HomeMy WebLinkAbout07 ADOPTION OF RETAIL WATER RATES - PUBLIC HEARING RESOLUTION 20-04MEETING DATE: JANUARY 21, 2020
TO: MATTHEW S. WEST, CITY MANAGER
FROM: JOHN A. BUCHANAN, DIRECTOR OF FINANCE
DOUGLAS S. STACK, DIRECTOR OF PUBLIC WORKS/CITY ENGINEER
SUBJECT: ADOPTION OF RETAIL WATER RATES — PUBLIC HEARING
RESOLUTION 20-04
SUMMARY:
The City's consultant, Raftelis Financial Consultants, completed a cost of service analysis
and developed a proposed water rate that will meet ongoing operational, maintenance,
capital, and Bond Covenant requirements. As of the published date of this report, the City
has received 54 written protests to the proposed water rates.
RECOMMENDATION:
It is recommended that the City Council:
1. Conduct a public hearing to receive testimony on the proposed water rates for fiscal
year 2019-2020 through fiscal year 2023-2024; and
2. Adopt Resolution No. 20-04 approving the proposed water rates for fiscal year 2019-
2020 through fiscal year 2023-2024 with effective dates of February 1, 2020;
January 1, 2021; January 1, 2022; January 1, 2023; and January 1, 2024.
FISCAL IMPACT:
The proposed rates are intended to meet the cost of service requirements of Proposition
218 and generate the necessary revenue for operational, maintenance, capital, and Bond
Covenant requirements. A net increase in water rate revenue as outlined in the table below
is proposed:
FY 2020
FY 2021
FY 2022
FY 2023
FY 2024
Implementation
February 1,
January 1,
January 1,
January 1,
January 1,
Date
2020
2021
2022
2023
2024
Proposed
Revenue
5%
5%
5%
5%
5%
Adjustments
Estimated
Additional
Revenue from
$359,189
$1,321,495
$2,254,123
$3,233,383
$4,261,606
Rates above
current revenue
Public Hearing — Adoption of Proposed Water Rates
January 21, 2020
Page 2
CORRELATION TO THE STRATEGIC PLAN:
The adoption of new water rates implements strategy number five (5) of Goal C: Financial
Strength.
BACKGROUND:
The City of Tustin's water rates were last approved by the City Council on June 15, 2010,
which established the water rates for five years. The first water rate change went into effect
on July 1, 2010 and the last change went into effect on July 1, 2014. The current water rate
will not generate sufficient revenues to meet operational, maintenance, capital, and Bond
Covenant requirements beginning FY 2020/21. Therefore, the City's consultant completed
a cost of service analysis and developed a proposed water rate that will meet ongoing
operational, maintenance, capital, and Bond Covenant requirements. On September 17,
2019 the City Council received a presentation by the rate consultant, set the public hearing
for January 21, 2020, and authorized staff to send the Proposition 218 notice to property
owners regarding the proposed water rate adjustments considered here.
DISCUSSION:
The City owns and operates a water distribution system that provides services to a
community' of nearly 69,000 water consumers. Approximately 61 % of the service
connections are within a five square mile area within the City limits and the remaining 39%
of the connections are located within a 3.4 square mile area north of the City limits, within the
unincorporated area of the County, known as North Tustin. The areas of the City not within
the Enterprise's service area include the Tustin Ranch development located on the eastern
side of the City and the Tustin Legacy development. These areas are served by the Irvine
Ranch Water District, The City water system consists of approximately 172 miles of water
mains, 6 reservoirs, 14 active wells, and 1,945 fire hydrants.
Proposition 218 requires that the City conduct a public protest hearing to consider the new
water rates and to provide a notice to all property owners at least 45 days prior to the hearing
date. Staff prepared a notice that included the proposed rates, reasons for the rate increase,
information on the public hearing, and instructions for those who wish to protest the proposed
water rates. The notice was mailed to all property owners within the City of Tustin service
area on December 6, 2019. Following the mailing, a refinement in the rate model accounted
for a reduction in the private fire line service charge. As such, the revised private fire line
service charge is lower than the rate published in the notice. The table below reflects the
revised private fire line service charge:
Public Hearing — Adoption of Proposed Water Rates
January 21, 2020
Page 3
Proposed Bi -Monthly Fire Line Service Charges:
Effective Date
Meter Size
IFY 2020
2/1/2020
FY 20211
1/1/2021
1/1/2022
12024
1/1/2023
1/11/2024
4"
$18.70
$19.64
$20.62
$21.65
$22.73
5"
$23.37
$24.54
$25.77
$27.05
$28.41-
6",
$28.04
$29.44
$30.91
$32.46
$34-08-
8"
$37.39
$39.26
$41.22
$43.28
$45.45
10"
$46.74
$49.08
$51.53
$54.11
$56.81-
56.8112"
1 27P
$56.08
$58.88
$61.83
$64.92
$68.17
Financial Plan
The cost of service analysis proposes to primarily cash finance various critical water
infrastructure, which includes water service and mainline replacements/maintenance, well
replacements/maintenance, treatment plant operation/maintenance, hydrant maintenance,
cross-connection/back-flow compliance and meter maintenance, with the exception of the
Simon Ranch Reservoir and Booster Pump Station. The Simon Ranch Reservoir project will
be funded from a combination of remaining bond proceeds and Water Enterprise Cash
reserves. Overall, the proposed financial plan for the water system aims to strike a balance
between maintaining a strong financial position and minimizing rate increases to its
customers through a multi-year measured approach. Under the proposed plan, the City will
maintain a positive net income, maintain compliance with bond covenants and meet its
reserve targets.
As part of the analysis, existing reserve levels were examined. The City maintains four
designated reserve funds including Operating Reserve, Capital Reserve, Rate Stabilization
Reserve, and Emergency Reserve. The plan was developed to maintain the existing reserve
funds at the following levels:
• Operating Reserve — Target 90 days of operating expenses
• Capital Reserve — Target of annual depreciation of water utility assets
• Rate Stabilization Reserve — Target of 5% of commodity revenue
• Emergency Reserve — Target of $2.5 million as set by policy
Rate Design
Over the past decade the legal requirements surrounding utility rate setting in California have
evolved. Namely, the courts have made rulings with respect to California Constitution Article
XIII C and D (commonly known as Proposition 218) that have established a high standard
for rate setting which includes a detailed "cost -of -service" analysis. In essence, the cost -of -
service analysis must demonstrate that all aspects of water rates are directly proportionate
to the cost of providing service. Similarto the City's current rate structure, the proposed rates
will include a bi-monthly meter service charge, a bi-monthly capital refurbishment and
Public Hearing — Adoption of Proposed Water Rates
January 21, 2020
Page 4
replacement (R&R) charge, and a customer service charge for additional multi -family units.
These charges have been incorporated into a single fixed service charge. The variable rates
will no longer employ tiered rates. The City's water supplies include pumped groundwater
managed by the Orange County Water District and purchased imported water from East
Orange County Water District. Two rate options were presented to the City Council on
September 17, 2019, which included a uniform rate structure and a modified tiered rate
structure reflecting current costs. Subsequent to the meeting, a uniform rate structure is
proposed moving forward.
Typical Bill Impact
The financial impact of the proposed revenue adjustments and rate structure changes on the
typical customer were carefully evaluated. The overall increase to a single-family residential
customer using 40 units (1 unit = 748 gallons) of water on a bi-monthly basis would be $37.81
(or $18.91 per month).
Sohn A. Buchanan
ctor of Finance
Attachment: Proposition 218 Notice
Cost of Service Report
Resolution No. 20-04
;'/eu'c
Vrof
Stack
Public Works/City Engineer
CITY OF TUSTIN
PUBLIC HEARING REGARDING PROPOSED WATER RATES
FOR ALL PROPERTIES SERVED WITHIN THE CITY OF TUSTIN WATER SERVICE AREA
NOTICE IS HEREBY GIVEN that the City Council of the City of Tustin will hold a public hearing regarding
a proposed water rate increase and adjustment to the rate structure on January 21, 2020 at 7:00 p.m.,
in the City Council Chambers, located at 300 Centennial Way, Tustin, CA. The fees and charges, if
approved by the City Council, will be effective February 1, 2020. The proposed rates do not exceed
the cost of providing water service to Tustin customers and the increase would fund the City’s continuing
water service obligations to all customers as mandated by the California Department of Health Services ,
and needed system improvements critical to increase supply, system reliability, and redundancy. This
Notice provides for the following:
1. Proposed Water Rates; and
2. Impact of proposed rates for Fiscal Year 2020.
In California, Proposition 218 allows customers to comment on the proposed water rates prior to or
during a public hearing. Consistent with the provisions of Proposition 218, and California Government
Code § 53755, this notice has been mailed to all customers whose names and addresses appear in the
current customer database of the City of Tustin and property owners within the service area based on
the most current information published by the Orange County As sessor. If you object to the proposed
fees as described in this Notice, you may file a written protest with the City Clerk prior to the close of the
public hearing, set for January 21, 2020 at 7 p.m. Written protests can be mailed or personally delivered
to:
City of Tustin – City Clerk’s Office
300 Centennial Way
Tustin, CA 92780-3767
A valid protest must include all of the following information:
1. Customer name and account number or name of property owner;
2. Service address;
3. Assessor parcel number;
4. A statement of protest (“I protest” will suffice); and
5. The original signature of the protesting customer/property owner (photocopies will not be
accepted).
The City Clerk will accept only one protest per parcel served by Tustin Water. The City Clerk will
determine the validity of all protests submitted and exclude any invalid protests from the final tabulation.
The City Clerk may confer with the City Attorney in determining the validity of written protests. As part
of this process, the City Attorney may review contested or suspect protest forms. The City Clerk’s
decisions shall be final and binding. In the preliminary determination of validity, the City Clerk will
disregard as invalid all protests in the following categories:
1. The purported protest is a photocopy and does not contain an original authorized signature;
and/or
2. The purported protest does not identify the customer/property owner by name; and/or
3. The customer/property owner has not signed the purported protest; and/or
4. The purported protest does not have an identifiable statement of protest; and/or
5. The purported protest is one of multiple protests returned for a single service address; and/or
6. The purported protest’s appearance or method of delivery reflects any other circumstances
which reasonably demonstrate that the protest has been tampered with or is otherwise invalid.
7. The purported protest is received later than close of the public hearing on January 21, 2020.
For questions regarding this Notice or protest procedures, contact the City Clerk’s Office at (714) 573-
3000. For questions regarding Water Rates, please contact Water Utility Services at (714) 573-3075.
Si necesita una copia de este documento en español por favor de llamar al (714) 573-3025.
