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
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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.
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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
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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