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HomeMy WebLinkAboutAgenda Packet - EVWD Board of Directors - 05/19/2010East Val ley Water District SPECIAL MEETING May 19, 2010 3:00 pm EAST VALLEY WATER DISTRICT 3654 HIGHLAND AVE #12, HIGHLAND, CA. AGENDA - - - - - - - - - - - - - - - - CALL TO ORDER PLEDGE OF ALLEGIANCE - - - - - - - - - - - - - - - - 1. Public Comments 2. Discussion and possible action regarding 2010 Rate Study CLOSED SESSION 3. CONFERENCE WITH LEGAL COUNSEL — ANTICIPATED LITIGATION Significant exposure to litigation pursuant to Government Code Section 54956.9(b) One Potential Case 4. CONFERENCE WITH REAL PROPERTY NEGOTIATOR [Government Code Section 54956.8] Property: 26655 Highland Ave. San Bernardino County, State of California Party with whom District will negotiate: REO Property Group, LLC Party who will be negotiating on behalf of the District: Robert Martin Under Negotiation: Price and Terms of Payment ADJOURN - - - - - - - - - - - - - - - - Pursuant to Government Code Section 54954.2(a), any request for a disability - related modification or accommodation, including auxiliary aids or services, that is sought in order to participate in the above agendized public meeting should be directed to the District's Administrative Manager at (909) 885- 4900 at least 72 hours prior to said meeting. - - - - - - - - - - - - - - - - East Valley Water District SPECIAL MEETING May 19, 2010 3:00 pm EAST VALLEY WATER DISTRICT 3654 HIGHLAND AVE #12, HIGHLAND, CA. AMENDED AGENDA - - - - - - - - - - - - - - - CALL TO ORDER PLEDGE OF ALLEGIANCE - - - - - - - - - - - - - - - 1. Public Comments OLD BUSINESS 2. Discussion and possible action regarding the Headquarters Project 3. Discussion and possible action regarding 2010 Rate Study CLOSED SESSION 4. CONFERENCE WITH REAL PROPERTY NEGOTIATOR [Government Code Section 54956.8] Property: 26655 Highland Ave. San Bernardino County, State of California Party with whom District will negotiate: REO Property Group, LLC Party who will be negotiating on behalf of the District: Robert Martin Under Negotiation: Price and Terms of Payment 5. CONFERENCE WITH REAL PROPERTY [Government Code Section 54956.8] Property: 22 +/- Acres of Vacant Land North of Third Street, East of Sterling Ave., South of 5th Street APN(s):1192- 241 - 01,1192 -231 -01 San Bernardino County, State of California Party with whom District will negotiate: Potential Buyers Party who will be negotiating on behalf of the District: Robert Martin / Jim Cimino Under Negotiation: Price and Terms of Payment 6. CONFERENCE WITH REAL PROPERTY [Government Code Section 54956.8] Property: Party with whom District will negotiate: Party who will be negotiating on behalf of the District Under Negotiation: 7. CONFERENCE WITH REAL PROPERTY [Government Code Section 54956.8] Property: Party with whom District will negotiate: Party who will be negotiating on behalf of the District: Under Negotiation: 2.24 +/- Acres of Vacant Land APN(s):0278- 081 - 27,0287- 082 -03, 0278 - 101- 30,31,32,33,34,04,43 San Bernardino County, State of California Potential Buyers Robert Martin / Jim Cimino Price and Terms of Payment 9.5 +/- Acres of Vacant Land AP N (s):1191- 251 - 02,1191- 251 -05 San Bernardino County, State of California Potential Buyers Robert Martin / Jim Cimino Price and Terms of Payment 8. CONFERENCE WITH LEGAL COUNSEL — ANTICIPATED LITIGATION Significant exposure to litigation pursuant to Government Code Section 54956.9(b) One Potential Case ANNOUNCEMENT OF CLOSED SESSION ACTIONS ADJOURN - - - - - - - - - - - - - - - - Pursuant to Government Code Section 54954.2(a), any request for a disability - related modification or accommodation, including auxiliary aids or services, that is sought in order to participate in the above agendized public meeting should be directed to the District's Administrative Manager at (909) 885- 4900. - - - - - - - - - - - - - - - - r� hodgdon J `group www.hodgdongroup.com 1461 East Cooley Drive, Suite 230 Colton, California 92324 T 909.783.3020 F: 909.783.3026 May 17, 2010 Mr. Robert Martin General Manager Board of Directors East Valley Water District 3654 E. Highland Avenue, Suite 18 Highland, California 92346 Re: Administrative Facility Dear Mr. Martin: As you know, our firm has been working on the number of proposal concerning options for the District Administrative facility. In addition, we are under contract for the remodel of the existing space on Highland Avenue. With various options coming back to the forefront, I want to again express our interest and request the Board's consideration of retaining our firm to provide a turnkey solution, including financing, for the Sterling or Kmart site, and assisting the district in negotiating the sale or purchase of these assets, and the former Patton property. In my opinion, there are key elements concerning each site that should be considered and negotiated prior to accepting any offers or negotiating terms. I look forward to continuing to work with you and the District. Sincerely /, Aaron W. Hodgdon East Val ley Water District Board Memorandum No. B -16 -2010 ate: May 19, 2010 From: Robert Martin, General Manager Subject: Rate Study Recommendation: Accept and approve the 2010 Rate Study Background: Enclosed for your review is the final report from HDR regarding our 2010 Rate Study. We have taken the comments and suggestions received at a prior meeting and attempted to incorporate all of those into this final version. It is important to note that the Board has two decisions to make regarding this report. The first is to accept and approve the recommendations presented by HDR and the second is to decide whether you wish to change our billing structure to a tiered rate system. As you know, HDR has presented alternative rates for both a single consumption rate as well as a tiered rate structure for our residential customers. We have scheduled a special Board Meeting to consider this issue due to the tight schedule we are on to comply with our Grant requirements from the State of California. We need to make a decision on this investigation so that final changes to our Proposition 218 notices can be made. In accordance with Prop. 218, we have a 45- day notice requirement prior to conducting a public hearing regarding our rates. The Prop. 218 Hearing must be conducted no later than July 16`h of this year. HDR representatives will be at the Board meeting to present their report and answer your questions. �n D East Valley T r Water District DRAFT Final Report East Valley Water District Comprehensive Water and Sewer Rate Study May 13, 2010 falPrepared by: HDR Engineering, Inc. Table of Contents ExecutiveSummary .................................................................................. ............................... 1 Section1 - Introduction ............................................................................ ............................... 2 Overviewof the Rate Analyses .............................................................................. ..............................2 KeyObjectives .......................................................................................................... ..............................2 Rate Design Criteria and Considerations ............................................................. ..............................2 Proposition218 ......................................................................................................... ..............................3 Rate Structure Terminology ................................................................................... ..............................3 FixedCharges ...................................................................................................... ..............................4 Variable (Consumption) Charges ..................................................................... ..............................4 Current Industry Thinking and Trends ................................................................ ..............................7 Section2 - Water Rate Study ................................................................... ............................... 8 Revenue Requirements - Water Utility ............................................................... .............................10 Comparison of Current and Proposed Water Rate Structures ......................... .............................12 Single Family Residential (SFR) ....................................................................... .............................14 Commercial Water Customers ......................................................................... .............................17 Section3 - Sewer Rate Study .................................................................... .............................18 Rate Study Methodology and Assumptions ....................................................... .............................18 Revenue Requirements - Sewer Utility ............................................................... .............................19 Comparison of Current and Proposed Sewer Rate Structures ......................... .............................21 Single Family Residential Sewer Customers .................................................. .............................23 CommercialSewer Customers ......................................................................... .............................24 Section 4 - Recommendations East Valley Water District ............................................... .............................27 Mar .& -64 1 Con EXECUTIVE SUMMARY The East Valley Water District (District) retained HDR Engineering, Inc. (HDR) to prepare this rate study in order to evaluate the additional funding needed for some key capital improvement projects, estimate the related rate adjustments, and evaluate both the projected rates and the rate structure designs to comply with Proposition 218 requirements that rates be fair and equitable. As a result of this study, rate increases for both water and sewer utilities are recommended. HDR has worked collaboratively with the District staff and Board regarding the magnitude and timing of the rates shown in Figure ES -I and Figure ES -2: 1. Assumes a 518-314" meter. Larger meters are higher. 2. Adjusted from previous year by an across - the -board percent adjustment. Figure ES -1 - Proposed Water Rates Flat-Rate Customers' Single Family Residential $26.09 $28.93 $30.09 $31.36 Volume -Based Customers' Multiple Family Residential $2.10 $1.42 $5.28 $1.41 $5.58 $1.45 $5.90 $1.50 Commercial (Retail) $2.10 $2.34 $5.28 $2.36 $5.58 $2.40 $5.90 $2.45 1. Rates for "West of Boulder Ave." --"East of Boulder Ave." rate are $2.001mo. higher for single - family and $0.09 1hcf for commercial. 2 Proposed rates consist of current "City" rates plus previous years "District' rates adjusted by an across- the -board percent adjustment Figure ES -2 - Proposed Sewer Rates The remainder of this report summarizes the rate study methodology, the assumptions used in evaluating future revenue requirements and rates, and the recommendations regarding the actions the District should take to maintain the financial health of these utilities. East Valley Water District Page 1 am Proposed Single-Family Water Rates tt �® Fixed Monthly Charges' Single - Family $10.45 $11.54 $12.58 $13.71 Volume Charges Per hcf $1.35 $1.49 $1.62 $1.77 Alternative (3 -Tier) Single - Family Residential Volume Charges Tier 1 = 0 to 15 hcf /mo. $1.35 $1.38 $1.50 $1.64 Tier 2 = >15 to 34 hcflmo. NA $1.55 $1.68 $1.84 Tier 3 = >34 hcf /mo. NA $1.93 $2.11 $2.30 1. Assumes a 518-314" meter. Larger meters are higher. 2. Adjusted from previous year by an across - the -board percent adjustment. Figure ES -1 - Proposed Water Rates Flat-Rate Customers' Single Family Residential $26.09 $28.93 $30.09 $31.36 Volume -Based Customers' Multiple Family Residential $2.10 $1.42 $5.28 $1.41 $5.58 $1.45 $5.90 $1.50 Commercial (Retail) $2.10 $2.34 $5.28 $2.36 $5.58 $2.40 $5.90 $2.45 1. Rates for "West of Boulder Ave." --"East of Boulder Ave." rate are $2.001mo. higher for single - family and $0.09 1hcf for commercial. 2 Proposed rates consist of current "City" rates plus previous years "District' rates adjusted by an across- the -board percent adjustment Figure ES -2 - Proposed Sewer Rates The remainder of this report summarizes the rate study methodology, the assumptions used in evaluating future revenue requirements and rates, and the recommendations regarding the actions the District should take to maintain the financial health of these utilities. East Valley Water District Page 1 ©a r� Col SECTION 1 - INTRODUCTION Overview of the Rate Analyses As a part of these water and sewer rate studies, HDR evaluated current customer classes and rate structures with the intent of improving the efficiency and equity of the rates, but also focused on options that are administratively feasible and meet the District's overall objectives. HDR's approach included forecasting revenues and expenditures, developing net revenue requirements, performing cost -of- service rate analyses, and recommending new rates. This report presents an overview of the results of these rate studies. Key Objectives Although the District's over - riding objective is to provide customers with a safe and reliable water supply at a fair and cost - effective price, the District has a number of more specific objectives to consider in developing its water and sewer rates, including: • Providing revenues that are sufficient and stable • Developing rates that are equitable and fair to water and sewer customers • Adequately funding repair and replacement (R &R) and capital improvement projects • Maintaining adequate financial health, including sufficient reserves, meeting debt service coverage ratios, and observing appropriate financial management policies HDR believes this study and our recommendations meet these key objectives Rate Design Criteria and Considerations Several criteria should be considered in setting rates and developing sound rate structures. The fundamentals of this process have been documented in a number of rate setting manuals; although, the foundation for evaluating rate structures is generally credited to James C. Bonbright in the Principles of Public Utility Rates.' This manual outlines pricing policies, theories, and economic concepts along with various rate designs. A simplified list of the attributes of a sound rate structure, which apply to both water and sewer rates, is provided below: ■ Rates should be easy to understand from the customer's perspective IN Rates should be easy to administer from the utility's perspective • Rates should promote the efficient allocation of the resource • Rate should be equitable and non - discriminating (i.e., cost based) ' James C. Bonbright; Albert L. Danielsen and David R. Kamerschen, Principles of Public Utility Rates, (Arlington, VA: Public Utilities Report, Inc., Second Edition, 1988), p. 383 -384. East Valley Water District Page 2 • There should be continuity in the rate making philosophy over time • Other utility policies should be considered (e.g., encouraging conservation, economic development, etc.) ■ Rates should consider the customer's ability to pay ■ Rates should provide revenue stability from month to month and year to year Many rate economists and regulatory agencies, including HDR, feel the cost -based attribute should be of primary importance in guiding utilities on rate structure and policy issues. For a number of reasons (i.e., drought, population growth, and