HomeMy WebLinkAbout10-03-2017 Item 12 - Water and Wastewater Rate Study
Meeting Date: 10/3/2017
FROM: Carrie Mattingly, Utilities Director
Prepared By: Jennifer Metz, Utilities Projects Manager
SUBJECT: WATER AND WASTEWATER RATE STUDY
RECOMMENDATION
Approve funding for the preparation of a Water and Wastewater Rate Study in an amount not to
exceed $50,000.
DISCUSSION
Background
The City Council is currently reviewing its water and wastewater rate structures through a series
of study sessions which will yield an updated structure reflecting City Council goals. To meet the
requirements of Proposition 218 and recent legal challenges to water rates, the Utilities
Department must conduct a comprehensive Water and Wastewater Rate Study to support the
action the Council takes on a rate structure. This Study will identify cost-based rates to balance
the short and long-term financial sustainability of the City’s Water and Sewer Funds.
While City staff usually conducts water and wastewater rate reviews internally, with peer review
by HDR Engineering, Inc., the City’s last comprehensive rate study was prepared in 2005-06
when the City changed to monthly meter reading and volumetric wastewater billing. Best
practices for utility providers is to work with a consultant who specialize in cost of services
analysis for water and wastewater industry and prepare a rate study based on Council policy
direction. The need for this study was not identified as part of the 2017-19 Financial Plan,
therefore funding is not available in the current Water and Wastewater operating budgets.
However, given the complexity of the study and structural considerations for the rate changes, it
is recommended that the consulting firm will need to be engaged.
The goal of the Water and Wastewater Rate Study is to provide adequate and sustainable funding
to the City’s Water and Sewer Fund for operation, maintenance, and capital needs while
developing rates that are stable, equitable, and cost-based. The Study would use methodologies
generally accepted in the industry (i.e. the American Water Works Association M1 Manual and
the Water Environment Federation Manual of Practice) to establish the proposed rates. The
Study will include three components: 1) a revenue requirement analysis; 2) a cost of service
analysis; and 3) a rate design analysis through the following tasks:
1. Develop a projection of water consumption to reflect the “new normal” given the reductions
in consumption following the drought.
2. Develop a revenue requirement analysis that reflects the City’s historical, and projected,
operating needs over the next ten-year period and meet the City’s financial policies (e.g.,
target reserve balances, debt service coverage ratios, renewal and replacement funding).
3. Develop a capital funding plan that provides the capital improvement needs and funding
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sources, while minimizing impacts to rates.
4. Determine the impacts to rates and a rate transition plan to adequately fund operating and
capital needs, and debt obligations.
5. Develop a cost of service analysis to equitably allocate the costs between customer classes.
6. Develop average unit costs as part of the cost of service analysis to establish the cost-basis of
the proposed rates.
7. Develop alternative cost-based rate structures for each customer class.
8. Develop a drought rate structure.
The Water and Wastewater Rate Study is estimated to cost $50,000 and will take approximately
six months to complete. Staff would utilize a consultant from the City’s On-Call Water and
Wastewater Engineering Services list to complete this study.
ENVIRONMENTAL REVIEW
No environmental review is required for the approval of funding and preparation of a water and
wastewater Cost of Services study.
CONCURRENCES
The Finance Department concurs with the recommendation to fund the preparation of a Water
and Wastewater Rate Study from the Water and Sewer Funds.
FISCAL IMPACT
Funding for the study is proposed to come from Water Fund and Sewer Fund unreserved
working capital, which have available balances based on unaudited financial statements per June
30, 2017, of $18,955,394 and $28,074,582 respectively. These balances are above mandatory
reserve levels for operating reserves and rate stabilization funds.
Beginning Balance Study Cost Ending Balance
Water Fund $18,955,394 $25,000 $18,930,394
Sewer Fund $28,074,582 $25,000 $28,049,582
$50,000
ALTERNATIVES
1. Deny the authorization of the budget for the Water and Wastewater Rate Study. The
Council could decide not to authorize the budget for the Rate Study and recommend to staff
that the Study proceed at a later time. Staff does not recommend this option, as accelerating
the Study is a high priority.
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