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Item 4.2 - Set the Public Hearing for New Rate Structures and Proposed Two-Year Water, Recycled Water and Wastewater RatesCity of Poway COUNCIL AGENDA REPORT DATE: January 7, 2020 TO: Honorable Mayor and Members of the City Council FROM: Aaron Beanan, Director of Finance },\'� CONTACT: Aaron Beanan, Director of Finance (858) 668-4411 or abeananpoway.orq SUBJECT: Set Public Hearing for New Rate Structures and Proposed Two -Year Water, Recycled Water, and Wastewater Rates Summary: Two public workshops held on October 15, 2019 and November 19, 2019 presented multiple rate design options for consideration by the City Council and public input. The goals of these workshops were to help ensure the City has rate structures that comply with the law, ensure each rate payer class is paying their proportionate share of the water and wastewater costs, and ensure financial sustainability of both the water and wastewater enterprise funds. After comments by the public and City Council discussion over the course of these two workshops, the City Council selected the rate structures associated with water Option 2b and wastewater Option 2c. This staff report recommends setting the public hearing date on March 3, 2020 for these proposed rate structures along with the proposed two-year rate increases for water, recycled water, and wastewater rates. The focus of this staff report will be the drivers of the proposed rate increases since the previous two workshops focused on the proposed rate structures. Recommended Action: It is recommended that the City Council direct staff to set the public hearing for March 3, 2020 and proceed with the Proposition 218 process which includes mailing the notice of public hearing to ratepayers (Attachment A) pursuant to law. Discussion: During the City Council discussion at the January 8, 2019 Water and Sewer Rate workshop, the Council expressed interest in conducting a new water and sewer rate study prior to the 2020 rate setting process, as it had been many years since a Cost of Service Study had been conducted. Some of the goals of the study were to ensure financial sustainability and compliance with the law. During the discussion the City Council also indicated the consultant and staff should evaluate different rate structures and how they impact different classes of rate payers. It was very important to Council that multiple rate designs were presented along with the associated impacts to ratepayers so that each potential option's impacts were easily understood. Since one of the goals of the workshops was to provide several different rate structures and information about how each structure impacts rate payers, multiple options were presented in the October 15, 2019 staff report. A total of nine different rate design options were presented for water along with four different rate design options for wastewater. 1 of 83 January 7, 2020, Item #4.2 At the October 15, 2019 workshop, after comments by the public and City Council discussion, the City Council: 1. Selected two options each for water and wastewater for further discussion, a. Water Option 2b and 2c b. Wastewater Option 2b and 2c 2. Directed staff to adjust the proposed reserve levels from 180 -days of operating expenditures to 120 -days, and 3. Directed staff to provide rate payers with a bill estimator tool for the four options being considered at the second workshop. At the November 19, 2019 workshop, after comments by the public and City Council discussion, the City Council: 1. Selected Water Option 2b, a. Three-tier structure with a fixed/variable ratio of 20%/80% 2. Selected Wastewater Option 2c, and a. Fixed plus variable structure with a fixed/variable ratio of 30%/70% 3. Directed staff to explore increasing the water fixed/variable ratio over time. As a result, Raftelis Financial Consultants, Inc. (RFC), the consultant hired to conduct the comprehensive cost of service study, prepared a Water and Wastewater Cost of Service and Rate Study Report (Attachment B) summarizing the key findings and recommendations related to the proposed rate structures, financial plans, and water and wastewater rates. Since the first two workshops focused on the proposed rate structures and financial plans, this staff report will focus on the proposed water and wastewater rates and what is driving the recommended two-year revenue increases. A two-year rate setting process strikes a balance between flexibility and efficiency. A two-year period is short enough to allow rate changes if future projections are different than anticipated while also reducing the administrative costs of adopting new rates. Additionally, staff recommends slowly adjusting the water fixed/variable ratio during each two- year rate setting process, beginning with the rates that will be brought to Council for consideration in the Fall of 2021. Proposed Water Rates Two-year revenue increases of 4.5% in March 2020 and 4.5% in January 2021 are being proposed for water to cover the increasing costs of providing safe, reliable water on demand to rate payers. The first-year revenue increases will impact rate payer classes differently as a result of the cost of service study (COSS) and proposed rate structure changes. During a COSS, costs are allocated to rate payer classes based on their current proportional use of the system. This rebalancing of customer classes impacts on the system means there will be uneven impacts to rates the first year. Subsequent years' revenue increases will uniformly impact rate payer classes. The increases are necessary to fund the costs of imported water, capital expenses, operational expenses, and appropriate reserve levels. One of the largest factors driving the proposed revenue increases is imported water costs. San Diego County has a semi -arid climate. Before 1947, the San Diego region relied on rainfall and groundwater to meets its water needs (San Diego County Water Authority "SDCWA", Urban Water Management Plan 2010). As the economy and population grew, local water resources became insufficient to meet the region's water supply needs and required imported water from hundreds of miles away to support the growth. Much of the region's water is imported from northern California near San Francisco and Sacramento (i.e. the Bay -Delta). Importing water is very energy intensive. Over -time, the cost to transport this water increases as 2 of 83 January 7, 2020, Item #4.2 factors like energy prices increase. Investment by SDCWA into regional water supply and infrastructure projects to reduce reliance on imported water and mitigate the effects of natural disasters, such as earthquakes, is also expensive. For example, SDCWA's investment into the Claude "Bud" Lewis Desalination Plant cost close to $1 B, but it gave the region a new drought - proof, locally controlled supply of water. Imported water represents 60% of water operating costs. When imported water costs increase, this impacts the City of Poway's water rates. SDCWA untreated water rates increased 4.8%. SDCWA used reserves to temper this increase, otherwise it would have been greater. Their rate increase was driven by Metropolitan Water District's (one of SDCWA water suppliers) untreated water rate increase of 3.3% and the Quantification Settlement Agreement (QSA) increase of 6.4%. The QSA is a long-term water supply reliability project that secured a major water supply source for San Diego County through the Imperial Irrigation District water transfer. The next largest factor driving the proposed revenue increases is rate -funded capital improvement projects. Rate -funded capital is paid for via rates or reserves; no debt is currently used to fund capital projects. The City of Poway's water system includes over a $100M in infrastructure necessary to provide associated services. This infrastructure includes water assets to transport water from the San Diego County Water Authority's (SDCWA) system to the city's system, assets to treat the water to safe drinking levels, and assets to deliver safe, reliable water on demand to each rate payer's property. The following are some facts about the water system: • 294 miles of transmission and distribution pipelines • 5,044 water valves, 21 pressure reducing stations and 14 pump stations (designed to raise water to higher elevations) • 19 reservoirs (Lake Poway holds -one billion gallons of water) • One 24 million gallon/day water treatment plant, • 2,435 fire hydrants • Approximately 45,000 tests to ensure Poway water meets or exceeds the State and Federal standards for water quality Rate -funded capital is currently proposed at approximately $12M over the next 5 years, or slightly more than $2M per year on average. While not a significant rate driver, it is important to highlight that one-time salary range adjustments are built into the proposed water rate increases. These are not cost of living adjustments. Salary and benefit changes approved for both the Management/Confidential and non -safety Teamsters employees did not include cost of living adjustments. Rather, they included one-time stipends in Fiscal Years 2019-20 and 2020-21 as a result of the General Fund's financial outlook. However, one-time salary range adjustments are being proposed due to attraction and retention challenges specifically within utilities job classifications. In Fiscal Years 2017-18 and 2018-19 there were 58 vacancies in regular positions across the City, of which 22 (almost half) were in the Public Works Department, with 10 in utilities specifically. Further, the turnover rates during these two fiscal years for positions represented by the Teamsters bargaining unit were the highest out of the city's bargaining groups at 19.40%. To understand this data, Human Resources conducted an analysis of the market with specific focus on the utility positions. Based on this analysis, it was determined certain pay grades for utility positions are well below the market. This disparity is believed to be the most significant reason for the recruitment and retention challenges the City is experiencing in those positions. As such, salary range adjustments are needed to bring the positions as close to median as possible. This will help improve the attraction and retention of the highly specialized positions needed to ensure the safety and reliability of the water system. The approximate annual cost to bring 24 positions close to median is $205K. Given there are approximately 13,900 water customers, and assuming a perfectly even distribution, that equates to roughly $2.50 per rate payer bi-monthly. 3 of 83 January 7, 2020, Item #4.2 The chart below shows the impacts of the first year's revenue increase across various water usage levels. SFR Impacts at Different Usage Levels - 3/4" Meter - 3 -Tiered $ 1,600 $ 1,44} $ 1,200 $ 1,000 $804 $600 $400 $200 turrerrt Bil ■ F rapcsed 811 npact (5). -- •_ ■ �■ 595.88 5149.48 524{}.60 5342.44 557818 584618 10 units 20 units 37 units 56 units 100 unts 150 unix ............ 595.88 5149.48 5240.50 5342.44 557828 5845.28 51,116.57 51,115.57 200 un Es 5101.52 5147.42 5238.37 5340.02 5567.82 51,040.32 51,412.82 55.64 -52.06 -52.23 -52.42 589.54 5194.04 5296.25 npazti31 5.9 -1.4% v.9' -v.7% 15.5% 22.9% 26.5% Proposed Wastewater Rates Two-year revenue increases of 6.3% in March 2020 and 6.3% in January 2021 are being proposed for wastewater to cover the increasing costs of providing safe, reliable wastewater services to rate payers. Like water, the impacts in the first year will be uneven as a result of the COSS process. The increases are necessary to fund the costs of wastewater treatment, capital expenses, and operational expenses. These proposed rate increases reflect the use of reserves to temper the impacts to rate payers. Funds to cover Poway's estimated share of the San Diego Pure Water project were set aside as part of a strategic financial management decision to help mitigate the impacts to rate payers and is more fully discussed below. The most significant rate driver driving the proposed revenue increases is wastewater treatment costs. Wastewater treatment represents 44% of all operating expenses. When wastewater treatment costs increase, this impacts the City of Poway's wastewater rates. The largest factor increasing wastewater treatment costs is the San Diego Pure Water project. San Diego's Pure Water project is a multi-year project that is projected to supply one-third of San Diego's water supply locally by 2035. Based on projections from April 2019, Poway's estimated share of the project is over $4M annually for the next five years. However, several years ago staff began incorporating these costs into rates as part of a long-range financial management strategy to mitigate the impacts of this project to ratepayers. Funds collected have been set aside in reserves. As such, a combination of reserve draws and rate increases will be used over the coming years to temper the impacts to ratepayers. Additionally, a wastewater treatment plant is designed to treat certain types of waste. Lastly, as people dispose of pharmaceuticals, food waste, cooking oil, industrial chemicals, etc. down the wastewater system, the treatment process gets extended which increases costs. The next largest factor driving the proposed revenue increases is rate -funded capital improvement projects. Rate -funded capital is paid for via rates or reserves; no debt is currently used to fund capital projects. The City of Poway's wastewater system includes over a $100M in infrastructure necessary to provide associated services. Rate funded capital is also being proactively invested 4 of 83 January 7, 2020, Item #4.2 in the rehabilitation and repair of the wastewater infrastructure to ensure Poway continues to provide safe, reliable, and affordable wastewater services. Rate -funded capital is paid for via rates or reserves; no debt is currently used to fund capital projects. Wastewater infrastructure includes infrastructure to transport wastewater from the city to various treatment plants within the County of San Diego in a safe and reliable manner including over 186 miles of wastewater pipes, five lift stations (designed to raise wastewater material to a higher elevation), and over 4,000 maintenance covers. Rate -funded capital is currently proposed at approximately $5M over the next 5 years, or slightly more than $1 M per year on average. While not a significant rate driver, it is important to highlight that special salary range adjustments are built into the proposed wastewater rate increases similar to water. The approximate annual cost to bring 11 positions close to median is $145K. Given there are approximately 12,100 water customers, and assuming a perfectly even distribution, that equates to roughly $2 per rate payer bi-monthly. The following chart shows the impacts of the first year's revenue increase across various wastewater generation levels. 5150 5140 5120 5100 580 560 540 520 ■Current E}i ■ F reposed ripact($) ri pact (%) SFR Impacts at Different Generation Levels 1 r lil 5 ccf 12 ccf 19 ccf 26 ccf 37 ccf 50 ccf 550.88 575.46 599.79 $107,33 $122.38 $157.43 5131.61 ; ; 548.50 579.12 5109.74 5131.61 5131.61 -5238 $5.55 59.95 524.28 5923 -55.82 _ -4.2% -. -4_7° 7.7% 10.0% 22.5% 73% 50 ccf 148.73 151.61 517.12 -11.5 Timeline This workshop represents the third step in a proposed two-year rate setting process. The following graphic shows the proposed timeline for the first two-year cycle. Workshop 1: Oct. 15, 2019 Public Hearing: Mar. 3, 2020 5 of 83 Workshop 2: Nov. 19, 2019 Year 1 Rates Effective: Mar. 3, 2020 Set Public Hearing: Jan. 7, 2020 Year 2 Rates Effective: Jan. 1, 2021 Mail 218 Notice: By Jan. 17, 2020 January 7, 2020, Item #4.2 Environmental Review: This project is exempt from the California Environmental Quality Act (CEQA) per State CEQA Guidelines Section 15273(a): modification, structuring, restructuring, or approval of rates, tolls, fares, or other charges by public agencies. Fiscal Impact: There is no direct fiscal impact associated with this staff report because it only sets the public hearing. However, based on the information contained in this staff report, sufficient revenues to fund operations, investment in capital infrastructure, and appropriate reserve levels will be generated from the recommended water and wastewater revenue increases. Over the next two-year period, it is estimated approximately $2M in additional water revenues will be generated while approximately $900K in additional wastewater revenues will be generated if the proposed rates are adopted at the public hearing. Safe reliable water delivered on demand to an average residential rate payer costs less than nine - tenths of one penny per gallon. Treating the average residential rate payer's wastewater in a safe and reliable fashion also costs less than nine -tenths of one penny per gallon. Public Notification: The California Constitution, Article XIIID, Section 6, states that local governments must hold a Majority -Protest Public Hearing and notify property owners at least 45 days in advance of the public hearing related to proposed water, recycled water, and wastewater rates. The notice (Attachment A) will be mailed at least 45 days prior to the public hearing, or on or before January 17, 2020. The public hearing will take place as follows: Tuesday, March 3, 2020 at 7:00 pm City of Poway City Hall 13325 Civic Center Drive Poway, CA 92064 Attachments: A. Notice of Public Hearing B. City of Poway Water and Wastewater Cost of Service and Rate Study Report Reviewed/Approved By: Wend Kaserman Assistant City Manager Reviewed By: Approved By: Alan Fenstermacher City Attorney Chr, Ham, City Manager e 6 of 83 January 7, 2020, Item #4.2 Notice of Public Hearing Proposed Water and Wastewater Rates } Tuesday, March 3 @ 7 p.m. Poway City Council Chambers Proposed Rate Change Protests As part of the rate setting process, on March 3, 2020, the City of Poway will conduct a public hearing on the proposed changes to water and wastewater rates and will consider all oral and written protests to the proposed changes. Oral comments at the public hearing will not qualify as formal protests unless accompanied by a written protest. Only one written protest will be counted per identified parcel. While email is not an official rate protest mechanism under California law, the City Council values resident input and will read all email correspondence regarding rates. Written protests must include: • A description of the property, such as the address or assessor's parcel number; and • The name and signature of the customer submitting the protest. The City Council will receive a final tabulation of all written protests received by the City Clerk. Written protests must be received by the City Clerk's office no later than 12 p.m. March 3, 2020, or can be submitted in writing in the Council Chambers before the public hearing is closed. If a majority of the affected customers do not file written protests of the proposed rate changes, the Council will then consider and may adopt the rate changes described in this notice. If a majority of affected customers file written protests, the City Council will not adopt the proposed rate adjustments and the City will reconsider the rate structure and rates. Please send written protests to: City Clerk of the City of Poway PO Box 789 Poway, CA 92074-0789 7 of 83 The City is committed to providing the highest quality water and wastewater services at the lowest possible rates. To keep this commitment, each year the City evaluates its infrastructure needs and operations and maintenance costs for the next year. Based on this evaluation, rate adjustments are proposed for2020. The rate adjustments being considered will become effective March 2020 for all bills mailed on or after May 1, 2020, and January 2021 for all bills mailed on or after March 1, 2021. Why are you receiving this notice? The City of Poway is mailing this notice to you because you are a water and/or wastewater customer responsible for payment of water and/or wastewater fees, or you are the owner of record for a property that receives water and/or wastewater service. This notice describes proposed adjustments to water and wastewater rates, rate structure changes, and provides notice of the upcoming public hearing at which these proposed changes will be considered by the Poway City Council. NOTICE OF PUBLIC HEARING PROPOSED WATER AND WASTEWATER RATES Afj; On Tuesday, March 3 at 7 p.m. the Poway City Council will consider adopting proposed changes to water and wastewater charges. The rate adjustments being considered will become effective March 2020 for all bills mailed on or after May 1, 2020. The City bills for water and wastewater service bimonthly (every two months) based on consumption during the two months prior to the billing date. ATTACHMENT A DATE Tuesday, March 3, 2020 at 7 p.m. LOCATION City Council Chambers 13325 Civic Center Dr. Poway, CA January 7, 2020, Item #4.2 Proposed Changes to Water and Wastewater Rates The City of Poway provides safe, reliable water on demand to its customers and purchases nearly 100 percent of its water from the San Diego County Water Authority (SDCWA). The cost to purchase and treat imported water continues to increase. The City proactively plans for increases in these costs, along with costs associated with operations, maintenance, and replacement of infrastructure along with maintaining appropriate reserves. To accommodate these increases, the City is