infrastructure deficiencies), California water utilities are also encouraged to emphasize water conservation and reducing their average long -term per- capita usage. It is important for water utilities to send proper price signals to its customers about the actual cost of their water usage, and likewise sewer costs. This objective may be approached through both the magnitude of the rates and design of the rate structure. In other words, both the amount of revenue collected (i.e., $10.0 million per year) and the way in which the revenue is collected from the customers are important. Proposition 218 Proposition 218, which was adopted in 1996 and dubbed the "citizen's right to vote on new taxes," provides the opportunity for the public to vote on changes to any "property- related fees." Following passage of this law, various court decisions have defined water and sewer service charges to be property- related fees.' Even if proposed service charges are revenue - neutral (i.e., not intended to increase the overall amount of revenue collected), a change in the rate structure (e.g., from a uniform rate to a multi- tiered rate for single family residential customers) is subject to compliance with Proposition 218 mandates. Proposition 218 essentially requires a utility to provide public notification of proposed rate changes, inform property owners /customers of the protest mechanism and the time frame for response, and provide a public hearing on the proposed rates. The public hearing must be held "not less than 45 days after the mailing of the notice." The District should consult their legal counsel regarding the details of their notification, protest ballots, and public hearing process. Rate Structure Terminology Some basic terminology related to rate structures and rate designs is helpful in understanding this rate study. Although other water utilities across California and the U.S. use a wide variety of structures today, in reality, they are all based upon a few basic rate design concepts. A brief discussion of these basic rate design concepts is provided below. 2 For example. Bighorn - Desert Vieir Water Agenc.r v. Perjil (2006). Richnrorrd r. Shasta Comnuotitr Services District (2004), and Apartment AN.eociatiou ofLos Angeles Corner, Ire. r. ON ofLos Angeles (2001). East Valley Water District Page 3 The starting point in considering rate structures is the relationship between fixed costs and variable costs. Fixed costs typically do not vary with the amount of water produced or the amount of effluent handled by a sewer system. Debt service is an example of a fixed cost. In contrast, variable costs tend to change with the quantity of water produced (or effluent handled), such as the cost of chemicals and electricity. Most rate structures contain a fixed or minimum charge, and a volumetric charge. Fixed Charges Fixed charges can be called base charges, minimum charges, customer charges, meter charges, etc. Although fixed charges are typically a significant percentage of the utility's overall cost structure, utilities rarely collect 100% of their fixd costs through fixed charges. However e , customers generally prefer to be charged on a volumetric basis. A 2007 survey conducted by the California- Nevada Section of the American Water Works Association (AWWA)3 indicated that 960% of the water utilities surveyed had some form of fixed charge, with the median fixed charge being $13.86 /month.4 At a minimum, most fixed charges reflect the cost of meter reading, billing /accounting, and collection costs. Fixed charges for water utilities typically increase by meter size. For example, a customer with a 2" meter may have a fixed meter charge that is eight times greater than the 5/8" or 3/4" meter charges based on the meter's safe operating capacity.' Because a large portion of water utilities' costs are typically related to meeting capacity requirements, reflecting individual demands for capacity are important in establishing rates for customers. The District's fixed monthly charges for water are a combination of administrative costs (e.g., meter reading and billing) plus capacity - related costs that increase with meter size. Fixed charges for single - family sewer customers include essentially all their costs rolled into a monthly "flat rate," whereas non - residential sewer customers are charged a much smaller fixed charge for a minimal level of administrative costs. Variable (Consumption) Charges In contrast, variable costs tend to change with the quantity of water produced (or effluent handled), such as the cost of chemicals and electricity. For a water utility, variable charges are generally based on metered consumption and charged on a dollar -per -unit cost (one - thousand gallons in the City's case). They generally take the form of four basic rate structures: ■ a a California- Nevada AMA and Raftelis Financial Consultants, Inc., California- Nevada Water Rate Survey, (2007). 4 Ibid. P. 6. s American Water Works Association, Principles of Water Rates. Fees and Charges - M1 Manual, p. 202. East Valley Water District Page 4 - 6 C1 uniform charge; ■ a declining block charge; ■ inverted (increasing) block charge; and ■ seasonal charges, as seen in Figure 1. Per Unit Cost Usage Per Unit Cost Usage Per Unit Cost Usage Per Unit Peak Season Cost Non -Peak usage UNIFORM RATE STRUCTURE The cost per unit of consumption under a uniform rate structure does not increase or decrease with additional units of consumption. DECLINING BLOCK RATE STRUCTURE The cost per unit of consumption under a declining block rate structure decreases with additional units of consumption. INVERTED BLOCK RATE STRUCTURE The cost per unit of consumption under an inverted block rate structure increases with additional units of consumption. SEASONAL RATE STRUCTURE The cost per unit of consumption under a seasonal rate structure changes with time periods. The peak is the most expensive time period. Figure 1 also illustrates the significant variation in the basic philosophy of each of these variable charge rate structures. Under a uniform rate structure, the cost per unit does not change with consumption, and provides a simple and straightforward approach from the perspective of customer understanding and rate administration/billing. In contrast, the declining block rate structure is more complex, since both the number of blocks (e.g., three stepped blocks) and size of the blocks (e.g., 0 to 10,000 gallons) can vary. However, the number of blocks6 should be reasonable (i.e., two to five blocks) for both of simplicity and ease of administration. A declining block rate structure implies there are certain economies of scale with additional consumption, and do not necessarily entail a "volume discount." 6 'Blocks' or "Consumption Blocks" is used in a declining block or inverted block rate structure and refers to the amount of consumption allowed before the price changes to a succeeding price block. The initial block refers to the first price block (e.g., 0 to 5,000 gallons). The tail block refers to the last price block (e.g., all usage over 5,000 gallons). East Valley Water District Page 5 MCorn 10 An inverted (increasing or tiered) block rate structure attempts to send a price signal to consumers that their consumption costs more as more water is consumed. Finally, a seasonal rate structure is a form of a time - differentiated rate structure in which water consumed in the summer is priced higher than winter water consumption. This structure typically reflects the higher costs associated with peak period usage when water supplies may be constrained. Figure 2 provides a comparison of the volumetric rate structures, as surveyed by the California - Nevada AWWA 2007 Water Rate Survey. De Other /Not Reported. 9% �..