HomeMy WebLinkAbout9.17.19 Tustin 2019 Water Rate Study Presentation2019 Rate Study COS and Rate Design Review
September 2019
City of Tustin
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Agenda
•Background
•Key Assumptions
•Primary Drivers to Financial Planning
•Current Financial Position
•Recommended Financial Plan
•Cost of Service
•Proposed Rates with Alternatives
•Customer Impact
•Next Steps
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3
Background
Background
4
•5-Year Water Rates were last adopted by Council on
June 9, 2010
•Last increase went into effect on July 1, 2014
•Commodity costs have been increasing:
›Since 2016:
–Groundwater rate increase by 50%
–Imported water rate (Metropolitan Water District of
Southern California) increase by 15%
–Electricity rate increase by 12%
Service Area
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Key Assumptions
Key Assumptions
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•Annual Demand in Sales:
›FY 2019: 9,700 AF
›FY 2020: 9,800 AF
›FY 2021: 9,900 AF
•FY 2019 budget used as base year for analysis
•FY 2020 is used to set first year of rates
›Revenue required from rates - $18.5M
•Zero account growth
›Not relying on development to meet revenue needs
•Capital Improvement plan reduced to ongoing maintenance
›Rates recover slightly more to account for depreciation
•Water supply costs increase by 5%
›FY 2021 projects a one-time increase of 10%
Customer Data
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Meter Size Accounts
Meter
Equivalents
3/4" or less 10,110 10,110
1" 3,071 7,678
1 1/2" 365 1,825
2" 600 4,800
3" 45 788
4" 29 914
6" 14 980
8" -
10" -
Total 14,234 27,094
Customer Class Type of Rates
Total
Usage (ccf)
% of
Usage
Single-Family 7-Tiers 2.3M 54%
Multi-Family 7-Tiers 270k 6%
Non-Res 7-Tiers 1.7M 40%
Total 4.23M 100%
Primary Drivers to Rate Study
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Financial Plan
•Ensure positive net operating income each Fiscal Year (CY).
•Meet any bond coverage requirements.
•Adequately fund capital through surcharge.
•Model reserve policies to meet minimum requirement and identify ideal
reserve targets above minimums to reflect a strong financial position
moving forward.
Rate Analysis
•Recovery actual cost of delivering water
›Build up water supply costs and break-even point on current rates
•Updated tiered rate structure to directly tie to costs
›Currently, too many tiers to show clear connection
–Reduce or eliminate tiers
›Update capital surcharge
•Revise amount recovered from fixed charges versus variable charges
Approach
•Proposed Financial Plan Options
›Step 1 – Meet debt coverage
›Step 2 – Generate positive net income each year
›Step 3 – Ensure reserves remain at healthy levels through
planning period
•Cost of Service (COS)
›Update cost allocations between customer classes
›Update peaking characteristics
›Review changes in how costs are incurred
•Rate Design
›Comply with Proposition 218
›Adjust Fixed / Variable Split
›Compare proposed rates to current rates (bill impact)
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Water Rate Study
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Water Utility Financials
Current Financial Position
Water Rate Study
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FY 2019 FY 2020 FY 2021 FY 2022 FY 2023 FY 2024
Budgeted Projected Projected Projected Projected Projected
Revenue from Existing Rates
Commodity Charges $8,913,305 $9,180,704 $9,456,125 $9,456,125 $9,456,125 $9,456,125
Base Water Service Charge $8,238,614 $8,238,614 $8,238,614 $8,238,614 $8,238,614 $8,238,614
Total Rate Revenue $17,151,919 $17,419,318 $17,694,739 $17,694,739 $17,694,739 $17,694,739
Other Operating Revenues $178,000 $179,780 $181,578 $183,394 $187,061 $190,803
Non-Operating Revenues $35,600 $121,172 $70,249 $54,351 $30,272 ($39,505)
Total Revenue $17,365,519 $17,720,270 $17,946,566 $17,932,483 $17,912,073 $17,846,037
O&M Expenditures
Personnel & Benefits $3,772,135 $3,887,192 $4,005,851 $4,128,234 $4,254,465 $4,384,674
