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02-13-2018 CC Rpt 25COUNCIL AGENDA STAFF REPORTCOUNCIL AGENDA STAFF REPORT TO: HONORABLE MAYOR AND CITY COUNCIL MEMBERS DATE: FEBRUARY 13, 2018 FROM: CITY MANAGER ITEM NO:25 SUBJECT:PROPOSED WATER RATE INCREASES RECOMMENDATION: 1. Receive and file the Water and Recycled Water Rate Study. 2. Authorize the execution of a one-year Professional Services Agreement, with a one-year renewal option, with Koppel & Gruber Public Finance to provide water rate increase noticing and ballot count services in an amount not-to-exceed $30,000. 3. Direct staff to administer the Proposition 218 majority protest ballot process regarding proposed water rate increases and send out notice of the proposed rates and protest ballots to all property owners and current customers of water services in accordance with Resolution No. 2015R-43 (attached). BACKGROUND/ANALYSIS: On April 12, 2016, the Council awarded a Professional Services Agreement to Raftelis Financial Consultants (Raftelis) to evaluate domestic and recycled water rate structures and recommend rates for implementation in July of 2018. The prior water rate study was approved in 2011, which resulted in a five-year plan, with rate increases of 9.9% annually. The last year of the plan was not implemented and water rates have not increased since July 1, 2014. In August of 2016, Raftelis presented an overview of various rate structures to the Public Works Commission (Commission). Raftelis was brought back to the Commission in December of 2016 to present Public Works' recommendations regarding adoption of a budget-based rate structure. Such a structure promotes water rates that are based upon usage and the cost of providing service. On November 1, 2017, Raftelis presented to the Commission the proposed water rates for all customer classes. The Commission supported moving the water rate study forward to a public workshop, in order to provide the residents an opportunity to review the proposed rate structure and resulting rates. A public workshop was held with the City Council on November 28, 2017. The Water Rate Study is included for review by Council. Rate AdjustmentsRate Adjustments WaterWater The proposed rates were calculated based on the Water Rate Study conducted by Raftelis. The resulting rates include an increase, which accounts for the cost for water, pumping to higher elevations (where required), and a monthly service charge depending on the meter 123/231 size. The proposed water rates consider the total cost of providing water services for all user classes and elevation zones. The rates also include debt service funding, operations and maintenance funding, capital improvement project funding, growth, water recycling/conservation costs, shifts in water demand, adequate reserve funds, and capital repair/replacement. In order to ensure that all these costs are accounted for, a maximum eight percent annual increase is proposed for the four years following the initial year of implementation. Actual increases may be lower depending on actual revenues and expenditures. The rates and increases are based upon projected cost increases but will be subject to adjustment from time to time to reflect unexpected changes in costs and charges imposed on the City by external water suppliers including, the Metropolitan Water District, the Inland Empire Utilities Agency, the Monte Vista Water District, the Water Facilities Authority, the Chino Basin Watermaster, and the Chino Basin Desalter Authority. The City purchases water from all of these agencies and will be passing-through the actual unexpected cost increases based upon the fees imposed by these agencies. The City will also adjust the above estimated charges to reflect unexpected changes in electrical costs imposed by Southern California Edison (SCE). The City purchases electricity from SCE for its pumping stations to lift water to higher elevations within the City. Additionally, the rates are based on the FY 2017/18 budget which was approved by Council on June 13, 2017. The budget included the Cost Allocation Plan update to determine overhead charges for FY 2017/18. The Cost Allocation Plan, in part, includes charges impacting the Water Fund. The budget, as it pertains to the Water Fund, is summarized in the Water Rate Study. The full budget with the Cost Allocation Plan update are too large to include in the agenda packet. Therefore, the two documents are referenced as supporting documentation for the City Council to consider in reviewing the Water Rate Study. The Cost Allocation Plan is available for review in the City Clerk's Office and the FY 2017/18 budget may be viewed on the City's website as well as in the City Clerk's office. The proposed residential budget-based rate structure consists of an indoor tier (Tier 1), based on a family of four using 55 gallons per day per person. The second tier (Tier 2) reflects outdoor irrigation usage based on an average of 34.3% of a lot size with a cap of 3,100 square feet. Usage exceeding the second tier would be at a higher rate (Tier 3). The non-residential and recycled customers would continue with a flat rate. 124/231 The following table provides the proposed rates (per 100 cubic feet or 748 gallons of water) for the noted five-year period: Customer Class andCustomer Class and TierTier CurrentCurrent Rate fromRate from FY 14/15FY 14/15 FY 18/19FY 18/19 FY 19/20FY 19/20 FY 20/21FY 20/21 FY 21/22FY 21/22 FY 22/23FY 22/23 Residential Tier 1 $2.08 $2.23 $2.41 $2.61 $2.82 $3.05 Residential Tier 2 $2.37 $3.07 $3.32 $3.59 $3.88 $4.20 Residential Tier 3 $3.31 $3.30 $3.57 $3.86 $4.17 $4.51 Non-Residential Single Rate $2.48 $2.66 $2.88 $3.12 $3.37 $3.64 Construction Temporary $3.00 $3.24 $3.50 $3.78 $4.09 $4.42 Recycled $1.74 $1.82 $2.01 $2.22 $2.45 $2.70 In addition to the above listed rates, elevation charges will be included (per 100 cubic feet of water) to account for pumping from lower zones to higher zones. There will be a $0.09 charge for Intermediate zone pumping and a $0.35 charge for High Zone pumping. The pumping charge rates will increase to collect an additional 8% per year in additional revenue. All rates are rounded up to the nearest penny. Proposition 218Proposition 218 Proposition 218, (California Constitution Articles XIII C and D), which was passed by the voters in November 1996 and became an Amendment to the California Constitution, requires that the City follow certain procedures with regard to water rate increases. The City must provide written notice to the affected property owner of record and may include tenants that are billed by the City for water services. Water rate increases are subject to a "majority protest" process that provides that if a majority of the parcels in the City protest the proposed rate increase, the City cannot impose the increase. The City currently provides water service to approximately 21,800 parcels and so it must receive 10,901 or more protests from property owners to prevent the City from imposing a rate increase. There are situations where there may be multiple protests sent out regarding one parcel. For example, when there is more than one property owner or when there is a property owner and a tenant that is the water customer, only one protest will be counted per parcel. Each time the City goes through the Proposition 218 process, there are property owners and/or water customers that allege that the City is using an unfair process regarding the protest ballot process. The City strictly adheres to the process that was drafted by the Howard Jarvis Taxpayer Association and approved by the voters and which is set forth in Proposition 218. In accordance with the procedures established by Resolution No. 2015R-43, staff proposes that the City prepare a Proposition 218 majority protest notice for Council approval. Professional ServicesProfessional Services To assist staff in conducting a Proposition 218 majority protest process, staff also proposes Council authorize execution of an agreement with Koppel & Gruber Public Finance (K & G) in a total amount not to exceed $30,000 to prepare and mail the notice, as well as count the ballots. This will include K & G's services of $11,450 and the remainder will cover the estimated printing and mailing costs (excluding postage) which K & G will also oversee. K & G has assisted the City in previous Proposition 218 proceedings, with the most recent being in February 2017 for the trash rate increase. Staff determined that K & G continues to 125/231 be the most qualified consulting firm to prepare and conduct the Proposition 218 proceedings. The tentative timetable for the proceedings is shown below: February 13, 2018 Council meeting to direct staff to administer the Proposition 218 process February 14 - March 5, 2018 Staff works with Consultant and City Attorney in preparation of protest forms and notices for mailing March 13, 2018 Present Prop 218 notice to Council March 14, 2018 Mail notices and protest forms to residents and ratepayers March 14 - April 27, 2018 45 days requirement prior to public hearing May 8, 2018 Public Hearing Date and Protest Tabulation; 1st Reading of Ordinance May 22, 2018 2nd Reading of Ordinance May 23 - June 22, 2018 30-Day requirement June 23, 2018 30-Day requirement ends July 1, 2018 Rates become effective ENVIRONMENTAL (CEQA) REVIEW: The subject activity is statutorily exempt from review under CEQA as rates, tolls, fares, and charges pursuant to Section 15273 of the CEQA Guidelines because it relates to the establishment, modification, structuring, restructuring, or approval of rates. FISCAL IMPACT: Sufficient funding is available in the FY 2017/18 Water Utility Fund operations budget to cover the cost of the agreement with Koppel & Gruber Public Finance, in the amount of $30,000. This agenda item does not affect the General Fund. REVIEWED BY OTHERS: This item has been reviewed by the Finance Director. Respectfully Submitted,Recommended By: Attachments Water Study Resolution No. 2015R-43 K&G Agreement 126/231 Water and Recycled Water Rate Study Draft Report / December 19, 2017 CITY OF CHINO HILLS ATTACHMENT 1 127/231 128/231 This page intentionally left blank to facilitate two-sided printing. 445 S Figueroa St. Suite 2270 Los Angeles CA 90071 Phone 213.262.9300 Fax 213.262.9303 www.raftelis.com December 19, 2017 Nadeem Majaj, Public Works Director City of Chino Hills Public Works Department 14000 City Center Drive Chino Hills, CA 91709 Subject: Water Rate Study Report Dear Mr. Majaj, Raftelis Financial Consultants, Inc. (Raftelis) is pleased to provide this Water and Recycled Water Rate Study Report (Study) for the City of Chino Hills (City) Public Works Department (Department) to develop domestic water and recycled water rates with a technically sound methodology which meets the requirements of California Constitution Article XIII D, Section 6 (commonly referred to as “Proposition 218”). In particular, this Study contains thorough details on the following: 1.The legal framework surrounding Proposition 218, particularly with respect to domestic (potable) and recycled water being provided by the same agency. 2.Proposed water budget tier definitions. 3.Equitable cost of service based domestic (potable) and recycled water commodity rates, elevation charges, and monthly fixed charges that meet Proposition 218 requirements. The Study summarizes the key findings and results related to the implementation of a residential water budget rate structure, development of monthly fixed charges, and commodity and elevation charges for both domestic and recycled water. It has been a pleasure working with you, and we thank you and Department staff for the support provided during the course of this Study. Sincerely, Raftelis Financial Consultants, Inc. Sanjay Gaur Victor Smith Vice President Consultant 129/231 This page intentionally left blank to facilitate two-sided printing. 130/231 Water Rate Study | 5 TABLE OF CONTENTS 1.EXECUTIVE SUMMARY .................................................................... 12 BACKGROUND OF THE STUDY ...............................................................................12 1.1 OBJECTIVES OF THE STUDY ..................................................................................12 1.2 LEGAL REQUIREMENTS AND RATE SETTING METHODOLOGY ..........................13 1.3 California Constitution - Article XIII D, Section 6 (Proposition 218) ............................ 13 1.3.1 Cost-Based Rate-Setting Methodology........................................................................... 13 1.3.2 1)Calculate the Revenue Requirement ............................................................................... 13 2)Cost of Service Analysis (COS) ....................................................................................... 14 3)Rate Design and Calculations .......................................................................................... 14 4)Rate Adoption .................................................................................................................... 14 RESULTS AND RECOMMENDATIONS ....................................................................14 1.4 Factors Affecting Revenue Adjustments – Domestic Water Utility Fund 500 ............ 15 1.4.1 Factors Affecting Rate Adjustments – Recycled Water Financial Plan ....................... 16 1.4.2 Proposed Monthly Service Charges................................................................................ 16 1.4.3 Proposed Monthly Fire Service Charges ........................................................................ 16 1.4.4 Proposed Commodity Charges ....................................................................................... 17 1.4.5 Proposed Pumping Charges ............................................................................................ 17 1.4.6 Proposed Recycled Water Rates ..................................................................................... 18 1.4.7 2.GENERAL ASSUMPTIONS ................................................................ 19 INFLATION.................................................................................................................19 2.1 PROJECTED WATER DEMAND AND ACCOUNT GROWTH ...................................19 2.2 3.RESERVE POLICY ............................................................................. 22 RECOMMENDED POLICIES (DOMESTIC WATER FUND) .......................................22 3.1 RECOMMENDED POLICIES (RECYCLED WATER FUND) ......................................23 3.2 4.DOMESTIC WATER FUND 500 FINANCIAL PLAN ........................... 24 DOMESTIC WATER REVENUE REQUIREMENTS ...................................................24 4.1 Revenues from Current Rates ......................................................................................... 24 4.1.1 Purchased Water Cost by Source ................................................................................... 29 4.1.2 Operations and Maintenance Expenses ......................................................................... 29 4.1.3 Projected Domestic Water Capital Improvement Projects ........................................... 30 4.1.4 Existing Debt Service ....................................................................................................... 30 4.1.5 131/231 6 | City of Chino Hills – Public Works Department STATUS QUO POTABLE WATER FINANCIAL PLAN (NO REVENUE 4.2 ADJUSTMENTS), 2016 STAGE 3 WATER CONSERVATION ..........................................30 PROPOSED POTABLE WATER FINANCIAL PLAN .................................................31 4.3 FINANCIAL PLAN INCORPORATING RECYCLED WATER.....................................35 4.4 5.RECYCLED WATER ENTERPRISE ................................................... 37 RECYCLED WATER REVENUE REQUIREMENTS ...................................................37 5.1 Recycled Water Revenues from Current Rates ............................................................. 37 5.1.1 Recycled Water Operations and Maintenance Expenses ............................................. 39 5.1.2 Projected Recycled Water Capital Improvement Projects ............................................ 40 5.1.3 Existing Recycled Water Debt Service ........................................................................... 40 5.1.4 STATUS QUO RECLAIMED WATER FINANCIAL PLAN (NO REVENUE 5.2 ADJUSTMENTS) ...............................................................................................................40 PROPOSED RECYCLED WATER FINANCIAL PLAN ..............................................41 5.3 6.WATER COST OF SERVICE ANALYSIS ........................................... 44 FUNCTIONALIZATION OF O&M EXPENSES ...........................................................45 6.1 ALLOCATION OF FUNCTIONALIZED EXPENSES TO POTABLE WATER COST 6.2 COMPONENTS .................................................................................................................46 REVENUE REQUIREMENT – TO BE RECOVERED FROM DOMESTIC WATER 6.3 RATES ...............................................................................................................................49 ALLOCATION OF FUNCTIONALIZED EXPENSES TO RATE COMPONENTS ........49 6.4 7.WATER BUDGET RATE STRUCTURE DEFINITIONS, AND USAGE ANALYSIS .......................................................................................... 52 WATER BUDGET DEFINITIONS ...............................................................................52 7.1 PROPOSED WATER BUDGET DEVELOPMENT METHODOLOGY .........................53 7.2 Residential Indoor Budget (Essential Use) Definition ................................................... 53 7.2.1 Outdoor Budget (Efficient Use) Definition ...................................................................... 53 7.2.2 PROPOSED NEW WATER BUDGET RATE STRUCTURE .......................................54 7.3 Residential Indoor Budget (Essential Use) Definition – Tier 1 ..................................... 54 7.3.1 Residential Outdoor Budget (Efficient Use) Definition – Tier 2 .................................... 55 7.3.2 Inefficient and Excessive Use Definition – Tier 3 .......................................................... 55 7.3.3 Agricultural/Commercial/Industrial/Governmental Customers .................................... 55 7.3.1 USAGE ANALYSIS AND USAGE PROJECTIONS ....................................................55 7.4 Water Budget Usage Analysis ......................................................................................... 55 7.4.1 Projected Water Budget Use FY 17/18 (Domestic Water) ............................................. 57 7.4.2 132/231 Water Rate Study | 7 8.WATER RATE DERIVATION AND DESIGN ...................................... 59 EXISTING RATE STRUCTURE AND RATES ............................................................59 8.1 RATE COMPONENT CALCULATION .......................................................................60 8.2 PROPOSED DOMESTIC WATER MONTHLY SERVICE CHARGES ........................60 8.3 PROPOSED MONTHLY FIRE SERVICE CHARGES .................................................64 8.4 PROPOSED RATES FOR COMMODITY CHARGES ................................................66 8.5 Unit Cost Components Definitions .................................................................................. 66 8.5.1 8.5.1.1 Variable Supply Unit Cost ........................................................................................ 66 8.5.1.2 Conservation Unit Cost ............................................................................................ 69 8.5.1.3 Domestic Water Final Commodity Charge Rates Derivation ................................ 70 PROPOSED PUMPING CHARGES ...........................................................................71 8.6 WATER CUSTOMER IMPACTS ................................................................................72 8.7 9.RECYCLED WATER COST OF SERVICE ANALYSIS AND RATE DERIVATION ...................................................................................... 75 10. APPENDICES ..................................................................................... 