proposing adjustments in potable water rates over the next two years. The City of Poway maintains a wastewater system that provides customers with wastewater collection and conveyance services to the San Diego Metropolitan Wastewater System (Metro) where the wastewater is treated at the Point Loma Wastewater Treatment Plant and then discharged into the ocean. The City proactively plans for increases in costs associated with operations, maintenance, and replacement of infrastructure along with maintaining appropriate reserves. The City also pays a percentage share of the operation, maintenance, and capital replacement costs of the Metro system. To accommodate these increases in costs, adjustments in wastewater rates over the next two years are being proposed. A two-year rate setting process strikes a balance between flexibility and efficiency. A two-year period is short enough to allow rate changes if future projections are different than anticipated while also reducing the administrative costs of adopting new rates. The rate evaluation for both water and wastewater services has been underway since January 2019, with City Council workshops held in October and November to receive public input. How are your rates calculated? To cover the costs of purchasing imported water, treating and distributing it, the city is proposing rate changes. All water rates are allocated among customer classes (e.g., residential, non-residential) based on their proportionate use of the system. There are two components: the fixed charge based on the size of the meter and the variable charge based on the volume of water used. The proposed rates include increasing the fixed/variable ratio from 16% fixed/84% variable to 20%/80% to support the financial sustainability of the system. The proposed rates include moving to a three -tiered rate structure (versus the current two-tiered structure) for residential customers to more accurately recoup costs based on water usage. The usage charge is a flat per unit rate instead of a tiered rate for non- residential customers based on their usage patterns. To cover the costs of collecting, conveying, and treating wastewater, the city is proposing rate changes. All wastewater rates are allocated amongst customer classes based on their proportionate use of the system. The proposed rates include moving to a "fixed plus variable" rate structure similar to water. Since residential customers impact the wastewater system differently than non-residential customers, rates are approached differently. For residential customers the variable rate is tied to their winter water usage (when most water is used indoors: wastewater out generally matches water in). For non-residential customers, it is based on water usage. The proposed rates also include increasing the fixed/variable ratio from 20% fixed/80% variable to 30%/70% to support the financial sustainability of the system. To cover the costs of purchasing imported recycled water and distributing it, the city is proposing rate changes. The recycled water rate will no longer be a percentage of non-residential water rates; rather, it will be based on the costs associated with the recycled water service. ®For additional information on how your rates have been calculated, please refer to the staff report on January 7, 2020 titled "Set Public Hearing for New Rate Structures and Proposed Two -Year Water, Recycled Water, and Wastewater Rates." 8 of 83 January 7, 2020, Item #4.2 CURRENT AND PROPOSED WATER RATES Bi -Monthly Water Meter Service Charges di METER SIZE CURRENT 42.28 3/4/2020 41.14 1/1/2021 43.00 5/8" 3/4" and 1" fire 42.28 55.62 58.13 1" 70.47 84.58 88.39 11/2" 140.90 156.96 164.03 2" 225.44 243.82 254.80 3" 422.72 518.89 542.25 4" 704.52 924.25 965.85 6" 1,409.05 1,894.22 1,979.46 8" 2,254.46 3,486.72 3,643.63 CURRENT AND PROPOSED WASTEWATER RATES Bi -Monthly Wastewater Service Charges METER SIZE CURRENT 3/4/2020 1/1/2021 Single Family Residential (Residential wastewater flow based on 85% of lowest winter water use averaged over the past three years.) Flat 21.34 N/A N/A Non-residential, Multi-fami y, Mobile Home 5/8" 28.16 N/A N/A 3/4" 28.16 N/A N/A 1" 38.23 N/A N/A 1 1/2" 63.44 N/A N/A 2" 93.69 N/A N/A 3" 174.35 N/A N/A 4" 265.07 N/A N/A 6" 617.97 N/A N/A 8" 819.62 N/A N/A Customer Class All Customer Classes (Except Schools) N/A 26.63 28.31 Wastewater Rate Notes: Multi -family and mobile home customers' wastewater flow is calculated based on 75% of bimonthly water use for accounts without a landscape meter and 85% of bimonthly water use for accounts with a landscape meter. Non-residential customers' wastewater flow is calculated based on 75%, 85% or 90% of bimonthly water use depending on customer class. Wastewater flow for schools is estimated based on the average flow per student per day using 75% or 85% of the water use from the March/April billing period. Any water rates or fees associated with water service, including raw water, not addressed within this notice shall remain in full force and effect as previously adopted by the Poway City Council. 9 of 83 Bi -Monthly Water Commodity Charges ($/Unit) CUSTOMER CLAS_ CURRENT 3/4/2020 1/1/2021 III Single Family Residential Tier 1: 1-199 Units 5.36 N/A N/A Tier 2: 200+ Units 7.65 N/A N/A Tier 1: 1-20 Units N/A 4.59 4.80 Tier 2: 21-56 Units N/A 5.35 5.60 Tier3:56+Units N/A 7.45 7.79 Multi -family Residential 5.47 4.69 4.91 Landscape Irrigation 5.47 6.52 6.82 Non-residential 5.47 4.99 5.22 Recycled Water 4.92 4.06 4.25 City Potable Usage 2.36 4.99 5.22 1 unit = 748 gallons Bi -Monthly tes ($/Unit Wastewater) CUSTOMER CLASS CURRENT 3/4/2020 1/1/2021 Single Family Residential Tier 1: 0-5 Units 29.54 N/A N/A Tier 2:6-12 Units 52.12 N/A N/A Tier3: 13-19 Units 78.45 N/A N/A Tier 4:20-26 Units 85.99 N/A N/A Tier 5:27-37 Units 101.04 N/A N/A Tier 6: 38-50 Units 116.09 N/A N/A Tier7:51+Units 127.39 N/A N/A Single Family Residential N/A 4.38 4.66 Multi -family & Mobile Home 4.02 5.50 5.85 Non -Residential General Commercial 4.02 4.74 5.04 Medium -low 4.60 5.31 5.65 Medium -low 5.35 5.96 6.34 Medium-high 6.85 6.09 6.48 High 8.15 8.39 8.92 Light Industry 4.22 5.16 5.49 Industrial Special User 4.02 5.20 5.53 Government & Membership Organizations 4.02 3.89 4.14 Churches 4.02 4.74 5.04 Elementary School (ADA) 4.02 4.80 5.11 Secondary & High School (ADA) 4.02 4.76 5.06 January 7, 2020, Item #4.2 PO Box 789 Poway, California 92074-0789 www.poway.org DATED MATERIAL - DO NOT DELAY DELIVERY Important information about your WATER and WASTEWATER account! Facts about Poway's Water and Wastewater System Poway imports nearly 100% of its water through the San Diego County Water Authority (SDCWA). The City's water system includes: • 294 miles of transmission and distribution pipelines • 5,044 water valves, 21 pressure reducing stations and 14 pump stations (designed to raise water to higher elevations) • 19 reservoirs (Lake Poway holds -one billion gallons of water) • One 24 million gallon/day water treatment plant • 2,435 fire hydrants • Approximately 45,000 tests to ensure Poway water meets or exceeds the State and Federal standards for water quality. Poway contracts with the City of San Diego (Metro) for wastewater treatment and disposal. The City's wastewater infrastructure transports wastewater to various treatment plants within the County of San Diego in a safe and reliable manner. It includes: • 186 miles of wastewater pipes • 5 lift stations (designed to raise wastewater material to a higher elevation) • More than 4,000 maintenance covers. The cost to provide water service in Poway is about $27.7 million per year. Wastewater service costs are approximately $11.3 million per year. Over half of the City's water and wastewater expenditures are pass-through costs (raw water, wastewater treatment), which the City cannot control. If you have questions regarding this notice, please call our Finance Department at (858) 668-4411. 10 of 83 January 7, 2020, Item #4.2 CITY OF POWAY Water and Wastewater Cost of Service and Rate Study Report Final Report / December 12, 2019 RAFTELIS RAFTELIS December 12, 2019 Aaron Beanan Director of Finance City of Poway 13325 Civic Center Drive Poway, CA 92064 Subject: Water and Wastewater Cost of Service and Rate Study Dear Mr. Beanan, Raftelis is pleased to provide this Water and Wastewater Cost of Service and Rate Study Report (Report) for the City of Poway (City). The overall goal of the study was to develop updated water and wastewater rates for the City for the next five fiscal years (FYE 2020-FYE 2024) that are fair and equitable and in compliance with Proposition 218 requirements. The major objectives of the study include the following: 1. Develop five-year financial plans for the water and wastewater enterprises through FYE 2024 that sufficiently funds the City's operating costs, debt obligations, prudent reserves, and necessary capital expenditures 2. Review and revise as necessary the current water and wastewater rate structure 3. Perform a cost of service analysis to equitably allocate costs across customers classes 4. Propose equitable water rates for FYE 2020 to FYE 2024 This Report summarizes the key findings and recommendations related to the development of the financial plans and proposed water and wastewater rates. It has been a pleasure working with you and we thank you, Ms. Jessica Parks, and other City staff for the support provided during this study. Sincerely, Sudhir Pardiwala Executive Vice President 24640 Jefferson Avenue, Suite 207 Murrieta, CA 92562 www.raftelis.com Lauren Demine Consultant Table of Contents 1. EXECUTIVE SUMMARY 1 1.1. SYSTEM OVERVIEW 1 1.2. METHODOLOGY 1 1.2.1. Water Utility 1 1.2.2. Wastewater Utility 2 1.3. PROPOSED FINANCIAL PLANS 2 1.3.1. Water Utility Financial Plan 2 1.3.2. Wastewater Utility Financial Plan 5 1.4. PROPOSED RATES 7 1.4.1. Proposed Water Rates 7 1.4.2. Proposed wasteWater Rates 8 2. STUDY BACKGROUND 9 2.1. SYSTEM OVERVIEW 9 2.2. LEGAL FRAMEWORK 9 2.3. RATE -SETTING METHODOLOGY 10 3. KEY ASSUMPTIONS 12 4. WATER RATE STUDY 14 4.1. WATER UTILITY FINANCIAL PLAN 14 4.1.1. Existing Rate Structure and Rates 14 4.1.2. Account and Usage Projections 15 4.1.3. Revenues 16 4.1.4. O&M Expenses 17 4.1.5. Capital Improvement Plan 18 4.1.6. Recommended Reserve Policies 18 4.1.7. Status Quo Financial Plan 19 4.1.8. Proposed Financial Plan 21 4.2. COST OF SERVICE ANALYSIS 24 CITY OF POWAY WATER AND WASTEWATER COST OF SERVICE AND RATE STUDY REPORT i 4.2.1. Cost of Service Methodology 24 4.2.2. Revenue Requirement 24 4.2.3. Functionalization and Allocation of Expenses 25 4.2.4. Peaking Factors 26 4.2.5. Allocation of Costs 27 4.2.6. Units of Service 33 4.2.7. Allocation of Revenue Requirements to Cost Causation Components 34 4.2.8. Distribution of Cost Causation Components 36 4.3. WATER RATE DEVELOPMENT 37 4.3.1. Derivation of Proposed Bimonthly Fixed Charge 37 4.3.2. Revisions to Tier Definitions 38 4.3.3. Derivation of Proposed Commodity Rates 38 4.3.4. Proposed Water Rate Schedule 40 4.4. BILL IMPACTS 40 5. WASTEWATER RATE STUDY 42 5.1. WASTEWATER UTILITY FINANCIAL PLAN 42 5.1.1. Existing Rate Structure and Rates 42 5.1.2. Account and Usage Projections 43 5.1.3. Revenues 44 5.1.4. O&M Expenses 45 5.1.5. Capital Improvement Plan 45 5.1.6. Recommended Reserve Policies 46 5.1.7. Status Quo Financial Plan 47 5.1.8. Proposed Financial Plan 48 5.2. WASTEWATER COST OF SERVICE ANALYSIS 52 5.2.1. Cost of Service Methodology 52 5.2.2. Revenue Requirement 52 5.2.3. Mass Balance 53 5.2.4. Functionalization and Allocation of Expenses 54 5.2.5. Allocation of Costs 55 5.2.6. Units of Service 57 CITY OF POWAY WATER AND WASTEWATER COST OF SERVICE AND RATE STUDY REPORT ii 5.2.7. Allocation of Revenue Requirements to Cost Causation Components 57 5.2.8. Distribution of Cost Causation Components 59 5.3. WASTEWATER RATE DEVELOPMENT 60 5.3.1. Derivation of Proposed Bimonthly Fixed Charge 60 5.3.2. Revisions to Commodity Rates 60 5.3.3. Derivation of Proposed Commodity Rates 61 5.3.4. Proposed WasteWater Rate Schedule 62 5.4. BILL IMPACTS 63 CITY OF POWAY WATER AND WASTEWATER COST OF SERVICE AND RATE STUDY REPORT iii List of Tables Table 1-1: FYE 2020-2024 Proposed Water Bimonthly Meter Service Charges 7 Table 1-2: FYE 2020-2024 Proposed Water Commodity Rates ($/ccf)' 8 Table 1-3: FYE 2020-2024 Proposed Wastewater Charges 8 Table 3-1: Water Key Inflationary Factors 12 Table 3-2: Water Key Revenue Assumptions 12 Table 3-3: Wastewater Key Inflationary Factors 13 Table 3-4: Wastewater Key Revenue Assumptions 13 Table 4-1: Existing Bimonthly Water Meter Service Charges 14 Table 4-2: Existing Bimonthly Water Commodity Rates ($/ccf) 14 Table 4-3: Potable and Recycled Water Meters1 15 Table 4-4: Potable and Recycled Water Use by Class (ccf) 16 Table 4-5: Projected Operating Revenues Under Existing Water Rates 17 Table 4-6: Water Projected Other Revenues 17 Table 4-7: Water Revenue Summary 17 Table 4-8: Water Operating Expenditures Summary 18 Table 4-9: Water Capital Improvement Plan 18 Table 4-10: Water Proposed Reserve Targets 19 Table 4-11: Water Financial Plan under Current Rates 20 Table 4-12: Water Projected Fund Balances Under Current Rates 20 Table 4-13: Water Proposed Revenue Adjustments 21 Table 4-14: Water Proposed Financial Plan 21 Table 4-15: Water Projected Fund Balances Under Proposed Rates 22 Table 4-16: Water Revenue Requirement 25 Table 4-17: System Peaking Factors 26 Table 4-18: Customer Class Peaking Factors 27 Table 4-19: Functionalized O&M Cost Distributions to Cost Causation Factors 28 Table 4-20: Water O&M Cost Allocations 29 Table 4-21: Functionalized Capital Cost Distributions to Cost Causation Factors 30 Table 4-22: Water Capital Cost Allocations 31 Table 4-23: Water Cost Allocation Distribution Summary 32 Table 4-24: Potable Water Equivalent Meters1 33 Table 4-25: Recycled Water Equivalent Meters 33 Table 4-26: Derivation of Cost Causation Component Units of Service 34 Table 4-27: Water Unit Cost Calculation 35 Table 4-28: Allocation of Costs to Customer Classes 36 Table 4-29: Derivation of the Bimonthly Fixed Charges 37 Table 4-30: Revised Single -Family Residential Tier Definitions 38 Table 4-31: Peaking Unit Cost by Class and Tier 38 Table 4-32: Recycled Water Commodity Rate Calculation 39 Table 4-33: Derivation of the Commodity Rates ($/ccf) 39 Table 4-34: FYE 2020-2024 Proposed Water Bimonthly Meter Service Charges 40 Table 4-35: FYE 2020-2024 Proposed Water Commodity Rates 40 Table 5-1: Existing Bimonthly Wastewater Service Charges 42 Table 5-2: Existing Bimonthly Commodity Rates ($/ccf wastewater) 43 Table 5-3: Wastewater Accounts 43 Table 5-4: Accounts per Tier and Billed Wastewater Flow by Class (ccf) 44 Table 5-5: Projected Operating Revenues Under Existing Wastewater Rates 44 CITY OF POWAY WATER AND WASTEWATER COST OF SERVICE AND RATE STUDY REPORT iv Table 5-6: Projected Other Wastewater Revenues 45 Table 5-7: Wastewater Revenue Summary 45 Table 5-8: Wastewater Operating Expenditures Summary 45 Table 5-9: Wastewater Capital Improvement Plan 46 Table 5-10: Wastewater Proposed Reserve Targets 47 Table 5-11: Wastewater Financial Plan under Current Rates 47 Table 5-12: Wastewater Projected Fund Balances Under Current Rates 48 Table 5-13: Wastewater Proposed Revenue Adjustments 48 Table 5-14: Wastewater Proposed Financial Plan 49 Table 5-15: Wastewater Projected Fund Balances Under Proposed Rates 49 Table 5-16: Wastewater Revenue Requirement 53 Table 5-17: Mass Balance Analysis 54 Table 5-18: Wastewater O&M Cost Allocations 55 Table 5-19: Wastewater Capital Cost Allocations 56 Table 5-20: Wastewater Cost Allocation Distribution Summary 56 Table 5-21: Wastewater Customer Class Data 57 Table 5-22: Wastewater Unit Cost Calculation 58 Table 5-23: Allocation of Costs to Customer Classes 59 Table 5-24: Derivation of the Wastewater Bimonthly Fixed Charge 60 Table 5-25: Derivation of the Wastewater Commodity Rates ($/ccf) 61 Table 5-26: FYE 2020-2024 Proposed Bimonthly Wastewater Charges 62 List of Figures Figure 1-1: Water Revenue Adjustments and Debt Coverage 3 Figure 1-2: Water Operating Financial Plan at Proposed Rates 3 Figure 1-3: Proposed Water Capital Improvement Plan and Funding Sources 4 Figure 1-4: Water Projected Ending Balances at Proposed Rates 4 Figure 1-5: Wastewater Revenue Adjustments and Debt Coverage 5 Figure 1-6: Wastewater Operating Financial Plan 6 Figure 1-7: Wastewater Capital Replacement Plan and Funding Sources 6 Figure 1-8: Wastewater Projected Ending Balances 7 Figure 4-1: Water Operating Financial Plan at Proposed Rates 22 Figure 4-2: Proposed Water Capital Improvement Plan and Funding Source 23 Figure 4-3: Water Projected Ending Balances at Proposed Rates 23 Figure 4-4: Single -Family Residential Water Bill Impact Analysis 41 Figure 4-5: Non -Residential Water Bill Impact Analysis 41 Figure 5-1: Wastewater Operating Financial Plan at Proposed Rates 50 Figure 5-2: Proposed Wastewater Capital Improvement Plan and Funding Source 50 Figure 5-3: Projected Ending Wastewater Reserves at Projected Rates 51 Figure 5-4: Single -Family Residential Wastewater Bill Impact Analysis 63 Figure 5-5: Non -Residential Wastewater Bill Impact Analysis 63 CITY OF POWAY WATER AND WASTEWATER COST OF SERVICE AND RATE STUDY REPORT v This page intentionally left blank to facilitate two-sided printing. CITY OF POWAY WATER AND WASTEWATER COST OF SERVICE AND RATE STUDY REPORT vi Executive Summary 1. 1.1. System Overview The City of Poway provides potable water, recycled water, and sewer service to a population of over 50,200. The majority of water customers receive sewer service and recycled water is provided to approximately 200 customers primarily located in the South Poway Business Park. The City currently imports all of its potable water as raw water from the San Diego County Water Authority (SDCWA) and treats the water in its own treatment plant. The City also provides wastewater collection service and transports the wastewater to the San Diego Metropolitan Wastewater System (METRO) for treatment and disposal. Recycled water is purchased from the City of San Diego. The City currently charges potable water customers a fixed bimonthly meter charge and a volumetric rate based on customer class. Single-family residential customers pay based on a two-tier rate structure based on units of consumption. All other customers pay a uniform volumetric rate. Recycled water customers pay based on the same rate structure, with the volumetric rates set at 90 percent of the potable water rates. Single-family residential sewer customers pay a uniform bimonthly fixed service charge and a seven -tiered volumetric charge based on the customer's winter water usage. All other customers pay a fixed bimonthly service charge based on meter size and a uniform flow charge. The City engaged Raftelis in 2019 to conduct a comprehensive cost of service water and wastewater rate study to establish proposed water and wastewater rates for fiscal years ending (FYE) 2020 to FYE 2024. The primary project objectives of the study include: 1. Develop five-year financial plans for the water and wastewater enterprises through FYE 2024 that generate sufficient revenues to fund the City's operating costs, debt obligations, prudent reserves, and necessary capital expenditures 2. Review and revise as necessary the current water and wastewater rate structure 3. Perform a cost of service analysis to equitably allocate costs across customers classes in compliance with Proposition 218 4. Propose equitable water and wastewater rates for FYE 2020 to FYE 2024 A FYE is defined as beginning on July 1 and ending on June 30; for example, FYE 2020 begins July 1, 2018 and ends June 30. 2020. 1.2. Methodology 1.2.1.WATER UTILITY The water rates presented in this report were developed using cost of service principles set forth by the American Water Works Association MI 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 4.2 and 5.2. The Base -Extra Capacity Method of the AWWA M1 Manual was used to distribute costs to customer classes and tiers. This method separates costs into four main components: (1) base costs, (2) extra capacity costs, (3) customer costs, and (4) fire protection costs. Base costs are costs 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 (both operating and capital costs) associated with meeting peak demand. Customer costs are associated with serving customers, such as 1 CITY OF POWAY meter reading, billing and customer service, etc. Fire protection costs are related solely to the fire protection function of a water system, such as fire hydrants, private fire connections, and related mains and valves. 1.2.2.WASTEWATER UTILITY The wastewater rates presented in this report were developed using cost of service principles set forth in the Water Environment Federation (WEF) Manual of Practice No. 27, Financing and Charges for Wastewater Systems, 2018. To calculate fair and equitable rates so that users pay in proportion to the cost of providing service, Raftelis allocated the total revenue requirements to wastewater flow, chemical oxygen demand (COD), and total suspended solids (TSS) consistent with the previously identified WEF/industry guidelines. Since wastewater flow or volumes are not directly measured for each customer, wastewater flows and loadings (flow, COD, and TSS) are estimated for each customer class through a plant balance analysis, which is used to estimate and validate the wastewater loadings (flow, COD, and TSS) generated by each customer class. 