The URL can be used to link to this page

Home My WebLink About14 ADOPTION OF RETAIL WATER RATES - PUBLIC HEARING RESOLUTION 23-59DocuSign Envelope ID: 63BOC69D-1BFD-4B3F-8FDF-D6C835E73DF6 14 O% Agenda Item AMi Reviewed:S 1W AGENDA REPORT City Manager F' Finance Director MEETING DATE: DECEMBER 05, 2023 TO: NICOLE BERNARD, ACTING CITY MANAGER FROM: JENNIFER KING, FINANCE DIRECTOR/CITY TREASURER MICHAEL GRISSO, ACTING DIRECTOR OF PUBLIC WORKS SUBJECT: ADOPTION OF RETAIL WATER RATES — PUBLIC HEARING .RESOLUTION 23-59 SUMMARY: The City's consultant, IB Consulting, completed a draft Cost -of -Service Rate Study (Study) for the City's Water Enterprise (Enterprise) and developed proposed water rates to meet ongoing operational, maintenance, and capital needs while maintaining the requirements of existing bond covenants. City staff requests that the City Council hold a Public Hearing to consider the adoption of proposed water rates. A notice of the proposed water rate adjustment was prepared in accordance with Proposition 218 and mailed directly to 14,852 customers and property owners on October 20, 2023. As of the published date of this report, the City has received 99 written protest to the proposed water rates. RECOMMENDATION: Staff recommends that the City Council: 1. Conduct a Public Hearing to receive testimony on the proposed water rates for Fiscal Year 2023-2024 through Fiscal Year 2027-2028; and 2. Adopt Resolution No. 23-59 approving the proposed water rates for the Fiscal Year 2023- 2024 through the Fiscal Year 2027-2028 with effective dates of January 1, 2024; January 1, 2025; January 1, 2026; January 1, 2027; and January 1, 2028. CORRELATION TO THE STRATEGIC PLAN: Correlates with the City's Strategic Plan Goal C: Financial Strength, Item 5, providing adequate financial resources for a well -maintained and reliable water system. FISCAL IMPACT: The proposed rates identified in the draft Study (attached to this report) are for Fiscal Year 2024, commencing on January 1, 2024, through Fiscal Year 2028. The proposed rates have been incorporated into a mailed notice to each customer and property owner as part of Proposition 218 noticing requirements. The projected revenues generated from the rate adjustment are necessary to meet operational, maintenance, capital, and Bond Covenant requirements. DocuSign Envelope ID: 63BOC69D-1BFD-4B3F-8FDF-D6C835E73DF6 Public Hearing — Adoption of Water Rates Page 2 of 6 The draft Study forecasts projected revenues and expenses through FY 2028 based on the proposed rate adjustment. Additional details can be found on Table 20 of the draft Study. FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 Effective Date Jan. 1, 2024 Jan. 1, 2025 Jan. 1, 2026 Jan. 1, 2027 Jan. 1, 2028 Proposed Revenue 9% 1 9% 9% 9% 9% Adjustments Total $22,483,000 $24,477,000 $26,956,000 $29,344,000 $31,946,000 Revenues Total $23,071,000 $24,386,000 $24,589,000 $26,127,000 $26,971,000 Expenses Net Operating Income 2 ($588,000) $91,000 $2,367,000 $3,217,000 $4,975,000 The 9% increase replaces the 5% adjustment scheduled to go into effect on January 1, 2023. In this instance, it's 4% on top of the previously approved 5% adjustment. 2 Net Operating Income excludes planned capital spending. BACKGROUND: The City owns and operates a water distribution system that provides potable water service to a community of nearly 67,000 water consumers. The City's water system is made up of approximately 183 miles of water mains, 9 active groundwater wells, 6 storage reservoirs, and 2 groundwater treatment facilities. Approximately 60% of the water service connections are located within a five square mile area within the City limits, while the remaining 40% of water connections are located within 3.4 square miles of 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 and Tustin Legacy developments which are provided water service by Irvine Ranch Water District. The City of Tustin's current water rates were approved by the City Council on January 21, 2020, which established the rates for a five-year period. The first water rate adjustment took effect on February 1, 2020, and the last adjustment is scheduled to take place on January 1, 2024. The 2020 water rate model was designed to recover operational, maintenance, capital, and debt service requirements through the water rate charges. At this time the model was based on historical water supply availability and the City's investment in local groundwater pumping which is substantially less expensive than imported water purchased from the Colorado River or State Water Project. In February 2020, the State Water Resources Control Board (SWRCB) lowered the Response Level (RL) for Per- and Polyfluoroalkyl Substances (PFAS). In response, the City elected to turn off five groundwater wells that were operating near the new SWRCB-RL. This initiative drastically shifted water supply availability increasing the need for imported water from approximately 25% to almost 50% of imported water supply needs. The cost of purchasing imported water is approximately twice the cost of pumping local groundwater and resulted in an overall lower available net revenue for the Water Enterprise. The change in water supplies resulted in an average increase of $1.25 million per year in additional water supply costs to Enterprise. The increased water supply costs also occurred during the State of California's emergency COVID-19 stay-at-home orders that led to many residents and businesses experiencing financial hardship. These additional costs were not passed on to the customers during DocuSign Envelope ID: 63BOC69D-1BFD-4B3F-8FDF-D6C835E73DF6 Public Hearing - Adoption of Water Rates Page 3 of 6 the pandemic and instead were absorbed within the Enterprise's operating reserves. After three years of absorbing these losses, the Enterprise reserves can no longer support ongoing operational and capital needs without an increase in rate revenues. In an effort to reduce the ongoing need for additional imported water and restore investments in local groundwater supplies, the City has partnered with the Orange County Water District (OCWD), the local groundwater authority, to construct a new PFAS treatment plant at the Main Street treatment facility. It's anticipated that this treatment plant will be operational in the summer/fall of 2024 (Fiscal Year 2025). Once completed, the water supply mix of groundwater to imported water will return toward historically normal operating levels (see Table 54 in the draft study). An excerpt of Table 54 from the draft Study: Table 54: FY 2024 - FY 2028 Projected Purchased Water Costs Fixed Water Costs Calculation (Annual) FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 Fixed Costs EOCWD - Connection Fees $656,880 $676,586 $696,884 $717,791 $739,324 Variabte Water Costs Calculation (Annual) FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 Water Billings/Sales (AF) 9,850 AF 9,850 AF 9,850 AF 9,850 AF 9,850 AF Water Demand 10,594 AF 10,594 AF 10,594 AF 10,594 AF 10,594 AF GW Treated 2,400 AF 6,120 AF 7,980 AF 7,980 AF 7,980 AF GW Untreated 3,960 AF 2,400 AF 2,400 AF 2,400 AF 2,400 AF Brine (Not available for Sale) -352 AF -352 AF -352 AF -352 AF -352 AF Water Purchases (EOCWD) 4,586 AF 2,426 AF 566 AF 566 AF 566 AF Water Characteristics Groundwater Production (AF) % at Prior Rate 3,593 AF 4,260 AF 5,190 AF 5,190 AF 5,190 AF % at Current Rate 2,767 AF 4,260 AF 5,190 AF 5,190 AF 5,190 AF Water Purchases - EOCWD (AF) % at Prior Rate 2,591 AF 1,213 AF 283 AF 283 AF 283 AF • at Current Rate 1,995 AF 1,213 AF 283 AF 283 AF 283 AF Calculated Variable Water Supply Costs Groundwater Basin Assessment EOCWD Water Purchases $3,731,476 $5,544,469 $5,440,020 $2,990,040 $6,881,940 $728,719 $7,090,526 $765,212 $7,303,242 $803,473 Total Variable Water Supply Costs $9,275,944 $8,430,060 $7,610,659 $7,855,738 $8,106,714 Total Calculated Water Supply Costs $9,932,824 $9,106,646 $8,307,543 $8,573,529 $8,846,039 * Table 54 can be found on page 48 of the draft Study. Due to the conditions outlined above, the Enterprise's Fiscal Year 2022-2023 net operating revenue was originally projected to be less than the bond covenant requirement of 120% of the annual debt service payments. To remedy this revenue deficiency, the Enterprise borrowed $3.8 million from the City's General Fund in May 2023 and undertook an effort to update the draft Study a year ahead of schedule. The draft Study ensures that the proposed rates generate sufficient revenues to meet short-term and long-term operational and infrastructure needs as well as bond covenant requirements for the next five-year planning window. The proposed rate adjustment of 9% per year through Fiscal Year 2028, replaces the previously scheduled rate adjustment for January 1, 2024, of 5%. Effectively, the adjustment for Fiscal Year 2024 is an additional 4% increase on top of the previously approved 5% adjustment. Proposition 218 requires that the City Council conduct a public protest hearing to consider the new water rates and provide a notice to all property owners at least 45 days prior to the hearing date. DocuSign Envelope ID: 63BOC69D-1BFD-4B3F-8FDF-D6C835E73DF6 Public Hearing — Adoption of Water Rates Page 4 of 6 Staff prepared and mailed 14,852 notices to customers and property owners on October 20, 2023. In addition, the Prop 218 notice was also posted on the Water Rates page of the City's website (www.Tustinca.org/water-rates) as well as attached to this report. The draft Study was posted to the City's website on October 30, 2023. It's important to note that the proposed 9% rate adjustment as defined in the draft Study, sets the maximum rate increase for each operating year. Staff is recommending a comprehensive report on the Enterprise's financials be presented to the City Council annually. In the event that the Enterprise surpasses the expectations outlined in the rate model, the City Council may consider and potentially adopt a lower rate for the following year. Over the last couple of months, the staff has actively organized and conducted two community meetings to foster open communication and gather valuable insights from our customers and property owners. These meetings were designed to create a platform for our customers to ask their questions, express their thoughts, and voice any concerns they may have about the water rate adjustment. In addition to direct emails to customers and property owners, staff have utilized various social media platforms, including Facebook, X (formerly Twitter), and Instagram, to disseminate information about community meetings. Regular updates, event announcements, and engaging content have been shared to encourage participation and increase awareness. The goal of these initiatives is to ensure that all residents are aware of the community meetings and have the opportunity to participate and provide feedback. As outlined in the Proposition 218 Notice and the draft Study, several aspects of the proposed water rate adjustments are outlined below. Bi-Monthly Commodity/Variable Water Usage Charge This charge is applied to a customer's bill per 100 cubic feet (HCF), 748 gallons, or unit of water consumed. The average single-family residential (SFR) customer in the Tustin Water Service area uses approximately 36 units of water on a bi-monthly basis. The sample calculation for the average SFR customer for FY 2024 after January 1, 2024: 36 units X $3.57 = $128.52 Bi-Monthly Fixed Service Charge The bi-monthly fixed service charges are used to pay for operations and maintenance costs, including water infrastructure enhancements and replacements. The charge is based on the customer's water meter size. Current FY ®24 Effective 1/1/2023 s Date Bi-Monthly Fixed Service Charges -FY 2025 FY 2026 : FY 2027 FY 2028 0: Meter Size 5/8" or 3/4" $46.03 $49.73 $54.21 $59.09 $64.41 $70.21 1" $97.03 $104.86 $114.30 $124.59 $135.81 $148.04 11/2" $182.04 $196.73 $214.44 $233.74 $254.78 $277.72 2" $284.06 $306.98 $334.61 $364.73 $397.56 $433.35 DocuSign Envelope ID: 63BOC69D-1BFD-4B3F-8FDF-D6C835E73DF6 Public Hearing - Adoption of Water Rates Page 5 of 6 Current IFY 2024 FY 2025i• FY 2027i 3" $607.09 $656.11 $715.16 $779.53 1$849.69 $926.17 4" $1,083.15 $1,115.48 $1,215.88 $1,325.31 $1,444.59 $1,574.61 6" $2,392.30 $2,493.61 $2,718.03 $2,962.66 $3,229.30 $3,519.94 8" $4,092.51 $5,157.98 $5,622.20 $6,128.20 $6,679.74 $7,280.92 101, $6,472.79 $7,730.48 $8,426.23 $9,184.60 $10,011.22 $10,912.23 Per Additional $12.02 $12.98 $14.15 $15.43 $16.82 $18.34 Dwelling Unit Charge Bi-Monthly Private Fire Protection Service Charge Private fire lines provide water for fire suppression on private property. These include fire protection systems, such as fire protection sprinklers and private fire hydrants that are not a part of but are connected to, the public water system. Costs are billed to the customers operating the private fire protection systems based on the connection size of the private fire line. Current FY 2024 FY 2025i. FY 20271 Effective ! i / i i ! ' Date Fire Protection Services Fireline Size 4" $21.65 $10.60 $11.56 $12.61 $13.75 $14.99 5" $27.05 $13.25 $14.45 $15.76 $17.18 $18.73 6" $32.46 $15.90 $17.34 $18.91 $20.62 $22.48 8" $43.28 $21.20 $23.11 $25.19 $27.46 $29.94 101, $54.11 $26.50 $28.89 $31.50 $34.34 $37.44 12" $64.92 $31.80 $34.67 $37.80 $41.21 $44.92 Automatic Passthrough Adjustments The City used its best available information to calculate the proposed increases in: • Cost of imported water purchased from The Metropolitan Water District of Southern California (MWD) through the East Orange County Water District (EOCWD) • Replenishment assessment charges paid to OCWD for pumping groundwater. The City has no control over the charges set by third -party regional agencies (MWD, EOCWD, OCWD, etc.). If those charges or fees increase or decrease, the City of Tustin Water Service may pass those costs on directly to its customers. In the event those agencies adopt an increase or decrease in charges, the City may automatically recalculate its rates to include the passthrough amount. If this occurs, the automatic water rate adjustment will not require a Public Hearing or any additional action by the City Council. The City may implement a passthrough adjustment through FY 2028, provided that (1) any increase in the rates from any passthrough adjustment shall not exceed 10 percent per year; (2) in no event shall the rates be increased by more than the cost incurred; and (3) the City will provide its customers with notice of the expected passthrough adjustments at least 30 days before the effective date of the adjustment. DocuSign Envelope ID: 63BOC69D-1BFD-4B3F-8FDF-D6C835E73DF6 Public Hearing — Adoption of Water Rates Page 6 of 6 Establishment of a Rate Stabilization Reserve The draft Study discusses the creation of a new Rate Stabilization reserve in addition to existing Operating, Capital, and Emergency reserves. Reserve requirements are financial safeguards that allow the Enterprise to set aside funds to cover future capital costs, emergencies, or unexpected financial strains due to unforeseen water supply cost increases. The Rate Stabilization reserve is proposed to be established with a minimum reserve requirement of 5% of rate revenue and a target reserve requirement of 10% of rate revenue. The minimum Rate Stabilization reserve for Fiscal Year 2024 at 5% of rate revenue is projected to be $1,002,500. The proposed Rate Stabilization reserve will not be an additional item to be funded from rate revenue but will instead be funded by a reduction in the Emergency Reserve. At present, the Emergency reserve is fixed at approximately $2 million, staff are proposing to reduce the Emergency reserve to $1 million and transfer the remaining amount to establish the Rate Stabilization reserve. In conclusion, Staff recommends the implementation of the proposed 5-year water rate adjustment, as presented in the Study. This strategic decision is not only imperative for maintaining financial health but also essential for ensuring the long-term stability and sustainability of the Water Enterprise Fund. The proposed water rate adjustment is aimed at rebuilding reserves and funding critical infrastructure projects. Aging pipelines, treatment facilities, and distribution systems require significant investment for maintenance and upgrades. Approving the proposed rate adjustment ensures the reliability and efficiency of our water infrastructure, preventing costly emergency repairs and service disruptions. The Enterprise operates in an environment with escalating operational costs, including energy, labor, capital projects, and materials. The proposed rate adjustment is designed to align with these rising costs, allowing for an adequate recovery of expenses. Ensuring the Enterprise remains financially sustainable. Jennifer King Finance Director/City Treasurer Attachments: City Council Resolution No. 23-59 Draft Cost -of -Service Rate Study Proposition 218 Notice chael Grisso Acting Director of Public Works DocuSign Envelope ID: 63BOC69D-1BFD-4B3F-8FDF-D6C835E73DF6 RESOLUTION NO. 23-59 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 IB Consulting, LLC., 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 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 five years and is proposed to take effect on January 1, 2024, and to increase each January 1 thereafter through and including January 1, 2028; 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 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 Resolution 23-59 Page 1 of 8 DocuSign Envelope ID: 63BOC69D-1BFD-4B3F-8FDF-D6C835E73DF6 WHEREAS, on October 20, 2023, 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 December 5, 2023 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 December 5, 2023, 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 January 1, 2024, at the rates and subject to increases on the dates set forth in the schedule in Section 5; 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 5. Resolution 23-59 Page 2 of 8 DocuSign Envelope ID: 63BOC69D-1BFD-4B3F-8FDF-D6C835E73DF6 SECTION 3. The new fee schedule for water services shall be implemented beginning January 1, 2024, and shall be increased on January 1 annually thereafter, up to the maximum rates set forth in Section 5. 