77 DETAILED DOMESTIC O&M EXPENSES .................................................................77 10.1 DETAILED RECYCLED WATER O&M EXPENSES ..................................................79 10.2 LIST OF TABLES Table 1-1: Utility Revenue Adjustment Plans ........................................................................15 Table 1-2: Current and Proposed Rates for Monthly Service Charges ($/Meter Size) ........16 Table 1-3: Current and Proposed Rates for Monthly Fire Service Charges ($/Fireline) ....17 Table 1-4: Current and Proposed Rates for Domestic Water Commodity Charges ($/CCF) .................................................................................................................................................17 Table 1-5: Proposed Pumping Rates for Elevation Zones ($/CCF) ......................................18 Table 1-6: Current and Proposed Rates for Recycled Water Commodity Charges ($/CCF) .................................................................................................................................................18 Table 2-1: Account, Water Demand, and Miscellaneous Revenue Growth Assumptions ..20 Table 2-2: Purchased Water Cost by Sources of Supply ($/AF) ..........................................20 Table 2-3: Purchased Water by Sources of Supply (AF) ......................................................20 Table 3-1: Recommended Domestic Water Fund Reserve Policies ....................................22 Table 4-1: Current Rates for the Monthly Service Charges ($/Meter Size) ..........................25 Table 4-2: Current Rates for Monthly Fire Service Charges ($/Fireline Size) ......................25 Table 4-3: Current Domestic Rates for Commodity Charges, by Tier .................................26 Table 4-4: Current Pumping Charges by Elevation ($/CCF) .................................................26 Table 4-5: Projected Domestic Water Accounts by Meter Size ............................................26 Table 4-6: Projected Fire Service Meters by Size .................................................................27 133/231 8 | City of Chino Hills – Public Works Department Table 4-7: Domestic Residential Water Commodity Demand Estimates (CCF) ..................27 Table 4-8: Domestic Non-Residential Water Commodity Demand Estimates (CCF) ..........27 Table 4-9: Domestic Water Usage Estimates by Zone (CCF) ...............................................28 Table 4-10: Projected Domestic Water Rate Revenues (No Revenue Adjustments) ..........28 Table 4-11: Projected Domestic Water Non-Rate Revenues (No Revenue Adjustments) ..29 Table 4-12: Purchased Water Cost by Supply Source ..........................................................29 Table 4-13: Projected Domestic Water Fund O&M Expenses ..............................................29 Table 4-14: Projected Domestic Capital Improvement Plan Spending ................................30 Table 4-15: Existing Annual Debt Service Summary ............................................................30 Table 4-16: Status Quo Domestic Water Pro Forma .............................................................31 Table 4-17: Proposed Domestic Water Revenue Adjustments ............................................32 Table 4-18: Proposed Domestic Water Financial Plan Pro forma ........................................32 Table 4-19: Proposed Domestic Combined Domestic Water and Recycled Water Financial Plan Pro Forma .......................................................................................................................36 Table 5-1: Current Rates for the Recycled Water Monthly Service Charges ($/Meter Size) .................................................................................................................................................37 Table 5-2: Current Rates for Recycled Water Commodity Charges ....................................38 Table 5-3: Current Elevation Rates for Recycled Water .......................................................38 Table 5-4: Projected Recycled Water Accounts by Meter Size ............................................38 Table 5-5: Recycled Water Demand Estimates by Zone (in CCF) ........................................39 Table 5-6: Projected Recycled Water Rate Revenues (No Revenue Adjustments) ............39 Table 5-7: Recycled Water Purchased Cost Calculation ......................................................39 Table 5-8: Projected Recycled Water Fund O&M Expenses ................................................40 Table 5-9: Recycled Water Capital Improvement Plan .........................................................40 Table 5-10: Status Quo Recycled Water Pro Forma .............................................................41 Table 5-11: Proposed Recycled Water Rate Adjustments ....................................................41 Table 5-12: Proposed Recycled Water Financial Plan Pro Forma .......................................42 Table 6-1: System-Wide Peaking Factors and Allocation to Cost Causation Components .................................................................................................................................................46 Table 6-2: Allocation of Functionalized Domestic Water O&M and Capital Expenses to Cost Causation Components .................................................................................................48 Table 6-3: Revenue Required from Domestic Water Rates ..................................................49 Table 6-4: Budgetary Department Budget Percentages for Domestic Water ......................49 Table 6-5: Domestic Water Cost Recovery, Cost Components (Values) .............................51 Table 6-6: Domestic Water Revenue Recovery .....................................................................51 Table 7-1: City of Chino Hills ET Factors ..............................................................................55 Table 7-2: Proposed Water Budget Factors and Tier Definitions ........................................55 Table 7-3: SFR Usage in Tiers ................................................................................................57 Table 7-4: MFR Usage in Tiers ...............................................................................................58 Table 7-5: Residential Usage in Tiers ....................................................................................58 Table 7-6: Usage by New Customer Class ............................................................................58 Table 8-1: Existing Rates for the Monthly Service Charge ...................................................59 Table 8-2: Existing Rate Structure – Domestic Water Commodity Rates ...........................60 Table 8-3: Rate Component Calculation ................................................................................60 134/231 Water Rate Study | 9 Table 8-4: Meter Equivalencies Calculation ..........................................................................62 Table 8-5: Meter Service Component Calculation.................................................................62 Table 8-6: Customer Service Component Calculation .........................................................63 Table 8-7: Calculation of Rates for Cost of Service Monthly Service Charges ...................63 Table 8-8: Proposed Rates for Monthly Service Charges ($/Meter Size) .............................64 Table 8-9: Fireline Equivalencies Calculation .......................................................................64 Table 8-10: Fireline Service Component Calculation ...........................................................65 Table 8-11: Calculation of Rates for the COS FY 217/18 Monthly Fire Service Charges ....65 Table 8-12: Proposed Rates for the Monthly Fire Service Charges ($/Fireline Size) ..........65 Table 8-13: Domestic Water Supply Costs FY 17/18 .............................................................67 Table 8-14: Water Sources by Cost and Availability .............................................................67 Table 8-15: Water Sources Availability for Residential Usage .............................................68 Table 8-16: Water Sources Allocated to Residential Tiers ...................................................68 Table 8-17: Residential Tier Supply Cost Calculation ..........................................................68 Table 8-18: Domestic Water Peaking Factors by Class ........................................................69 Table 8-19: Domestic Water Conservation Unit Cost Calculation, Uniform Classes .........69 Table 8-20: Domestic Water Conservation Unit Cost Calculation, Tiers .............................70 Table 8-21: Proposed Rates for the Commodity Charge ($/CCF) ........................................70 Table 8-22: Current and Proposed Rates for the Domestic Water Commodity Charge for the Study Period ($/CCF) ........................................................................................................71 Table 8-23: Pumping Charge Calculations by Zone ($/CCF) ................................................71 Table 8-24: Current and Proposed Pumping Charges for the Study Period ($/CCF) .........72 Table 9-1: Revenue Requirement of Recycled Water Enterprise .........................................75 Table 9-2: Projected Recycled Water Revenue from Monthly Service Charges .................75 Table 9-3: Projected Recycled Water Revenue from Pumping Charges .............................76 Table 9-4: FY 17/18 Recycled Water Commodity Charge Calculation .................................76 Table 9-5: FY 17/18 Recycled Water Commodity Charges Across Study Period ...............76 LIST OF FIGURES Figure 4-1: Proposed Domestic Water Revenue Adjustments.............................................33 Figure 4-2: Proposed Domestic Water Operating Financial Plan ........................................34 Figure 4-3: Proposed Domestic Water Ending Fund Balances ............................................34 Figure 4-4: Proposed Domestic Water Capital Improvement Program Funding ................35 Figure 5-1: Proposed Recycled Water Operating Financial Plan .........................................43 Figure 5-2: Proposed Recycled Water Capital Improvement Program Funding .................43 Figure 7-1: Water Budget Tiers ..............................................................................................52 Figure 7-2: Account Specific Water Budget Tiers.................................................................53 Figure 7-3: Bill Distribution for Residential Tiers 1-3 ...........................................................56 Figure 7-4: Usage Distribution for Residential Tiers 1-3 ......................................................57 Figure 8-1: Bill Impacts - Single Family Residential with 3/4” Meter ...................................72 135/231 10 | City of Chino Hills – Public Works Department Figure 8-2: Bill Impacts – SFR Customers ............................................................................73 Figure 8-3: Bill Impacts – MFR Customers ............................................................................73 Figure 8-4: Bill Impacts – Non-Residential Customers ........................................................74 Figure 8-5: Bill Impacts – All Customers ...............................................................................74 136/231 Water Rate Study | 11 This page intentionally left blank to facilitate two-sided printing. 137/231 12 | City of Chino Hills – Public Works Department 1.EXECUTIVE SUMMARY BACKGROUND OF THE STUDY 1.1 The City of Chino Hills serves domestic (or potable) and recycled water to roughly 21,600 connections in its service area. The population served by the Department is approximately 78,000 domestic water customers, covering roughly 45 square miles. The City acquires its water supply from several sources including: local groundwater, a take or pay agreement with the Chino Basin Desalter Authority (CDA), imported water via Monte Vista Water District (MVWD) and the Water Facilities Authority (WFA), and recycled water purchased from the Inland Empire Utilities Agency (IEUA). In 2016, the City contracted with Raftelis Financial Consultants, Inc. (Raftelis) to conduct a Water Rate Study (Study) to include a five-year Financial Plan for the domestic water (DW) and recycled water (RW) utilities. This Study presents the financial plans, cost of service analyses, and resulting domestic water and recycled water rates for implementation in July 2018. This Executive Summary compiles the water and recycled water charges and contains a description of the rate study process, methodology, and results and recommendations for the City’s rates. The City’s last rate adjustment was effective in July 2014. The City wishes to establish fair and equitable rates that: »Proportionately allocate the costs of providing service in accordance with California Constitution Article XIII D, Section 6 (commonly referred to as Proposition 218). »Adequately fund each utility’s operations and maintenance (O&M), debt service, capital costs, and provide adequate reserve levels for operating cash flow, capital replacement, bond requirements, and unforeseen events. OBJECTIVES OF THE STUDY 1.2 The major objectives of the Study include the following: 1.Develop financial plans for the domestic and recycled water enterprises to ensure financial sufficiency, meet operations and maintenance (O&M) costs, ensure sufficient funding of the utility’s financial reserves, and fund capital improvement projects (CIP). To do so, the analyses contained in this Study make certain assumptions regarding future water usage. 2.Conduct a cost-of-service analysis for the domestic and recycled water utilities. 3.Develop water rates that adequately recover costs, provide revenue stability for recovering fixed costs, and maintain affordable water service, while remaining compliant with the requirements of Proposition 218. 138/231 Water Rate Study | 13 LEGAL REQUIREMENTS AND RATE SETTING METHODOLOGY 1.3 California Constitution - Article XIII D, Section 6 (Proposition 218) 1.3.1 Proposition 218 was enacted by voters in 1996 to ensure, in part, that fees and charges imposed for ongoing delivery of a service to a property (property-related fees and charges) are proportional to and do not exceed the cost of providing service. Water and recycled water service fees and charges are property-related fees and charges subject to the provisions of California Constitution Article XIII D, Section 6. The principal requirements, as they relate to public water service fees and charges are as follows: 1.Revenues derived from the fee or charge shall not exceed the costs required to provide the property-related service. 2.Revenues derived by the fee or charge shall not be used for any purpose other than that for which the fee or charge was imposed. 3.The amount of the fee or charge imposed upon any parcel shall not exceed the proportional cost of service attributable to the parcel. 4.No fee or charge may be imposed for a service unless that service is actually used or immediately available to the owner of property. 5.A written notice of the proposed fee or charge shall be mailed to the record owner of each parcel not less than 45 days prior to a public hearing, when the agency considers all written protests against the charge. As stated in AWWA’s M1 Manual, “water rates and charges should be recovered from classes of customers in proportion to the cost of serving those customers.” Raftelis follows industry standard rate setting methodologies set forth by the AWWA M1 Manual to ensure this Study meets Proposition 218 requirements and creates rates that do not exceed the proportionate cost of providing water services on a parcel basis. Tiered Rates – Budget based water rates are a specific form of a traditional inclining tiered rate structure. “Inclining” tiered rate structures (which are synonymous with “increasing” tiered rate structures and “tiered” rates), when properly designed and differentiated by the cost of providing service. Budget based water rates have gained widespread use, especially in relatively water-scarce regions like Southern California. Tiered rates meet the requirements of Proposition 218 as long as the tiered rates reasonably reflect the proportionate cost of providing service in each tier. Cost-Based Rate-Setting Methodology 1.3.2 As stated in the AWWA M1 Manual, “the costs of water rates and charges should be recovered from classes in proportion to the cost of serving those customers.” To develop utility rates that comply with Proposition 218 and industry standards while meeting other emerging goals and objectives of the utility, there are four major steps discussed below and previously addressed in Section 1.2. 1)Calculate the Revenue Requirement The rate-making process starts by determining the test year (rate setting year) revenue requirement, which for this Study is Fiscal Year (FY) 2018 (or alternatively FY 17/18, the Fiscal Year spanning July 1, 2017 through June 30, 2018). The revenue requirement should sufficiently fund the utility’s operations and maintenance (O&M), debt service, capital expenses, and reserve funding. 139/231 14 | City of Chino Hills – Public Works Department 2)Cost of Service Analysis (COS) The annual cost of providing water service is distributed among customers commensurate with their service requirements. A COS analysis involves the following: 1.Functionalize costs. Examples of functions are supply, treatment, transmission, distribution, storage, meter servicing, and customer billing and collection. 2.Allocate functionalized costs to cost components. Cost components include variable supply, base, maximum day, maximum hour1, conservation programs, private fire protection, meter service, and customer servicing and billing costs. 3.Distribute the cost components. Distribute cost components, using unit costs, to customers in proportion to their demands and burdens on the water system. This is described in the M1 Manual published by AWWA. A COS analysis considers both the average quantity of water consumed (base costs) and the peak rate at which it is consumed (peaking or capacity costs as identified by maximum day and maximum hour demands).2 Peaking costs are costs that are incurred during peak times of consumption. There are additional costs associated with designing, constructing, and operating and maintaining facilities to meet peak demands. 3)Rate Design and Calculations Rates do more than simply recover costs. Within the legal framework and industry standards, properly designed rates should support and optimize a blend of various utility objectives. Rates may also act as a public information tool in communicating these objectives to customers. 4)Rate Adoption Rate adoption is the last step of the rate-making process. Raftelis documents the rate study results in this Study which reflect the basis upon which the rates were calculated, the rationale and justifications behind the proposed changes, and their anticipated financial impacts to ratepayers. RESULTS AND RECOMMENDATIONS 1.4 Table 1-1 shows the proposed revenue adjustments selected by the City and used to calculate the proposed rates. Although Table 1-1 shows anticipated revenue adjustments for FYs 17/18 through 22/23, the City will review and confirm the needed revenue adjustments on an annual basis.3 Both Domestic Water and Recycled Water rate adjustments are proposed for implementation in July 2018. All future Domestic Water revenue adjustments (after the first) will take effect in July of each fiscal year, beginning in July 2019. All Recycled Water Revenue Adjustments will take effect in July 1 Collectively maximum day and maximum hour costs are known as peaking costs or capacity costs. 2 System capacity is the system’s ability to supply water to all delivery points at the time when demanded. Coincidental peaking factors are calculated for each customer class at the time of greatest system demand. The time of greatest demand is known as peak demand. Both the operating costs and capital asset related costs incurred to accommodate the peak flows are generally allocated to each customer class based upon the class’s relative demands during the peak month, day, and hour event. 3 The Council maintains the right to implement rates that are lower than adopted. If it is determined that a rate higher than that adopted is required, the Council will have to adopt new rates and the City will need to re-issue a Proposition 218 notice. 140/231 Water Rate Study | 15 of each fiscal year with the first one effective as of July 2019. The assumptions used in calculating the revenue adjustments are described in more detail in Section 2. Table 1-1: Utility Revenue Adjustment Plans Year FY 17/18 FY 18/19 FY 19/20 FY 20/21 FY 21/22 FY 22/23 Domestic Water Revenue Adjustment 0% 8% 8% 8% 8% 8% Recycled Water Revenue Adjustment 0% 0% 10% 10% 10% 10% Factors Affecting Revenue Adjustments – Domestic Water Utility Fund 500 1.4.1 The following items affect the domestic water fund’s revenue requirement (i.e. costs) and thus its water rates. The City’s expenses include Operation and Maintenance (O&M) expenses and capital expenses (including debt service). »Capital Funding: The City has approximately $18.2 million in capital expenditures, including capitalized expenses, programmed over the five-year rate setting period. These capital expenditures include both capital projects and repair and replacement (R&R) expenses associated with the capital program. These amounts, roughly $3 million per year, is based on an inflation adjusted estimate of the City’s annual capital expenses. »Reserve Funding: The City has reserve policies for the domestic water fund (further discussed in Section 3.1) to meet cash flow needs, ensure adequate funding of repairs and replacements in the event of asset failure or other unforeseen circumstances or events, and protect ratepayers from rate spikes. Section 3.1 establishes reserve targets and Figure 4-3 shows the reserve balances for the selected Financial Plan. The defined reserve policy is 180 days of cash to meet operating expenses, or roughly $11.2M in FY 17/18; and the average of the next five years of capital expenses ($3.4 million in FY 17/18). In addition, the City maintains a Reserve for Water Rate Stabilization ($440,000 in FY 17/18) and a Reserve for Water Rate Depreciation ($4.1 million in FY 17/18). »Increasing Water Costs: The City projects that the per unit cost of purchasing supply will increase approximately 10% per year. Raftelis projects that total supply costs will increase by 46% by FY 22/23 compared to FY 17/18. »Rebounded Water Sales: Recognizing persistent yet less severe drought conditions throughout California, on May 18, 2016, the SWRCB adopted an emergency water conservation regulation that replaces their February 2016 emergency regulation. In accordance with these measures, the City proactively worked to reduce its annual usage significantly from FY 13/14 to FY 16/17. After a historically wet winter in 2016-2017, Governor Jerry Brown lifted the emergency drought conditions on April 7, 2017. Following the lifting of the emergency regulation, the City is expecting a rebound of roughly 22% more demand which it expects will form the basis of a “new normal” of future water demand. This rebound in FY 17/18 still represents a reduction of over 19% from FY 13/14 levels. This anticipated permanent reduction (from FY 13/14) to a new normal going forward will assist the City in achieving its 20 percent overall reduction by 2020 as part of SB X7-7 and is accounted for in the projected revenues for the five-year rate setting period of this Study. 