42 2,209,118 $53,461 $2.53 $55,900
Total $1,691,291 $1,768,468
Table 8-6: Calculation of Stage 3 Drought Rates
Class
Non-Drought
Proposed Rate
($/ hcf)
Non Drought
Use (cf)
Non Drought
Revenue
Stage 3 Rates ($
/ hcf)
Stage 3
Recovery
(A) (B) (C) (D) (E)
Tier 1 (Lifeline) $1.53 2,817,766 $43,112 $1.63 $46,063 Tier 1 (SFR) $1.92 23,204,573 $445,528 $2.05 $476,023
Tier 2 $2.20 15,772,088 $346,986 $2.35 $370,736
Tier 3 $2.76 11,303,134 $311,966 $2.95 $333,320
MFR & Mobile $2.03 7,545,483 $153,173 $2.17 $163,658
Commercial and Industrial $2.07 12,601,080 $260,842 $2.21 $278,697 Commercial Irr. & Govt. $2.26 3,372,674 $76,222 $2.41 $81,440 School $2.42 2,209,118 $53,461 $2.59 $57,120
Total $1,691,291 $1,807,056
The drought rates for drought stages 4 and 5 include the recovery of lost revenue due to reduced sales.
Therefore we must estimate the cutback in use from each user class. RFC modelled the cutback in use by using City customer use data for FY 2015 and establishing a minimum use level to provide for basic health and sanitation needs. This minimum use level represents essential indoor water use. The remaining use is considered discretionary and is the target of the cutback goals in Table 8-1 Column B.
Table 8-7 shows the Stage 4 drought rate calculation. Tier 1 usages are left unchanged. RFC assumed that Tier 2 and tier 3 usage was reduced by the percentage shown in Stage 4 in Table 8-1 - column B. We assumed the remaining customer classes reduced their usage by the percentage shown in Table 8-1 Column C. Column B in Table 8-7 shows the revenues with the assumed usage reductions and the 254
Water Rate Study Report | 53
proposed FY 2017 non-drought rates. The total in cell B10 shows the result of summing these revenues.
The Lost Revenue Line shows the reduction in revenue expected from the cutbacks shown in Line 10 (compared to the totals in Table 8-4, Table 8-5, and Table 8-6 Column C). We also need to recover the increased cost of McConnell Foundation water, found in Table 8-3 Column M. Adding these costs to the lost revenue, yields the total additional revenue to be recovered – shown in B12. The necessary percentage drought rate increase, in B14, is found by dividing the total in B12 by the total projected revenue in B10. The non-drought rates are then escalated by this percentage, resulting in the drought rates in Column C. Column D shows the expected amount of revenue to be recovered during a stage 4 drought. The drought rates for Stage 5 are derived in the exact same manner. 255
54 | City of Shasta Lake
Table 8-7: Stage 4 Rate Calculation
Class Drought Stage 4
Reduction in CF
Revenues With
Reduction
Drought Rates
($ / hcf)
Drought Rate
Recovery
Line (A) (B) (C) (D)
1 Tier 1 (Lifeline) 2,817,766 $43,112 $1.90 $53,644
2 Tier 1 (SFR) 23,204,573 $445,528 $2.39 $554,366
3 Tier 2 14,175,210 $311,855 $2.74 $388,037
4 Tier 3 7,295,440 $201,354 $3.43 $250,543
5 MFR & Mobile 6,681,502 $135,634 $2.53 $168,769
6 Commercial and Industrial 11,158,218 $230,975 $2.58 $287,400 7 Commercial Irrigation and Govt. 2,986,492 $67,495 $2.81 $83,983 8 School 1,956,167 $47,339 $3.01 $58,904
9 10 Total 70,275,369 $1,483,292 $1,845,645
11 Lost Revenue $207,999
12 Plus Increased McConnell Costs $362,353
13 14 Percentage Increase 24%
Table 8-8 shows the calculations for Stage 5 drought. These follow the same methodology as Table 8-7.