___, ._.J This figure indicates that inclining (inverted /tiered) rate structures are the most predominate, followed by the uniform rate structure. However, across the U.S., volumetric rate structures are roughly split equally among inclining, declining, and uniform rate structures. The predominance of inclining block rate structures in California reflects water resource constraints and California's focus on conservation and efficient use. The rate structures noted above may be combined to form different rate structures. As an example, a seasonal inverted block rate structure combines the seasonal rate structure concept with the inverted block rate structure. A more recent innovation in water rate design is the concept of a water budget rate structure, which is a form of an inverted block structure where the block sizes are tailored for each individual customer. The water budget allocation may be based upon one or several of the following: ■ Lot size or size of landscaped area ■ Number of occupants ■ Type and size of business ■ The type of land use (i.e., residential, landscape, and commercial) ■ Evapotranspiration rate for the billing period. East Valley Water District Page 6 It should be noted that water budgets have had limited implementation within the water utility industry to date, primarily because of the administrative complexity and billing system software issues.' Because of this, District staff and HDR have not considered water budgets. Current Industry Thinking and Trends The California Urban Water Conservation Council (CUWCC) was created to increase efficient water use across California. CUWCC's goal is to integrate urban water conservation Best Management Practices (BMPs) into the planning and management of California's water agencies /utilities. CUWCC notes that there currently is no industry benchmark to determine whether or not a water utility's rate structure is conservation- oriented. However, CUWCC's best management practices on pricing (BMP 11) define a conservation - based rate structure as one that, "...provides economic incentives (a price signal) to customers to use water efficiently." It also notes the following volumetric rate designs are potentially consistent with this definition: ■ Uniform rate in which the volumetric rate is constant regardless of the quantity consumed. ■ Seasonal rates in which the volumetric rate reflects seasonal variation in water delivery costs. ■ Tiered rates in which the volumetric rate increases as the quantity used increases. ■ Allocation -based [water budget] rates in which consumption tiers and respective volumetric rates are based on water use norms and water delivery costs established by the utility. In essence, the CUWCC recommends using, "A quantifiable performance target of 70% that defines a minimum percentage of water sales revenue from volumetric rates. "" 7 For example, while the Irvine Ranch Water District has had water budget rates since 1991, only a handful of other municipalities in California have adopted this rate structure since then. 8 Revising BMP 11 (Conservation Pricing), Memo to All Signatories to the MOU, from CUWCC Executive Director, April 9, 2007. East Valley Water District Page 7 r i� SECTION 2 - WATER RATE STUDY As background to this analysis, we note that any comprehensive utility rate study typically analyzes the three components shown in Figure 3: ■ the overall revenue requirements of the utility; ■ the cost to serve each customer class; and, finally, ■ the appropriateness of the rate structure design. Figure 3 — Uverview of hate tituay uomponents Compares the sources of funds (revenues) to the Revenue Requirement expenses of the utility to determine the overall Analysis sufficiency of current rates and determine the future rate adjustments needed. Allocates the revenue requirements to the various Cost -of- Service customer classes of service in a 'fair and equitable" Analysis manner and ensures rates meet Proposition 218 requirements. Rate Design Analysis ( Considers how fixed charges and volume -based rates are designed to collect the target level of revenues. This water rate analysis provides these three components, but we note that the design of the water rates incorporated additional factors, such as an overall rate philosophy that emphasizes revenue stability, equity among different types of customers, and a greater level of water conservation (i.e., efficient use). HDR has developed this water rate analysis using the District's current rate structure, as well as an inclining block rate structure for single- family customers consisting of three consumption tiers. Both the adjusted current rate structure and the three - tiered structure were determined based on industry standards and cost -of- service principles. The following are some of the basic components included in this analysis: ■ Unit Costs: The water revenue requirements were "functionalized" into three categories, including (1) customer service costs; (2) fixed capacity costs; and (3) variable (or volume - based) costs. Unit costs for each of these functions were determined based on allocations to functional areas, water consumption, and number of accounts by meter size and customer class9 ■ Revenue Requirements by Customer Class: The total revenue that should be collected from each customer class was determined using the unit costs and the total units that 9 The California Urban Water Conservation Council recommends recovering 70 percent of rate revenue through volume -based rates. However, water utilities generally develop their own policy and conservation objectives. East Valley Water District Page 8 ! 5 C each class uses. For example, customer costs are allocated based on number of accounts, while volume- related costs are allocated based on the water consumption for each class by meter size. ■ Fixed vs. Variable Costs and Rates: The revenue requirements for each customer class are collected through a combination of fixed monthly charges and variable rates. Fixed costs, such as customer service, billing, and general administrative costs, are typically collected through a fixed monthly charge, while pumping costs and water supply are typically collected through volume charges. However, more aggressive water conservation goals would necessitate a higher percentage of costs being allocated to variable (volume - based) charges. The fixed and volume -based charges were calculated based on the net revenue requirements, number of customer accounts, water consumption, and other District - provided information. Figure 4 summarizes the recommended water rates resulting from this cost -of- service rate analysis."' Total Fixed Monthly Charges! $1.35 Rate %Incr Rate %Incr Rate %Incr. 5 /8" Meter $10.45 $11.54 10% $12.58 9% $13.71 9% 3/4" Meter $10.45 $11.54 10% $12.58 9% $13.71 9% 1" Meter $14.63 $17.56 20% $19.14 9% $20.87 9% 1 1/2" Meter $18.81 $32.49 73% $35.41 9% $38.60 9% 2" Meter $30.30 $74.47 146% $81.17 9% $88.48 9% 3" Meter $114.94 $137.40 20% $149.77 9% $16125 9% 4" Meter $146.29 $227.30 55% $247.76 9% $270.06 9% 6" Meter $219.44 $452.06 106% $492.74 9% $537.09 9% 8" Meter $303.04 $721.76 138% $786.72 9% $857.52 9% Volume Charge Per hcf $1.35 $1.49 10% $1.62 9% $177 9% Altemative Single- Family Residential Volume Charges Tier 1 = 0 to 15 hcf /mo. $1.35 $1.38 2.0% $1.50 9% $1.64 9% Tier 2 = >15 to 34 hcf /mo. NA $1.55 NA $1.68 9% $1.84 9% Tier 3 = >34 hcf /mo. NA $1.93 NA $2.11 9% $2.30 9% 1. Fy'10 -11 Fixed Monthly Charges include customer charges of $2.71 plus a capacity charge based on meter size. 2. Adjusted from previous year by an across- the -board percent adjustment. Figure 4 - Summary of Proposed Water Rates 10 The percent increases in FY'10 -11 indicate the changes from current rates, and reflect the combination of administrative costs (e.g., meter reading and billing) and