141/231 16 | City of Chino Hills – Public Works Department Factors Affecting Rate Adjustments –Recycled Water Financial Plan1.4.2 »Capital Projects: The City has approximately $2.7 million in capital expenditures over the five-year rate setting period of this Study. The City’s annual recycled water revenue in FY 16/17 was just over $1.9 million. »Rapidly Increasing Supply Costs: The City expects IEUA recycled water costs to increase in accordance with recent recycled water supply cost increases, which have been roughly 24% per year. This equates to a doubling in the unit cost of supply roughly every three years. Proposed Monthly Service Charges 1.4.3 The following four tables show the current rates and the proposed rates for FY 18/19 through FY 22/23. The rates in FY 18/19 were calculated using FY 17/18 as a “test” or rate setting year, and then applying an 8% revenue adjustment. The displayed FY 17/18 rates are the City’s current rates adopted in July of 2015. Table 1-2 shows the current and proposed rates for the Monthly Service Charge by meter size for the Study period. The proposed rates are inclusive of all users, including domestic water and recycled water customers. The rates for the current and proposed Monthly Service Charges are calculated on the basis of the size of the meter serving a property. Table 1-2: Current and Proposed Rates for Monthly Service Charges ($/Meter Size) Year FY 17/18 FY 18/19 FY 19/20 FY 20/21 FY 21/22 FY 22/23 Adjustment Current Rate New COS & 8% 8% 8% 8% 8% 5/8 Inch $19.79 $22.11 $23.88 $25.80 $27.87 $30.10 3/4 Inch $29.54 $31.49 $34.01 $36.74 $39.68 $42.86 1 Inch $49.23 $50.22 $54.24 $58.58 $63.27 $68.34 1.5 Inch $98.46 $97.06 $104.83 $113.22 $122.28 $132.07 2 Inch $157.53 $153.28 $165.55 $178.80 $193.11 $208.56 3 Inch $344.61 $284.44 $307.20 $331.78 $358.33 $387.00 4 Inch $578.94 $471.82 $509.57 $550.34 $594.37 $641.92 6 Inch $1,197.00 $1,174.50 $1,268.46 $1,369.94 $1,479.54 $1,597.91 8 Inch $1,577.32 $1,689.79 $1,824.98 $1,970.98 $2,128.66 $2,298.96 10 Inch $2,569.78 $2,720.38 $2,938.02 $3,173.07 $3,426.92 $3,701.08 12 Inch $2,569.78 $4,032.04 $4,354.61 $4,702.98 $5,079.22 $5,485.56 Proposed Monthly Fire Service Charges 1.4.4 The City charges Monthly Fire Service Charges based on meter size of fire service meters. The current and proposed charges are shown in Table 1-3. 142/231 Water Rate Study | 17 Table 1-3: Current and Proposed Rates for Monthly Fire Service Charges ($/Fireline) Year FY 17/18 FY 18/19 FY 19/20 FY 20/21 FY 21/22 FY 22/23 Adjustment Current Rate New COS & 8% 8% 8% 8% 8% 4'' Fireline $98.42 $53.31 $57.58 $62.19 $67.17 $72.55 6'' Fireline $203.49 $154.86 $167.25 $180.63 $195.09 $210.70 8'' Fireline $268.14 $329.99 $356.39 $384.91 $415.71 $448.97 10'' Fireline $436.86 $593.42 $640.90 $692.18 $747.56 $807.37 Proposed Commodity Charges 1.4.5 Table 1-4 shows the current and proposed rates for the domestic water Commodity Charge by customer class. Raftelis recommends the following adjustments to the variable rate structure: Single Family Residential (SFR) tiers will be based on a Water Budget Framework, Multi-Family Residential (MFR) tier width will be adjusted from the current widths to those that align more closely with the budget framework. Non-residential customer classes (previously government, non- residential, and agricultural) rates will be combined into one uniform volumetric rate where all usage will be billed at the same rate regardless of prior usage. Construction/Temporary lines will be billed at a uniform volumetric rate as well. These modifications are found in Section 7. The proposed rates in years FY 18/19 and beyond are adjusted by the revenue adjustment amount found in Table 1-1, which are also shown in the first line. The rates for the current and proposed potable water Commodity Charge are calculated on the basis of the amount of water delivered in hundred cubic feet (CCF). Table 1-4: Current and Proposed Rates for Domestic Water Commodity Charges ($/CCF) Year FY 17/18 FY 18/19 FY 19/20 FY 20/21 FY 21/22 FY 22/23 Adjustment Current Rate New COS & 8% 8% 8% 8% 8% Residential Tier 1 $2.08 $2.23 $2.41 $2.61 $2.82 $3.05 Residential Tier 2 $2.37 $3.07 $3.32 $3.59 $3.88 $4.20 Residential Tier 3 $3.31 $3.30 $3.57 $3.86 $4.17 $4.51 Non-Residential Single Rate $2.48 $2.66 $2.88 $3.12 $3.37 $3.64 Construction/Temporary $3.00 $3.24 $3.50 $3.78 $4.09 $4.42 Proposed Pumping Charges 1.4.6 The City also charges pumping rates for customers in two different elevation zones, an intermediate zone and a high zone. The City’s low zone does not pay a pumping charge. These charges are escalated according to the adjustment amount found in Table 1-1, which are also shown in the first line of Table 1-5. 143/231 18 | City of Chino Hills – Public Works Department Table 1-5: Proposed Pumping Rates for Elevation Zones ($/CCF) Year FY 17/18 FY 18/19 FY 19/20 FY 20/21 FY 21/22 FY 22/23 Adjustment Current Rate New COS & 8% 8% 8% 8% 8% Intermediate Zone Pumping Charge $0.17 $0.10 $0.11 $0.12 $0.13 $0.15 High Zone Pumping Charge $0.44 $0.38 $0.42 $0.46 $0.50 $0.54 Together, the four components of the City’s proposed water service charges are structured to recover the proportionate costs of providing water service to each customer class and each parcel within each customer class, and to indirectly deter waste, encourage water use efficiency, manage the City’s water resources, and provide revenue stability. Proposed Recycled Water Rates 1.4.7 Table 1-6 shows the current and proposed rates for the recycled water Commodity Charges. Raftelis recommends charging a uniform fee for recycled water for all customer classes. The proposed rates in FY 18/19 and beyond are adjusted by the revenue adjustment amount found in Table 1-1. Recycled water customers will pay the same Monthly Service Charges as domestic water customers. Table 1-6: Current and Proposed Rates for Recycled Water Commodity Charges ($/CCF) Year FY 17/18 FY 18/19 FY 19/20 FY 20/21 FY 21/22 FY 22/23 Adjustment Current Rate COS Rate 10% 10% 10% 10% Recycled Water Rate $1.74 $1.82 $2.01 $2.22 $2.45 $2.70 144/231 Water Rate Study | 19 2.GENERAL ASSUMPTIONS INFLATION 2.1 The Study period is from Fiscal Year (FY) 17/18 to 22/23, with proposed revenue adjustments and rates presented for the same period. Various types of assumptions and inputs are incorporated into the Study based on discussions with and/or direction from City staff. These include the projected number of accounts, annual growth rates in consumption, and inflation factors. These cost escalation factors used and shown below, show projected increases in various cost categories across the Study period. The factors are applied to expenses for all years after FY 17/18, since Raftelis used budgetary information for expenses for FY 16/17 and FY 17/18. Raftelis worked with City staff to escalate individual budget line items according to appropriate escalation factors. Inflationary factors are discussed in the following paragraph. A general inflation rate of 3 percent is based on the long-term change in the Consumer Price Index (CPI) for Los Angeles-Riverside-Orange County. Salary inflationary rates were held with CPI at 3%. Municipal benefits tend to outpace general inflation and, therefore, an escalation of 7%is used. Utility costs reflect the price of energy which have been increasing more rapidly in recent years, hence the use of a 10% annual inflator. The chemical cost escalation rate of 5% per year, the water purchase cost escalation factor of 10%, and construction (capital) cost escalation rate of 3% were provided by City staff. The 24% recycled water purchase cost escalation factor was also provided by City staff. PROJECTED WATER DEMAND AND ACCOUNT GROWTH 2.2 To estimate future water demand, two primary factors are used: account growth and water demand factors. Account growth projects the number of new connections and water usage increases in proportion to account growth. Water demand factor projects year-on-year proportional changes in demand. The water demand factor projects trends in usage from April 2016 to March of 2017, which is the baseline consumption year within the rate model. It is estimated that the total number of domestic water accounts will grow by 0.43% in FY 18/19, and 0.35% in FY 19/20, and then decrease to 0% by FY 19/20. There is no growth expected in recycled water accounts. In consideration of the rebound expected from past drought conditions, domestic water usage is expected to rebound by approximately 22% from 2017 levels as the State comes out of drought conditions in FY 18/19. Similarly, recycled water usage is expected to increase 14% relative to FY 17/18 usage in FY 18/19. Following these rebounds, the City expects usage to stabilize at a new normal and does not expect any further adjustments. In order to predict non-operating revenues, the Study assumes that all non-rate revenues will not increase and interest revenues will be calculated using an interest rate of 1% per year through FY 22/23. Interest rates earned on reserves are based on conservative estimates in a low interest financial environment. These revenue growth assumptions are shown below in Table 2-1. 145/231 20 | City of Chino Hills – Public Works Department Table 2-1: Account, Water Demand, and Miscellaneous Revenue Growth Assumptions Year FY 17/18 FY 18/19 FY 19/20 FY 20/21 FY 21/22 FY 22/23 Other Revenue 0% 0% 0% 0% 0% 0% Revenues Interest 1% 1% 1% 1% 1% 1% Water Account Growths 0.00% 0.43% 0.35% 0.00% 0.00% 0.00% Recycled Water Account Growths 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% Water Demand Factors 122% 100% 100% 100% 100% 100% Recycled Water Demand Factors 114% 100% 100% 100% 100% 100% The City acquires water from numerous sources of supply. The supply mix incorporates availability, take-or-pay requirements, maximum allotments or yields, and new sources, and so the mix changes each year. Table 2-2 summarizes the various sources of supply the purchase cost (if any) in FY 17/18 through FY 22/23 for both Recycled Water and Domestic Water. The sources are listed in order of use (priority). The City has a take-or-pay arrangement with the Chino Basin Desalter Authority (CDA) and, therefore, considers CDA water first priority. Table 2-2: Purchased Water Cost by Sources of Supply ($/AF) Year FY 17/18 FY 18/19 FY 19/20 FY 20/21 FY 21/22 FY 22/23 Chino Basin Desalter $900.86 $990.95 $1,090.04 $1,199.05 $1,318.95 $1,450.85 City Wells and MVWD City Allotment $225.00 $247.50 $272.25 $299.48 $329.42 $362.36 MVWD $846.00 $930.60 $1,023.66 $1,126.03 $1,238.63 $1,362.49 WFA Import $829.60 $912.56 $1,003.82 $1,104.20 $1,214.62 $1,336.08 IEUA Recycled Water $470.00 $582.80 $722.67 $896.11 $1,111.18 $1,377.86 The amount provided by each source (in AF) to meet demand in FY 17/18 through FY 22/23 is shown in Table 2-3 Table 2-3: Purchased Water by Sources of Supply (AF) Year FY 17/18 FY 18/19 FY 19/20 FY 20/21 FY 21/22 FY 22/23 Chino Basin Desalter 4,200 AF 4,200 AF 4,200 AF 4,200 AF 4,200 AF 4,200 AF City Wells and MVWD City Allotment 2,400 AF 2,400 AF 2,400 AF 2,400 AF 2,400 AF 2,400 AF MVWD 4,200 AF 4,200 AF 4,200 AF 4,200 AF 4,200 AF 4,200 AF WFA Import 2,016 AF 2,071 AF 2,116 AF 2,116 AF 2,116 AF 2,116 AF Total 12,816 AF 12,871 AF 12,916 AF 12,916 AF 12,916 AF 12,916 AF Table 2-2 shows only those water sources estimated to meet demand over the Study period, a brief description is provided below detailing all sources of water available to the City: The City receives domestic water from a variety of sources. Approximately 60% of the City’s water is distributed through a 42” water transmission line of approximately 7 miles. This transmission line provides water from Water Facilities Authority (WFA) and Monte Vista Water District (MVWD). WFA obtains its water from the state water project through Metropolitan Water District of Southern California (Met). MVWD provides the City with both WFA water, ground water from its own wells, and groundwater from a Chino Hills owned well. The City also receives water from 146/231 Water Rate Study | 21 Chino Basin Desalter Authority (CDA). This treated well water is provided under a “take or pay” agreement with the CDA. The CDA extracts and treats brackish groundwater and annually provides 4,200 acre feet of potable water for domestic use in the City. Currently, the City owns 11 wells. 147/231 22 | City of Chino Hills – Public Works Department 3.RESERVE POLICY Reserve policies provide a basis for the City to cope with fiscal emergencies such as revenue shortfalls, asset failure, and natural disasters, among others. They also provide guidelines for sound financial management, with an overall long-range perspective to maintain financial solvency and mitigate financial risks associated with revenue instability, volatile capital costs, and emergencies. RECOMMENDED POLICIES (DOMESTIC WATER FUND) 3.1 Table 3-1 details the reserve type, recommended policy, and target level in FY 17/18 for the potable water utility (Fund 500). Raftelis recommends that the Water Operating Fund have an Operating Reserve equal to 180 days of annual operating expenses, or approximately $11.2 million. This reserve provides cash flow in case of revenue shortfalls and for working capital. Considerations for billing frequency, seasonal fluctuations in expenditures, and seasonal fluctuations in demand, among others, determine the recommended reserve target. Appropriate Reserve levels for Replacement of Structures, Equipment & Improvement (also called the Capital Reserve) consider long-term capital improvement project (CIP) expenditures. Generally, an amount equal to one to three years of average CIP, or a multiple of annual system replacement cost depreciation, is appropriate. Raftelis recommends the City maintain the current policy for the Capital Reserve policy of keeping the average of the next five years of projected domestic water and recycled water CIP expenses in reserve, or roughly $3.4 million in FY 17/18. A Rate Stabilization Reserve is established for unforeseen emergencies, interruptions, or other challenges impacting revenues (e.g. the recent historic drought). An amount equal to a percentage of annual volumetric rate revenue is set aside to be utilized during revenue shortfalls, to smooth out rate impacts, or to forego implementation of temporary revenue stability charges. Each utility is unique and rate stabilization reserves are influenced by several variables, including water supply reliability, source cost exposure, and revenues from fixed versus variable sources, as well as other factors. This reserve is set to escalate by the water purchase cost escalation factor. A Water Rate Depreciation Reserve is established to address funding issues arising from costs outpacing water rates. This reserve is set to escalate by the general escalation factor. Table 3-1: Recommended Domestic Water Fund Reserve Policies Reserve Recommended Policy FY 17/18 Target Level Operating Reserve 180 days of operating budget $11.2M Capital R&R Reserve 100% of 5-year average CIP $3.4M Reserve for Water Rate Stabilization $440,000 escalated by 10% annually $440k Reserve for Water Rate Depreciation $4,120,000 escalated by 3% annually $4.1M Total Reserves – Fund 500 $19.1M 148/231 Water Rate Study | 23 RECOMMENDED POLICIES (RECYCLED WATER FUND) 3.2 The recycled water enterprise operates as a part of the Domestic Water Fund, so it does not maintain its own reserve policies. Net revenues from the sale of recycled water are part of the domestic water fund’s net revenues. 149/231 24 | City of Chino Hills – Public Works Department 4.DOMESTIC WATER FUND 500 FINANCIAL PLAN This section describes the domestic water fund, the City’s customer account and water use data, and corresponding financial plan. To develop the financial plan, Raftelis projects annual expenses and revenues, models reserve balances and capital expenditures, and calculates debt service coverage ratios to estimate the amount of additional rate revenue required per year. This section of the Study provides a discussion of O&M expenses, the capital improvement plan, projected revenue under existing rates, and the revenue adjustments required to ensure the fiscal sustainability and solvency of the domestic water utility. DOMESTIC WATER REVENUE REQUIREMENTS 4.1 A review of a utility’s revenue requirements is a key first step in the rate study process. The review involves an analysis of annual operating revenues under the status quo, operation and maintenance (O&M) expenses, transfers between funds, capital expenditures, and reserve requirements. This section of the Study provides a discussion of the projected revenues, O&M expenses, other reserve funding, and revenue adjustments estimated as required to meet the projected revenue requirements during the Study period and ensure the fiscal sustainability and solvency of the water utility. Revenues from Current Rates 4.1.1 The current rates, last increased in July of 2014, were originally developed in the 2011 Rate Study. The 2011 Rate Study developed rates through FY 15/16, but the City opted not to adopt the proposed rates in that year and did not increase its rates by the proposed 9.94%. The basic rate structure for the City’s potable water service charges have two components: a fixed charge component (Monthly Service Charge) and a variable volumetric charge component (Commodity Charge). The Monthly Service Charge is determined on the basis of the size of the water meter serving a property and increases with meter size. As described in more detail in Section 8.3, as larger meter sizes generally consume more water on average and tend to have higher rates of peaking, the costs to provide service to these customers are higher. In addition to these two operating revenue sources, the City also assesses pumping charges per CCF of usage on customers in the Intermediate and High pumping zones. The City also collects revenue from Monthly Service Charges for fire service meters, which are collected monthly on the basis of fire service line size. The rates for the current Monthly Service Charges are shown in Table 4-1. Recycled water meters pay the same Monthly Service Charges as potable meters of the same size. 150/231 Water Rate Study | 25 Table 4-1: Current Rates for the Monthly Service Charges ($/Meter Size) Year FY 17/18 5/8'' Meters $19.79 3/4'' Meters $29.54 1'' Meters $49.23 1.5'' Meters $98.46 2'' Meters $157.53 3'' Meters $344.61 4'' Meters $578.94 6'' Meters $1,197.00 8'' Meters $1,577.32 10'' Meters $2,569.78 12" Meters $2,569.78 In addition to the Monthly Service Charges, the City also imposes a fixed Monthly Service Charge on properties where the customer or property owner has installed a private fireline for private fire service protection. The rates for the monthly Fire Protection Charge are established on the basis of the size of the fireline serving a property and are calculated to recover the costs associated with fire service capacity in the water distribution system. The current rates for the Monthly Service Charges for private firelines are shown in Table 4-2. The rates for the Private Fire Protection Charges are discussed in more detail in Section 8.4. Table 4-2: Current Rates for Monthly Fire Service Charges ($/Fireline Size) Year FY 17/18 4'' Fireline $98.42 6'' Fireline $203.49 8'' Fireline $268.14 10'' Fireline $436.86 The volumetric component of a customer’s water bill is calculated on the basis of the number of units of water delivered to a property, measured in one hundred cubic feet (CCF), multiplied by the rates that vary by customer class and tier. The current tier widths and rates are shown in Table 4-3. The rates in Table 4-3, multiplied by the amount of use in each respective tier, determine the volumetric component of a customer’s bill. Tiers are discussed in detail in Section 7. The Residential customer class incorporates both Single Family Residential (SFR) and Multi-Family Residential (MFR) customers. Under the current structure. each class has different tier widths. but pays the same rate per unit of usage as long as that unit is in the same tier. 151/231 26 | City of Chino Hills – Public Works Department Table 4-3: Current Domestic Rates for Commodity Charges, by Tier Year FY 17/18 Residential Tier 1 $2.08 Residential Tier 2 $2.37 Residential Tier 3 $3.31 Non-Residential $2.48 Government $2.48 Agriculture $2.36 Temporary $3.00 Private Fire Protection $4.12 The City also assesses per-unit pumping charges on customers in Intermediate and High pumping zones. These charges are shown on a per-unit basis by zone in Table 4-4. Table 4-4: Current Pumping Charges by Elevation ($/CCF) Year FY 17/18 Intermediate Zone $0.17 Higher Zone $0.44 Table 4-5 shows the projected number of water accounts by meter size and by fiscal year. The number of accounts is escalated each year based on the growth assumptions identified in Table 2-1. Each customer class meter count is escalated by the account growth factor with the sum of all classes shown at bottom. Table 4-5: Projected Domestic Water Accounts by Meter Size Year FY 17/18 FY 18/19 FY 19/20 FY 20/21 FY 21/22 FY 22/23 5/8'' Meters 4,306 4,325 4,341 4,341 4,341 4,341 3/4'' Meters 12,164 12,217 12,260 12,260 12,260 12,260 1'' Meters 3,872 3,889 3,903 3,903 3,903 3,903 1.5'' Meters 403 405 407 407 407 407 2'' Meters 507 510 512 512 512 512 3'' Meters 65 66 67 67 67 67 4'' Meters 71 72 73 73 73 73 6'' Meters 14 15 16 16 16 16 8'' Meters 25 26 27 27 27 27 10'' Meters 1 2 3 3 3 3 Total Meters 21,428 21,527 21,609 21,609 21,609 21,609 Table 4-6 shows estimated fire service meter accounts using the same assumptions as water accounts. 