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Home My WebLink AboutItem 8 - Water Rates2024-2028 Water Rate Study Workshop September 19, 2023 Agenda 2 •Background and Current Water System Financial Position •Water Rate Study Goals •Water Rate Study Approaches Financial Plans (Operation and CIP) Cost of Service Analysis Proposed Rates •Customer Account Impacts •Proposed Rate Implementation Timeline •Community Outreach Plan Water Service Area Map 3 City limits served by Irvine Ranch Water District (Population approx. 40,000) City limits served by Tustin Water (population approx. 41,000) Unincorporated County area served by Tustin Water (population approx. 25,500) Water Rate Background 4 •Current 5-Year water rates adopted by the City Council in January 2020. •Implemented a new uniform rate structure to replace the old 7-tier rate structure. •Water rate structure components: a fixed base amount by meter size plus additional dwelling unit charge, and a variable amount based on usage. •Challenges of the tiered rate structure: Tier breakpoints – setting proper tier breakpoints requires careful consideration and a sound rationale. Cost-of-Service Requirement – must show the nexus between the incremental costs allocated to each tier and the burden of proof is on the agency. Tustin’s water supplies are blended, which makes it difficult to distinguish the source of the water delivered to each customer. Water Rate Background (Continued) 5 Rate structures for surrounding water agencies: Uniform rate structure: Fountain Valley, Huntington Beach, Mesa Consolidated Water, Newport Beach Tiered rate structure: Garden Grove (2 tiers), Orange (3 tiers), Santa Ana (2 tiers) Budget-based rate structure: Irvine Ranch Water District Water Rate Background (Continued) 6 2020 Financial Plan and What Changed: Last approved 5% increase goes into effect on 1/1/2024. Operational costs average approximately $2M/year higher than the 2020 financial plan largely due to purchasing more water. Several local groundwater wells were taken offline due to changes in State PFAS-related regulations. 2023 Financial Plan: Proposed 5-year 2023 Financial Plan will take effect on 1/1/2024, replacing the last annual increase from the 2020 Financial Plan. 5-year plan allows the Water Enterprise to smooth out the increase identified from the cost-of-service analysis over years. Prior Tustin Water Rate Increases 7 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0% 16.0% 18.0% 20.0% FY 2023 FY 2022 FY 2021 FY 2020 FY 2019 FY 2018 FY 2017 FY 2016 FY 2015 FY 2014 FY 2013 FY 2012 FY 2011 FY 2010 FY 2009 FY 2008 FY 2007 FY 2006 FY 2005 FY 2004 FY 2003 FY 2002 FY 2001 FY 2000 Rate Increase by %Avearge Increase over 23 years The average increase is 4.4% $3.9 $1.7 $1.8 $5.0 $2.4 $0 $1 $2 $3 $4 $5 $6 FY 2024 FY 2025 FY 2026 FY 2027 FY 2028MillionsCapital Funding Sources Outside Funding Other Funding Rate /Reserve Funded Total CIP ($20.0) ($15.0) ($10.0) ($5.0) $0.0 $5.0 $10.0 $15.0 $20.0 FY 2024 FY 2025 FY 2026 FY 2027 FY 2028MillionsAll Reserves Ending Balance Minimum Reserve Target Reserve ($10) ($5) $0 $5 $10 $15 $20 $25 $30 FY 2024 FY 2025 FY 2026 FY 2027 FY 2028MillionsOpera�ng Financial Plan Net Cashflow (before Transfers)Projected Revenue Opera�ng Expenses Water Fund Current Financial 8 Financial Plan Metrics Generate Positive Net Income Comply with Debt Covenants Sufficiently Fund Capital Needs Meet Reserve Targets Water Rate Study Goals •To ensure positive net income each fiscal year. •To meet bond coverage requirements. •To build adequate reserves for unforeseen situations, including CIP reserves. 