Page 2 of 3
Proposed Water Rates
Collectively, we have reduced our overall water use by 18% when compared to 2013. This not only helps
conserve water but also saves money by using less energy to pump, treat, and distribute the water. With these
continued efforts by our customers, and the City’s commitment to match expenses to incoming revenues, the
City has kept water rates constant without an increase since 2014.
However, like many other expenses, the costs to provide water have continued to increase over the years.
Electricity costs to pump and distribute water have increased, water treatment costs continue to increase,
materials and labor costs have also increased, and are projected to continue to increase in the upcoming
years. As a result, the water rates need to be updated to reflect the current cost of delivering water to our
customers. To ensure the City can continue to invest in a secure water future, the City reviewed its financial
health in 2019 and developed a Rate Study to evaluate how customers are charged for water (the rate
structure) and the amount customers are charged (the rate). Rate studies are a best practice for determining
utility rates to ensure that rates are fair, equitable, and tied to the demand c ustomers place on the water system.
Water service is funded through revenue collected from your bill. No tax revenue is used to provide water utility
service so the City must align water rates with the cost to deliver services. Costs include (1) the cos t to supply
and treat water, (2) compliance with regulations governing the distribution of drinking water, (3) the repair,
replacement and update of aging water systems, and (4) ongoing maintenance of critical infrastructure.
The proposed water rates change the billing method for potable water from an inclining block rate to a uniform
rate. The table below shows the comparison between current and proposed water rates.
Table: Proposed 5-Year Water Rates
Current FY 2020 FY 2021 FY 2022 FY 2023 FY 2024
Proposed
Revenue
Adjustments
5% 5% 5% 5% 5%
Effective Date Since 2014 2/1/2020 1/1/2021 1/1/2022 1/1/2023 1/1/2024
Bi-Monthly Potable Water Usage Charges ($/unit) ***1 unit = 100 cubic feet (hcf) = 748 gallons***
Unit: 0 + $2.79 $2.93 $3.08 $3.24 $3.41
Units: 0 – 10 $0.84
Units: 11 – 20 $1.48
Units: 21 – 30 $1.94
Units: 31 – 40 $2.41
Units: 41 – 50 $3.05
Units: 51 – 60 $3.53
Units: 61+ $4.05
Bi-Monthly Fixed Service Charges
** Meter & Capital Refurbishment and Replacement (R&R) Charge
Meter Size
5/8” or 3/4" $46.85 $39.76 $41.75 $43.84 $46.03 $48.33
1” $103.65 $83.82 $88.01 $92.41 $97.03 $101.88
1 1/2" $197.29 $157.25 $165.11 $173.37 $182.04 $191.14
2” $311.86 $245.38 $257.65 $270.53 $284.06 $298.26
3” $574.86 $524.43 $550.65 $578.18 $607.09 $637.45
4” $956.38 $935.67 $982.45 $1,031.58 $1,083.15 $1,137.31
6” $1,893.76 $2,066.56 $2,169.89 $2,278.38 $2,392.30 $2,511.92
8” $1,893.76 $3,535.26 $3,712.02 $3,897.62 $4,092.51 $4,297.13
10” $1,893.76 $5,591.44 $5,871.01 $6,164.56 $6,472.79 $6,796.43
Per Dwelling
Unit Charge $37.70 $10.38 $10.90 $11.44 $12.02 $12.62
Fire Protection Services
Meter Size
4” $113.41 $19.30 $20.27 $21.28 $22.34 $23.46
5” $142.90 $24.12 $25.33 $26.59 $27.92 $29.32
6” $172.38 $28.94 $30.39 $31.91 $33.50 $35.18
8” $231.36 $38.59 $40.52 $42.55 $44.67 $46.91
Page 3 of 3
Current FY 2020 FY 2021 FY 2022 FY 2023 FY 2024
10” $285.81 $48.23 $50.64 $53.17 $55.83 $58.62
12” $342.54 $57.88 $60.77 $63.81 $67.00 $70.35
** Note: The current rate separates the meter charge and capital refurbishment & replacement charge. The
proposed water rate will combine the meter and capital refurbishment & replacement charges.
Impact of proposed rates for Fiscal Year 2020
The effective date of the proposed water rates for Fiscal Year 2020 is February 1, 2020. The chart below illustrates
sample bi-monthly bills for single family residential (SFR) customers with 5/8” or 3/4" size meter with consumption
through 100 units. 75% of single-family residential customer use 40 units or less on a bi-monthly basis. The formula
below can be used to calculate the new bi-monthly water bill for fiscal year 2020:
Commodity Charge: # units X $2.79 / unit
Fixed Charge: (5/8” meter size) = $39.76
Sample Calculation: 40 units bi-monthly consumption
Commodity charge: 40 units X $2.79 / unit = $111.60
Fixed charge: $39.76
Total bi-monthly bill: $111.60 + $39.76 = $151.36
$0.00
$50.00
$100.00
$150.00
$200.00
$250.00
$300.00
$350.00
0 10 20 30 40 50 60 70 80 90 100
Bi
-Mo
n
t
h
l
y
B
i
l
l
Bi-Monthly Consumption
Chart: Impact of Proposed Rates -FY 2020
75% of SFR
use ≤ 40 units
CITY OF TUSTIN COMPREHENSIVE WATER COST OF SERVICE STUDY REPORT
City of Tustin
Final – Water Cost of Service Report
CITY OF TUSTIN COMPREHENSIVE WATER COST OF SERVICE STUDY REPORT 2
Table of Contents
TABLE OF CONTENTS ......................................................................... 2
LIST OF TABLES ................................................................................... 3
LIST OF FIGURES ................................................................................. 3
1. EXECUTIVE SUMMARY ............................................................ 5
1.1. BACKGROUND ...................................................................................... 5
1.2. CURRENT RATES .................................................................................. 5
1.3. PROPOSED RECOMMENDATIONS ...................................................... 6
2. INTRODUCTION ........................................................................ 8
2.1. STUDY APPROACH ............................................................................... 8
2.2. LEGAL REQUIREMENTS ....................................................................... 8
3. KEY ASSUMPTIONS ............................................................... 10
4. FINANCIAL PLAN .................................................................... 11
4.1. REVENUE FROM CURRENT RATES .................................................. 11
4.2. OPERATIONS AND MAINTENANCE (O&M) EXPENSES ................... 13
4.3. CAPITAL IMPROVEMENT PLAN ......................................................... 13
4.4. RESERVE REQUIREMENTS ................................................................ 14
4.5. FINANCIAL OUTLOOK AT CURRENT RATES ................................... 14
4.6. FINANCIAL PLAN RECOM ENDATIONS ............................................. 16
5. COST OF SERVICE STUDY .................................................... 19
5.1. PROPORTIONALITY ............................................................................ 19
5.2. COST OF SERVICE PROCESS ........................................................... 19
5.3. COST OF SERVICE ANALYSIS ........................................................... 19
5.4. RATE DESIGN ...................................................................................... 25
5.5. PROPOSED WATER RATES ............................................................... 28
CITY OF TUSTIN COMPREHENSIVE WATER COST OF SERVICE STUDY REPORT
List of Tables
Table 1-1: Current Bi-Monthly Service Charges ............................................................................................. 5
Table 1-2: Current Usage Charges per CCF .................................................................................................... 5
Table 1-3: Current Bi-Monthly Private Fire Service Line Charge .................................................................. 6
Table 1-4: FYE 2020 Proposed Bi-Monthly Service Charges and Variable Rate ......................................... 7
Table 1-5: FYE 2020 Proposed Bi-Monthly Fire Line Service Charges ........................................................ 7
Table 3-1: Study Assumptions ........................................................................................................................ 10
Table 3-2: Cost Escalators .............................................................................................................................. 10
Table 4-1: Projected Annual Meter Service Charge Revenue ..................................................................... 11
Table 4-2: Projected Annual Capital Service Charge Revenue ................................................................... 12
Table 4-3: Projected Annual Private Fire Line Service Charge Revenue ................................................... 12
Table 4-4: Projected Annual Usage Charge Revenue .................................................................................. 12
Table 4-6: Projected Water Revenues at Current Rates ............................................................................... 13
Table 4-7: FYE 2020 – FYE 20204 O&M Expenses ........................................................................................ 13
Table 4-8: Capital Improvement Plan ............................................................................................................. 13
Table 4-9: Recommended Water Financial Plan ........................................................................................... 17
Table 5-1: FYE 2020 Revenue Requirements ................................................................................................ 20
Table 5-2: System-Wide Peaking Factors ...................................................................................................... 21
Table 5-3: Peaking Factors with Fire Flow Demand ..................................................................................... 21
Table 5-4: O&M Allocation ............................................................................................................................... 23
Table 5-5: Capital Assets ................................................................................................................................. 23
Table 5-6: Capital Asset Allocation ................................................................................................................ 24
Table 5-7: Cost of Service Requirements ...................................................................................................... 25
Table 5-8: Customer Service Component – Unit Rate .................................................................................. 26
Table 5-9: Meter Equivalents ........................................................................................................................... 26
Table 5-10: Fire Flow Demand Allocations .................................................................................................... 27
Table 5-11: Meter Capacity Component – Unit Rate ..................................................................................... 27
Table 5-11: Capital R&R Component – Unit Rate .......................................................................................... 27
Table 5-12: Water Supply Component – Unit Rate ....................................................................................... 28
Table 5-13: Conveyance Component – Unit Rate ......................................................................................... 28
Table 5-14: FYE 2020 Proposed Bi-Monthly Service Charges ($/Meter) .................................................... 29
Table 5-15: Proposed 5-Year Bi-Monthly Charges ($/Meter or $/MFR Unit) ............................................... 29
Table 5-17: FYE 2020 Proposed Bi-Monthly Private Fire Line Service Charge Unit Rate ........................ 30
Table 5-18: FYE 2020-2024 Proposed Bi-Monthly Private Fire Line Service Charges .............................. 30
Table 5-19: FYE 2020 Proposed Commodity Rates ($/ccf) .......................................................................... 30
Table 5-20: Proposed 5-Year Usage Charges ($/ccf) .................................................................................... 30
List of Figures
Figure 4-1: Water Operating Financial Position at Current Rates .............................................................. 14
Figure 4-2: Baseline Water Capital Improvement Plan and Funding Source ............................................ 15
Figure 4-3: Projected Ending Water Utility Reserves ................................................................................... 15
Figure 4-4: Proposed Operating Financial Plan ............................................................................................ 17
Figure 4-5: Projected Capital Improvement Plan and Funding Source ...................................................... 18
Figure 4-6: Projected Operating Fund Ending Balances ............................................................................. 18
Figure 5-1: Cost of Service Process ............................................................................................................... 19
CITY OF TUSTIN COMPREHENSIVE WATER COST OF SERVICE STUDY REPORT 4
CITY OF TUSTIN COMPREHENSIVE WATER COST OF SERVICE STUDY REPORT 5
1. Executive Summary
1.1. BACKGROUND
The City of Tustin (City) engaged Raftelis to conduct a Comprehensive Water Cost of Service Study (Study) to
develop a financial plan and design rates for the City’s utilities for Fiscal Year (FY) 2020 through FY 2024. The City
is located in central Orange County and spans 11 square miles. The City is adjacent the Cities of Irvine, Orange,
Santa Ana, and unincorporated areas of the County.