Table 8-8: Stage 5 Rate Calculation
Class Drought Stage 5
Reduction in CF
Revenues With
Reduction
Drought Rates
($ / hcf)
Drought Rate
Recovery
Line (A) (B) (C) (D)
1 Tier 1 (Lifeline) 2,817,766 $43,112 $2.00 $56,380
2 Tier 1 (SFR) 23,204,573 $445,528 $2.51 $582,645
3 Tier 2 13,304,928 $292,708 $2.88 $382,793
4 Tier 3 5,674,802 $156,625 $3.61 $204,828
5 MFR & Mobile 6,204,529 $125,952 $2.65 $164,715
6 Commercial and Industrial 10,361,665 $214,486 $2.71 $280,497 7 Commercial Irrigation and Govt. 2,773,295 $62,676 $2.96 $81,966 8 School 1,816,522 $43,960 $3.16 $57,489
9 10 Total 58,666,756 $1,385,047 $1,811,313
11 Lost Revenue $306,243
12 Plus Increased McConnell Costs $426,266
13 14 Percentage Increase 31%
Table 8-9 shows a summary of the drought rates at different levels of drought, and the surcharge for each HCF of water at that level, which is the difference between the drought rate and the base COS rate. 256
Water Rate Study Report | 55
Table 8-9: Drought Rates and Surcharge Totals
Line Drought Rate Summary No Drought Stage 1 Stage 2 Stage 3 Stage 4 Stage 5 1 Tier 1 (Lifeline) $1.53 $1.56 $1.60 $1.63 $1.90 $2.00 2 Tier 1 (SFR) $1.92 $1.96 $2.01 $2.05 $2.39 $2.51
3 Tier 2 $2.20 $2.25 $2.30 $2.35 $2.74 $2.88
4 Tier 3 $2.76 $2.82 $2.89 $2.95 $3.43 $3.61
5 MFR & Mobile $2.03 $2.08 $2.12 $2.17 $2.53 $2.65
6 Comm. & Industrial $2.07 $2.12 $2.16 $2.21 $2.58 $2.71 7 Commercial Irr. and Govt. $2.26 $2.31 $2.36 $2.41 $2.81 $2.96 8 School $2.42 $2.48 $2.53 $2.59 $3.01 $3.16
9 10 Surcharge
11 Tier 1 (Lifeline) $0.03 $0.07 $0.10 $0.37 $0.47
12 Tier 1 (SFR) $0.04 $0.09 $0.13 $0.47 $0.59
13 Tier 2 $0.05 $0.10 $0.15 $0.54 $0.68
14 Tier 3 $0.06 $0.13 $0.19 $0.67 $0.85
15 MFR & Mobile $0.05 $0.09 $0.14 $0.50 $0.62
16 Comm. and Industrial $0.05 $0.09 $0.14 $0.51 $0.64
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56 | City of Shasta Lake
9 APPENDIX A: WATER CONSUMPTION DETAIL
Usage Data by Tier (CF) FY 2016 FY 2017 FY 2018 FY 2019 FY 2020 Lifeline
Tier 1 0 - 1,000 1000 2,633,993 3,208,022 3,295,514 3,383,005 3,470,497 Tier 2 1001 - 5000 5000 1,349,979 1,867,235 1,918,160 1,969,084 2,020,009 Tier 3 > 5,000 59,377 141,967 145,839 149,711 153,583
Subtotal Lifeline 4,043,349 5,217,225 5,359,512 5,501,800 5,644,088
SFR & CSF
Tier 1 0 - 1,000 1000 22,014,762 26,804,188 27,535,212 28,266,235 28,997,258 Tier 2 1001 - 5000 5000 13,931,599 19,125,509 19,647,114 20,168,719 20,690,324 Tier 3 1,160,900 1,950,639 2,003,838 2,057,037 2,110,237 Subtotal SFR & CSF 37,107,261 47,880,336 49,186,164 50,491,991 51,797,818 MFR & Mobile
Tier 1 0 - 1,000 1000 1,175,154 1,516,328 1,557,682 1,599,037 1,640,391 Tier 2 1001 - 5000 5000 4,608,303 5,946,197 6,108,366 6,270,535 6,432,704 Tier 3 64,292 82,958 85,220 87,483 89,745
Subtotal MFR & Mobile 5,847,749 7,545,483 7,751,269 7,957,055 8,162,841 (5/8" Meters get charged an excessive consumption rate) Commercial & Industrial