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 establishment of a dedicated financial reserve is a prudent step that is aimed at enhancing the financial resilience and sustainability of the water system. Establishing a financial reserve provides a proactive approach to mitigating potential financial risks. Operating Reserve: An Operating Reserve is essential for addressing unforeseen operational challenges that may arise, such as equipment failures, supply chain disruptions, or unexpected fluctuations in demand. Having a designated reserve for such contingencies allows for a swift response and maintains uninterrupted service delivery. As such, the Operating Reserve shall have a minimum requirement of 90 days of operating costs and a target reserve requirement of 120 days of operating costs. The Fiscal Year 2024 minimum reserve requirement is calculated to be $5,688,740, and the target reserve requirement is calculated to be $7,584,986. Capital Reserve: The reserve fund can serve as a reliable source of capital for essential projects and infrastructure upgrades. This allows for the undertaking of strategic initiatives without solely relying on external financing or imposing additional financial burdens on our ratepayers. A reserve specifically earmarked for capital expenditures ensures the timely execution of projects critical to the long-term success of our water enterprise. As such, the Capital Reserve shall have a minimum requirement of 1 year of depreciation and a target reserve requirement of the average of the five-year capital improvement program costs. The Fiscal Year 2024 minimum reserve requirement is calculated to be $2,171,607, and the target reserve requirement is calculated to be $2,938,143. Emergency Reserve: Unforeseen circumstances, such as emergency repairs, regulatory changes, or extreme weather events, can impact the operational and financial stability of our water utility. A dedicated reserve acts as a financial buffer, enabling us to address these challenges without compromising service delivery. As such, the Emergency Reserve shall have a minimum and target requirement of $1,000,000. The following defines the criteria under which a fiscal emergency may be declared, and emergency reserve funds may be accessed. The objective is to maintain financial stability, protect essential services, and uphold the fiduciary responsibilities to our stakeholders. Resolution 23-59 Page 3 of 8 DocuSign Envelope ID: 63BOC69D-1BFD-4B3F-8FDF-D6C835E73DF6 Criteria for declaring a Fiscal Emergency: 1. Revenue Shortfalls: • A fiscal emergency may be declared if there is a significant and sustained decline in revenue beyond what was forecasted or budgeted, threatening the ability to meet financial obligations and maintain essential services. 2. Unforeseen Expenditures: • The occurrence of unforeseen and extraordinary expenditures, such as emergency repairs, legal settlements, or compliance -related expenses, poses a severe financial burden on the Water Enterprise. 3. External Economic Factors: • Economic downturns or external economic factors that substantially impact the financial health of the organization, necessitating immediate action to stabilize finances. Procedure for Declaring a Fiscal: 1. Financial Analysis: • Conduct a thorough financial analysis to determine the severity and nature of the fiscal emergency. This analysis should include a review of revenue and expenditure trends, potential long-term impacts, and alternative cost -saving measures. 2. City Council Approval: • The declaration of a fiscal emergency and the use of emergency reserve funds should be subject to approval by the City Council. A special meeting may be convened if urgency dictates. 3. Communication Plan: • Develop a comprehensive communication plan to keep stakeholders informed about the fiscal emergency, the reasons for its declaration, and the proposed utilization of emergency reserve funds. Use of Emergency Reserve Funds: 1. Limited to Essential Expenditures: • Emergency reserve funds should be utilized exclusively for essential expenditures directly related to mitigating the fiscal emergency. Examples include maintaining critical infrastructure, safeguarding public health, or addressing immediate financial obligations. Resolution 23-59 Page 4 of 8 DocuSign Envelope ID: 63BOC69D-1BFD-4B3F-8FDF-D6C835E73DF6 2. Transparent Reporting: • Implement transparent reporting mechanisms to keep stakeholders informed about the use of emergency reserve funds. Regular updates should be provided to the City Council and the community, outlining the funds' allocation and the progress made in resolving the fiscal emergency. 3. Replenishment Plan: • Develop a plan for replenishing the emergency reserve funds once the fiscal emergency has been addressed. This may involve identifying strategies for increasing revenues or implementing cost - saving measures to rebuild the reserve over a defined period. Rate Stabilization Reserve: A well -managed financial reserve contributes to rate stability by absorbing fluctuations in operating costs. Instead of passing immediate cost increases on to our customers, the reserve can be utilized to bridge temporary gaps, smoothing out the impact on water rates. This approach fosters predictability for our ratepayers while maintaining the financial health of the water enterprise. As such, the Rate Stabilization Reserve shall have a minimum requirement of 5% of Rate Revenue and a target reserve requirement of 10% of Rate Revenue. The Fiscal Year 2024 minimum reserve requirement is calculated to be $1,063,300, and the target reserve requirement is calculated to be $2,126,600. SECTION 5. The variable water usage charge and fixed service charge are hereby established as follows: Bi-Monthly Commodity/Variable Water Usage Charge AL Sol l � � MIKA Bi-Monthly Potable Water Usage Charges ($/unit) ***1 unit = 100 cubic feet (hcf) = 748 gallons*** Per Unit $3.57 $3.90 $4.26 $4.65 $5.07 Bi-Monthly Fixed Service Charge FY 2024 0jY 202MMY 2026 FY 202711W 2028 Effective � 1/1/2024 1/20 �/1/2026 1/1/2027,�/1/2028 Date Fixed Service Charges Resolution 23-59 Page 5 of 8 DocuSign Envelope ID: 63BOC69D-1BFD-4B3F-8FDF-D6C835E73DF6 11/2" $196.73 $214.44 • $233.74 FY 2027 $254.78 FY 2028 $277.72 2" $306.98 $334.61 $364.73 $397.56 $433.35 3" $656.11 $715.16 $779.53 $849.69 $926.17 4" $1,115.48 $1,215.88 $1,325.31 $1,444.59 $1,574.61 6" $2,493.61 $2,718.03 $2,962.66 $3,229.30 $3,519.94 8" $5,157.98 $5,622.20 $6,128.20 $6,679.74 $7,280.92 10" $7,730.48 $8,426.23 $9,184.60 $10,011.22 $10,912.23 Per Additional Dwelling Unit Charge $12.98 $14.15 $15.43 $16.82 $18.34 Bi-Monthly Private Fire Protection Service Charge - .- Fire Protection Services Fireline Size 4" $10.60 $11.56 $12.61 $13.75 $14.99 5" $13.25 $14.45 $15.76 $17.18 $18.73 6" $15.90 $17.34 $18.91 $20.62 $22.48 8" $21.20 $23.11 $25.19 $27.46 $29.94 10" $26.50 $28.89 $31.50 $34.34 $37.44 12" $31.80 $34.67 $37.80 $41.21 $44.92 Passthrough Charge The passthrough charge is a targeted mechanism designed to account for specific costs directly associated with external factors that impact the Water Enterprise's operational expenses. This charge will be separate from the standard water rate structure and will be applied only when triggered by predefined circumstances, ensuring transparency and accountability in our financial management. Implementation Process, Justifications, and Triggering Events: 1. Council Review: • The passthrough charge will not require a public hearing or any additional action by the City Council. The passthrough charge Resolution 23-59 Page 6 of 8 DocuSign Envelope ID: 63BOC69D-1BFD-4B3F-8FDF-D6C835E73DF6 mechanism will undergo regular reviews to assess its continued relevance and effectiveness. Any adjustments or modifications deemed necessary will be communicated to the City Council and the community in a timely manner. 2. Escalating External Costs: • The passthrough charge will be triggered in response to escalating external costs beyond our control, such as significant increases in energy prices, imported/purchased water from The Metropolitan Water District of Southern California (MWD) through the East Orange County Water District (EOCWD), or replenishment assessment charges paid to the Orange County Water District (OCWD) for pumping groundwater. Should the water supply costs significantly increase in excess of the amounts identified in the COS, the Water Enterprise may implement the passthrough charge. 3. Cost Transparency: • This charge is intended to provide transparency to our ratepayers by clearly identifying and isolating specific external costs. By separating these costs from the standard water rates, we aim to foster a better understanding among our customers regarding the factors influencing rate adjustments. 3. Increase amount: • Any increase in the rates from any passthrough charge shall not exceed 10 percent per year. In no event shall the rates be increased by more than the cost incurred. 4. Clear Communication: • At least 30 days before implementing the passthrough charge, clear communication will be disseminated to the customers, outlining the purpose, triggering events, and the expected impact on water rates. This communication will ensure transparency and provide ratepayers with the necessary information to understand the reasons behind the passthrough charge. PASSED AND ADOPTED at a regular meeting of the City Council held on the 5th day of December 2023. AUSTIN LUMBARD, Mayor Resolution 23-59 Page 7 of 8 DocuSign Envelope ID: 63BOC69D-1BFD-4B3F-8FDF-D6C835E73DF6 ATTEST: ERICA N. YASUDA, City Clerk APPROVED AS TO FORM: DocuSigned by: DA 8�F3('EIgDIG, City Attorney 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. 23-59 was duly passed and adopted at a regular meeting of the Tustin City Council, held on the 5th day of December 2023, by the following vote: COUNCILMEMBER AYES: COUNCILMEMBER NOES: COUNCILMEMBER ABSTAINED: COUNCILMEMBER ABSENT: COUNCILMEMBER RECUSED: ERICA N. YASUDA, City Clerk Resolution 23-59 Page 8of8 DocuSign Envelope ID: 63BOC69D-1 BFD-4B3F-8FDF-D6C835E73DF6 About the Rate Adjustment The City is proposing a revenue adjustment of 9% per year from Fiscal Year 2024 through Fiscal Year 2028. If adopted, the new rates will be implemented on January 1st of each year from 2024 through 2028. Tustin Water Service's rates are based on the actual cost of providing water services to our customers. The basis for the proposed rates is detailed in the Cost -of -Service Study, available on the City's website (www.tustinca.org/water-rates). Why is a Rate Adjustment Needed? Historically, the City is fortunate to receive most of its water from local groundwater aquifers. However, due to new State drinking water standards related to per— and poly-fluoroalkyl substances (PFAS), the City has had to turn off several groundwater wells and replace that water supply with imported water from distant and substantially more expensive sources like the Colorado River and the State Water Project. Construction is underway on a new water treatment plant that will treat the PFAS in our local groundwater supply. The proposed adjustment in water rates will ensure that Tustin Water Service is financially stable and able to continue investing in future infrastructure projects that support the City's mission to deliver high -quality and reliable water to the Tustin community. These projects allow the City to: replace aging infrastructure, optimize investment in local water supplies, deliver high -quality drinking water, and prepare for emergencies. The City has been working with the Orange County Water District (OCWD), Orange County's groundwater authority, to construct a new PFAS treatment plant. This plant is scheduled to be completed in the summer/fall of 2024. Once completed, the City will be able to turn on groundwater wells and reduce its reliance on imported water. The water rate model has already factored in this change in water supplies starting in Fiscal Year 2025 and has incorporated it into the revenue adjustments. OCWD is funding the construction of the new PFAS treatment plant, which is projected to cost roughly $19 million. However, the cost to fund this and other similar treatment plants throughout the Orange County groundwater basin has increased the groundwater basin replenishment assessment (RA). The City pays the RA to OCWD for water that it pumps out of the local wells, which has increased by 28% over the last 5 years. At the same time, Tustin Water also experienced increases in other expenses associated with energy, labor, as well as inflation adjustments. Bi-Monthly Commodity/Variable Water Usage Charge This charge is applied to a customer's bill per 100 cubic feet (HCF), 748 gallons, or unit of water consumed. The average single-family residential (SFR) customer in the Tustin Water Service area uses approximately 36 units of water on a bi- monthly basis. The sample calculation for the average SFR customer for FY 2024 after January 1, 2024: 36 units X $3.57 = $128.52 Bi-Monthly Potable Water Usage Charges ($/unit) ***1 unit = 100 cubic feet (hcf) = 748 gallons*** Per Unit $3.24 $3.57 $3.90 $4.26 1 $4.65 $5.07 Bi-Monthly Fixed Service Charge The bi-monthly fixed service charges are used to pay for operations and maintenance costs, including water infrastructure enhancements and replacements. The charge is based on the size of your meter. Bi-Monthly Fixed Service Charges Meter Size 5/8" or 3/4" $46.03 $49.73 $54.21 $59.09 $64.41 $70.21 1" $97.03 $104.86 $114.30 $124.59 $135.81 $148.04 11/2" $182.04 $196.73 $214.44 $233.74 $254.78 $277.72 Page 1 of 4 DocuSign Envelope ID: 63BOC69D-1BFD-4B3F-8FDF-D6C835E73DF6 11111969WNT11-1 2" $284.06 $306.98 $334.61 $364.73 $397.56 $433.35 3" 76" $607.09 $656.11 $715.16 $779.53 $849.69 $926.17 4 " $1,083.15 $1,115.48 $1,215.88 $1,325.31 $1,444.59 $1,574.61 $2,392.30 $2,493.61 $2,718.03 $2,962.66 $3,229.30 $3,519.94 8" $4,092.51 $5,157.98 $5,622.20 $6,128.20 $6,679.74 $7,280.92 10" $6,472.79 $7,730.48 $8,426.23 $9,184.60 $10,011.22 $10,912.23 Per Additional Dwelling Unit Charge $12.02 $12.98 $14.15 $15.43 $16.82 $18.34 The dwelling unit charges are assessed to customers who have more than one dwelling unit. Bi-Monthly Private Fire Protection Service Charge Private firelines provide water to sprinkler systems and private fire hydrants for fire suppression on private property. These include fire protection systems, such as fire protection sprinklers and private fire hydrants that are not a part of, but are connected to, the public water service. Costs are billed to the customers owning the private fire protection systems based on the fireline's size. Current FY 2024 T720251 12028 Effective Date 1 1 1 16 11/1/2028 Fire Protection Services Fireline Size 4" $21.65 $10.60 $11.56 $12.61 $13.75 $14.99 5" $27.05 $13.25 $14.45 $15.76 $17.18 $18.73 6" $32.46 $15.90 $17.34 $18.91 $20.62 $22.48 8" $43.28 $21.20 $23.11 $25.19 $27.46 $29.94 10" $54.11 $26.50 $28.89 $31.50 $34.34 $37.44 12" $64.92 $31.80 $34.67 $37.80 $41.21 $44.92 Automatic Pass -Through Adjustments The City used its best available information to calculate the proposed increases in: • Cost of imported water purchased from The Metropolitan Water District of Southern California (MWD) through the East Orange County Water District (EOCWD) • Replenishment assessment charges paid to OCWD for pumping groundwater. The City has no control over the charges set by third -party regional agencies (MWD, EOCWD, OCWD, etc.). If those charges or fees increase or decrease, the City of Tustin Water Service must pass those costs on directly to its customers. In the event those agencies adopt an increase or decrease in charges, the City may automatically recalculate its rates to include the pass -through amount. If this occurs, the automatic water rate adjustment will not require a public hearing or any additional action by the City Council. The City may implement a pass -through adjustment through FY 2028, provided that (1) any increase in the rates from any pass -through adjustment shall not exceed 10 percent per year; (2) in no event shall the rates be increased by more than the cost incurred; and (3) the City will provide its customers with notice of the expected pass -through adjustments at least 30 days before the effective date of the adjustment. Impact of Proposed Rates for Fiscal Year 2024 The effective date of the proposed water rates for Fiscal Year 2024 is January 1, 2024. The chart below illustrates sample bi-monthly bills for single-family residential (SFR) customers with 5/8" or 3/4" size meters with consumption through 100 units. The average single-family residential customer uses 36 units on a bi-monthly basis. The formula below can be used to calculate the new bi-monthly water bill for the fiscal year 2024 or you can use the calculator on the City's website (www.tustinca.org/water-bill-calculator): Page 2 of 4 DocuSign Envelope ID: 63BOC69D-1BFD-4B3F-8FDF-D6C835E73DF6 Commodity Charge: # units X $3.57 Fixed Charge: (5/8" meter size) = $49.73 Sample Calculation: 36 units of bi-monthly consumption Commodity charge: 36 units X $3.57 = $128.52 Fixed charge: $49.73 Total bi-monthly bill: $128.52 + $49.73 = $178.25 $450.00 $400.00 $350.00 m $300.00 $250.00 o $200.00 m $150.00 $100.00 $50.00 $0.00 Single -Family Customer Bills at Different Consumptions i 0 10 20 30 40 50 60 70 80 90 100 Bi-Monthly Consumption PUBLIC HEARING REGARDING PROPOSED WATER RATES FOR ALL PROPERTIES SERVED WITHIN THE 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 adjustment on December 5, 2023, at 7 p.m., in the City Council Chambers located at 300 Centennial Way, Tustin, CA. If approved by the City Council, the fees and charges will be effective January 1, 2024. 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 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 2024. How to Protest 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 to all property owners within the service area based on the current information published by the Orange County Assessor. 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 December 5, 2023, at 7 p.m. Written protests can be mailed or personally delivered to: Page 3 of 4 DocuSign Envelope ID: 63BOC69D-1BFD-4B3F-8FDF-D6C835E73DF6 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 or name of property owner; 2. Service address or Assessor parcel number (APN); 3. A statement of protest ("I protest" will suffice); and 4. 