152/231 Water Rate Study | 27 Table 4-6: Projected Fire Service Meters by Size Year FY 17/18 FY 18/19 FY 19/20 FY 20/21 FY 21/22 FY 22/23 4'' Fireline 12 13 14 14 14 14 6'' Fireline 27 28 29 29 29 29 8'' Fireline 83 84 85 85 85 85 10'' Fireline 8 9 10 10 10 10 Total Firelines 130 134 138 138 138 138 Domestic water demand projections through FY 2023 are shown in Table 4-7. The water demand and revenue growth assumptions are identified in Table 2-1. Domestic water sales revenue is expected to increase in FY 17/18 due to a rebound in consumption following the end of California’s historic drought. Due to previous drought conditions, California Governor Brown had issued executive order B-29-15 on April 1, 2015, which mandated a 25 percent reduction in urban water use statewide. The SWRCB determined that the City had to reduce water consumption by 28 percent relative to calendar year (CY) 2013 levels. These reductions were lifted in April of FY 16/17, after the data that this analysis is based on was fully collected. Usage in FY 16/17 is included for reference. As noted above, this usage is a full year’s usage, but does not coincide with the full fiscal year of FY 16/17; usage data begins in April of 2016 and ends in March of 2017. Table 4-7: Domestic Residential Water Commodity Demand Estimates (CCF) Year FY 16/17 FY 17/18 FY 18/19 FY 19/20 FY 20/21 FY 21/22 FY 22/23 SFR Tier 1 2,236,523 2,728,559 2,740,292 2,749,884 2,749,884 2,749,884 2,749,884 SFR Tier 2 922,795 1,125,810 1,130,651 1,134,609 1,134,609 1,134,609 1,134,609 SFR Tier 3 359,891 439,068 440,956 442,500 442,500 442,500 442,500 MFR Tier 1 243,013 296,476 297,751 298,794 298,794 298,794 298,794 MFR Tier 2 48,722 59,441 59,697 59,906 59,906 59,906 59,906 MFR Tier 3 13,575 16,562 16,634 16,693 16,693 16,693 16,693 Residential Tier 1 2,479,536 3,025,035 3,038,043 3,048,678 3,048,678 3,048,678 3,048,678 Residential Tier 2 971,517 1,185,251 1,190,348 1,194,515 1,194,515 1,194,515 1,194,515 Residential Tier 3 373,466 455,630 457,590 459,193 459,193 459,193 459,193 Total Residential Usage 3,824,519 4,665,916 4,685,981 4,702,386 4,702,386 4,702,386 4,702,386 Table 4-8: Domestic Non-Residential Water Commodity Demand Estimates (CCF) Year FY 16/17 FY 17/18 FY 18/19 FY 19/20 FY 20/21 FY 21/22 FY 22/23 Non-Residential Usage 479,720 585,259 587,776 589,834 589,834 589,834 589,834 Government Usage 59,649 72,772 73,085 73,341 73,341 73,341 73,341 Agricultural Usage 24,501 29,892 30,021 30,127 30,127 30,127 30,127 Temporary/Construction 22,387 27,313 27,430 27,526 27,526 27,526 27,526 Private Fire Protection 543 543 543 543 543 543 543 Total Non-Residential Usage 586,800 715,779 718,855 721,371 721,371 721,371 721,371 153/231 28 | City of Chino Hills – Public Works Department Table 4-9 shows Domestic Water usage estimates by zone. Some usage is not assigned a pumping zone (specifically Agricultural, Temporary, and Private Fire Protection). This table shows total usage in CCF and Acre Feet (AF). Table 4-9: Domestic Water Usage Estimates by Zone (CCF) Year FY 16/17 FY 17/18 FY 18/19 FY 19/20 FY 20/21 FY 21/22 FY 22/23 Lower Zone 1,357,631 1,656,310 1,663,430 1,669,253 1,669,253 1,669,253 1,669,253 Intermediate Zone 1,948,190 2,376,794 2,387,016 2,395,372 2,395,372 2,395,372 2,395,372 Higher Zone 1,058,067 1,290,843 1,296,396 1,300,936 1,300,936 1,300,936 1,300,936 Not zoned 47,431 57,748 57,994 58,196 58,196 58,196 58,196 Total (CCF) 4,411,319 5,381,695 5,404,836 5,423,757 5,423,757 5,423,757 5,423,757 Total Water Usage (AF) 10,127 12,355 12,408 12,451 12,451 12,451 12,451 Table 4-10 shows the rate revenue generated in each Study year with projected demand and the current rates. Note that revenues for the entire study period use the FY 17/18 rates initially adopted in FY 14/15 from Table 4-1, Table 4-2, Table 4-3, and Table 4-4. The overall adequacy of water revenues is measured by comparing the projected annual revenue requirement in FY 17/18 to be met from rates with projected revenues under the existing rates. For FY 17/18 the operating revenue total is $24,270,788, which becomes the revenue requirement for the cost of service analysis in Section 6. Table 4-10: Projected Domestic Water Rate Revenues (No Revenue Adjustments)4 Year FY 17/18 FY 18/19 FY 19/20 FY 20/21 FY 21/22 FY 22/23 Total Meter Service Revenue $10,523,340 $10,639,927 $10,748,594 $10,748,594 $10,748,594 $10,748,594 Total Fire Meter Revenue $389,113 $401,196 $413,279 $413,279 $413,279 $413,279 Total Commodity Charge Revenue $12,381,921 $12,435,159 $12,478,689 $12,478,689 $12,478,689 $12,478,689 Total Pumping Charge Revenue $976,414 $980,614 $984,047 $984,047 $984,047 $984,047 Total Operating Revenue $24,270,788 $24,456,896 $24,624,610 $24,624,610 $24,624,610 $24,624,610 The utility also derives revenues from other non-rate sources. These revenues consist of other operating, miscellaneous, and non-operating revenues and are summarized in Table 4-11. All amounts were held static except for revenues From Investments which were increased at 1% annually. 4 Calculated revenues are derived by multiplying the charges in Table 4-1, 4-2, 4-3, and Table 4-4 by the respective accounts, firelines, demand, and pumping estimates in Table 4-5, 4-6, 4-7, 4-8, and 4-9. For more detail see the ‘Revenue’ tab of the financial plan model. 154/231 Water Rate Study | 29 Table 4-11: Projected Domestic Water Non-Rate Revenues (No Revenue Adjustments)5 Year FY 17/18 FY 18/19 FY 19/20 FY 20/21 FY 21/22 FY 22/23 358 Non-Water Fees $117,400 $117,400 $117,400 $117,400 $117,400 $117,400 360 Penalties $180,000 $180,000 $180,000 $180,000 $180,000 $180,000 371 From Investments $597,600 $603,576 $609,612 $615,708 $621,865 $628,084 388 Other $54,000 $54,000 $54,000 $54,000 $54,000 $54,000 393 Inter-Fund Contributions $0 $0 $0 $0 $0 $0 Total $949,000 $954,976 $961,012 $967,108 $973,265 $979,484 Purchased Water Cost by Source 4.1.2 Purchased water costs by supply source are shown in Table 4-12. These costs are calculated by multiplying the Unit costs in Table 2-2 by the total purchases in Table 2-3. Table 4-12: Purchased Water Cost by Supply Source Year FY 17/18 FY 18/19 FY 19/20 FY 20/21 FY 21/22 FY 22/23 Chino Basin Desalter $3,783,616 $4,161,978 $4,578,175 $5,035,993 $5,539,592 $6,093,551 City Wells and MVWD City Allotment $540,000 $594,000 $653,400 $718,740 $790,614 $869,675 MVWD $3,553,200 $3,908,520 $4,299,372 $4,729,309 $5,202,240 $5,722,464 WFA Import $1,672,515 $1,890,056 $2,124,292 $2,336,721 $2,570,393 $2,827,433 Total $9,549,331 $10,554,553 $11,655,239 $12,820,763 $14,102,840 $15,513,124 Operations and Maintenance Expenses 4.1.3 Total projected O&M expenses are shown in Table 4-13. These expenses are summarized by division. Expenses used the City’s budgeted FY 17/18 values and projected future expenses using the inflationary assumptions from Section 2.1. More details on this can be found in the Appendix Section 10.1. Note that Chino Basin Desalter costs are considered Fixed Water Costs, since the City pays a fixed amount for the entire 4,200 AF rather than a variable per-unit rate. Table 4-13: Projected Domestic Water Fund O&M Expenses6 Year FY 17/18 FY 18/19 FY 19/20 FY 20/21 FY 21/22 FY 22/23 Personnel $3,530,000 $3,700,832 $3,881,334 $4,072,115 $4,273,823 $4,487,150 Operations and Maintenance $5,993,100 $6,186,387 $6,386,149 $6,592,613 $6,806,018 $7,026,610 Electricity Costs $1,000,000 $1,100,000 $1,210,000 $1,331,000 $1,464,100 $1,610,510 Variable Water Costs $5,765,715 $6,392,576 $7,077,064 $7,784,770 $8,563,248 $9,419,572 Fixed Water Costs $5,835,716 $6,419,288 $7,061,216 $7,767,338 $8,544,072 $9,398,479 Capital Outlay (excl. Inter-Fund Transfers) $206,000 $212,180 $218,545 $225,102 $231,855 $238,810 Total $22,330,531 $24,011,262 $25,834,309 $27,772,938 $29,883,115 $32,181,132 5 Non-rate revenues are provided by the City and inflated by the miscellaneous revenues factor in Table 2-2. 6 FY 17/18 expenses represent budgeted values provided by the City and are inflated in future years by the respective factors found in Table 2-1. For more detail see the ‘O&M’ tab of the financial plan model or Appendix Section 10.1. 155/231 30 | City of Chino Hills – Public Works Department Projected Domestic Water Capital Improvement Projects 4.1.4 The City is projecting approximately $18.2 million in capital expenditures over the rate setting period (FY 17/18 – FY 22/23) for the domestic water enterprise, as shown in Table 4-14. The CIP costs for future years are determined by using the FY 17/18 projected costs and inflating the value by the capital cost inflation factor from Section 2.1, except for in FY 18/19 where staff provided an estimate of $4.58 million. The City anticipates funding capital improvements exclusively using Pay- As-You-Go (PAYGO) financing. Table 4-14: Projected Domestic Capital Improvement Plan Spending Year FY 17/18 FY 18/19 FY 19/20 FY 20/21 FY 21/22 FY 22/23 Projected CIP Spending $2,500,000 $4,575,000 $2,652,250 $2,731,818 $2,813,772 $2,898,185 Existing Debt Service 4.1.5 The City has one outstanding long-term debt obligation: a 2012 Water Revenue Bond. Debt service schedules for this obligation were provided by the City. Table 4-15 shows the total debt service payment obligation of the Water Enterprise’s outstanding debt for the Study Period. Table 4-15: Existing Annual Debt Service Summary Year FY 17/18 FY 18/19 FY 19/20 FY 20/21 FY 21/22 FY 22/23 2012 Water Revenue Bond Principal $1,860,000 $905,000 $915,000 $940,000 $970,000 $555,000 2012 Water Revenue Bond Interest $379,150 $304,750 $291,175 $277,450 $239,850 $201,050 Total Debt Service $2,239,150 $1,209,750 $1,206,175 $1,217,450 $1,209,850 $756,050 STATUS QUO POTABLE WATER FINANCIAL PLAN (NO REVENUE 4.2 ADJUSTMENTS), 2016 STAGE 3 WATER CONSERVATION Table 4-16 displays the pro forma of the City’s domestic water enterprise, less recycled water net revenue, under current rates over the Study period. The pro forma incorporates revenues and expenses to show the overall position of the utility. All projections shown in the table are based upon the City’s current rate structure and do not include rate adjustments. The pro forma incorporates the potable water enterprise data shown in the preceding tables of this section. Under the “status-quo” scenario, revenues generated from rates and other miscellaneous revenues are inadequate to achieve reserve targets and fund capital improvement projects over the Study period. Moreover, the status quo pro forma shows that without a rate increase the water enterprise will be in technical default by FY 19/20. The red font indicates negative fund balance or deficient debt coverage. 156/231 Water Rate Study | 31 Table 4-16: Status Quo Domestic Water Pro Forma7 Pro Forma FY 17/18 FY 18/19 FY 19/20 FY 20/21 FY 21/22 FY 22/23 Line Descriptions Budgeted Projected Projected Projected Projected Projected 1 Revenues 2 Existing Rev from Rates $24,270,788 $24,456,896 $24,624,610 $24,624,610 $24,624,610 $24,624,610 3 Rev from Rev Adjustments $0 $0 $0 $0 $0 $0 4 Other Revenues $949,000 $954,976 $961,012 $967,108 $973,265 $979,484 5 Total Revenues $25,219,788 $25,411,872 $25,585,622 $25,591,718 $25,597,875 $25,604,094 6 Revenue Requirements 7 Purchased Water Costs $5,765,715 $6,392,576 $7,077,064 $7,784,770 $8,563,248 $9,419,572 8 Fixed Water Costs $5,835,716 $6,419,288 $7,061,216 $7,767,338 $8,544,072 $9,398,479 9 Other O&M Expenses $10,729,100 $11,199,399 $11,696,029 $12,220,830 $12,775,796 $13,363,081 10 Total $22,330,531 $24,011,262 $25,834,309 $27,772,938 $29,883,115 $32,181,132 11 12 Net Revenues $2,889,257 $1,400,610 -$248,687 -$2,181,220 -$4,285,240 -$6,577,038 13 Debt Proceeds to Fund $0 $0 $0 $0 $0 $0 14 Water Utilities Fund CIP $2,500,000 $4,575,000 $2,652,250 $2,731,818 $2,813,772 $2,898,185 15 Current Debt Service $2,239,150 $1,209,750 $1,206,175 $1,217,450 $1,209,850 $756,050 16 Proposed Debt Service $0 $0 $0 $0 $0 $0 17 Total Debt Service $2,239,150 $1,209,750 $1,206,175 $1,217,450 $1,209,850 $756,050 18 Interest On Reserves $87,871 $78,784 $66,283 $51,126 $29,620 $1,899 19 Net Annual Cash Balance -$1,849,893 -$4,384,140 -$4,107,112 -$6,130,488 -$8,308,862 -$10,231,274 20 Beginning Reserve Balances $30,215,424 $28,453,403 $24,148,047 $20,107,218 $14,027,856 $5,748,614 21 Ending Reserve Balance: $28,453,403 $24,148,047 $20,107,218 $14,027,856 $5,748,614 -$4,480,760 22 Target Balance $19,137,379 $20,066,800 $21,675,916 $22,924,442 $24,290,234 $25,684,762 23 Coverage Ratio 170% 171% 9% -180%-393%-1008% 24 Days Cash On Hand 465 367 284 184 70 -51 PROPOSED POTABLE WATER FINANCIAL PLAN 4.3 Raftelis proposes that the City adopts 8% revenue adjustments beginning in FY 18/19 and at the beginning of each fiscal year through FY 22/23. The proposed rate revenue that is added to the current rate revenue is shown in line 3 of Table 4-18. Each revenue adjustment is proposed to be implemented in July of that fiscal year. Table 4-17 shows the proposed revenue adjustment plan. Although Table 4-17 shows anticipated revenue adjustments for FYs 17/18 through 22/23, the City will review and confirm the required revenue adjustments on an annual basis. The rates presented in Section 8 are based on the proposed Financial Plan below. 7 The pro forma combines and summarizes the revenues, operating expenses, capital expenditures, and debt obligation portions of the financial plan model to illustrate the cash flow and reserve balances in a given year. 157/231 32 | City of Chino Hills – Public Works Department Revenue adjustments represent the average increase in rates for the utility as a whole. Actual percentage increases (or decreases) in rates are dependent upon the cost of service analysis and are unique to each customer class and meter size. Revenue adjustments proposed by Raftelis help ensure adequate revenue to fund operating expenses, achieve reserve policy targets, fund the long-term capital program, and comply with existing debt covenants. Revenue adjustments represent the average increase in rates for the utility as a whole. Table 4-17: Proposed Domestic Water Revenue Adjustments Year FY 17/18 FY 18/19 FY 19/20 FY 20/21 FY 21/22 FY 22/23 Water Revenue Adjustment 0% 8% 8% 8% 8% 8% Table 4-18 shows the pro forma for the potable water utility with additional revenues from the revenue adjustments in the proposed financial plan. These revenue adjustments allow the enterprise to fund all operating expenses, capital expenditures, and achieve reserve targets during the Study period. Table 4-18: Proposed Domestic Water Financial Plan Pro forma Pro Forma FY 17/18 FY 18/19 FY 19/20 FY 20/21 FY 21/22 FY 22/23 Line Descriptions Budgeted Projected Projected Projected Projected Projected 1 Revenues 2 Existing Rev from Rates $24,270,788 $24,456,896 $24,624,610 $24,624,610 $24,624,610 $24,624,610 3 Rev from Rev Adjustments $0 $1,956,552 $4,097,535 $6,395,307 $8,876,900 $11,557,021 4 Other Revenues $949,000 $954,976 $961,012 $967,108 $973,265 $979,484 5 Total Revenues $25,219,788 $27,368,424 $29,683,157 $31,987,025 $34,474,775 $37,161,115 6 Revenue Requirements 7 Purchased Water Costs $5,765,715 $6,392,576 $7,077,064 $7,784,770 $8,563,248 $9,419,572 8 Fixed Water Costs $5,835,716 $6,419,288 $7,061,216 $7,767,338 $8,544,072 $9,398,479 9 Other O&M Expenses $10,729,100 $11,199,399 $11,696,029 $12,220,830 $12,775,796 $13,363,081 10 Total $22,330,531 $24,011,262 $25,834,309 $27,772,938 $29,883,115 $32,181,132 11 12 Net Revenues $2,889,257 $3,357,161 $3,848,848 $4,214,087 $4,591,660 $4,979,982 13 Debt Proceeds to Fund $0 $0 $0 $0 $0 $0 14 Water Utilities Fund CIP $2,500,000 $4,575,000 $2,652,250 $2,731,818 $2,813,772 $2,898,185 15 Current Debt Service $2,239,150 $1,209,750 $1,206,175 $1,217,450 $1,209,850 $756,050 16 Proposed Debt Service $0 $0 $0 $0 $0 $0 17 Total Debt Service $2,239,150 $1,209,750 $1,206,175 $1,217,450 $1,209,850 $756,050 18 Interest On Reserves $87,871 $81,719 $78,308 $78,926 $80,412 $83,494 19 Net Annual Cash Balance -$1,849,893 -$2,427,589 -$9,577 $264,819 $568,038 $1,325,747 20 Beginning Reserve Balances $30,215,424 $28,453,403 $26,107,533 $26,176,264 $26,520,009 $27,168,460 21 Ending Reserve Balance: $28,453,403 $26,107,533 $26,176,264 $26,520,009 $27,168,460 $28,577,701 22 Target Balance $19,137,379 $20,066,800 $21,675,916 $22,924,442 $24,290,234 $25,684,762 158/231 Water Rate Study | 33 23 Coverage Ratio 170% 338% 375% 392% 411% 675% 24 Days Cash On Hand 465 397 370 349 332 324 Figure 4-1 through Figure 4-4 display the FY 18/19 through FY 22/23 proposed financial plan in a graphical format. Figure 4-1 shows the proposed revenue adjustments - in percentage terms - as blue bars, as well as the calculated and minimum debt coverage requirements shown as green and red lines, respectively. Figure 4-1: Proposed Domestic Water Revenue Adjustments Figure 4-2 illustrates the Operating Financial Plan in a graphical format. It compares existing and proposed revenues with projected expenses. The expenses represent O&M expenses (both water supply costs and other expenses), debt service, and reserve funding. Total revenues at existing and proposed rates are shown by the horizontal red and green lines, respectively. Figure 4-2 shows that current revenue from existing rates, in red, will not meet future total expenses starting in FY 19/20 (inclusive of reserve funding) and shows the need for revenue adjustments. 159/231 34 | City of Chino Hills – Public Works Department Figure 4-2: Proposed Domestic Water Operating Financial Plan Figure 4-3 shows the domestic water utility’s ending balance by fiscal year. The green bars indicate the ending balance, while the red line indicates the target balance. The green bars remain above the red target line, indicating the utility is meeting its reserves target throughout the study period. Figure 4-3: Proposed Domestic Water Ending Fund Balances Figure 4-4 shows the total CIP of the water utility, and the corresponding funding source. Since the City is paying for all of its capital using PAYGO, there is only one funding source. The data callouts indicate the total value of CIP in a given year. 160/231 Water Rate Study | 35 Figure 4-4: Proposed Domestic Water Capital Improvement Program Funding FINANCIAL PLAN INCORPORATING RECYCLED WATER 4.4 Net revenues (revenues less expenses and CIP spending) from the recycled water fund are considered part of the water utility’s revenue. This section will show the above pro forma from Table 4-18 and incorporate the additional revenue from the proposed recycled water financial plan. Both the Domestic water and Recycled water financial plans partially affect the other, so this section draws upon the results shown in Section 5.3. The resulting pro forma is shown in Table 4-19. 161/231 36 | City of Chino Hills – Public Works Department Table 4-19: Proposed Domestic Combined Domestic Water and Recycled Water Financial Plan Pro Forma Combined Pro Forma FY 17/18 FY 18/19 FY 19/20 FY 20/21 FY 21/22 FY 22/23 Line Descriptions Budgeted Projected Projected Projected Projected Projected 1 Water Revenues 2 Existing Rev from Rates $24,270,788 $24,456,896 $24,624,610 $24,624,610 $24,624,610 $24,624,610 3 Rev from Rev Adjustments $0 $1,956,552 $4,097,535 $6,395,307 $8,876,900 $11,557,021 4 Other Revenues $949,000 $954,976 $961,012 $967,108 $973,265 $979,484 5 Total Water Revenues $25,219,788 $27,368,424 $29,683,157 $31,987,025 $34,474,775 $37,161,115 6 Interest on Reserves $97,505 $91,267 $89,255 $91,586 $94,251 $96,823 7 Revenue Requirements 8 Purchased Water Costs $5,765,715 $6,392,576 $7,077,064 $7,784,770 $8,563,248 $9,419,572 9 Fixed Water Costs $5,835,716 $6,419,288 $7,061,216 $7,767,338 $8,544,072 $9,398,479 10 Other O&M Expenses $10,729,100 $11,199,399 $11,696,029 $12,220,830 $12,775,796 $13,363,081 11 Total $22,330,531 $24,011,262 $25,834,309 $27,772,938 $29,883,115 $32,181,132 12 Net Revenues $2,889,257 $3,357,161 $3,848,848 $4,214,087 $4,591,660 $4,979,982 13 Debt Proceeds to Fund $0 $0 $0 $0 $0 $0 14 Current Debt Service $2,239,150 $1,209,750 $1,206,175 $1,217,450 $1,209,850 $756,050 15 Proposed Debt Service $0 $0 $0 $0 $0 $0 16 Total Debt Service $2,239,150 $1,209,750 $1,206,175 $1,217,450 $1,209,850 $756,050 17 Recycled Water 18 Net Revenues from RW $912,838 $737,367 $672,065 $558,709 $382,211 $124,058 19 RW CIP Spending $1,321,138 $405,305 $90,627 $19,696 $160,891 $713,023 20 Net Cash Changes from RW -$408,300 $332,062 $581,438 $539,012 $221,320 -$588,965 21 DW CIP Spending $2,500,000 $4,575,000 $2,652,250 $2,731,818 $2,813,772 $2,898,185 22 Net Annual Cash Balance -$2,258,192 -$2,095,527 $571,860 $803,831 $789,358 $736,782 23 Beginning Reserve Balances $33,630,785 $31,470,098 $29,465,838 $30,126,954 $31,022,372 $31,905,981 24 Ending Reserve Balance: $31,470,098 $29,465,838 $30,126,954 $31,022,372 $31,905,981 $32,739,586 25 Target Balance $19,137,379 $20,066,800 $21,675,916 $22,924,442 $24,290,234 $25,684,762 26 27 Coverage Ratio 170% 338% 375% 392% 411% 675% 162/231 Water Rate Study | 37 5.RECYCLED WATER ENTERPRISE This section describes the recycled water operating financial plan, as well as the City’s customer accounts and recycled water use data, and corresponding financial plan. RECYCLED WATER REVENUE REQUIREMENTS 5.1 A review of a utility’s revenue requirements is a key first step in the rate study process. The review involves an analysis of annual operating revenues under the status quo, operation and maintenance (O&M) expenses, and capital expenditures. Recycled water revenues are part of the domestic water enterprise fund’s overall revenues. This section of the Study provides a discussion of the projected revenues, O&M expenses, and rate adjustments estimated as required to meet the projected revenue requirements for the Study period and ensure the fiscal sustainability and solvency of the enterprise. Recycled Water Revenues from Current Rates 5.1.1 The current recycled water rates were last increased in July 2014. The rate structure for the City’s recycled water service charges has three components: a fixed charge component (Monthly Service Charge), a variable volumetric charge component (Commodity Charge), and elevation pumping charges. As with domestic water, the Monthly Service Charge is determined on the basis of the size of the water meter serving the property and increases with meter size, as larger meter sizes generally consume more water on average, and tend to have higher rates of peaking; therefore, the costs to provide service to these customers is higher. The recycled water enterprise charges the same rates as the water enterprise. The rates for the current Monthly Service Charges are shown in Table 5-1. Table 5-1: Current Rates for the Recycled Water Monthly Service Charges ($/Meter Size) Meter Size FY 17/18 5/8'' Meters $19.79 3/4'' Meters $29.54 1'' Meters $49.23 1.5'' Meters $98.46 2'' Meters $157.53 3'' Meters $344.61 4'' Meters $578.94 6'' Meters $1,197.00 8'' Meters $1,577.32 10'' Meters $2,569.78 12" Meters $2,569.78 The Commodity Charge component of a customer’s recycled water bill is calculated on the basis of the number of units of recycled water delivered to a property, measured in CCF, multiplied by the relevant customer class’s uniform rate. The recycled water enterprise currently only has two customer classes: recycled water base rate customers and recycled water temporary service customers. The current rates are shown in Table 5-2 in $/CCF. 163/231 38 | City of Chino Hills – Public Works Department Table 5-2: Current Rates for Recycled Water Commodity Charges FY 17/18 Recycled Water Rate $1.74 Temporary Recycled Water Rate $2.10 Currently recycled water customers pay reduced elevation charges relative to domestic water customers. These are shown below in Table 5-3. Table 5-3: Current Elevation Rates for Recycled Water FY 17/18 Low Zone $0.00 Intermediate Zone Elevation Charge $0.12 High Zone Elevation Charge $0.31 Table 5-4 shows actual and projected recycled water accounts by meter size. The projected number of accounts is based on the projected account growth assumptions from Table 2-1; there is no growth projected in Table 2-1 so there is no growth shown in the table below. Table 5-4: Projected Recycled Water Accounts by Meter Size Year FY 17/18 FY 18/19 FY 19/20 FY 20/21 FY 21/22 FY 22/23 5/8'' Meters 0 0 0 0 0 0 3/4'' Meters 0 0 0 0 0 0 1'' Meters 10 10 10 10 10 10 1.5'' Meters 58 58 58 58 58 58 2'' Meters 97 97 97 97 97 97 3'' Meters 13 13 13 13 13 13 4'' Meters 4 4 4 4 4 4 6'' Meters 4 4 4 4 4 4 8'' Meters 1 1 1 1 1 1 10'' Meters 1 1 1 1 1 1 Total 188 188 188 188 188 188 Recycled water demand projections through FY 22/23 are shown by zone in Table 5-5. The demand growth assumptions are contained in Table 2-1. FY 16/17 usage is shown below for comparison purposes. Recycled water revenues coming from Commodity Charges are expected to remain static after FY 16/17 as there is no additional growth expected. 