Tier 1 0 - 1,000 1000 802,771 1,035,834 1,064,084 1,092,334 1,120,584 Tier 2 1001 - 5000 5000 8,845,568 11,413,636 11,724,917 12,036,198 12,347,479 Tier 3 117,498 151,610 155,745 159,879 164,014
Subtotal Commercial & Industrial 9,765,837 12,601,080 12,944,746 13,288,411 13,632,077 Commercial Irrigation
Tier 1 0 - 1,000 1000 159,008 205,172 210,768 216,363 221,959 Tier 2 1001 - 5000 5000 1,722,289 2,222,308 2,282,916 2,343,525 2,404,133 Tier 3 27,814 35,889 36,867 37,846 38,825
Subtotal Commercial Irrigation 1,909,111 2,463,369 2,530,551 2,597,734 2,664,917 School
Tier 1 0 - 1,000 1000 73,757 95,171 97,766 100,362 102,958 Tier 2 1001 - 5000 5000 1,634,333 2,108,817 2,166,330 2,223,843 2,281,356 Tier 3 3,976 5,130 5,270 5,410 5,550
Tier 4 1,712,066 2,209,118 2,269,367 2,329,615 2,389,864 Government
Tier 1 0 - 1,000 1000 43,209 55,754 57,274 58,795 60,315 Tier 2 1001 - 5000 5000 661,502 853,552 876,830 900,109 923,388 Tier 3 0 0 0 0 0
Subtotal Government 704,711 909,305 934,104 958,904 983,703 258
Water Rate Study Report | 57
Private Fire Line
Tier 1 0 - 1,000 0 0 0 0 0
Tier 2 1001 - 5000 0 0 0 0 0
Tier 3 0 0 0 0 0 0
Subtotal Private Fire Line 0 0 0 0 0
TOTAL USAGE (CF) 61,090,084 78,825,915 80,975,713 83,125,510 85,275,308 TOTAL USAGE (HCF) 610,901 788,259 809,757 831,255 852,753 TOTAL USAGE (AF) 1,402 1,810 1,859 1,908 1,958
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58 | City of Shasta Lake
10 APPENDIX B: PROJECTED FY 2017 USAGE BY TIER AND CLASS SFR Jan Feb Mar Apr May Jun July Aug Sep Oct Nov Dec
Tier 1 1,664,156 1,748,839 1,752,701 1,843,189 1,985,235 2,091,707 2,196,620 2,192,762 2,185,604 2,020,081 1,807,412 1,716,266 Tier 2 454,287 534,000 594,489 814,535 1,177,844 1,651,867 2,273,271 2,189,857 2,059,637 1,368,656 676,952 518,512 Tier 3 139,657 170,516 166,350 252,301 477,474 1,237,880 2,738,193 2,179,647 1,868,938 742,999 197,646 190,255 Total 2,258,101 2,453,355 2,513,540 2,910,026 3,640,553 4,981,454 7,208,084 6,562,266 6,114,179 4,131,736 2,682,010 2,425,033 Lifeline Jan Feb Mar Apr May Jun July Aug Sep Oct Nov Dec Tier 1 196,931 204,754 204,073 213,513 229,476 248,077 289,184 289,666 283,363 248,497 213,296 196,935 Tier 2 48,838 55,412 55,592 66,085 95,450 150,345 265,411 254,518 218,542 129,672 66,906 51,408 Tier 3 13,527 39,806 22,225 11,445 21,356 91,510 257,041 201,497 176,650 51,151 21,876 33,195 Total 259,296 299,972 281,891 291,043 346,282 489,932 811,636 745,681 678,555 429,320 302,078 281,538 Class Groupings Jan Feb Mar Apr May Jun July Aug Sep Oct Nov Dec Commercial and Industrial 752,871 795,726 746,771 998,411 986,930 1,291,180 1,576,797 1,612,986 1,311,967 993,508 564,182 969,751 Commercial Irrigation and
Government 176,994 78,774 149,890 111,604 394,855 465,413 565,928 431,674 514,028 293,891 95,976 93,645 School 18,069 33,774 38,220 53,567 161,313 206,655 454,983 456,862 385,583 302,526 72,592 24,974 260
Water Rate Study Report | 59
11 APPENDIX C: FY 2017 PROJECTED USAGE ANALYSIS TIER AND CLASS
SFR Total
Absolute
Max