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 submitted protests and exclude any invalid ones from the final tabulation. The City Clerk may confer with the City Attorney to determine the written protests' validity. The City Attorney may review contested or suspected protest forms as part of this process. 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 that reasonably demonstrate that the protest has been tampered with or is otherwise invalid; and/or 7. The purported protest is received later than the close of the public hearing on December 5, 2023. Pursuant to Government Code Section § 53759, there is a 120-day statute of limitations for any judicial action or proceeding challenging any new, increased, or extended water fee or charge. 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) 573-3099 or email us at waterrates(Otustinca. orp. Si necesita una copia de este documento en espanol por favor de Ilamar al (714) 573-3025. Si tiene preguntas sobre las tarifas del agua, comuniquese con Servicios de Facturacion de Agua al (714) 573-3099 o envienos un correo electronico a waterrates(@tustinca.org. Para leer informacion sobre el ajuste al costo de agua en espanol, por favor visite la pagina: www.tustinca.org/water-rates-spanish. Get Involved The City of Tustin is committed to proactive, two-way communication throughout the rate adjustment process to maximize awareness and minimize public uncertainty. 0 0 In advance of the public hearing meeting, you can attend the community meeting that will be held in the Clifton C. Miller Community Center on November 1, 2023, from 5:30 to 7 p.m. Call the hotline for more information at (714) 573-3099 ® Email our staff at waterratesCa)tustinca.org VISIT OUR WEBSITE VISITA NUESTRO SITIO WEB Page 4 of 4 DocuSign Envelope ID: 63BOC69D-1BFD-4B3F-8FDF-D6C835E73DF6 RESOLUTION NO. 23-59 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 IB Consulting, LLC., 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 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 five years and is proposed to take effect on January 1, 2024, and to increase each January 1 thereafter through and including January 1, 2028; 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 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 Resolution 23-59 Page 1 of 8 DocuSign Envelope ID: 63BOC69D-1BFD-4B3F-8FDF-D6C835E73DF6 WHEREAS, on October 20, 2023, 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 December 5, 2023 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 December 5, 2023, 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 January 1, 2024, at the rates and subject to increases on the dates set forth in the schedule in Section 5; 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 5. Resolution 23-59 Page 2 of 8 DocuSign Envelope ID: 63BOC69D-1BFD-4B3F-8FDF-D6C835E73DF6 SECTION 3. The new fee schedule for water services shall be implemented beginning January 1, 2024, and shall be increased on January 1 annually thereafter, up to the maximum rates set forth in Section 5. 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 establishment of a dedicated financial reserve is a prudent step that is aimed at enhancing the financial resilience and sustainability of the water system. Establishing a financial reserve provides a proactive approach to mitigating potential financial risks. Operating Reserve: An Operating Reserve is essential for addressing unforeseen operational challenges that may arise, such as equipment failures, supply chain disruptions, or unexpected fluctuations in demand. Having a designated reserve for such contingencies allows for a swift response and maintains uninterrupted service delivery. As such, the Operating Reserve shall have a minimum requirement of 90 days of operating costs and a target reserve requirement of 120 days of operating costs. The Fiscal Year 2024 minimum reserve requirement is calculated to be $5,688,740, and the target reserve requirement is calculated to be $7,584,986. Capital Reserve: The reserve fund can serve as a reliable source of capital for essential projects and infrastructure upgrades. This allows for the undertaking of strategic initiatives without solely relying on external financing or imposing additional financial burdens on our ratepayers. A reserve specifically earmarked for capital expenditures ensures the timely execution of projects critical to the long-term success of our water enterprise. As such, the Capital Reserve shall have a minimum requirement of 1 year of depreciation and a target reserve requirement of the average of the five-year capital improvement program costs. The Fiscal Year 2024 minimum reserve requirement is calculated to be $2,171,607, and the target reserve requirement is calculated to be $2,938,143. Emergency Reserve: Unforeseen circumstances, such as emergency repairs, regulatory changes, or extreme weather events, can impact the operational and financial stability of our water utility. A dedicated reserve acts as a financial buffer, enabling us to address these challenges without compromising service delivery. As such, the Emergency Reserve shall have a minimum and target requirement of $1,000,000. The following defines the criteria under which a fiscal emergency may be declared, and emergency reserve funds may be accessed. The objective is to maintain financial stability, protect essential services, and uphold the fiduciary responsibilities to our stakeholders. Resolution 23-59 Page 3 of 8 DocuSign Envelope ID: 63BOC69D-1BFD-4B3F-8FDF-D6C835E73DF6 Criteria for declaring a Fiscal Emergency: 1. Revenue Shortfalls: • A fiscal emergency may be declared if there is a significant and sustained decline in revenue beyond what was forecasted or budgeted, threatening the ability to meet financial obligations and maintain essential services. 2. Unforeseen Expenditures: • The occurrence of unforeseen and extraordinary expenditures, such as emergency repairs, legal settlements, or compliance -related expenses, poses a severe financial burden on the Water Enterprise. 3. External Economic Factors: • Economic downturns or external economic factors that substantially impact the financial health of the organization, necessitating immediate action to stabilize finances. Procedure for Declaring a Fiscal: 1. Financial Analysis: • Conduct a thorough financial analysis to determine the severity and nature of the fiscal emergency. This analysis should include a review of revenue and expenditure trends, potential long-term impacts, and alternative cost -saving measures. 2. City Council Approval: • The declaration of a fiscal emergency and the use of emergency reserve funds should be subject to approval by the City Council. A special meeting may be convened if urgency dictates. 3. Communication Plan: • Develop a comprehensive communication plan to keep stakeholders informed about the fiscal emergency, the reasons for its declaration, and the proposed utilization of emergency reserve funds. Use of Emergency Reserve Funds: 1. Limited to Essential Expenditures: • Emergency reserve funds should be utilized exclusively for essential expenditures directly related to mitigating the fiscal emergency. Examples include maintaining critical infrastructure, safeguarding public health, or addressing immediate financial obligations. Resolution 23-59 Page 4 of 8 DocuSign Envelope ID: 63BOC69D-1BFD-4B3F-8FDF-D6C835E73DF6 2. Transparent Reporting: • Implement transparent reporting mechanisms to keep stakeholders informed about the use of emergency reserve funds. Regular updates should be provided to the City Council and the community, outlining the funds' allocation and the progress made in resolving the fiscal emergency. 3. Replenishment Plan: • Develop a plan for replenishing the emergency reserve funds once the fiscal emergency has been addressed. This may involve identifying strategies for increasing revenues or implementing cost - saving measures to rebuild the reserve over a defined period. Rate Stabilization Reserve: A well -managed financial reserve contributes to rate stability by absorbing fluctuations in operating costs. Instead of passing immediate cost increases on to our customers, the reserve can be utilized to bridge temporary gaps, smoothing out the impact on water rates. This approach fosters predictability for our ratepayers while maintaining the financial health of the water enterprise. As such, the Rate Stabilization Reserve shall have a minimum requirement of 5% of Rate Revenue and a target reserve requirement of 10% of Rate Revenue. The Fiscal Year 2024 minimum reserve requirement is calculated to be $1,063,300, and the target reserve requirement is calculated to be $2,126,600. SECTION 5. The variable water usage charge and fixed service charge are hereby established as follows: Bi-Monthly Commodity/Variable Water Usage Charge AL Sol l � � MIKA Bi-Monthly Potable Water Usage Charges ($/unit) ***1 unit = 100 cubic feet (hcf) = 748 gallons*** Per Unit $3.57 $3.90 $4.26 $4.65 $5.07 Bi-Monthly Fixed Service Charge FY 2024 0jY 202MMY 2026 FY 202711W 2028 Effective � 1/1/2024 1/20 �/1/2026 1/1/2027,�/1/2028 Date Fixed Service Charges Resolution 23-59 Page 5 of 8 DocuSign Envelope ID: 63BOC69D-1BFD-4B3F-8FDF-D6C835E73DF6 11/2" $196.73 $214.44 • $233.74 FY 2027 $254.78 FY 2028 $277.72 2" $306.98 $334.61 $364.73 $397.56 $433.35 3" $656.11 $715.16 $779.53 $849.69 $926.17 4" $1,115.48 $1,215.88 $1,325.31 $1,444.59 $1,574.61 6" $2,493.61 $2,718.03 $2,962.66 $3,229.30 $3,519.94 8" $5,157.98 $5,622.20 $6,128.20 $6,679.74 $7,280.92 10" $7,730.48 $8,426.23 $9,184.60 $10,011.22 $10,912.23 Per Additional Dwelling Unit Charge $12.98 $14.15 $15.43 $16.82 $18.34 Bi-Monthly Private Fire Protection Service Charge - .- Fire Protection Services Fireline Size 4" $10.60 $11.56 $12.61 $13.75 $14.99 5" $13.25 $14.45 $15.76 $17.18 $18.73 6" $15.90 $17.34 $18.91 $20.62 $22.48 8" $21.20 $23.11 $25.19 $27.46 $29.94 10" $26.50 $28.89 $31.50 $34.34 $37.44 12" $31.80 $34.67 $37.80 $41.21 $44.92 Passthrough Charge The passthrough charge is a targeted mechanism designed to account for specific costs directly associated with external factors that impact the Water Enterprise's operational expenses. This charge will be separate from the standard water rate structure and will be applied only when triggered by predefined circumstances, ensuring transparency and accountability in our financial management. Implementation Process, Justifications, and Triggering Events: 1. Council Review: • The passthrough charge will not require a public hearing or any additional action by the City Council. The passthrough charge Resolution 23-59 Page 6 of 8 DocuSign Envelope ID: 63BOC69D-1BFD-4B3F-8FDF-D6C835E73DF6 mechanism will undergo regular reviews to assess its continued relevance and effectiveness. Any adjustments or modifications deemed necessary will be communicated to the City Council and the community in a timely manner. 2. Escalating External Costs: • The passthrough charge will be triggered in response to escalating external costs beyond our control, such as significant increases in energy prices, imported/purchased water from The Metropolitan Water District of Southern California (MWD) through the East Orange County Water District (EOCWD), or replenishment assessment charges paid to the Orange County Water District (OCWD) for pumping groundwater. Should the water supply costs significantly increase in excess of the amounts identified in the COS, the Water Enterprise may implement the passthrough charge. 3. Cost Transparency: • This charge is intended to provide transparency to our ratepayers by clearly identifying and isolating specific external costs. By separating these costs from the standard water rates, we aim to foster a better understanding among our customers regarding the factors influencing rate adjustments. 3. Increase amount: • Any increase in the rates from any passthrough charge shall not exceed 10 percent per year. In no event shall the rates be increased by more than the cost incurred. 4. Clear Communication: • At least 30 days before implementing the passthrough charge, clear communication will be disseminated to the customers, outlining the purpose, triggering events, and the expected impact on water rates. This communication will ensure transparency and provide ratepayers with the necessary information to understand the reasons behind the passthrough charge. PASSED AND ADOPTED at a regular meeting of the City Council held on the 5th day of December 2023. AUSTIN LUMBARD, Mayor Resolution 23-59 Page 7 of 8 DocuSign Envelope ID: 63BOC69D-1BFD-4B3F-8FDF-D6C835E73DF6 ATTEST: ERICA N. YASUDA, City Clerk APPROVED AS TO FORM: DocuSigned by: DA 8�F3('EIgDIG, City Attorney 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. 23-59 was duly passed and adopted at a regular meeting of the Tustin City Council, held on the 5th day of December 2023, by the following vote: COUNCILMEMBER AYES: COUNCILMEMBER NOES: COUNCILMEMBER ABSTAINED: COUNCILMEMBER ABSENT: COUNCILMEMBER RECUSED: ERICA N. YASUDA, City Clerk Resolution 23-59 Page 8of8 DocuSign Envelope ID: 63BOC69D-1BFD-4B3F-8FDF-D6C835E73DF6 Public Hearing December 5, 2023 FY 2024 Cost -of -Service F Tustin Water Services �N C O N S U L T I N G DocuSign Envelope ID: 63BOC69D-1BFD-4B3F-8FDF-D6C835E73DF6 City of Tustin—fY2024 Cost -of -Service Rate Study TABLE OF CONTENTS ExecutiveSummary.................................................................................................................5 Background.............................................................................................................................. 8 Financial Plan Overview.........................................................................................................11 Proposed Financial Plan........................................................................................................23 Cost -of -Service Analysis........................................................................................................28 RateDesign........................................................................................................................... 36 FY 2024 Cost -of -Service Rates..............................................................................................42 Cost -Based Rates..................................................................................................................44 Multi -Year Rate Schedules....................................................................................................45 Appendix A — Water Supply Cost Analysis.............................................................................47 Page 12 13 C O N S U L T I N G DocuSign Envelope ID: 63BOC69D-1BFD-4B3F-8FDF-D6C835E73DF6 City of Tustin—fY2024 Cost -of -Service Rate Study TARI FC Table 1: Proposed Bi-Monthly Meter Service Charges.............................................................6 Table 2: Proposed Bi-Monthly Additional Dwelling Unit Charge...............................................6 Table 3: Proposed Bi-Monthly Fire Line Service Charges........................................................ 7 Table 4: Proposed Consumption Charge.................................................................................7 Table 5: Accounts by Meter Size..............................................................................................9 Table 6: FY 2023 Bi-Monthly Fixed Charges..........................................................................10 Table 7: FY 2023 Bi-Monthly Fire Line Service Charges........................................................10 Table 8: FY 2023 Consumption Charge.................................................................................10 Table 9: Assumptions for Forecasting Revenues...................................................................12 Table 10: FY 2024 through FY 2028 Accounts.......................................................................13 Table 11: FY 2024 through FY 2028 Projected Consumption................................................13 Table 12: Assumptions for Forecasting Expense...................................................................14 Table 13: Calculated Rate Revenues.....................................................................................14 Table14: Projected Revenues...............................................................................................15 Table 15: Projected Water Supply Costs................................................................................15 Table 16: Projected O&M Expenses......................................................................................16 Table 17: Reserve Requirements and Targets.......................................................................17 Table 18: Financial Plan at Existing Rates.............................................................................19 Table 19: Transfers & Reserve Activity at Existing Rates.......................................................20 Table 20: Proposed Financial Plan........................................................................................24 Table 21: Proposed Transfers & Reserve Activity.................................................................. 25 Table 22: FY 2024 — FY 2028 Revenue Requirements.......................................................... 29 Table 23: Water Supply Cost Allocation to Cost Components (%)......................................... 31 Table 24: Water Supply Cost Allocation to Cost Components ($) ........................................... 31 Table 25: Fire Flow Requirement within City's Service Area .................................................. 31 Table 26: Fire Flow Demand as Percentage of Max Day and Max Hour ................................ 32 Table 27: System Demand Allocations Between Delivery and FFD.......................................32 Table 28: Operating Expense Allocation to Cost Components(%).........................................33 Table 29: Operating Expense Allocation to Cost Components($)..........................................33 Table 30: Debt Service Allocation to Cost Components(%)...................................................33 Table 31: Debt Service Allocation to Cost Components($)....................................................34 Table 32: Other Funding to Cost Components(%).................................................................34 Table 33: Other Funding Allocation to Cost Components ($).................................................34 Table 34: FY 2024 Cost -of -Service Requirements by Cost Component.................................35 Table 35: Accounts and Meter Equivalents............................................................................ 