164/231 Water Rate Study | 39 Table 5-5: Recycled Water Demand Estimates by Zone (in CCF) Year FY 16/17 FY 17/18 FY 18/19 FY 19/20 FY 20/21 FY 21/22 FY 22/23 Low Zone 322,562 369,173 369,173 369,173 369,173 369,173 369,173 Intermediate Zone 253,301 289,903 289,903 289,903 289,903 289,903 289,903 High Zone 152,504 174,541 174,541 174,541 174,541 174,541 174,541 Total Base Rate Usage 728,367 833,617 833,617 833,617 833,617 833,617 833,617 Temporary Usage 32,817 37,560 37,560 37,560 37,560 37,560 37,560 Total Recycled Water Use 761,184 871,177 871,177 871,177 871,177 871,177 871,177 Table 5-6 shows the rate revenue generated in each Study year with projected usage and current rates. Note that revenues for FY 17/18 and beyond use FY 17/18 rates from Table 5-1, Table 5-2, and Table 5-3. The estimated rate revenues in FY 17/18 are $2,063,153. This amount becomes the revenue requirement for the cost of service analysis in Section 9. Table 5-6: Projected Recycled Water Rate Revenues (No Revenue Adjustments)8 Year FY 17/18 FY 18/19 FY 19/20 FY 20/21 FY 21/22 FY 22/23 Fixed Charges $446,575 $446,575 $446,575 $446,575 $446,575 $446,575 Base Charges $1,449,006 $1,449,006 $1,449,006 $1,449,006 $1,449,006 $1,449,006 Pumping Charges $88,614 $88,614 $88,614 $88,614 $88,614 $88,614 Temporary $78,959 $78,959 $78,959 $78,959 $78,959 $78,959 Total Revenue $2,063,153 $2,063,153 $2,063,153 $2,063,153 $2,063,153 $2,063,153 The recycled water enterprise has no non-rate revenue. Recycled Water Operations and Maintenance Expenses 5.1.2 The City purchases recycled water from the Inland Empire Utilities Agency (IEUA). The recycled water enterprise’s largest expense is the purchase of IEUA recycled water. The City expects the cost per unit of recycled water to escalate significantly as shown in Table 2-2. The costs for purchasing water are shown below. The recycled water enterprise is assumed to have the same water loss factor as the domestic water utility of 3.6%. These costs as well as purchases to meet customer demand are shown in Table 5-7. Table 5-7: Recycled Water Purchased Cost Calculation Year FY 17/18 FY 18/19 FY 19/20 FY 20/21 FY 21/22 FY 22/23 Recycled Water Usage in AF 2,000 AF 2,000 AF 2,000 AF 2,000 AF 2,000 AF 2,000 AF Total Required RW With Loss 2,072 AF 2,072 AF 2,072 AF 2,072 AF 2,072 AF 2,072 AF IEUA Recycled Water Cost ($/AF) $470 $583 $723 $896 $1,111 $1,378 Total Purchased RW Costs $973,814 $1,207,530 $1,497,337 $1,856,698 $2,302,305 $2,854,858 8 Calculated revenues are derived by multiplying the charges in Table 5-1 and 5-2 by the respective accounts and demand estimates in Table 5-3 and 5-4. For more detail see the ‘Rev’ tab of the financial plan model. 165/231 40 | City of Chino Hills – Public Works Department Total projected recycled water O&M expenses are shown in Table 5-8. These expenses are summarized by Department division. Expenses use the City’s budgeted FY 17/18 values and future expenses are projected using the inflationary factors from Section 2.1. Table 5-8: Projected Recycled Water Fund O&M Expenses9 Year FY 17/18 FY 18/19 FY 19/20 FY 20/21 FY 21/22 FY 22/23 Total Purchased RW Costs $973,814 $1,207,530 $1,497,337 $1,856,698 $2,302,305 $2,854,858 Personnel Costs $22,900 $24,027 $25,219 $26,479 $27,812 $29,223 Capital Outlay $10,000 $10,300 $10,609 $10,927 $11,255 $11,593 Other RW Operating Costs $143,600 $155,381 $168,201 $181,783 $196,627 $212,854 Total O&M Expenses $1,150,314 $1,397,238 $1,701,366 $2,075,887 $2,537,999 $3,108,529 Projected Recycled Water Capital Improvement Projects 5.1.3 The City has programmed approximately $2.7 million in capital expenditures during the Study period (FY 17/18-22/23) for the recycled water utility, as shown in Table 5-9. The CIP costs for future years are determined by using the projected yearly costs from the City’s recent asset management study and inflating the value by the capital cost inflation factor shown in Section 2.1. Table 5-9: Recycled Water Capital Improvement Plan Year FY 17/18 FY 18/19 FY 19/20 FY 20/21 FY 21/22 FY 22/23 Recycled Water CIP $1,321,138 $405,305 $90,627 $19,696 $160,891 $713,023 Existing Recycled Water Debt Service 5.1.4 The recycled water enterprise has no outstanding debt. STATUS QUO RECLAIMED WATER FINANCIAL PLAN (NO REVENUE 5.2 ADJUSTMENTS) Table 5-10 displays the pro forma of the City’s recycled water utility under current rates over the Study period to show the overall position of the utility. All projections shown in the table are based upon the City’s current rate structure and do not include rate adjustments. The pro forma incorporates the recycled water utility data shown in the preceding tables. Under the status quo scenario, revenues generated from rates cover operating expenditures through FY 20/21, but the utility will operate at a deficit in later years with the margin increasing each year. 9 FY 17/18 expenses represent budgeted values provided by the City and are inflated in future years by the respective factors found in Table 2-1. For more detail see the ‘O&M’ tab of the financial plan model or in Appendix Section 10.2. 166/231 Water Rate Study | 41 Table 5-10: Status Quo Recycled Water Pro Forma10 RW Pro Forma FY 17/18 FY 18/19 FY 19/20 FY 20/21 FY 21/22 FY 22/23 Line Descriptions Budgeted Projected Projected Projected Projected Projected 1 Revenues 2 Existing Rev from Rates $2,063,153 $2,063,153 $2,063,153 $2,063,153 $2,063,153 $2,063,153 3 Rev from Rev Adjustments $0 $0 $0 $0 $0 $0 4 Total Revenues $2,063,153 $2,063,153 $2,063,153 $2,063,153 $2,063,153 $2,063,153 5 Revenue Requirements 6 Purchased Water Costs $973,814 $1,207,530 $1,497,337 $1,856,698 $2,302,305 $2,854,858 7 Other O&M Expenses $176,500 $189,708 $204,029 $219,189 $235,694 $253,670 8 Total $1,150,314 $1,397,238 $1,701,366 $2,075,887 $2,537,999 $3,108,529 9 Net Revenues $912,838 $665,915 $361,787 -$12,734 -$474,846 -$1,045,376 10 Debt Proceeds to Fund $0 $0 $0 $0 $0 $0 11 RW CIP $1,321,138 $405,305 $90,627 $19,696 $160,891 $713,023 12 Current Debt Service $0 $0 $0 $0 $0 $0 13 Proposed Debt Service $0 $0 $0 $0 $0 $0 14 Total Debt Service $0 $0 $0 $0 $0 $0 15 16 Interest On Cash Balance $0 $391 $407 $0 $0 $0 17 Net Annual Cash Balance -$408,300 $260,610 $271,160 -$32,431 -$635,738 -$1,758,399 PROPOSED RECYCLED WATER FINANCIAL PLAN 5.3 Raftelis proposes that the City adopt 10% rate adjustments in FY 19/20 through FY 22/23. Raftelis uses the term rate adjustment here rather than revenue adjustment for the following reason: recycled water customers will pay the same meter dependent Monthly Service Charge as water customers. The rate adjustments will only affect the base recycled water rate. The first FY 19/20 rate adjustment is proposed to be implemented in July of 2019 with each subsequent adjustment occurring in July of each fiscal year. Table 5-11 shows the proposed rate adjustment plan. Although Table 5-11 shows anticipated rate adjustments for FY 19/20 through FY 22/23, the City will review and confirm the required rate adjustments on an annual basis. The rates presented in Section 9 are based on the proposed rate adjustment plan below. Table 5-11: Proposed Recycled Water Rate Adjustments Year FY 17/18 FY 18/19 FY 19/20 FY 20/21 FY 21/22 FY 22/23 Recycled Water Rate Adjustment 0% 0% 10% 10% 10% 10% Table 5-12 shows the pro forma for the recycled water utility with additional revenues from the revenue adjustments in both the water and recycled water proposed financial plans. Proposed 10 The pro forma combines and summarizes the revenues, operating expenses, capital expenditures, and debt obligation portions of the financial plan model to illustrate the cash flow and reserve balances in a given year. 167/231 42 | City of Chino Hills – Public Works Department revenue and rate adjustments help ensure adequate revenue to fund operating expenses and fund the long- term capital program. Table 5-12: Proposed Recycled Water Financial Plan Pro Forma11 RW Pro Forma FY 17/18 FY 18/19 FY 19/20 FY 20/21 FY 21/22 FY 22/23 Line Descriptions Budgeted Projected Projected Projected Projected Projected 1 Revenues 2 Revenue from Current Rates $2,063,153 $2,063,153 $2,063,153 $2,063,153 $2,063,153 $2,063,153 3 Rev from Rev Adjustments $0 $71,452 $310,278 $571,443 $857,058 $1,169,434 4 Total Revenues $2,063,153 $2,134,605 $2,373,431 $2,634,596 $2,920,211 $3,232,587 5 Revenue Requirements 6 Purchased Water Costs $973,814 $1,207,530 $1,497,337 $1,856,698 $2,302,305 $2,854,858 7 Other O&M Expenses $176,500 $189,708 $204,029 $219,189 $235,694 $253,670 8 Total $1,150,314 $1,397,238 $1,701,366 $2,075,887 $2,537,999 $3,108,529 9 Net Revenues $912,838 $737,367 $672,065 $558,709 $382,211 $124,058 10 Debt Proceeds to Fund $0 $0 $0 $0 $0 $0 11 RW CIP $1,321,138 $405,305 $90,627 $19,696 $160,891 $713,023 12 Current Debt Service $0 $0 $0 $0 $0 $0 13 Proposed Debt Service $0 $0 $0 $0 $0 $0 14 Total Debt Service $0 $0 $0 $0 $0 15 16 Interest on Cash Balance $0 $498 $872 $809 $332 $0 17 Net Annual Cash Balance -$408,300 $332,062 $581,438 $539,012 $221,320 -$588,965 Figure 5-1 and Figure 5-2 display the FY 17/18 through FY 22/23 proposed financial plan in a graphical format. Figure 5-1 illustrates the Operating Financial Plan in a graphical format. It compares existing and proposed revenues with projected expenses. The expenses represent O&M expenses including recycled water supply costs, other operating expenses, and reserve funding. Total revenues at existing and proposed rates are shown by the horizontal red and green lines, respectively. Projected revenue from existing rates does not meet future revenue requirements starting in FY 21/22, showing the need for rate adjustments. 11 The revenue from revenue adjustments line is calculated by multiplying the revenue from fixed charges and pumping charges by the water enterprise revenue adjustments. 168/231 Water Rate Study | 43 Figure 5-1: Proposed Recycled Water Operating Financial Plan Figure 5-2 shows the total CIP of the recycled water enterprise. The green bars indicate recycled water related capital paid for by PAYGO financing. Figure 5-2: Proposed Recycled Water Capital Improvement Program Funding 169/231 44 | City of Chino Hills – Public Works Department 6.WATER COST OF SERVICE ANALYSIS The principles and methodology of a cost of service analysis were described in Section 1.3. A cost of service analysis distributes a utility’s revenue requirements (costs) to each customer class. After determining a utility’s revenue requirements, the next step in a cost of service analysis is to functionalize its O&M costs. The City provided its FY 16/17 budget split up into budgetary units, which were interpreted to be functions (i.e. cost categories). The City’s budgetary units include: 1.500-0950 – Recreation 2.500-1210 – Utility Customer Service 3.500-7300 – Engineering 4.500-8110 – Administration 5.500-8111 – Distribution 6.500-8112 – Meter Services 7.500-8113 – Production 8.500-8114 – Water Efficiency Program 9.500-8121 – Storm System 10.500-8300 – Street Maintenance The functionalization of costs allows us to better allocate costs to the cost causation components (plainly, cost components).12 Organizing the costs in terms of end function provides a direct correlation between the cost component and the rate, coupling the cost incurred by the utility and the benefit delivered to the customer and the demand and burden that the customer places on the utility’s system and/or water resources. The costs incurred are generally responsive to the specific service requirements or cost drivers imposed on the system and its water resources by its customers. The principal service requirements that drive costs include the annual volume of water consumed, the peak water demands incurred, and the number of customers or meter equivalents in the system. Accordingly, these service requirements are the basis for the selection of the functions utilized in the functional allocation process. The cost components include: 1.Supply costs are related to the purchase of water supplies including raw water and treated water. As explained in Section 2, the City acquires water from numerous sources of supply. 2.Base (average) costs vary with the total quantity of water used within the water system under average conditions. These costs may include treatment, pumping, transmission and distribution facilities, and capital costs related to plant investment associated with serving customers at a constant, or average, annual rate of use. Base costs are, therefore, spread over all units of water equally. 3.Peaking (maximum day and maximum hour) costs are divided into maximum day and maximum hour demand.13 The maximum day demand is the maximum amount of water used in a single day in a year. The maximum hour demand is the maximum usage in an hour 12 This Study uses the Base-Extra Capacity methodology set forth in the M1 Manual for functionalizing and allocating costs. 13 Collectively, the maximum day and maximum hour cost components are known as peaking costs. 170/231 Water Rate Study | 45 on the maximum usage day. Different facilities, such as distribution and storage facilities, and the capital and O&M costs associated with those facilities, are designed to meet the peak demands placed on the system by customers. Therefore, extra capacity14 costs include the O&M and capital costs associated with meeting peak customer demand in excess of an average annual rate of use or base use requirements. 4.Meters (Meter Service) costs include maintenance and capital costs related to meters and associated services. 5.Customer Service costs are directly associated with serving customers, irrespective of the amount of water used, and generally include meter reading, bill generation, accounting, customer service, and collection expenses. 6.Fire (Fire Protection) are costs of providing both public and private fire protection service. They include both direct and indirect capital-related and maintenance costs for fire hydrants and private fire connections, as well as indirect costs for source of supply, treatment, transmission, and distribution of water as these facilities and infrastructure must be upsized to meet fire protection demands placed on the water system. 7.Conservation costs include all costs of funding, administering, and executing water conservation and efficiency related programs and services, as well as development of alternative and/or supplemental water supplies. 8.Elevation costs are the costs associated with pumping water to intermediate and high elevation zones. This method of functionalizing costs is consistent with the AWWA M1 Manual and is widely used in the water industry to perform cost of service analyses. FUNCTIONALIZATION OF O&M EXPENSES 6.1 For the COS process, the City provided Raftelis with its FY 16/17 budget split into its departments. As mentioned above, the budget’s departments are: 11.500-0950 – Recreation 12.500-1210 – Utility Customer Service 13.500-7300 – Engineering 14.500-8110 – Administration 15.500-8111 – Distribution 16.500-8112 – Meter Services 17.500-8113 – Production 18.500-8114 – Water Efficiency Program 19.500-8121 – Storm System 20.500-8300 – Street Maintenance Functionalizing O&M expenses allows Raftelis to follow the principles of rate setting theory in which the end goal is to allocate the City’s O&M expenses to cost causation components. These cost components are the sum of individual expenses contained within the department’s operating 14 The terms extra capacity, peaking, and capacity costs are used interchangeably. 171/231 46 | City of Chino Hills – Public Works Department budget assigned to a given function (e.g. Max Day). These expenses are broken down within the rate model cost of service. This is further explained in Section 6.2. ALLOCATION OF FUNCTIONALIZED EXPENSES TO POTABLE WATER 6.2 COST COMPONENTS After functionalizing expenses, the next step is to allocate the functionalized expenses to cost components. To do so, we must identify system-wide peaking factors which are shown in column B of Table 6-1. The system-wide peaking factors are used to derive the cost causation component allocation bases (i.e., percentages) shown in columns C through E of Table 6-1. To understand the interpretation of the percentages shown in columns C through E we must first establish the base use as the average daily demand during the year. The system-wide factors for base is the projected average daily usage for FY 17/18. The system-wide factor for Max Day is from actual usage on September 21, 2015 where the City used 15.19 million gallons (MG) of potable water. Max hour is derived by multiplying the max day factor by 1.5, which is an industry standard when hourly use data is not available. Base represents the average day demand throughout the year and is assigned a factor of 1.00. Max Day is the ratio of maximum day demand to base demand (e.g. 15.19 million gallons per day (MGD) max day / 11.44 MGD average day = 1.33). Similarly, max hour is the ratio of maximum hour demand, on the maximum day, to base demand (22.79 MGD max hour / 11.44 MGD = 1.99). These factors indicate how much additional capacity is required to meet demand above average daily use. As demand and capacity requirements increase, so must the sizing of facilities and pipelines which incur greater costs to construct, maintain, and replace. Functionalized expenses are then allocated to the cost components using these allocation bases. As an example, the functionalized expenses that are allocated to the cost components using the maximum day basis attribute 75 percent (1.00/1.33) of the demand (and therefore costs) to base (average daily demand) use and the remaining 25 percent (0.33/1.33) to maximum day (peaking) use. Expenses allocated using the maximum hour basis assume 50 percent (1.00/1.99) of costs are due to base, 16 percent (0.33/1.99) are allocated to max day, and the remaining portion (100%- 50%-16%, or, 0.66/1.99) of costs are allocated to the maximum hour cost component. These allocation bases are used to assign the functionalized costs to the cost causation components. Table 6-1: System-Wide Peaking Factors and Allocation to Cost Causation Components A B C D E Total Demand (MGD) System Wide Factors Base Max Day Max Hour Base 11.44 MGD 1.00 100% Max Day 15.19 MGD 1.33 75% 25% Max Hour 22.79 MGD 1.99 50% 16% 33% Table 6-2 shows the allocation basis for the City’s O&M costs. The top row of Table 6-2 shows the budgetary heading, the second row shows the cost category basis on which the budgetary heading is allocated, and the leftmost column shows the cost functions. For example, Distribution related costs are allocated 45 percent to base, 15 percent to max day, 30 percent to max hour, and 10 172/231 Water Rate Study | 47 percent to fire protection cost components (a modified allocation based upon the calculation of max day costs distribution in Table 6-1). This means that 45 percent of costs are due to meeting base customer demands, 15 percent of costs are due to meeting max day demands, 30 percent of costs are due to meeting max hour demands, and 10 percent of costs are allocated to public fire protection (and the need to have additional storage within the system for firefighting). Recreation costs are allocated entirely to Base. Utility Customer Service is allocated to Customer Service. Engineering is allocated to Capital, which is allocated based on the results of functionalizing the City’s recent 100 Year R&R study. Admin is allocated to Base. Meter Services are allocated to Meter related costs. Supply is allocated 96% to supply and 4% to Elevation, since 4% of the 16/17 budget is related to pumping oriented costs. Water Efficiency Program costs are allocated to the Conservation cost component and the Storm System and Street Maintenance costs are both allocated to Base. For a complete list of the specific allocations please see the Excel model and the tab titled “COS” for Domestic Water Cost of Service. 173/231 48 | City of Chino Hills – Public Works Department Table 6-2: Allocation of Functionalized Domestic Water O&M and Capital Expenses to Cost Causation Components 500-0950- Recreation 500-1210- Utility Customer Service 500-7300- Engineering 500-8110 - Admin 500-8111 - Distribution 500-8112 - Meter Services 500-8113 - Production 500-8114 - Water Efficiency Program 500-8121- Storm System 500-8300- Street Maint Allocation Basis Base Customer Service Capital Base Max Hour Meters Supply Conservation Base Base Base 100% 0% 47% 100% 45% 0% 0% 0% 100% 100% Max Day 0% 0% 14% 0% 15% 0% 0% 0% 0% 0% Max Hour 0% 0% 21% 0% 30% 0% 0% 0% 0% 0% Supply 0% 0% 3% 0% 0% 0% 96% 0% 0% 0% Elevation 0% 0% 6% 0% 0% 0% 4% 0% 0% 0% Conservation 0% 0% 0% 0% 0% 0% 0% 100% 0% 0% Meters 0% 0% 0% 0% 0% 100% 0% 0% 0% 0% Customer Service 0% 100% 0% 0% 0% 0% 0% 0% 0% 0% Fire 0% 0% 9% 0% 10% 0% 0% 0% 0% 0% 174/231 Water Rate Study | 49 REVENUE REQUIREMENT – TO BE RECOVERED FROM DOMESTIC 6.3 WATER RATES Table 6-3 shows the revenue requirement derivation with the total revenue required from rates shown in the last line ($24,270,788). The revenue required from rates represents the total O&M, debt, and reserve funding requirements that are allocated to the cost components. Raftelis calculated the revenue requirement using Fiscal Year 17/18 expenses and rate funded capital. O&M expenses include costs directly related to the supply, treatment, and distribution of water, as well as routine maintenance of system facilities. To arrive at the rate revenue requirement, we subtract revenue offsets (non-rate revenues) and adjustments for annual fund balances (which fund capital and reserves). The result is the total revenue required from rates. This total is the amount that the Monthly Service Charges, Monthly Fire Service Charges, Commodity Charges, and Pumping Charges are designed to collect. Table 6-3: Revenue Required from Domestic Water Rates Revenue Requirement Total O&M Expense $22,330,531 Debt Service $2,239,150 Fund Balance $650,107 Less Revenue Offsets -$949,000 Total Revenue Required from Rates $24,270,788 Raftelis applied the percentages of each budgetary heading from the FY 16/17 budget to the FY 17/18 test year budget to functionalize the budget. The FY 17/18 Budget was $22,330,535 as shown in Table 4-13. The following example is given to demonstrate this process: in FY 16/17 the 500-8111 – Distribution heading accounted for 8.95% of expenses. 