1.3. Proposed Financial Plans 1.3.1.WATER UTILITY FINANCIAL PLAN To determine the revenue requirements needed to fund the City's ongoing expenses, Raftelis projected the O&M costs, capital improvement costs, and reserve requirements for the study period between FYE 2020 to FYE 2024. O&M expenses include salaries and benefits, materials, services, supplies, utilities, water purchases, and general administrative costs. The City plans to spend approximately $12.4M on capital expenditures from FYE 2020 to FYE 2024. Reserve targets are provided for prudent fiscal management and described in detail in Sections 4.1.6 and 5.1.6 for water and wastewater, respectively. The minimum operating reserve is 90 days of operating expenses and the target is 120 days of operating expenses. The capital reserve target is five-year average capital expense. Figure 1-1 through Figure 1-4 display the Water Utility Financial Plan in graphical format. Figure 1-1 shows the proposed revenue adjustments (dark blue bars) of 4.5% and 5.25% for the next five years on the left axis. The rate models are based on each revenue adjustment going into effect in March of the corresponding fiscal year; however, the City will implement the first increase in March of 2020 and subsequent increases in January of each fiscal year. Although the graph shows anticipated revenue adjustments for the entire study period, the City will review and confirm the necessary revenue adjustments each year. The right axis of the graph shows the calculated and required coverage ratios for the City. Over the five-year planning period, the City does not anticipate issuing any debt for the water utility. CITY OF POWAY WATER AND WASTEWATER COST OF SERVICE AND RATE STUDY REPORT 2 Figure 1-1: Water Revenue Adjustments and Debt Coverage Revenue Adjustments 6% 140% 5% 1% 0% FYE 2020 Revenue Adjustments FYE 2021 FYE 2022 — Debt Coverage FYE 2023 FYE 2024 120% 6096 40% 20% Required Coverage • Coverage Alert Figure 1-2 graphically illustrates the water financial plan, comparing existing and proposed revenues (solid and dashed black lines, respectively) with projected expenses (bars). The expenses are represented by stacked bars to indicate each expense type's share of total expenses. The net cash flow is shown in yellow. Figure 1-2: Water Operating Financial Plan at Proposed Rates 0 $40 '2 $35 2 $30 $25 $20 $15 $10 $5 $0 -$5 Operating Financial Plan MEP FYE 2020 FYE 2021 FYE 2022 FYE 2023 FYE 2024 Operating Expenses Water Purchases Rate Funded Capital Net Cashflow Current Revenue — — Proposed Revenue 3 CITY OF POWAY Figure 1-3 shows the total amount of the water capital projects are funded by rates/reserves as shown by the dark blue bars. The total estimated water CIP for the study period of FYE 2020 to FYE 2024 is $12.4M. Figure 1-3: Proposed Water Capital Improvement Plan and Funding Sources $3.5 3 $3.0 52.81 $2.5 $2.0 $1.5 $1.0 $0.5 $0.0 Capital Funding Sources $1.44 52.0/ $3.22 52.91 FYE 2020 FYE 2021 FYE 2022 FYE 2023 FYE 2024 • Debt Funded • Rates/Reserves Funded •Total CIP Figure 1-4 shows the City's water operating and capital reserve ending balances for each fiscal year after operating and capital costs are funded. As shown, the City will draw down its reserves in FYE 2020 and FYE 2023 to cover capital costs but will meet its minimum reserve targets beginning in FYE 2021 (indicated by the dashed blue line). Figure 1-4: Water Projected Ending Balances at Proposed Rates N $20 '2 $18 2 $16 $14 $12 $10 $8 $6 $4 $2 $0 FYE 2020 Operating & Capital Reserves FYE 2021 FYE 2022 Total Reserves — — Minimum Reserve FYE 2023 FYE 2024 Target Reserve CITY OF POWAY WATER AND WASTEWATER COST OF SERVICE AND RATE STUDY REPORT 4 1.3.2.WASTEWATER UTILITY FINANCIAL PLAN To determine the revenue requirements needed to fund the City's ongoing expenses, Raftelis projected the O&M costs, capital improvement costs, and reserve requirements for the study period between FYE 2020 to FYE 2024. O&M expenses include salaries and benefits, materials, services, supplies, utilities, wastewater treatment, and general administrative costs. The City plans to spend approximately $5.1M on capital expenditures from FYE 2020 to FYE 2024. Figure 1-5 through Figure 1-8 display the Wastewater Utility Financial Plan in graphical format. Figure 1-5 shows the proposed revenue adjustments (dark blue bars) of 6.3% each year for the next five years on the left axis. The rate models are based on each revenue adjustment going into effect in March of the corresponding fiscal year; however, the City will implement the first increase in March of 2020 and subsequent increases in January of each fiscal year. Although the graph shows anticipated revenue adjustments for the entire study period, the City will review and confirm the necessary revenue adjustments each year. The right axis of the graph shows the calculated and required coverage ratios for the City. Over the five-year planning period, the City does not anticipate issuing any debt for the wastewater utility. Figure 1-5: Wastewater Revenue Adjustments and Debt Coverage 7% 6% N 5% c v E 4% S 3% c ai z 2% 1% 0% Revenue Adjustments FYE 2020 FYE 2021 FYE 2022 FYE 2023 FYE 2024 140% 120% 100% 80% 60% 40% 20% 0% Revenue Adjustments — — Debt Coverage Required Coverage • Coverage Alert Debt Coverage Figure 1-6 graphically illustrates the wastewater financial plan, comparing existing and proposed revenues (solid and dashed gray lines, respectively) with projected expenses (bars). The expenses are represented by stacked bars to indicate each expense type's share of total expenses. The net cash flow is shown in yellow. 5 CITY OF POWAY Figure 1-6: Wastewater Operating Financial Plan $14 $8 $6 $4 $2 $0 -$2 -$4 FYE 2020 Operating Financial Plan FYE 2021 Operating Expenses 1 Net Cashflow 1 FYE 2022 Rate Funded Capital FYE 2023 Debt Service Current Revenue — — Proposed Revenue FYE 2024 Figure 1-7 shows the total cost of the wastewater capital projects and their funding sources. The total estimated water CIP for the study period of FYE 2020 to FYE 2024 is $5M. As shown by the dark blue bars, the City plans to fund its capital projects through rates. Figure 1-7: Wastewater Capital Replacement Plan and Funding Sources c 0 2 $1.8 $1.6 $1.4 $1.2 $1.0 $0.8 $0.6 $0.4 $0.2 $0.0 $1.70 FYE 2020 Capital Funding Sources $0.45 FYE 2021 $1.00 FYE 2022 $0.61 FYE 2023 ■ Debt Funded ■ Rates/Reserves Funded •Total CIP X1.29 FYE 2024 CITY OF POWAY WATER AND WASTEWATER COST OF SERVICE AND RATE STUDY REPORT 6 Figure 1-8 shows the City's wastewater operating and capital reserve ending balances for each fiscal year after operating and capital costs are funded. As shown, the City will draw down its reserves through the study period to cover operating and capital costs but will still exceed its reserve targets as indicated by the solid green line. The targets are defined the same as for the water utility. Figure 1-8: Wastewater Projected Ending Balances $14 3 $12 $10 $$ $4 $2 $o FYE 2020 Operating & Capital Reserves FYE 2021 FYE 2022 MEM FYE 2023 FYE 2024 Total Reserves - - Minimum Reserve -Target Reserve 1.4. Proposed Rates 1.4.1. PROPOSED WATER RATES The proposed cost of service potable and non -potable rates effective, March 1, 2020 are shown below. The rates for subsequent years are increased by the revenue adjustments in Figure 1-1 to arrive at the 5 -year rate schedules shown in Table 1-1 and Table 1-2. Table 1-1: FYE 2020-2024 Proposed Water Bimonthly Meter Service Charges Meter Size Current March March March March March Charge 2020 2021 2022 2023 2024 5/8" $42.28 $41.14 $43.00 $45.26 $47.64 $50.15 3/4" $42.28 $55.62 $58.13 $61.19 $64.41 $67.80 1" $70.47 $84.58 $88.39 $93.04 $97.93 $103.08 1 1/2" $140.90 $156.96 $164.03 $172.65 $181.72 $191.27 2" $225.44 $243.82 $254.80 $268.18 $282.26 $297.08 3" $422.72 $518.89 $542.25 $570.72 $600.69 $632.23 4" $704.52 $924.25 $965.85 $1,016.56 $1,069.93 $1,126.11 6" $1,409.05 $1,894.22 $1,979.46 $2,083.39 $2,192.77 $2,307.90 8" $2,254.46 $3,486.72 $3,643.63 $3,834.93 $4,036.27 $4,248.18 7 CITY OF POWAY Table 1-2: FYE 2020-2024 Proposed Water Commodity Rates ($/ccf)' Customer Class Bimonthly Current March March March March March Tiers (ccf) Rate 2020 2021 2022 2023 2024 Single Family Residential Tier 1 20 $5.36 $4.59 $4.80 $5.06 $5.33 $5.61 Tier 2 56 $5.36 $5.35 $5.60 $5.90 $6.21 $6.54 Tier 3 56+ $5.36 $7.45 $7.79 $8.20 $8.64 $9.10 Multi -Family Residential $5.47 $4.69 $4.91 $5.17 $5.45 $5.74 Landscape Irrigation $5.47 $6.52 $6.82 $7.18 $7.56 $7.96 Non -Residential $5.47 $4.99 $5.22 $5.50 $5.79 $6.10 City Potable Usage $2.36 $4.99 $5.22 $5.50 $5.79 $6.10 Recycled Water $4.92 $4.06 $4.25 $4.48 $4.72 $4.97 ' The current rate structure is two-tiered with the first tier at 199 ccf bimonthly. The current rate for Tier 2 is $7.65/ccf 1.4.2. PROPOSED WASTEWATER RATES The proposed cost of service wastewater rates effective March 1, 2020 are shown below. Rates for subsequent years are increased by the revenue adjustments in Figure 1-5 to arrive at the 5 -year rate schedules shown in Table 1-3. Table 1-3: FYE 2020-2024 Proposed Wastewater Charges Customer Class Current Charge March 2020 March 2021 March 2022 March 2023 March 2024 Bi -Monthly Fixed Charge All Customer Classes Varies by Meter Size $26.63 $28.31 $30.10 $32.00 $34.02 Commodity Rate per ccf of Wastewater Residential Single Family Residence $5.79 $4.38 $4.66 $4.96 $5.28 $5.62 Multi -Family & Mobile home $4.02 $5.50 $5.85 $6.22 $6.62 $7.04 Non -Residential General Commercial $4.02 $4.74 $5.04 $5.36 $5.70 $6.06 Medium -Low $4.60 $5.31 $5.65 $6.01 $6.39 $6.80 Medium $5.35 $5.96 $6.34 $6.74 $7.17 $7.63 Medium -High $6.85 $6.09 $6.48 $6.89 $7.33 $7.80 High $8.15 $8.39 $8.92 $9.49 $10.09 $10.73 Light Industry $4.22 $5.16 $5.49 $5.84 $6.21 $6.61 Industrial Special User $4.02 $5.20 $5.53 $5.88 $6.26 $6.66 Government & Membership Organizations $4.02 $3.89 $4.14 $4.41 $4.69 $4.99 Churches $4.02 $4.74 $5.04 $5.36 $5.70 $6.06 Elementary School (ADA) $4.02 $4.80 $5.11 $5.44 $5.79 $6.16 Secondary & High School (ADA) $4.02 $4.76 $5.06 $5.38 $5.72 $6.09 CITY OF POWAY WATER AND WASTEWATER COST OF SERVICE AND RATE STUDY REPORT 8 2. Study Background 2.1. System Overview The City of Poway provides potable water, recycled water, and sewer service to a population of over 50,200. The majority of water customers receive sewer service and recycled water is provided to approximately 200 customers primarily located in the South Poway Business Park. The City currently imports all of its potable water as raw water from the San Diego County Water Authority (SDCWA) and treats the water in its own treatment plant. The City also provides wastewater collection service and transports the wastewater to the San Diego Metropolitan Wastewater System (METRO) for treatment and disposal. Recycled water is purchased from the City of San Diego. The City currently charges potable water customers a fixed bimonthly meter charge and a volumetric rate based on customer class. Single-family residential customers pay based on a two-tier rate structure based on units of consumption. All other customers pay a uniform volumetric rate. Recycled water customers pay based on the same rate structure, with the volumetric rates set at 90 percent of the potable water rates. Single-family residential sewer customers pay a uniform bimonthly fixed service charge and a seven -tiered volumetric charge based on the customer's winter water usage. All other customers pay a fixed bimonthly service charge based on meter size and a uniform flow charge. The City engaged Raftelis in 2019 to conduct a comprehensive cost of service water and wastewater rate study to propose water and wastewater rates for FYE 2020 to FYE 2024. The primary project objectives of the study include: 1. Develop five-year financial plans for the water and wastewater enterprises through FYE 2024 that generates sufficient revenues to fund the City's operating costs, debt obligations, prudent reserves, and necessary capital expenditures 2. Review and revise as necessary the current water and wastewater rate structure 3. Perform a cost of service analysis to equitably allocate costs across customers classes in compliance with Proposition 218 4. Propose equitable water rates for FYE 2020 to FYE 2024 2.2. Legal Framework 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, 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. 9 CITY OF POWAY 2. Revenues derived by the charge shall not be used for any 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. 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 the American Water Works Association's (AWWA) Principles of Water Rates, Fees, and Charges: Manual of Water Supply Practices M1 Sixth Edition (M1 Manual), "water rates and charges should be recovered from classes of customers in proportion to the cost of serving those customers." Raftelis follows industry standard rate setting methodologies set forth by the AWWA M1 Manual to ensure this study meets Proposition 218 requirements and establishes rates that do not exceed the proportionate cost of providing water services. The methodology in the M1 Manual is a nationally recognized industry ratemaking standard which courts have recognized as consistent with Proposition 218. California Constitution Article X, Section 2 California Constitution Article X, Section 2 mandates that water resources be put to beneficial use and that the waste or unreasonable use of water be prevented through conservation. Section 106 of the Water Code declares that the highest priority use of water is for domestic purposes, with irrigation secondary. Thus, management of water resources is part of the property -related service provided by public water suppliers to ensure the resource is available over time. The City currently has inclining tiered (also known as inclining block) water rates to incentivize customers to conserve water. The inclining tier rates must be based on the proportionate costs incurred to provide water to customers to achieve compliance with Proposition 218. "Inclining" tier rate structures (which are synonymous with "increasing" tier rate structures and "tiered" rates), when properly designed, allow a water utility to send conservation price signals to customers. Due to heightened interest in water conservation and efficiency of water use, tiered water rates have gained widespread use, especially in relatively water -scarce regions like Southern California. Tiered rates meet the requirements of Proposition 218 as long as they reasonably reflect the proportionate cost of providing service for each tier. 2.3. Rate -Setting Methodology This rate study was conducted using industry -standard principles outlined by the AWWA M1 Manual and the WEF Manual of Practice No. 27. The process and approach Raftelis utilized in the study to determine water and wastewater rates is informed by the City's policy objectives, the current water and wastewater system and rates, and the legal requirements in California (namely, Proposition 218). The resulting financial plans, cost of service analysis, and rate design process take all factors into consideration and follow five key steps, outlined below, to determine proposed rates that fulfill the City's objectives, meet industry standards, and comply with relevant regulations. 1. Financial Plan: The first study step is to develop multi-year financial plans that projects the water and wastewater utilities revenues, expenses, capital project financing, annual debt service, and reserve funding. The financial plans are used to determine the revenue adjustment, which allows the utility to recover adequate revenues to fund expenses and reserves. 2. Revenue Requirement Determination: After completing the financial plan, the rate -making process begins with the determination of the revenue requirement for the test year, also known as the rate -setting year. CITY OF POWAY WATER AND WASTEWATER COST OF SERVICE AND RATE STUDY REPORT 10 The test year for this study is FYE 2020. The revenue requirement should sufficiently fund the utilities operations and maintenance (O&M) costs, annual debt service, capital improvement plan (CIP) costs, and reserve funding as projected based on the utilities FYE 2020 budget. 3. Cost of Service Analysis: The annual cost of providing water or wastewater service, or the revenue requirement, is then distributed to customer classes commensurate with their use of and burden on the water or wastewater system. A cost of service analysis involves the following steps: a. Functionalize costs — the different components of the revenue requirement are categorized into functions such as supply, transmission and distribution (T&D), collection , treatment, customer service and billing, etc. b. Allocate to cost causation components — the functionalized costs are then allocated to cost causation components such as supply, base delivery, peaking, etc. for water and flow and strength characterized by chemical oxygen demand and total suspended solids for wastewater. c. Develop unit costs — unit costs for each cost causation component are determined using units of service, such as total usage, peaking units, equivalent meters, number of customers, total wastewater loadings, etc. for each component. d. Distribute cost components — the cost components are allocated to each customer class and tier using the unit costs in proportion to their demand and burden on the system. 4. Rate Design: After allocating the revenue requirement to each customer class, the rate design and calculation process can begin. Rates do more than simply recover costs; within the legal framework and industry standards, properly designed rates should support and optimize the City's policy objectives. Rates also act as a public information tool in communicating these policy objectives to customers. This process also includes a rate impact analysis and sample customer bill impacts. 5. Administrative Record Preparation and Rate Adoption: The final step in a rate study is to develop the administrative record or report in conjunction with the rate adoption process. The administrative record documents the study results and presents the methodologies, rationale, justifications, and calculations used to determine the proposed rates. A thorough and methodological administrative record serves two important functions: maintaining defensibility in a stringent legal environment and communicating the rate adoption process to customers and important stakeholders. 11 CITY OF POWAY 3• Key Assumptions The Study uses the City's FYE 2020 budget as the base year and the model projects the City's revenue requirements through FYE 2030; however, the proposed water and wastewater rates herein are for FYE 2020 through FYE 2024. The City will continue to periodically review rates and take a measured approach with any potential rate adjustments. Certain cost escalation assumptions and inputs were incorporated into the Study to adequately model expected future costs of the City expenses. These assumptions were based on discussions with and/or direction from City staff and are presented in Table 3-1 through Table 3-4. Most of the inflationary factors are self-explanatory, the demand factor for potable and recycled water represent the change in water consumption per account. The assumption is that there is no change in the consumption per account and the only change in use will result from any growth in accounts. Table 3-1: Water Key Inflationary Factors Inflationary Factors FYE 2020 FYE 2021 FYE 2022 FYE 2023 FYE 2024 General 3.0% 3.0% 3.0% 3.0% 3.0% Salary 5.0% 5.0% 3.0% 3.0% 3.0% Benefits 10.0% 10.0% 10.0% 10.0% 10.0% General Utilities 3.0% 3.0% 3.0% 3.0% 3.0% Power 5.0% 5.0% 5.0% 5.0% 5.0% SDCWA Water Purchases 0.0% 6.0% 6.0% 6.0% 6.0% Recycled Water Purchases 6.0% 6.0% 6.0% 6.0% 6.0% Capital 5.0% 5.0% 5.0% 3.2% 3.2% Table 3-2: Water Key Revenue Assumptions FYE 2020 FYE 2021 FYE 2022 FYE 2023 FYE 2024 Account Growth Single Family Residential 0.0% 0.5% 0.5% 0.5% 0.5% Multi -Family Residential 0.0% 0.0% 0.0% 0.0% 0.0% Landscape Irrigation 0.0% 0.0% 0.0% 0.0% 0.0% Non -Residential 0.0% 0.0% 0.0% 0.0% 0.0% Recycled 0.0% 0.0% 0.0% 0.0% 0.0% Demand Factor Potable 100.0% 100.0% 100.0% 100.0% 100.0% Recycled 100.0% 100.0% 100.0% 100.0% 100.0% Revenue Escalation Factors Non -Inflated 0.0% 0.0% 0.0% 0.0% 0.0% Non -Rate Revenues 0.0% 0.0% 0.0% 0.0% 0.0% Interest Income L0% 1.0% 1.0% 1.0% 1.0% CITY OF POWAY WATER AND WASTEWATER COST OF SERVICE AND RATE STUDY REPORT 12 Table 3-3: Wastewater Key Inflationary Factors Inflationary Factors FYE 2020 FYE 2021 FYE 2022 FYE 2023 FYE 2024 General 3.0% 3.0% 3.0% 3.0% 3.0% Salary 5.0% 5.0% 3.0% 3.0% 3.0% Benefits 10.0% 10.0% 10.0% 10.0% 10.0% General Utilities 3.0% 3.0% 3.0% 3.0% 3.0% Power 5.0% 5.0% 5.0% 5.0% 5.0% Capital 4.1% 4.1% 4.1% 4.1% 4.1% Table 3-4: Wastewater Key Revenue Assumptions FYE 2020 FYE 2021 FYE 2022 FYE 2023 FYE 2024 Account Growth Single Family Residential 0.0% 0.5% 0.5% 0.5% 0.5% Multi -Family Residential 0.0% 0.0% 0.0% 0.0% 0.0% Non -Residential 0.0% 0.0% 0.0% 0.0% 0.0% Revenue Escalation Factors Non -Inflated 0.0% 0.0% 0.0% 0.0% 0.0% Non -Rate Revenues 0.0% 0.0% 0.0% 0.0% 0.0% Interest Income 1.0% 1.0% 1.0% 1.0% L0% 13 CITY OF POWAY Water Rate Study 4• 4.1. Water Utility Financial Plan This section details the development of the five-year financial plan for City's water utility. This includes the determination of annual revenues required from potable water and recycled water rates based on annual cash flow projections. Assumptions and inputs related to projected revenues, operating expenses, and capital expenditures are clearly outlined in the following subsections. 