36 Table 36: Additional Dwelling Units........................................................................................37 Table37: Units of Service......................................................................................................37 Table 38: Fire Flow Demand Units of Service........................................................................ 38 Table 39: FY 2024 Account Services Bi-Monthly Unit Rate....................................................39 Table 40: FY 2024 Meter Capacity Bi-Monthly Unit Rate.......................................................40 Table 41: FY 2024 Fire Flow Demand Revenue Requirement Allocation...............................40 Table 42: FY 2024 Public Fire Flow Demand Bi-Monthly Unit Rate........................................40 Table 43: FY 2024 Dedicated Fire Line Bi-Monthly Unit Rate per Diameter Inch ...................41 Table 44: FY 2024 Water Supply Unit Rate...........................................................................41 Page 13 DocuSign Envelope ID: 63BOC69D-1BFD-4B3F-8FDF-D6C835E73DF6 City of Tustin—fY2024 Cost -of -Service Rate Study Table 45: FY 2024 Delivery Unit Rate....................................................................................41 Table 46: FY 2024 Bi-Monthly Meter Service Charges...........................................................42 Table 47: FY 2024 Bi-Monthly Additional Dwelling Unit Charge.............................................42 Table 48: FY 2024 Bi-Monthly Fire Line Service Charges......................................................43 Table 49: FY 2024 Proposed Consumption Charge($/hcf)....................................................43 Table 50: FY 2024 — FY 2028 Proposed Bi-Monthly Meter Service Charges .........................45 Table 51: FY 2024 — FY 2028 Proposed Bi-Monthly Additional Dwelling Unit Charge ............ 45 Table 52: FY 2024 — FY 2028 Proposed Bi-Monthly Fire Line Service Charges.....................46 Table 53: FY 2024 — FY 2028 Proposed Consumption Charge..............................................46 Table 54: FY 2024 — FY 2028 Projected Purchased Water Costs..........................................48 FIGURES Figure1: Water System...........................................................................................................8 Figure 2: Capital Improvement Plan.........................................................................................9 Figure 3: Financial Plan Key Elements...................................................................................11 Figure 4: Water Enterprise Reserves.....................................................................................17 Figure 5: Current Operating Financial Position.......................................................................21 Figure 6: Projected Ending Reserves at Existing Rates.........................................................22 Figure 7: Proposed Operating Position..................................................................................26 Figure 8: Capital Improvement Plan with Funding Sources....................................................26 Figure 9: Proposed Ending Balances of All Reserves............................................................ 27 Figure 10: Cost -of -Service Process.......................................................................................28 Figure11: Cost Components................................................................................................. 30 Figure 12: Distribution Basis and Units of Service by Cost Component..................................39 Page 14 13 C O N S U L T I N G DocuSign Envelope ID: 63BOC69D-1BFD-4B3F-8FDF-D6C835E73DF6 City of Tustin-fY2024 Cost -of -Service Rate Study Executive Summary The City of Tustin Water Service (City) periodically reviews its rates to determine if adjustments are required to continue meeting its operational costs, system improvements, and adequate reserve funding based on the adopted reserve policies. The City most recent 5-year rate schedule was adopted in January 2020, which set rates through Fiscal Year 2023-2024 (FY 2024). Since that time, the State Water Resources Control Board (SWRCB), Division of Drinking Water updated its monitoring and safety limits of polyfluoroalkyl substances (PFAS) in groundwater. PFAS are a group of thousands of chemicals that are used to make carpets, clothing, fabrics for furniture, food packaging, cookware, and other materials to make them non-stick and/or resistant to water, oil, and stains. The City owns and operates groundwater wells that are impacted with PFAS. The City elected to shut down all groundwater sources that were operating at or near the SWRCB regulatory levels. Concurrently, the City partnered with Orange County Water District (OCWD), in constructing a water treatment plant to address the PFAS detected. Due to the shutdown of City groundwater wells, the City water supplies adjusted from a planned 95% groundwater / 5% imported water supply to approximately 50% groundwater / 50% imported water supply since February 2021. Imported water is substantially more expensive than local groundwater and has caused the City to incur millions of dollars in additional water supply costs. The City absorbed most of these costs through reserves and a general fund loan but can no longer absorb these costs with the previously approved rates for FY 2024. Therefore, the City hired IB Consulting to conduct a comprehensive cost -of -service analysis to establish rates for the utility systems for the 5-year period starting in FY 2024 through FY 2028 (Rate Setting Period). The City's water utility is a separate business enterprise from the General Fund that collects revenues primarily through user fees (rates and charges) to cover all the utility's revenue requirements (expenses including reserve funding). Water rates are designed to fully fund the utility and ensure that each customer pays their fair share of their total use of the water system. This Cost -of -Service Study is intended to (1) establish the total projected cost of the water utility over a five-year period (the financial plan); and (2) allocate those costs among customers in a way that ensures that each customer pays its fair share of those costs in compliance with California Constitution Article XIII D, section 6, also known as Proposition 218 (the rate structure). Updating a utility's long-term financial plan and performing a comprehensive cost -of -service analysis is a prudent business practice to ensure a utility can fully fund its multi -year revenue requirements. As part of reviewing and updating utility rates, the first step is to conduct a thorough review of the utility's financial health. Based on a 5-year financial plan, revenues from existing rates are reviewed to determine if current rate revenue sufficiently covers operating expenses, capital spending and satisfies minimum reserve requirements. With financial planning, it is critical to not only look at the short-term needs but also review the revenue requirements beyond FY 2024. This approach ensures that the City plans for future obligations and clearly understands its current financial position. Based on a financial review, the water utility is projected to end FY 2024 with an operating deficit of $1.5M, which will grow to approximately $5.1 M by FY 2028. Separate from operating expenses, planned capital projects over the next five years total $18M of which approximately $4M will be funded from loan proceeds. Reserves are below the minimum reserve requirements in FY 2024 and fully depleted by FY 2027. Therefore, Page 15 (; O\ S l 1. T I \ (� DocuSign Envelope ID: 63BOC69D-1BFD-4B3F-8FDF-D6C835E73DF6 City of Tustin-fY2024 Cost -of -Service Rate Study the proposed financial plan generates additional rate revenue that is phased in over the Rate Setting Period to 1) generate positive net income starting in FY 2025, 2) fund the water utility's Capital Improvement Plan (CIP), and 3) ensure reserves satisfy the minimum requirement by FY 2028. The water rate structure includes a bi-monthly fixed charge by meter size, a bi-monthly additional dwelling unit charge for accounts with more than one dwelling unit (DU), dedicated fire line charges by connection size, and a uniform consumption charge per hundred cubic feet (hcf)'. The updated cost -of -service recovers approximately 34% of total revenue through its bi-monthly fixed charges. The proposed rates reflect an updated cost -of -service analysis that identifies which expenses are recovered through the bi-monthly meter charges versus the uniform consumption charge. The proposed rates derived within this report are for FY 2024, commencing on January 1, 2024, through FY 2028. The recommended rates have been incorporated into a mailed notice to each customer as part of the Proposition 218 noticing requirements. A Public Hearing is scheduled for December 5, 2023, on the proposed rates identified in Table 1 through Table 4. Table 1: Proposed Bi-Monthly Meter Service Charges Meter Size FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 <_3/4" $49.73 $54.21 $59.09 $64.41 $70.21 1" $104.86 $114.30 $124.59 $135.81 $148.04 11/2" $196.73 $214.44 $233.74 $254.78 $277.72 2" $306.98 $334.61 $364.73 $397.56 $433.35 3" $656.11 $715.16 $779.53 $849.69 $926.17 4" $1,115.48 $1,215.88 $1,325.31 $1,444.59 $1,574.61 6" $2,493.61 $2,718.03 $2,962.66 $3,229.30 $3,519.94 8" $5,157.98 $5,622.20 $6,128.20 $6,679.74 $7,280.92 10" $7,730.48 $8,426.23 $9,184.60 $10,011.22 $10,912.23 Table 2: Proposed Bi-Monthly Additional Dwelling Unit Charge Dwelling Unit Charge FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 Additional Dwelling Units ' 1 hcf = 748.05 gallons C O\ 5 l I. T I \ (" $12.98 $14.15 $15.43 $16.82 $18.34 Page 16 DocuSign Envelope ID: 63BOC69D-1BFD-4B3F-8FDF-D6C835E73DF6 City of Tustin-FY2024 Cost -of -Service Rate Study Table 3: Proposed Bi-Monthly Fire Line Service Charges Connection Size FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 4" $10.60 $11.56 $12.61 $13.75 $14.99 5" $13.25 $14.45 $15.76 $17.18 $18.73 6" $15.90 $17.34 $18.91 $20.62 $22.48 8" $21.20 $23.11 $25.19 $27.46 $29.94 10" $26.50 $28.89 $31.50 $34.34 $37.44 12" $31.80 $34.67 $37.80 $41.21 $44.92 Table 4: Proposed Consumption Charge Consumption Cha•- $ C ustomer C lass FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 All Customers $3.57 $3.90 $4.26 $4.65 $5.07 Page 17 I 3-,,c ONSULT1NG DocuSign Envelope ID: 63BOC69D-1BFD-4B3F-8FDF-D6C835E73DF6 City of Tustin—fY2024 Cost -of -Service Rate Study Background Water System The City is located in central Orange County and spans 11 square miles. The City is adjacent to the Cities of Irvine, Orange, Santa Ana, and unincorporated areas of Orange County. The City provides water to its customers from local groundwater wells and imported water from the Metropolitan Water District of Southern California (MWD) via the East Orange County Water District (EOCWD). The City operates 9 active groundwater wells, six reservoirs and has approximately 183 miles of water mains, serving a population of approximately 66,600 customers. Figure 1: Water System The water system's capital spending will average approximately $3.6M annually over the Rate Setting Period. Figure 2 shows the capital repair and replacement plan through FY 2028 with funding sources. As shown in the figure, besides rates, the City also has remaining debt proceeds and other one-time funding sources, including grants and the sale of single-family residence that was purchased to allow reconstruction of a water storage reservoir that was completed in 2022. Page 18 C ONSULTING DocuSign Envelope ID: 63BOC69D-1BFD-4B3F-8FDF-D6C835E73DF6 City of Tustin-FY2024 Cost -of -Service Rate Study Figure 2: Capital Improvement Plan FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 Debt Funded ® Other Funding ■ Rate/Reserve Funded • Total CIP Customers The City serves 14,149 active accounts. Table 5 provides a summary of accounts by meter size. Table 5: Accounts by Meter Size Meter Size Number of Accounts <3/4" 9,907 1" 3,189 1 1/2" 374 2" 597 3" 22 4" 45 6" 14 8" 1 10" 0 Tota 1 14,149 Page 19 (; O\ S l I. T I \ �; DocuSign Envelope ID: 63BOC69D-1BFD-4B3F-8FDF-D6C835E73DF6 City of Tustin-FY2024 Cost -of -Service Rate Study As previously mentioned, the existing rate structure consists of bi-monthly fixed meter charges, a bi-monthly additional dwelling unit charge, bi-monthly dedicated fire line charges, and a uniform consumption charge for all customers. Existing bi-monthly fixed and consumption charges are identified in Table 6 through Table 8. Table 6: FY 2023 Bi-Monthly Fixed Charges Meter Size !�3/4" 11I 1 1/2" 211 311 411 611 811 1011 Dwelling Unit Charge Additional Dwelling Units $46.03 $97.03 $182.04 $284.06 $607.09 $1,083.15 $2,392.30 $4,092.51 $6,472.79 $12.02 Table 7: FY 2023 Bi-Monthly Fire Line Service Charges Connection Size Existing 411 $21.65 511 $27.05 611 $32.46 811 $43.28 1011 $ 54.11 1211 $64.92 Table 8: FY 2023 Consumption Charge C ustomer C lass Existing All Customers $3.24 Page 110 I 3—,,c ONSULT1NG DocuSign Envelope ID: 63BOC69D-1BFD-4B3F-8FDF-D6C835E73DF6 City of Tustin—fY2024 Cost -of -Service Rate Study Financial Plan Overview Financial Planning Financial planning incorporates numerous considerations, including projecting revenues and forecasting expected costs using various inflationary adjustments. Utilities also need to account for changes in water demand driven by variations in weather, water availability, state mandates, growth, and economic factors. In addition, system maintenance and reinvestment, reserves, and debt compliance all influence the revenues needed in future years. Therefore, a comprehensive financial plan reviews the following: 1) Historical water sales and consumption patterns to determine an appropriate level of usage for projecting future water use. 2) Operational costs that may change over the planning period as a result of inflation as well as any new expenditures incurred to meet strategic goals, state mandates, or changes in operations. 3) Multi -year system improvement needs, and scheduling based on priority. This review also considers available funding sources to complete projects such as pay-as-you-go (PAYGO), grants, loans, and debt financing. 4) Satisfy debt service coverage ratio requirements based on bond covenants (120%). 5) Reserve funding to meet adopted reserve policies. The goal is to generate adequate cash on hand to mitigate financial risks related to operating cashflow needs, unexpected increases in expenses, shortages in system reinvestment, and mitigating potential system failures. Figure 3 illustrates the key elements when developing a long-term financial plan. Figure 3: Financial Plan Key Elements Expense Projections Account for cost escalations expense category, water supply expenses, and debt obligations • Water Demand Account for expected changes in total sales, growth, as well as changes in usage patterns = Capital Spending Account for anticipated system improvements and maintenance. Capital spending may range from depreciation up through asset management plan Financial Plan Reserve Funding Account for unforeseen risks through well established reserves Revenue Projections Account for rate revenues, other operating revenues, and non -operating revenues Page 111 C0NSITLTING DocuSign Envelope ID: 63BOC69D-1BFD-4B3F-8FDF-D6C835E73DF6 City of Tustin—fY2024 Cost -of -Service Rate Study Financial Plannina Assumptions Developing a long-term financial plan requires an understanding of the utility's financial position by evaluating existing revenue streams, ongoing expenses, how those expenses will change over time, existing debt coverage requirements, and reserve policies. With these considerations, certain assumptions are required for projecting revenues, expenses, and expected ending fund balances. Table 9 identifies assumptions used for forecasting revenues. Table 10 details the number of accounts by meter size, the number of additional dwelling units, and the number of fire lines by connection size. Table 11 identifies the projected water usage and Table 12 identifies assumptions used for forecasting expenses over the Rate Setting Period. Table 9: Assumptions for Forecasting Revenues Key Assumptions FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 Revenue Escalation Reserve Interest System Assumptions Account Growth 0.5% 0.5% 0.0% 0.0% 0.5% 0.5% 0.0% 0.0% 0.5% 0.0% Page 112 C ONSULTING DocuSign Envelope ID: 63BOC69D-1BFD-4B3F-8FDF-D6C835E73DF6 City of Tustin—FY2024 Cost -of -Service Rate Study Table 10: FY 2024 through FY 2028 Accounts C ustomer Accounts FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 Meter Size <3/4" 9,907 9,907 9,907 9,907 9,907 1" 3,189 3,189 3,189 3,189 3,189 11/2" 374 374 374 374 374 2" 597 597 597 597 597 3" 22 22 22 22 22 4" 45 45 45 45 45 6" 14 14 14 14 14 8" 1 1 1 1 1 10" 0 0 0 0 0 Total Meters 14,149 14,149 14,149 14,149 14,149 Additional Dwelling Units FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 Additional Dwelling Units 9,690 9,690 9,690 9,690 9,690 Fire Lines FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 Connection Size 4" 58 58 58 58 58 5" 1 1 1 1 1 6" 104 104 104 104 104 8" 68 68 68 68 68 10" 4 4 4 4 4 12" 2 2 2 2 2 Total Fire Lines 237 237 237 237 237 Table 11: FY 2024 through FY 2028 Projected Consumption2 C onsumption FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 Customer Usage 4,290,660 4,290,660 4,290,660 4,290,660 4,290,660 Total Consumption (HCF) 4,290,660 4,290,660 4,290,660 4,290,660 4,290,660 Total Usage (AF) 9,850 AF 9,850 AF 9,850 AF 9,850 AF 9,850 AF 2 1 AF = 435.6 hcf or 325,851 gallons Page 113 DocuSign Envelope ID: 63BOC69D-1BFD-4B3F-8FDF-D6C835E73DF6 City of Tustin-fY2024 Cost -of -Service Rate Study Table 12: Assumptions for Forecasting Expense Key Assumptions source: FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 Expenditure Escalation Benefits Budget 8.0% 8.0% 8.0% 8.0% Capital ENR2o-city 5-vearAverage Budget Budget 3.9% 3.9% 3.9% General Costs CPI - LA(BLS) 5-VearAverage Budget Budget 