8.95% of $23,330,531 is $1,999,558. The percentages and calculated FY 17/18 budget amounts for all budget departments is shown in Table 6-4. Table 6-4: Budgetary Department Budget Percentages for Domestic Water ALLOCATION OF FUNCTIONALIZED EXPENSES TO RATE COMPONENTS 6.4 The cost components shown in Table 6-5 are recovered from customers through fixed (Monthly Service Charges and Monthly Fire Service Charges) and variable volumetric (Commodity and Pumping) charges. Table 6-5 shows the total revenue requirement to be collected through rates in the second column from the left. Table 6-5 shows the allocation to cost components in dollars using the percentages from Table 6-2. For the final step in the COS of allocating expenses to cost components, the debt service, fund balance, and revenue offsets are allocated. The debt service is allocated according to the Capital allocation basis, in recognition of the fact that the revenue from the bonds that the debt is serving 500-0950- Recreation 500-1210- Utility Customer Service 500-7300- Engineering 500-8110 - Admin 500-8111 - Distribution 500-8112 - Meter Services 500-8113 - Production 500-8114 - Water Efficiency Program 500-8121- Storm System 500-8300- Street Maint 0.01% 3.49% 0.19% 18.17% 8.95% 5.06% 62.93% 0.63% 0.16% 0.40% $2,372 $779,489 $42,598 $4,057,821 $1,999,558 $1,129,912 $14,052,125 $141,261 $36,278 $89,116 175/231 50 | City of Chino Hills – Public Works Department was used for capital spending. The Capital Allocation was calculated by analyzing the City’s 100 Year R&R Study and determining what percent of future spending would be driven by which cost component. Fund balance total is allocated in proportion to all allocations done before this process and the revenue offset is allocated using the Supply allocation basis to reduce the cost of Commodity Charges and Pumping Charges. 176/231 Water Rate Study | 51 Table 6-5: Domestic Water Cost Recovery, Cost Components (Values) Department Revenue Requirement Base Max Day Max Hour Supply Elevation Conservation Meters Customer Service Fire 500-0950-Recreation $2,372 $2,372 $0 $0 $0 $0 $0 $0 $0 $0 500-1210-Utility Customer Service $779,489 $0 $0 $0 $0 $0 $0 $0 $779,489 $0 500-7300-Engineering $42,598 $20,152 $6,089 $8,944 $1,131 $2,547 $0 $0 $0 $3,735 500-8110 - Admin $4,057,821 $4,057,821 $0 $0 $0 $0 $0 $0 $0 $0 500-8111 - Distribution $1,999,558 $903,666 $296,069 $599,867 $0 $0 $0 $0 $0 $199,956 500-8112 - Meter Services $1,129,912 $0 $0 $0 $0 $0 $0 $1,129,912 $0 $0 500-8113 - Production $14,052,125 $0 $0 $0 $13,513,083 $539,042 $0 $0 $0 $0 500-8114 - Water Efficiency Program $141,261 $0 $0 $0 $0 $0 $141,261 $0 $0 $0 500-8121-Storm System $36,278 $36,278 $0 $0 $0 $0 $0 $0 $0 $0 500-8300-Street Maint $89,116 $89,116 $0 $0 $0 $0 $0 $0 $0 $0 Subtotal O&M Expenses $22,330,531 $5,109,405 $302,158 $608,812 $13,514,214 $541,589 $141,261 $1,129,912 $779,489 $203,691 Table 6-6: Domestic Water Revenue Recovery15 Revenue Requirement Total Base Max Day Max Hour Supply Elevation Conservation Meters Customer Service Fire O&M Expense $22,330,531 $5,109,405 $302,158 $608,812 $13,514,214 $541,589 $141,261 $1,129,912 $779,489 $203,691 Capital Allocation Percentages 47.3% 14.3% 21.0% 2.7% 6.0% 0.0% 0.0% 0.0% 8.8% Debt Service $2,239,150 $1,059,253 $320,063 $470,145 $59,458 $133,885 $0 $0 $0 $196,345 Fund Balance $650,107 $163,221 $16,464 $28,549 $359,156 $17,873 $3,738 $29,897 $20,625 $10,585 Less Revenue Offsets -$949,000 $0 $0 $0 -$912,596 -$36,404 $0 $0 $0 $0 Total to be Recovered from Proposed Rates $24,270,788 $6,331,879 $638,685 $1,107,506 $13,020,232 $656,944 $144,998 $1,159,809 $800,114 $410,621 15 Note that the total revenue recovery amount in Table 6-6 ties to the revenue requirement calculated in Table 6-4. 177/231 52 | City of Chino Hills – Public Works Department 7.WATER BUDGET RATE STRUCTURE DEFINITIONS, AND USAGE ANALYSIS The City is considering a water budget rate structure along with the financial plan for this Study. The description of the allocations to individual customers and the development of water budgets is described here for completeness of this Study. The proposed water budget rate structure applies solely to SFR customers of the domestic water enterprise. WATER BUDGET DEFINITIONS 7.1 The American Water Works Association Journal defines a water budget as “the quantity of water required for an efficient level of water use by that customer” (Source: American Water Works Association Journal, May 2008, Volume 100, Number 5). Therefore, each customer has his or her own allocation or water budget as shown in the following figures. Only the City’s domestic water SFR customers will use a water budget rate structure. Figure 7-1 shows a hypothetical construction of water budget tiers. In the example, Tier 1 is defined by the allotment of water for efficient indoor use and Tier 2 is defined by the allotment of water for efficient outdoor use. In the example, the allotments of water in Tiers 3 and 4 are each set to 100 percent of the Outdoor Water Budget (OWB). For example, if the Tier 2 OWB was 12 units, Tier 3 would be 12 units, and Tier 4 would be an additional 12 units. Any use beyond Tier 4 is considered wasteful and falls into Tier 5. Figure 7-1: Water Budget Tiers It is worth noting that water budget rate structures are customized for each customer, which results in different tier breaks for different customers. For example, as illustrated by Figure 7-2, the first 9 units consumed by Customer 1 are charged at the Tier 1 rate, whereas Customer 2 has 12 units at the Tier 1 rate for indoor use. The next 12 units (10 – 21 units) consumed by Customer 1 are reserved for outdoor use, which are charged at the Tier 2 rate, and usage from 22 – 32 units falls into Tier 3. Any usage exceeding 33 units will be deemed excessive and charged at the Tier 4 rate. Similarly, for Customer 2, Tier 2 spans from 13 – 32 units, Tier 3 spans from 33 – 51 units, and usage exceeding 52 units will be charged at the Tier 4 rate. Customer 2, with a larger indoor and outdoor water budget (or allotment), represents a residential customer with a larger family and 178/231 Water Rate Study | 53 larger irrigated landscape area than Customer 1. Thus, tier breakpoints are established on a parcel basis for purposes of allocating the costs of service. Figure 7-2: Account Specific Water Budget Tiers PROPOSED WATER BUDGET DEVELOPMENT METHODOLOGY 7.2 The City’s current SFR rates are based on static inclining tiers. The following water budget based methodology will replace the current methodology. Residential Indoor Budget (Essential Use) Definition 7.2.1 The indoor water budget (IWB) is determined by a customer’s household size and a standard consumption per person. The IWB formula is as follows: IWB =GPCD ∗ Household Size ∗ Dwelling Units ∗ Days of Service 748 Where: GPCD – Gallons per capita per day (efficient use) •Household Size – Number of residents per dwelling unit •Dwelling Units – The number of dwelling units served by the meter. By way of example, a single family residence is one dwelling unit. •Days of Service – The number of days of service varies with each billing cycle for each customer. The actual number of days of service will be applied to calculate the indoor water budget for each billing cycle. •748 is the conversion unit from gallons to a billing unit of one hundred cubic feet (CCF). Outdoor Budget (Efficient Use) Definition 7.2.2 The outdoor water budget (OWB) is determined by three main variables: irrigable landscape area, weather data (Evapotranspiration, or ET) and an evapotranspiration adjustment factor (ETAF). The irrigable landscape area is measured as the square footage of landscape surface on a customer’s property. The weather data is based on the reference evapotranspiration (ET0), which is the amount of water lost to the atmosphere over a given time period at given specific atmospheric conditions. ET0 is the amount of water (in inches of water) needed for a hypothetical reference crop 179/231 54 | City of Chino Hills – Public Works Department to maintain its health and appearance; currently the City uses turf grass, a high-water use plant, as its reference crop. The ET Adjustment Factor (ETAF) is a coefficient that adjusts ET0 values based on plant factor and irrigation system efficiency. The formula to calculate an outdoor water budget is as follows: Where: •ET0 is measured in inches of water during the billing period based on actual ET measurements taken from California Irrigation Management Information System (CIMIS) Station #78 at Pomona.16 •ETAF (% of ET0) is currently set to 80 percent, which is the standard set in the California Model Water Efficient Landscape Ordinance17. It is based upon plant factor divided by irrigation efficiency. •Landscape Area (or Irrigable Landscape Area) in square feet is the estimated or measured irrigable landscape served by a customer’s meter, including pool surface area. o Raftelis has proposed a new method for determining landscape area for the City. This method applies a flat percentage to lot sizes with a cap at an upper limit. This percentage is proposed to be 34.3%. This percentage represents the average irrigated area in SFR lot sizes below the fifth quintile (i.e. the average irrigated area of the smallest 80% of lots). The upper limit is proposed to be 3,100 sq ft. This area is the average irrigated area of SFR lots below the 5th quintile, or the bottom 80%. •Voutdoor – Outdoor variance. The additional water allotment to be granted for extenuating circumstances is subject to the City’s approval or verification as outlined in the variance program. •1,200 is the conversion unit from inch*ft2 to billing unit of hundred cubic feet (CCF). PROPOSED NEW WATER BUDGET RATE STRUCTURE 7.3 During the study, Raftelis, working with City staff and management input, proposed a method of determining the outdoor portion of the water budget allocations. The proposed rationale is detailed in the following subsections, with all proposed factors and definitions shown in a graphical format in Table 7-2. Revisions apply to domestic water SFR customers only. Residential Indoor Budget (Essential Use) Definition – Tier 1 7.3.1 The State of California has targeted 55 gallons per person per day (GPCD) as an efficient indoor use goal. Raftelis recommends using the State targeted daily value of 55 GPCD for both single family and multi-family residential customers. The other major determinant of the residential indoor budget is household size, which we propose to leave at the default size of 4 persons per single family household and 4 persons per multi-family household. Customers may change the size of their household by filling out a variance form with the City and providing appropriate information. 16 Optionally, the City can use historical averages, or CIMIS data. Raftelis’s analysis used the City’s adopted ET Factors. 17 California Code of Regulations Title 23, Division 2, Chapter 2.7. Model Water Efficient Landscape Ordinance.   outdoor 0 V1200 ETAF* ET *Area LandscapeOWB 180/231 Water Rate Study | 55 Residential Outdoor Budget (Efficient Use) Definition – Tier 2 7.3.2 The 2010 California Model Water Efficient Landscape Ordinance (MWELO) uses 80 percent ETAF for existing landscapes, which reflects the amount of water for cool season turf grass. Raftelis recommends that the City use the ETAF used for determining outdoor allocations of 80 percent. Raftelis used the City’s adopted monthly ET factors to determine Daily ET factors in inches per day, these were calculated by dividing the monthly ET factor by the number of days in the month. Monthly and Daily ET Factors are shown below in Table 7-1. Table 7-1: City of Chino Hills ET Factors Month July August September October November December Monthly ET 7.3 7.1 5.9 4.2 2.6 2 Days 31 31 30 31 30 31 Daily ET 0.24 0.23 0.20 0.14 0.09 0.06 Month January February March April May June Monthly ET 2.1 2.9 3.9 4.5 5.7 6.5 Days 31 29 31 30 31 30 Daily ET 0.07 0.10 0.13 0.15 0.18 0.22 Inefficient and Excessive Use Definition – Tier 3 7.3.3 All use in excess of Tier 2 is considered to be unsustainable or inefficient and excessive. Proposed budget details and tier definitions are summarized in Table 7-2. Table 7-2: Proposed Water Budget Factors and Tier Definitions Variable Proposed SFR Household Size 4 MFR Household Size 4 GPCD 55 ETAF 80% Inefficient and Excessive Use >100% TWB Agricultural/Commercial/Industrial/Governmental Customers 7.3.1 All other customers will be aggregated into two uniform usage rates: one for agricultural, commercial, industrial, and governmental customers, one for temporary, construction, street sweep, and fire flow customers. USAGE ANALYSIS AND USAGE PROJECTIONS 7.4 Water Budget Usage Analysis 7.4.1 Section 7.3 contains recommendations to begin using water budget allocations. A summary of the recommendations are as follows: 1.Use the new standard of 55 GPCD for use in residential Tier 1 budgets; 2.Use the ETAF of 80 percent for residential Tier 2; 3.Use 34.3% of lot size and an upper limit of 3,100 sq ft to determine landscape area; 4.Consider any usage beyond Tier 2 Inefficient and Excessive 181/231 56 | City of Chino Hills – Public Works Department The tier definitions are used to allocate supply differentiated costs and conservation program costs and other costs of providing service to each tier. The cost of service is then used to determine a unit price for each tier. Figure 7-3 compares the distribution of residential bills for the current water budget allocations to the proposed allocations. Under the revised water budget allocations, approximately 72 percent of users stay within Tier 2 (efficient essential indoor use plus efficient outdoor use) versus 92 percent in the current allocation. Since the proposed allocations reduce the indoor budget slightly, and the outdoor budget more significantly, more customers will fall into Tier 3 (inefficient and excessive use). Note, the comparisons in Figure 8-3 and beyond utilize an account’s historical water use. Predicting future water use relies on several factors and is difficult to determine and no attempt is made here to forecast changes by customer. Figure 7-3: Bill Distribution for Residential Tiers 1-3 Figure 7-4 shows the usage distribution that results from the water budget tiers applied retroactively to FY 16/17 usage trends. These percentages will be applied to the projected residential usage in FY 17/18 to project total SFR usage in tiers. 182/231 Water Rate Study | 57 Figure 7-4: Usage Distribution for Residential Tiers 1-3 Projected Water Budget Use FY 17/18 (Domestic Water) 7.4.2 Using the proposed residential tier definitions, projected usage for FY 17/18 is shown in Table 7-3. Table 7-5 contains the potable water projections for all domestic water customer classes for FY 17/18 (5,381,695 CCF). Table 7-6 summarizes total potable demand which includes sales from uniform rates (construction/fire protection). Values are rounded to the nearest CCF. Using the analysis above, Raftelis determined the percentage of SFR usage that would fall into each tier. Applying these percentages to total SFR usage yields the usage in each new budget based tier as shown in Table 7-3. Table 7-3: SFR Usage in Tiers % Usage in Tiers Total Usage Tier 1 53.1% 2,281,794 Tier 2 24.1% 1,033,981 Tier 3 22.8% 977,662 Total 4,293,437 Multi-Family Residential (MFR) usage was also re-tiered. The first tier for MFR usage was adjusted to be more in line with SFR usage, with the first tier at 9 CCF, which is roughly equivalent to the amount used by four people using 55 GPCD for one month. The second tier is set to 4 CCF, which is the budget allocation for roughly 1000 square feet of irrigation for summer months (July to September). These tiers result in the tier usage distribution for MFR customers that is shown below in Table 7-4. 183/231 58 | City of Chino Hills – Public Works Department Table 7-4: MFR Usage in Tiers Tier Total Usage MFR Tier 1 311,911 MFR Tier 2 21,428 MFR Tier 3 39,140 Total 372,479 Adding these two usage distributions together results in the projected Residential tiered usage for FY 17/18. This is shown in Table 7-5. Table 7-5: Residential Usage in Tiers Tier Total Usage Residential Tier 1 2,593,705 Residential Tier 2 1,055,409 Residential Tier 3 1,016,802 Total 4,665,916 As part of the tier restructuring, Raftelis also proposes unifying non-residential usage rates. The Non-Residential, Government, and Agriculture class are combined into a Non-Residential Single Rate (shown below in bold and italic). Moreover, fireflows were added to the Construction/Temporary class to create a single class for temporary usage. The Non-Residential Single Rate customer class indicated below will be referred to as Non-Residential going forward. Table 7-6: Usage by New Customer Class Customer Class Total Usage Residential 4,665,916 Non-Residential 585,259 Government 72,772 Agriculture 29,892 Non-Residential Single Rate 687,923 Construction/Temporary/Fire 27,856 Total 5,381,695 184/231 Water Rate Study | 59 8.WATER RATE DERIVATION AND DESIGN EXISTING RATE STRUCTURE AND RATES 8.1 As explained in Section 4.1.1 of this Study, the rate structure for the City’s water service charges currently (generally) has two components: a fixed Monthly Service Charge component and a variable volumetric Commodity Charge component. Additionally, the City may assess volumetric Pumping charges if the property is in the Intermediate or High elevation zone and Monthly Fire Service Charges if the property possesses a private fireline. The rates for the Monthly Service Charge increases are determined on the basis of the size of the water meter serving a property. As described below, larger meter sizes generally consume more water on average and tend to have higher rates of peaking; therefore, the costs to provide service to these customers are higher. A typical single-family home with a 3/4” meter currently has a Monthly Service Charge of $29.54. The current rates for the Charge are shown Table 8-1. Table 8-1: Existing Rates for the Monthly Service Charge Year Current Charge 5/8'' Meters $19.79 3/4'' Meters $29.54 1'' Meters $49.23 1.5'' Meters $98.46 2'' Meters $157.53 3'' Meters $344.61 4'' Meters $578.94 6'' Meters $1,197.00 8'' Meters $1,577.32 10'' Meters $2,569.78 12" Meters $2,569.78 The rates for the current Commodity Charges are calculated on the basis of the amount of water delivered in CCF. The current unit rates within each tier are shown in Table 8-2. Residential rates apply to both Single Family Residences (SFR) and Multi-Family Residences (MFR), such as duplexes, triplexes, and condominium or apartment complexes. Non-Residential applies to non-residential accounts, such as offices, warehouses, and manufacturing facilities. Agriculture rates apply to agricultural customers such as farms and dairies. Government applies to usage from government buildings, school buildings, and park irrigation. Temporary refers to water used in construction projects (dust and debris abatement), street sweeping. Private Fire Protection applies to fireflow. 185/231 60 | City of Chino Hills – Public Works Department Table 8-2: Existing Rate Structure – Domestic Water Commodity Rates Year Current Charge Residential Tier 1 $2.08 Residential Tier 2 $2.37 Residential Tier 3 $3.31 Non-Residential $2.48 Government $2.48 Agriculture $2.36 Temporary $3.00 Private Fire Protection $4.12 RATE COMPONENT CALCULATION 8.2 Table 8-3 shows the final Rate Component Calculation. Before determining the final cost-of-service based rates, Raftelis calculated the total of each Rate Component to be recovered. The Cost Component totals are taken from Table 6-6. Rate Components can consist of more than one cost component. For example, the Metering Rate Component consists of the Meters, Base, Max Day, and Max Hour Cost Components. All rate components under the grey header are to be recovered using Monthly Service Charges or Monthly Fire Service Charges. All costs under the blue header are to be recovered using Commodity and Elevation Pumping Charges. Table 8-3: Rate Component Calculation Variable Fixed Cost Component Total Supply Conservation Elevation Meter Service Customer Service Fire Base $6,331,879 100% Max Day $638,685 100% Max Hour $1,107,506 100% Supply $13,020,232 100% Elevation $656,944 100% Conservation $144,998 100% Meters $1,159,809 100% Customer Service $800,114 100% Fire $410,621 100% Rate Component Totals $24,270,788 $13,020,232 $144,998 $656,944 $9,237,879 $800,114 $410,621 PROPOSED DOMESTIC WATER MONTHLY SERVICE CHARGES 8.3 Utilities invest in, and continuously maintain, facilities to provide capacity to meet all levels of water consumption, including peak demand plus fire protection. These costs must be recovered regardless of the amount of water used during a given period. Thus, peaking costs, along with base delivery costs and fixed water system costs to meet average demand, can be considered fixed water system costs. For the City, all base and peaking related costs will be recovered by fixed charges. Commodity Charges will recover the costs of Supply and Conservation, while Pumping charges will recover the Elevation rate component. 