Coincidental
Max Average Peak Calc
Tier 1 23,204,573 2,196,620 2,196,620 1,933,714 1.14
Tier 2 14,313,908 2,273,271 2,273,271 1,192,826 1.91
Tier 3 10,361,855 2,738,193 2,738,193 863,488 3.17
Total 47,880,336 7,208,084 7,208,084 3,990,028 1.81
Lifeline Total
Absolute
Max
Coincidental
Max Average Peak Calc
Tier 1 2,817,766 289,666 289,184 234,814 1.23
Tier 2 1,458,180 265,411 265,411 121,515 2.18
Tier 3 941,279 257,041 257,041 78,440 3.28
Total 5,217,225 811,636 811,636 434,769 1.87
Class Groupings Total
Absolute
Max
Coincidental
Max Average Peak Calc
Commercial and Industrial 12,601,080 1,612,986 1,576,797 1,050,090 1.54 Commercial Irrigation and
Government 3,372,674 565,928 565,928 281,056 2.01
School 2,209,118 456,862 454,983 184,093 2.48
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60 | City of Shasta Lake
12 APPENDIX D: REVENUE PROOF OF VARIABLE RATES
Customer Class
Proposed
Rate
($/ hcf) Usage (cf) Usage (hcf)
Revenue
From
Proposed
Rates
Lifeline Tier 1 $1.53 2,817,766 28,178 $43,112
Lifeline Tier 2 $2.20 1,458,180 14,582 $32,080
Lifeline Tier 3 $2.76 941,279 9,413 $25,979
Residential Tier 1 $1.92 23,204,573 232,046 $445,528
Residential Tier 2 $2.20 14,313,908 143,139 $314,906
Residential Tier 3 $2.76 10,361,855 103,619 $285,987
MFR & Mobile $2.03 7,545,483 75,455 $153,173
Commercial and Industrial $2.07 12,601,080 126,011 $260,842 Commercial Irrigation and Gov $2.26 3,372,674 33,727 $76,222 School $2.42 2,209,118 22,091 $53,461
Total 78,825,915 $1,691,291
COS Amount $1,684,647
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Letter to the residents of the City of Shasta Lake regarding the current Water Rate Study A personal opinion by Mayor Greg Watkins
Dear Resident, City Staff is currently completing a water rate study in which the only option proposed is to charge for water in three tiers. I have been opposed to tiered rates for a number of yearssince I voted for the tiers back in 2016. I wasincorrectly led to believe this currentstudy would include an option to set a uniform water use rate and to eliminate the tiered system.
Proposition 218, passed by California voters 26 years ago, mandates the cost of water not be more than it actually costs to provide the water! The 2016 Raftelis Water Study created a cost of service analysis to justify tiered water rates. I believe their results were flawed, especially in wet or normal water supply years.
An open letter lets me share critical information and not be in violation of the Brown Act. The Brown Act prohibits me from discussing my attached analysis of Why tiered water rates are not right for the City of Shasta Lake with other Council members prior to the Council Meeting on April 4th, 2023.
If you want to grow a vegetable garden this year, have a large household, use a swamp cooler, a pool, or maintain landscaping which must be watered in the summer, come to the Council Meeting on Tuesday, April 4th at 6pm and voice your opinion.