Operations $2,693,130 $2,773,923 $2,857,141 $2,942,855 $3,031,141 $3,122,075
Water Supply $7,519,089 $8,097,529 $9,179,879 $9,676,528 $10,138,466 $10,628,227
Departmental Expense $50,000 $51,500 $53,045 $54,636 $56,275 $57,964
Total Operating Expenses $14,034,354 $14,810,144 $16,095,917 $16,802,254 $17,480,348 $18,192,940
Debt Service
Existed Debt Service $2,383,095 $2,384,120 $2,384,220 $2,381,070 $2,381,520 $2,740,695
Total Debt Service $2,383,095 $2,384,120 $2,384,220 $2,381,070 $2,381,520 $2,740,695
Debt Coverage Ratio 140%122% 78% 47% 18% -13%
Target Coverage Ratio 120% 120% 120% 120% 120% 120%
Net Cash $948,070 $526,005 ($533,571) ($1,250,841) ($1,949,795) ($3,087,599)
Operating Financial Plan
•Negative annual net income in FYE 2021
›Reserves would need to cover operating shortfall
Water Rate Study
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Current Capital Plan
•Doesn’t encompass full capital needs in future years
›Inline with what can be completed in one year with current staffing
Water Rate Study
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Reserves Balances
Water Rate Study
15
Proposed Financial Plan
•Approach
›Step 1 – Meet debt coverage requirements
›Step 2 – Build up Reserves to meet minimum
requirements over a measured time period (FY 2027)
›Step 3 – Fund all capital R&R expenses through PAYGO
•Proposed Financial Plan
›6% revenue adjustments in FYE 2020 – FYE 2024
›Subsequent years followed by 3% in outer years
Water Rate Study
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Recommended Financial Plan
Water Rate Study
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Proposed Reserve Balances
Water Rate Study
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•Leveraging reserves to mitigate increases
•Reserves build up over time
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Cost of Service
Cost of Service
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SUPPLY BASE DELIVERY PEAKING METER MAINTENANCE CUSTOMER SERVICE FIRE
Water Rate Study
COST-OF-SERVICE
Water Rate Study
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Cost of Service – Items to Address
•Proposition 218 Compliance
›Rates must connect to costs
›Action:
–Number of SFR tiers will either be eliminated or reduced
–Non-Residential: No Tiers
›Impact:
–Shifting of costs occur between customer classes
–Ensures no subsidies between customers
•Update Water Supply Costs
›Groundwater supply costs are more than current Tier 1 rate $0.84
›Action:
–Commodity rates need to reflect cost of providing service
›Impact:
–Single-family customer class absorbs actual costs incurred
Water Rate Study
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Cost of Service Adjustments
•Either rate alternative (uniform or reduced tiers) will
cause proposed variable rates to increase to recover
required revenue
•Rate Design Adjustments
›Due to impact on commodity, fixed variable split can be
adjusted
–Current is 47% Fixed / 53% Variable
›Recommend adjusting split to 40% / 60% to provide as
much rate relief as possible
Water Rate Study
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Customer Meters
Fire
Protection Capital R&R Supply
Base
(Water
Peaking
(MD+MH)Conservation
Percentage 14.4% 9.5% 0.2% 16.2% 43.1% 13.9% 1.6% 0.9%
FYE Revenue
Requirement
FY 2020 $17,941,898 $2,585,662 $1,712,058 $41,972 $2,915,094 $7,734,609 $2,497,227 $285,228 $170,047
FY 2021 $19,319,116 $2,784,138 $1,843,475 $45,193 $3,138,857 $8,328,317 $2,688,914 $307,122 $183,100
FY 2022 $20,478,263 $2,951,186 $1,954,084 $47,905 $3,327,188 $8,828,016 $2,850,249 $325,549 $194,086
FY 2023 $21,706,959 $3,128,257 $2,071,329 $50,779 $3,526,819 $9,357,697 $3,021,264 $345,082 $205,731
FY 2024 $23,009,377 $3,315,952 $2,195,608 $53,826 $3,738,429 $9,919,159 $3,202,539 $365,787 $218,075
40.4% 59.6%
VariableFixed
Fixed vs. Variable
Capital Surcharge
•Annual Depreciation is $2.3M
•Depreciation in today’s dollars = $3.7M
•Capital surcharge midpoint.