1.2. CURRENT RATES
The current water rate structure consists of the following three components:
1. Bi-Monthly Meter Service Charge that varies by meter size.
2. Bi-Monthly fixed Capital Charge that varies by meter size.
3. Tiered variable rates based on water usage
In addition to the fixed charge and variable rates, the City also charges a private fire service connection charge to
those customers with private fire lines. Private fire protection customers are charged a bi-monthly fixed charge that
varies by connection size. The following tables summarize the current rate structure of the City. Table 1-1 provides
a summary of the bi-monthly charges by meter size and a charge for additional multi-family units. Table 1-2
summarizes the current variable charges and Table 1-3 shows the bi-monthly private fire service charges by
connection size.
Table 1-1: Current Bi-Monthly Service Charges
Meter or Connection Size
Current
Meter
Service Charge
Current
Meter
Capital Charge
≤ 3/4" $35.85 $11.00
1" $89.65 $14.00
1 1/2" $179.29 $18.00
2" $286.86 $25.00
3" $537.86 $37.00
4" $896.38 $60.00
6" $1,792.76 $101.00
8" $1,792.76 $101.00
10” $1,792.76 $101.00
MFR Dwelling Unit Charge $28.70 $9.00
Table 1-2: Current Usage Charges per CCF
Tiers Residential Commercial
(Low)
Commercial
(Normal)
Commercial
(High)
Tier 1 $0.84 $0.84 $0.92 $1.02
Tier 2 $1.48 $1.48 $1.63 $1.79
Tier 3 $1.94 $1.94 $2.13 $2.34
Tier 4 $2.41 $2.41 $2.65 $2.91
Tier 5 $3.05 $3.05 $3.35 $3.69
Tier 6 $3.53 $3.53 $3.88 $4.27
Tier 7 $4.05 $4.05 $4.46 $4.91
CITY OF TUSTIN COMPREHENSIVE WATER COST OF SERVICE STUDY REPORT 6
Table 1-3: Current Bi-Monthly Private Fire Service Line Charge
Connections Size CY 2019 Charge
≤ 4" $113.41
6" $142.90
6" $172.38
8" $231.36
10” $285.81
12” $342.54
1.3. PROPOSED RECOMMENDATIONS
As part of the rate study, we reviewed the City’s current rate structure and how costs are incurred. Based on our
analysis as well as the City’s long-term objectives and projected revenue requirements for Fiscal Year End (FYE)
2020 through FYE 2024, the City will need to generate approximately $4.2M in additional annual revenue by FYE
2024. To reach this objective, the proposed financial plan reflects 5% revenue adjustments for each fiscal year through
FYE 2024.
1.3.1. Rate Design Adjustments
To determine the appropriate rate structure for meeting the City’s revenue requirements, we reviewed the current
rate structure and consumption data, worked closely with City staff, and incorporated feedback on policies. The
following proposed items reflect our recommendations to the current structure:
• Recalibrate commodity rates to recover the full cost of supply and delivery. The City has not updated its
rates since 2014 and supply costs have continued to increase over the years, along with production,
operations and maintenance costs. In addition, because supply costs do not vary significantly between
purchased water and groundwater - when accounting for basin replenishment assessments - the
recommended commodity rate is a uniform rate across all classes.
• Recalibrate the amount of revenue recovered between bi-monthly fixed charges and the commodity rate.
Currently, the City recovers approximately 48% from fixed chargers and 52% from the commodity rate.
With the change from a 7-tiered rate structure to a uniform rate, the fixed / variable cost recovery has been
adjusted to 35% fixed / 65 % variable. This recalibration continues to promote and provide incentive to
customers to use water efficiently.
• All customers / land uses will be charged the same fixed charges and commodity rates.
• The City currently has a capital fixed surcharge. This separate component will remain but be updated based
on the City’s current capital planning needs.
The proposed Bi-Monthly Service Charges and Variable Usage Rate are shown in Table 1-4 and Table 1-5 identifies
the updated private fire line Bi-Monthly Service Charges.
CITY OF TUSTIN COMPREHENSIVE WATER COST OF SERVICE STUDY REPORT 7
Table 1-4: FYE 2020 Proposed Bi-Monthly Service Charges and Variable Rate
Rates
FYE 2020
Proposed
Meter Component
FYE 2020
Proposed
Capital Component
FYE 2020
Proposed
Fixed Charges
Fixed Charges Fixed Bi-Monthly Fixed Bi-Monthly Fixed Bi-Monthly
≤ 3/4" $23.76 $16.00 $39.76
1" $43.83 $39.99 $83.82
1 1/2" $77.28 $79.97 $157.25
2" $117.42 $127.96 $245.38
3" $244.53 $279.90 $524.43
4" $431.85 $503.82 $935.67
6" $946.98 $1,119.58 $2,066.56
8” $1,615.98 $1,919.28 $3,535.26
10” $2,552.58 $3,038.86 $5,591.44
Multi-Family Additional Unit $10.38 - $10.38
Variable Charge
All Customers $2.79 per ccf
Table 1-5: FYE 2020 Proposed Bi-Monthly Fire Line Service Charges
Rates
FYE 2020
Proposed
Charges
Fixed Charges Fixed Bi-Monthly
4" $18.70
5" $23.37
6" $28.04
8” $37.39
10” $46.74
12” $56.08
CITY OF TUSTIN COMPREHENSIVE WATER COST OF SERVICE STUDY REPORT 8
2. Introduction
2.1. STUDY APPROACH
This report was prepared using principles established by the American Water Works Association (AWWA). The
AWWA “Principles of Water Rates, Fees, and Charges: Manual of Water Supply Practices M1 Manual (M1 Manual)
establishes commonly accepted professional standards for cost of service studies. The M1 Manual principles of rate
structure design and the objectives of the Study are described below.
According to the M1 Manual, the first step in ratemaking analysis is to determine the adequate and appropriate level
of funding for a given utility. This is referred to as determining the “revenue requirement”. This analysis typically
considers the short-term and long-term service objectives of the utility over a given planning horizon, including
capital facilities, system operations and maintenance, debt coverage, and financial reserve policies to determine the
adequacy of a utility’s existing rates to recover its costs. A number of factors may affect these projections, including
the number of customers served, water-use trends, nonrecurring sales, weather, conservation, water use restrictions,
inflation, interest rates, wholesale contracts, capital finance needs, changes in tax laws, and other changes in
operating and economic conditions, among others.
After determining the utility’s revenue requirements, the next step was determining the cost of service. Utilizing the
City’s approved budget, financial reports, operating data, and capital improvement plans, a rate study generally
categorizes (functionalizes) system costs (e.g., water supply, treatment, storage, etc.), including operating and
maintenance and asset costs, among maj or operating functions to determine the cost of service.
After the operating costs and capital are properly categorized by function, these functionalized costs are allocated
first to cost causation components, and then distributed to customers based on the demand or units of service for
each component. Rate design uses the revenue requirement and cost of service analysis to determine fixed charges
and commodity rates. The fixed charges and commodity rates utilize “rate components” that build-up to the total
commodity rates, and fixed charge rates by meter size.
2.2. LEGAL REQUIREMENTS
2.2.1. 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 t hat rates
and fees are reasonable and proportional to the cost of providing service. We followed industry standard rate setting
methodologies set forth by the AWWA M1 Manual to ensure this study meets Proposition 218 requirements and
creates rates that do not exceed the proportionate cost of providing water services.
CITY OF TUSTIN COMPREHENSIVE WATER COST OF SERVICE STUDY REPORT 9
2.2.2. Cost-Based Rate Setting Methodology
To develop utility rates that comply with industry standards while meeting other emerging goals and objectives of
the City, there are four major steps discussed below.
1. Calculate Revenue Requirement
The rate-making process starts by determining the test year (rate setting year) revenue requirement, which
for this study is FYE 2020. The revenue requirement should sufficiently fund the utility’s Operations and
Maintenance (O&M), debt service, capital expenses, and reserves.
2. Cost of Service Analysis (COS)
The annual cost of providing service is distributed among customers commensurate with their service
requirements. A COS analysis involves the following:
a) Functionalize costs. Examples of functions are supply, transmission, distribution, storage, meter
servicing, and customer billing and collection.
b) Allocate functionalized costs to cost causation components. Cost causation components include, but
are not limited to, supply, base1, maximum day, maximum hour2, meter capacity, and customer
service.
c) Distribute the cost causation components. Distribute cost components, using unit costs, to charge
customers in proportion to their demands on the system.
A COS analysis for water considers both the average quantity of water consumed (base costs) and the peak
rate at which it is consumed (peaking or capacity costs as identified by maximum day and maximum hour
demands).3 Peaking costs are costs that are incurred during peak times of consumption. There are additional
costs associated with designing, constructing, and operating and maintaining facilities large enough to meet
peak demands.
3. Rate Design and Calculations
Rates do more than simply recover costs. Within the legal f ramework and industry standards, properly
designed rates should support and optimize a blend of various utility objectives, such as reflecting how costs
are incurred by the City, ensuring revenue stability, and understandable for customers to estimate their
financial obligation for service.
4. Rate Adoption
Rate adoption is the last step of the rate-making process to comply with Proposition 218. The results in this
Study Report serves as the City’s administrative record and a public education tool about the proposed
changes, the rationale and justifications behind the changes, and their anticipated financial impacts.