4.1.1.EXISTING RATE STRUCTURE AND RATES The City bills every two months (bimonthly), resulting in six total bills per year for each customer. The City's current rates went into effect on March 1, 2019. The existing rate structure for potable and recycled water consists of a bimonthly fixed service charge based on meter size. The City's existing bimonthly service charges are shown below in Table 4-1. Table 4-1: Existing Bimonthly Water Meter Service Charges Meter Size CY 2019 5/8" $42.28 3/4" $42.28 1" $70.47 1 1/2" $140.90 2" $225.44 3" $422.72 4" $704.52 6" $1,409.05 8" $2,254.46 Additionally, customers pay a commodity rate by customer class on all water consumption. These rates are shown in Table 4-2. Single -Family Residential customers pay a two-tiered rate based on consumption at each tier level. All other customers pay a uniform rate per hundred cubic feet (ccf) of water consumed. Please note that the Potable and Recycled rates for City use are for calendar year (CY) 2019. Table 4-2: Existing Bimonthly Water Commodity Rates ($/ccf) Customer Class Tier Width (ccf) CY 2019 Single Family Residential Tier 1 0-199 ccf $5.36 Tier 2 >200 ccf $7.65 Multi -Family Residential Uniform $5.47 Landscape Irrigation Uniform $5.47 Non -Residential Uniform $5.47 Recycled Water Uniform $4.92 Potable Rate City Use Uniform $2.36 Recycled Rate City Use Uniform $1.73 CITY OF POWAY WATER AND WASTEWATER COST OF SERVICE AND RATE STUDY REPORT 14 4.1.2.ACCOUNT AND USAGE PROJECTIONS Table 4-3 shows the estimated number of water accounts by meter size for FYE 2019 through FYE 2024. The projections are based on account data provided by the City for FYE 2018. The number of accounts are used to forecast the amount of fixed revenue the City will receive from the bimonthly meter service charges. Table 4-3: Potable and Recycled Water Meters' Meter Size FYE 2019 FYE 2020 FYE 2021 FYE 2022 FYE 2023 FYE 2024 Potable Water Meters 5/8" 0 0 0 0 0 0 3/4" 12,120 12,120 12,182 12,244 12,306 12,368 1" 959 959 962 966 969 973 1 1/2" 306 306 306 306 306 307 2" 285 285 285 285 285 285 3" 19 19 19 19 19 19 4" 5 5 5 5 5 5 6" 2 2 2 2 2 2 8" 2 2 2 2 2 2 Total Potable Water Meters 13,698 13,698 13,764 13,829 13,895 13,961 Recycled Water Meters 5/8" 0 0 0 0 0 0 3/4" 3 3 3 3 3 3 1" 100 100 100 100 100 100 1 1/2" 57 57 57 57 57 57 2" 48 48 48 48 48 48 3" 0 0 0 0 0 0 4" 0 0 0 0 0 0 6" 0 0 0 0 0 0 8" 0 0 0 0 0 0 Total Recycled Water Meters 208 208 208 208 208 208 1 The number of accounts for the 3/4" Potable Water meters includes 1" residential fire accounts. Table 4-4 projects the potable and recycled water consumption by class for the study period based on FYE 2018 usage data. 15 CITY OF POWAY "able 4-4: Potable and Recycled Water Use by Class (ccf) Customer Class FYE 2019 FYE 2020 FYE 2021 FYE 2022 FYE 2023 FYE 2024 Single Family Residential Block 1 2,595,033 2,595,033 2,608,515 2,621,997 2,635,479 2,648,961 Block 2 173,190 173,190 174,090 174,990 175,889 176,789 Multi -Family Residential 188,531 188,531 188,531 188,531 188,531 188,531 Landscape Irrigation 75,421 75,421 75,421 75,421 75,421 75,421 Non -Residential 728,397 728,397 728,397 728,397 728,397 728,397 Agricultural 12,304 12,304 12,304 12,304 12,304 12,304 City Potable Usage 96,327 96,327 96,327 96,327 96,327 96,327 Total Potable Usage 3,869,203 3,869,203 3,883,585 3,897,967 3,912,348 3,926,730 Total Potable Usage (AF) 8,882 8,882 8,915 8,949 8,982 9,015 Recycled Water 250,833 250,833 250,833 250,833 250,833 250,833 City Recycled Usage 260 260 260 260 260 260 Total Recycled Usage 251,093 251,093 251,093 251,093 251,093 251,093 Total Recycled Usage (AF) 576 576 576 576 576 576 4.1.3. REVENUES The City's water revenues consist of operating revenues (i.e. water rate revenues), other operating revenues, and non-operating revenues. Projected water rate revenues under existing rates are calculated for the years FYE 2020 to FYE 2024 by multiplying current rates (Table 4 -land Table 4-2) by the corresponding units of service (Table 4-3 and Table 4-4).' Projecting water rate revenues under existing rates is necessary to evaluate the City's projected baseline financial position in the absence of any proposed rate increases. Note that for City Potable and Recycled use, operating revenues for FYE 2019 were calculated based on CY 2018 rates for 6 months and CY 2019 rates for 6 months. This is because these rates were each in effect for half of FYE 2019.2 ' Fixed charge revenues = [number of meters assessed] x [monthly rate] x [ 6 billing periods]. Volumetric charge revenues = [annual usage in CCF] x [volumetric rate per CCF]. 2 The City's fiscal year is from July 1 through June 30. For example, fiscal year 2019 spanned from July 1, 2018 through June 30, 2019. CITY OF POWAY WATER AND WASTEWATER COST OF SERVICE AND RATE STUDY REPORT 16 Table 4-5: Projected Operating Revenues Under Existing Water Rates Operating Revenues FYE 2019 FYE 2020 FYE 2021 FYE 2022 FYE 2023 FYE 2024 Bimonthly Service Charges Potable Water $4,040,446 $4,237,569 $4,255,005 $4,272,441 $4,289,877 $4,307,313 Recycled Water $148,893 $156,158 $156,158 $156,158 $156,158 $156,158 Commodity Rates Single Family Residential $14,750,313 $15,234,280 $15,313,427 $15,392,575 $15,471,722 $15,550,869 Multi -Family Residential $997,781 $1,031,265 $1,031,265 $1,031,265 $1,031,265 $1,031,265 Landscape Irrigation $399,158 $412,553 $412,553 $412,553 $412,553 $412,553 Non-Residentia1 $3,854,968 $3,984,332 $3,984,332 $3,984,332 $3,984,332 $3,984,332 Agricultural $53,242 $55,245 $55,245 $55,245 $55,245 $55,245 City Potable Use $224,277 $227,549 $227,549 $227,549 $227,549 $227,549 Drought Surcharge $0 $0 $0 $0 $0 $0 Recycled $1,194,758 $1,234,851 $1,234,851 $1,234,851 $1,234,851 $1,234,851 City Recycled Use $451 $451 $451 $451 $451 $451 Total $25,664,287 $26,574,252 $26,670,835 $26,767,418 $26,864,001 $26,960,584 Table 4-6 shows a summary of other revenues. Revenues from the sale of raw water to a golf course were projected beyond FYE 2020 assuming 174 acre-feet per year (AFY) in sales. The majority of other operating and non- operating revenues were held constant beyond FYE 2020. Table 4-6: Water Projected Other Revenues Other Revenue FYE 2019 FYE 2020 FYE 2021 FYE 2022 FYE 2023 FYE 2024 Fees $116,760 $118,730 $118,730 $118,730 $118,730 $118,730 Other $81,100 $0 $0 $0 $0 $0 Miscellaneous $14,790 $14,790 $14,790 $14,790 $14,790 $14,790 Raw Water Sales - Contract $252,679 $262,736 $278,185 $294,552 $311,891 $330,260 Total $465,329 $396,256 $411,705 $428,072 $445,411 $463,780 Table 4-7 shows a revenue summary for the study period based on revenues shown previously in Table 4-5 and Table 4-6. Once again, operating revenues shown in this section reflect projected water rate revenues under existing rates in the absence of any rate increases over the study period. Table 4-7: Water Revenue Summary Revenues FYE 2019 FYE 2020 FYE 2021 FYE 2022 FYE 2023 FYE 2024 Operating Revenues $25,664,287 $26,574,252 $26,670,835 $26,767,418 $26,864,001 $26,960,584 Other Revenues $465,329 $396,256 $411,705 $428,072 $445,411 $463,780 Total $26,129,615 $26,970,508 $27,082,540 $27,195,490 $27,309,412 $27,424,364 4.1.4.0&M EXPENSES The City's operations and maintenance (O&M) expenses, shown in Table 4-8, are based on the FYE 2020 City budget and projected out through FYE 2024. The City's projected purchased water and recycled water expenses were calculated over the study period based on the projected water supply and anticipated supply rates from SDCWA and the City of San Diego. All other O&M expenses were projected beyond FYE 2020 by increasing FYE 2020 budgeted expenses using the inflationary factors discussed in Table 3-1. 17 CITY OF POWAY Table 4-8: Water Operating Expenditures Summary Operating Expenditures FYE 2019 FYE 2020 FYE 2021 FYE 2022 FYE 2023 FYE 2024 Water Purchases SDCWA Fixed Charges $4,057,800 $4,066,842 $4,394,585 $4,658,260 $4,937,756 $5,234,021 SDCWA Supply Charges $10,170,054 $10,391,465 $10,803,586 $11,493,140 $12,226,548 $13,006,589 City of San Diego - Recycled Water $361,954 $367,686 $389,747 $413,132 $437,920 $464,195 Other O&M Legislative & Administrative $701,245 $672,831 $693,016 $713,806 $735,221 $757,277 Finance Services $1,366,234 $1,457,327 $1,501,047 $1,546,078 $1,592,461 $1,640,234 Human Resources $410,027 $410,396 $422,708 $435,389 $448,451 $461,904 Development Services $386,489 $429,508 $442,393 $455,665 $469,335 $483,415 Public Works $1,220,760 $1,309,158 $1,348,433 $1,388,886 $1,430,552 $1,473,469 Treatment & Storage $3,362,082 $3,518,088 $3,683,906 $3,845,130 $4,013,101 $4,190,516 Water Transmission & Distribution $1,485,462 $1,807,544 $1,906,590 $1,998,347 $2,094,801 $2,197,788 Reclaimed Water $578,244 $435,632 $460,040 $484,239 $509,862 $537,103 Total Operating Expenditures $24,100,352 $24,866,477 $26,046,051 $27,432,072 $28,896,007 $30,446,512 4.1.5.CAPITAL IMPROVEMENT PLAN The City has developed a capital improvement plan (CIP) to address ongoing water system needs in each year throughout the study period. Detailed CIP expenditures in each year are shown at the individual project level in Table 4-9. Inflated project costs in all years throughout the study period were provided by City staff. Table 4-9: Water Capital Improvement Plan FYE 2020 FYE 2021 FYE 2022 FYE 2023 FYE 2024 Ongoing Projects Clearwell Upgrades Part 2 $500,000 $0 $0 $0 $0 Subtotal Ongoing Projects $500,000 $0 $0 $0 $0 Proposed Projects Clearwell Upgrades (includes floating cover replacement) $2,164,000 $0 $0 $0 $0 Annual Water Valve Replacement $150,000 $169,000 $176,000 $183,000 $191,000 Annual ACP Water Main Replacement $0 $0 $0 $0 $300,000 Boulder Mtn Reservoir 1 & 2 Rehabilitation ($1,100,000 previously funded) $0 $140,000 $0 $0 $0 Water Treatment Plant Filter Gallery Upgrades $0 $734,000 $0 $0 $0 Water Treatment Plant Sedimentation Basin Upgrades $0 $293,000 $0 $0 $0 WTP Valves and Actuators $0 $100,000 $100,000 $0 $0 Gregg Street Reclaimed Reservoir Rehabilitation $0 $0 $1,172,000 $0 $0 Boulder Mountain Reservoir 3 Rehabilitation $0 $0 $622,000 $0 $0 MCC Upgrades (Welton, Community, Gregg Pot, Gregg Reclaim, Woodcliff) $0 $0 $0 $715,000 $0 Water Treatment Plant Upgrade Filters 1-8 $0 $0 $0 $1,587,000 $0 WTP Washwater Recovery Basin and Pumping Station $0 $0 $0 $733,000 $0 WTP Electrical/Instrumentation Upgrades $0 $0 $0 $0 $2,414,000 Subtotal Proposed Projects $2,314,000 $1,436,000 $2,070,000 $3,218,000 $2,905,000 Total CIP $2,814,000 $1,436,000 $2,070,000 $3,218,000 $2,905,000 4.1.6. RECOMMENDED RESERVE POLICIES To enhance financial management transparency and financial risk management, Raftelis recommends the Water Utility to maintain the following reserves. The following sections describe our recommendations in detail for each reserve. CITY OF POWAY WATER AND WASTEWATER COST OF SERVICE AND RATE STUDY REPORT 18 4.1.6.1. Operating Reserve The purpose of an operating reserve is to provide working capital to support the operation, maintenance, and administration of the utility. From a risk management perspective, the O&M reserve supports the City's cash flow needs during normal operations and additionally ensures that operations can continue should there be significant events that impact cash flows. As it is unlikely for a utility to perfectly predict the revenues and revenue requirements for each billing period, a reserve set aside to hedge the risk of monthly negative cash positions is prudent in financial planning. Another factor to consider when creating a cash flow reserve is the frequency of billing. A utility that bills once a month would require a lower minimum reserve than a utility that bills bimonthly or twice a year. Raftelis recommends that the City revise its current operating reserve target of 20% of operating expenditures to a minimum of 90 days of operating expenses and establish a target balance of 120 days to ensure adequate working capital for operating expenses. The City bills bimonthly; thus 120 days provides sufficient working capital to account for time differential between when expenses occur and when revenues are collected. Additionally, this accounts for revenues varying seasonally while expenses remain relatively static. 4.1.6.2. Capital Replacement Reserve Adequate and timely capital replacement planning is a critical task to ensure reliability and sustainability of the water system. Capital reserves are used to provide funding for capital expenditures due to the capital -intensive nature of the water system. The City does not currently maintain a separate capital replacement reserve. Raftelis recommends the City adopt a policy using the estimated 5 -year average CIP as the target balance. In FYE 2020, this average is $2.5 million. 4.1.6.3. Recommended Total Reserve Targets Table 4-10 summarizes the proposed reserve policies for the City. Table 4-10: Water Proposed Reserve Targets Reserve Policy Operating Minimum: 90 days Target: 120 days Capital Replacement 5 -Year Average CIP 4.1.7.STATUS QUO FINANCIAL PLAN Table 4-11 shows the operating cash flow detail for the City during the study period under current rates with no adjustments. As shown in Line 28, the City is unable to meet its expenses, with particularly large deficits starting in FYE 2022 through FYE 2024 due to increasing O&M costs and capital projects. 19 CITY OF POWAY Table 4-11: Water Financial Plan under Current Rates Line Revenue FYE 2020 FYE 2021 FYE 2022 FYE 2023 FYE 2024 1 Rate Revenue $26,574,252 $26,670,835 $26,767,418 $26,864,001 $26,960,584 2 Other Revenue 3 Fees $118,730 $118,730 $118,730 $118,730 $118,730 4 Miscellaneous $14,790 $14,790 $14,790 $14,790 $14,790 5 Raw Water Sales - Contract $262,736 $278,185 $294,552 $311,891 $330,260 6 Total Other Revenue $396,256 $411,705 $428,072 $445,411 $463,780 7 Total Revenue $26,970,508 $27,082,540 $27,195,490 $27,309,412 $27,424,364 8 Operating Expenditures 9 Water Purchases 10 SDCWA Fixed Charges $4,066,842 $4,394,585 $4,658,260 $4,937,756 $5,234,021 11 SDCWA Supply Charges $10,391,465 $10,803,586 $11,493,140 $12,226,548 $13,006,589 12 City of San Diego - Recycled Water $367,686 $389,747 $413,132 $437,920 $464,195 13 Other O&M 14 Legislative & Administrative $672,831 $693,016 $713,806 $735,221 $757,277 15 Finance Services $1,457,327 $1,501,047 $1,546,078 $1,592,461 $1,640,234 16 Human Resources $410,396 $422,708 $435,389 $448,451 $461,904 17 Development Services $429,508 $442,393 $455,665 $469,335 $483,415 18 Public Works $1,309,158 $1,348,433 $1,388,886 $1,430,552 $1,473,469 19 Treatment & Storage $3,518,088 $3,683,906 $3,845,130 $4,013,101 $4,190,516 20 Water Transmission & Distribution $1,807,544 $1,906,590 $1,998,347 $2,094,801 $2,197,788 21 Reclaimed Water $435,632 $460,040 $484,239 $509,862 $537,103 22 Total Operating Expenditures $24,866,477 $26,046,051 $27,432,072 $28,896,007 $30,446,512 23 Debt Service & Capital Projects 24 Rate Funded Capital Projects $2,814,000 $1,436,000 $2,070,000 $3,218,000 $2,905,000 25 New Proposed Debt $0 $0 $0 $0 $0 26 Total Debt Service & Capital Projects $2,814,000 $1,436,000 $2,070,000 $3,218,000 $2,905,000 27 Total Expenses $27,680,477 $27,482,051 $29,502,072 $32,114,007 $33,351,512 28 Net Cashflow ($709,969) ($399,511) ($2,306,582) ($4,804,595) ($5,927,148) Table 4-12 shows the City's fund balances over study period under current rates with no adjustments. The operating reserve target is equal to 120 days of operating and the capital reserve target is equal to the 5 -year average CIP. The City's operating fund balance (Line 5) will not meet the reserve target (Line 6) in the planning period and, therefore, no funds are transferred the capital replacement fund (Line 9). The City currently does not have capital reserves. Table 4-12: Water Projected Fund Balances Under Current Rates Line Operating Fund (5100) FYE 2020 FYE 2021 FYE 2022 FYE 2023 FYE 2024 1 Beginning Balance $8,556,284 $7,928,391 $7,606,230 $5,364,241 $589,328 2 Net Cashflow ($709,969) ($399,511) ($2,306,582) ($4,804,595) ($5,927,148) 3 Interest Income $82,076 $77,350 $64,593 $29,683 $63 4 Transfers to Capital Replacement $0 $0 $0 $0 $0 5 Ending Balance $7,928,391 $7,606,230 $5,364,241 $589,328 ($5,337,756) 6 Target Reserve Balance $8,288,826 $8,682,017 $9,144,024 $9,632,002 $10,148,837 7 Capital Replacement Fund FYE 2020 FYE 2021 FYE 2022 FYE 2023 FYE 2024 8 Beginning Balance $0 $0 $0 $0 $0 9 Transfers from Operating $0 $0 $0 $0 $0 10 New Debt Proceeds $0 $0 $0 $0 $0 11 Debt Funded Capital Projets $0 $0 $0 $0 $0 12 Ending Balance $0 $0 $0 $0 $0 13 Target Reserve Balance $2,488,600 $2,522,400 $2,441,400 $2,515,680 $2,360,360 CITY OF POWAY WATER AND WASTEWATER COST OF SERVICE AND RATE STUDY REPORT 20 4.1.8. PROPOSED FINANCIAL PLAN Balancing the need for the City to meet its revenue requirements while mitigating impacts to ratepayers, Raftelis worked with staff to determine the revenue adjustment schedule in Table 4-13. All revenue adjustments in the rate models are set for March of each calendar year; however, the City will implement the first revenue adjustment in March 2020 and subsequently in January of each fiscal year. Table 4-13: Water Proposed Revenue Adjustments FYE 2020 FYE 2021 FYE 2022 FYE 2023 FYE 2024 March March March March March 4.50% 4.50% 5.25% 5.25% 5.25% Table 4-14 incorporates the proposed revenue adjustments into the financial plan. As noted above, the City needs to balance its revenue needs with mitigating rate increases for customers. While the proposed financial plan still shows a deficit in funding for FYE 2020 and FYE 2023 (Line 28), the City will rely on reserves to fund the balance of expenditures rather than significantly increase its rates in deficit years. Table 4-14: Water Proposed Financial Plan Line Revenue FYE 2020 FYE 2021 FYE 2022 FYE 2023 FYE 2024 1 Rate Revenue $26,972,865 $28,289,088 $29,742,226 $31,416,644 $33,184,899 2 Other Revenue 3 Fees $118,730 $118,730 $118,730 $118,730 $118,730 4 Miscellaneous $14,790 $14,790 $14,790 $14,790 $14,790 5 Raw Water Sales - Contract $262,736 $278,185 $294,552 $311,891 $330,260 6 Total Other Revenue $396,256 $411,705 $428,072 $445,411 $463,780 7 Total Revenue $27,369,122 $28,700,793 $30,170,299 $31,862,055 $33,648,679 8 Operating Expenditures FYE 2020 FYE 2021 FYE 2022 FYE 2023 FYE 2024 9 Water Purchases 10 SDCWA Fixed Charges $4,066,842 $4,394,585 $4,658,260 $4,937,756 $5,234,021 11 SDCWA Supply Charges $10,391,465 $10,803,586 $11,493,140 $12,226,548 $13,006,589 12 City of San Diego - Recycled Water $367,686 $389,747 $413,132 $437,920 $464,195 13 Other O&M 14 Legislative & Administrative $672,831 $693,016 $713,806 $735,221 $757,277 15 Finance Services $1,457,327 $1,501,047 $1,546,078 $1,592,461 $1,64Q234 16 Human Resources $410,396 $422,708 $435,389 $448,451 $461,904 17 Development Services $429,508 $442,393 $455,665 $469,335 $483,415 18 Public Works $1,309,158 $1,348,433 $1,388,886 $1,430,552 $1,473,469 19 Treatment & Storage $3,518,088 $3,683,906 $3,845,130 $4,013,101 $4,190,516 20 Water Transmission & Distribution $1,807,544 $1,906,590 $1,998,347 $2,094,801 $2,197,788 21 Reclaimed Water $435,632 $460,040 $484,239 $509,862 $537,103 22 Total Operating Expenditures $24,866,477 $26,046,051 $27,432,072 $28,896,007 $30,446,512 23 Debt Service & Capital Projects 24 Rate Funded Capital Projects $2,814,000 $1,436,000 $2,070,000 $3,218,000 $2,905,000 25 New Proposed Debt $0 $0 $0 $0 $0 26 Total Debt Service & Capital Projects $2,814,000 $1,436,000 $2,070,000 $3,218,000 $2,905,000 27 Total Expenses $27,680,477 $27,482,051 $29,502,072 $32,114,007 $33,351,512 28 Net Cashflow ($311,356) $1,218,742 $668,226 ($251,951) $297,167 Table 4-15 shows the City's projected fund balances over the study period. The operating reserve target is equal to 120 days of operating expenses to mitigate against any potential cash flow risks or unexpected O&M costs. The capital reserve target is equal to the 5 -year average CIP. The City's combined operating and capital fund balances 21 CITY OF POWAY will meet the minimum reserve levels beginning in FYE 2021. The City's operating fund balance will not meet the target reserve level beginning in FYE 2023. Additionally, the City will not meet the capital reserve target in the study period in order to minimize rate impacts to customers; however, the reserves will begin to increase in the following years. Table 4-15: Water Projected Fund Balances Under Proposed Rates Line Operating Fund (5100) FYE 2020 FYE 2021 FYE 2022 FYE 2023 FYE 2024 1 Beginning Balance $8,556,284 $8,328,998 $8,771,464 $9,243,801 $9,094,705 2 Net Cashflow ($311,356) $1,218,742 $668,226 ($251,951) $297,167 3 Interest Income $84,070 $89,447 $99,776 $102,856 $104,110 4 Transfers to Capital Replacement $0 ($865,723) ($295,667) $0 $0 5 Ending Balance $8,328,998 $8,771,464 $9,243,801 $9,094,705 $9,495,982 6 Target Reserve Balance $8,288,826 $8,682,017 $9,144,024 $9,632,002 $10,148,837 7 Capital Replacement Fund FYE 2020 FYE 2021 FYE 2022 FYE 2023 FYE 2024 8 Beginning Balance $0 $0 $865,723 $1,161,389 $1,161,389 9 Transfers from Operating $0 $865,723 $295,667 $0 $0 10 New Debt Proceeds $0 $0 $0 $0 $0 11 Debt Funded Capital Projets $0 $0 $0 $0 $0 12 Ending Balance $0 $865,723 $1,161,389 $1,161,389 $1,161,389 13 Target Reserve Balance $2,488,600 $2,522,400 $2,441,400 $2,515,680 $2,360,360 Figure 4-1 through Figure 4-3 display the Financial Plan in graphical format. Figure 4-1 illustrates the operating position of the City, where expenses, inclusive of reserve funding, are shown by stacked bars; and total revenues at both current rates and proposed rates are shown by the horizontal trend lines. Figure 4-2 summarizes the projected CIP and its funding sources (100% Rates/Reserves funded. Figure 4-3 displays the ending total reserve balance for the water utility, inclusive of operating and capital funds. The horizontal trend lines indicate the minimum and target reserve balances and the bars indicate ending reserve balance. No new debt is proposed to be issued as part of the proposed five-year financial plan. Figure 4-1: Water Operating Financial Plan at Proposed Rates N $40 $35 $30 $25 $20 $15 $10 $5 $0 -$5 FYE 2020 Operating Financial Plan FYE 2021 FYE 2022 FYE 2023 FYE 2024 Operating Expenses Water Purchases Rate Funded Capital Debt Service Net Cashflow Current Revenue Proposed Revenue CITY OF POWAY WATER AND WASTEWATER COST OF SERVICE AND RATE STUDY REPORT 22 Figure 4-2: Proposed Water Capital Improvement Plan and Funding Source $3.5 g $3.0 $2.5 $2.0 $1.5 $1.0 $0.5 $0.0 $2.81 Capital Funding Sources $1.44 $2.07 $3.22 $2.91 FYE 2020 FYE 2021 FYE 2022 FYE 2023 FYE 2024 ■ Debt Funded • Rates/Reserves Funded •Total CIP Figure 4-3: Water Projected Ending Balances at Proposed Rates $14 3 $12 $10 $8 $6 $4 $2 so FYE 2020 Operating & Capital Reserves FYE 2021 Total Reserves FYE 2022 emMi FYE 2023 FYE 2024 — — Minimum Reserve —Target Reserve 23 CITY OF POWAY 4.2. Cost of Service Analysis 4.2.1.COST OF SERVICE METHODOLOGY The first step in the COS analysis process is to determine the revenue requirement, which is based on the results of the financial plan and the proposed revenue adjustments. The framework and methodology utilized to develop the COS analysis and to apportion the revenue requirement to each customer class and tier is informed by the processes outlined in the M1 Manual. COS analyses are tailored specifically to meet the unique needs of each water system. However, there are four distinct steps in every analysis to recover costs from customer classes in an accurate, equitable, and defensible manner 1. Cost functionalization: O&M expenses and capital assets are categorized by their function in the system. Functions include supply, treatment, storage, distribution, customer service, etc. 2. Cost causation component allocation: the functionalized costs are then allocated to cost causation components based on their burden on the system. The cost causation components include supply, base delivery, peaking, meter, customer, etc. The revenue requirement is allocated accordingly to the cost causation components and results in the total revenue requirement for each cost causation component. 