the hydraulic capacity of each meter size, whereas FYI 1-12 and 12-13 are "across -the- board" increases of the previous year's rates. East Valley Water District Page 9 1. L I'Ail .1 A Revenue Requirements - Water Utility The regulatory- driven capital improvement projects mentioned above will need to be funded over the next 10 years. Additionally, as the District's construction of these projects moves forward, it is important for the District to follow sound financial management practices. This includes maintain a reasonable operating reserve in order to handle emergencies, fund working capital, and maintain a good credit rating. HDR has recommended the District use a target of about three months (or 25 percent) of annual operating expenses. Figure 5 summarizes the sources and uses of funds, including revenue requirements, for the next three years. A summary of the proposed water utility 10 -year financial plan, including revenue requirements, reserve funds, revenue sources, and proposed rate increases, is included in a MS Excel -Based Rate Model. As described earlier, rate increases are governed by the need to meet operating costs, maintain adequate debt coverage, and build reserve funds. The current state of the District's water utility, with regard to these objectives is as follows: ■ Meeting Operating Costs: For Fiscal Years 2010/11 through 2012/13, the net revenue requirements (total annual expenses plus debt service and capital costs, less non -rate revenues) is estimated to be approximately $15.6 million to $17.3 million. This includes rate - funded capital improvement projects ranging from $0.8 to $1.2 million over these three years. ■ Maintaining Adequate Debt- Service Coverage: Although the District is legally required to maintain a debt service coverage ratio of at least 1.20, the District's financial advisors have recommended a target coverage ratio of at least 1.50. The benefit of maintaining a higher coverage ratio is that it strengthens the District's credit rating, which can help lower the interest rates for debt- funded capital projects and reduce annual debt service payments. Neglecting to implement appropriate rate increases in the next three years will result in a ratio of less than 1.20. ■ Building and Maintaining Reserve Funds: Because of the increasing volatility of consumption -based rate revenue ", the District should establish a Rate Stabilization Fund in addition to Operating and Capital Improvement Reserve Funds. Good management practice is to keep approximately 15% of anticipated rate revenue in the Rate Stabilization Fund and 250% of operating expenses in the Operating Reserve. Capital reserves need to at least meet the annual costs of capital construction projects. " Water customers typically reduce consumption as volume - related costs increase (referred to as the price- elasticity of demand "). Additionally, while California and the District have suffered drought conditions in recent years, a "wet year" could result in dramatic reductions in annual water consumption; hence the need to maintain adequate reserve funds. East Valley Water District Page 10 9 Source of Supply $ 655,000 $ 666,500 $ 679,800 $ 694,800 Pumping $ 3,016,300 $ 3,067,800 $ 3,126,500 $ 3,192,700 Water Treatrnent $ 1,635,700 $ 1,987,300 $ 2,026,300 $ 2,068100 Transmission and Distribution $ 1,453,100 $ 1,686,100 $ 1,937,100 $ 2,209,000 Customer Accounts $ 476,250 $ 481,700 $ 490,700 $ 503,400 General and Administrative �$ 4,618,510 $ 4,539,800 $ 4,609,900 $ 4,696,400 Capital Improvements (Cash-funded) $ 1,416,500 $ 755,000 $ 1,230,000 $ 895,000 Addl. 0 &M for New Plants (134 &150) $ - $ - $ - $ 250,000 Net Debt Service $ 2,648,031 $ 2,838,503 $ 3,038,828 $ 3,185,285 Total Expenses $ 15,919,391 $ 16,022,703 $ 17,139,128 $ 17,694,685 Less: Miscellaneous Revenues $ 427,962 $ 407,882 $ 408,810 $ 410,774 Net Rate Revenue Requirement $ 15,491,429 $ 15,614,821 $ 16,730,318 $ 17,283,911 Current Rate Revenues $ 15.287,600 $ 15.287,600 $ 15,287,600 $ 15.364,038 Proposed Rate Adjustment 0% 3.0 %, 9.0% 9.0% Additional Rae Revenue from Increase $ - $ 229,314 $ 1,167,208 $ 2,302,402 Surplusl(Delciency) WoIncreases $ (203,829) $ (327,221) $ (1,442,718) $ (1,919,873) Adjusted Surplusl(Delciency) with Increases $ (203,829) $ (97,907) $ (275,509) $ 382,529 Total Annual Rate Revenue (Adjusted) $ 15,287,600 $ 15,516,914 $ 16,454,808 $ 17,666,440 Ending Reserve Balances Rae Stabilization Reserve $ $ 800,000 $ 800,000 $ 1,050,000 Minimum 15% of Rate Revenue $ 2,293,000 $ 2,328.000 $ 2,468.000 $ 2.650.000 Operating Reserve $ 2,021,171 $ 1,145,264 $ 888,754 $ 1,037,283 Target (25% of Operating Expenses Z) $ 2.964,000 $ 3,107,000 $ 3.218.000 $ 3.404.000 Replacement Reserve $ 1,608,000 $ 1,208,000 $ 1,008,000 $ 708,000 (Debt Service Coverage Ratio Bebre Rate Adjustment 1.46 1.15 0.93 0.68 Afer Proposed Rae Adjustment 1.46 1.23 1.31 1.40 1. Reflects an Oct. 1 implementation date. HDR estimates only 50% of the additional revenue will be collected in the year of the rate increase. 2 25% of operating expenses, excluding debt service and cash - funded CIP. Figure 5 - Summary of the Revenue Requirements for Water Rate Study In light of these requirements, and after consulting with District staff and holding a workshop with the District Board, HDR proposes the District adopt an overall increase in the water rate revenue of 3% for year 2010/11 and 9% in the following two years." 12 More specifically, this means a 3% increase in FY'10 -11 water rate revenue. Although individual rates in FY'10 -11 will be different than 3% due to cost of service adjustments between customer classes, rates in FY'l1 -12 and FY'12 -13 will then increase "across- the - board" (i.e., uniformly) by 9 %. East Valley Water District Page 11 Con Comparison of Current and Proposed Water Rate Structures The process of designing water rates provides the opportunity to incorporate a number of rate - design objectives and policies, including revenue stability, equity among customer classes, and water conservation. However, this rate structure design process should also consider and reflect the District's water consumption patterns." All metered accounts, regardless of customer class, are charged a fixed rate based on meter size, plus a variable rate based on water consumption, as previously shown in Figure 4. The most recent consumption data for the District by customer class is summarized in Figure 6, while Figure 7 compares the total annual consumption by customer class. Figure S provides a comparison of the number of accounts by customer class. 6 Residential • -- Commercial Irrigation 4�, - <" Figure 6 — Water Consumption by Customer Class 13 District staff has noted that total monthly water consumption the last several months has been considerably lower than typical. This is likely due to higher than average winter /spring rainfall, but could also be reflective of the general overall economic slowdown in California and the region. East Valley Water District Page 12 air a Figure 7 - Percent of Water Consumption by Customer Class Figure 8 — Number of Accounts by Customer Class These three figures illustrate importance of the District's single - family residential (SFR) customers in terms of total number of customers and total revenue, and indicate that most water system facilities are used in serving single- family customers. They also illustrate that single - family customers have significant summer -time peaking requirements compared to the East Valley Water District Page 13 =F _ A Con other customer classes. HDR has reflected these factors in this analysis, particularly in the alternative three - tiered rate structure for single - family customers. The following subsections present comparisons of the current and proposed rate structures for each