4.0% 4.0% 4.0% Indirect Budget Budget 5.0% 5.0% 5.0% Non -Inflated Budget Budget 0.0% 0.0% 0.0% PERS / OPEB Budget Budget 3.0% 3.0% 3.0% Salaries Budget 5.0% 4.0% 3.0% 2.5% Utilities Budget Budget 5.0% 5.0% 5.0% Current Financial Position Revenues Based on the forecasting assumptions, fixed revenues were calculated by multiplying the existing fixed charges (Table 6 and Table 7) by the account data by meter size, additional dwelling units, and fire line accounts by connection size (Table 10) over six billing periods. Variable revenues were calculated using the existing consumption charge shown in Table 8 and projected total water sales (Table 11). Table 13 shows the calculated rate revenues through the Rate Setting Period. Table 14 summarizes calculated rate revenues and other non -rate revenues, with future projections rounded to the nearest thousands. Non -Operating revenues include reimbursements, miscellaneous revenue, and customer service credits of (-$15,000), which nets a total sum (45,000) for FY 2025 through FY 2028. Non - rate revenues are not increased over the Rate Setting Period. Table 13: Calculated Rate Revenues Fixed Revenue FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 Meter Service Charge Additional Dwelling Unit Charge $6,616,783 $698,843 $6,616,783 $698,843 $6,616,783 $698,843 $6,616,783 $698,843 $6,616,783 $698,843 Total Fixed Revenue $7,315,625 $7,315,625 $7,315,625 $7,315,625 $7,315,625 Fire Line Revenue FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 Fire Line Service Charge Variable Revenue $47,687 FY 2024 $47,687 FY 2025 $47,687 FY 2026 $47,687 FY 2027 $47,687 FY 2028 Consumption Charge $13,901,738 $13,901,738 $13,901,738 $13,901,738 $13,901,738 Total Rate Revenue $21,265,051 $21,265,051 $21,265,051 $21,265,051 $21,265,051 Page 114 (; O\ S 1 I. T I \ �; DocuSign Envelope ID: 63BOC69D-1BFD-4B3F-8FDF-D6C835E73DF6 City of Tustin—fY2024 Cost -of -Service Rate Study Table 14: Projected Revenues Revenue Summary FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 Rate Revenues Fixed Revenue $7,316,000 $7,316,000 $7,316,000 $7,316,000 $7,316,000 Variable Revenue $13,902,000 $13,902,000 $13,902,000 $13,902,000 $13,902,000 Fire Line Revenue $48,000 $48,000 $48,000 $48,000 $48,000 Subtotal Rate Revenues $21,266,000 $21,266,000 $21,266,000 $21,266,000 $21,266,000 PFAS Reimbursement $0 $0 $300,000 $312,000 $325,000 Operating Revenues $260,000 $260,000 $260,000 $260,000 $260,000 Non -Operating Revenues $1,000 ($5,000) ($5,000) ($5,000) ($5,000) Total Revenues $21,527,000 $21,521,000 $21,821,000 $21,833,000 $21,846,000 Expenses Water Supply The current water usage is 9,850 AF per year, as shown in Table 11. The City's water supplies available to meet customer demand consist of treated and untreated groundwater and purchased water from EOCWD. The City must pay a groundwater basin assessment charge for every acre foot of groundwater used. The City is using more purchased water than usual due to the treatment improvements currently being constructed to treat PFAS. Therefore, the City's purchase water costs from EOCWD are higher in FY 2024 and FY 2025 during construction. By FY 2026, the PFAS treatment improvements will be completed, and the City will return to meeting its water demand primarily through groundwater. EOCWD charges the City a fixed connection fee each month in addition to a charge for every acre foot of water purchased. Table 15 summarizes water supply costs and the detailed calculations can be found in Appendix A. Table 15: Projected Water Supply Costs Water Supply Costs FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 Groundwater Basin Assessment $3,731,000 $5,440,000 $6,882,000 $7,091,000 $7,303,000 EOCWD - Water Purchased $5,544,000 $2,990,000 $729,000 $765,000 $803,000 EOCWD - Connection Fees $657,000 $677,000 $697,000 $718,000 $739,000 Total Water Supply Costs $9,932,000 $9,107,000 $8,308,000 $8,574,000 $8,845,000 Operating Expenses The City provided budgeted water expenses for FY 2024 and FY 2025. However, the expense categories of benefits and salaries were escalated by 8% and 5%, respectively in FY 2025. The Memorandum of Understanding (MOU) between the City and its employees ends on June 30, 2024. Therefore, City staff adjusted the budgeted amounts in FY 2025 to ensure proposed rates will cover the final results of new MOU negotiations. In subsequent years, the Operational & Maintenance (O&M) expenses were increased based on the escalation factors shown in Table 12. Table 16 provides projected O&M expenses through the Rate Page 115 DocuSign Envelope ID: 63BOC69D-1BFD-4B3F-8FDF-D6C835E73DF6 City of Tustin-fY2024 Cost -of -Service Rate Study Setting Period with future projections rounded to the nearest thousands. Each expense category includes detailed line -item expenditures that were discussed with staff to determine the appropriate escalation factor to use for forecasting how costs will increase over time. Table 16: Projected O&M Expenses 0&M Expenses FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 Purchased Water Costs Water Supply Groundwater Basin Assessment $3,731,000 $5,440,000 $6,882,000 $7,091,000 $7,303,000 EOCWD - Water Purchased Table 15 $5,544,000 $2,990,000 $729,000 $765,000 $803,000 EOCWD - Connection Fees $657,000 $677,000 $697,000 $718,000 $739,000 Subtotal Water Supply $9,932,000 $9,107,000 $8,308,000 $8,574,000 $8,845,000 Operating Expenses Finance - Water Billings $2,736,000 $3,692,000 $3,860,000 $4,027,000 $4,196,000 Finance - Administrative Fees $1,500,000 $1,500,000 $1,575,000 $1,654,000 $1,737,000 Public Works - Water Administration $1,128,000 $1,181,000 $1,228,000 $1,274,000 $1,321,000 PW Water Admin - S&B $1,258,000 $1,363,000 $1,430,000 $1,490,000 $1,547,000 Public Works - Water Distribution $1,645,000 $1,741,000 $1,824,000 $1,901,000 $1,975,000 Public Works - Main Street Facilities $289,000 $306,000 $331,000 $345,000 $359,000 Public Works - 17th Street Desalter $902,000 $930,000 $1,181,000 $1,233,000 $1,287,000 Public Works - Imported Water 0&M $115,000 $124,000 $130,000 $135,000 $140,000 Public Works - Water Production $1,136,000 $907,000 $950,000 $993,000 $1,037,000 PFAS Treatment $0 $600,000 $624,000 $649,000 $674,000 Subtotal Operating Expenses $10,709,000 $12,344,000 $13,133,000 $13,701,000 $14,273,000 Debt Service Existing Debt $2,430,000 $2,641,000 $2,561,000 $3,265,000 $3,266,000 New/Proposed Debt $0 $294,000 $587,000 $587,000 $587,000 Subtotal Debt Service $2,430,000 $2,935,000 $3,148,000 $3,852,000 $3,853,000 Total Expenses $23,071,000 $24,386,000 $24,589,000 $26,127,000 $26,971,000 Page 116 (;O\ l 1.TI \(� DocuSign Envelope ID: 63BOC69D-1BFD-4B3F-8FDF-D6C835E73DF6 City of Tustin-fY2024 Cost -of -Service Rate Study RP.CP n/P.0 Figure 4: Water Enterprise Reserves OPERATING RESERVE SOS / / EMERGENCY RESERVE Provides ongoing cash for daily Mitigates risk due to system failures. operations and expenses of utility. These occurrences are typically separate from capital plan. CAPITAL RESERVE %) RATE STABILIZATION Provides funding for system improvements. Ensures Funding to offset unforeseen system reinvestments occur without delays or increases in O&M or new regulatory requirements. Also deferments. Also provides assurance when awarding provides funding for rate smoothing over multiple years. construction contracts and matching funds for grants. Established reserves include Operating Reserve, Capital Reserve, and Emergency Reserve. In addition, this Cost -of -Service Study recommends that the City establish a Rate Stabilization Reserve (RSR). The City has incurred more imported water costs than expected due to the construction of the PFAS treatment plant for its groundwater. These additional purchased water costs caused the City to not meet its debt service coverage ratio of 120% and required a loan from the general fund to satisfy the bond covenants. The establishment of a RSR will allow transfers from the RSR to the operating fund to cover these types of cost increases. Instead of generating the initial RSR funding through increased rates, we recommend using $1 M from the Emergency Reserve to establish the RSR. The Emergency Reserve is currently set at a fixed amount of $2M. Typically, an Emergency Reserve minimum requirement would be a percentage of either the total system asset value or depreciation value. The remaining $1 M is equivalent to approximately 1.5% of total asset value or approximately 50% of the annual deprecation value, which is a reasonable amount of set aside funding for unforeseen system failures. The RSR is usually a percentage of total rate revenue with 5% as the minimum and 10% as the ideal target. For FY 2024 the minimum requirement for the proposed RSR at 5% of rate revenue would be $1,002,500 and the $1 M would be sufficient to establish the RSR. Collectively, all of the water utility reserves help mitigate risks to the utility by ensuring sufficient cash is on hand for daily operations and to fund system improvements. In addition, these reserves mitigate rate spikes due to emergencies or above -average system costs. Table 17 summarizes the minimum reserve requirements and the ideal targets of each reserve, when applicable. Reserve Operating Capital Emergency Rate Stabilization Table 17: Reserve Requirements and Targets Minimum Requirement 90 days of operating costs 1 Year of Depreciation Expense Fixed amount of $1 M 5% of Rate Revenue Reserve T 120 days of operating costs 2 years of annual capital expenses Same as Minimum ($1M) 10% of Rate Revenue The reserve balance as of July 1, 2023, equaled approximately $9M. ( ; O \ "� l I . "I' I \ (" _L1 Page 117 DocuSign Envelope ID: 63BOC69D-1BFD-4B3F-8FDF-D6C835E73DF6 City of Tustin—fY2024 Cost -of -Service Rate Study Financial Outlook at Existina Rates Calculating revenue using existing rates and projecting expenses helps determine the current financial health of the utility. Revenues from existing rates will not cover operating expenses. In addition, capital spending towards repair & replacement would require the use of reserves as the primary funding source once the remaining debt proceeds are expended, which is not sustainable. Table 18 forecasts existing revenues and expenses through the Rate Setting Period. Table 19 identifies reserve transfers and reserve activity for the Operating, Capital, Emergency, and Rate Stabilization Reserves, with projected FY 2024 starting reserve balances shown for each reserve. Page 118 C ONSULTING DocuSign Envelope ID: 63BOC69D-1BFD-4B3F-8FDF-D6C835E73DF6 City of Tustin-FY2024 Cost -of -Service Rate Study Table 18: Financial Plan at Existing Rates Revenue FY Rate Revenues Fixed Revenue $7,316,000 $7,316,000 $7,316,000 $7,316,000 $7,316,000 Variable Revenue Table 14 $13,902,000 $13,902,000 $13,902,000 $13,902,000 $13,902,000 Fire Line Revenue $48,000 $48,000 $48,000 $48,000 $48,000 Total Rate Revenues $21,266,000 $21,266,000 $21,266,000 $21,266,000 $21,266,000 PFAS Reimbursement $0 $0 $300,000 $312,000 $325,000 Operating Revenues Table 14 $260,000 $260,000 $260,000 $260,000 $260,000 Non -Operating Revenues $1,000 ($5,000) ($5,000) ($5,000) ($5,000) Total Revenues $21,527,000 $21,521,000 $21,821,000 $21,833,000 $21,846,000 0&M Expense Purchased Water Costs Water Supply Groundwater Basin Assessment $3,731,000 $5,440,000 $6,882,000 $7,091,000 $7,303,000 EOCWD - Water Purchased Table 16 $5,544,000 $2,990,000 $729,000 $765,000 $803,000 EOCWD - Connection Fees $657,000 $677,000 $697,000 $718,000 $739,000 Subtotal Water Supply $9,932,000 $9,107,000 $8,308,000 $8,574,000 $8,845,000 Operating Expenses Finance - Water Billings $2,736,000 $3,692,000 $3,860,000 $4,027,000 $4,196,000 Finance -Administrative Fees $1,500,000 $1,500,000 $1,575,000 $1,654,000 $1,737,000 Public Works - Water Administration $1,128,000 $1,181,000 $1,228,000 $1,274,000 $1,321,000 PW Water Admin - S&B $1,258,000 $1,363,000 $1,430,000 $1,490,000 $1,547,000 Public Works- Water Distribution Table 16 $1,645,000 $1,741,000 $1,824,000 $1,901,000 $1,975,000 Public Works - Main Street Facilities $289,000 $306,000 $331,000 $345,000 $359,000 Public Works - 17th Street Desalter $902,000 $930,000 $1,181,000 $1,233,000 $1,287,000 Public Works - Imported Water O&M $115,000 $124,000 $130,000 $135,000 $140,000 Public Works - Water Production $1,136,000 $907,000 $950,000 $993,000 $1,037,000 PFAS Treatment $0 $600,000 $624,000 $649,000 $674,000 Subtotal Operating Expenses $10,709,000 $12,344,000 $13,133,000 $13,701,000 $14,273,000 Debt Service Existing Debt $2,430,000 $2,641,000 $2,561,000 $3,265,000 $3,266,000 New/Proposed Debt Table 16 $0 $294,000 $587,000 $587,000 $587,000 Subtotal Debt Service $2,430,000 $2,935,000 $3,148,000 $3,852,000 $3,853,000 Total Expenses $23,071,000 $24,386,000 $24,589,000 $26,127,000 $26,971,000 Net Operating Income ($1,544,000) ($2,865,000) ($2,768,000) ($4,294,000) ($5,125,000) Page 119 C ONSULTING DocuSign Envelope ID: 63BOC69D-1BFD-4B3F-8FDF-D6C835E73DF6 City of Tustin—FY2024 Cost -of -Service Rate Study Table 19: Transfers & Reserve Activity at Existing Rates Lne �irectTransfers FY 2024 FY 2025 * FY 2026 FY 2027 FY 2028 No -AL 1 Net Operating Income Table 18 ($1,544,000) ($2,865,000) ($2,768,000) ($4,294,000) ($5,125,000) 1 Transfers (to)/from Water Emergency Fund (302) $1,000,000 $0 $0 $0 $0 3 Transfers (to)/from Rate Stabilization (New) ($1,000,000) $0 $0 $0 $0 Net Operating Income (after Direct Transfers) ($1,544,000) ($2,865,000) ($2,768,000) ($4,294,000) ($5,125,000) Water Enterprise (300 FY 2024 _M� FY 2025 FY 2026 FY 2027 FY 2028 Beginning Balance $4,227,349 $2,700,626 ($164,374) ($2,932,374) ($7,226,374) Transfers (Net Operating Income) Line 4 ($1,544,000) ($2,865,000) ($2,768,000) ($4,294,000) ($5,125,000) Transfers (to) Water Capital Fund (301) $0 $0 $0 $0 $0 Subtotal Water Enterprise (300) $2,683,349 ($164,374) ($2,932,374) ($7,226,374) ($12,351,374) Interest Earnings $17,277 $0 $0 $0 $0 Ending Balance $2,700,626 ($164,374) ($2,932,374) ($7,226,374) ($12,351,374) Water C apMtal Fund (301) 'FY 2027' FY 2025 s Y 20214FY 2027 TY 2028 Beginning Balance $2,798,169 $499,223 $1,654,594 $2,831,412 $259,033 12 Transfers from/(to) Water Enterprise (300) Line 7 $0 $0 $0 $0 $0 13 Plus: 14 Capital Funding within Operating Budget IS Grant Reimbursement 16 Other Remaining Proceeds 17 Less: $800,000 $1,650,000 $1,732,500 $1,819,125 $1,910,081 $840,000 $0 $0 $0 $0 $0 $1,150,000 $1,200,000 $1,650,000 $0 18 CIP ($3,947,169) ($1,650,000) ($1,766,869) ($6,049,212) ($4,603,095) 19 Subtotal Water Capital Fund (301) %? Interest Earnings $491,000 $8,223 $1,649,223 $5,371 $2,820,225 $11,187 $251,326 $7,707 ($2,433,982) $0 Ending Balance $499,223 $1,654,594 $2,831,412 $259,033 ($2,433,982) Water Emergency Fund (302) 22 Beginning Balance 23 Direct transfers to/(from) Water Emergency Fund (302) Line 2 $2,020,315 ($1,000,000) $1,027,917 $0 $1,033,056 $0 FY 2027 $1,038,221 $0 $1,043,413 $0 24 Subtotal Water Emergency Fund (302) Interest Earnings $1,020,315 $7,602 $1,027,917 $5,140 $1,033,056 $5,165 $1,038,221 $5,191 $1,043,413 $5,217 Ending Balance $1,027,917 $1,033,056 $1,038,221 $1,043,413 $1,048,630 Rate Stabl Iza Ion (New) Beginning Balance Direct transfers to/(from) Rate Stabilization (New) Line 3 2 $0 $1,000,000 $1,002,500 $0 $1,007,513 $0 $1,012,550 $0 $1,017,613 $0 79 Subtotal Rate Stabilization (New) 30 Interest Earnings $1,000,000 $2,500 $1,002,500 $5,013 $1,007,513 $5,038 $1,012,550 $5,063 $1,017,613 $5,088 71 Ending Balance $1,002,500 $1,007,513 $1,012,550 $1,017,613 $1,022,701 Ending Balance - All Reserves $5,230,265 $3,530,788 $1,949,810 ($4,906,316) ($12,714,025) Page 120 C ONSULTING DocuSign Envelope ID: 63BOC69D-1BFD-4B3F-8FDF-D6C835E73DF6 City of Tustin—fY2024 Cost -of -Service Rate Study Figure 5 illustrates the operating position of the utility, where O&M expenses are identified with the dashed red trendline, and the horizontal black trendline shows total revenues at existing rates. The bars represent the net operating income available for capital spending and reserve funding. $ 3 0 0 $20 $10 $0 ($10) Figure 5: Current Operating Financial Position Operating Financial Plan FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 Net Operating Income (before Transfers) Projected Revenue — —Operating Expenses With the capital improvement plan reflecting over $18M in total spending, as shown in Figure 2, reserves will be utilized to cover the remaining capital expenses to ensure necessary projects continue to move forward as scheduled. Figure 6 reflects the projected ending balances of the reserves after funding operating and capital projects. Reserves are below the total minimum reserve target in FY 2024 and are fully depleted by FY 2027. Without revenue adjustments, capital improvements would need to be delayed and operations could be impacted. Page 121 DocuSign Envelope ID: 63BOC69D-1BFD-4B3F-8FDF-D6C835E73DF6 City of Tustin—fY2024 Cost -of -Service Rate Study $20.0 0 $15.0 $10.0 $5.0 $0.0 ($5.0) ($10.0) ($15.0) Figure 6: Projected Ending Reserves at Existing Rates All Reserves — — — — — — — — — — — — — — — — — — — ------ N FY 2024 Ending Balance _1PJ_(; U\ S l I. T I \ (, FY 2025 FY 2026 FY 2027 FY 2028 Minimum Reserve — — — Target Reserve Page 122 DocuSign Envelope ID: 63BOC69D-1BFD-4B3F-8FDF-D6C835E73DF6 City of Tustin-FY2024 Cost -of -Service Rate Study Proposed Financial Plan From the financial outlook at existing rates, a proposed financial plan can be developed to adequately fund the multi -year revenue requirements, while meeting reserve requirements. Based on funding the water CIP over the Rate Setting Period and ensuring healthy reserves, Table 20 forecasts projected revenues and expenses through FY 2028. Table 21 identifies the projected FY 2024 total starting balances for the Operating, Capital, Emergency, and Rate Stabilization reserves, activity within each reserve (including net income transfer from Table 20, transfers between reserves, and annual CIP), and projected ending balances for each fiscal year. Page 123 C ONSULTING �1 DocuSign Envelope ID: 63BOC69D-1BFD-4B3F-8FDF-D6C835E73DF6 City of Tustin-FY2024 Cost -of -Service Rate Study Table 20: Proposed Financial Plan Revenue FY 2024 FY 2025 M FY Z027 OZB� Rate Revenues Fixed Revenue $7,316,000 $7,316,000 $7,316,000 $7,316,000 $7,316,000 Variable Revenue Table 14 $13,902,000 $13,902,000 $13,902,000 $13,902,000 $13,902,000 Fire Line Revenue $48,000 $48,000 $48,000 $48,000 $48,000 Total Rate Revenues $21,266,000 $21,266,000 $21,266,000 $21,266,000 $21,266,000 Additional Revenue (from revenue adjustments): Fiscal Year Revenue Effective Adjustment Month FY 2024 9.0% January FY 2025 9.0% January FY 2026 9.0% January FY 2027 9.0% January FY 2028 9.0% January Total Additional Revenue $956,000 $1,913,000 $1,913,000 $1,913,000 $1,043,000 $2,086,000 $2,086,000 $1,136,000 $2,273,000 $1,239,000 $956,000 $2,956,000 $5,135,000 $7,511,000 $1,913,000 $2,086,000 $2,273,000 $2,478,000 $10,100,000 Projected Rate Revenue (including revenue adjustments) $22,222,000 $24,222,000 $26,401,000 $28,777,000 $31,366,000 PFAS Reimbursement $0 $0 $300,000 $312,000 $325,000 Operating Revenues Table 14 $260,000 $260,000 $260,000 $260,000 $260,000 Non -Operating Revenues $1,000 ($5,000) ($5,000) ($5,000) ($5,000) Total Revenues $22,483,000 $24,477,000 $26,956,000 $29,344,000 $31,946,000 0&M Expenses EWW- FY 2024' FY 2025 FY 2026 FY 2027 Purchased Water Costs Water Supply Groundwater Basin Assessment $3,731,000 $5,440,000 $6,882,000 $7,091,000 $7,303,000 EOCWD - Water Purchased Table 16 $5,544,000 $2,990,000 $729,000 $765,000 $803,000 EOCWD - Connection Fees $657,000 $677,000 $697,000 $718,000 $739,000 Subtotal Water Supply $9,932,000 $9,107,000 $8,308,000 $8,574,000 $8,845,000 Operating Expenses Finance - Water Billings $2,736,000 $3,692,000 $3,860,000 $4,027,000 $4,196,000 Finance -Administrative Fees $1,500,000 $1,500,000 $1,575,000 $1,654,000 $1,737,000 Public Works - Water Administration $1,128,000 $1,181,000 $1,228,000 $1,274,000 $1,321,000 PW Water Admin - S&B $1,258,000 $1,363,000 $1,430,000 $1,490,000 $1,547,000 Public Works- Water Distribution Table 16 $1,645,000 $1,741,000 $1,824,000 $1,901,000 $1,975,000 Public Works - Main Street Facilities $289,000 $306,000 $331,000 $345,000 $359,000 Public Works - 17th Street Desalter $902,000 $930,000 $1,181,000 $1,233,000 $1,287,000 Public Works - Imported Water 0&M $115,000 $124,000 $130,000 $135,000 $140,000 Public Works - Water Production $1,136,000 $907,000 $950,000 $993,000 $1,037,000 PFAS Treatment $0 $600,000 $624,000 $649,000 $674,000 Subtotal Operating Expenses $10,709,000 $12,344,000 $13,133,000 $13,701,000 $14,273,000 Debt Service Existing Debt Table 16 $2,430,000 $2,641,000 $2,561,000 $3,265,000 $3,266,000 New/Proposed Debt $0 $294,000 $587,000 $587,000 $587,000 Subtotal Debt Service $2,430,000 $2,935,000 $3,148,000 $3,852,000 $3,853,000 Total Expenses $23,071,000 $24,386,000 $24,589,000 $26,127,000 $26,971,000 Net Operating Income ($588,000) $91,000 $2,367,000 $3,217,000 $4,975,000 Page 124 C ONSULTING DocuSign Envelope ID: 63BOC69D-1BFD-4B3F-8FDF-D6C835E73DF6 City of Tustin—FY2024 Cost -of -Service Rate Study Table 21: Proposed Transfers & Reserve Activity Direct Transfers FY 2024 1 FY 2025 1 FY 2026 FY 2027 FY 2028 1 Net Operating Income Table 20 ($588,000) $91,000 $2,367,000 $3,217,000 $4,975,000 z Transfers (to)/from Water Emergency Fund (302) $1,000,000 $0 $0 $0 $0 Transfers (to)/from Rate Stabilization (New) ($1,000,000) $0 $0 $0 $0 Net Operating Income (after Direct Transfers) ($588,000) $91,000 $2,367,000 $3,217,000 $4,975,000 Water Enterprise (300) FY 2025 J&2026 FY 2027� Beginning Balance $4,227,349 $3,659,016 $3,768,538 $6,087,620 $6,473,599 Transfers (Net Operating Income) Line 4 ($588,000) $91,000 $2,367,000 $3,217,000 $4,975,000 Transfers (to) Water Capital Fund (301) $0 $0 ($72,497) ($2,862,346) ($4,798,215) Subtotal Water Enterprise (300) $3,639,349 $3,750,016 $6,063,041 $6,442,274 $6,650,384 Interest Earnings $19,667 $18,523 $24,579 $31,325 $32,810 Ending Balance $3,659,016 $3,768,538 $6,087,620 $6,473,599 $6,683,194 Water CapitaTund (30 JJJPMMY 2024 W FY 2025 V FY 2026=FY 2027 qi' 202M Beginning Balance $2,798,169 $499,223 $1,654,594 $2,904,091 $3,201,576 - Transfers from/(to) Water Enterprise (300) Line 7 $0 $0 $72,497 $2,862,346 $4,798,215 Plus: 14 Capital Funding within Operating Budget $800,000 $1,650,000 $1,732,500 $1,819,125 $1,910,081 IS Grant Reimbursement $840,000 $0 $0 $0 $0 IC Other Remaining Proceeds $0 $1,150,000 $1,200,000 $1,650,000 $0 17 Less: 18 CIP ($3,947,169) ($1,650,000) ($1,766,869) ($6,049,212) ($4,603,095) 19 Subtotal Water Capital Fund (301) $491,000 $1,649,223 $2,892,722 $3,186,350 $5,306,777 20 Interest Earnings $8,223 $5,371 $11,368 $15,226 $21,271 -1 Ending Balance $499,223 $1,654,594 $2,904,091 $3,201,576 $5,328,048 Water Emergency Fund (302� Y 2027 FY 202M -- Beginning Balance $2,020,315 $1,027,917 $1,033,056 $1,038,221 $1,043,413 23 Direct transfers to/(from) Water Emergency Fund (302) Line 2 ($1,000,000) $0 $0 $0 $0 24 Subtotal Water Emergency Fund (302) $1,020,315 $1,027,917 $1,033,056 $1,038,221 $1,043,413 2= Interest Earnings $7,602 $5,140 $5,165 $5,191 $5,217 Ending Balance $1,027,917 $1,033,056 $1,038,221 $1,043,413 $1,048,630 Tale Stabilization (New) _ FY 2024 FY 2025 � FY 2026 FY 2027 FY 2028 Beginning Balance $0 $1,002,500 $1,007,513 $1,012,550 $1,017,613 Direct transfers to/(from) Rate Stabilization (New) Line 3 $1,000,000 $0 $0 $0 $0 Subtotal Rate Stabilization (New) $1,000,000 $1,002,500 $1,007,513 $1,012,550 $1,017,613 Interest Earnings $2,500 $5,013 $5,038 $5,063 $5,088 Ending Balance $1,002,500 $1,007,513 $1,012,550 $1,017,613 $1,022,701 Ending Balance - All Reserves $6,188,655 $7,463,701 $11,042,482 $11,736,200 $14,082,572 Figure 7 identifies the operating position based on the proposed financial plan and Figure 8 shows the capital plan with funding sources. Figure 9 identifies the ending reserve balances for all reserves. Page 125 C ONSULTING DocuSign Envelope ID: 63BOC69D-1BFD-4B3F-8FDF-D6C835E73DF6 City of Tustin—FY2024 Cost -of -Service Rate Study Figure 7: Proposed Operating Position Operating Financial Plan c $40 0 2 $30 $20 $10 $0 ($10) FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 Net Operating Income (before Transfers) Projected Revenue — —Operating Expenses Figure 8: Capital Improvement Plan with Funding Sources Capital Funding Sources o $7 O $6.0 _ $6 $ 5 $4.6 $3.9 $4 $3 $ 2 $1.7 $1.8 $1 $0 FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 Debt Funded ® Other Funding ■ Rate/Reserve Funded • Total CIP Page 126 C \ S 1 L T I N G DocuSign Envelope ID: 63BOC69D-1BFD-4B3F-8FDF-D6C835E73DF6 City of Tustin-fY2024 Cost -of -Service Rate Study Figure 9: Proposed Ending Balances of All Reserves All Reserves $18.0 0 $16.0 $14.0 — — — — — — — — — $12.0 $10.0 $8.0 $6.0 $4.0 $2.0 $0.0 FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 Ending Balance Minimum Reserve ---Target Reserve Page 127 C U\ S l I. T I \ (� DocuSign Envelope ID: 63BOC69D-1BFD-4B3F-8FDF-D6C835E73DF6 City of Tustin—fY2024 Cost -of -Service Rate Study Cost -of -Service Analysis Cost -of -Service Process The next step in developing rates is to perform a cost -of -service analysis. It is important to understand how costs are incurred in order to determine the most appropriate way to recover these costs. The following graphic summarizes the cost -of -service process. Through this process, costs incurred are allocated to customers based on their proportional share. As a result, the proposed rates are cost -based and reflect the costs incurred to provide service to customers. Figure 10: Cost -of -Service Process Determine revenue needs of • • utility: Develop Cost -expenses Components Allocate debt coverage reflecting utility capital systems incurred summarized and reserves costs expenses to Cost Components Revenue Requirements Distribution basis for the cost -of -Cost -Based • at service Allocate cost components Build-up fixed proportionate charges and to units of service commodity rates to reflect cost of providing service With FY 2024 as the first year of the proposed rate schedule, revenue requirements are determined for FY 2024 and used for the cost -of -service. Revenue requirements include purchased water, O&M expenses, debt service, and other funding. Other funding includes available offsets from non -rate revenues, reserve funding, and any mid -year adjustments if rates are implemented after the start of the fiscal year. The mid -year adjustment annualizes the proposed revenue adjustment to account for the time elapsed before new rates take effect to connect to the annual units of service used within this report for deriving rates. Funding the capital plan is achieved through a combination of rate revenues and reserves over the Rate Setting Period. Table 22 represents the revenue required from rates over the Rate Setting Period (FY 2024 through FY 2028). Page 128 C ONSULTING DocuSign Envelope ID: 63BOC69D-1BFD-4B3F-8FDF-D6C835E73DF6 City of Tustin-FY2024 Cost -of -Service Rate Study Table 22: FY 2024 - FY 2028 Revenue Requirements Revenue Requirements Total Total Total Total Total Water Supply Costs Groundwater Basin Assessment $3,731,000 $5,440,000 $6,882,000 $7,091,000 $7,303,000 EOCWD - Water Purchased $5,544,000 $2,990,000 $729,000 $765,000 $803,000 EOCWD - Connection Fees $657,000 $677,000 $697,000 $718,000 $739,000 Total Water Supply Costs $9,932,000 $9,107,000 $8,308,000 $8,574,000 $8,845,000 Operating Expenses Finance - Water Billings $2,736,000 $3,692,000 $3,860,000 $4,027,000 $4,196,000 Finance - Administrative Fees $1,500,000 $1,500,000 $1,575,000 $1,654,000 $1,737,000 Public Works - Water Administration $1,128,000 $1,181,000 $1,228,000 $1,274,000 $1,321,000 PW Water Admin - S&B $1,258,000 $1,363,000 $1,430,000 $1,490,000 $1,547,000 Public Works- Water Distribution $1,645,000 $1,741,000 $1,824,000 $1,901,000 $1,975,000 Public Works- Main Street Facilities $289,000 $306,000 $331,000 $345,000 $359,000 Public Works - 17th Street Desalter $902,000 $930,000 $1,181,000 $1,233,000 $1,287,000 Public Works - Imported Water O&M $115,000 $124,000 $130,000 $135,000 $140,000 Public Works - Water Production $1,136,000 $907,000 $950,000 $993,000 $1,037,000 PFAS Treatment $0 $600,000 $624,000 $649,000 $674,000 Total Operating Expenses $10,709,000 $12,344,000 $13,133,000 $13,701,000 $14,273,000 Debt Service Existing Debt $2,430,000 $2,641,000 $2,561,000 $3,265,000 $3,266,000 New/Proposed Debt $0 $294,000 $587,000 $587,000 $587,000 Total Debt Service $2,430,000 $2,935,000 $3,148,000 $3,852,000 $3,853,000 Other Funding Revenue Offsets PFAS Reimbursement $0 $0 ($300,000) ($312,000) ($325,000) Operating Revenues ($260,000) ($260,000) ($260,000) ($260,000) ($260,000) Non -Operating Revenues ($1,000) $5,000 $5,000 $5,000 $5,000 Total Revenue Offsets ($261,000) ($255,000) ($555,000) ($567,000) ($580,000) Adjustments Reserve Funding Adjustment for Mid -Year Increase ($588,000) $956,000 $91,000 $1,043,000 $2,367,000 $1,136,000 $3,217,000 $1,239,000 $4,975,000 $1,350,000 Total Adjustments $368,000 $1,134,000 $3,503,000 $4,456,000 $6,325,000 Total Other Funding $107,000 $879,000 $2,948,000 $3,889,000 $5,745,000 Revenue Requirement from Rates $23,178,000 $25,265,000 $27,537,000 $30,016,000 $32,716,000 Page 129 C ONSULTING DocuSign Envelope ID: 63BOC69D-1BFD-4B3F-8FDF-D6C835E73DF6 City of Tustin—fY2024 Cost -of -Service Rate Study Define Cost Components The utility incurs costs to accommodate total water demand that varies throughout the year. Therefore, to determine the most appropriate way to recover the utility's expenses, cost components are identified to allocate expenses based on how they are incurred. By reviewing the revenue requirements and understanding the utility system, it is appropriate and reasonable to utilize the base -extra capacity methodology outlined in the American Water Works Association M1 Manual. This methodology accounts for utility systems costs to meet revenue needs based on average annual usage and total demand. The cost components shown in Figure 11 reflect the cost components used for this study. Figure 11: Cost Components Account Meter Fire Flow Water Delivery Services Capacity Demand SuaDly Account Services — Fixed expenses that do not necessarily fluctuate based on usage nor are a function of meter size. Expenses associated with central service costs. Meter Capacity— Expenses associated with water billings, Public Works support, and a portion of debt and reserve funding. Fire Flow Demand — Portion of system costs to meet fire flow demand inherent to the water system. Water Supply— Groundwater and purchased water costs. Delivery— Expenses associated with water distribution, groundwater production and treatment, imported water operations and maintenance, and water production expenses incurred to deliver water to all customers. These costs tend to vary with the volume of water sold. Allocate Expenses to Cost Components The analysis herein establishes cost components for developing fixed charges and consumption charges. When allocating expenses to the defined costs components, it is important to identify which expenses were allocated to fixed versus variable or split between both fixed and variable. The distribution of expenses to the cost components should be straight -forward to ensure the method of apportionment is understandable and easily correlates to how expenses are incurred. Water supply costs are separated from the rest of O&M expenses and the cost details are provided in Appendix A. Table 23 summarizes the percent allocation of water supply costs to the water supply component. Table 24 reflects the dollars to each cost component based on the percent allocations in Table 23. Page 130 C ONSULTING DocuSign Envelope ID: 63BOC69D-1BFD-4B3F-8FDF-D6C835E73DF6 City of Tustin-fY2024 Cost -of -Service Rate Study Table 23: Water Supply Cost Allocation to Cost Components (%) ' - • • • • • Account Meter Fire Flow Water fater • • • Delivery Total Allocation Basis Service Capacity Demand Supply Groundwater Basin Assessment Specific 0.0% 0.0% 0.0% 100.0% 0.0% 100.0% EOCWD - Water Purchased Specific 0.0% 0.0% 0.0% 100.0% 0.0% 100.0% EOCWD - Connection Fees i Specific 0.0% 0.0% 0.0% 100.0% 0.0% 100.0% Table 24: Water Supply Cost Allocation to Cost Components ($) - • • • • • Account Meter Fire Flow Water • • • .' • • Service Capacity Demand Supply Delivery l Total. Groundwater Basin Assessment sp-ift $0 $0 $0 $3,731,000 $0 $3,731,000 EOCWD - Water Purchased sp-ift $0 $0 $0 $5,544,000 $0 $5,544,000 EOCWD - Connection Fees sp-ift $0 $0 $0 $657,000 $0 $657,000 Total Allocation (5) 50 50 SO 59.932.000 SO I 59.932.000 Certain O&M expenses are a function of serving Max Day Demand (Max Day) and Max Hour Demand (Max Hour), including fire flow demand (FFD). A water system is configured to accommodate these demands with the sizing of pipes, storage facilities and other appurtenant facilities to meet total demand. Therefore, to apportion certain O&M costs between Max Day, Max Hour, and FFD, the amount associated with FFD must be determined. Max Day is the amount of water delivered during the maximum day of usage throughout the year and Max Hour is the maximum hour of usage throughout the year. The system is constructed to accommodate Max Day and Max Hour, as well as FFD in the event of a fire. Based on the system requirements, the maximum fire flow needs vary by land use from 1,500 gallons per minute (gpm) for residential up to 4,000 gpm for Industrial based on the guidelines the City follows. Fire flow requirements were weighted by the corresponding accounts to derive the typical fire flow requirement needed during a probable fire event within the City's service area. Table 25 derives the weighted fire flow demand and weighted time duration. Table 26 identifies the Max Day and Max Hour of the City's water system and the FFD from Table 25. Table 26 uses this information to calculate the portion of Max Day and Max Hour associated with a fire event. These percentages are used to allocate a portion of certain O&M expenses to FFD. Table 25: Fire Flow Requirement within City's Service Area Fire777= Time Accounts % of Weighted Weighted FFD by Land Use Demand -Duration Accounts FFD Time Duration [A] [B] [C] [D] = C as % [E] = A x D [F] = B x D Low Density Residential 1,500 gpm 2 hours 11,981 84.5% 1,268 gpm 1.69 hours Medium Density Residential 2,000 gpm 2 hours 843 5.9% 119 gpm .12 hours Commercial 2,500 gpm 3 hours 1,110 7.8% 196 gpm .23 hours Public Facility 3,000 gpm 3 hours 143 1.0% 30 gpm .03 hours Institutional/School 3,500 gpm 4 hours 44 0.3% 11 gpm .01 hours Industrial 4,000 gpm 4 hours 50 0.4% 14 gpm .01 hours Total 14,171 100.0% 1,638 gpm 2.10 hours Page 131 C ONSULTING DocuSign Envelope ID: 63BOC69D-1BFD-4B3F-8FDF-D6C835E73DF6 City of Tustin-fY2024 Cost -of -Service Rate Study Table 26: Fire Flow Demand as Percentage of Max Day and Max Hour C onversions System Demand Source Max Day Max Hour System Demand (Provided by City) 9,680 gpm 23,730 gpm x 60 Minutes 60 60 x 24 Hours 24 N/A System Demand (gallons) 13,939,200 1,423,800 Fire Flow Demand Weighted Average FFD (gpm) (Table 23, Column E) 1,638 gpm 1,638 gpm x 60 Minutes 60 60 Weighted Average FFD (gph) 98,294 98,294 x Time Duration (Table 23, Column F) 2.10 1.00 Fire Flow Demand (gallons) 206,584 98,294 Total Demand (Line 5+Line 11) 14,145,784 1,522,094 FFD as % of System Demand (Line 11 - Line 12) 1.5% 6.5% Table 27 summarizes the percentage allocations to Delivery and FFD. Table 27: System Demand Allocations Between Delivery and FFD System Peak FFD [A] Delivery [B ] = 100% -A Average Day 0.0% 100.0% Max Day 0.0% 100.0% Max Hour 0.0% 100.0% Max Day + FFD 1.5% 98.5% Max Hour + FFD 6.5% 93.5% Table 28 summarizes the percent allocation of Operating Expense revenue requirements to the cost components and Table 29 uses the percent allocations in Table 28 to allocate expenses in dollars to each cost component. Salaries and Benefits (PW Water Admin — S&B) was allocated to Meter Capacity and Delivery with the percentage of cost associated with employees who work on the water distribution system assigned to Delivery and the remaining percentage allocated to Meter Capacity. Distribution facilities are designed to accommodate Max Hour, therefore, Public Works — Water Distribution was allocated using the distribution basis of Max Hour identified in Table 27. Public Works — Main Street Facilities, Public Works — 17th Street Desalter, and Public Works — Water Production are related to the City's ground water supplies and wells and are a function of serving Max Day. Therefore, these expenses were allocated using the distribution basis of Max Day identified in Table 27. Page 132 C O\ 5 l I. T I \ (� DocuSign Envelope ID: 63BOC69D-1BFD-4B3F-8FDF-D6C835E73DF6 City of Tustin-FY2024 Cost -of -Service Rate Study Table 28: Operating Expense