1 Base costs are those associated with meeting average day demands and unrelated to meeting peaking demands.
2 Collectively maximum day and maximum hour costs are known as peaking costs or capacity costs.
3 System capacity is the system’s ability to supply water to all delivery points at the time when demanded.
CITY OF TUSTIN COMPREHENSIVE WATER COST OF SERVICE STUDY REPORT 10
3. Key Assumptions
The Study uses the City’s proposed budget for FYE 2020 and FYE 2021. Certain cost escalation assumptions and
inputs were incorporated into the Study to adequately model revenues, water supply costs and total expected usage.
These assumptions were based on discussions with and/or direction from City management and are presented in
Table 3-1 and Error! Reference source not found.
Table 3-1: Study Assumptions
Inflationary Factors FYE 2020 FYE 2021 FYE 2022 FYE 2023 FYE 2024
Water Loss 6.4% 6.4% 6.4% 6.4% 6.4%
Account Growth 0% 0% 0% 0% 0%
Total Production (AcFt) 10,475 10,580 10,580 10,580 10,580
Purchased Water (AcFt) 524 529 529 529 529
Total Water Sales (AcFt) 9,805 9,903 9,903 9,903 9,903
Table 3-2: Cost Escalators
Inflationary Factors FYE 2020 FYE 2021 FYE 2022 FYE 2023 FYE 2024
General - - 3% 3% 3%
Salary - - 3% 3% 3%
Benefits - - 8% 8% 8%
Water Supply - - 5% 5% 5%
Energy - - 5% 5% 5%
Capital - - 3% 3% 3%
CITY OF TUSTIN COMPREHENSIVE WATER COST OF SERVICE STUDY REPORT 11
4. Financial Plan
This section describes the development of the water utility’s financial plan, the results of which were used to
determine the revenue adjustments needed to meet ongoing expenses and provide fiscal sustainability to the City’s
water enterprise through the 5-year planning period. Establishing a utility’s revenue requirement is a key step in the
rate setting process. The review involves analysis of projected annual operating revenues under the current rates,
O&M expenses, capital expenditures, transfers between funds, and reserve requirements. This section of the report
provides a discussion of the projected revenues, O&M and capital expenditures, the capital improvement needs, and
overall revenue requirements.
4.1. REVENUE FROM CURRENT RATES
The current water rate structure consists of the following components:
1. Bi-Monthly Meter Service Charges that varies by meter size (Table 4-1 summarizes the current meters by
size, the current bi-monthly fixed charges, and projected revenue).
2. A separate Bi-Monthly Capital R&R Service Charge that varies by meter size (Table 4-2 summarizes the
current meters by size, the current bi-monthly fixed charges, and projected revenue).
3. Bi-Monthly Private Fire Line Charges that vary my connection size (Table 4-3 summarizes the rate structure,
usage by tier and customer class, current water usage rates, and projected usage revenue)
4. Commodity Charges by tier based on water usage (Table 4-4 summarizes the rate structure, usage by tier
and customer class, current water usage rates, and projected usage revenue).
Table 4-1: Projected Annual Meter Service Charge Revenue
Meter Size # of Meters
[A]
Current Bi-Monthly
Water Service
Charges
[B]
Projected Annual Water
Service Charge Revenue
[A x B x 6]
≤ 3/4" 10,046 $35.85 $2,160,895
1" 2,648 $89.65 $1,424,359
1 1/2" 273 $179.29 $293,677
2" 349 $286.86 $600,685
3" 33 $537.86 $106,496
4" 22 $896.38 $118,322
6" 1 $1,792.76 $10,757
8” - $1,792.76 $-
10” - $1,792.76 $-
Multi-Family Unit 10,065 $28.70 $1,733,193
Total $6,448,384
CITY OF TUSTIN COMPREHENSIVE WATER COST OF SERVICE STUDY REPORT 12
Table 4-2: Projected Annual Capital Service Charge Revenue
Meter Size # of Meters
[A]
Current Bi-Monthly
Capital
Service Charges
[B]
Projected Annual
Capital Service
Charge Revenue
[A x B x 6]
≤ 3/4" 10,046 $11.00 $663,036
1" 2,648 $14.00 $222,432
1 1/2" 273 $18.00 $29,484
2" 349 $25.00 $52,350
3" 33 $37.00 $7,326
4" 22 $60.00 $7,920
6" 1 $101.00 $606
8” - $101.00 $0
10” - $101.00 $0
Multi-Family Unit 10,065 $9.00 $543,510
Total $1,526,664
Table 4-3: Projected Annual Private Fire Line Service Charge Revenue
Connection
Size
# of
Connections
[A]
Current Bi-Monthly
Fire Line
Service Charges
[B]
Projected Annual Fire
Line Service
Charge Revenue
[A x B x 6]
4" 51 $113.41 $34,703
5” 1 $142.90 $857
6" 103 $172.38 $106,531
8” 67 $231.36 $93,007
10” 5 $285.81 $8,574
12” 3 $342.54 $6,166
Total $249,838
Table 4-4: Projected Annual Usage Charge Revenue
Commodity Charges Usage (ccf)
[A]
Current
Commodity
Rate
[B]
Projected Usage
Charge Revenue
[A x B]
Tier 1 1,202,095 $0.84 $1,009,760
Tier 2 923,371 $1.48 $1,366,589
Tier 3 572,072 $1.94 $1,109,820
Tier 4 340,007 $2.41 $819,418
Tier 5 221,930 $3.05 $676,888
Tier 6 148,960 $3.53 $525,830
Tier 7 862,749 $4.05 $3,494,133
Total $9,002,438
Using account growth, water demand factors, and other revenue assumptions from Table 3-1 and Table 3-2, we
projected the revenues for the water utility. Table 4-5 summarizes the rate revenue (Line 6) as well as other revenues.
As shown in the table, since no account growth is project ed and only a modest increase is anticipated in water
demand in FYE 2021, the rates and rate revenue remain constant during the Study Period.
CITY OF TUSTIN COMPREHENSIVE WATER COST OF SERVICE STUDY REPORT 13
Table 4-5: Projected Water Revenues at Current Rates
Line
# FYE 2020 FYE 2021 FYE 2022 FYE 2023 FYE 2024
1 Water Utility Revenues
2 Meter Service Charge Revenue $8,224,886 $8,224,886 $8,224,886 $8,224,886 $8,224,886
5 Usage Charge Revenue $9,002,438 $9,092,462 $9,092,462 $9,092,462 $9,092,462
6 Subtotal Rate Revenue $17,227,324 $17,317,348 $17,317,348 $17,317,348 $17,317,348
7 Other Operating Revenues $584,037 $227,787 $227,787 $227,787 $227,787
8 Non-Operating Revenue $0 $71,805 $34,544 $21,213 $4,197
9 Total Revenues $17,811,361 $17,616,941 $17,579,680 $17,566,349 $17,497,155
4.2. OPERATIONS AND MAINTENANCE (O&M) EXPENSES
The City’s FYE 2020 and FYE 2021 budget values were used as the basis for projecting O&M costs. Table 4-6 shows
the total projected O&M expenses through FYE 2024.
Table 4-6: FYE 2020 – FYE 20204 O&M Expenses
Line
# FYE 2020 FYE 2021 FYE 2022 FYE 2023 FYE 2024
1 Expenditures
2 Water Operations $2,025,511 $1,929,111 $1,968,564 $1,982,627 $2,038,929
3 Transmission & Distribution $1,392,600 $1,457,800 $1,502,184 $1,547,952 $1,595,148
4 Treatment $444,700 $468,000 $482,250 $496,944 $512,098
5 Wells $985,000 $985,000 $1,034,250 $1,085,963 $1,140,261
6 Water Supply $6,768,100 $7,284,100 $7,639,863 $8,013,161 $8,404,863
7 Billing Department $2,490,300 $2,554,800 $2,631,964 $2,711,485 $2,793,436
8 Total Operating Expenses $14,106,211 $14,678,811 $15,259,075 $15,838,130 $16,484,734
9 Debt Service $2,384,120 $2,384,220 $2,381,070 $2,381,520 $2,550,370
10 Total Expenses $16,490,331 $17,063,031 $17,640,145 $18,219,650 $19,035,104
4.3. CAPITAL IMPROVEMENT PLAN
The City provided the projected capital expenditures to address future capital improvement project needs. Table 4-7
summarizes the CIP for FYE 2020 through FYE 2024, which includes a significant reservoir project in FYE 2020
related to the Simon Ranch Reservoir.
Table 4-7: Capital Improvement Plan
Line
# Capital Projects FYE 2020 FYE 2021 FYE 2022 FYE 2023 FYE 2024
1 Water Utility Capital $18,770,000 $2,570,000 $4,903,980 $2,570,000 $2,570,000
2 Total CIP $18,770,000 $2,570,000 $4,903,980 $2,570,000 $2,570,000
CITY OF TUSTIN COMPREHENSIVE WATER COST OF SERVICE STUDY REPORT 14
4.4. RESERVE REQUIREMENTS
For FYE 2020, the City’s projected total beginning reserve balance is approximately $20.6M and the City also has
$9.5M of bond proceeds remaining. Currently, the City maintains 4 designated reserve funds including Operating
Reserve, Capital Reserve, Rate Stabilization Reserve, and Emergency Reserve. Based on the City’s reserve policies
the running balance should be at least $8.2M for FYE 2020. Although the City’s balance exceeds this threshold as of
July 1, 2019, the $18.8M of capital needs in FYE 2020 will require the use of reserves to fully fund the Simon Ranch
Reservoir project, resulting in a reduction in reserves.
4.5. FINANCIAL OUTLOOK AT CURRENT RATES
Revenues generated from current rates and other revenues exceed the FYE 2020 operational expenses; however,
without a revenue adjustment the City may not meet its debt service requirements in future years. Based on the
financial plan review, revenue adjustments are recommended to 1) maintain compliance with the utility’s bond
covenants, 2) fully fund capital projects, and 3) meet reserve targets over the planning period. Figure 4-1 illustrates
the operating position of the water utility, where expenses, inclusive of reserve funding, are shown by stacked bars;
and the total revenues at current rates are shown by the horizontal orange trend line.
Figure 4-1: Water Operating Financial Position at Current Rates
CITY OF TUSTIN COMPREHENSIVE WATER COST OF SERVICE STUDY REPORT 15
Figure 4-2 summarizes the baseline CIP and its funding sources by fiscal year. The orange portion of the bar under
FYE 2020 are remaining bond proceeds available to go towards capital expenses.
Figure 4-2: Baseline Water Capital Improvement Plan and Funding Source
Figure 4-3 illustrates the projected ending reserve balance for FYE 2020 through FYE 2024 after operating and capital
expenses are funded.