Regardless of how the Council votes, life line water subsidies for qualifying customers will continue. This past July, 45% of life line users paid for water in the 2nd or 3rd tier. If a flat rate is adopted, customers using the least water will see a slight cost increase in winter months.
Look at your water bill from last summer and determine how tiered rates impact your cost of water. If you are tired of being penalized for using water from Shasta Lake, so that Southern California homes can have green lawns, come and let your voice be heard when the Council sets your new water rates.
Redding and Anderson charge a flat rate for water. If we adopt a flat water rate, I still propose during droughts, our City create a drought surcharge so the biggest users pay for the actual increased cost of water.
Below is a link to my 3‐page detailed analysis of tiered rates and why they are not in your best interest.
Sincerely,
Greg Watkins, Mayor
Go to my web page gregwatkins.blogspot.com and read the supporting document.
Questions: email [email protected] or text 530‐339‐5036 Commented [JL1]: See memo from City Attorney John
Kenny.
Commented [JL2]: Clarification. This is a snapshot of only one month. Further attention and analysis should be given to the full water year.
Commented [JL3]: The City of Shasta Lake's water supply issues are completely different from Redding (senior water rights, groundwater) and Anderson (enormous aquifer).
Why Tiered Water Rates are not right for City of Shasta Lake The personal opinion of Mayor Greg Watkins
In 2022, the City of Shasta Lake (CSL) contracted with PACE Engineering to update the last water study which was done in 2016 by a firm called Raftelis Financial Consultants. As you may be aware, the City currently has a three tiered water rate system which charges a higher price for water used above set thresholds. Unfortunately, the contract with PACE did not specify that new study evaluate a single rate water system. Rather, PACE was only asked to update the previous study with current costs, but not evaluate tiered water rates versus a single water rate.
Six years ago, when Raftelis was hired to conduct a Water Rate Study, their study was reported to be based on a cost of service principle. This study separated the various costs of providing domestic water into: treatment, transmission, distribution, storage, metering service, and supply. It referenced the American Water Works Association M1 Manual (AWWA M1 Manual). In summary the report stated: Tiered Water rates can be used to incentivize customers to conserve water…. Provided the tiered rates reflect the proportionate cost of providing the service.
RAFTELIS MISTAKE: The Raftelis study ignored the fact that a cubic foot of water, delivered on hot summer days, costs no more to deliver than on a winter day when water use is at its lowest. Raftelis simply stated that tiered water rates have gained wide spread use, especially in water-scarce regions such as Southern California.
Raftelis correctly states, “the cost of water rates and charges should be recovered from classes of customers in proportion to the cost of serving those customers.” Their study made an assumption when they wrote:
“…treatment costs are likely higher during summertime when demand is at its highest.” This statement is not true of the City of Shasta Lake’s water treatment system. The Raftelis study, using this unsubstantiated assumption, went on to conclude that the largest water users should be charged higher tiered rates.
HYPOTHETICAL EXAMPLE: Consider a hypothetical water system to demonstrate how tiered water rates would justify charging more for water on a high use day. This hypothetical domestic water system has two sources for water. The main source of water flows by gravity into the water system. It supplies 100% of the winter water needs, but only 75% of the needed water for summer use. The additional 25% of water on high use days is pumped from a deep underground aquafer. The cost of water from the two sources differs.
The main source, providing 75% of the water flow, is purchased at $100 per acre foot (AF). The cost for the remaining 25% of the water is $400 per AF due to pumping. The justification to charge those who use more water a higher rate is based on the increased cost of pumping. This rate would be set so that the 25% of the customers, using the greatest quantities, are charged the higher rate. The higher rate can only be charged during the months when water must be pumped from the aquafer.
CITY OF SHASTA LAKE DOMESTIC WATER SYSTEM: In unconstrained (i.e. wet) years, justification for a tiered cost of water cannot be made in the CSL. In wet years all water is purchased at approximately $100 per AF or less. The Bureau of Reclamation pumps the water to the City Treatment Plant using big electric pumps at the base of Shasta Dam. The cost of pumping water up to the City treatment plant is included in the price the City pays for the water. On low water use days, one large sand filter filtrates the water. On high demand days 3 sand filters are used. The cost per gallon to filtrate on low use days is “x” dollars per gallon. On high use days the cost is 3x dollars for 3 times the amount of water. Thus, the cost per gallon delivered on high use days remains the same as on low use days.