Water Rate Study
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14.4% 9.5% 0.2% 16.2%
Proposed Fixed Charges: Bi-Monthly
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Meter Size Customer
Component
Meter
Component R&R Charge Proposed
Charges
Current
Charges Difference ($) Difference (%)
3/4" or less $18.95 $10.69 $18.45 $48.10 $46.85 $1.25 2.7%
1" $18.95 $26.73 $46.14 $91.82 $103.65 ($11.83) -11.4%
1 1/2" $18.95 $53.45 $92.27 $164.68 $197.29 ($32.61) -16.5%
2" $18.95 $85.51 $147.64 $252.10 $311.86 ($59.76) -19.2%
3" $18.95 $187.05 $322.96 $528.96 $574.86 ($45.90) -8.0%
4" $18.95 $336.69 $581.32 $936.97 $956.38 ($19.41) -2.0%
6" $18.95 $748.19 $1,291.82 $2,058.97 $1,893.76 $165.21 8.7%
8" $18.95 $1,282.60 $2,214.55 $3,516.11 $1,893.76 $1,622.35 85.7%
10" $18.95 $2,030.79 $3,506.38 $5,556.12 $1,893.76 $3,662.36 193.4%
MFR Meters $18.95 $18.95 $37.70 ($18.75) -49.7%
•“3/4 inch or less” - modest change
•City does not currently have any 8” and 10” meters
Water Rate Study
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Rate Alternative:
Uniform Rates
Variable Cost Component
•Total Variable Revenue Requirement = $10.68M
Variable
Revenue Requirement
FYE
FY 2020
FY 2021
FY 2022
FY 2023
FY 2024
Water Rate Study
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$7,734,609 $2,497,227 $285,228 $170,047
$8,328,317 $2,688,914 $307,122 $183,100
$8,828,016 $2,850,249 $325,549 $194,086
$9,357,697 $3,021,264 $345,082 $205,731
$9,919,159 $3,202,539 $365,787 $218,075
59.6%
Supply Base
(Water
Peaking
(MD+MH)Conservation
43.1% 13.9% 1.6% 0.9%
Variable
Proposed Variable Charges - Uniform
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Variable
Component Supply Delivery Peaking Conservation
Proposed
Rate
FYE 2020 $7,734,609 $2,497,227 $285,228 $170,047
Usage 4,355,763 4,355,763 4,355,763 4,355,763
Uniform $1.84 $0.60 $0.07 $0.05 $2.56
Water Rate Study
Variable Rate Comparison - Residential
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Tiers Proposed
Variable Rate
Current
Charges Difference (+/-) Difference ($)
Residential
Tier 1 $2.56 $0.84 +$1.68
Tier 2 $2.56 $1.48 +$1.04
Tier 3 $2.56 $1.94 +$0.58
Tier 4 $2.56 $2.41 +$0.11
Tier 5 $2.56 $3.05 -($0.53)
Tier 6 $2.56 $3.53 -($1.01)
Tier 7 $2.56 $4.05 -($1.53)
Water Supply - $1.84
Water Supply + Delivery - $2.44
$0.00
$4.05
Total Variable (uniform) - $2.56
Water Rate Study
Water Utility Costs
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Water Rate Study
Water Supply
44¢
CIP / Debt
20 ¢
Staffing
21 ¢
Operations/
Central Services
15 ¢
SFR Bill Impact – Uniform Rates
(Monthly)
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Water Rate Study
•Updating rates to reflect cost of water supply = $6.80
•Water Conveyance = $8.53
•Remaining ~$3 includes system demand and conservation
~$15 of total $18
increase is for
water supply costs
SFR Bill Impact – Uniform Rates
(Monthly)
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Water Rate Study
•Primary Drivers:
›Elimination of tiers
›Updated Cost of Service (reallocates costs between customers)
›Revenue adjustments
SFR Usage Characteristics