Figure 4-3: Projected Ending Water Utility Reserves
CITY OF TUSTIN COMPREHENSIVE WATER COST OF SERVICE STUDY REPORT 16
4.6. FINANCIAL PLAN RECOMENDATIONS
After reviewing the city’s revenue requirements, reserve policies, capital planning schedule, and current revenues, a
financial plan was developed to meet the following criteria:
• Positive net operating cash income each fiscal year of the planning period (FYE 2020-FYE 2024)
• Fully fund capital projects through Pay-As-You-Go (PAYGO) or cash on hand over the five-year plan.
• Maintain the following reserves by the end of the Study Period (FYE 2020 – FYE 2024):
o Operating Fund – Target of 90 days of operating expenses.
o Capital Replacement Target –Target of the annual depreciation of water utility assets.
o Emergency Reserve – Target of $2M as set by policy.
o Rate Stabilization Reserve – Target of 5% of commodity revenue.
Overall, the proposed financial plan for the water system aims to strike a balance between maintaining a strong
financial position and minimizing rate increases to its customers through a multi-year measured approach. The City
will utilize reserves to fund a portion of its capital expenses in FYE 2020 and FYE 2021 as well as use remaining
bond proceeds to offset capital expenses in FYE 2020. Through this temporary use of reserves, the City’s revenue
adjustments are 5% for each of the next five years, with the first adjustment commencing February 1, 2020, and each
subsequent adjustment occurring each January 1 of the corresponding fiscal year. Under the proposed plan, the City
will maintain a positive net income, maintain compliance with bond covenants and meet its reserve targets. Although
these are the anticipated revenue adjustments for each year of the Study Period, the City will review and confirm the
required revenue adjustments on an annual basis, which will account for changes in water sales and expenses incurred
to mitigate rate increases when applicable.
Applying these adjustments results in the proposed financial plan in Table 4-8 (see Appendix A – for a detailed
financial plan). The line for Rate Revenues includes the additional revenue from the revenue adjustments assuming
they become effective. The rates presented in Section 5.4 are based on this financial plan.
CITY OF TUSTIN COMPREHENSIVE WATER COST OF SERVICE STUDY REPORT 17
Table 4-8: Recommended Water Financial Plan
Line
# Category FYE 2020 FYE 2021 FYE 2022 FYE 2023 FYE 2024
1 Revenues
2 Rate Revenues $17,600,241 $18,652,571 $19,585,199 $20,564,459 $21,592,682
2 Other Operating Revenues $584,037 $227,787 $227,787 $227,787 $227,787
3 Non-Operating Revenues $0 $71,852 $40,725 $42,438 $88,275
4 Total Revenues $18,184,278 $18,952,211 $19,853,712 $20,834,684 $21,908,745
5 Less: Expenditures
6 Water Operations $2,025,511 $1,929,111 $1,968,564 $1,982,627 $2,038,929
7 Transmission & Distribution $1,392,600 $1,457,800 $1,502,184 $1,547,952 $1,595,148
8 Treatment $444,700 $468,000 $482,250 $496,944 $512,098
9 Wells $985,000 $985,000 $1,034,250 $1,085,963 $1,140,261
10 Water Supply $6,768,100 $7,284,100 $7,639,863 $8,013,161 $8,404,863
11 Billing Department $2,490,300 $2,554,800 $2,631,964 $2,711,485 $2,793,436
12 Subtotal Operating Expenditures $14,106,211 $14,678,811 $15,259,075 $15,838,130 $16,484,734
13 Total Debt Service $2,384,120 $2,384,220 $2,381,070 $2,381,520 $2,550,370
14 Total Expenditures $16,490,331 $17,063,031 $17,640,145 $18,219,650 $19,035,104
15 Net Cashflow (Line 4 – Line 21) $1,693,947 $1,889,180 $2,213,567 $2,615,034 $2,873,641
Reserves
16 Projected Starting Balance $20,644,088 $13,170,183 $12,576,936 $9,956,402 $10,112,740
17 Net Cashflow (Line 15) $1,693,947 $1,889,180 $2,213,567 $2,615,034 $2,873,641
18 Interest Income $96,735 $87,573 $69,880 $111,303 $113,426
19 Bond Proceeds 9,505,413
20 CIP Expenditures (Table 4-7) ($18,770,000) ($2,570,000) ($4,903,980) ($2,570,000) ($2,570,000)
21 Ending Reserve Balance $13,170,183 $12,576,936 $9,956,402 $10,112,740 $10,529,806
Figure 4-4 through Figure 4-6 displays the financial plan in graphical format. Figure 4-4 illustrates the operating
position of the City’s water enterprise where expenses, inclusive of reserve funding, are shown by stacked bars and
total revenues at both current rates and recommended rates are shown by the horizontal trend lines.
Figure 4-4: Proposed Operating Financial Plan
CITY OF TUSTIN COMPREHENSIVE WATER COST OF SERVICE STUDY REPORT 18
Figure 4-5 summarizes the projected CIP and its funding sources.
Figure 4-5: Projected Capital Improvement Plan and Funding Source
Figure 4-6 displays the ending total reserve balance for the water utility, inclusive of operating and capital funds. The
horizontal trend lines indicate the target reserve balances and the bars indicate ending r eserve balance. No new debt
is proposed to be issued within the planning period.
Figure 4-6: Projected Operating Fund Ending Balances
CITY OF TUSTIN COMPREHENSIVE WATER COST OF SERVICE STUDY REPORT 19
5. Cost of Service Study
This Rate Study conforms to the principles set forth in the enabling statutes and the rates abide by the cost-of-service
provisions of Proposition 218.
5.1. PROPORTIONALITY
Demonstrating proportionality when calculating rates is a critical component of ensuring compliance with
Proposition 218. For costs that are recovered through the proposed fixed meter charge, the Study spread the costs
either over all accounts/units or by meter size, depending on the type of expense. As such, usage is not considered
nor necessary for calculating each customer’s fixed charge. Conversely, costs that were determined as variable, are
recovered from customers based on their water usage. As stated in the Manual M1, the AWWA Rates and Charges
Subcommittee agree with Proposition 218 that “the costs of water rates and charge s should be recovered from
customers in proportion to the cost of serving those customers.” The Water Utility’s revenue requirements are, by
definition, the cost of providing service. This cost is then used as the basis to develop unit costs for the water
components and to allocate costs to customers in proportion to the water services rendered.
5.2. COST OF SERVICE PROCESS
A cost of service analysis distributes a utility’s revenue requirements (costs) to each customer class. Figure 5-1
provides a general overview of a cost-of-service analysis. Each step shown below will be described in greater detail
in the next section.
Figure 5-1: Cost of Service Process
5.3. COST OF SERVICE ANALYSIS
5.3.1. Step 1 – Determine Revenue Requirement
In this Study, water rates are calculated for FYE 2020 (known as the Test Year), by calculating water purchase costs
and by using the Water Utility’s FYE 2020 budget and inflationary factors. Test Year re venue requirements are used
in the cost allocation process. Subsequent years’ revenue adjustments are incremental and the rates for future years
are based on 5.0% revenue adjustments in FYE 2021 through FYE 2024 and are applied across-the-board.
CITY OF TUSTIN COMPREHENSIVE WATER COST OF SERVICE STUDY REPORT 20
The revenue requirement determination is based upon the premise that the utility must generate annual revenues to
meet Supply, O&M expenses, any debt service needs, reserve levels, and capital investment needs. Deductions are
made to account for the required net cashflows (found in Table 4-8 – Line 17) and any mid-year adjustment4. FYE
2020 cost of service to be recovered from the City’s water customers is shown in Table 5-1.
Table 5-1: FYE 2020 Revenue Requirements
Line # Revenue Requirements Operating Capital Total
Operating Costs
1 Water Operations $2,025,511 $2,025,511
2 Transmission & Distribution $1,392,600 $1,392,600
3 Treatment $444,700 $444,700
4 Wells $985,000 $985,000
5 Water Supply $6,768,100 $6,768,100
6 Billing Department $2,490,300 $2,490,300
7 Debt Service $2,384,120 $2,384,120
8 Total Revenue Requirements $14,106,211 $2,384,120 $16,490,331
Less: Revenue Offsets
9 Other Operating Revenues $584,037 $584,037
10 Total Revenue Offsets $584,037 $584,037
Less: Adjustments
11 Adjustment for Cash Balance ($1,693,947) ($1,679,947)
12 Adjustment for Mid-Year Increase $(502,864) ($502,864)
13 Total Adjustments $502,864 ($1,693,947) ($2,196,811)
14 Revenue Requirements from Rates $14,025,038 $4,078,067 $18,103,105
5.3.2. Step 2 – Allocate Functionalized Costs to Cost Components
The functionalization of costs allows us to better allocate the costs based on how the costs are incurred. This is
commonly referred to as cost causation. Essentially, cost causation means that the City incurs a cost of providing
service because of the demands or burdens customers place on the system and water resources. We used the Base-
Extra Capacity method to allocate the functionalized costs to various rate components (cost causation components),
as described in the M1 Manual. The City’s costs were allocated to the following cost causation components:
1. Customer Service includes customer related costs such as billing, collecting, customer accounting, and
customer call center. These costs are incurred at the same level regardless of the type of land use or the total
amount of water that the utility delivers.
1. Meter Capacity includes maintenance of assets and operational costs associated with serving meters. These
costs are assigned based on the meter size or equivalent meter capacity.
2. Capital R&R includes capital repair, maintenance and operations costs for the water utility.
3. Supply includes the cost of groundwater production, basin replacement assessments, and purchased water
costs.
4. Base are those operating costs of the water system associated with serving customers at a constant, or
average, rate of use. These costs tend to vary with the total quantity of water used.
4 The revenue requirement needs to be based on the revenue needs for a full calendar year. Since the rates in CY 2020
were assumed to be in effect for 12 months, there is no mid-year adjustment.
CITY OF TUSTIN COMPREHENSIVE WATER COST OF SERVICE STUDY REPORT 21
5. Peaking Costs represent those costs incurred to meet customer peak demands for water in excess of average
day usage. Total extra capacity costs are associated with maximum day and maximum hour demands. The
maximum day demand is the maximum amount of water used in a single day in a year. The maximum hour
(Max Hour) demand is the maximum usage in an hour on the maximum usage day (Max Day). Various
facilities are designed to meet customer peaking needs. The capital component of the Revenue Requirement
(Table 5-1, line 14) takes into account Max Day and Max Hour when allocating costs to cost causation
components. An example, reservoirs are designed to meet Max Day requirements and are designed larger
than they would be if the same amount of water were being used at a constant rate throughout the year. The
cost associated with constructing a reservoir is based on system wide peaking factor s. For example, if the
Max Day factor is 2.0, then certain system facilities must be designed larger than what would be required if
the system only needed to accommodate average daily demand. In this case, half of the cost would be
allocated to Base (or average day demand) and the other half allocated to Max Day. The calculation of the
Max Hour and Max Day demands is explained below.