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The same principal is true for the amount of chlorine used to disinfect the water. The amount of chlorine is primarily a function of the purity of the water delivered from Shasta Lake. The cost per gallon to chlorinate remains a fixed cost per gallon regardless of use.
In summary, the cost to deliver a gallon of water in the CSL domestic water system remains the same year round.
HIGH DEMAND USERS: The current water study correctly assigned higher costs to those customers requiring the city to install larger distribution piping by charging higher monthly charges based on the size of their meter necessary to provide for their demand. For example, a customer with a 5/8” meter in the CSL currently pays $31/month while a customer with a 4” meter pays $661/month and a 12” meter customer pays $5648/month.
Monthly meter fees are the way the City assigns higher demand cost equitably to various water customers.
Proposition 218 requires that the cost of the water delivered to any customer must be charged at the rate it actually costs to deliver the water to the customer. The City of Shasta Lake violates this requirement by using tiered rates in normal water years.
COST COMPONENTS IN THE STUDY: The various cost components of the water utility consist of: supply, treatment, transmission, distribution, storage, metering service, and customer billing.
SUPPLY In un-constrained years, the cost of supply, or purchasing the water historically remains at approximately $100/AF. Bureau water this year is estimated to cost $61/AF, ACID water has various fixed costs whether we take the water or not and if ACID can sell the water we don’t use to other water agencies. We also get minor amounts from Redding. The current PACE study properly uses $100 dollar/AF as the basis for calculating the current water rates.
TREATMENT As previously outlined, the cost per cubic foot of treating water remains constant whether or not the daily demand requires one or three big filters.
TRANSMISSION Larger pipes are needed to deliver water to customers using water at higher demand through larger diameter meters. Customers pay higher cost based on the size of their meters.
STORAGE The city water tanks are properly sized for the city. New housing developments will pay for additional needed storage. One big new storage tank planned near Centimudi is funded by a grant and thus is not a cost consideration in this water rate study.
DISTRIBUTION Some of the city’s distribution piping is old and undersized for current needs, including fire demand. Replacing old pipes and creating backup delivery piping to the Montana Ave.storage tanks are needed improvements for safety and reliability and are not a function of use.
METER SERVICE The city has self reporting water meters, and there is a fixed cost in replacing the batteries and updating the software to record the readings. This charge is applied on a per meter basis.
BILLING Billing remains a monthly set charge per customer.
DROUGHT YEAR WATER PURCHASES. In drought years the CSL historically purchases additional water at elevated rates and needs a method to cover the increased cost of water purchased. Per Proposition 218 requirements, the equitable method is to pay for the increased cost for supply with an automatic pass through charge. When the cost to purchase water is more than the $100/AF average the CSL will use the actual cost from sources such as McConnell and ACID to create a drought tier rate for those customers using increased amounts of water. This second tiered rate would be applied to those customers using larger amounts of water.
For example, if 20% of the yearly purchased water costs $400/AF, that incremental cost would be applied to the 265
20% of the customers using the most water. And it would only be applied during the portion of the year when the high cost water was purchased. In normal, or unconstrained water years there would be no drought tier.
BENEFICIAL USES MANDATED: The State of California sets other requirements with which the City must comply. For example, it is a requirement that water resources be put to beneficial uses …. and that conservation be exercised to the reasonable and beneficial use of the people.
To comply with these principles, the City has ordinances in drought years prohibiting wasteful uses of water, such as over watering to the point of runoff, washing vehicles with a hose with no shut off and washing off driveways with water pressure.
Watering a garden or fruit trees is considered to be a beneficial use, but could be restricted by an ordinance requiring drip systems or hand watering.