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63% of SFR =
≤ 16 HCF
75% of SFR =
≤ 20 HCF
Regional Comparison – Tustin Uniform
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Regional
Average
$63.00
•IRWD has ad valorem tax base to fund capital projects
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Rate Alternative:
Tiered Rates
Cost of Service Analysis – Tiered Rates
•Tiered rates
›3 tiers
›Tier widths based on indoor needs (T1) and accommodating
peak demand in summer (T2)
–Tier 1: 100% groundwater
–Tier 2: 100% groundwater
–Tier 3: Mix of groundwater and EOCWD purchased water
Water Rate Study
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Water Supplies
Cost of Water (Production and Imported)
Unit Cost
Calculation Usage Groundwater
EOCWD
Tier 1
Unit
Cost
Unit Rate $1.59 $6.44
2,351,071 2,233,518 117,554
SFR Tier 1 883,198 883,198 -$1.59
SFR Tier 2 898,216 898,216 -$1.59
SFR Tier 3 569,657 452,103 117,554 $2.60
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•Doesn’t include conveyance or costs associated with peaking
›Current Tier 1 is $0.84 = Difference ($0.75) per ccf
›Current Tier 2 is $1.48 = Difference ($0.11) per ccf
Water Rate Study
Peaking and Conservation
3939
Customer Class Peaking Conservation
Domestic
Tier 1
Tier 2
Tier 3
Multi-Family
Irrigation
Commercial
Allocated Based
on usage
characteristics
Water Rate Study
Proposed Variable Charges
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Class
Bi-Monthly
Tier Supply Delivery Peaking Conservation
Proposed
Rate
Current
Rate
Difference
($)
SFR Blended
T1 14 $1.59 $0.60 $0.04 $0.00 $2.23 $1.16 $1.07
T2 38 $1.59 $0.60 $0.06 $0.04 $2.29 $2.47 ($0.18)
T3 >38 $2.60 $0.60 $0.16 $0.06 $3.42 $3.79 ($0.37)
MFR Uniform $1.84 $0.60 $0.06 $0.06 $2.56 $2.34 $0.09
Irrigation Uniform $1.84 $0.60 $0.08 $0.06 $2.58 $3.15 ($0.57)
Commercial Uniform $1.84 $0.60 $0.07 $0.05 $2.56 $3.15 ($0.59)
Water Rate Study
SFR Bill Impacts – 3 Tiers
(Monthly)
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Water Rate Study
•Slightly less impact to average customer (~$5 reduction)
›Certain costs allocated to higher tiers based on demand
SFR Bill Impacts – 3 Tiered Rates
(Monthly)
42
Water Rate Study
SFR Usage Characteristics
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75% of SFR =
Stay in Tiers 1 & 2
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Regional Comparison – Tustin Tiered
Regional
Average
$63.00
•IRWD has ad valorem tax base to fund capital projects
Rate Alternative Monthly Comparison
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Annual Impact –
Proposed Uniform vs. Proposed 3 Tiers
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SFR Using 16 Units / Month
(average)
Uniform Rate Structure =
$10.18 more per year
Recommendations:
•Conduct a public workshop to discuss cost of
service & proposed changes in water rates
•Set a Public Hearing for January 22, 2020 at
7:00 p.m.
•Direct staff to prepare and mail the required
public hearing notices
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Questions
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