To allocate costs to Base and Peaking cost components (Max Day and Max Hour), system peaking factors are used.
The base demand is assigned a value of 1.0 signifying no peaking demands. The Max Day and Max Hour factors
shown in Table 5-2 were based on information provided by the City. The City’s Max Day is 1.58 times the average
daily demand and Max Hour is 2.63 times the average daily demand.
Table 5-2: System-Wide Peaking Factors
Factor Base
Allocation
Max Day
Allocation
Max Hour
Allocation
Base 1.00 100% - -
Max Day 1.58 (1.0 / 1.58) = 63% (1-0.63) = 37% -
Max Hour 2.63 (1.0 / 2.63) = 38% [(1.58-1.00) / 2.63] = 22% (1 - 0.22 - 0.38) = 40%
Fire flow demand is accounted for as a part of the water system’s total maximum demand requirements. Therefore,
accounting for fire flow demand can also be incorpo rated into the analysis, which is a component of meeting Max
Day demand and Max Hour demand. Based on the fire flow requirements from the Orange County Fire Authority,
the City’s typical fire flow demand is associated with suppressing a single-family residential fire that requires 1,500
gallon per minute (gpm) over an hour. When comparing the total fire flow over an hour at 1,500 gpm, equal to
90,000 gallons, and the average hourly demand during Max Day (equal to ~959,000 gallons), fire flow demand is
approximately 9% of system peak demand if a fire occurred (.090MG / 1.05MG = 0.09). Therefore, 9% was
allocated to fire flow demand for both Max Day and Max Hour. Table 5-3 reflects system-wide peak with the
inclusion of fire flow demand
Table 5-3: Peaking Factors with Fire Flow Demand
Base
Allocation
Max Day
Allocation
Max Hour
Allocation
Fire Flow Demand
Allocation
Base 100% - - -
Max Day 63% - (9% / 2) = 58% 37% - (9%/ 2) = 33% - 9%
Max Hour 38% - (9% / 3) = 35% 22% - (9% / 3) = 20% 40% - (9% / 3) = 36% 9%
CITY OF TUSTIN COMPREHENSIVE WATER COST OF SERVICE STUDY REPORT 22
O&M Allocation
The O&M expenses consist of six functionalized categories: Water Operations, Transmission & Distribution,
Treatment, Wells, Water Supply, and Billing Department. We reviewed the budget details related to the Operating
Expenses to determine the most appropriate method for allocating the functional costs to cost causation components .
Table 5-4 summarizes the percent allocations for the City O&M Expenses, the costs (prior to offsets and adjustments)
allocated to the cost components, and the resulting O&M Allocation (%). The O&M Allocation (%) will be used to
allocate the Operating Requirement, including any revenue offsets or adjustments, from the revenue requirements
(Table 5-1). Table 5-4 allocates the O&M expenses to each cost causation component.
• Water Operations –City personnel costs and departmental expenses.
• Transmission & Distribution –City personnel costs assigned to water system conveyance.
• Treatment –City personnel costs assigned to treatment and supplies and chemicals.
• Wells – Groundwater production costs, including energy and well maintenance.
• Water Supply – Chemicals, basin replenishment assessments, and purchased water costs from East Orange
County Water District.
• Billing Department - City personnel costs assigned billing and customer service, overhead expenses and
professional services.
Water Operations costs were allocated 53% to fixed cost recover spread over Meter Capacity Cost Component,
which represents costs associated with salaries, with the remainder (47%) allocated to Base delivery . Transmission
& Distribution costs and Treatment costs were allocated based on the Max Hour and Max Day allocations shown
in Table 5-3, respectively. Wells and Water Supply costs were allocated 100% to the Supply Cost Component and
Billing Department was allocated 100% to fixed, with 34% to the Meter Capacity Cost Component (represents
department salaries) and 66% to Customer Service.
CITY OF TUSTIN COMPREHENSIVE WATER COST OF SERVICE STUDY REPORT 23
Table 5-4: O&M Allocation
Cost Components
Line
#
Functionalized
Expenses
Customer
Service
Meter
Capacity
Water
Supply Base Max
Day
Max
Hour
Fire Flow
Demand Total
% Allocation
1 Water Operations 53% 47% 100%
2 Transmission &
Distribution 35% 20% 36% 9% 100%
3 Treatment 58% 33% 9% 100%
4 Wells 100% 100%
5 Water Supply 100% 100%
6 Billing Department 66% 34% 100%
$ Allocation
7 Water Operations $1,073,521 $951,990 $2,025,511
8 Transmission &
Distribution $481,850 $279,473 $505,943 $125,334 $1,392,600
9 Treatment $256,125 $148,552 $40,023 $444,700
10 Wells $985,000 $985,000
11 Water Supply $6,768,100 $6,768,100
12 Billing Department $1,643,598 $846,702 $2,490,300
13 Total O&M $1,643,598 $1,920,223 $7,753,100 $1,689,965 $428,025 $505,943 $165,357 $14,106,211
14 O&M Allocation (%) 11.7% 13.6% 55.0% 12.0% 3.0% 3.6% 1.2% 100.0%
Capital Allocation
Similar to Operating costs functionalized in Table 5-4 above, capital is also functionalized. To reduce rate variability
from year to year resulting from fluctuations in capital replacements, it is appropriate to allocate capital costs based
on the allocation of existing system assets as all assets will eventually be replaced. Using the current configuration of
system assets to allocate capital related expenses maintains a constant percent designation to the different cost
causation components over the rate setting planning period. Table 5-5 provides a summary of capital assets
replacement cost less depreciation by asset category5 and Table 5-6 summarizes the percent allocations of assets to
the Capital Facilities cost component, and the resulting Capital Allocation (%). The Capital Allocation (%) will be
used to allocate the remaining amount of Capital costs not funded by the City’s Capital R&R charge.
Table 5-5: Capital Assets
Functionalized Assets Capital Asset Value
Treatment $7,093,363
Transmission / Distribution $15,952,344
Reservoir $21,386,397
Meters $88,035
Wells $8,086,282
Hydrants $1,013,088
Total $53,619,509
5 Detailed Water Asset listing is on file with the City.
CITY OF TUSTIN COMPREHENSIVE WATER COST OF SERVICE STUDY REPORT 24
Table 5-6: Capital Asset Allocation
Capital Assets Meter
Capacity
Water
Supply Base Max Day Max Hour Fire Flow
Demand Total
% Allocation
Treatment 58% 33% 9% 100%
Transmission /
Distribution 35% 20% 36% 9% 100%
Reservoirs 58% 33% 9% 100%
Meters 100% 100%
Wells 100% 100%
Hydrants 100% 100%
$ Allocation
Treatment $4,085,418 $2,369,542 $638,403 $7,093,363
Transmission /
Distribution $5,519,632 $3,201,387 $5,795,614 $1,435,711 $15,952,344
Reservoirs $12,317,482 $7,144,140 $1,924,776 $21,386,397
Meters $88,035 $88,035
Wells $8,086,282 $8,806,282
Hydrants $1,013,088 $1,013,088
Total $88,035 $8,086,282 $21,922,532 $12,715,069 $5,795,614 $5,011,977 $53,619,509
Capital
Allocation (%) 0.2% 15.1% 40.9% 23.7% 10.8% 9.3% 100%
The next step is to use the allocation percentages developed in the preceding section to allocate the FYE 2020 revenue
requirements to cost components. The Revenue Requirements (Table 5-1, Line 14) were allocated to cost
components as summarized in Table 5-7. Operating revenue requirements were allocated based on the O&M
Allocation percent from Table 5-4 and Capital revenue requirements ($4,064,053) was broken out into two
components. The City currently has a Capital R&R fixed meter charge and the fixed Capital R&R charge will
continue but updated to recover $2.6M, inline with the City’s annual capital costs. The remainder of $1,434,053
($4,064,053 - $2,600,000) capital revenue requirements were allocated based on the Capital Allocation percent from
Table 5-6. In addition, there are certain operating expenses directly associated with conservation for a total of
$175,0006; therefore, a Water Efficiency cost component is included to capture these expenses.
6 Water Efficiency related expenses include Outreach, MWDOC Outreach, Rebates, Conservation Enforcement,
MWDOC School Program and MWDOC Water Use Efficiency.
CITY OF TUSTIN COMPREHENSIVE WATER COST OF SERVICE STUDY REPORT 25
Table 5-7: Cost of Service Requirements
Revenue
Requirement
Customer
Service
Meter
Capacity
Water
Supply Base Max Day Max Hour Water
Efficiency
Fire Flow
Demand
Capital
R&R Total
Operating $1,634,140 $1,909,173 $7,708,485 $1,680,240 $425,562 $503,031 $164,405 $14,025,038
Capital /
Reserves $2,427 $222,905 $604,313 $350,502 $159,761 $138,159 $1,478,067
Capital R&R $2,600,000 $2,600,000
Cost of Service
Requirement $1,634,140 $1,911,600 $7,931,390 $2,284,553 $776,064 $662,792 $0 $302,565 $2,600,000 $18,103,105
Direct
Reallocation ($175,000) $175,000
Cost of Service
Requirement $1,459,140 $1,911,600 $7,931,390 $2,284,553 $776,064 $662,792 $175,000 $302,565 $2,600,000 $18,103,105
5.4. RATE DESIGN
A key component of the Study includes evaluating the current rate structures and determining the most appropriate
structures to model moving forward. In this step, we have some flexibility as Proposition 218 does not specify the
type of rate structure so long as the rates are based on the cost of service (as developed in the preceding section). The
following subsections discuss the proposed rate structure for FYE 2020 through FYE 2024. Similar to the City’s
current rate structure, the proposed rates will include a bi-monthly meter service charge, a bi-monthly Capital R&R
charge, and a customer service charge for additional multi-family units. The variable rates will no longer employ
tiered rates. The City’s water supplies include groundwater managed by the Orange County Water District and
purchased water from East Orange County Water District. Two rate options were presented to City Council on
September 17, 2019 which included a uniform rate structure and a modified tiered rate structure reflecting current
costs. Following that presentation, the City decided to move forward with uniform rates, as shown in Section 5.5.3,
herein.