Customers with pools often consider their pool essential for their health and fitness. Drought year ordinances can prohibit emptying and refilling pools when water is in short supply and the City could mandate pool covers to reduce evaporation.
WATER LEAKS Customers experiencing an unfortunate water leak can soon find they are charged for water in the higher tiers. A flat rate would be better in those situations.
ANNUAL COST INCREASES: The City Council should take a hard look at the automatic increases the current water study recommends. These inflation factors are applied to both the monthly meter charges and to the cost of water per hundred cubic feet. The study started out recommending an 8% annual increase each year for the next five years but has reduced that recommended percentage to 6% annually. Thus, the current $31 per month meter charge will increase to about $41.50 per month after 5 years. If a 4% annual increase were applied it would result in a monthly charge of 37.75 after 5 years. The council has the authority to set the percentage increase at any percentage equal to or less than the 6% rate recommended in the study.
LIFE LINE RATES: The study recommends that our 290 life line users pay the same monthly service rates but pay less for their consumption as long as they do not go over the base amount of 1000 cubic feet. If a flat rate were used, their winter bill would increase about one dollar/month. The 30% paying rates in tier 2 would see no change while the bills for the 15% in tier 3 could be reduced by $25/month during the 4 hottest months.
I suggest the water life line amount of $5/month be applied to the monthly service fee and all consumption be paid at a flat rate
ALL WATER CUSTOMERS In August 2022 the City had 3284 water customers and 61% were in tier 2 while 34% of the customers were paying rates in tier 3.
2021 WATER RATES per Cubic Foot of 7.49 gallons. (Not including a drought surcharge of $0.09 to 0.013) Tier 1 = $0.0244 Tier 2 = $0.0279 and tier 3 = $0.0350 If a flat rate were to be used, all water would be charged at about $0.0275 per CF.
SCHOOLS AND PARKS The high school pays a flat rate of $0.0307/CF and the City charges itself $0.0286/CF to water the fields in Margaret Polf Park. Both of these rates exceed the actual cost of $0.0275 which violates the cost principle in Proposition 218.
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KENNY & NORINE
ATTORNEYS
JOHN SULLIVAN KENNY
jONZ NORINE
A LAW CORPORATION
1 92 3 COURT STREET
REDDING, CA 96001
T: 530-244-7777
F: 530-246-2836
LEGAL ASSIST ANTS
TAMARA F. WARREN
MARAH S. WOODWARD
BARBARA A. MARCH
LINDA R. SCHAAP
MARGARET "PEGGY" A. BURTON*
*Also admitted in Nevada
TO:
FROM:
DATE:
RE:
www.lawnorcal.com
MEMORANDUM
Jessaca Lugo, City Manager, City of Shasta Lake
JohnS. Kenny, City Attorney 71:3 ~ March 30, 2023
Water Rates
A draft of the letter the Mayor plans to distribute addressing the water rate study has been reviewed. The letter contains a statement that the City has, for six years, charged rates that violate the provisions in Prop. 218 requiring the rates charged customers reflect the cost of service to the customer. The letter seems to conclude that only flat rates should be allowed and that tiered rates are improper. This conclusion is incorrect.
Tiered rates are permitted. The notion that tiered rates are improper comes from a Court decision (Capistrano Tax Payers Association v. City of Capistrano (2015) 235 CA4th 1493). In that case the tiered rates adopted by the City of Capistrano were not based on the cost of service.
In Shasta Lake the situation is different. In determining the cost of service, the City may . include the cost of purchasing, capturing, storing and delivering water as well as administrative and related costs. The City of Shasta Lake's rate study concluded that the high-end users were requiring a more expensive system than the low-end users needed.
Stated another way, without the tiered rate system, the low-end users would be paying for more of a water system than they require. The tiered system adjusts for that equity. With the tiers, the high-end customers pay the cost required by the larger system.
The water rates presently charged to customers and the proposed water rates include tiers that are based on the cost of delivering water to the customers of each tier. This is consistent with Prop. 218 and in conformity with court decisions considering tiered rates. 2497
4869-6488-4826, V. 1
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