3. Unit cost development: the revenue requirement for each cost causation component is divided by the appropriate units of service to determine the unit cost for each cost causation component. 4. Revenue requirement distribution: the unit cost is utilized to distribute the revenue requirement for each cost causation component to customer classes and tiers based on their individual service units. The City's customer classes include Domestic, Agricultural, Commercial, Irrigation, Construction, and Recycled. 4.2.2.REVENUE REQUIREMENT The revenue requirement for the proposed rates will be based on FYE 2020, the designated Test Year. Table 4-16 shows the revenue requirement derivation with the total revenue required from rates. The totals shown in the "Operating" and "Capital" columns are the total O&M and capital revenue requirements, respectively, that are to be recovered through rates. The operating costs (Line 7) flow from Table 4-8. The Debt Service category (Line 10) represents both replacement capital projects (Table 4-9) and any proposed debt. Note there is no debt issuance proposed for FYE 2020. Revenue offsets are composed of various miscellaneous, non -rate revenues, shown in Table 4-6. To arrive at the rate revenue requirement, we subtract these revenue offsets from the combined operating and debt service costs. The net cash flow from Table 4-14, Line 28, is shown on Line 19 as Adjustment for Cash Balance. The adjustment to annualize the rate increase (Line 20) is due to the mid -year proposed revenue adjustment occurring in March 2020. These adjustments are then combined to arrive at the total annual revenue requirement from rates. This is the amount that the City's rates are designed to collect, for a full year, in the "Total" column at Line 22. CITY OF POWAY WATER AND WASTEWATER COST OF SERVICE AND RATE STUDY REPORT 24 Table 4-16: Water Revenue Requirement Line Revenue Requirements Operating Capital Total 1 Operating Costs 2 SDCWA Fixed Charges 3 SDCWA Supply Charges 4 City of San Diego - Recycled Water 5 Treatment & Storage 6 Other O&M 7 Subtotal Operating Costs 8 Debt Service 9 Rate Funded Capital Projects 10 New Proposed Debt 11 Subtotal Debt Service 12 Total Revenue Requirements 13 Less: Revenue Offsets 14 Fees 15 Miscellaneous 16 Raw Water Sales - Contract 17 Total Revenue Offsets 18 Less: Adjustments 19 Adjustment for Cash Balance 20 Adjustment for Mid -Year Increase 21 Total Adjustments 22 Total Revenue Requirement from Rates $4,066,842 $10,391,465 $367,686 $3,518,088 $6,522,396 $24,866,477 $4,066,842 $10,391,465 $367,686 $3,518,088 $6,522,396 $0 $24,866,477 $2,814,000 $2,814,000 $0 $0 $0 $2,814,000 $2,814,000 $24,866,477 $2,814,000 $27,680,477 $118,730 $14,790 $262,736 $396,256 $118,730 $14,790 $262,736 $0 $396,256 $311,356 $311,356 ($797,228) ($797,228) ($485,872) $0 ($485,872) $24,956,093 $2,814,000 $27,770,093 4.2.3.FUNCTIONALIZATION AND ALLOCATION OF EXPENSES After determining the revenue requirement, the next step of the COS analysis is to allocate the O&M expenses and capital assets to the following functions: 1. Administration — overhead costs associated with the management of the utility 2. Billing — all customer billing costs 3. Customer Service — represents the costs associated with meter reading, billing and customer and meter service 4. Supply — represents costs of procuring water supplies from SDCWA 5. Production — the costs of buying potable water 6. Treatment — represents costs of water treatment 7. Transmission & Distribution — represents costs pertaining to the City's water distribution system 8. Meters — represents costs relating to maintenance and capital costs of water meters as well as a portion of costs related to water system capacity 9. Recycled Water — represents costs related to the City's recycled water system 10. Capital — infrastructure costs 11. General - represents costs for general operational expenses which cannot be categorized under any of the above The functionalization of costs allows for the allocation of costs to the cost causation components, which include: 1. Supply — costs associated with procuring water supplies from SDCWA 2. Base Delivery — costs associated with providing water under average conditions 3. Peaking (Max Day and Max Hour) — costs associated with providing water under peak demand conditions 4. Recycled Water — costs associated with the City's recycled water system 25 CITY OF POWAY 5. Treatment — costs associated with treating water for the potable water system 6. Meters — costs associated with purchasing, maintaining, and servicing water meters as well as some costs related to system capacity 7. Customer — costs associated with customer service and billing 8. General — costs that do not have any direct cost causation 4.2.4. PEAKING FACTORS Water systems are designed to handle maximum day (Max Day) and maximum hour (Max Hour) demands. Different facilities, such as distribution and storage facilities, are designed to meet the peaking demands of customers. Therefore, peaking costs, also known as extra capacity costs, are associated with meeting peak customer demand. Peaking costs are therefore based on Max Day and Max Hour demands. Table 4-17 shows the system -wide peaking factors used to derive the cost component allocation bases for Base Delivery, Max Day, and Max Hour costs. The Base Delivery, or Base use is considered average daily demand over one year, which has been normalized to a factor of 1.00 (Column B, Line 1). The Max Day peaking factor (Line 2) indicates that the Max Day demand is two times greater than the average daily demand. Similarly, the Max Hour peaking factor (Line 3) shows that the Max Hour demand is three times greater than average demand. These factors were determined during the development of the City's Water Master Plan. The percentage allocations of costs are calculated using the equations outlined. The Base allocation is 1/1 x 100%= 100% The Max Day allocation are calculated as follows: » Base Delivery: 1 / 2 x 100% = 50% » Max Day: (2 - 1) / 2 x 100% = 50% The Max Hour allocations are calculated as follows: » Base Delivery: 1 / 3 x 100% = 33% » MaxDay:(2-1)/3x100%=33% » Max Hour: (3 - 2) / 3 x 100% = 33% The Average Max Day / Max Hour allocation averages the Max Day and Max Hour allocations to Base, Max Day, and Max Hour, respectively, and is used to allocate the cost of transmission and distribution assets which are not identified separately. Table 4-17: System Peaking Factors Line System Allocation Factor Peaking Base Max Day Max Hour Total Factor A B C D E F 1 Base 1.00 100% 0% 0% 100% 2 Max Day 2.00 50% 50% 0% 100% 3 Max Hour 3.00 33% 33% 33% 100% 4 Average Max Day/Max Hour 42% 42% 17% 100% CITY OF POWAY WATER AND WASTEWATER COST OF SERVICE AND RATE STUDY REPORT 26 Table 4-18 shows the derivation of the peaking factors by customer class and tier, determined by dividing the total maximum monthly usage (Column C) by the average monthly usage (Column D) for each customer class and tier. For this analysis, we employ the classes and tiers used in the proposed rate schedule. These peaking factors are used to allocate the peaking costs to each customer class and tier. See the Rate Derivation section of this report for a detailed discussion of tier widths and the use of peaking factors in determining rates. Table 4-18: Customer Class Peaking Factors Line Customer Class A Selected Bimonthly Tiers B Max Month C Average Max Day Month Peaking Factor D E 1 Single Family Residential 2 Tier 1 20 206,218 192,428 1.07 3 Tier 2 56 187,011 133,559 1.40 4 Tier 3 56+ 312,864 135,243 2.31 5 Multi -Family Residential 35,087 31,422 1.12 6 Landscape Irrigation 20,926 10,981 1.91 7 Non -Residential 151,167 121,400 1.25 8 Recycled Water 54,881 41,849 1.31 The Max Hour peaking factor is for each class is derived by multiplying the Max Day factor by 1.5 which is the ratio of the Max Hour to Max Day system peaking factors. 4.2.5.ALLOCATION OF COSTS As detailed in Section 4.2.1, functionalizing costs allows us to better distribute costs to the cost causation components. Table 4-19 shows the function categories used in this study in Column A. Column B identifies the chosen rationale for distributing these functionalized costs to the cost causation components. For example, all costs allocated to the Administration function (Column A, Line 1) are all initially allocated to the General cost causation components (Column K, Line 1). Line 9 shows the distribution of Capital costs based on the City's total current asset value distributed to the relevant cost allocations. 27 CITY OF POWAY Table 4-19: Functionalized O&M Cost Distributions to Cost Causation Factors Line Function Rationale Supply Base Delivery Max Day Max Hour Treatment Meter Customer Recycled General Total A B C D E F G H I J K L 1 Administration General 100% 100% 2 Billing Customer 60% 40% 100% 3 Customer Service Customer 100% 100% 4 Supply Supply 100% 100% 5 Production Max Day 50% 50% 0% 100% 6 Transmission & Distribution Max Hour 33% 33% 33% 100% 7 Treatment Treatment 100% 100% 8 General General 100% 100% 9 Capital Capital 0% 35% 36% 11% 14% 0% 0% 2% 1% 100% 10 Recycled Recycled 100% 100% Using Table 4-19 as a guide, all of the operating costs are then allocated based on their related function's cost allocation distribution. Table 4-20 shows first the percent distributions, then dollar allocations of each O&M cost. CITY OF POWAY WATER AND WASTEWATER COST OF SERVICE AND RATE STUDY REPORT 28 O&M Allocation SDCWA - MWD Readiness -to -Serve Charge SDCWA - MWD Capacity Charge SDCWA - Supply Reliability Charge SDCWA - Customer Service Charge SDCWA - Storage Charge SDCWA -Infrastructure Access Charge SDCWA Supply Charges City of San Diego - Recycled Water Legislative & Administrative Finance Services Human Resources Development Services Public Works Treatment & Storage Water Transmission & Distribution Reclaimed Water O&M Allocation SDCWA - MWD Readiness -to -Serve Charge SDCWA - MWD Capacity Charge SDCWA - Supply Reliability Charge SDCWA - Customer Service Charge SDCWA - Storage Charge SDCWA -Infrastructure Access Charge SDCWA Supply Charges City of San Diego - Recycled Water Legislative & Administrative Finance Services Human Resources Development Services Public Works Treatment & Storage Water Transmission & Distribution Reclaimed Water Total O&M Expenses O&M Allocation 29 CITY OF POWAY Table 4-20: Water O&M Cost Allocation - Function Supply Recycled Administration Billing Administration Capital General Treatment Transmission & Distribution Recycled Function 0 Supply Recycled Administration Billing Administration Capital General Treatment Transmission & Distribution Recycled Supply Base Delivery Max Day Max Hour Treatment Meter Customer Recycled General Total 50% 50% 100% 100% 100% 50% 50% 100% 50% 50% 100% 50% 50% 100% 100% 100% 100% 0% 0% 0% 0% 0% 0% 0% 0% 100% 0% 0% 0% 0% 0% 0% 0% 100% 0% 100% 0% 0% 0% 0% 0% 0% 0% 0% 100% 100% 0% 0% 0% 0% 0% 60% 40% 0% 0% 100% 0% 0% 0% 0% 0% 0% 0% 0% 100% 100% 0% 35% 36% 11% 14% 0% 0% 2% 1% 100% 0% 0% 0% 0% 0% 0% 0% 0% 100% 100% 0% 0% 0% 0% 100% 0% 0% 0% 0% 100% 0% 33% 33% 33% 0% 0% 0% 0% 0% 100% 0% 0% 0% 0% 0% 0% 0% 100% 0% 100% Supply Base Delivery Max Day Max Hour Treatment Meter Customer Recycled General Total $169,530 $0 $0 $0 $0 $169,530 $0 $0 $0 $339,060 $0 $0 $0 $174,450 $0 $0 $0 $0 $0 $174,450 $416,385 $0 $0 $0 $0 $416,385 $0 $0 $0 $832,770 $272,649 $0 $0 $0 $0 $0 $272,649 $0 $0 $545,298 $749,883 $0 $0 $0 $0 $749,883 $0 $0 $0 $1,499,766 $0 $0 $0 $0 $0 $675,498 $0 $0 $0 $675,498 $10,391,465 $0 $0 $0 $0 $0 $0 $0 $0 $10,391,465 $0 $0 $0 $0 $0 $0 $0 $367,686 $0 $367,686 $0 $0 $0 $0 $0 $0 $0 $0 $672,831 $672,831 $0 $0 $0 $0 $0 $874,396 $582,931 $0 $0 $1,457,327 $0 $0 $0 $0 $0 $0 $0 $0 $410,396 $410,396 $0 $150,989 $156,190 $48,111 $60,550 $952 $0 $7,119 $5,596 $429,508 $0 $0 $0 $0 $0 $0 $0 $0 $1,309,158 $1,309,158 $0 $0 $0 $0 $3,518,088 $0 $0 $0 $0 $3,518,088 $0 $602,515 $602,515 $602,515 $0 $0 $0 $0 $0 $1,807,544 $0 $0 $0 $0 $0 $0 $0 $435,632 $0 $435,632 $11,999,912 $753,504 $758,705 $825,076 $3,578,638 $2,886,644 $855,580 $810,437 $2,397,981 $24,866,477 48% 3% 3% 3% 14% 12% 3% 3% 10% 100% Table 4-21 distributes the functionalized capital asset values to cost causation factors similar to Table 4-19 and Table 4-22 shows the resulting percent and dollar allocations of the different capital assets. Capital costs are allocated based on the system assets because capital costs are incurred to refurbish and replace system assets. Using system assets takes a longer-term view of the allocations of capital costs and provides a consistent allocation of costs from year to year even if the capital costs associated with different types of system assets change every year. In valuing the assets, we utilized the original cost less depreciation to account for aging of the assets, thus a decrease in the value. For example, Storage costs are allocated according to Max Day rationale because storage is constructed to meet base and peak day demand. Contrastingly, other costs, such as Meter, Recycled, General and Administrative costs are allocated 100% to their relevant cost causation factor. Table 4-21: Functionalized Capital Cost Distributions to Cost Causation Factors Line Function A Rationale Supply Base Delivery Max Day Max Hour Treatment Meter Customer Recycled General Total B C D E F G H I J K L 1 Storage 2 Pumping 3 Pipelines 4 Fire Hydrants 5 Treatment 6 Administration 7 Meters 8 Equipment 9 Production 10 General 11 Recycled Max Day Max Hour Avg. Max Day/Hour Fire Treatment Customer Service Meter Avg. Max Day/Hour Supply General Recycled 100% 50% 33% 42% 50% 33% 42% 33% 0% 33% 17% 67% 42% 42% 17% 100% 100% CITY OF POWAY WATER AND WASTEWATER COST OF SERVICE AND RATE STUDY REPORT 30 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% Capital Asset Allocation General Land & Easement Pumping Source Of Supply Transmission & Distribution Treatment Plant Recycled Storage Meters Fire Administration Buildings & Improvements Equipment Capital Asset Allocation General Land & Easement Pumping Source Of Supply Transmission & Distribution Treatment Plant Recycled Storage Meters Fire Administration Buildings & Improvements Equipment Total Capital Assets Capital Asset Allocation Function General General Pumping Production Pipelines Treatment Recycled Storage Meters Fire Hydrants Administration General Equipment Function General General Pumping Production Pipelines Treatment Recycled Storage Meters Fire Hydrants Administration General Equipment Table 4-22: Water Capital Cost Allocations Supply 0% 0% 0% 100% 0% 0% 0% 0% 0% 0% 0% 0% 0% Base Delivery 0% 0% 33% 0% 42% 0% 0% 50% 0% 0% 0% 0% 42% Supply Base Delivery $0 $0 $0 $0 $0 $706,198 $0 $0 $0 $2,288,608 $0 $0 $0 $0 $0 $3,676,490 $0 $0 $0 $0 $0 $0 $0 $0 $0 $247,758 Max Day Max Hour Treatment 0% 0% 0% 0% 0% 0% 33% 33% 0% 0% 0% 0% 42% 17% 0% 0% 0% 100% 0% 0% 0% 50% 0% 0% 0% 0% 0% 33% 67% 0% 0% 0% 0% 0% 0% 0% 42% 17% 0% Meter 0% 0% 0% 0% 0% 0% 0% 0% 100% 0% 0% 0% 0% Customer Recycled General 0% 0% 100% 0% 0% 100% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 100% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 100% 0% 0% 0% 0% 100% 0% 0% 0% Total 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% Max Day Max Hour Treatment Meter Customer Recycled General Total $0 $0 $0 $0 $0 $0 $253,497 $253,497 $0 $0 $0 $0 $0 $0 $85 $85 $706,198 $706,198 $0 $0 $0 $0 $0 $2,118,595 $0 $0 $0 $0 $0 $0 $0 $0 $2,288,608 $915,443 $0 $0 $0 $0 $0 $5,492,660 $0 $0 $2,774,694 $0 $0 $0 $0 $2,774,694 $0 $0 $0 $0 $0 $326,230 $0 $326,230 $3,676,490 $0 $0 $0 $0 $0 $0 $7,352,980 $0 $0 $0 $43,627 $0 $0 $0 $43,627 $238,359 $483,942 $0 $0 $0 $0 $0 $722,301 $0 $0 $0 $0 $0 $0 $0 $0 $o $o $o $o $o $0 $2,876 $2,876 $247,758 $99,103 $0 $0 $0 $0 $0 $594,620 $0 $6,919,055 $7,157,415 $2,204,687 $2,774,694 $43,627 0% 35% 36% 11% 14% 0% $0 $326,230 $256,458 $19,682,167 0% 2% 1% 100% The goal of allocating the costs and asset values in Table 4-20 and Table 4-22 is to allocate the total O&M costs and capital causation components. This results in a percent distribution shown in the last line each of Table 4-20 and Table 4-22. Table allocations. 31 CITY OF POWAY assets to the different cost 4-23 summarizes those cost Table 4-23: Water Cost Allocation Distribution Summary Function Rationale Supply Base Delivery Max Day Max Hour Treatment Meter Customer Recycled General Total O&M O&M Expenses 48% 3% 3% 3% 14% 12% 3% 3% 10% 100% Capital Capital Assets 0% 35% 36% 11% 14% 0% 0% 2% 1% 100% CITY OF POWAY WATER AND WASTEWATER COST OF SERVICE AND RATE STUDY REPORT 32 4.2.6.UNITS OF SERVICE This subsection describes the next step in the COS analysis, which is to determine the appropriate units of service to be used to calculate the unit costs for each cost causation component. 