186/231 Water Rate Study | 61 There are two components that comprise the Monthly Service Charges: meter servicing costs and customer service costs. The Monthly Service Charge recognizes the fact that even when a customer does not use any water, the City incurs fixed costs in connection with operating and maintaining the system for each connection at all times. Meter Services Component The meter services component collects servicing-related costs as well as all of the base and peaking related costs. Larger meters are more expensive to maintain and replace and have the potential to demand more capacity, or, in other words, exert greater peaking characteristics compared to smaller meters. The potential capacity demanded (peaking) is proportional to the potential flow through each meter size as established by the American Water Works Association (AWWA) hydraulic capacity ratios. For example, the flow through a 4” meter is 25 times that of a 5/8" meter and therefore the meter capacity component of the Monthly Service Charge should be 25 times that of the 5/8"meter. Allocating base costs by meter size is a common way to provide greater revenue stability, especially in light of decreasing water sales revenues during a drought, from permanent conservation and reduced demand, or other water shortage circumstances. In order to create parity across the various meter sizes, each meter size is assigned a factor relative to a 5/8” meter based on its rated maximum capacity in gallons per minute (GPM). The 5/8” meter has a value of 1.00 which corresponds to 20 GPM. This establishes the “base” meter size. A given meter size’s ratio of meter servicing costs relative to the base (that of a 5/8” meter) determines the meter equivalency. Summation of all meter equivalencies for a given size yields total equivalent meters. For this study, Raftelis calculated the capacity ratios of each meter size using standard AWWA hydraulic capacity ratios and estimated meter counts for FY 17/18. Table 8-4 shows total domestic meter equivalencies used for this Study. The total equivalent meters calculation is completed by multiplying the number of meters of a specific size by their respective capacity ratio. The total number of equivalent meters within the City is determined to be 44,393. The equivalencies calculation is used for both potable and recycled meters as the proposed Monthly Service Charge will be the same for both services. Note that this table has a 12” meter which appeared in Table 4-5 as a 10” meter. The total bills column is the result of multiplying the total meters column by 12, since the City bills monthly. The EDU Total is the result of multiplying the number in the total meters column by the relevant capacity ratio (total meter equivalencies). The annual billed EDUs column is the result of multiplying the total in EDU Total by 12. 187/231 62 | City of Chino Hills – Public Works Department Table 8-4: Meter Equivalencies Calculation A B C D E F Meter Size Total Meters Total Annual Bills Rated Capacity Capacity Ratio EDU Total Annual Billed EDUS Source Table 4-5 A x 12 AWWA M1 C/20 A x C D x 12 5/8" 4,306 51,672 20 1.0 4,306 51,672 3/4" 12,164 145,968 30 1.5 18,246 218,952 1" 3,872 46,464 50 2.5 9,680 116,160 1.5" 403 4,836 100 5.0 2,015 24,180 2" 507 6,084 160 8.0 4,056 48,672 3" 65 780 300 15.0 975 11,700 4" 71 852 500 25.0 1,775 21,300 6" 14 168 1250 62.5 875 10,500 8" 25 300 1800 90.0 2,250 27,000 10" 0 0 2900 145.0 0 0 12" 1 12 4300 215.0 215 2,580 Total 21,428 257,136 44,393 532,716 Table 8-5 shows the calculation of the meter service component. The meter service component of the Monthly Service Charge is calculated by dividing the total Meter Service Rate Component (inclusive of meter servicing costs, base costs, and peaking costs) from Table 8-3 by the total number of equivalent meters in Table 8-4. The cost is rounded up to the nearest penny and is calculated as $17.35 per equivalent meter. Table 8-5: Meter Service Component Calculation Row Source Total Total Meter Service Rate Component 1 Table 8-3 $9,237,879 Total Annual Billed EDUs 2 Table 8-4 532,716 Total Charge 3 Row 1/Row 2 $17.35 Billing and Customer Service Component The customer service component recovers costs associated with meter reading, customer billing and collection, as well as answering customer service calls. These costs are uniform for all meter sizes as it costs the same to bill a small meter as it does a large meter. Table 8-6 shows the customer service component calculation. To calculate the customer component the total Customer Service Rate Component from Table 8-3 is divided by the total annual bills prepared by the City (from Table 8-4) to determine the monthly customer service charge component of $3.12. This number is rounded up to the nearest penny. 188/231 Water Rate Study | 63 Table 8-6: Customer Service Component Calculation Row Source Total Total Customer Service Rate Component 1 Table 8-3 $800,114 Total Annual Bills 2 Table 8-4 257,136 Total Charge 3 Row 1/Row 2 $3.12 Table 8-7 shows the calculation of the proposed FY 17/18 rates for the Monthly Service Charges. The rates of the Meter Service Charges calculated below are for both potable meters and recycled meters. The Monthly Service Charges will remain harmonized moving forward. Ultimately the rates will be the same for the two enterprises with the rate itself dictated by the potable water enterprise. For example, if the proposed total revenue adjustment is 12 percent for recycled water and 6 percent for potable water, the rates for the Monthly Service Charge for both will increase by 6 percent and the recycled Commodity Charges will increase by 12 percent. Hence, the recycled water enterprise’s adjustments will be termed “Rate Adjustments” rather than revenue adjustments. The proposed rates are the sum of the meter services component and the billing and customer service component (shown as customer service component) calculated above. The customer component is uniform for all meter sizes. The meter services component is the cost per equivalent meter calculated in Table 8-5 multiplied by the respective meter ratio in Table 8-4. Comparisons in rates are relative to existing rates implemented in July 2014. The 5/8” meter experiences an increase of $0.68 relative to the current charge. The most common meter size, 3/4”, shows a 1% decrease. All other meters (except for the reclassified 12” meter which previously paid the 10” meter rate) experience a decrease in dollar terms ranging from $2.73 for a 1” meter to $142.07 for a 4” meter. Table 8-7: Calculation of Rates for Cost of Service Monthly Service Charges A B C D E F Meter Size Proposed Customer Service Charge Proposed Meter Service Charge Total Proposed COS Charge Current Rate Difference Percent Increase Source Table 8-6 Table 8-5 x Capacity Ratio A + B Table 8-1 C-D E/D 5/8" $3.12 $17.35 $20.47 $19.79 $0.68 3% 3/4" $3.12 $26.03 $29.15 $29.54 -$0.39 -1% 1" $3.12 $43.38 $46.50 $49.23 -$2.73 -6% 1.5" $3.12 $86.75 $89.87 $98.46 -$8.59 -9% 2" $3.12 $138.80 $141.92 $157.53 -$15.61 -10% 3" $3.12 $260.25 $263.37 $344.61 -$81.24 -24% 4" $3.12 $433.75 $436.87 $578.94 -$142.07 -25% 6" $3.12 $1,084.38 $1,087.50 $1,197.00 -$109.50 -9% 8" $3.12 $1,561.50 $1,564.62 $1,577.32 -$12.70 -1% 10" $3.12 $2,515.75 $2,518.87 $2,569.78 -$50.91 -2% 12" $3.12 $3,730.25 $3,733.37 $2,569.78 $1,163.59 45% 189/231 64 | City of Chino Hills – Public Works Department Table 8-8 shows proposed rates for the five-year schedule of the Monthly Service Charges for the Study period. The rates for the Monthly Service Charge are increased uniformly by a percentage increase in subsequent years – that is, relative to existing rates – by the selected financial plan. All rates are rounded up to the nearest penny. The calculated Monthly Service Charges apply to both potable water customers and recycled water customers. The FY 17/18 COS Rate is shown for informational purposes, but will not be implemented. The FY 18/19 rates will be implemented on July 1, 2018. Table 8-8: Proposed Rates for Monthly Service Charges ($/Meter Size) Meter Size FY 17/18 COS Rate FY 18/19 July 1, 2018 FY 19/20 July 1, 2019 FY 20/21 July 1, 2020 FY 21/22 July 1, 2021 FY 22/23 July 1, 2022 5/8" $20.47 $22.11 $23.88 $25.80 $27.87 $30.10 3/4" $29.15 $31.49 $34.01 $36.74 $39.68 $42.86 1" $46.50 $50.22 $54.24 $58.58 $63.27 $68.34 1.5" $89.87 $97.06 $104.83 $113.22 $122.28 $132.07 2" $141.92 $153.28 $165.55 $178.80 $193.11 $208.56 3" $263.37 $284.44 $307.20 $331.78 $358.33 $387.00 4" $436.87 $471.82 $509.57 $550.34 $594.37 $641.92 6" $1,087.50 $1,174.50 $1,268.46 $1,369.94 $1,479.54 $1,597.91 8" $1,564.62 $1,689.79 $1,824.98 $1,970.98 $2,128.66 $2,298.96 10" $2,518.87 $2,720.38 $2,938.02 $3,173.07 $3,426.92 $3,701.08 12" $3,733.37 $4,032.04 $4,354.61 $4,702.98 $5,079.22 $5,485.56 PROPOSED MONTHLY FIRE SERVICE CHARGES 8.4 Table 8-9 shows the derivation of the Monthly Fire Service Charges. Total fire protection costs are allocated to private and public fire protection in proportion to the potential demand of each. The total private fire costs are determined to be $410,621 (see Table 8-3). This becomes the numerator for the service cost component to determine the cost per fireline equivalency. Table 8-9 shows the fireline equivalencies calculation. Firelines use a different formula from Monthly Service Charges. Fire demand units are calculated by raising the diameter of the connection to a fire demand factor, which is 2.63. The total number of equivalent firelines is 26,566. Table 8-9: Fireline Equivalencies Calculation A B C D E Connection Size Fire Demand Factor Number of Connections Total Equivalent Firelines Annual Equivalent Firelines Source A2.63 Table 4-6 B x C D x 12 4" 38.32 12 460 5,518 6" 111.31 27 3,005 36,065 8" 237.21 83 19,688 236,258 10" 426.58 8 3,413 40,952 Total Count/ Equivalencies 130 26,566 318,792 190/231 Water Rate Study | 65 Table 8-10 shows the calculation of the fireline service component. Dividing the total private fireline costs ($410,621) by total equivalent lines (318,792) gives the monthly cost per equivalent meter of $1.29. Table 8-10: Fireline Service Component Calculation Row Source Total Total Fire Service Rate Component 1 Table 8-3 $410,621 Total Annual Equivalent Firelines 2 Table 8-9 318,792 Total Charge per Equivalent Fireline 3 Row 1/Row 2 $1.29 Table 8-11 shows the derivation of the monthly rates for the Monthly Fire Service Charges. The cost per equivalent line ($1.29) is multiplied by the respective fireline ratio to obtain the fireline service component. The rates for the Private Fire Protection Charge are lower than the current rates as a result of the updated cost of service and respective cost allocations. Table 8-11: Calculation of Rates for the COS FY 217/18 Monthly Fire Service Charges A B C Connection Size Fire Demand Factor Monthly Fire Service Charge Current Fire Service Charge Source Table 8-9 A x Table 8-10 Table 4-2 4" 38.32 $49.36 $98.42 6" 111.31 $143.38 $203.49 8" 237.21 $305.54 $268.14 10" 426.58 $549.46 $436.86 Table 8-12 shows proposed rates for the Private Fire Protection Charges for the Study period. The rates for the Monthly Fire Service Charges are increased by a uniform percentage in subsequent years – that is, relative to existing rates – by the selected financial plan. The FY 17/18 COS Rate is shown for informational purposes, but will not be implemented. All rates are rounded up to the nearest penny. Table 8-12: Proposed Rates for the Monthly Fire Service Charges ($/Fireline Size) Meter Size FY 17/18 COS Rate FY 18/19 July 1, 2018 FY 19/20 July 1, 2019 FY 20/21 July 1, 2020 FY 21/22 July 1, 2021 FY 22/23 July 1, 2022 4" $49.36 $53.31 $57.58 $62.19 $67.17 $72.55 6" $143.38 $154.86 $167.25 $180.63 $195.09 $210.70 8" $305.54 $329.99 $356.39 $384.91 $415.71 $448.97 10" $549.46 $593.42 $640.90 $692.18 $747.56 $807.37 191/231 66 | City of Chino Hills – Public Works Department PROPOSED RATES FOR COMMODITY CHARGES 8.5 Unit Cost Components Definitions 8.5.1 The rates for the Commodity Charges for each customer class and tier are derived by summation of the unit rates ($/CCF) for: 1.Variable Supply Costs (Variable Supply Cost Component) 2.Conservation Costs (Conservation Component) Variable Supply are costs related to the purchase and production of water to meet customer demand. The City maintains numerous sources of supply (detailed in Table 2-2 and Table 2-3) with disparate costs. These variable supply costs form the foundation of the rate components for each tier within the water budget rate structure. Conservation Costs cover water conservation and efficiency programs and efforts. The City implemented several conservation programs during the recent drought. These programs are targeted to high volume water users. Therefore, conservation costs are allocated to Tier 3 for residential customers where water consumption is considered excessive or unsustainable and for which conservation programs are designed to promote water use curtailment. For non-residential customers, conservation costs are calculated by use of weighted peaking factors. 8.5.1.1 Variable Supply Unit Cost The variable supply cost is the cost to supply and deliver water from various sources. The water supply cost components in Table 8-13 are based on FY 17/18 water supply costs from the respective sources. The water supply rate component is the sum of the purchased water unit cost and treatment costs as well as other production and supply related capital costs. These additional costs are applied to the sources of supply in proportion to that source’s full cost. For example, Chino Basin Desalter Authority (CDA) costs account for 39.62% of purchased water costs, so 39.62% of the Supply rate component is allocated to water purchased from CDA, totaling $5,158,848. Following this logic, 32.77% of the City’s total supply was purchased from CDA, the City is projected to provide 5,381,154 CCF of domestic water in FY 17/18, so CDA water accounts for 1,763,479 CCF of sold water, which excludes water losses. The per unit cost of CDA water is found by dividing the cost allocated to CDA water by the amount sold, resulting in $2.93/CCF. The blended water supply unit cost is calculated using the variable water supply costs shown in Table 8-13. The total Supply Rate Component ($13,020,233) which comprises costs from the four sources that constitute the blended rate, as well as other production costs is divided by water available (5,381,154 CCF) to arrive at the unit cost of $2.42 per CCF. The blended rate calculated in Table 8-13 includes all sources of supply. Non-residential customers pay the blended supply rate. Construction/Temporary/Fire customers pay the highest unit rate, representing the marginal cost of additional water purchases. 192/231 Water Rate Study | 67 Table 8-13: Domestic Water Supply Costs FY 17/18 Supply Charge Total Supply Rate Component $13,020,233 Percentage of Cost by Source Cost in Table 4-12 Percentage of total purchased water cost Percentage applied to Rate Component Chino Basin Desalter $3,783,616 39.62% $5,158,849 City Wells and MVWD City Allotment $540,000 5.65% $736,274 MVWD $3,553,200 37.21% $4,844,684 WFA Import $1,672,515 17.51% $2,280,425 Percentage of Supply by Source Supply in Table 2-3 Percentage of total supply Percentage applied to total sales Chino Basin Desalter 4,200 AF 32.77% 1,763,657 CCF City Wells and MVWD City Allotment 2,400 AF 18.73% 1,007,804 CCF MVWD 4,200 AF 32.77% 1,763,657 CCF WFA Import 2,016 AF 15.73% 846,576 CCF Total 12,816 AF 5,381,695 CCF Cost by Source of Supply Allocated portion of supply rate component Total sales Unit cost per CCF Chino Basin Desalter $5,158,849 1,763,657 $2.93 City Wells and MVWD City Allotment $736,274 1,007,804 $0.73 MVWD $4,844,684 1,763,657 $2.75 WFA Import $2,280,425 846,576 $2.69 Blended Rate $13,020,232 5,381,695 $2.42 Residential tiered usage pays a differentiated supply cost. Lower tiers are first allocated the cheapest sources of water, higher tiers pay for the highest cost water. Table 8-14 shows water sources by cost (in $/CCF) and each source’s availability from Table 8-13. Table 8-14: Water Sources by Cost and Availability A B Available Supply HCF Cost per CCF Source Table 8-13 Table 8-13 City Wells and MVWD City Allotment 1,007,804 $0.73 WFA Import 846,578 $2.69 MVWD 1,763,657 $2.75 Chino Basin Desalter 1,763,657 $2.93 Residential usage accounts for 86.7% of the City’s total usage, so 86.7% of the amount indicated is available supply for residential usage. Table 8-15 shows the water available for residential supply, by source. 193/231 68 | City of Chino Hills – Public Works Department Table 8-15: Water Sources Availability for Residential Usage Total Residential Available Supply Source Table 8-14 A x 86.7% City Wells and MVWD City Allotment 873,763 WFA Import 733,981 MVWD 1,529,086 Chino Basin Desalter 1,529,086 Total 4,665,916 To determine tiered supply costs, these sources of supply are allocated to each tier in order of cost. For example: Tier 1’s proposed demand requires 2,593,705 CCF. In order to fill this demand, Tier 1 is allocated all of the City Wells and MVWD City Allotment (873,763 CCF) as well as all of the WFA Import Allocation (733,981 CCF), with the remainder met by a portion of the MVWD allocation (985,961 CCF). This is shown below in Table 8-16. Tier 2 demand is supplied by the remaining WFA Import Allocation (543,125 CCF) and a portion of Chino Basin Desalter water (512,283 CCF). Tier 3 demand is met exclusively with Chino Basin Desalter water. Table 8-16: Water Sources Allocated to Residential Tiers Residential Tier Annual Tiered Usage City Wells and MVWD City Allotment WFA Import MVWD Chino Basin Desalter Tier 1 2,593,705 CCF 873,763 CCF 733,981 CCF 985,961 CCF 0 CCF Tier 2 1,055,409 CCF 0 CCF 0 CCF 543,125 CCF 512,283 CCF Tier 3 1,016,802 CCF 0 CCF 0 CCF 0 CCF 1,016,802 CCF Total 4,665,916 CCF 873,763 CCF 733,981 CCF 1,529,086 CCF 1,529,086 CCF Table 8-17 shows the calculation for tiered supply rates. These costs are calculated by multiplying the percentage of tiered use met by a source of supply (Table 8-16 values related as percentages) by the cost per CCF of that source (from Table 8-14) and summing for each source that supplies that tier. For example, Tier 2’s rate is calculated by adding 51% of MVWD water × $2.75 to 49% of Chino Basin Desalter water × $2.93. These rates are rounded up to the nearest penny. Table 8-17: Residential Tier Supply Cost Calculation Residential Tier % City Wells and MVWD City Allotment % WFA Import % MVWD % Chino Basin Desalter Supply Rate Tier 1 34% 28% 38% 0% $2.06 Tier 2 0% 0% 51% 49% $2.84 Tier 3 0% 0% 0% 100% $2.93 Cost per CCF $0.73 $2.69 $2.75 $2.93 194/231 Water Rate Study | 69 8.5.1.2 Conservation Unit Cost Conservation costs are allocated according to peaking factors. Raftelis used a “unit less” weighted peaking factor to allocate these costs. The weighted peaking factors are calculated by customer class by multiplying the class’s peaking factor by its annual usage. Peaking factors are calculated by dividing the maximum month of use by the average month of use. Table 8-18 provides customer class peaking factors. For each customer class, Raftelis determined the average use within the class throughout the year. Next, Raftelis identified the maximum use period for the class during the year. Dividing the maximum and average gives a factor of max/average. The percentage of peak in Column F represents the share of each classes’ weighted peak units to the total. Table 8-18: Domestic Water Peaking Factors by Class A B C D E F Customer Class Total FY 17/18 Usage FY 16/17 Max Month FY 16/17 Average Month Peaking Factor Weighted Peaking Units Percentage of Peak Table 7-6 B/C A x D F/ F Total Single Family Residential 4,293,437 357,904 283,138 1.26 5,427,180 77.5% Multi-Family Residential 372,479 28,410 24,572 1.16 430,651 6.2% Non-Residential Single Rate 687,923 141,583 92,248 1.53 1,055,826 15.1% Construction/Temporary/Fire 27,856 9,541 3,046 3.13 85,541 1.2% Total 5,381,695 6,999,198 Table 8-19 shows the unit cost calculation for non-tiered customer classes. The allocated Conservation cost is calculated by multiplying the total Conservation rate component costs by the Percentage of Peak for that class. For non-tiered classes, the rate is calculated by dividing the allocated Conservation cost for that class by the total FY 17/18 annual usage. Unit costs are rounded to the nearest whole penny. Table 8-19: Domestic Water Conservation Unit Cost Calculation, Uniform Classes A B C D E Customer Class Weighted Peaking Units Percentage of Peak Allocated Conservation Costs Total FY 17/18 Usage Rate Source Table 8-18 Table 8-18 Table 8-3 x B Table 7-6 C / D SFR 5,427,180 77.5% $112,404 4,293,437 Allocated to Tiers MFR 430,651 6.2% $8,919 372,479 Allocated to Tiers Non-Residential 1,055,826 15.1% $21,868 687,923 $0.04 Construction/Temporary/Fire 87,242 1.2% $1,807 27,856 $0.07 Total 7,000,899 $144,998 5,381,695 Residential Conservation costs are allocated solely to Tier 3. Note that the Residential Conservation costs are the sum of the SFR and MFR costs shown in Table 8-19. 195/231 70 | City of Chino Hills – Public Works Department Table 8-20: Domestic Water Conservation Unit Cost Calculation, Tiers A B C Residential Tier Annual Usage Allocated Conservation Costs Unit Rate Source Table 7-5 Table 8-19 A / B Tier 1 2,593,705 Tier 2 1,055,409 Tier 3 1,016,802 $121,324 $0.12 The City’s water conservation programs offer a variety of solutions to reduce water use for all customers served by the City. Water conservation offsets the demand for potable water and, therefore, is a low-cost source of water supply available to all water utilities. Consequently, it is in the best interest of rate payers for the City to offer and implement an assortment of water conservation programs. These programs ensure reliable future water supply for all rate payers and the community. 8.5.1.3 Domestic Water Final Commodity Charge Rates Derivation To determine the rates for the potable water Commodity Charge, the components described above are added together. The resulting summation constitutes the final rates. The proposed cost-of- service based rates are shown in bold in Column C of Table 8-21. Table 8-21: Proposed Rates for the Commodity Charge ($/CCF) A B C Customer Class and Tier Supply Cost Conservation Cost Total Rate Source Table 8-13 Table 8-17 Table 8-19 Table 8-20 A + B Tier 1 $2.06 $0.00 $2.06 Tier 2 $2.84 $0.00 $2.84 Tier 3 $2.93 $0.12 $3.05 Non-Residential $2.42 $0.04 $2.46 Construction/Temporary/Fire $2.93 $0.07 $3.00 Table 8-22 shows proposed rates for the domestic water Commodity Charge for the Study period. The Commodity Charge is increased “across the board” in subsequent years – that is, relative to the proposed COS based rates – by the selected financial plan. The FY 17/18 COS Rate is shown for informational purposes, but will not be implemented. Beginning July 1, 2018, and each July 1 thereafter for the study period, the Commodity Charge rates will increase to collect an additional 8%per year in additional revenue. All rates are rounded up to the nearest penny. 