customer class. Projected rates after FY'10 -11 assume an across- the -board rate increase based on the recommended percent increases each year, as previously shown in Figure 4. More detailed tables on the development of the proposed water rates are documented in a separate MS Excel -based rate model. Single Family Residential (SFR) The District currently charges single - family customers a monthly fixed charge ranging from $10.45 to $30.30, depending on meter size." Current volume charges are $1.35 /hundred cubic feet (hcf) for all customers, including single - family. Current and proposed single - family water rates were summarized in Figure 4. HDR has developed two rate structure alternatives for the District to consider. These alternatives are: • Updating the District's current uniform (single -tier) rate structure • Adopting a three -tier inclining block rate structure The pros and cons of these two alternatives are presented in Figure 9. Design Factors for Three -Tier Rates HDR has developed the three - tiered rates for single- family customers with "break- points" that define three levels of residential consumption. These levels are based on the following rationale: 14 $10.45 is for a 5/8 or 314 -inch meter, while $14.63 is for a 1 -inch meter. There are also a small number of larger single - family meters with higher charges. East Valley Water District Page 14 s ■ 'Pier 1: This first tier is intended to include average domestic (indoor) water use, and, therefore, excludes landscape and other outside uses. Indoor usage is typically defined as average winter usage, since winter is when landscape watering is typically at its lowest. Based on District consumption records in 2009, Tier 1 covers 0 to 15 hcf. ■ Tier 2: The second tier is intended to include usage greater than typical domestic needs (15 hcf), up to the average summer usage (34 hcf), which includes the highest period of landscape watering. Tier 2 therefore includes consumption from greater than 15 to 34 hcf. ■ Tier 3: The third tier includes consumption greater than the average summer -time usage, and represents consumption that could be considered wasteful or excessive. Tier 3 therefore includes consumption greater than 34 hcf. Proposed Single - Family Rates Figure 10 compares the current, proposed and projected single- family residential (SFR) monthly bills for the current single -tier rate structure. $120 $110 $100 $90 $80 $70 t $60 0 f $50 $40 $30 $20 Monthly Water Bill Comparison for SFR Users (3 14°meter) ■ Present 2009/10 Bill F Proposed5ingle- Tier2010 /11 Bill Ci ul to _. Proposed 2011/12 Bill 00 ul Proposed 2012/13 Bill J m o oNd vi V r N ~ O b9 r r V3 aD o r � » w (o N a (q N fA m � O o co (p N r` M M fF1 p M � M 1fl Or 0 15 25 35 Water Consumption hcf � FA 0 0 CD OD sA o v M o � v.� w r 45 55 Figure 10 - Monthly Water Bill Comparison for SRF Customers (Single -Tier) East Valley Water District Page 15 • Con 1 Potential Benefits of Three -Tier Rates Overall, reducing both peak water consumption and total annual water use may reduce District operating costs by decreasing pumping costs and replacement costs, and delaying or avoiding capacity- related improvements. In general, HDR would recommend the more conservation - oriented approach imbedded in the three -tier inclining block rate structure, particularly in light of the State -wide emphasis on reducing per capita consumption.j5 Figure 11 compares current bills with new single -tier and three -tier rate structures and Figure 12 summarizes the current, new uniform and alternative 3 tier water rates. $120 Comparison of SFR Alternative Monthly Water Bills (314 "Meter) —.. N $110 ■Present 2009/10 Bill o v � $100 ¢ Proposed5ingle- Tier2010 /11 Bill o C0 ■ Proposed 3 -Tier 2010/11 Bill N $90 - - - -- N to $ao m o � I _ $70 n 00 00 LO m a rr t $60 N O $so o 00 0) r CO N $40 M CO $30 Ln V $20 O $10 $0 — — 0 15 25 35 45 55 Water Consumption hcf Figure 1 I — Alternative Monthly Water Bill Comparison for SFR Customers 15 The Water Conservation Act of 2009 (SB 7) requires urban water agencies to reduce average per capita consumption by 20 percent by December 31, 2020. East Valley Water District Page 16 Fixed Monthly Charges' Single- Family $10.45 $11.54 $12.58 $13.71 Volume Charges Per hcf $1.35 $1.49 $1.62 $1.77 Alternative (3 -Tier) Single- Family Residential Volume Charges Tier 1 = 0 to 15 hcflmo. $1.35 $1.38 $1.50 $1.64 Tier 2 = >15 to 34 hcf /mo. NA $1.55 $1.68 $1.84 Tier 3 = >34 hcf /mo. NA $1.93 $2.11 $2.30 Figure 12 — Summary of Single - Family Residential Water Rates Commercial Water Customers Commercial customers currently use the fixed monthly charges and volume -based rate of $1.35/hcf previously shown in Figure 4. Although commercial customers vary significantly by type and level of consumption, Figure 13 compares current and proposed monthly bills for a "typical commercial" customer with a 1 -inch meter and an average of use of 35 hcf /month. $150 $140 $130 $120 $110 $100 e $90 > $80 r c $70 $60 $50 $40 $30 $20 $10 $0 Monthly Water Bill Comparison for Commercial Users (1 "meter) ■ Present 2009/10 Bill ■ Proposed 2010/11 Bill ❑ Proposed 2 011/1 2 Bill ❑ Proposed 2012/13 Bill _ o v CO o? ri v eu rn M 64 �� 1 15 r UD co 00 M 60 M 4 L" - EA A 25 00 0, N ° n 0 0 � ° 64 LQ _ o N ° � N 69 Q M W 69 35 45 Water Consumption hcf N v 00 C6 yi r°n ° — - oa e>� - -1ei M � i 55 Figure 13 - Monthly Water Bill Comparison for a Typical Commercial User East Valley Water District Page 17 3 - SECTION 3 - SEWER RATE STUDY As previously noted (Figure 1), the three things a comprehensive rate study typically analyzes, which are addressed in this study, are: • The overall financial requirements of the utility • The cost to serve each customer class • The appropriateness of the rate structure The most distinctive aspect of the District's sewer rates is that they consist of separate rates for: (1) treatment - related services provided by the City of San Bernardino (City); and (2) collection - related sewer services provided by the District. The City's rates are not set by the District, but instead are essentially a "pass- through" to District's sewer customers.16 Because of this, HDR's sewer rate analysis only addresses collection- related costs provided by the District.° The proposed District rates were developed by evaluating specific components, including: ■ Unit Costs: The revenue requirements were "functionalized" into customer service costs and flow - related costs." Unit costs for these functions were determined based on water consumption and the estimated effluent received at the City's treatment facility. ■ Revenue Requirements by Customer Class: The total revenue collected from each customer class was determined using the unit costs times the total units, such as water use, number of accounts (or dwelling units), used by each class. ■ Fixed vs. Variable Costs and Rates: The revenue requirements for each customer class are collected through a combination of fixed monthly charges and variable rates, although the revenues from single - family residential customers are rolled into a single monthly flat rate. In contrast, commercial revenue requirements are collected through fixed monthly charges and a volume -based rate tied to their water consumption. The following sections summarize the results from the sewer rate analysis. More detailed tables showing the step -by -step development of the analysis are documented in a separate MS Excel -based rate model. Rate Study Methodology and Assumptions Although the basic steps in a sewer rate analysis are similar for water and sewer utilities, whereas water rates focus more on volume - related charges for consumption levels, sewer rates 16 This was the result of a legal settlement in the early 1980's, and the District has no control over City rates. " District collection costs in this case also include customer costs related to billing and administrative functions. Therefore, the District allocates its "collection" costs to customers based on flow and customer costs. 