Allocation to Cost Components (%) • - • • - ' - • • • • • Allocation Basis Account Service Meter • Capacity Fire Flow Demand • Water Supply Delivery Tota Finance - Water Billings Specific 0.0% 100.0% 0.0% 0.0% 0.0°% 100.0% Finance -Administrative Fees Specific 100.0% 0.0% 0.0% 0.0% 0.0% 100.0% Public Works - Water Administration Specific 0.0% 100.0% 0.0% 0.0% 0.0% 100.0% PW Water Admin - S&B Specific 0.0% 70.6% 0.0% 0.0% 29.4% 100.0% Public Works- Water Distribution Max Hour+ FFD 0.0% 0.0% 6.5% 0.0% 93.5% 100.0% Public Works - Main Street Facilities Max Day + FFD 0.0% 0.0% 1.5% 0.0% 98.5% 100.0% Public Works - 17th Street Desalter Max Day + FFD 0.0% 0.0% 1.5% 0.0% 98.5% 100.0% Public Works- Imported Water 0&M Average Day 0.0% 0.0% 0.0% 0.0% 100.0% 100.0% Public Works - Water Production Max Day + FFD 0.0% 0.0% 1.5% 0.0% 98.5% 100.0% Table 29: Operating Expense Allocation to Cost Components ($) ' • • • • • Account Meter Fire Flow Water • . • • _ .' • • Service Capacity Demand Supply Delivery JL Total Finance - Water Billings So"ift $0 $2,736,000 $0 $0 $0 $2,736,000 Finance -Administrative Fees Specific $1,500,000 $0 $0 $0 $0 $1,500,000 Public Works - Water Administration Specific $0 $1,128,000 $0 $0 $0 $1,128,000 PW Water Admin - S&B Specific $0 $888,330 $0 $0 $369,670 $1,258,000 Public Works- Water Distribution Max Hour+FFD $0 $0 $106,231 $0 $1,538,769 $1,645,000 Public Works - Main Street Facilities Max Day +FFD $0 $0 $4,221 $0 $284,779 $289,000 Public Works - 17th Street Desalter MaxDoy+FFD $0 $0 $13,173 $0 $888,827 $902,000 Public Works - Imported Water 0&M Average Day $0 $0 $0 $0 $115,000 $115,000 Public Works- Water Production MoxDay+FFD $0 $0 $16,590 $0 $1,119,410 $1,136,000 Total Allocation ($) $1,500,000 $4,752,330 $140,215 $0 $4,316,455 1$10,709,000 O&M Allocation (%) 14.0% 44.4% 1.3% 0.0% 40.3% 1 100.0% The Debt Service revenue requirements are shown as a separate section to identify the existing debt obligation of the water utility; however, debt service payments are part of the City's operating budget. Therefore, Debt Service is allocated based on the operating expense percentages derived at the bottom of Table 29, which results in a portion of annual debt payments recovered overall operating expense cost components and corresponding unit rates derived in the Rate Design section of this report. Table 30 summarizes the allocation of Debt Service. Table 31 provides the cost in dollars allocated to each cost component. Table 30: Debt Service Allocation to Cost Components (%) ' • • • • • Account Meter Fire Flow -• Water supply Delivery Total � • • :. Service Capacity Demand Existing Debt O&M Allocation 14.0% 44.4% 1.3% 0.0% 40.3% 100.0% New/Proposed Debt 0&M Allocation 14.0°% 44.4% 1.3% 0.0% 40.3% 100.0% Page 133 C ONSULTING DocuSign Envelope ID: 63BOC69D-1BFD-4B3F-8FDF-D6C835E73DF6 City of Tustin-fY2024 Cost -of -Service Rate Study Table 31: Debt Service Allocation to Cost Components ($) ' - • • • • • �-• Account Meter Fire Flow Water Supply Delivery Total � Service Capacity Demand Existing Debt O&MAllocnhon $340,368 $1,078,360 $31,816 $0 $979,455 $2,430,000 New/Proposed Debt O&MAuocouon $0 $0 $0 $0 $0 $0 Total Allocation ($) $340,368 $1,078,360 $31,816 $0 $979,455 $2,430,000 Other Funding includes other operating and non -operating revenue offsets and adjustments for reserve funding and mid -year increases. All items under "Other Funding" are allocated based on Operating expense percentages derived at the bottom of Table 29 to maintain the proportionality in how O&M expenses were allocated to each cost component. Table 32 summarizes the percent allocation of Other Funding to the cost components, and Table 33 uses the percent allocations in Table 32 to allocate expenses in dollars to each cost component. Table 32: Other Funding to Cost Components (%) • • ' - • • • • • • . Account Service Meter Capacity Fire Flow Demand Water Supply Delivery Total Revenue Offsets Operating Revenues 0&M Allocation 14.0% 44.4% 1.3% 0.0% 40.3% 100.0% Non -Operating Revenues O&M Allocation 14.0% 44.4% 1.3% 0.0% 40.3% 100.0% Adjustments Reserve Funding O&M Allocation 14.0% 44.4% 1.3% 0.0% 40.3% 100.0% Adjustment for Mid -Year Increase O&M Allocation 14.0% 44.4% 1.3% 0.0% 40.3% 100.0% Table 33: Other Funding Allocation to Cost Components ($) ' - • • • • • � • • � • • Account Service Meter Capacity Fire Flow Demand Water Supply Delivery Total Revenue Offsets Operating Revenues O&MAllo-tlon ($36,418) ($115,380) ($3,404) $0 ($104,798) ($260,000) Non -Operating Revenues O&MAII—ton ($140) ($444) ($13) $0 ($403) ($1,000) Adjustments Reserve Funding O&MAII—tlon ($82,361) ($260,937) ($7,699) $0 ($237,004) ($588,000) Adjustment for Mid -Year Increase O&MAllocotlon $133,906 $424,244 $12,517 $0 $385,333 $956,000 Total Allocation ($) $14,987 $47,483 $1,401 $0 $43,128 $107,000 Page 134 DocuSign Envelope ID: 63BOC69D-1BFD-4B3F-8FDF-D6C835E73DF6 City of Tustin-fY2024 Cost -of -Service Rate Study Table 34 summarizes the revenue requirement derived in Table 22 by cost component. Table 34: FY 2024 Cost -of -Service Requirements by Cost Component -� Variable Revenue Requirement Account Meter Fire Flow Water Supply Delivery Total Service Capacity Demand Water Supply Costs Table 27 $0 $0 $0 $9,932,000 $0 $9,932,000 Operating Expenses Table 29 $1,500,000 $4,752,330 $140,215 $0 $4,316,455 $10,709,000 Debt Service Table 31 $340,368 $1,078,360 $31,816 $0 $979,455 $2,430,000 Other Funding Table 33 $14,987 $47,483 $1,401 $0 $43,128 $107,000 COS Requirements $1,855,355 $5,878,174 $173,432 $9,932,000 $5,339,039 $23,178,000 Page 135 DocuSign Envelope ID: 63BOC69D-1BFD-4B3F-8FDF-D6C835E73DF6 City of Tustin—fY2024 Cost -of -Service Rate Study Rate Design Develop Units of Service Unit rates for each cost component are derived by spreading the corresponding revenue requirements over appropriate units of service (distribution basis). This approach provides a clear connection between costs incurred and the proportionate share attributable to each customer. When designing rates, the most critical component is to connect costs to the proposed rates, resulting in a cost -based rate structure. The previous section summarized costs by expense category and allocated them to cost components based on how each cost is incurred. The next step in designing rates is apportioning each cost component to customers through fixed charges and consumption charges. The method of apportionment considers each customer's share of system costs as reflected by the units of service used to distribute the cost components to each customer account. The distribution basis varies by cost component and includes Annual Bills, Annual Meter Equivalents (MEs), which reflect demand placed on the system, Fire Flow Demand, and total water sales. Based on discussion with staff regarding the City's meter inventory, each meter size was assigned an equivalency factor based on the 'flow characteristics' of the meter types used by the City. The safe maximum operating flow capacity for these meter types, as identified in the AWWA M1 Manual, 6t" Edition, Table B-2, were used for determining total meter equivalencies when compared to a <_ 3/4" meter. The capacity ratio represents the potential flow through each meter size compared to the smallest sized meter to establish parity between all meter sizes. The safe maximum operating flow capacity for each meter was divided by 20 gallons per minute (gpm) to determine the equivalent meter ratios. Total MEs are determined by multiplying the number of meters by the Capacity Ratio and then multiplying the result by the number of billing periods. Table 35 summarizes the units of service related to total Accounts and MEs. Table 35: Accounts and Meter Equivalents3 Meter Size AWWA Capacity Capacity (gpm) Ratio [A] [B] = A =20 S3/4" 111 1 1/2" 2" 311 4" 6" 20 50 100 160 350 600 1,350 1.00 2.50 5.00 8.00 17.50 30.00 67.50 Meter Annual Annual Accounts Equivalents Bills ME's IC [D] _ (B x U [E] _ (C x 6) [F] _ (D x 6) 9,907 9,907 59,442 59,442 3,189 7,973 19,134 47,835 374 1,870 2,244 11,220 597 4,776 3,582 28,656 22 385 132 2,310 45 1,350 270 8,100 14 945 84 5,670 8" 101, 2,800 140.00 1 4,200 210.00 0 140 0 6 0 840 0 Total 14,149 27,346 84,894 164,073 3 Annual Bills and Annual ME's account for the City's 6 billing periods. Page 136 U\ 5 l 1. T I \ (; DocuSign Envelope ID: 63BOC69D-1BFD-4B3F-8FDF-D6C835E73DF6 City of Tustin—FY2024 Cost -of -Service Rate Study If an account has more than one dwelling unit, the City charges each additional dwelling unit (unit 2 and above) an Additional Dwelling Unit charge. Table 36 shows the number of additional dwelling units and the Annual Bills to account for the 6 bi-monthly billing periods. Table 36: Additional Dwelling Units Additional Annual Bills Dwelling Units [A] [B ] = (A x 6) Additional Dwelling Units 9,690 58,140 Table 37 summarizes the units of service including Annual Bills (Table 35 — column E + Table 36 — column B), Annual ME's and Total Usage. Table 37: Units of Service Units of Service Annual Bills Annual ME's Total Usage (HCF) Accounts Table 35 84,894 164,073 Additional Dwelling Units Table 36 58,140 Customer Usage Table 11 4,290,660 Total 143,034 164,073 4,290,660 System fire flow revenue requirements are allocated between dedicated fire lines and hydrants based on fire flow demand of all connections. Potable meters recover the portion associated with the fire flow demand of all hydrants for the standby services that is available to all accounts. Table 38 identifies all connections by size (in diameter inches) between dedicated fire lines and hydrants. The connection size has a relative flow potential that is a function of the diameter size of the connection. Using the principles of the Hazen -Williams equation, each connection size was raised to the 2.63 power, to derive the relative flow potential of all fire line connections by size. Page 137 ,,CONSUL T I N G DocuSign Envelope ID: 63BOC69D-1BFD-4B3F-8FDF-D6C835E73DF6 City of Tustin—FY2024 Cost -of -Service Rate Study Table 38: Fire Flow Demand Units of Service Annual Size of Diameter Annual Diameter Fire Flow Fire Lines Connections C onnections Line Inches Inches Demand [A] [13]=Ax6 [C] [D]=AxC [E]=Dx6 [F] = A x (C ^ 2.63) Public Hydrants 6" 1,911 11,466 6.00 11,466 68,796 212,715 Subtotal 1,911 11,466 11,466 68,796 212,718 Fire Lines 4" 58 348 4.00 232 1,392 2,223 5" 1 6 5.00 5 30 69 6" 104 624 6.00 624 3,744 11,576 8" 68 408 8.00 544 3,264 16,130 10" 4 24 10.00 40 240 1,706 12" 2 12 12.00 24 144 1,378 Subtotal Fire Lines 237 1,422 1,469 8,814 33,082 Total 2,148 12,888 12,935 77,610 245,800 With the units of service shown in Table 37 and Table 38, we identified the distribution basis for each cost component. Figure 12 identifies the total revenue requirements by cost component from Table 34 and the corresponding units of service. Page 138 J 3—,,c ONSULT1NG DocuSign Envelope ID: 63BOC69D-1BFD-4B3F-8FDF-D6C835E73DF6 City of Tustin—FY2024 Cost -of -Service Rate Study Figure 12: Distribution Basis and Units of Service by Cost Component Account Services Meter Fire Flow Water Capacity Demand Supply Delivery Using FY 2024 revenue requirements, the cost -of -service allocates expenses to customers based on the service demands that each place on the system (cost causation). This cost causation approach ensures that each customer proportionately shares in the financial obligation of the utility. Unit rates were rounded up to the nearest penny for the following unit rate computations for each cost component. Fixed Cost Recove Account Services Each customer incurs Account Services costs regardless of the type of land use, meter size, or total amount of water used in a month. Furthermore, each additional dwelling unit also incurs Account Services costs. These costs should be spread equally across all accounts. This is achieved by using the distribution basis of Annual Bills. Annual Bills include the number of accounts multiplied by 6 billing periods (Table 35) plus the number of additional dwelling units multiplied by 6 billing periods (Table 36). Therefore, the revenue requirement for Account Services is apportioned based on the Annual Bills to determine the bi-monthly unit cost -of -service shown in Table 39. Table 39: FY 2024 Account Services Bi-Monthly Unit Rate Account Service Component Unit Rate Revenue Requirement $1,855,355 Annual Bills 143,034 Bi-Monthly Unit Rate $12.98 Page 139 I 3—,,c ONSULT1NG DocuSign Envelope ID: 63BOC69D-1BFD-4B3F-8FDF-D6C835E73DF6 City of Tustin—FY2024 Cost -of -Service Rate Study Meter Capacity The Meter Capacity includes billing and administrative costs, a portion of Public Works personnel costs related to salaries and benefits, debt, and reserve funding. The revenue requirement for Meter Capacity is apportioned based on meter size. Larger sized meters can generate a greater demand on the system from the amount of potential water flow that may pass through the meter in gpm. The revenue requirement for Meter Capacity is apportioned to meter size as represented by total MEs (Table 35) in Table 40. Table 40: FY 2024 Meter Capacity Bi-Monthly Unit Rate Meter Capacity Component Unit Rate Revenue Requirement $5,878,174 Annual ME's 164,073 Bi-Monthly Unit Rate $35.83 Fire Flow Demand Table 41 takes the fire flow demand units of service derived in Table 38 and allocated the FY 2024 cost -of - service fire flow demand revenue requirement between system hydrants and dedicated fire lines. Table 42 takes the portion associated with fire flow demand of the water system's connected hydrants and spreads the cost to potable meters based on MEs. The portion related to dedicated fire lines is recovered based on the unit rate per diameter inch derived in Table 43. Table 41: FY 2024 Fire Flow Demand Revenue Requirement Allocation Fire Flow % Revenue Fire Lines Demand Allocation Requirement [A] [B] = A as a % [C] = $173,432 x B Public Hydrants Table 38, Line 3 212,718 86.5% $150,090 Fire Lines Table 38, Line 11 33,082 13.5% $23,342 Tota 1 245,800 100% $173,432 Table 42: FY 2024 Public Fire Flow Demand Bi-Monthly Unit Rate Public Fire Flow Demand Component Unit Rate Revenue Requirement $150,090 Meter Equivalents 164,073 Bi-Monthly Unit Rate $0.92 Page 140 I 3—,,c ONSULT1NG DocuSign Envelope ID: 63BOC69D-1BFD-4B3F-8FDF-D6C835E73DF6 City of Tustin—FY2024 Cost -of -Service Rate Study Table 43: FY 2024 Dedicated Fire Line Bi-Monthly Unit Rate per Diameter Inch Dedicated Fire Lines Demand Component Unit Rate Revenue Requirement $23,342 Annual Diameter Inches 8,814 Bi-Monthly Unit Rate $2.65 Variable Cost Recovery The remaining cost components of Water Supply and Delivery are recovered through a consumption charge. The proposed rate structure consists of a uniform rate per hcf. Water Supply The City water supplies include groundwater and imported water. Due to the construction of PFAS treatment facility, the City's has incurred more imported water supply costs. The percentage of groundwater versus imported water used to serve demand is currently in flux and does not reflect the City's historical trend of 95% groundwater and 5% imported water. Therefore, the City will continue charging all customers through one uniform rate for water supply costs. Table 44 allocates the revenue requirement of Water Supply based on projected total usage for FY 2024. Table 44: FY 2024 Water Supply Unit Rate Water Supply Component Unit Rate Revenue Requirement $9,932,000 =Total Usage 4,290,660 Bi-Monthly Unit Rate $2.32 Delivery Delivery costs are incurred based on the total volume of water produced and delivered to customers throughout the year. Therefore, the revenue requirement for Delivery is apportioned based on projected total water usage identified in Table 37 to determine the unit cost -of -service, as shown in Table 45. J 3—,,c 0 N S U L Table 45: FY 2024 Delivery Unit Rate Delivery Component Unit Rate Revenue Requirement $5,339,039 Total Usage 4,290,660 Bi-Monthly Unit Rate $1.25 Page 141 T I N G DocuSign Envelope ID: 63BOC69D-1BFD-4B3F-8FDF-D6C835E73DF6 City of Tustin-FY2024 Cost -of -Service Rate Study FY 2024 Cost -of -Service Rates Proposed FY 2024 Bi-Monthly Fixed Charaes The proposed bi-monthly fixed charges for FY 2024 are shown in Table 46, reflecting the combined charges of Account Service, Meter Capacity, and Fire Flow Demand. Account Service is constant for all meter sizes while all other fixed charge components increase with the size of the meter in relation to the Capacity Ratios. Table 47 shows the proposed bi-monthly additional dwelling unit charge and Table 48 provides the proposed bi-monthly dedicated fire line charge by size of connection. Table 46: FY 2024 Bi-Monthly Meter Service Charges Meter Size C apacity Ratio [A] Account Service [B] = $12.98 Meter Capacity [C] = $35.83 x A Fire Flow Demand [D] = $.92 x A Proposed Meter Service Charge [E] = A + B + C + D <_3/4" 1.00 $12.98 $35.83 $0.92 $49.73 1" 2.50 $12.98 $89.58 $2.30 $104.86 11/2" 5.00 $12.98 $179.15 $4.60 $196.73 2" 8.00 $12.98 $286.64 $7.36 $306.98 3" 17.50 $12.98 $627.03 $16.10 $656.11 4" 30.00 $12.98 $1,074.90 $27.60 $1,115.48 6" 67.50 $12.98 $2,418.53 $62.10 $2,493.61 8" 140.00 $12.98 $5,016.20 $128.80 $5,157.98 10" 210.00 $12.98 $7,524.30 $193.20 $7,730.48 Table 47: FY 2024 Bi-Monthly Additional Dwelling Unit Charge Additional Dwelling Unit C harge Additional Dwelling Unit I 3-,,c ONSULT1NG Account Service $12.98 Proposed Additional Dwelling Unit Charge $12.98 Page 142 DocuSign Envelope ID: 63BOC69D-1BFD-4B3F-8FDF-D6C835E73DF6 City of Tustin—fY2024 Cost -of -Service Rate Study Table 48: FY 2024 Bi-Monthly Fire Line Service Charges Connection Size Size of Line [A] Fire Flow Demand [B] = $2.65 x A Proposed Fire Line Charge 4" 4.00 $10.60 $10.60 5" 5.00 $13.25 $13.25 6" 6.00 $15.90 $15.90 8" 8.00 $21.20 $21.20 10" 10.00 $26.50 $26.50 12" 12.00 $31.80 $31.80 Proposed FY 2024 Variable Charges Table 49 provides the consumption charge for FY 2024, reflecting the combined Water Supply and Delivery rates. Table 49: FY 2024 Proposed Consumption Charge ($/hco C ustomer C lass Water S upply Delivery ProposedConsumption Charge [A] [B] [C ] = A + B All Customers $2.32 $1.251 $3.57 Page 143 C ONSULTING DocuSign Envelope ID: 63BOC69D-1BFD-4B3F-8FDF-D6C835E73DF6 City of Tustin-fY2024 Cost -of -Service Rate Study Cost -Based Rates Cost -of -Service and Proposed Rate Schedules The comprehensive cost -of -service analysis and rate development meet the requirements of Proposition 218, which includes: 1. An agency cannot collect revenue beyond what is necessary to provide service. The long-term financial plan identifies the City's revenue requirements including operating expense, capital improvement program, debt coverage, and reserves. Building up reserves is a prudent practice to mitigate rate spikes due to known future capital projects. Therefore, projected revenues do not exceed the cost of providing service. 