4.2.6.1. Equivalent Meters To allocate meter -related costs appropriately, the concept of equivalent meters needs to be understood. By using equivalent meters instead of a straight meter count, the analysis accounts for the fact that larger meters impose greater demands on the system and are more expensive to install, maintain, and replace than smaller meters. Equivalent meters are used in calculating meter service costs. Equivalent meters are based on meter hydraulic capacity. Equivalent meters represent the potential demand on the water system in terms of the base or smallest meter size. A ratio of hydraulic capacity is calculated by dividing large meter capacities by the base meter capacity. The capacity ratio is calculated using the meter capacity in gallons per minute (gpm) provided in the AWWA M1 Manual Principles of Water Rates, Fees and Charges (7th Edition). The base meter is the smallest meter, in this case, a 3/4 -inch meter. The actual number of meters by size is multiplied by the corresponding capacity ratio to calculate equivalent meters. Table 4-24 and Table 4-25 show the equivalent meters for FYE 2020 for potable and recycled water service, respectively. Table 4-24: Potable Water Equivalent Meters' Potable Meter Size Capacity (gpm) AWWA Ratio Number of Meters Equivalent Meters 3/4" 30 1.00 12,120 12,120 1" 50 1.67 959 1,598 1 1/2" 100 3.33 306 1,020 2" 160 5.33 285 1,520 3" 350 11.67 19 222 4" 630 21.00 5 105 6" 1300 43.33 2 87 8" 2400 80.00 2 160 Total Potable Meters 13,698 16,832 1 The number of accounts for the %" Potable Water meters includes 1" residential fire accounts. Table 4-25: Recycled Water Equivalent Meters Recycled Meter Size Capacity (gpm) AWWA Ratio Number of Meters Equivalent Meters 3/4" 30 1.00 3 3 1" 50 1.67 100 167 1 1/2" 100 3.33 57 190 2" 160 5.33 48 256 3" 350 11.67 0 0 4" 630 21.00 0 0 6" 1300 43.33 0 0 8" 2400 80.00 0 0 Total Recycled Meters 33 CITY OF POWAY 208 616 4.2.6.2. Peaking Units of Service Our goal is to proportionately distribute costs to each user class. To accomplish this, we calculate unit costs for each cost causation component. The first step in this process is to calculate the total number of service units demanded by each class for each cost causation component. This is shown in Table 4-26. The capacity or peaking factor for each customer class was derived in Table 4-18. The total equivalent meters are from Table 4-24 and Table 4-25. The Max Day and hour capacities are calculated by multiplying the average daily use by the Max Day or Max Hour peaking factor for each class and tier. This results in the total capacity, with extra capacity calculated by subtracting the average daily use from the total capacity for either Max Day or Max Hour. Table 4-26: Derivation of Cost Causation Component Units of Service Customer Class Bimonthly Percent Annual Use Average Daily Tiers (hcf) in Tier (hcf) Use (hcf/day) Max Day Capacity Total Capacity Extra Capacity Factor (hcf/day) (hcf/day) Max Hour Total Extra Capacity Factor Capacity Capacity (hcf/day) (hcf/day) Number of Number of Equivalent Customers Meters Single Family Residential 2,768,223 13,230 12,650 Tier 1 20 42% 1,154,921 3,164 1.07 3,386 221 1.61 5,078 1,693 Tier 2 56 29% 801,599 2,196 1.40 3,075 878 2.10 4,612 1,537 Tier 3 56+ 29% 811,703 2,224 2.31 5,137 2,913 3.47 7,706 2,569 Multi -Family Residential 188,531 517 1.12 577 60 1.67 865 288 572 146 Landscape Irrigation 75,421 207 1.91 394 187 2.86 591 197 85 10 Non -Residential 728,397 1,996 1.25 2,485 489 1.87 3,727 1,242 2,754 824 Agricultural 12,304 34 1.91 64 31 2.86 96 32 City Potable Usage 96,327 264 1.25 329 65 1.87 493 164 191 68 Recycled Water 251,093 688 1.31 902 214 1.97 1,353 451 616 208 Total 4,120,296 11,288 16,348 4,845 23,169 8,174 17,447 13,906 4.2.7.ALLOCATION OF REVENUE REQUIREMENTS TO COST CAUSATION COMPONENTS Table 4-27 shows the cost causation component unit cost derivations. The operating revenue requirement shown in Column K, Line 1 is equal to the operating revenue requirement (Line 22) in Table 4-16. The operating revenue requirement is allocated to the cost causation components using the resulting O&M allocation from Table 4-23. Similarly, the capital revenue requirement in Column K, Line 2 is equal to the capital revenue requirement (Line 22) in Table 4-16 and is allocated to the cost causation factors per Table 4-23. General costs, shown on Line 4, which cannot be tied to a specific function are redistributed in proportion to the resulting allocations of the other cost causation components except for Supply. Half the treatment costs are reallocated to Max Day in Line 5 since treatment facilities are designed for Max Day and a portion of Max Hour and Max Day costs are redistributed to the Meter component in Line 6. The final adjustments are intended to provide revenue stability for the City by ensuring that approximately 20 percent of rate revenues are from fixed charges. The total adjusted cost of service (Line 7) is divided by the relevant units of service in Line 8 (and from Table 4-26) to calculate the unit cost (Line 10 and Line 11). For example, the unit cost for the Base Delivery component is determined by dividing the total base delivery cost by total potable water use in ccf, while annual Customer costs are divided by the estimated number of bills in each year (total number of customers in Table 4-26 times six bills per year). These unit costs will next be used to distribute the cost causation components to the customer classes. CITY OF POWAY WATER AND WASTEWATER COST OF SERVICE AND RATE STUDY REPORT 34 Table 4-27: Water Unit Cost Calculation Line Cost Allocation A Supply B Base Delivery Max Day C D Max Hour E Treatment F Meter G Customer H Recycled General Total I J K 1 Operating Revenue Requirement 2 Capital Revenue Requirement 3 Total Cost of Service 4 Allocation of General Cost 5 Allocation of Treatment to Max Day 6 Allocation of Peak to Meter 7 Total Adjusted Cost of Service 8 Unit of Service 9 Unit 10 Unit Cost 11 Unit 35 CITY OF POWAY $12,043,158 $0 $12,043,158 $756,219 $989,232 $1,745,451 $321,045 $12,043,158 $2,066,495 3,869,203 3,869,203 hcf $3.11 hcf hcf $0.53 hcf $761,439 $1,023,310 $1,784,750 $328,273 $2,360,902 ($676,167) $3,797,757 hcf/day $783.83 hcf/day 4,845 $828,049 $3,591,535 $315,209 $396,704 $1,143,258 $3,988,239 $210,282 $733,565 ($2,360,902) ($433,133) $920,407 $2,360,902 hcf/day $119.18 hcf/day 7,723 3,869,203 hcf $0.61 hcf $2,897,047 $6,237 $2,903,285 $534,008 $0 $1,109,300 $4,546,592 104,684 $858,663 $0 $858,663 $157,936 $813,358 $2,406,623 $24,956,093 $46,642 $36,666 $2,814,000 $860,000 $2,443,290 $27,770,093 $158,182 ($2,443,290) $0 $0 $0 $0 $27,770,093 $1,016,599 $1,018,181 83,436 251,093 equiv. meter/yr bills/yr $43.43 $12.18 equiv. meter/2-mo per bimonthly bill hcf $4.05 hcf 4.2.8.DISTRIBUTION OF COST CAUSATION COMPONENTS The final step in the cost of service analysis is to distribute the cost causation components to the user classes using the unit costs derived in Table 4-27, thereby arriving at the cost to serve each customer class. Table 4-28 shows the cost allocation to each class. To derive the cost to serve each class, the unit costs from Table 4-27 are multiplied by the service units shown in Table 4-26 for each customer class and tier. For example, the supply costs for Tier 1 Single Family usage is calculated by multiplying the supply unit cost by that class' annual usage in Tier 1. Similarly, the Customer costs are derived by multiplying the Customer unit cost by the total number of bills by class in each year. Similar calculations yield the total cost to serve each user class, as shown in the last column of Table 4-28. We have now calculated the cost to serve each user class and can proceed to derive rates that collect the cost to serve each class. Table 4-28: Allocation of Costs to Customer Classes Customer Class Supply Base Max Day Max Hour Treatment Meter Customer Recycled Total COS Delivery Single Family Residential $3,447,513 $924,779 $19,992,891 Tier 1 $3,594,769 $616,829 $173,611 $201,751 $704,707 Tier 2 $2,495,032 $428,125 $688,564 $183,216 $489,118 Tier 3 $2,526,482 $433,521 $2,283,472 $306,118 $495,283 Multi -Family Residential $586,816 $100,692 $47,225 $34,370 $115,037 $149,144 $10,673 $1,043,957 Landscape Irrigation $234,753 $40,281 $146,684 $23,465 $46,020 $22,063 $731 $513,998 Non -Residential $2,267,185 $389,028 $383,549 $148,077 $444,452 $717,664 $60,239 $4,410,193 Agricultural $38,297 $6,571 $23,930 $3,828 $7,508 $0 $0 $80,134 City Potable Usage $299,824 $51,447 $50,723 $19,582 $58,777 $49,773 $4,971 $535,097 Recycled Water $160,436 $15,206 $1,018,181 $1,193,823 Total Cost of Service $12,043,158 $2,066,495 $3,797,757 $920,407 $2,360,902 $4,546,592 $1,016,599 $1,018,181 $27,770,093 CITY OF POWAY WATER AND WASTEWATER COST OF SERVICE AND RATE STUDY REPORT 36 4.3. Water Rate Development This section includes the calculation of rates and the results of the study. Rates and charges are designed for the study period, FYE 2020 to FYE 2024. Rates and charges in the rate model are assumed to be implemented in March of each year; however, the City will implement the first revenue adjustment in March 2020 and subsequently in January of each fiscal year. 4.3.1.DERIVATION OF PROPOSED BIMONTHLY FIXED CHARGE We propose the City retain its schedule of a bimonthly fixed charges by meter size for all customer classes. Table 4-29 shows the derivation of the bimonthly fixed charge, which represents the Meter and Customer cost components determined in Table 4-27. This charge accounts for the fact that even when a customer does not use any water, the City incurs fixed costs related to maintaining the ability to serve each connection. In FYE 2019, more than 50% of the costs incurred by the water utility are fixed; therefore, to increase revenue stability, the City Council decided to increase the revenue collected from fixed charges to 20% from the current 16%. Meter Component The meter component consists of costs to the City that vary based on meter size. It reflects the fact that larger meters have the potential to demand more capacity compared to smaller meters. The potential capacity demanded is proportional to the potential flow through each meter size as established by the AWWA hydraulic capacity ratios which are shown in the "Capacity Ratio" column of Table 4-29. The ratios show the potential flow through each meter size compared to the flow through a 3/4 -inch meter. The Meter capacity component for larger meters is scaled up using the AWWA capacity ratios shown in the "Capacity Ratio" column. Allocating capacity costs by meter size is a common way to equitably recover the fixed cost of operating the utility. Customer The customer component recovers costs associated with meter reading, customer billing and collection as well as customer service costs. These costs are the same for all meter sizes as it costs the same to provide billing and customer services to a small meter as it does a larger meter. The Meter and Customer components are combined to form the proposed charge by meter size. The difference between proposed FYE 2020 and current fixed charges are also shown Table 4-29: Derivation of the Bimonthly Fixed Charges Capacity Proposed Current Difference Meter Size Meter Customer Ratio Charge Charge ($) 3/4" 1.00 $43.43 $12.18 $55.62 $42.28 $13.34 1" 1.67 $72.39 $12.18 $84.58 $70.47 $14.11 1 1/2" 3.33 $144.77 $12.18 $156.96 $140.90 $16.06 2" 5.33 $231.64 $12.18 $243.82 $225.44 $18.38 3" 11.67 $506.70 $12.18 $518.89 $422.72 $96.17 4" 21.00 $912.06 $12.18 $924.25 $704.52 $219.73 6" 43.33 $1,882.04 $12.18 $1,894.22 $1,409.05 $485.17 8" 80.00 $3,474.53 $12.18 $3,486.72 $2,254.46 $1,232.26 37 CITY OF POWAY 4.3.2. REVISIONS TO TIER DEFINITIONS The only customer class subject to a tiered volumetric rate structure is the Single -Family Residential customer class. The basis for Single -Family Residential tier definitions is shown in Table 4-30. Single -Family Residential Tier 1 usage is intended to provide an affordable rate for essential indoor water usage needs.3 Tier 2 usage is intended to provide for reasonable outdoor usage, and, therefore its upper limit is set to average summer bimonthly usage. Tier 3 usage is designed to capture inefficient and excess usage. Note that all water usage projections by customer class and tier utilized in Section 4.2.6 to develop units of service are based on the proposed tier definitions. Table 4-30: Revised Single -Family Residential Tier Definitions Single -Family Current Bimonthly Proposed Bimonthly Residential Tiers Tier Width Tier Width Proposed Basis for Tier Widths Tier 1 Tier 2 Tier 3 0-199 ccf 199+ ccf 0-20 ccf 21-56 ccf 56+ ccf Tier 1 max set equal to essential indoor needs Tier 2 max set equal to average summer bimonthly usage Use greater than average summer bimonthly usage 4.3.3. DERIVATION OF PROPOSED COMMODITY RATES Proposed commodity rates are comprised of unit costs for the Supply, Base Delivery, Peaking, and Treatment cost causation components. Unit costs from Table 4-27 are used to provide the basis for the calculation of volumetric rates. However, peaking unit rates must first be differentiated by customer class, as these unit costs are not applied uniformly to each customer class and tier. Additionally, because recycled water customers are a homogenous class using water for irrigation, the Recycled volumetric rate is comprised solely of the Recycled Water unit cost, while all other volumetric rates are comprised of the other cost causation component unit costs listed above. Peaking Unit Rates Peaking costs represent the cost of providing Max Day and Max Hour flow capacity to each customer class and are assessed on total usage. Table 4-31 combines the Max Day and Max hour costs in Table 4-28 into Peaking Costs. These costs are divided by total annual use by class and tier to arrive at the Peaking unit cost for each. Table 4-31: Peaking Unit Cost by Class and Tier Customer Class Annual Use Peaking Costs Unit Cost (ccf) Single Family Residential Tier 1 Tier 2 Tier 3 Multi -Family Residential Landscape Irrigation Non -Residential City Potable Usage 1,154,921 801,599 811,703 188,531 87,725 728,397 96,327 $375,362 $0.33 $871,781 $1.09 $2,589,590 $3.19 $81,595 $0.43 $197,906 $2.26 $531,626 $0.73 $70,305 $0.73 'The 20 ccf Single -Family Residential Tier 1 limit is based on an assumed 60 gallons per capita per day (GPCD) for essential water use needs and an average family of four. CITY OF POWAY WATER AND WASTEWATER COST OF SERVICE AND RATE STUDY REPORT 38 Recycled Water Unit Rates Recycled water customers pay the same bimonthly meter service charges as potable water customers. Table 4-32 shows the calculation of the recycled water commodity rate. The total revenue requirement (Line 1) is divided by the total recycled water consumption (Line 2) to arrive at the proposed FYE 2020 rate in Line 3. Table 4-32: Recycled Water Commodity Rate Calculation Line No. 1 Total Recycled Water Revenue Requirement 2 Total Recycled Water Consumption 3 Proposed FYE 2020 Recycled Water Commodity Rate 1 FYE 2020 $1,018,181 251,093 $4.05 Table 4-33 shows the calculation of proposed FYE 2020 volumetric rates per ccf by customer class and tier. Supply, Base Delivery unit rates are directly from Table 4-27. Peaking unit rates were established in Table 4-31. The Recycled Water volumetric rate was established in Table 4-32. The differences between proposed FYE 2020 and current volumetric rates are also shown. Table 4-33: Derivation of the Commodity Rates ($/ccf) Customer Class Bimonthly Base Proposed Current Difference Tiers Supply Delivery Peaking Treatment Rate Rate ($) Single Family Residential Tier 1 20 $3.11 $0.53 $0.33 $0.61 $4.59 $5.36 -$0.77 Tier 2 56 $3.11 $0.53 $1.09 $0.61 $5.35 $5.36 -$0.01 Tier 3 56+ $3.11 $0.53 $3.19 $0.61 $7.45 $5.36 $2.09 Multi -Family Residential $3.11 $0.53 $0.43 $0.61 $4.69 $5.47 -$0.78 Landscape Irrigation $3.11 $0.53 $2.26 $0.61 $6.52 $5.47 $1.05 Non -Residential $3.11 $0.53 $0.73 $0.61 $4.99 $5.47 -$0.48 City Potable Usage $3.11 $0.53 $0.73 $0.61 $4.99 $2.36 $2.63 Recycled Water $4.05 $4.06 $4.92 -$0.86 39 CITY OF POWAY 4.3.4. PROPOSED WATER RATE SCHEDULE The proposed rates derived in Table 4-29 and Table 4-33 are increased annually by the proposed revenue adjustments shown in Table 4-12. The resulting proposed rates for the study period are provided in Table 4-34 and Table 4-35. Table 4-34: FYE 2020-2024 Proposed Water Bimonthly Meter Service Charges Meter Size Current March March March March March Charge 2020 2021 2022 2023 2024 5/8" $42.28 $41.14 $43.00 $45.26 $47.64 $50.15 3/4" $42.28 $55.62 $58.13 $61.19 $64.41 $67.80 1" $70.47 $84.58 $88.39 $93.04 $97.93 $103.08 11/2" $140.90 $156.96 $164.03 $172.65 $181.72 $191.27 2" $225.44 $243.82 $254.80 $268.18 $282.26 $297.08 3" $422.72 $518.89 $542.25 $570.72 $600.69 $632.23 4" $704.52 $924.25 $965.85 $1,016.56 $1,069.93 $1,126.11 6" $1,409.05 $1,894.22 $1,979.46 $2,083.39 $2,192.77 $2,307.90 8" $2,254.46 $3,486.72 $3,643.63 $3,834.93 $4,036.27 $4,248.18 Table 4-35: FYE 2020-2024 Proposed Water Commodity Rates Customer Class Bimonthly Current March March March March March Tiers (ccf) Rate 2020 2021 2022 2023 2024 Single Family Residential Tier 1 20 $5.36 $4.59 $4.80 $5.06 $5.33 $5.61 Tier 2 56 $5.36 $5.35 $5.60 $5.90 $6.21 $6.54 Tier 3 56+ $5.36 $7.45 $7.79 $8.20 $8.64 $9.10 Multi -Family Residential $5.47 $4.69 $4.91 $5.17 $5.45 $5.74 Landscape Irrigation $5.47 $6.52 $6.82 $7.18 $7.56 $7.96 Non -Residential $5.47 $4.99 $5.22 $5.50 $5.79 $6.10 City Potable Usage $2.36 $4.99 $5.22 $5.50 $5.79 $6.10 Recycled Water $4.92 $4.06 $4.25 $4.48 $4.72 $4.97 4.4. Bill Impacts Figure 4-4 shows the impacts of the proposed rates on a hypothetical Single -Family Residential customer with a 3/4" meter at different usage levels. Figure 4-5 shows the impacts on a hypothetical Non -Residential customer with a 1" meter and different levels of consumption. CITY OF POWAY WATER AND WASTEWATER COST OF SERVICE AND RATE STUDY REPORT 40 Figure 4-4: Single -Family Residential Water Bill Impact Analysis 51,600 $1,400 51,200 51,000 5800 $400 $200 595.88 5101.52 - - SFR Impacts at Different Usage Levels - 3/4" Meter - 3 -Tiered $149.48$147.42 5240.605238.37 5342.44 5340.02 51,040.32 5667.82 5578.28 5846.28 90 595.88 5149.48 524060 5342.44 5578.28 5846.28 51,116.57 10 units 20 units 37 units 56 units 100 units 150 units 200 units ■Current Bill 595.88 5149.48 5240.60 5342.44 5578.28 5846.28 51,116.57 • Proposed Bill 5101.52 5147.42 5238.37 5340.02 5667.82 51,040.32 51,412.82 Impact (5) 55.64 -52.06 -52.23 -52.42 589.54 5194.04 5296.25 Impact (%) 5.9% -1.4% -0.9% -0.7% 15.5% 22.9% 26.5% Figure 4-5: Non -Residential Water Bill Impact Analysis Non -Residential Impacts at Different Usage Levels - 1" Meter 5600 5508.07 5500 5483.78 5400 5300 5360.385342'. $218.165219.31 38 5250.98 $249.25 5200 $179.87$184 5141.58 5149.45 5108.76 $119.51 $1001 $0 L 595.88 10 units 5149.48 20 units 5240.60 37 units 5342.44 56 units 5578.28 100 units 5846.28 150 units 51,116.57 • Current Bill 5108.76 5141.58 5179.87 5218.16 525098 5360.38 5508.07 • Proposed Bill 5119.51 5149.45 $184.38 5219.31 5249.25 5349.05 5483.78 Impact (5) 510.75 57.87 54.51 51.15 -51.73 -511.33 -524.29 Impact (%) 9.9% 5.6% 2.5% 0.5% -0.7% -3.1% -4.836 41 CITY OF POWAY 5. Wastewater Rate Study 5.1. Wastewater Utility Financial Plan This section details the development of the five-year financial plan for City's wastewater utility. This includes the determination of annual revenues required from wastewater rates based on annual cash flow projections. Assumptions and inputs related to projected revenues, operating expenses, capital expenditures are clearly outlined in the following subsections. 5.1.1.EXISTING RATE STRUCTURE AND RATES The City bills every two months (bimonthly), resulting in six total bills per year for each customer. The City's current rates went into effect on March 1, 2019. The existing rate structure for wastewater customers consists of a uniform bimonthly fixed service charge for Single -Family residential customers. All other customers pay a fixed bimonthly service charge based on meter size. The City's existing bimonthly service charges are shown below in Table 5-1. Table 5-1: Existing Bimonthly Wastewater Service Charges Customer Class Meter Size CY 2019 Single -Family Residential (flat) $21.34 Non -Residential, Multi -Family, & Mobile Home 5/8" $28.16 3/4" $28.16 1" $38.23 1 1/2" $63.44 2" $93.69 3" $174.35 4" $265.07 6" $617.97 8" $819.62 Additionally, all customers pay a commodity rate by customer class. These rates are shown in Table 5-2. Single - Family Residential customers pay a seven -tiered volumetric charge based on the customer's average winter water usage determined by taking 85% of the lowest winter water use averaged over the last three years. All other customers pay a uniform volumetric charge per unit of wastewater flow estimated as 90% of the customers' bimonthly water use. CITY OF POWAY WATER AND WASTEWATER COST OF SERVICE AND RATE STUDY REPORT 42 Table 5-2: Existing Bimonthly Commodity Rates ($/ccf wastewater) Customer Class Tier Width (ccf) CY 2019 Single Family Residential Tier 1 0-5 $29.54 Tier 2 6-12 $52.12 Tier 3 13-19 $78.45 Tier 4 20-26 $85.99 Tier 5 27-37 $101.04 Tier 6 38-50 $116.09 Tier 7 >51 $127.39 Non -Residential, Multi -Family, & Mobile Home General Commercial $4.02 Medium -Low $4.60 Medium $5.35 Medium -High $6.85 High $8.15 Light Industry $4.22 Multi -Family & Mobile home $4.02 Churches $4.02 Schools $4.02 5.1.2.ACCOUNT AND USAGE PROJECTIONS Table 5-3 shows the estimated number of wastewater accounts by customer class and meter size for FYE 2019 through FYE 2024. The projections are based on account data provided by the City for FYE 2018. The number of accounts is used to forecast the amount of fixed revenue the City will receive from the bimonthly meter service charges. Table 5-3: Wastewater Accounts Customer Class Meter Size FYE 2019 FYE 2020 FYE 2021 FYE 2022 FYE 2023 FYE 2024 Single Family Residential 11,420 11,420 11,479 11,539 11,598 11,657 Non -Residential, Multi -Family, & Mobile Home 5/8" 0 0 0 0 0 0 3/4" 123 123 123 123 123 123 1" 224 224 224 224 224 224 1 1/2" 166 166 166 166 166 166 2" 206 206 206 206 206 206 3" 16 16 16 16 16 16 4" 5 5 5 5 5 5 6" 1 1 1 1 1 1 8" 2 2 2 2 2 2 Total Non -Residential, Multi -Family, & Mobile Home 743 743 743 743 743 743 Table 5-4 projects the number of Single -Family Residential accounts per tier and the billed wastewater flow by class for the study period based on FYE 2018 data. 43 CITY OF POWAY Table 5-4: Accounts per Tier and Billed Wastewater Flow by Class (ccf) Customer Class FYE 2019 FYE 2020 FYE 2021 FYE 2022 FYE 2023 FYE 2024 Single Family Residential (Number of Accounts per Tier) Tier 1 1,612 1,612 1,620 1,629 1,637 1,645 Tier 2 4,271 4,271 4,293 4,315 4,338 4,360 Tier 3 3,789 3,789 3,809 3,828 3,848 3,868 Tier 4 850 850 854 859 863 868 Tier 5 491 491 494 496 499 501 Tier 6 214 214 215 216 217 218 Tier 7 193 193 194 195 196 197 Total Number of Accounts 11,420 11,420 11,479 11,539 11,598 11,657 Non -Residential, Multi -Family, & Mobile Home General Commercial 202,246 202,246 202,246 202,246 202,246 202,246 Medium -Low 46,867 46,867 46,867 46,867 46,867 46,867 Medium 7,952 7,952 7,952 7,952 7,952 7,952 Medium -High 516 516 516 516 516 516 High 35,502 35,502 35,502 35,502 35,502 35,502 Light Industry 35,816 35,816 35,816 35,816 35,816 35,816 Multi -Family & Mobile home 179,261 179,261 179,261 179,261 179,261 179,261 Churches 10,748 10,748 10,748 10,748 10,748 10,748 Schools 38,050 38,050 38,050 38,050 38,050 38,050 Total Billed Wastewater Flow (ccf) 556,957 556,957 556,957 556,957 556,957 556,957 5.1.3. REVENUES The City's wastewater revenues consist of operating revenues (i.e. wastewater rate revenues), other operating revenues, and non-operating revenues. Projected wastewater rate revenues under existing rates are calculated for the years FYE 2020 to FYE 2024 (Table 5-5) by multiplying current rates (Table 5-1 and Table 5-2) by the corresponding units of service (Table 5-3 and Table 5-4).4 Projecting wastewater rate revenues under existing rates is necessary to evaluate the City's projected baseline financial position in the absence of any proposed rate increases. Table 5-5: Projected Operating Revenues Under Existing Wastewater Rates Operating Revenues FYE 2019 FYE 2020 FYE 2021 FYE 2022 FYE 2023 FYE 2024 Bi -Monthly Service Charges Single -Family Residential $1,431,611 $1,462,217 $1,469,813 $1,477,410 $1,485,007 $1,492,604 Non -Residential, Multi -Family, & Mobile Home $283,309 $289,383 $289,383 $289,383 $289,383 $289,383 Bi -Monthly Flow Charges Single Family Residential $4,344,481 $4,437,610 $4,460,665 $4,483,720 $4,506,775 $4,529,830 Non -Residential, Multi -Family, & Mobile Home $2,391,489 $2,431,972 $2,431,972 $2,431,972 $2,431,972 $2,431,972 Total $8,450,890 $8,621,183 $8,651,834 $8,682,486 $8,713,137 $8,743,789 'Fixed charge revenues = [number of accounts/meters assessed] x [bimonthly rate] x [ 6 billing periods]. Volumetric charge revenues = [annual flow in CCF] x [volumetric rate per CCF]. CITY OF POWAY WATER AND WASTEWATER COST OF SERVICE AND RATE STUDY REPORT 44 Table 5-6 shows a summary of other revenues. The other operating and non-operating revenues were projected beyond FYE 2020 budgeted amounts by holding constant through FYE 2024 Table 5-6: Projected Other Wastewater Revenues Other Revenue FYE 2019 FYE 2020 FYE 2021 FYE 2022 FYE 2023 FYE 2024 Fees $22,230 $22,720 $22,720 $22,720 $22,720 $22,720 Other $48,540 $63,000 $63,000 $63,000 $63,000 $63,000 Miscellaneous $600,360 $0 $0 $0 $0 $0 Total $671,130 $85,720 $85,720 $85,720 $85,720 $85,720 Table 5-7 shows a revenue summary for the study period based on revenues shown previously in Table 5-5 and Table 5-6. Once again, operating revenues shown in this section reflect projected wastewater rate revenues under existing rates in the absence of any rate increases over the study period. Table 5-7: Wastewater Revenue Summary Revenues FYE 2019 FYE 2020 FYE 2021 FYE 2022 FYE 2023 FYE 2024 Operating Revenues $8,450,890 $8,621,183 $8,651,834 $8,682,486 $8,713,137 $8,743,789 Other Revenue $671,130 $85,720 $85,720 $85,720 $85,720 $85,720 Total $9,122,020 $8,706,903 $8,737,554 $8,768,206 $8,798,857 $8,829,509 5.1.4.0&M EXPENSES The City's operations and maintenance (O&M) expenses, shown in Table 5-8, are based on the FYE 2020 City budget and projected out through FYE 2024. O&M expenses were projected beyond FYE 2020 by increasing FYE 2020 budgeted expenses using the inflationary factors discussed in Table 3-1. Table 5-8: Wastewater Operating Expenditures Summary Operating Expenditures FYE 2019 FYE 2020 FYE 2021 FYE 2022 FYE 2023 FYE 2024 Legislative & Administrative $372,947 $369,768 $380,861 $392,287 $404,055 $416,177 Finance Services $953,593 $1,051,669 $1,083,219 $1,115,716 $1,149,187 $1,183,663 Human Resources $178,498 $186,148 $191,732 $197,484 $203,409 $209,511 Development Services $247,668 $262,319 $270,189 $278,294 $286,643 $295,242 Public Works $1,058,254 $1,157,381 $1,192,102 $1,227,866 $1,264,701 $1,302,643 Treatment $3,564,910 $4,421,733 $4,578,047 $4,739,759 $5,264,229 $5,449,893 Wastewater Disposal $969,260 $859,614 $889,925 $921,311 $953,811 $987,464 Wastewater Collection $1,180,630 $1,304,423 $1,375,961 $1,441,136 $1,510,568 $1,584,610 Total Operating Expenditures $8,525,760 $9,613,055 $9,962,037 $10,313,854 $11,036,603 $11,429,203 5.1.5.CAPITAL IMPROVEMENT PLAN The City has developed a capital improvement plan (CIP) to address ongoing wastewater system needs in each year throughout the study period. Detailed CIP expenditures in each year are shown at the individual project level in Table 5-9. Project costs in all years throughout the study period were provided by City staff. 45 CITY OF POWAY Table 5-9: Wastewater Capital Improvement Plan FYE 2020 FYE 2021 FYE 2022 FYE 2023 FYE 2024 Ongoing Projects Martincoit Road Sewer Upsize (MP CAP -01) Subtotal Ongoing Projects $550,000 $550,000 $0 $0 $0 $0 $0 $0 $0 $0 Proposed Projects Manhole Rehabilitation $150,000 $169,000 $176,000 $183,000 $191,000 Sewer Line Repair Replace 16/17 (Exposed Sewer east of Martincoit) $1,000,000 $0 $0 $0 $0 Sewer Line Repair Replace $0 $281,000 $293,000 $305,000 $318,000 Butterfield Trail Sewer Upsize (MP CAP -02) $0 $0 $0 $0 $0 Sagewood Drive Sewer Upsize-Orchard Bend to Martincoit (MP CAP -04) $0 $0 $530,000 $0 $0 Treatment Plant Sludge Discharge Study $0 $0 $0 $25,000 $0 Camino Del Valle MCC Rebuild $0 $0 $0 $50,000 $0 Camino Del Valle Lift Station Upgrades (MP CAP -11) $0 $0 $0 $45,000 $0 Old Coach Lift Station Capacity Upgrade (MP CAP -10) $0 $0 $0 $0 $660,000 Replace generator at Old Coach Lift Station $0 $0 $0 $0 $125,000 Subtotal Proposed Projects $1,150,000 $450,000 $999,000 $608,000 $1,294,000 Total CIP $1,700,000 $450,000 $999,000 $608,000 $1,294,000 5.1.6. RECOMMENDED RESERVE POLICIES To enhance financial management transparency and financial risk management, Raftelis recommends the Wastewater Utility to maintain the following reserves. The following sections describe our recommendations in detail for each reserve. 5.1.6.1. Operating Reserve The purpose of an operating reserve is to provide working capital to support the operation, maintenance, and administration of the utility. From a risk management perspective, the O&M reserve supports the City's cash flow needs during normal operations and additionally ensures that operations can continue should there be significant events that impact cash flows. As it is unlikely for a utility to perfectly predict the revenues and revenue requirements for each billing period, a reserve set aside to hedge the risk of monthly negative cash positions is prudent in financial planning. Another factor to consider when creating a cash flow reserve is the frequency of billing. A utility that bills once a month would require a lower minimum reserve than a utility that bills bimonthly or twice a year. Raftelis recommends that the City revise its current operating reserve target of 20% of operating expenditures to a minimum of 90 days of operating expenses and establish a target balance of 120 days to ensure adequate working capital for operating expenses. The City bills bimonthly; thus 120 days provides sufficient working capital to account for time differential between when expenses occur and when revenues are collected. Additionally, this accounts for revenues varying seasonally while expenses remain relatively static. 5.1.6.2. Capital Replacement Reserve Adequate and timely capital replacement planning is a critical task to ensure reliability and sustainability of the wastewater system. Capital reserves are used to provide funding for capital expenditures due to the capital - intensive nature of the wastewater system. The City does not currently maintain a separate capital replacement reserve. Raftelis recommends the City adopt a policy using the estimated 5 -year average CIP as the target balance. In FYE 2020, this average is about $1.0 million. 5.1.6.3. Recommended Total Reserve Targets Table 5-10 summarizes the proposed reserve policies for the City. CITY OF POWAY WATER AND WASTEWATER COST OF SERVICE AND RATE STUDY REPORT 46 Table 5-10: Wastewater Proposed Reserve Targets Reserve Policy Operating Capital Replacement Minimum: 90 days Target: 120 days 5 -Year Average CIP 5.1.7.STATUS QUO FINANCIAL PLAN Table 5-11 shows the operating cash flow detail for the City during the study period under current rates with no adjustments. As shown in Line 22, the City is unable to meet its expenses beginning in FYE 2020 due to increasing O&M costs and capital projects. Table 5-11: Wastewater Financial Plan under Current Rates Line Revenue FYE 2020 FYE 2021 FYE 2022 FYE 2023 FYE 2024 1 Rate Revenue $8,621,183 $8,651,834 $8,682,486 $8,713,137 $8,743,789 2 Other Revenue 3 Fees $22,720 $22,720 $22,720 $22,720 $22,720 4 Other $63,000 $63,000 $63,000 $63,000 $63,000 5 Total Other Revenue $85,720 $85,720 $85,720 $85,720 $85,720 6 Total Revenue $8,706,903 $8,737,554 $8,768,206 $8,798,857 $8,829,509 7 Operating Expenditures 8 Legislative & Administrative $369,768 $380,861 $392,287 $404,055 $416,177 9 Finance Services $1,051,669 $1,083,219 $1,115,716 $1,149,187 $1,183,663 10 Human Resources $186,148 $191,732 $197,484 $203,409 $209,511 11 Development Services $262,319 $270,189 $278,294 $286,643 $295,242 12 Public Works $1,157,381 $1,192,102 $1,227,866 $1,264,701 $1,302,643 13 Treatment $4,421,733 $4,578,047 $4,739,759 $5,264,229 $5,449,893 14 Wastewater Disposal $859,614 $889,925 $921,311 $953,811 $987,464 15 Wastewater Collection $1,304,423 $1,375,961 $1,441,136 $1,510,568 $1,584,610 16 Total Operating Expenditures $9,613,055 $9,962,037 $10,313,854 $11,036,603 $11,429,203 17 Debt Service & Capital Projects 18 Rate Funded Capital Projects $1,700,000 $450,000 $999,000 $608,000 $1,294,000 19 New Proposed Debt $0 $0 $0 $0 $0 20 Total Debt Service $1,700,000 $450,000 $999,000 $608,000 $1,294,000 21 Total Expenses $11,313,055 $10,412,037 $11,312,854 $11,644,603 $12,723,203 22 Net Cashflow ($2,606,152) ($1,674,482) ($2,544,648) ($2,845,746) ($3,893,694) Table 5-12 shows the City's fund balances over the study period under current rates with no adjustments. The operating reserve target is equal to 120 days of operating and the capital reserve target is equal to the 5 -year average CIP. The City's operating fund balance will not meet the operating reserve target (Line 5) beginning in the FYE 2024 and will not meet the capital replacement reserve target beginning in FYE 2024 (Line 12). The City currently does not have capital reserves. 47 CITY OF POWAY Fable 5-12: Wastewater Projected Fund Balances Under Current Rates Line Operating Fund (5200) FYE 2020 FYE 2021 FYE 2022 FYE 2023 FYE 2024 1 Beginning Balance $15,459,676 $11,984,890 $10,431,986 $7,833,921 $4,964,484 2 Net Cashflow ($2,606,152) ($1,674,482) ($2,544,648) ($2,845,746) ($3,893,694) 3 Interest Income $141,566 $121,578 $101,699 $75,764 $42,824 4 Transfers from (to) Captial Replacement ($1,010,200) $0 ($155,116) ($99,454) $0 5 Ending Balance $11,984,890 $10,431,986 $7,833,921 $4,964,484 $1,113,614 6 Target Reserve Balance $3,204,352 $3,320,679 $3,437,951 $3,678,868 $3,809,734 7 Capital Replacement Fund FYE 2020 FYE 2021 FYE 2022 FYE 2023 FYE 2024 8 Beginning Balance $0 $1,010,200 $1,010,200 $1,165,316 $1,264,770 9 Transfers from Operating $1,010,200 $0 $155,116 $99,454 $0 10 New Debt Proceeds $0 $0 $0 $0 $0 11 Debt Funded Capital Projets $0 $0 $0 $0 $0 12 Ending Balance $1,010,200 $1,010,200 $1,165,316 $1,264,770 $1,264,770 13 Target Reserve Balance $1,010,200 $960,585 $1,165,316 $1,264,770 $1,447,133 5.1.8. PROPOSED FINANCIAL PLAN Balancing the need for the City to meet its revenue requirements while mitigating increases to ratepayers' cost of service, Raftelis worked with staff to determine the revenue adjustment schedule in Table 5-13. All revenue adjustments in the rate model are set for March of each year; however, the City will implement the first revenue adjustment in March 2020 and subsequently in January of each fiscal year. Table 5-13: Wastewater Proposed Revenue Adjustments FYE 2020 FYE 2021 FYE 2022 FYE 2023 FYE 2024 March March March March March 6.3% 6.3% 6.3% 6.3% 6.3% Table 5-14 incorporates the proposed revenue adjustments into the financial plan. As noted above, the City needs to balance its revenue needs with mitigating rate increases for customers. While the proposed financial plan still shows a negative net cashflow in FYE 2020 and FYE 2023 (Line 22), the City's wastewater reserves exceed the proposed target. The City will rely on reserves to fund the balance of expenditures rather than significantly increase its rates in deficit years. This was a strategic decision made by the City in preparation for funding the City's share of San Diego's Pure Water Project. These funds have been set aside to help mitigate impacts to rate payers. The reserves are being gradually drawn down to pay the City's share of the Pure Water Program. CITY OF POWAY WATER AND WASTEWATER COST OF SERVICE AND RATE STUDY REPORT 48 Table 5-14: Wastewater Proposed Financial Plan Line Revenue FYE 2020 FYE 2021 FYE 2022 FYE 2023 FYE 2024 1 Rate Revenue $8,802,228 $9,390,035 $10,016,970 $10,685,629 $11,398,783 2 Other Revenue 3 Fees $22,720 $22,720 $22,720 $22,720 $22,720 4 Other $63,000 $63,000 $63,000 $63,000 $63,000 5 Total Other Revenue $85,720 $85,720 $85,720 $85,720 $85,720 6 Total Revenue $8,887,948 $9,475,755 $10,102,690 $10,771,349 $11,484,503 7 Operating Expenditures 8 Legislative & Administrative $369,768 $380,861 $392,287 $404,055 $416,177 9 Finance Services $1,051,669 $1,083,219 $1,115,716 $1,149,187 $1,183,663 10 Human Resources $186,148 $191,732 $197,484 $203,409 $209,511 11 Development Services $262,319 $270,189 $278,294 $286,643 $295,242 12 Public Works $1,157,381 $1,192,102 $1,227,866 $1,264,701 $1,302,643 13 Treatment $4,421,733 $4,578,047 $4,739,759 $5,264,229 $5,449,893 14 Wastewater Disposal $859,614 $889,925 $921,311 $953,811 $987,464 15 Wastewater Collection $1,304,423 $1,375,961 $1,441,136 $1,510,568 $1,584,610 16 Total Operating Expenditures $9,613,055 $9,962,037 $10,313,854 $11,036,603 $11,429,203 17 18 Rate Funded Capital Projects $1,700,000 $450,000 $999,000 $608,000 $1,294,000 19 New Proposed Debt $0 $0 $0 $0 $0 20 Total Debt Service $1,700,000 $450,000 $999,000 $608,000 $1,294,000 21 Total Expenses $11,313,055 $10,412,037 $11,312,854 $11,644,603 $12,723,203 22 Net Cashflow ($2,425,107) ($936,282) ($1,210,164) ($873,254) ($1,238,701) Debt Service & Capital Projects Table 5-15 shows the City's projected fund balances over the study period. The operating reserve target is equal to 120 days of operating expenses to mitigate against any potential cash flow risks or unexpected O&M costs. The capital reserve target is equal to the 5 -year average CIP. Under the recommended plan, the City will draw down its current reserves to fund operating and capital costs but will meet the 5 -year financial reserve targets. Table 5-15: Wastewater Projected Fund Balances Under Proposed Rates Line Operating Fund (5200) FYE 2020 FYE 2021 FYE 2022 FYE 2023 FYE 2024 1 Beginning Balance $15,459,676 $12,166,840 $11,357,647 $10,109,995 $9,245,673 2 Net Cashflow ($2,425,107) ($936,282) ($1,210,164) ($873,254) ($1,238,701) 3 Interest Income $142,471 $127,089 $117,628 $108,387 $98,911 4 Transfers from (to) Captial Replacement ($1,010,200) $0 ($155,116) ($99,454) ($182,363) 5 Ending Balance $12,166,840 $11,357,647 $10,109,995 $9,245,673 $7,923,521 6 Target Reserve Balance $3,204,352 $3,320,679 $3,437,951 $3,678,868 $3,809,734 7 Capital Replacement Fund FYE 2020 FYE 2021 FYE 2022 FYE 2023 FYE 2024 8 Beginning Balance $0 $1,010,200 $1,010,200 $1,165,316 $1,264,770 9 Transfers from Operating $1,010,200 $0 $155,116 $99,454 $182,363 10 New Debt Proceeds $0 $0 $0 $0 $0 11 Debt Funded Capital Projets $0 $0 $0 $0 $0 12 Ending Balance $1,010,200 $1,010,200 $1,165,316 $1,264,770 $1,447,133 13 Target Reserve Balance $1,010,200 $960,585 $1,165,316 $1,264,770 $1,447,133 Figure 5-1 through Figure 5-3 display the Financial Plan in graphical format. Figure 5-1 illustrates the operating position of the City, where expenses, inclusive of reserve funding, are shown by stacked bars; and total revenues at both current rates and proposed rates are shown by the horizontal trend lines. Figure 5-2 summarizes the projected 49 CITY OF POWAY CIP and its funding sources (100% Rates/Reserves funded). Figure 5-3 displays the ending total reserve balance for the wastewater utility, inclusive of operating and capital funds. The horizontal trend lines indicates the minimum and target reserve balances and the bars indicate ending reserve balance. No new debt is proposed to be issued as part of the proposed five-year financial plan. It should be noted that reserves are being drawn down to fund capital expenses every year. The reserves exceed the target because the City is saving reserves to fund the Pure Water Program from the City of San Diego. This program is estimated to cost the City approximately $47M over the next ten years. Figure 5-1: Wastewater Operating Financial Plan at Proposed Rates $8 $6 $4 $2 $0 -$2 -$4 1 FYE 2020 Operating Financial Plan ram ammo FYE 2021 Operating Expenses 1 Net Cashflow FYE 2022 FYE 2023 Rate Funded Capital Debt Service Current Revenue — — Proposed Revenue FYE 2024 Figure 5-2: Proposed Wastewater Capital Improvement Plan and Funding Source $1.0 $0.8 $0.6 $0.4 $0.2 $0.0 $1.70 Capital Funding Sources $0.45 FYE 2020 FYE 2021 $1.00 1 FYE 2022 $1.29 FYE 2023 FYE 2024 • Debt Funded ■ Rates/Reserves Funded •Total CIP CITY OF POWAY WATER AND WASTEWATER COST OF SERVICE AND RATE STUDY REPORT 50 MD OM Figure 5-3: Projected Ending Wastewater Reserves at Projected Rates $14 $12 $10 $8 $6 $4 $2 so FYE 2020 Operating & Capital Reserves FYE 2021 FYE 2022 FYE 2023 FYE 2024 Total Reserves Minimum Reserve Target Reserve 51 CITY OF POWAY 5.2. Wastewater Cost of Service Analysis 5.2.1.COST OF SERVICE METHODOLOGY The first step in the COS analysis process is to determine the revenue requirement, which is based on the results of the wastewater financial plan and the proposed revenue adjustments. The framework and methodology utilized to develop the COS analysis and to apportion the revenue requirement to each customer class and tier is informed by the processes outlined in the WEF Manual of Practice 27.. COS analyses are tailored specifically to meet the unique needs of each wastewater system. However, there are four distinct steps in every analysis to recover costs from customer classes in an accurate, equitable, and defensible manner: 1. Cost functionalization: O&M expenses and capital assets are categorized by their function in the system. Functions include wastewater collection, disposal, treatment, administration, pumps, equipment, etc. 2. Cost causation component allocation: the functionalized costs are then allocated to cost causation components based on their burden on the system. The cost causation components include flow, chemical oxygen demand (COD), total suspended solids (TSS), customer, and general. The revenue requirement is allocated accordingly to the cost causation components and results in the total revenue requirement for each cost causation component. 3. Unit cost development: the revenue requirement for each cost causation component is divided by the appropriate units of service to determine the unit cost for each cost causation component. 4. Revenue requirement distribution: the unit cost is utilized to distribute the revenue requirement for each cost causation component to customer classes and tiers based on their individual service units. The City's customer classes include Residential, Commercial based on strength, Industrial and Schools. 5.2.2. REVENUE REQUIREMENT The revenue requirement for the proposed rates will be based on FYE 2020, designated the Test Year. Table 5-16 shows the revenue requirement derivation with the total revenue required from rates. The totals shown in the "Operating" and "Capital" columns are the total O&M and capital revenue requirements, respectively, that are to be recovered through rates. The operating costs (Line 6) flow from Table 5-8. The Debt Service category (Line 10) represents both replacement capital projects (Table 5-9) and any proposed debt. Note there is no debt issuance proposed for FYE 2020. Revenue offsets are composed of various miscellaneous, non -rate revenues, shown in Table 5-6. To arrive at the rate revenue requirement, we subtract these revenue offsets from the combined operating and debt service costs. The adjustments for cash balance represent the drawdown of reserves and the adjustment to annualize the rate increase (Line 18) is due to the mid -year proposed revenue adjustment occurring in March 2020. These are then combined to arrive at the total annual revenue requirement from rates. This is the amount that the City's rates are designed to collect, for a full year, in the "Total" column at Line 20. CITY OF POWAY WATER AND WASTEWATER COST OF SERVICE AND RATE STUDY REPORT 52 Table 5-16: Wastewater Revenue Requirement Line Revenue Requirements Operating Capital Total 1 Operating Costs 2 Treatment $4,421,733 $4,421,733 3 Wastewater Disposal $859,614 $859,614 4 Wastewater Collection $1,304,423 $1,304,423 5 Other O&M $3,027,285 $3,027,285 6 Subtotal Operating Costs $9,613,055 $0 $9,613,055 7 Debt Service 8 Rate Funded Capital Projects $1,700,000 $1,700,000 9 New Proposed Debt $0 $0 10 Subtotal Debt Service $0 $1,700,000 $1,700,000 11 Total Revenue Requirements $9,613,055 $1,700,000 $11,313,055 12 Less: Revenue Offsets 13 Fees $22,720 $22,720 14 Other $63,000 $63,000 15 Total Revenue Offsets $85,720 $0 $85,720 16 Less: Adjustments 17 Adjustment for Cash Balance $2,425,107 $2,425,107 18 Adjustment for Mid -Year Increase ($362,090) ($362,090) 19 Total Adjustments $2,063,018 $0 $2,063,018 20 Total Revenue Requirement from Rates $7,464,317 $1,700,000 $9,164,317 5.2.3. MASS BALANCE A cost of service analysis requires that costs are assigned to customers in proportion to their loadings. Customers are divided into different classes as shown in Table 5-2. Since measurement of wastewater flow is expansive and prone to errors, wastewater flow is not measured for most customers. To determine wastewater flow, a mass balance analysis is done by taking the total flow and strength of the wastewater influent into the METRO plant and reducing that by the wastewater loadings of the City's non - residential customers and inflow and infiltration (I&I). A small quantity of wastewater is estimated to result from I&I, which is water that enters the collection system during rain -related events, run-off, etc. I&I is estimated to be under 2% of the total influent. Multi -family and mobile home customers' wastewater flow is calculated based on 75% of bimonthly water use for accounts without a landscape meter and 85% of bimonthly water use for accounts with a landscape meter. Non- residential customers' wastewater flow is calculated based on 75%, 85%, or 90% of bimonthly water use depending on customer class. Wastewater flow for schools is estimated based on the average flow per student per day using 75% or 85% of the water use from the March/April billing period. Residential flow can be estimated after reducing the total wastewater influent by I&I and estimated non-residential wastewater flow. Table 5-17 shows the total annual units of flow and strength for each customer class based on the results of the mass balance analysis. Non-residential loadings for COD and TSS in pounds per year (lbs/year) were calculated based on wastewater flow and sewage strength classifications provided by City staff for different user classifications (e.g. car washes, hotels, restaurants, etc.). Multi -Family and mobile home loadings for COD and TSS in pounds per year (lbs/year) were calculated based on wastewater flow and the residual residential strength of 622 and 278 mg/1 of COD and TSS, respectively. The estimated Single -Family residential wastewater flow was derived by subtracting the Multi -Family and mobile home flow from the Net Residential flow. The estimated Single -Family 53 CITY OF POWAY residential wastewater flow is 55 gallons per capita per day (GPCD) based on an average household density of approximately 3.19 people. 