10 Sewer cost -of- service studies normally allocate costs to flow, BOD. TSS and customer costs. Since the City's rates cover BOD and TSS - related costs, these have been excluded from District's collection - related rates. East Valley Water District Page 18 incorporate unit costs related to treatment of wastewater effluent. These are generally referred to as strength factors, and include the following three components: • Flow (or volume of effluent) • Biological oxygen demand (BOD) • Total suspended solids (or TSS) As mentioned above, the City provides treatment of the District's sewer effluent and establishes the treatment- related rates charged to District customers and HDR's sewer rate analysis addresses only the collection system costs. Other than customer costs for billing and administrative tasks, collection system costs are directly related to the amount of effluent (flow) generated by sewer customers in the District. In this analysis, HDR relied on the City's data for the total amount of District effluent treated at the City's wastewater treatment plant, along with estimated water consumption from District records. That is, in allocating effluent costs to District customers, HDR calibrated flows from customer classes to match City flow records (i.e., the estimated effluent received at the City's plant). In calculating volume -based sewer rates, HDR used estimated water consumption from District records.19 Revenue Requirements - Sewer Utility To identify the District's long -term financial needs, HDR developed a 10 -year financial plan that forecasts sewer revenues and expenditures, including reserves. This plan is based on current District budgets, discussions with District staff, and related information such as debt service schedules. In the District's case, revenue requirements are limited to the costs for the collection system, including customer billing and administrative costs, because the City sets the rates for all treatment - related services. The City's rates are treated as a pass- through to the District's customers and the District just adds its collection - related rates to the City's rates. The District's financial plan addresses three primary components: ■ Meeting Operations Costs: The sewer utility must generate enough revenue to cover the expenses of sewer operations, including administration and accounting, collection operations, and the wastewater treatment plant costs (the City's costs). For FY 2010/2011, the net revenue requirement (total annual expenses, including debt service, less non -rate revenues) is approximately $9.7 million for both treatment and collection, and $3.8 million for collection only. 19 As noted in the water rate analysis, recent decreases in water consumption have been reflected in proposed water rates. Similarly, reduced water consumption levels have been reflected in water usage of District sewer customers. East Valley Water District Page 19 • Maintaining Adequate Bond Coverage: The District's bond covenants require the District to maintain a minimum debt service coverage ratio of 1.20; although, the District's policy is to have a coverage ratio of at least 1.5.21 • Sustaining Reserve Funds: The sewer utility should maintain separate Operating and R &R Reserve Funds. The Operating Reserve functions as an emergency reserve, a rate stabilization fund, and the source of working capital for operations. Year -end surplus rate revenues are transferred into the operating fund; operating funds in excess of the target fund reserve are transferred into the R &R reserve. Good management practice is to keep a minimum balance of 90 days (25%) of the operating budget. HDR has used this 25% as the target for the District's operating reserves. The District is currently updating its sewer master plan, but is aware that the sewer system will need significant repairs and replacement over the next 10 years. Current District estimates are as high as $15 million in total, with a ramping up of R &R /capital improvement costs to about $1.3 million per year. The District's capital projects include two significant projects: ■ $7 to $10 million for Sewer Main Replacements - The District's Sewer Master Plan identifies sewer mains that are at or near capacity to be completed in summer 2011. ■ $1 million Conejo Ave Sewer Main Replacement - This sewer main is undersized and highly susceptible to spillage. Figure 14 summarizes the next three years of the financial plan, showing a more traditional "sources and uses" of funds, along with the estimated annual surplus or deficiency. A summary of the entire 10 -year financial plan, showing revenue requirements, revenue sources (including rate revenue), and necessary rate increases is presented in a MS Excel -based rate model. 20 As previously noted, the benefit of maintaining a higher coverage ratio is that it improves the District's credit rating, which lowers the interest rates for debt - funded capital projects and reduces annual debt service payments. East Valley Water District Page 20 Sources of Funds Collection Revenues (Service Charges) $ 3,535,000 $ 3,535,000 $ 3,535,000 $ 3,552,675 Miscellaneous Revenues 159,000 223.270 223.543 224,474 Total Revenues $ 3,694,000 $ 3,758,270 $ 3,758,543 $ 3,777,149 Uses of Funds (Operations) Wastewater Collection System $ 513,600 $ 677,100 $ 686,700 $ 699,400 Customer Accounts /Service 476,250 481,700 490,700 503,400 General and Administrative 1,948.090 1.974,500 2.006,800 2,045,400 Total Application of Funds $ 2,937,940 $ 3,133,300 $ 3,184,200 $ 3,248,200 Net Debt Service $ 259,718 $ 312,321 $ 338,741 $ 343,172 CIP from Rates R &R Costs $ 242,500 $ 300,000 $ 300,000 $ 550,000 Capital Projects 70000 290,000 700,000 450,000 Total CIP from Rates $ 312,500 $ 590,000 $ 1,000,000 $ 1,000,000 Total Revenue Requirements' $ 3,351,158 $ 3,812,351 $ 4,299,398 $ 4,366,898 Surplust(Deficiency) $ 342,842 $ (54,081) $ (540,856) $ (589,749) As % of Rates lDistrict/Collection System) 9.7% -1.5% -15.3% -16.6% Source: Exhibit 1 - Summary of Sewer Revenue Requirements. 1. 'Total Application of Funds" plus 'Total CIP from Rates' plus "Net Debt Service" loss 'Miscellaneous Revenues' Figure 14 - Sources and Uses of Sewer Utility Funds Based on the forecasts from the 10 -year financial plan, the District would need a rate increase of approximately 9 %21 to fund repair and replacement costs in FYI through FY'12 -13 without running a deficit in the Sewer Fund reserves. Comparison of Current and Proposed Sewer Rate Structures The District currently combines the City's rates for treatment with the District's rates for collection services. It also adds a surcharge for customers East of Boulder Avenue to reimburse the City for costs related to a sewer interceptor serving this area. The "East of Boulder' customers are primarily single- family customers, who will continue to pay this surcharge for the foreseeable future. A summary of the preliminary recommended sewer rates resulting from the cost of service rate analysis is provided in Figure 15 and Figure 16. These figures compare the current and proposed rate structures for each customer class (single - family, multi- family, and commercial customers). Projected rates after FY'10 -11 assume across- 2' These rate increases only refer to District collection- system related costs, not the City of San Bernardino treatment - related rates. East Valley Water District Page 21 $ %bowtow the -board rate increases based on the recommended increases each year, as presented in the MS Excel -based sewer rate model, Exhibit 1. Flat -Rate Customers Single Family Residential Volume -Based Customers Commercial Multiple Family Residential School, Church Hospital Government Auto Repair Car Wash Laundromat Dry Cleaners Offices, Motels Retail ($/acct./ (g /hco (18ccc)t./ ($/hco mo.) $12.93 $16.00 $3.28 $0.46 $2.00 $0.95 $3.28 $0.46 $2.00 $0.70 $3.28 $0.46 $2.00 $0.95 $3.28 $0.46 $2.00 $1.50 $3.28 $0.46 $2.00 $1.30 $3.28 $0.46 $2.00 $1.30 $3.28 $0.46 $2.00 $130 $3.28 $0.46 $2.00 $1,90 $3.28 $0.46 $2.00 $1.50 $3.28 $0.46 $2.00 $1.90 Hotel with Restaurant $3.28 $0.46 $2.00 $2.00 Restaurant ® $3.28 $0.46 $2.00 $2.00 Wmo.)