9 Water Rate Study Approaches Operating Financial Plan: Reviews revenues, costs for water supply/operating/maintenance, and debt service requirements. Develop net operating cash flow projection by year and revenue requirements. Establishes minimum and target reserves (operating, capital, emergency, and rate stabilization). CIP Funding Plan: Specific CIP projects. Annual water infrastructure maintenance projects. Cost of Service (COS) Analysis: Develop functional allocations of operating and CIP costs to customers. Develops reasonable methods to recover costs from different components of rates (fixed and variable charges) Rate Design and New Rates 10 $3.9 $1.7 $1.8 $5.0 $2.4 $0 $1 $2 $3 $4 $5 $6 FY 2024 FY 2025 FY 2026 FY 2027 FY 2028MillionsCapital Funding Sources Outside Funding Other Funding Rate/Reserve Funded Total CIP $0.0 $2.0 $4.0 $6.0 $8.0 $10.0 $12.0 $14.0 $16.0 FY 2024 FY 2025 FY 2026 FY 2027 FY 2028MillionsAll Reserves Ending Balance Minimum Reserve Target Reserve ($5) $0 $5 $10 $15 $20 $25 $30 $35 FY 2024 FY 2025 FY 2026 FY 2027 FY 2028MillionsOpera�ng Financial Plan Net Cashflow (before Transfers)Projected Revenue Opera�ng Expenses Water Fund - Proposed Financial Plan 11 Financial Plan Metrics Generate Positive Net Income Comply with Debt Covenants Sufficiently Fund Capital Needs Meet Reserve Targets Revenue Adjustments: FY 2024 – FY 2028: 9%, 9%, 9%, 9%, 9% CIP Funding Plan Summary 12 Capital Projects FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 Funding Sources Amounts Capital Projects OC-43 $250,000 $0 $0 $0 $0 Outside funding TBD $5,700,000 Beneta Well $2,647,169 $0 $0 $0 $0 Rate/Reserve Funded Well Rehabilitation Program $350,000 $350,000 $500,000 $0 $0 Other Funding John Lyttle Reservoir $100,000 $500,000 $0 $0 $0 State Grant $1,500,000 Newport Reservoir Replacement $0 $600,000 $0 $0 Property Sales $1,000,000 17th Street Electrical Replacement $0 $300,000 $0 $3,000,000 $0 Main Line Replacement $0 $0 $100,000 $900,000 $100,000 Mardick Road Main Line Replacement $0 $0 $200,000 $1,500,000 Capital Maintenance Main Line Maintenance $100,000 $100,000 $100,000 $100,000 $100,000 Service Lateral Maintenance $100,000 $100,000 $100,000 $100,000 $100,000 Meter Maintenance $100,000 $100,000 $100,000 $100,000 $100,000 Hydrant Maintenance $100,000 $100,000 $100,000 $100,000 $100,000 Well Maintenance $200,000 $100,000 $100,000 $100,000 $100,000 Subtotal Scenario 1 - Baseline CIP $3,947,169 $1,650,000 $1,700,000 $4,600,000 $2,100,000 Total CIP Costs *$3,947,169 $1,650,000 $1,766,869 $4,968,995 $2,357,683 * Starting in FY 2026, CIP includes inflationary factors to adjust for current project estimates Reserves Summary 13 Reserves Summary 14 $0.0 $2.0 $4.0 $6.0 $8.0 $10.0 $12.0 $14.0 $16.0 FY 2024 FY 2025 FY 2026 FY 2027 FY 2028MillionsAll Reserves Ending Balance Minimum Reserve Target Reserve Cost-of-Services Summary 15 New Rates – Fixed Charges 16 New Rates – Variable Charges 17 Customer Impacts 18 Usage % of Customer 20 or less HCF 30% 21-40 HCF 23% 41-60 HCF 19% 61-80 HCF 12% 81-100 HCF 8% 100+ HCF 9% 100% 71% of SF Residential customers use 60 HCF or less Regional Comparisons 19 $0.00 $20.00 $40.00 $60.00 $80.00 $100.00 $120.00 $140.00 $160.00 $180.00 $200.00 Tustin - Old Tustin - Proposed Fountain Valley Garden Grove Huntington Beach Irvine Ranch WD * Mesa Consolidated Water Newport Beach Orange Santa Ana Residential Monthly Water Bill for Customers using 30 HCF Monthly Water Bill Regional Average Regional Average: $137.75 * Irvine Ranch WD: includes an estimated monthly property tax amount and assumes 30 HCF as the allocation for the month. Proposed Timeline 20 Community Outreach Plan •Examples of community outreach activities: Three (3) mailer inserts to all customers. Messages in the City’s print media and social media. Three public meetings for feedback: 9/19 City Council Workshop, 11/1 Community Meeting, and 12/5 Public Hearing. Post FAQ on the City’s website in both English and Spanish. Dedicated email (waterrates@tustinca.org) and phone number (714-573-3099) for questions and comments related to rates. 21