55 GPCD of wastewater flow is the provisional standard for domestic use in the state of California'. The residential strength of 622 and 278 mg/1 of COD and TSS, respectively, is also reasonable based on the residential wastewater flow. Table 5-17: Mass Balance Analysis Flow (mgd) COD (mg/L) TSS (mg/L) Flow (ccf) COD (lbs/year) TSS (lbs/year) Total Plant Influent 3.20 601 261 1,561,393 5,855,864 2,541,252 Less: l&I 0.06 50 50 31,230 9,747 9,747 Net Plant Influent 3.14 551 211 1,530,163 5,846,117 2,531,504 Non -Residential General Commercial 0.359 365 144 174,949 399,167 157,563 Medium -Low 0.096 606 256 46,867 177,250 74,949 Medium 0.016 1,061 307 7,952 52,702 15,240 Medium -High 0.001 2,529 165 516 8,145 531 High 0.073 2,096 712 35,502 464,577 157,786 Light Industry 0.073 440 220 35,816 98,379 49,189 Industrial Special User 0.055 440 220 26,812 73,648 36,824 Government & Membership Organizations 0.001 286 110 485 866 333 Churches 0.022 385 192 10,748 25,833 12,917 Elementary School 0.032 286 110 15,836 28,274 10,875 Secondary & High School 0.046 288 110 22,214 39,967 15,255 Subtotal Non -Residential Flow 0.77 580 225 377,696 1,368,808 531,461 Net Residential Flow 2.36 622 278 1,152,467 4,477,309 2,000,043 Single Family Residence 1.99 973,206 3,781,039 1,689,015 Multi -Family & Mobile home 0.37 179,261 696,269 311,028 5.2.4. FUNCTIONALIZATION AND ALLOCATION OF EXPENSES After determining the revenue requirement, the next step of the COS analysis is to allocate the O&M expenses and capital assets to the following functions: 1. Legislative &Administration - City overhead costs associated with the management of the utility 2. Finance Services - costs associated with customer services, finance, and support services 3. Human Resources - City overhead costs associated with human resources 4. Wastewater Collection -costs of collecting wastewater 5. Public Works - costs associated with operations and maintenance of the utility 6. Wastewater Disposal -costs of transporting wastewater to METRO 7. Treatment - represents costs of wastewater treatment The functionalization of costs allows for the allocation of costs to the cost causation components, which include: 1. Flow - costs associated with the amount of wastewater flow entering the collection system 2. COD - the costs associated with the amount of organic compounds in wastewater. Higher strength wastewater is more costly to treat. 3. TSS - costs associated with the amount of suspended solids in wastewater. Higher suspended solids are also more costly to treat. 4. Customer - costs associated with customer service and billing 5. General - costs that do not have any direct cost causation 'California Senate Bill No. 7, Chapter 4 CITY OF POWAY WATER AND WASTEWATER COST OF SERVICE AND RATE STUDY REPORT 54 5.2.5.ALLOCATION OF COSTS As detailed in Section5.2.1, functionalizing costs allows us to better distribute costs to the cost causation components. Table 5-18 shows the function categories used in this study in Column A. Columns B through F show the cost causation components. For example, all costs allocated to the Public Works function (Column A, Line 5) are initially allocated to the General cost causation components (Column F, Line 5).Allocation of treatment costs is based on the allocation of those costs provided by the City of San Diego. Table 5-18 shows first the percent distributions, then dollar allocations of each O&M cost. Table 5-18: Wastewater O&M Cost Allocations Line O&M Allocation Flow COD TSS Customer General Total A B C D E F G 1 Legislative & Administrative 50% 50% 100% 2 Finance Services 50% 50% 100% 3 Human Resources 100% 100% 4 Development Services 100% 100% 5 Public Works 100% 100% 6 Treatment 48% 28% 24% 100% 7 Wastewater Disposal 100% 100% 8 Wastewater Collection 100% 100% 9 10 O&M Allocation Flow COD TSS Customer General Total 11 Legislative & Administrative $0 $0 $0 $184,884 $184,884 $369,768 12 Finance Services $0 $0 $0 $525,835 $525,835 $1,051,669 13 Human Resources $0 $0 $0 $0 $186,148 $186,148 14 Development Services $0 $0 $0 $0 $262,319 $262,319 15 Public Works $0 $0 $0 $0 $1,157,381 $1,157,381 16 Treatment $2,131,275 $1,215,977 $1,074,481 $0 $0 $4,421,733 17 Wastewater Disposal $859,614 $0 $0 $0 $0 $859,614 18 Wastewater Collection $1,304,423 $0 $0 $0 $0 $1,304,423 19 Total O&M Expenses $4,295,312 $1,215,977 $1,074,481 $710,719 $2,316,567 $9,613,055 20 O&M Allocation 45% 13% 11% 7% 24% 100% Table 5-19 distributes the functionalized capital asset values to cost causation factors similar to Table 5-18 and shows the resulting percent and dollar allocations of the different capital assets. Capital costs are allocated based on the system assets because capital costs are incurred to refurbish and replace system assets. Using system assets takes a longer-term view of the allocations of capital costs and provides a consistent allocation of costs from year to year even if the capital costs associated with different types of system assets change every year. 55 CITY OF POWAY Table 5-19: Wastewater Capital Cost Allocations Line Capital Asset Allocation Flow COD TSS Customer General Total A B C D E F G 1 General 100% 100% 2 Land & Easement 100% 100% 3 Pumps 100% 100% 4 Collection & Transmission 100% 100% 5 Treatment 100% 100% 6 Administration 100% 100% 7 Buildings & Improvements 100% 100% 8 Equipment 100% 100% 9 10 Capital Asset Allocation Flow COD TSS Customer General Total 11 General $2,636 $0 $0 $0 $0 $2,636 12 Land & Easement $76,797 $0 $0 $0 $0 $76,797 13 Pumps $2,288,427 $0 $0 $0 $0 $2,288,427 14 Collection & Transmission $9,497,758 $0 $0 $0 $0 $9,497,758 15 Treatment $0 $0 $0 $0 $0 $0 16 Administration $0 $0 $0 $0 $0 $0 17 Buildings & Improvements $0 $0 $0 $0 $0 $0 18 Equipment $570,280 $0 $0 $0 $0 $570,280 19 Total Capital Assets $12,435,899 $0 $0 $0 $0 $12,435,899 20 Capital Asset Allocation 100% 0% 0% 0% 0% 100% The goal of allocating the costs and asset values in Table 5-18 and Table 5-19 is to allocate the total O&M costs and capital assets to the different cost causation components. This results in a percent distribution shown in the last line each of Table 5-18 and Table 5-19. Table 5-20 summarizes those cost allocations. Table 5-20: Wastewater Cost Allocation Distribution Summary Function Rationale Flow COD TSS Customer General Total O&M O&M Expenses 45% 13% 11% 7% 24% 100% Capital Capital Assets 100% 0% 0% 0% 0% 100% CITY OF POWAY WATER AND WASTEWATER COST OF SERVICE AND RATE STUDY REPORT 56 5.2.6.UNITS OF SERVICE Table 5-21 shows the flow, strength, and accounts data for all customer classes. The Flow, COD, and TSS data are derived from the mass balance in Table 5-17. The residential and non-residential customer units in Lines 2 through 13 are from Table 5-3. The school units in Line 15 and 16 are based on the number of students in each grade, or average daily attendance (ADA), provided by the City. able 5-21: Wastewater Customer Class Dat. Line Customer Class Flow (ccf) COD (lbs/year) TSS (lbs/year) Customer Units Bills 1 Residential 2 Single Family Residence 973,206 3,781,039 1,689,015 11,420 68,520 3 Multi -Family & Mobile home 179,261 696,269 311,028 154 924 4 Subtotal Residential 1,152,467 4,477,309 2,000,043 11,574 69,444 5 Non -Residential 6 General Commercial 174,949 399,167 157,563 325 1,950 7 Medium -Low 46,867 177,250 74,949 94 564 8 Medium 7,952 52,702 15,240 20 120 9 Medium -High 516 8,145 531 8 48 10 High 35,502 464,577 157,786 56 336 11 Light Industry 35,816 98,379 49,189 18 108 12 Industrial Special User 26,812 73,648 36,824 5 30 13 Government & Membership Organizations 485 866 333 4 24 14 Churches 10,748 25,833 12,917 35 210 15 Elementary School 15,836 28,274 10,875 5,408 108 16 Secondary & High School 22,214 39,967 15,255 5,224 36 17 Subtotal Non -Residential 377,696 1,368,808 531,461 11,197 3,534 18 Total 1,530,163 5,846,117 2,531,504 22,771 72,978 5.2.7.ALLOCATION OF REVENUE REQUIREMENTS TO COST CAUSATION COMPONENTS Table 5-22 shows the allocation of revenue requirements from Table 5-16 to the cost causation components unit cost derivations. The operating revenue requirement shown in Column F, Line 1 of is equal to the operating revenue requirement (Line 20) in Table 5-16. The operating revenue requirement is allocated to the cost causation components using the resulting O&M allocation from Table 5-20. Similarly, the capital revenue requirement in Column F, Line 2 is equal to the capital revenue requirement (Line 20) in Table 5-16 and is allocated to the cost causation factors per Table 5-20. General costs, shown on Line 4, which cannot be tied to a specific function are redistributed in proportion to the resulting allocations of the other cost causation components. The total adjusted cost of service (Line 5) is divided by the relevant units of service from Table 5-21 in Line 7 to calculate the unit cost (Line 9 and Line 10). For example, the unit cost for the Flow component is determined by dividing the total flow cost by total estimated wastewater flow in ccf, while annual Customer costs are divided by the estimated number of bills in each year (number of customers times six bills per year). These unit costs will next be used to distribute the cost causation components to the customer classes. 57 CITY OF POWAY Table 5-22: Wastewater Unit Cost Calculat.... Line Flow COD TSS Customer General Total A B C D E F 1 2 3 4 5 Operating Cost $3,335,212 $944,178 $834,310 $551,857 $1,798,761 $7,464,317 Capital Cost $1,700,000 $0 $0 $0 $0 $1,700,000 Total Cost of Service $5,035,212 $944,178 $834,310 $551,857 $1,798,761 $9,164,317 Allocation of General Costs $1,229,662 $230,580 $203,749 $134,770 ($1,798,761) $0 Adjusted Cost of Service $6,264,873 $1,174,758 $1,038,059 $686,627 $0 $9,164,317 6 7 Units of Service 8 Units 9 Unit Cost 10 Units 1,530,163 5,846,117 2,531,504 72,978 ccf lbs/yr lbs/yr bills/yr $4.09 $0.20 $0.41 $9.41 ccf lbs/yr lbs/yr per bimonthly bill CITY OF POWAY WATER AND WASTEWATER COST OF SERVICE AND RATE STUDY REPORT 58 5.2.8.DISTRIBUTION OF COST CAUSATION COMPONENTS The final step in the cost of service analysis is to distribute the cost causation components to the user classes using the unit costs derived in Table 5-22, thereby arriving at the cost to serve each customer class. Table 5-23 shows the cost allocation to each class. To derive the cost to serve each class, the unit costs from Table 5-22 are multiplied by the service units shown in Table 5-21 for each customer class. For example, the flow costs for General Commercial usage is calculated by multiplying the flow unit cost by that class' wastewater flow Similarly, the Customer costs are derived by multiplying the Customer unit cost by the total number of bills by class in each year. Similar calculations yield the total cost to serve each user class, as shown in the last column of Table 5-23. We have now calculated the cost to serve each user class and can proceed to derive rates that collect the cost to serve each class. Table 5-23: Allocation of Costs to Customer Classes Customer Class Flow COD TSS Customer Total Residential Single Family Residence $3,984,551 $759,787 $692,591 $644,683 $6,081,613 Multi -Family & Mobile home $733,938 $139,913 $127,539 $8,694 $1,010,083 Non -Residential General Commercial $716,286 $80,211 $64,610 $18,347 $879,454 Medium -Low $191,884 $35,618 $30,733 $5,306 $263,541 Medium $32,555 $10,590 $6,249 $1,129 $50,524 Medium -High $2,111 $1,637 $218 $452 $4,418 High $145,355 $93,355 $64,701 $3,161 $306,573 Light Industry $146,638 $19,769 $20,170 $1,016 $187,593 Industrial Special User $109,775 $14,799 $15,100 $282 $139,956 Government & Membership Organizations $1,986 $174 $137 $226 $2,523 Churches $44,006 $5,191 $5,297 $1,976 $56,469 Elementary School $64,837 $5,682 $4,459 $1,016 $75,994 Secondary & High School $90,950 $8,031 $6,255 $339 $105,576 Subtotal Non -Residential $1,546,384 $275,058 $217,929 $33,250 $2,072,621 Total COS $6,264,873 $1,174,758 $1,038,059 $686,627 $9,164,317 59 CITY OF POWAY 5.3. Wastewater Rate Development This section includes the calculation of wastewater rates and the results of the study. Rates and charges are designed for the study period, FYE 2020 to FYE 2024. Rates and charges in the rate model are assumed to be implemented in March of each year; however, the City will implement the first revenue adjustment in March 2020 and subsequently in January of each fiscal year. 5.3.1.DERIVATION OF PROPOSED BIMONTHLY FIXED CHARGE We recommend that the City revises its current bimonthly fixed charges shown in Table 5-1 to a uniform bimonthly fixed charge for all customer classes except for schools. Raftelis recommends recovering the elementary and secondary school customers through the commodity rate. Table 5-24 shows the derivation of the uniform bimonthly fixed charge for all customer classes except for schools. More than 50% of the costs of the wastewater utility are fixed; therefore, to increase revenue stability, the City Council decided to increase the revenue collected from fixed charges to 30% from the current 20%. The bimonthly fixed charge was calculated by multiplying the total cost of service for the Single -Family residential customers (Column B) by the 30% fixed revenue percentage (Column C) to arrive at the amount of revenue to be collected by the fixed charge (Column D). The fixed charge allocation was then divided by the annual number of Single -Family residential bills (Column E) to arrive at the bimonthly fixed charge (Column F). Table 5-24: Derivation of the Wastewater Bimonthly Fixed Charge Fixed Revenue Fixed Charge Bimonthly Fixed Customer Class COS Bills Percentage Allocation Charge A B C D E F Single -Family Residential $6,081,613 30% $1,824,484 68,520 $26.63 5.3.2.REVISIONS TO COMMODITY RATES Single -Family residential customers currently pay a seven -tiered volumetric charge based on the 3 -year average of the customer's lowest winter water usage each year. Raftelis recommends revising the volumetric charge for Single - Family residential customers to a uniform volumetric charge based on the customer's average winter water use. Additionally, Raftelis recommends capping billed wastewater flow to 24 ccf bimonthly. This cap was determined by examining the average bimonthly winter water use of wastewater customers and comparing it to the total wastewater flow calculated to be discharged by residential customers as shown in Table 5-17. Raftelis recommends retaining the uniform commodity rate for all other customer classes. CITY OF POWAY WATER AND WASTEWATER COST OF SERVICE AND RATE STUDY REPORT 60 5.3.3. DERIVATION OF PROPOSED COMMODITY RATES Table 5-25 shows the derivation of the proposed bimonthly commodity rates. The commodity rate for each customer class is calculated using the cost of service by customer class from Table 5-23 and the proposed bimonthly fixed charge from Table 5-24. First, the bimonthly fixed charge (Column C) is multiplied by the number of annual bills (Column D) from Table 5-21 for each customer class to arrive at the total amount of fixed revenue generated for each customer class (Column E). Next, the amount of fixed revenue for each customer class (Column E) is subtracted from the total cost of service by customer class (Column B) to arrive at the variable charge allocation in Column F. The last step in calculating the commodity charge is to divide the variable charge allocation (Column F) by the wastewater flow for each customer class in Column G to arrive at the volumetric commodity rate shown in Column H. Table 5-25: Derivation of the Wastewater Commodity Rates ($/ccf) Customer Class A COS Bimonthly gills Fixed Charge B Fixed Revenue C D E Variable Charge Wastewater Commodity Rate Allocation Flow (per WW ccf) F G H Residential Single Family Residence Multi -Family & Mobile home Non -Residential General Commercial Medium -Low Medium Medium -High High Light Industry Industrial Special User Government & Membership Organizations Churches Elementary School (ADA) Secondary & High School (ADA) 61 CITY OF POWAY $6,081,613 $1,010,083 $879,454 $263,541 $50,524 $4,418 $306,573 $187,593 $139,956 $2,523 $56,469 $75,994 $105,576 $26.63 68,520 $1,824,484 $26.63 924 $24,603 $26.63 1,950 $51,923 $26.63 564 $15,018 $26.63 120 $3,195 $26.63 48 $1,278 $26.63 336 $8,947 $26.63 108 $2,876 $26.63 30 $799 $26.63 24 $639 $26.63 210 $5,592 $0.00 0 $0 $0.00 0 $0 $4,257,129 973,206 $985,480 179,261 $827,531 $248,524 $47,329 $3,139 $297,626 $184,717 $139,157 $1,884 $50,878 $75,994 $105,576 174,949 46,867 7,952 516 35,502 35,816 26,812 485 10,748 15,836 22,214 $4.37 $5.50 $4.73 $5.30 $5.95 $6.09 $8.38 $5.16 $5.19 $3.88 $4.73 $4.80 $4.75 5.3.4. PROPOSED WASTEWATER RATE SCHEDULE The proposed rates derived in Table 5-24 and Table 5-25 are increased annually by the proposed revenue adjustments shown in Table 5-13. The resulting proposed rates for the study period are provided in Table 5-26. Table 5-26: FYE 2020-2024 Proposed Bimonthly Wastewater Charges Customer Class Current Charge March 2020 March 2021 March 2022 March 2023 March 2024 Bi -Monthly Fixed Charge All Customer Classes Varies by Meter Size $26.63 $28.31 $30.10 $32.00 $34.02 Commodity Rate per ccf of Wastewater Residential Single Family Residence $5.79 $4.38 $4.66 $4.96 $5.28 $5.62 Multi -Family & Mobile home $4.02 $5.50 $5.85 $6.22 $6.62 $7.04 Non -Residential General Commercial $4.02 $4.74 $5.04 $5.36 $5.70 $6.06 Medium -Low $4.60 $5.31 $5.65 $6.01 $6.39 $6.80 Medium $5.35 $5.96 $6.34 $6.74 $7.17 $7.63 Medium -High $6.85 $6.09 $6.48 $6.89 $7.33 $7.80 High $8.15 $8.39 $8.92 $9.49 $10.09 $10.73 Light Industry $4.22 $5.16 $5.49 $5.84 $6.21 $6.61 Industrial Special User $4.02 $5.20 $5.53 $5.88 $6.26 $6.66 Government & Membership Organizations $4.02 $3.89 $4.14 $4.41 $4.69 $4.99 Churches $4.02 $4.74 $5.04 $5.36 $5.70 $6.06 Elementary School (ADA) $4.02 $4.80 $5.11 $5.44 $5.79 $6.16 Secondary & High School (ADA) $4.02 $4.76 $5.06 $5.38 $5.72 $6.09 CITY OF POWAY WATER AND WASTEWATER COST OF SERVICE AND RATE STUDY REPORT 62 5.4• Bill Impacts Figure 5-4 shows the impacts of the proposed rates on a hypothetical Single -Family Residential customer at different usage levels. Figure 5-5 shows the impacts on a hypothetical Non -Residential customer with a 1" meter and different usage levels. Figure 5-4: Single -Family Residential Wastewater Bill Impact Analysis SFR Impacts at Different Usage Levels $160 $140 $120 $100 $80 $60 $40 $20 Il $U 5 ccf 12 ccf 19 ccf 26 ccf 37 ccf 50 ccf 60 ccf Current Bill 550.88 $73.46 599.79 5107.33 5122.38 5137.43 5148.73 • Proposed Bill 548.50 $79.12 5109.74 5131.61 5131.61 5131.61 $131.61 Impact (5) -$2.38 $5.66 $9.95 $24.28 $9.23 -$5.82 -$17.12 1 Impact (%) -4.7% 7.7% 10.0% 22.6% 7.5% -4.2% -11.5% Figure 5-5: Non -Residential Wastewater Bill Impact Analysis $2,000 $1,800 $1,600 $1,400 $1,200 51,000 $800 $600 $400 $200 $0 •� 7 ccf l ■ Current Bill 586.18 • Proposed Bill 569.26 Impact ($) -516.92 Impact (%) -19.6% Non -Residential Impacts at Different Usage Levels - 1" Meter 16 ccf 5147.83 25ccf 35ccf 49ccf 67ccf 80 ccf 133 ccf 200 ccf 267 ccf 5209.48 5277.98 5373.88 $497.18 5586.23 $124.07 $178.88 $239.78 $325.04 $434.66 $513.83 -$23.76 -530.60 -538.20 -548.84 -562.52 -16.1% -14.6% -13.7% -13.1% -12.6% -572.40 -12.4% 5949.28 $836.60 -5112.68 -11.9% 51,408.23 51,244.63 -$163.60 -11.6% 51,867.18 51,652.66 -$214.52 -11.5% 63 CITY OF POWAY