5.4.1. Step 4 – Distribute Cost Components to Customers
To allocate costs to customers, unit costs of service need to be developed for each cost causation co mponent. The
unit costs of service are developed by dividing the total annual costs allocated to each parameter by the total annual
service units of the respective component. The annual units of service for each cost component from Table 5-7 are
derived below and the rate per unit of service has been rounded up.
Fixed Charge Recovery
Customer Service Component
These costs are incurred at the same level regardless of the type of land use or the total amount of water that the
utility delivers, therefore, the Customer Service component is based on the number of accounts, including additional
multi-family residential units, and does not fluctuate with increases in meter size. The total units of service for
customer service takes the total number of accounts / units (23,437) multiplied by the number of billing periods, six
(6), in a year (equaled to 140,622). The total Customer Service revenue requirement from Table 5-7 of $1,459,140 is
divided by the units of service to determine the unit cost of service shown in Table 5-8.
CITY OF TUSTIN COMPREHENSIVE WATER COST OF SERVICE STUDY REPORT 26
Table 5-8: Customer Service Component – Unit Rate
Customer Service Component
Customer Service Revenue Requirements $1,459,140
÷ # of Accounts/Units x Billing Periods 140,622
Bi-Monthly Unit Rate $10.38
Meter Capacity Component
The Meter Capacity Component includes costs related to debt, and reserve funding. We allocated these cost
components based on meter size. In order to create parity across the various meter sizes, each meter size is assigned
a factor relative to a ≤ 3/4” meter, which is given a value of one (1). Larger meters have the potential to demand
more capacity, or said differently, exert more peaking characteristics compared to smaller meters. The potential
capacity demand (peaking) is proportional to the potential flow through each meter size. For the purposes of this
study, the safe maximum operating capacity by meter type, as identified in the AWWA M1 Manual, 6th Edition,
was used as a basis for calculating the equivalent meter ratio. As shown in Table 5-9, a ≤ 3/4” meter, would also
include 5/8” meters as part of this category and is assigned a capacity of 20gpm. E ach meter’s gpm was divided by
the base meters safe operating capacity (20 gpm) to determine the equivalent meter ratio. The ratios represent the
potential flow through each meter size compared to the flow through the ≤ 3/4” meter. Multiplying the number of
meters by the AWWA Ratio results in the Meter Equivalents (MEs).
Table 5-9: Meter Equivalents
Meter Size
AWWA
Capacity
(gpm)
[A]
Capacity
Ratio
[B]
(A ÷ 20)
Number of
Metered
Accounts
[C]
MEs
[D]
(B x C)
Annual
MEs
[E]
(D x 6)
≤ 3/4" 20 1.00 10,110 10,110 60,660
1" 50 2.50 3,071 7,678 46,065
1-1/2" 100 5.00 365 1,825 10,950
2" 160 8.00 600 4,800 28,800
3" 350 17.50 45 788 4,725
4" 630 31.50 29 914 5,481
6" 1400 70.00 14 980 5,880
8” 2400 120.00 - - -
10" 3800 190.00 - - -
Total 14,234 27,094 162,561
Based on these ratios and taking into consideration the number of billin g periods, the total annual equivalent meters
equals 162,561. Meter Capacity costs and a portion of system fire flow demand costs are allocated over the total
annual MEs. System fire flow revenue requirements are further allocated between private fire lines and hydrants
based on fire flow demand in order to proportionately spread these costs between dedicated private fire lines and
potable meters, where potable meters recover the portion associated with the fire flow demand of all hydrants as a
means to quantify the standby services rendered to all potable accounts for system fire flow capacity. Table 5-10
provides the fire flow demand of the system between hydrant and private fire lines. Fire flow demand equivalents
were derived by first taking the cross-sectional diameter of the line raised to the 2.63 power, using the principals of
the Hazen-Williams equation for the relative flow potential through pressure conduits which is dependent on the size
of the diameter. The second step takes the product of the Fire Flow Demand and the service lines to derive total fire
flow demand equivalents. The results of Table 5-10 show that 87% of fire flow equivalents are associated with the
system as a whole and that percent of the fire flow revenue requirement is recovered over annual MEs.
CITY OF TUSTIN COMPREHENSIVE WATER COST OF SERVICE STUDY REPORT 27
Table 5-10: Fire Flow Demand Allocations
Fire Service Line
Fire Flow
Demand Factor
(Meter Size)^(2.36)
[A]
Service
Lines
[B]7
Fire Flow
Equivalents
[C]
(A x B)
Percent of
Total
[D]
Revenue
Requirement
$302,5658
[E]
Hydrants
6" 111.3 1,945 216,500
Sub-Total 216,500 87% $261,936
Private Fire Lines
4" 38.3 51 1,954
5" 68.9 1 69
6” 111.3 103 11,465
8" 237.2 67 15,893
10” 426.6 5 2,133
12” 689.0 3 2,067
Total 33,581 13% $40,629
Annual Units 250,081 100% $302,565
The portion related to private fire lines will be recovered over the corresponding private fire lines as discussed later
in this Study. Table 5-11 shows the Meter Capacity costs from Table 5-7 and the system-wide fire flow component
from Table 5-10 allocated over the total annual MEs.
Table 5-11: Meter Capacity Component – Unit Rate
Meter Capacity Component
Meter Capacity Revenue Requirements $1,911,600
System-Wide Fire Flow Requirement $261,936
Total Meter Requirement $2,173,536
÷ Annual ME’s 162,651
Bi-Monthly Unit Rate $13.38
Capital R&R Component
The Capital R&R revenue requirement of $2,600,000 from Table 5-7 was also recovered over the annual equivalent
meters of 162,651 (Table 5-9). Table 5-12 summarizes the determination of the unit rate for the Capital R&R
Component.
Table 5-12: Capital R&R Component – Unit Rate
Capital Facilities Component
Capital R&R $2,600,000
÷ Annual ME’s 162,651
Bi-Monthly Unit Rate $16.00
7 Fire service lines by connection size provided by City through billing database.
8 Revenue requirement for Fire Flow derived in Table 5-7.
CITY OF TUSTIN COMPREHENSIVE WATER COST OF SERVICE STUDY REPORT 28
Variable Charge Recovery
Water Supply
Water Supply costs are recovered from total water sales (as shown in Table 5-4); therefore, the groundwater cost is a
variable rate recovered over all usage. Table 5-13 shows the water supply costs from Table 5-7 allocated over the total
projected water sales to determine the water supply unit rate.
Table 5-13: Water Supply Component – Unit Rate
Groundwater Rate
Water Supply Revenue Requirements $7,931,390
÷ Total Projected Water Sales (ccf) 4,271,185
Unit Rate (per ccf) $1.86
Conveyance
Conveyance or delivery costs of the City includes all remaining variable components for deriving the proposed
uniform rate to all customers. Therefore, the Conveyance Rate is the combined cost of Base, Max Day and Max
Hour (collectively Peaking Cost) and Water Efficiency cost components spread over all water sales. Table 5-14
summarizes the determination of the unit rate the Conveyance.
Table 5-14: Conveyance Component – Unit Rate
Conveyance Rate Revenue Requirement Water Sales (ccf) Unit Rate (per ccf)
Base Revenue Requirements $2,284,553 4,271,185 $0.54
Peaking Revenue Requirements
(Max Day + Max Hour) $1,438,856 4,271,185 $0.34
Water Efficiency Requirements $175,00 4,271,185 $0.05
Conveyance Rate (per ccf) $0.93
5.5. PROPOSED WATER RATES
5.5.1. Fixed Charges
Currently, the City’s fixed bi-monthly water charges generate approximately 50% of total rate revenues. With the
change in variable rates from tiered rates to a uniform rate, the City intends to promote water efficiency through rates
by reducing the overall cost recovery from the fixed charge down to 35%. The new rate structure will recover 65% of
revenue from the uniform variable rate providing customers more control over their bi -monthly bill by using water
efficiently. Table 5-15 summarizes the Bi-Monthly Service Charges by meter/connection size based on the unit rates
developed in the Rate Design section.
CITY OF TUSTIN COMPREHENSIVE WATER COST OF SERVICE STUDY REPORT 29
Table 5-15: FYE 2020 Proposed Bi-Monthly Service Charges ($/Meter)
Meter Size
Customer
Service
Charge
[A]
Meter
Service
Charge
[B]
Capital R&R
Charge
[C]
FYE 2020 Proposed
Service Charge
[D]
(A + B+C) = [D]
≤ 3/4" $10.38 $13.38 $16.00 $39.76
1" $10.38 $33.45 $39.99 $83.82
1-1/2" $10.38 $66.90 $79.97 $157.25
2" $10.38 $107.04 $127.96 $245.38
3" $10.38 $234.15 $279.90 $524.43
4" $10.38 $421.47 $503.82 $935.67
6" $10.38 $936.60 $1,119.58 $2,066.56
8" $10.38 $1,605.60 $1,919.28 $3,535.26
10" $10.38 $2,542.20 $3,038.86 $5,591.44
Additional MFR Units $10.38 - - $10.38
As shown in the table above, the Customer Service Components do not vary based on meter size. The Meter Service
Charge and Capital R&R Charge are determined by multiplying the unit costs of $13.38 and $16.00, respectively, by
the appropriate meter capacity ratios. Applying the proposed revenue adjustments to the proposed Bi -Monthly
Service Charges for each of the remaining years of the Study Period yields the proposed Bi-Monthly Service Charges
shown in Table 5-16.
Table 5-16: Proposed 5-Year Bi-Monthly Charges ($/Meter or $/MFR Unit)
Meter Size / Unit
FYE 2020
Proposed
Fixed Charge
FYE 2021
Proposed
Fixed Charge
FYE 2022
Proposed
Fixed Charge
FYE 2023
Proposed
Fixed Charge
FYE 2024
Proposed
Fixed Charge
Effective Date 2/1/2020 1/1/2021 1/1/2022 1/1/2023 1/1/2024
≤ 3/4" $39.76 $41.75 $43.84 $46.03 $48.33
1" $83.82 $88.01 $92.41 $97.03 $101.88
1-1/2" $157.25 $165.11 $173.37 $182.04 $191.14
2" $245.38 $257.65 $270.53 $284.06 $298.26
3" $524.43 $550.65 $578.18 $607.09 $637.45
4" $935.67 $982.45 $1,031.58 $1,083.15 $1,137.31
6" $2,066.56 $2,169.89 $2,278.38 $2,392.30 $2,511.92
8" $3,535.26 $3,712.02 $3,897.62 $4,092.51 $4,297.13
10" $5,591.44 $5,871.01 $6,164.56 $6,472.79 $6,796.43
Additional MFR Units $10.38 $10.90 $11.44 $12.02 $12.62
5.5.2. Private Fire Line Charges
The percentage of Fire Flow Demand revenue requirement allocated to private fire lines is recovered through a rate
per diameter inch of connection size. Table 5-17 shows the derivation of private fire charge based on fire flow demand
for FYE 2020.
