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Home My WebLink About07-10-2012 ss1 water rate structure studyA council.ac en Oa R€poIt Meeting Date July 10, 201 2 Item Number ss 1 C I T Y O F S A N L U I S O B I S P O FROM : Carrie Mattingly, Utilities Directo r Prepared By:Wade Horton, Deputy Director of Water Ron Munds, Conservation Manage r SUBJECT :WATER RATE STRUCTURE STUD Y RECOMMENDATIO N Participate in the first of five water rate structure sessions with HDR Engineering . DISCUSSIO N Backgroun d As part of the 2011-13 financial planning process the City Council requested staff assess if it wa s feasible to undertake a study of the elements, philosophies and values (rate structure) that are use d to develop the actual rates that water users pay during the two years that make up the Financial Plan . On February 22, 2012 staff returned with that analysis and the City Council approved, as par t of the mid-year budget review process, a water rate structure review study . The study will be guide d by HDR Engineering Inc . (HDR). The goal of the study is to evaluate the City's current water rat e structure and explore alternative rate structures that may better meet the City's goals and objectives . The outcome of the study will be a recommended water rate structure which will meet the Council's rate philosophies and values established during the study process . It is important to understand th e Council will not be considering actual water rates during this study . Why study the water rate structure now ? During the presentation of the 2011-2013 Water Fund Analysis last June, Council expressed it s desire to review the current water rate structure to determine if modifications should be made t o enhance revenue stability for the water utility . The current rate structure has been in place, with a minor modification in 2007, since 1993 . It is a prudent business practice to revisit rate structures on a periodic basis to ensure that the Council's and community's goals and objectives are being met . How will the water rate structure study proceed ? There are four sessions planned between July and October, and one wrap-up meeting that will b e scheduled before the end of the year . These sessions will introduce the rate setting process an d ultimately guide Council through its selection of a water rate structure . ~cSSi t 1 "Pic Outcom e Fundamentals of Water Rate Structures Basic understanding of rate structure desig n 2 Rate Design Goals and Objectives Review and set the Council's goals and objective s 3 Developing Conceptual Rate Structures Review up to ten conceptual rate structures ss1-1 Water Rate Structure Study Page 2 4 Technical Review of Rate Structures Review the final selected conceptual rate structure s Selection of a Water Rate Structure Receive a report with a final recommended rate structure Study Session 1 . Fundamentals of Water Rate Structures — July 10, 2012 .HDR will present a thorough discussion on the fundamentals of developing cost-based water rate structures and th e philosophy of rate setting, the underlying rate setting goals and objectives, terminology, an d technical aspects of rate structure design . The presentation and interactive dialogue with the Council members will step the Council through an overview of the rate setting methodology and th e correlation between rate structure design and revenue generation which will lay the foundation fo r the process . Study Session 2 .Rate Design Goals and Objectives — August 7,2012 . HDR will lead a discussion of commonly accepted rate design goals and objectives, their meanings and implication s to an overall rate structure design and review and discuss typical rate design goals . From thi s dialogue, the Council will be asked to prioritize its top six rate structure goals for use in developin g the conceptual rates structures for Council members review and discussion at Study Session 3 . Study Session 3 . Developing Conceptual Rate Structures — September 18, 2012 (tentative).At a study session tentatively scheduled for September 18, the results of the Council weighting o f recommended rate structure goals will be presented and discussed . Based on the prioritized rat e design goals and objectives of the City, up to ten conceptual water rate designs (rate structures only , no actual rates, meaning no dollars) will be presented . Based on input from the meeting, HDR an d staff will then narrow the field and select the top three rate structures . These three rate structure s will be evaluated and presented to the Council in Study Session 4 . Study Session 4 . Technical Review of Rate Structures — October (tentative).A fourth Counci l meeting in October will present the "road test" of the final selected conceptual rate structures whic h will support the prioritized goals and financial policies . Actual rates and bill comparisons will b e used to review any impacts to customers . Although there will be numbers associated with the "roa d test", it is not an exercise in setting the actual rates . A recommendation on the rates will b e presented to the Council as part of the 2013-2015 financial planning process . Meeting 5 . Selection of the Final Rate Structure — TBD .After completion of the study sessions , HDR will provide the Council with a report summarizing the steps taken to review the rat e structure, an overview of the rate structures reviewed during the study, recommendations of th e analysis HDR will undertake, and a recommended final proposed rate structure . FISCAL IMPAC T There is no fiscal impact associated with participating in the water rate structure study sessions . t:\council aqenda reports\201212012-07-10\water rate structure study (mattingly-horton)\water rate structure study .docx SS1-2