., ($/hco $28.93 $5.28 $5.28 $5.28 $5.28 $5.28 $5.28 $5.28 $5.28 $5.28 $5.28 $5.28 $5.28 Rates shown are for "West of Boulder Ave,". Rates for "East of Boulder Ave." are $2.00 1mo. higher and $0.09 1hcf for commercial. Figure 15 - Summary of Current and Proposed Sewer Rates $1.41 $1.16 $1.41 $1.96 $1.76 $1.76 $1.76 $2.36 $1.96 $2.36 $2.46 East Valley Water District Page 22 3 Flat -Rate Customers Single Family Residential Volume -Based Customers Commercial Multiple Family Residential School, Church Hospital Government Auto Repair Car Wash Laundromat Dry Cleaners Offices, Motels Retail Hotel with Restaurant Restaurant ($/acct. /mo.) ($/hcf) ($/accUmo.) ($ /hcf) ($/acct. /mo.) ($/hct) $28.93 $30.09 $31.36 $5.28 $1.41 $5.58 $1.45 $5.90 $1.50 $5.28 $1.16 $5.58 $1.20 $5.90 $1.25 $5.28 $1.41 $5.58 $1.45 $5.90 $1.50 $5.28 $1.96 $5.58 $2.00 $5.90 $2.05 $5.28 $1.76 $5.58 $1.80 $5.90 $1.85 $5.28 $1.76 $5.58 $1.80 $5.90 $1.85 $5.28 $1.76 $5.58 $1.80 $5.90 $1.85 $5.28 $2.36 $5.58 $2.40 $5.90 $2.45 $5.28 $1.96 $5.58 $2.00 $5.90 $2.05 $5.28 $2.36 $5.58 $2.40 $5.90 $2.45 $5.28 $2.46 $5.58 $2.50 $5.90 $2.55 $5.28 $2.46 $5.58 $2.50 $5.90 $2.55 a. Rates for 'West of Boulder Ave.' - -'East of Boulder Ave." rate are $2.001mo. higher for single - family and $0.09 1hcf for commercial. b. Proposed rates consist of current 'City' rates plus previous year's 'District' rates adjusted by the % rate increase (from Exhibit 1). Figure 16 - Proposed Sewer Rates through FY'12 -13 Single Family Residential Sewer Customers The District currently charges a monthly flat rate of $10.84 per single family residential account, plus the treatment charge from the City of $15.25 for a total charge of $26.09 for customers on the West side of Boulder Avenue. HDR recommends a fixed monthly sewer charge of $28.27, of which $12.27 is for the collection system, for all single family residential customers. The basis of the proposed charge is an assumed average monthly consumption of approximately 14 hcf of water per single family residential customer.z= Figure 17 shows the projected single- family monthly bills. 22 This is the consumption indicated by sewer utility records. Water utility records indicate calendar year 2009 consumption of about 25 hcf /month for single - family and 10 for multi - family. East Valley Water District Page 23 Cor Monthly Sewer Bill Comparison - Single - Family Customers $35 $31.36 $30 $25 m $20 a 3 v L $15 Y_ O r:I $10 $5 $0 $26.09 $28.93 $30.09 ■ Current (West of Boulder Ave.) 0 Proposed 2010111 Proposed 2011112 Proposed 2012113 Figure 17 - Monthly Sewer Bill Comparison for SFR Customers Commercial Sewer Customers The District currently bills commercial customers a fixed monthly charge of $2.10 per account plus a volume -based charge ranging from $1.20 to $2.48 /hcf for customers west of Boulder Avenue, which include the City's treatment- related rates ranging from $0.65 to $1.93 /hcf. Commercial customers east of Boulder have a surcharge of $0.09/hcf. HDR proposes to charge fixed customer cost of $5.28 per month plus a variable charge ranging from $1.13 to $2.43/hcf. Current and projected monthly sewer bills for multi - family residential and restaurants are shown in Figures 18 and 19, respectively. East Valley Water District Page 24 Monthly Sewer Bill Comparison - Multi - Family Accounts 00 O r N O 1 11 " L6 e0 04 vRv Lo V V u3 O 00 M 6 LO to r O M o W CO V CY) 00 00 C,4 NN 6 N vi u) O M r r N i» te 69 611 iig 50 100 150 200 300 Water Consumption (ccf) ■ Current (West of Boulder Ave.) ■ Proposed 2010/11 ■ Proposed 2011/12 0 Proposed 2012/13 Figure 18 — Monthly Sewer Bill Comparison for MFR Accounts East Valley Water District Page 25 $600 $550 $500 E $450 � I $400 y m $350 d y $300 - N 2' $250 - o M m o E $200 o LO B $150 0 r i ri ui �s $100 rn $50 $0 I 00 O r N O 1 11 " L6 e0 04 vRv Lo V V u3 O 00 M 6 LO to r O M o W CO V CY) 00 00 C,4 NN 6 N vi u) O M r r N i» te 69 611 iig 50 100 150 200 300 Water Consumption (ccf) ■ Current (West of Boulder Ave.) ■ Proposed 2010/11 ■ Proposed 2011/12 0 Proposed 2012/13 Figure 18 — Monthly Sewer Bill Comparison for MFR Accounts East Valley Water District Page 25 1: fit -tT d Con Monthly Sewer Bill Comparison - Restuarants $400 0 v M v N N N 06 $350 `- � CO . M M M 0 M 0) M M � 'R b3 Ki _ j O $300 N N N N C" ' CO to b4 fL O M m v $250 7 Co N M to Co 'o rn co yj v, N A I Y $200 -1 o M c�0 CO N m a0 O M I ! N N M M $150 6y 6. 6q . Y d Q 0 0 K OO U� $100 (6 w rn _ $50 -will U) O j 25 50 75 100 125 Water Consumption (ccf) ■Current (West of Bou ❑ Proposed 2011/12 Figure 19 - Monthly Sewer Bill Comparison for Restaurant Accounts East Valley Water District Page 26 Cot SECTION 4 - RECOMMENDATIONS HDR proposes the District take the following actions: ■ District Board Presentation and Review: Both utilities' rate study and proposed rates should be reviewed by the District Board. For the water rate study, the Board needs to review the merits of uniform (single -tier) and the alternative three -tier rates and choose between these alternatives. HDR believes the Board should select the three - tiered rate structure for single - family customers if water conservation in the future is the priority, and choose uniform rates if minimizing rate structure changes and ease of administration are the priority. Either would meet the District's overall objectives and provide sufficient revenues. • Complete Public Hearing and Proposition 218 Noticing: To move ahead with adoption of the proposed rates, the District will need to send out public notices and hold a public hearing in compliance with Proposition 218 requirements. • Adopt Recommended Rates and Study Report: Based on the water and sewer rate analysis provided, the District Board should select, adopt and implement the recommended rate structures. ■ Review Rates and Revenue Annually: Any time a utility adopts new rates or rate structures, the utility should closely monitor annual rate revenue generated to ensure sufficient revenues are being generated. Changing economic and water consumption patterns underscore this concept, as well as potential changing revenue requirements, particularly those related to capital improvements and repair and replacement costs. Additionally, the District is completing master planning studies and will need to make adjustments as needed to best accommodate any new capital requirements. Principal Assumptions and Considerations — In preparing this report and opinions and recommendations included herein, HDR has relied on a number of principal assumptions and considerations with regard to financial matters, conditions and events that may occur in the future. This information and assumptions, including District's budgets and information from District staff, were provided by sources we believe to be reliable. While we believe HDR's use of such information and assumptions is reasonable for the purpose of this report, some assumptions will invariably not materialize as stated herein and may vary significantly due to unanticipated events and circumstances. Therefore, the actual results can be expected to vary from those projected to the extent that actual future conditions differ from those assumed by us or provided to us by others. East Valley Water District Page 27