CITY OF TUSTIN COMPREHENSIVE WATER COST OF SERVICE STUDY REPORT 30
Table 5-17: FYE 2020 Proposed Bi-Monthly Private Fire Line Service Charge Unit Rate
Connection Size
Connections
(Table 5-10 [B])
[A]
Connection
Size Factor
[B]
Total Private
Fire Line
Units of Service
[C]
(AxBx6)
4" 51 4x 1,224
5" 1 5x 30
6" 103 6x 3,708
8” 67 8x 3,216
10” 5 10x 300
12” 3 12x 216
Total 230 81,461 8,694
Private Fire Line Revenue Requirements $40,629
Annual Units of Service 8,694
Rate per Diameter Inch $4.673
Applying the proposed revenue adjustments to the proposed Bi-Monthly Private Fire Line Service Charges for each
of the remaining years of the Study Period yields the proposed charges in Table 5-18
Table 5-18: FYE 2020-2024 Proposed Bi-Monthly Private Fire Line Service Charges
Connection
Size
FYE 2020
Proposed
Private Fire
Line Charge
FYE 2021
Proposed
Private Fire
Line Charge
FYE 2022
Proposed
Private Fire
Line Charge
FYE 2023
Proposed
Private Fire
Line Charge
FYE 2024
Proposed
Private Fire
Line Charge
Effective Date 2/1/2020 1/1/2021 1/1/2022 1/1/2023 1/1/2024
4" $18.70 $19.64 $20.62 $21.65 $22.73
5" $23.37 $24.54 $25.77 $27.05 $28.41
6" $28.04 $29.44 $30.91 $32.46 $34.08
8” $37.39 $39.26 $41.22 $43.28 $45.45
10” $46.74 $49.08 $51.53 $54.11 $56.81
12” $56.08 $58.88 $61.83 $64.92 $68.17
5.5.3. Variable Rates
The components of the variable rate are added together to produce a uniform rate. Table 5-19 shows each component
rate and the final proposed FYE 2020 commodity rate. Applying the proposed revenue adjustments to the proposed
uniform commodity rates yields the proposed five-year rate schedule shown in Table 5-20.
Table 5-19: FYE 2020 Proposed Commodity Rates ($/ccf)
Customer Class Water Supply
Component
Conveyance
Component
Proposed FYE 2020
Commodity Rate
All Customers $1.86 $0.93 $2.79
Table 5-20: Proposed 5-Year Usage Charges ($/ccf)
Customer
Class
FYE 2020
Proposed
Commodity Rate
FYE 2021
Proposed
Commodity Rate
FYE 2022
Proposed
Commodity Rate
FYE 2023
Proposed
Commodity Rate
FYE 2024
Proposed
Commodity Rate
Effective Date 2/1/2020 1/1/2021 1/1/2022 1/1/2023 1/1/2024
All Customers $2.79 $2.93 $3.08 $3.24 $3.41
CITY OF TUSTIN COMPREHENSIVE WATER COST OF SERVICE STUDY REPORT 31
APPENDIX A – Detailed Financial Plan
RESOLUTION NO. 20-04
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF
TUSTIN, CALIFORNIA, ADJUSTING WATER RATES
PROVIDED BY THE CITY OF TUSTIN
WHEREAS, the City previously retained Raftelis Financial Consultants,
independent financial consultants, to review the City's Water Enterprise to determine
whether rates for service charges are sufficient to meet increased costs of service, and
to prepare a cost of service analysis and rate study (COS); and
WHEREAS, based on the results of the COS, increases to the rates for water
service fees and charges are necessary; and
WHEREAS, the proposed water rate structure includes a variable water usage
charge and a fixed service charge, both billed on a bi-monthly basis. The proposed water
usage charge is based on the amount of water consumed, measured in dollars per
hundred cubic feet ("CCF") of water delivered to the property. The fixed service charge
is independent of the amount of water used and is determined based on the size of the
meter serving the property, as measured in inches; and
WHEREAS, the proposed rate structure is for a period of four years and five
months, and is proposed to take effect on February 1, 2020, and to increase each January
1 thereafter commencing on January 1, 2021, through and including January 1, 2024;
and
WHEREAS, the revenues derived from the fees will not exceed the funds required
to provide the services for which the fees are imposed, and will be used exclusively for
the operation and maintenance of the City's water system; and
WHEREAS, the fees are equitable to all customer classes; and
WHEREAS, the amount of fees will not exceed the proportional cost of service
attributable to each customer class upon which they are proposed for imposition; and
WHEREAS, the fees will not be imposed for general governmental purposes, but
only for the costs of operation and maintenance of the City's water system; and
WHEREAS, article XIII D, section 6 of the California Constitution ("Article XIII D")
requires that prior to imposing any increase to the fees, the City shall provide written
notice ("Notice") by mail of the new or increased fees to the recorded owner of each parcel
upon which the fees are proposed for imposition and any tenant directly liable for payment
of the fees, the amount of the fees proposed to be imposed on each parcel, the basis
Resolution 20-04
Page 1 of 5
upon which the fees were calculated, the reason for the fees, and the date, time, and
location of a public hearing ("Hearing") on the proposed fees; and
WHEREAS, on December 6, 2019, the City distributed notices as required by
Article XIII D regarding the City Council's consideration of the proposed adjustments to
the water rate fees at the January 21, 2020 public hearing to all owners of record and
customers in accordance with Article XIII D, Section 6(a)(1) of the California Constitution
and Government Code Section 53755; and
WHEREAS, on January 21, 2020, the City Council held a duly noticed public
hearing on the proposed water rate contained in this Resolution, and at that time invited
oral and written comments from the public; and
WHEREAS, upon close of said public hearing, the City did receive written
protests to the proposed fees and therefore there has been no majority protest; and
WHEREAS, the City Council now desires to establish rates for the fees, effective
February 1, 2020, at the rates and subject to increases on the dates set forth in the
schedule in Section 4; and
NOW, THEREFORE, the City Council of the City of Tustin does hereby resolve,
determine and order as follows:
SECTION 1. After considering the material presented in the COS, the City Council
hereby finds as follows:
a) Revenues derived from the fees do not exceed the funds required to
provide the related service;
b) Revenues derived from the fees shall not be used for any purpose other
than for that which the fees or charges are imposed;
c) The amount of the fees imposed upon any parcel or customer does not
exceed the proportional cost of service attributable to the parcel;
d) The fees are imposed for services that are actually used by, or
immediately available to, the owner of the property upon which the fees
are imposed; and
e) The fees will not be imposed for general governmental purposes, but
only for the costs of operation and maintenance of the City's water
system.
SECTION 2. After receiving public comment and testimony on the new fee
structure for water services provided, and absent a majority protest to the proposed fee
increases, the new fee schedule for water fees and charges is hereby approved as set
forth in Section 4.
Resolution 20-04
Page 2 of 5
SECTION 3. The new fee schedule for water services shall be implemented
beginning February 1, 2020, and shall be increased on January 1, 2021 and annually
thereafter, up to the maximum rates set forth in Section 4. The scheduled adjustment
authorized by this Section may be made by the City Manager or designee, without
conducting another public hearing or any action on the part of the City Council.
SECTION 4. The variable water usage charge and fixed service charge are hereby
established as follows:
- -
wI
M
-97
IRMW
I MV
Bi -Monthly Potable Water Usage Charges ($/unit) ***1 unit = 100 cubic feet (hcf) _
748gallons***
Unit: 0 +
$2.79
$2.93
$3.08
$3.24
$3.41
Bi -Monthly Fixed Service Charges
** Meter & Capital Refurbishment and Replacement
Meter Size
(R&R)
Charge
5/8" or 3/4"
$39.76
$41.75
$43.84
$46.03
$48.33
1"
$83.82
$88.01
$92.41
$97.03
$101.88
11/2"
$157.25
$165.11
$173.37
$182.04
$191.14
2"
$245.38
$257.65
$270.53
$284.06
$298.26
3"
$524.43
$550.65
$578.18
$607.09
$637.45
4"
$935.67
$982.45
$1,031.58
$1,083.15
$1,137.31
6"
$2,066.56
$2,169.89
$2,278.38
$2,392.30
$2,511.92
8"
$3,535.26
$3,712.02
$3,897.62
$4,092.51
$4,297.13
10"
$5,591.44
$5,871.01
$6,164.56
$6,472.79
$6,796.43
Per Dwelling
Unit Charge
$10.38
$10.90
$11.44
$12.02
$12.62
- - . rZO . 2
Meter Size
- -
4"
$18.70
$19.64
$20.62
$21.65
$22.73
5"
$23.37
$24.54
$25.77
$27.05
$28.41
6"
$28.04
$29.44
$30.91
$32.46
$34.08
8"
$37.39
$39.26
$41.22
$43.28
$45.45
10"
$46.74
$49.08
$51.53
$54.11
$56.81
12"
$56.08
$58.88
$61.83
$64.92
$68.17
Resolution 20-04
Page 3 of 5
PASSED AND ADOPTED at a regular meeting of the City Council of the City of Tustin,
California, held on the 21 st day of January, 2020.
DR. ALLAN BERNSTEIN,
Mayor
ATTEST:
ERICA N. YASUDA,
City Clerk
Resolution 20-04
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STATE OF CALIFORNIA )
COUNTY OF ORANGE ) SS
CITY OF TUSTIN )
I, Erica N. Yasuda, City Clerk and ex -officio Clerk of the City Council of the City of
Tustin, California, do hereby certify that the whole number of the members of the City
Council of the City of Tustin is five; that the above and foregoing Resolution No. 20-04
was duly passed and adopted at a regular meeting of the Tustin City Council, held on
the 21 st day of January, 2020, by the following vote:
COUNCILMEMBER AYES:
COUNCILMEMBER NOES:
COUNCILMEMBER ABSTAINED:
COUNCILMEMBER ABSENT:
ERICA N. YASUDA,
City Clerk
Resolution 20-04
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