2. Revenues derived by the charge shall not be used for any other purpose other than that for which the charge was imposed. The City's water utility is set up as a business enterprise to track revenues and expenses and does not fund other services outside of those necessary for the provision of delivering safe and reliable water. 3. The amount of the fee may not exceed the proportional cost -of -service for the parcel. The comprehensive cost -of -service analysis and updated fixed charges and consumption charge reflect the proportionate share of cost to each customer. Through this update, each account is paying for the costs of providing water service to the parcel. 4. No charge may be imposed for a service unless that service is actually used or immediately available to the owner of the property. The proposed fixed charges and consumption charges connect directly to the City's water enterprise budget and projected future revenue requirements and are recovered equitably from all active accounts receiving service. 5. A written notice of the proposed charge shall be mailed to the record owner of each parcel at least 45 days prior to the public hearing. Notices were mailed to each affected parcel at least 45 days prior to the December 5, 2023, Public Hearing. The proposed water rate schedules for FY 2024 through FY 2028 are shown in the following section. If a majority protest does not exist at the December 5th Public Hearing, the City Council may adopt the rates with an effective date of January 1, 2024, for the first rate adjustment, and each January 1 thereafter through January 1, 2028. Page 144 DocuSign Envelope ID: 63BOC69D-1BFD-4B3F-8FDF-D6C835E73DF6 City of Tustin-fY2024 Cost -of -Service Rate Study Multi -Year Rate Schedules Table 50 through Table 52 provide the five-year fixed charge schedule through FY 2028 for meters, additional dwelling units, and dedicated fire lines. Table 53 provides the five-year consumption charge schedule through FY 2028. For FY 2025 through FY 2028, the revenue adjustments are applied across-the- board to the cost -of -service rates derived for FY 2024 (rounded up to the next whole penny) as account growth and usage characteristics are projected to remain constant for financial planning. Table 50: FY 2024 - FY 2028 Proposed Bi-Monthly Meter Service Charges Revenue Adjustment: 9.0% 9.0% 9.0% 9.0% • - $C • Meter Size FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 <_3/4" $49.73 $54.21 $59.09 $64.41 $70.21 1" $104.86 $114.30 $124.59 $135.81 $148.04 11/2" $196.73 $214.44 $233.74 $254.78 $277.72 2" $306.98 $334.61 $364.73 $397.56 $433.35 3" $656.11 $715.16 $779.53 $849.69 $926.17 4" $1,115.48 $1,215.88 $1,325.31 $1,444.59 $1,574.61 6" $2,493.61 $2,718.03 $2,962.66 $3,229.30 $3,519.94 8" $5,157.98 $5,622.20 $6,128.20 $6,679.74 $7,280.92 10" $7,730.48 $8,426.23 $9,184.60 $10,011.22 $10,912.23 Table 51: FY 2024 - FY 2028 Proposed Bi-Monthly Additional Dwelling Unit Charge Revenue Adjustment: 9.0% 9.0% 9.0% 9.0% Dwelling Unit Charge FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 Additional Dwelling Units ( ; O \ S l I . "I' I \ (" $12.98 $14.15 $15.43 $16.82 $18.34 Page 145 DocuSign Envelope ID: 63BOC69D-1BFD-4B3F-8FDF-D6C835E73DF6 City of Tustin-FY2024 Cost -of -Service Rate Study Table 52: FY 2024 - FY 2028 Proposed Bi-Monthly Fire Line Service Charges Revenue Adjustment: 9.0% 9.0% 9.0% 9.0% Connection Size FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 4" $10.60 $11.56 $12.61 $13.75 $14.99 5" $13.25 $14.45 $15.76 $17.18 $18.73 6" $15.90 $17.34 $18.91 $20.62 $22.48 8" $21.20 $23.11 $25.19 $27.46 $29.94 10" $26.50 $28.89 $31.50 $34.34 $37.44 12" $31.80 $34.67 $37.80 $41.21 $44.92 Table 53: FY 2024 - FY 2028 Proposed Consumption Charge Revenue Adjustment: 9.0% 9.0% 9.0% 9.0% Consumption Charge C ustomer C lass FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 All Customers I 3-,,c ONSULT1NG $3.57 $3.90 $4.26 $4.65 $5.07 Page 146 DocuSign Envelope ID: 63BOC69D-1BFD-4B3F-8FDF-D6C835E73DF6 City of Tustin-fY2024 Cost -of -Service Rate Study Appendix A - Water Supply Cost Analysis In order to calculate the annual fixed water supply costs, the EOCWD connection fees shown above were multiplied by twelve. The annual variable water supply costs were calculated through the following analysis. First, the water loss percentage was applied to the water billings/sales to derive the total amount of water needed to meet customer demand. Next, the amount of purchased water needed from EOCWD to meet the remaining demand was calculated by subtracting the available amount of the groundwater supplies from the total water demand and water production disposed in the Brine line to remove high levels of salt and contaminants. The variable water supply rates have an effective date of January 1 of each year. In order to calculate the variable purchase water costs, the amount of water purchased or produced from July to January (% at Prior Rate) and the amount of water purchased or produced from January to June (% at Current Rate) must be determined. Once the amount of water used at the prior and current rates are determined, the volumes were then multiplied by the corresponding variable purchase water costs in order to calculate the total annual variable water supply costs. Page 147 DocuSign Envelope ID: 63BOC69D-1BFD-4B3F-8FDF-D6C835E73DF6 City of Tustin-FY2024 Cost -of -Service Rate Study Table 54: FY 2024 - FY 2028 Projected Purchased Water Costs Key Inputs / Assumptions FY 2024 F ?n?5 FYZ026 Escalation Factors GW Assessment 3.0% 0.0% 3.0% 3.0% 3.0% EOCWD (Fixed) 3.0% 3.0% 3.0% 3.0% 3.0% EOCWD (Variable) 5.0% 0.0% 5.0% 5.0% 5.0% Effective Date 1/1/2024 1/1/2025 1/1/2026 1/1/2027 1/1/2028 • of Usage at prior rate 56.5% 50.0% 50.0% 50.0% 50.0% • of Usage at current rate 43.5% 50.0% 50.0% 50.0% 50.0% System/Supply Characteristics System Water Loss 7.0% 7.0% 7.0% 7.0% 7.0% Water Sup M4 FY 2025 FY 2028 Groundwater Treated 2,400 AF 6,120 AF 7,980 AF 7,980 AF 7,980 AF Untreated 3,960 AF 2,400 AF 2,400 AF 2,400 AF 2,400 AF Brine Treated 352 AF 352 AF 352 AF 352 AF 352 AF Brine (Water Not Available for Demand) 352 AF 352 AF 352 AF 352 AF 352 AF Water SuppTy Rate Monthly Fixed Costs ($/Month) EOCWD - Connection Fees $53,667 $54,740 $56,382 $58,074 $59,816 $61,610 Variable Purchased Water Costs ($/AF) Groundwater Basin Assessment $558 $624 $653 $673 $693 $714 EOCWD - Water Purchased $1,209 $1,209 $1,256 $1,319 $1,385 $1,454 Fixed Water Costs Calculation (Annual) FY 2024 FY 2025 FY 202M FY 2027 FY 2028 Fixed Costs EOCWD - Connection Fees $656,880 $676,586 $696,884 $717,791 $739,324 Variable Water Costs Calculation (Annual) FY 2024 FY 2025 FY 2026 1 FY 2027 M2028 Water Billings/Sales (AF) 9,850 AF 9,850 AF 9,850 AF 9,850 AF 9,850 AF Water Demand 10,594 AF 10,594 AF 10,594 AF 10,594 AF 10,594 AF GW Treated 2,400 AF 6,120 AF 7,980 AF 7,980 AF 7,980 AF GW Untreated 3,960 AF 2,400 AF 2,400 AF 2,400 AF 2,400 AF Brine (Not available for Sale) -352 AF -352 AF -352 AF -352 AF -352 AF Water Purchases (EOCWD) 4,586 AF 2,426 AF 566 AF 566 AF 566 AF Water Characteristics Groundwater Production (AF) % at Prior Rate % at Current Rate Water Purchases - EOCWD (AF) % at Prior Rate % at Current Rate Calculated Variable Water Supply Costs Groundwater Basin Assessment EOCWD Water Purchases 3,593 AF 4,260 AF 5,190 AF 5,190 AF 5,190 AF 2,767 AF 4,260 AF 5,190 AF 5,190 AF 5,190 AF 2,591 AF 1,213 AF 283 AF 283 AF 283 AF 1,995 AF 1,213 AF 283 AF 283 AF 283 AF $3,731,476 $5,440,020 $6,881,940 $7,090,526 $7,303,242 $5,544,469 $2,990,040 $728,719 $765,212 $803,473 Total Variable Water Supply Costs $9,275,944 $8,430,060 $7,610,659 $7,855,738 $8,106,714 Total Calculated Water Supply Costs $9,932,824 $9,106,646 $8,307,543 $8,573,529 $8,846,039 Page 148 C ONSULTING DocuSign Envelope ID: 63BOC69D-1 BFD-4B3F-8FDF-D6C835E73DF6 About the Rate Adjustment The City is proposing a revenue adjustment of 9% per year from Fiscal Year 2024 through Fiscal Year 2028. If adopted, the new rates will be implemented on January 1st of each year from 2024 through 2028. Tustin Water Service's rates are based on the actual cost of providing water services to our customers. The basis for the proposed rates is detailed in the Cost -of -Service Study, available on the City's website (www.tustinca.org/water-rates). Why is a Rate Adjustment Needed? Historically, the City is fortunate to receive most of its water from local groundwater aquifers. However, due to new State drinking water standards related to per— and poly-fluoroalkyl substances (PFAS), the City has had to turn off several groundwater wells and replace that water supply with imported water from distant and substantially more expensive sources like the Colorado River and the State Water Project. Construction is underway on a new water treatment plant that will treat the PFAS in our local groundwater supply. The proposed adjustment in water rates will ensure that Tustin Water Service is financially stable and able to continue investing in future infrastructure projects that support the City's mission to deliver high -quality and reliable water to the Tustin community. These projects allow the City to: replace aging infrastructure, optimize investment in local water supplies, deliver high -quality drinking water, and prepare for emergencies. The City has been working with the Orange County Water District (OCWD), Orange County's groundwater authority, to construct a new PFAS treatment plant. This plant is scheduled to be completed in the summer/fall of 2024. Once completed, the City will be able to turn on groundwater wells and reduce its reliance on imported water. The water rate model has already factored in this change in water supplies starting in Fiscal Year 2025 and has incorporated it into the revenue adjustments. OCWD is funding the construction of the new PFAS treatment plant, which is projected to cost roughly $19 million. However, the cost to fund this and other similar treatment plants throughout the Orange County groundwater basin has increased the groundwater basin replenishment assessment (RA). The City pays the RA to OCWD for water that it pumps out of the local wells, which has increased by 28% over the last 5 years. At the same time, Tustin Water also experienced increases in other expenses associated with energy, labor, as well as inflation adjustments. Bi-Monthly Commodity/Variable Water Usage Charge This charge is applied to a customer's bill per 100 cubic feet (HCF), 748 gallons, or unit of water consumed. The average single-family residential (SFR) customer in the Tustin Water Service area uses approximately 36 units of water on a bi- monthly basis. The sample calculation for the average SFR customer for FY 2024 after January 1, 2024: 36 units X $3.57 = $128.52 Bi-Monthly Potable Water Usage Charges ($/unit) ***1 unit = 100 cubic feet (hcf) = 748 gallons*** Per Unit $3.24 $3.57 $3.90 $4.26 1 $4.65 $5.07 Bi-Monthly Fixed Service Charge The bi-monthly fixed service charges are used to pay for operations and maintenance costs, including water infrastructure enhancements and replacements. The charge is based on the size of your meter. Bi-Monthly Fixed Service Charges Meter Size 5/8" or 3/4" $46.03 $49.73 $54.21 $59.09 $64.41 $70.21 1" $97.03 $104.86 $114.30 $124.59 $135.81 $148.04 11/2" $182.04 $196.73 $214.44 $233.74 $254.78 $277.72 Page 1 of 4 DocuSign Envelope ID: 63BOC69D-1BFD-4B3F-8FDF-D6C835E73DF6 11111969WNT11-1 2" $284.06 $306.98 $334.61 $364.73 $397.56 $433.35 3" 76" $607.09 $656.11 $715.16 $779.53 $849.69 $926.17 4 " $1,083.15 $1,115.48 $1,215.88 $1,325.31 $1,444.59 $1,574.61 $2,392.30 $2,493.61 $2,718.03 $2,962.66 $3,229.30 $3,519.94 8" $4,092.51 $5,157.98 $5,622.20 $6,128.20 $6,679.74 $7,280.92 10" $6,472.79 $7,730.48 $8,426.23 $9,184.60 $10,011.22 $10,912.23 Per Additional Dwelling Unit Charge $12.02 $12.98 $14.15 $15.43 $16.82 $18.34 The dwelling unit charges are assessed to customers who have more than one dwelling unit. Bi-Monthly Private Fire Protection Service Charge Private firelines provide water to sprinkler systems and private fire hydrants for fire suppression on private property. These include fire protection systems, such as fire protection sprinklers and private fire hydrants that are not a part of, but are connected to, the public water service. Costs are billed to the customers owning the private fire protection systems based on the fireline's size. Current FY 2024 T720251 12028 Effective Date 1 1 1 16 11/1/2028 Fire Protection Services Fireline Size 4" $21.65 $10.60 $11.56 $12.61 $13.75 $14.99 5" $27.05 $13.25 $14.45 $15.76 $17.18 $18.73 6" $32.46 $15.90 $17.34 $18.91 $20.62 $22.48 8" $43.28 $21.20 $23.11 $25.19 $27.46 $29.94 10" $54.11 $26.50 $28.89 $31.50 $34.34 $37.44 12" $64.92 $31.80 $34.67 $37.80 $41.21 $44.92 Automatic Pass -Through Adjustments The City used its best available information to calculate the proposed increases in: • Cost of imported water purchased from The Metropolitan Water District of Southern California (MWD) through the East Orange County Water District (EOCWD) • Replenishment assessment charges paid to OCWD for pumping groundwater. The City has no control over the charges set by third -party regional agencies (MWD, EOCWD, OCWD, etc.). If those charges or fees increase or decrease, the City of Tustin Water Service must pass those costs on directly to its customers. In the event those agencies adopt an increase or decrease in charges, the City may automatically recalculate its rates to include the pass -through amount. If this occurs, the automatic water rate adjustment will not require a public hearing or any additional action by the City Council. The City may implement a pass -through adjustment through FY 2028, provided that (1) any increase in the rates from any pass -through adjustment shall not exceed 10 percent per year; (2) in no event shall the rates be increased by more than the cost incurred; and (3) the City will provide its customers with notice of the expected pass -through adjustments at least 30 days before the effective date of the adjustment. Impact of Proposed Rates for Fiscal Year 2024 The effective date of the proposed water rates for Fiscal Year 2024 is January 1, 2024. The chart below illustrates sample bi-monthly bills for single-family residential (SFR) customers with 5/8" or 3/4" size meters with consumption through 100 units. The average single-family residential customer uses 36 units on a bi-monthly basis. The formula below can be used to calculate the new bi-monthly water bill for the fiscal year 2024 or you can use the calculator on the City's website (www.tustinca.org/water-bill-calculator): Page 2 of 4 DocuSign Envelope ID: 63BOC69D-1BFD-4B3F-8FDF-D6C835E73DF6 Commodity Charge: # units X $3.57 Fixed Charge: (5/8" meter size) = $49.73 Sample Calculation: 36 units of bi-monthly consumption Commodity charge: 36 units X $3.57 = $128.52 Fixed charge: $49.73 Total bi-monthly bill: $128.52 + $49.73 = $178.25 $450.00 $400.00 $350.00 m $300.00 $250.00 o $200.00 m $150.00 $100.00 $50.00 $0.00 Single -Family Customer Bills at Different Consumptions i 0 10 20 30 40 50 60 70 80 90 100 Bi-Monthly Consumption PUBLIC HEARING REGARDING PROPOSED WATER RATES FOR ALL PROPERTIES SERVED WITHIN THE 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 adjustment on December 5, 2023, at 7 p.m., in the City Council Chambers located at 300 Centennial Way, Tustin, CA. If approved by the City Council, the fees and charges will be effective January 1, 2024. 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 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 2024. How to Protest 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 to all property owners within the service area based on the current information published by the Orange County Assessor. 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 December 5, 2023, at 7 p.m. Written protests can be mailed or personally delivered to: Page 3 of 4 DocuSign Envelope ID: 63BOC69D-1BFD-4B3F-8FDF-D6C835E73DF6 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 or name of property owner; 2. Service address or Assessor parcel number (APN); 3. A statement of protest ("I protest" will suffice); and 4. 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 submitted protests and exclude any invalid ones from the final tabulation. The City Clerk may confer with the City Attorney to determine the written protests' validity. The City Attorney may review contested or suspected protest forms as part of this process. 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 that reasonably demonstrate that the protest has been tampered with or is otherwise invalid; and/or 7. The purported protest is received later than the close of the public hearing on December 5, 2023. Pursuant to Government Code Section § 53759, there is a 120-day statute of limitations for any judicial action or proceeding challenging any new, increased, or extended water fee or charge. 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) 573-3099 or email us at waterrates(Otustinca. orp. Si necesita una copia de este documento en espanol por favor de Ilamar al (714) 573-3025. Si tiene preguntas sobre las tarifas del agua, comuniquese con Servicios de Facturacion de Agua al (714) 573-3099 o envienos un correo electronico a waterrates(@tustinca.org. Para leer informacion sobre el ajuste al costo de agua en espanol, por favor visite la pagina: www.tustinca.org/water-rates-spanish. Get Involved The City of Tustin is committed to proactive, two-way communication throughout the rate adjustment process to maximize awareness and minimize public uncertainty. 0 0 In advance of the public hearing meeting, you can attend the community meeting that will be held in the Clifton C. Miller Community Center on November 1, 2023, from 5:30 to 7 p.m. Call the hotline for more information at (714) 573-3099 ® Email our staff at waterratesCa)tustinca.org VISIT OUR WEBSITE VISITA NUESTRO SITIO WEB Page 4 of 4