196/231 Water Rate Study | 71 Table 8-22: Current and Proposed Rates for the Domestic Water Commodity Charge for the Study Period ($/CCF) Customer Class and Tier Current Rate FY 17/18 COS Rate FY 18/19 July 1, 2018 FY 19/20 July 1, 2019 FY 20/21 July 1, 2020 FY 21/22 July 1, 2021 FY 22/23 July 1, 2022 Tier 1 $2.08 $2.06 $2.23 $2.41 $2.61 $2.82 $3.05 Tier 2 $2.37 $2.84 $3.07 $3.32 $3.59 $3.88 $4.20 Tier 3 $3.31 $3.05 $3.30 $3.57 $3.86 $4.17 $4.51 Non- Residential $2.48 $2.46 $2.66 $2.88 $3.12 $3.37 $3.64 Construction/ Temporary/ Fire $3.00 $3.00 $3.24 $3.50 $3.78 $4.09 $4.42 PROPOSED PUMPING CHARGES 8.6 The final rate component for the Domestic water enterprise are the Pumping Charges. The City charges two Pumping charges, the Intermediate zone charge and the High zone charge. Table 8-23 shows the derivation of the Pumping Charges. To calculate this charge, Raftelis used City provided information showing costs to operated pump stations that served both Intermediate and High elevation zones. Pumping unit costs were determined by dividing the total cost to operate pumps serving each area by the total pumped to each area. The Elevation rate component was greater than the total pumping cost, and the remainder was divided equally to all units pumped as the pumping Unit Cost of Capital. The final charges at the bottom are rounded up to the nearest penny. Table 8-23: Pumping Charge Calculations by Zone ($/CCF) Elevation Rates Row Source Total Total Elevation Rate Component 1 Table 8-3 $656,944 Total Pumping to Intermediate 2 Table 4-9 2,376,794 CCF Total Pumping to High 3 Table 4-9 1,290,843 CCF Cost to Pump to Intermediate 4 From City $132,442 Cost to Pump to High 5 From City $406,600 Unit Cost for Intermediate 6 Row 4 / Row 2 $0.06 Unit Cost for High 7 Row 5 / Row 3 $0.31 Capital Cost to be Recovered 8 Row 1 – (Row 4 + Row 5) $117,901 Total Pumping 9 Row 2 + Row 3 3,667,637 Unit Cost of Capital 10 Row 8 / Row 9 $0.03 Charge for Intermediate Pumping 11 Row 6+ Row 10 $0.09 Charge for High Pumping 12 Row 7 + Row 10 $0.35 Table 8-24 shows proposed rates for the Pumping Charges for the Study period. The Pumping Charge is increased “across the board” in subsequent years – that is, relative to the proposed rates – by the selected financial plan. The FY 17/18 COS Rate is shown for informational purposes, but will not be implemented. Beginning July 1, 2018, and each July 1 thereafter for the study period, the Pumping Charge rates will increase to collect an additional 8% per year in additional revenue. All rates are rounded up to the nearest penny. 197/231 72 | City of Chino Hills – Public Works Department Table 8-24: Current and Proposed Pumping Charges for the Study Period ($/CCF) Elevation Rates Current Rate FY 17/18 COS Rate FY 18/19 July 1, 2018 FY 19/20 July 1, 2019 FY 20/21 July 1, 2020 FY 21/22 July 1, 2021 FY 22/23 July 1, 2022 Charge for Intermediate Pumping $0.17 $0.09 $0.10 $0.11 $0.12 $0.13 $0.15 Charge for High Pumping $0.44 $0.35 $0.38 $0.42 $0.46 $0.50 $0.54 WATER CUSTOMER IMPACTS 8.7 The rate model calculates water customer impacts for all classes and meter sizes. Customer impacts from the proposed new rates are shown in Figure 8-1. A SFR customer who has a 3/4” meter and uses 5 CCF of water within their total new water budget will experience a $2.70 increase in their monthly bill. This is due to both an increase in the Tier 1 water usage rate and an increase in the Monthly Service Charge. Figure 8-2 through Figure 8-5 shows customer impacts by service class in percentage terms. The model calculates each bill at the current rates and again at the proposed rates and determines the dollar change. Note that the impacts shown are for FY 18/19, the implementation year that includes an additional 8% revenue increase. Figure 8-1: Bill Impacts - Single Family Residential with 3/4” Meter 198/231 Water Rate Study | 73 Figure 8-2: Bill Impacts – SFR Customers Figure 8-3: Bill Impacts – MFR Customers 199/231 74 | City of Chino Hills – Public Works Department Figure 8-4: Bill Impacts – Non-Residential Customers Figure 8-5: Bill Impacts – All Customers 200/231 Water Rate Study | 75 9.RECYCLED WATER COST OF SERVICE ANALYSIS AND RATE DERIVATION The principles and methodology of a cost of service analysis were described in Section 1.3. A cost of service analysis distributes a utility’s revenue requirements (costs) to each customer class. The Recycled Water cost of service is highly simplified relative to the Domestic Water cost of service analysis. The Recycled Water enterprise will charge the same Monthly Service Charges and Pumping Charges as the Domestic Water enterprise and will charge a uniform rate for all sold Recycled Water. Since these rates have already been established in Section 8, and since we have estimates of both accounts by meter size and pumping needs in FY 17/18, the cost per unit of recycled water can be calculated by subtracting these projected revenues from the revenue requirement and dividing the remainder by the estimated usage for FY 17/18. Table 9-1 shows the total revenue requirement for the Recycled Water Enterprise in FY 17/18. Table 9-1: Revenue Requirement of Recycled Water Enterprise Revenue Requirement Source Total O&M Expense Table 5-8 $1,150,314 Debt Service $0 Fund Balance Table 5-12 $912,838 Less Revenue Offsets $0 Total Revenue Required from Rates $2,063,153 Table 9-2 shows projected revenue in FY 17/18 using the fixed charges derived in Table 8-7 and recycled water accounts by meter size shown in Table 5-4. Table 9-2: Projected Recycled Water Revenue from Monthly Service Charges Meter Size Meter Rates RW Meters Revenue Source: Table 8-7 Table 5-4 5/8" $20.47 0 $0 3/4" $29.15 0 $0 1" $46.50 10 $5,580 1.5" $89.87 58 $62,550 2" $141.92 97 $165,195 3" $263.37 13 $41,086 4" $436.87 4 $20,970 6" $1,087.50 4 $52,200 8" $1,564.62 1 $18,775 10" $2,518.87 1 $30,226 Subtotal 188 $396,582 Table 9-3 shows projected revenue in FY 17/18 using the pumping charges derived in Table 8-23 and recycled water pumping totals shown in Table 5-5. 201/231 76 | City of Chino Hills – Public Works Department Table 9-3: Projected Recycled Water Revenue from Pumping Charges Pumping Zone Pumping Rates Quantity Pumped Revenue Source Table 8-23 Table 5-5 Intermediate $0.09 289,903 CCF $26,091 High $0.35 174,541 CCF $61,089 Total 464,444 CCF $87,181 Table 9-4 shows the calculation for determining the Recycled Water Commodity Charge. This rate is calculated by subtracting the Monthly Service Charge Revenue from Table 9-2 and the Pumping Revenue from Table 9-3 from the total revenue requirement in Table 9-1 and dividing the remainder by projected recycled water sales in FY 17/18. This results in a proposed recycled water commodity charge of $1.82 / CCF. Table 9-4: FY 17/18 Recycled Water Commodity Charge Calculation Category Row Source Calculation Revenue Requirement 1 Table 9-1 $2,063,153 Less Monthly Service Charge Revenue 2 Table 9-2 $396,582 Less Pumping Revenue 3 Table 9-3 $87,181 Remaining Revenue Requirement 4 Row 1 - Row 2 – Row 3 $1,579,390 Total Recycled Water Sales 5 Table 5-5 871,177 CCF Recycled Water Commodity Charge 6 Row 4 / Row 5 $1.82 / CCF Table 9-5 shows proposed rates for the Recycled Water Commodity Charges for the Study period. The Pumping Charge is increased “across the board” in subsequent years – that is, relative to the proposed rates – by the selected financial plan. The FY 17/18 COS Rate is shown for informational purposes, but will not be implemented. Beginning July 1, 2019, and each July 1 thereafter for the study period, the recycled water rates will increase to collect an additional 10% per year in additional revenue. All rates are rounded up to the nearest penny. The third row shows Recycled Water Commodity Charges as a percentage of Non-Residential Commodity Charges. In FY 18/19 Recycled Water Rates will be 68% of Non-Residential, increasing to 74% by FY 22/23. Table 9-5: FY 17/18 Recycled Water Commodity Charges Across Study Period Rate Current Rate FY 17/18 COS Rate FY 18/19 July 1, 2018 FY 19/20 July 1, 2019 FY 20/21 July 1, 2020 FY 21/22 July 1, 2021 FY 22/23 July 1, 2022 Recycled Water Rate $1.74 $1.82 $1.82 $2.01 $2.22 $2.45 $2.70 Proposed Non- Residential Rates $2.48 $2.46 $2.66 $2.88 $3.12 $3.37 $3.64 Recycled as Percentage of Non- Residential 70% 74% 68% 70% 71% 73% 74% 202/231 Water Rate Study | 77 10.APPENDICES DETAILED DOMESTIC O&M EXPENSES10.1 FY 17/18 FY 18/19 FY 19/20 FY 20/21 FY 21/22 FY 22/23 PERSONNEL 1010 Regular Salaries $1,805,900 $1,860,077 $1,915,879 $1,973,356 $2,032,556 $2,093,533 1015 Part-Time/Seasonal Wages $45,900 $47,277 $48,695 $50,156 $51,661 $53,211 1020 Overtime Salaries $54,900 $56,547 $58,243 $59,991 $61,790 $63,644 1540 Fringe Benefits $1,623,300 $1,736,931 $1,858,516 $1,988,612 $2,127,815 $2,276,762 TOTAL PERSONNEL $3,530,000 $3,700,832 $3,881,334 $4,072,115 $4,273,823 $4,487,150 OPERATIONS & MAINTENANCE 2010 Memberships and Certifications $4,800 $4,944 $5,092 $5,245 $5,402 $5,565 2015 Conferences, Meetings, and Training $5,400 $5,562 $5,729 $5,901 $6,078 $6,260 2030 Uniforms $19,000 $19,570 $20,157 $20,762 $21,385 $22,026 3010 Legal Services $50,000 $51,500 $53,045 $54,636 $56,275 $57,964 3020 Financial Services $91,200 $93,936 $96,754 $99,657 $102,646 $105,726 3090 Professional Services $350,000 $360,500 $371,315 $382,454 $393,928 $405,746 3115 Information Technology Service Charge $127,800 $131,634 $135,583 $139,651 $143,840 $148,155 3190 Contractual Services $375,600 $386,868 $398,474 $410,428 $422,741 $435,423 4010 Legal Advertising $800 $824 $849 $874 $900 $927 4015 Advertising and Promotion $24,000 $24,720 $25,462 $26,225 $27,012 $27,823 4030 Printing & Photocopying $32,000 $32,960 $33,949 $34,967 $36,016 $37,097 4035 Postage & Express Delivery $133,800 $137,814 $141,948 $146,207 $150,593 $155,111 4245 Traffic Signs $3,500 $3,605 $3,713 $3,825 $3,939 $4,057 4410 Chemical Supplies $63,700 $66,885 $70,229 $73,741 $77,428 $81,299 4430 Small Equipment and Tools $15,000 $15,450 $15,914 $16,391 $16,883 $17,389 4440 Office Supplies $3,000 $3,090 $3,183 $3,278 $3,377 $3,478 4445 Special Parts and Supplies $103,300 $106,399 $109,591 $112,879 $116,265 $119,753 4450 Reference Materials and Services $1,000 $1,030 $1,061 $1,093 $1,126 $1,159 5010 Parks and Landscape $2,500 $2,575 $2,652 $2,732 $2,814 $2,898 5020 Building and Structure Maintenance $9,200 $9,476 $9,760 $10,053 $10,355 $10,665 5025 Office Equip Maint $1,000 $1,030 $1,061 $1,093 $1,126 $1,159 5110 Street Repair & Maint $200,000 $206,000 $212,180 $218,545 $225,102 $231,855 5220 Water Lines & Main Maintenance $130,000 $133,900 $137,917 $142,055 $146,316 $150,706 5225 Meter Maintenance $35,000 $36,050 $37,132 $38,245 $39,393 $40,575 5235 Distribution Plant Maintenance $205,000 $211,150 $217,485 $224,009 $230,729 $237,651 5490 Other Structural Repair and Maintenance $5,000 $5,150 $5,305 $5,464 $5,628 $5,796 203/231 78 | City of Chino Hills – Public Works Department 5590 Equipment Maintenance $236,700 $243,801 $251,115 $258,648 $266,408 $274,400 5620 Vehicle Rental $477,600 $491,928 $506,686 $521,886 $537,543 $553,669 5625 Equipment Rental $3,500 $3,605 $3,713 $3,825 $3,939 $4,057 5690 Other Rental $0 $0 $0 $0 $0 $0 6010 Water $5,765,715 $6,392,576 $7,077,064 $7,784,770 $8,563,248 $9,419,572 6011 Water JT Venture Fix Costs $969,100 $1,066,010 $1,172,611 $1,289,872 $1,418,859 $1,560,745 6012 Water Costs - Fixed $500,000 $550,000 $605,000 $665,500 $732,050 $805,255 6013 Water Cost- Chino Basin Desalter $3,783,616 $4,161,978 $4,578,175 $5,035,993 $5,539,592 $6,093,551 6014 Water - Recycled Purchase $0 $0 $0 $0 $0 $0 6016 Water - Recharge to Basin Purchase $583,000 $641,300 $705,430 $775,973 $853,570 $938,927 6025 Electricity $1,000,000 $1,100,000 $1,210,000 $1,331,000 $1,464,100 $1,610,510 6030 Gas $800 $884 $976 $1,073 $1,180 $1,298 6035 Telephone $12,400 $12,772 $13,155 $13,550 $13,956 $14,375 7220 Administrative Overhead $2,599,100 $2,677,073 $2,757,385 $2,840,107 $2,925,310 $3,013,069 7225 Departmental Overhead $608,000 $638,400 $670,320 $703,836 $739,028 $775,979 7415 Special Departmental Expense $30,400 $31,312 $32,251 $33,219 $34,215 $35,242 7610 Uncollectible Accounts $22,000 $22,660 $23,340 $24,040 $24,761 $25,504 7710 Developer Reimburse Agreement $0 $0 $0 $0 $0 $0 7810 Water Conservation Program $0 $0 $0 $0 $0 $0 7985 NPDES Permit Costs $11,000 $11,330 $11,670 $12,020 $12,381 $12,752 TOTAL OPERATIONS & MAINTENANCE $18,594,531 $20,098,250 $21,734,430 $23,475,722 $25,377,437 $27,455,172 CAPITAL OUTLAY 8050 Office Furniture & Equip $0 $0 $0 $0 $0 $0 8060 Vehicles and Equipment $0 $0 $0 $0 $0 $0 8420 Water Meters $206,000 $212,180 $218,545 $225,102 $231,855 $238,810 8450 Water Supply Facilities $0 $0 $0 $0 $0 $0 9041 Equity Interest Loss in WFA $0 $0 $0 $0 $0 $0 TOTAL CAPITAL OUTLAY $206,000 $212,180 $218,545 $225,102 $231,855 $238,810 TOTAL $22,330,531 $24,011,262 $25,834,309 $27,772,938 $29,883,115 $32,181,132 204/231 Water Rate Study | 79 DETAILED RECYCLED WATER O&M EXPENSES 10.2 FY 17/18 FY 18/19 FY 19/20 FY 20/21 FY 21/22 FY 22/23 PERSONNEL 1010 Regular Salaries $11,900 $12,257 $12,625 $13,003 $13,394 $13,795 1015 Part-Time/Seasonal Wages $0 $0 $0 $0 $0 $0 1020 Overtime Salaries $0 $0 $0 $0 $0 $0 1540 Fringe Benefits $11,000 $11,770 $12,594 $13,475 $14,419 $15,428 TOTAL PERSONNEL $22,900 $24,027 $25,219 $26,479 $27,812 $29,223 OPERATIONS & MAINTENANCE 2010 Memberships and Certifications $0 $0 $0 $0 $0 $0 2015 Conferences, Meetings, and Training $0 $0 $0 $0 $0 $0 2030 Uniforms $0 $0 $0 $0 $0 $0 3010 Legal Services $0 $0 $0 $0 $0 $0 3020 Financial Services $0 $0 $0 $0 $0 $0 3090 Professional Services $0 $0 $0 $0 $0 $0 3115 Information Technology Service Charge $0 $0 $0 $0 $0 $0 3190 Contractual Services $16,500 $16,995 $17,505 $18,030 $18,571 $19,128 4010 Legal Advertising $0 $0 $0 $0 $0 $0 4015 Advertising and Promotion $0 $0 $0 $0 $0 $0 4030 Printing & Photocopying $0 $0 $0 $0 $0 $0 4035 Postage & Express Delivery $0 $0 $0 $0 $0 $0 4245 Traffic Signs $0 $0 $0 $0 $0 $0 4410 Chemical Supplies $0 $0 $0 $0 $0 $0 4430 Small Equipment and Tools $0 $0 $0 $0 $0 $0 4440 Office Supplies $0 $0 $0 $0 $0 $0 4445 Special Parts and Supplies $2,500 $2,575 $2,652 $2,732 $2,814 $2,898 4450 Reference Materials and Services $0 $0 $0 $0 $0 $0 5010 Parks and Landscape $0 $0 $0 $0 $0 $0 5020 Building and Structure Maintenance $100 $103 $106 $109 $113 $116 5025 Office Equip Maint $0 $0 $0 $0 $0 $0 5110 Street Repair & Maint $0 $0 $0 $0 $0 $0 5220 Water Lines & Main Maintenance $10,000 $10,300 $10,609 $10,927 $11,255 $11,593 5225 Meter Maintenance $3,000 $3,090 $3,183 $3,278 $3,377 $3,478 5235 Distribution Plant Maintenance $10,000 $10,300 $10,609 $10,927 $11,255 $11,593 5490 Other Structural Repair and Maintenance $500 $515 $530 $546 $563 $580 5590 Equipment Maintenance $0 $0 $0 $0 $0 $0 5620 Vehicle Rental $0 $0 $0 $0 $0 $0 5625 Equipment Rental $0 $0 $0 $0 $0 $0 205/231 80 | City of Chino Hills – Public Works Department 5690 Other Rental $0 $0 $0 $0 $0 $0 6010 Water $0 $0 $0 $0 $0 $0 6011 Water JT Venture Fix Costs $0 $0 $0 $0 $0 $0 6012 Water Costs - Fixed $0 $0 $0 $0 $0 $0 6014 Water Recycled Purchase $973,814 $1,207,530 $1,497,337 $1,856,698 $2,302,305 $2,854,858 6025 Electricity $100,000 $110,473 $121,946 $134,140 $147,554 $162,310 6030 Gas $0 $0 $0 $0 $0 $0 6035 Telephone $0 $0 $0 $0 $0 $0 7220 Administrative Overhead $0 $0 $0 $0 $0 $0 7225 Departmental Overhead $0 $0 $0 $0 $0 $0 7415 Special Departmental Expense $1,000 $1,030 $1,061 $1,093 $1,126 $1,159 7610 Uncollectible Accounts $0 $0 $0 $0 $0 $0 7710 Developer Reimburse Agreement $0 $0 $0 $0 $0 $0 7810 Water Conservation Program $0 $0 $0 $0 $0 $0 7985 NPDES Permit Costs $0 $0 $0 $0 $0 $0 TOTAL OPERATIONS & MAINTENANCE $1,117,414 $1,362,911 $1,665,538 $2,038,481 $2,498,932 $3,067,713 CAPITAL OUTLAY 8050 Office Furniture & Equip $0 $0 $0 $0 $0 $0 8060 Vehicles and Equipment $0 $0 $0 $0 $0 $0 8420 Water Meters $10,000 $10,300 $10,609 $10,927 $11,255 $11,593 8450 Water Supply Facilities $0 $0 $0 $0 $0 $0 9041 Equity Interest Loss in WFA $0 $0 $0 $0 $0 $0 TOTAL CAPITAL OUTLAY $10,000 $10,300 $10,609 $10,927 $11,255 $11,593 TOTAL $1,150,314 $1,397,238 $1,701,366 $2,075,887 $2,537,999 $3,108,529 206/231 RESOLUTION NO. 2015R- 43 A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF CHINO HILLS ESTABLISHING PROCEDURES FOR INCREASING WATER, SOLID WASTE (TRASH) AND WASTEWATER FEES IN ACCORDANCE WITH THE REQUIREMENTS OF PROPOSITION 218 AND AMENDING AND SUPERSEDING RESOLUTION NO. 11R-14. THE CITY COUNCIL OF THE CITY OF CHINO HILLS DOES RESOLVE, DETERMINE, AND ORDER AS FOLLOWS: SECTION 1: The City Council finds and declares as follows: A. On July 24, 2006, the California Supreme Court confirmed that charges for water, solid waste and wastewater services are subject to Proposition 218 procedures (Bighorn-Desert View Water Agency v. Verjil (2006) 39 Cal.4th 205); B. The City Council anticipates that there will be potential future imposition of fees or increases in water, solid waste (trash), and wastewater rates. Adopting the policies and procedures set forth in this Resolution will help implement the requirements set forth in Article XIIID of the California Constitution and help ensure that the rights of those persons that are authorized to protest service charges are preserved; C. Elections Code § 4000(c)(9) provides that any protest ballot proceeding required or authorized by California Constitution Articles XIIIC or XIIID may be conducted wholly by mail. In the event a protest ballot process is required, the City Council seeks to achieve higher awareness of those affected by the proposed increase, provide an orderly protest process for both those receiving the protest ballots and the City, insure to the extent practicable that there is some verification process regarding the protests received, and to reduce the costs of the protest ballot process; and D. On March 8, 2011 the City Council adopted Resolution No. 11R-14 establishing procedures for increasing water, solid waste (trash), and wastewater fees in accordance with the requirements of Proposition 218; and E. The City Council wishes to provide the City Clerk the flexibility to begin counting of the protest ballots earlier than the close of the Public Hearing, if warranted, so Resolution No. 11R-14 is being 1 of 8 ATTACHMENT 2 207/231 restated, amended and superseded to so provide as set forth below. F. Adopting this Resolution is in the public interest for the reasons set forth above and as further stated within Article XIIID and the Proposition 218 and state legislation relating to the implementation of Proposition 218. SECTION 2: The City Council adopts the procedures set forth in this Resolution for conducting all proceedings required by California Constitution Article XIIID for utility fee (as defined below) increases. Where no specific procedures are imposed by Article XIIID or the Proposition 218 Omnibus Implementation Act (Government Code §§ 53750, et seq.), the procedures set forth in this Resolution apply. This Resolution may be referred to as the Proposition 218 Protest Proceedings Resolution." SECTION 3: Definitions. Unless the contrary is stated or clearly appears from the context, the following definitions govern the construction of the words and phrases used in this Resolution. Words and phrases not defined by this chapter will have the meaning set forth in California Constitution Article XIIID or the Proposition 218 Omnibus Implementation Act. A. "Act" means the Proposition 218 Omnibus Implementation Act found at Government Code §§ 53750, et seq.; B. "Article 13D" means California Constitution Article XIIID, § 6; C. "Manager" means the City Manager or designee; D. "Property owner" has the same meaning set forth in Article 13D and also pursuant to the Act includes tenancies of real property where tenants are directly liable to pay the proposed water, wastewater or solid waste (trash)fee or charge; E. "Protest" means a written protest filed with the City Clerk in accordance with Article 13D, the Act, and this Resolution as described in Article 13D, § 6(a)(2); F. "Utility fee" means a fee or charge imposed for water, wastewater or solid waste (trash) services provided to customers in accordance with the Chino Hills Municipal Code ("CHMC"), and other applicable law, by the City of Chino Hills; SECTION 4. Administration of Proceedings. The City Manager, or designee, is authorized to implement this Resolution in a manner consistent with the California Constitution and other applicable law. 2 of 8 208/231 SECTION 5. Notice. Notice of a proposed utility fee increase is provided as follows: A. In general, the City will identify the record property owner(s) of each parcel to which the utility fee would be applied from it's billing system database and/or the latest equalized tax roll produced by San Bernardino County. The City's Utility Billing database and the equalized tax roll is presumptive evidence of ownership of the land for voting purposes. B. If either the City's Utility Billing Database or San Bernardino County Recorder's website shows that more than one property owner has an interest in a parcel, all property owners ( each property owner) must receive notice at the address shown for the property owner. Both property owners and parties financially responsible for paying the fee will be provided notice. C. The notice must be sent by first class mail at least forty-five (45) days before the date set for the public hearing on the utility fee. D. The form of the notice of hearing will be approved by the City Council and be on file with the City Clerk. E. The notice provided by these procedures, in accordance with Article 13D, supersedes and is in lieu of notice required by any other statutes to levy or increase a utility fee. F. The City Clerk, or designee, may certify the proper mailing of notices by an affidavit which constitutes conclusive proof of mailing in the absence of fraud. G. Failure of any person to receive notice does not invalidate the proceedings. SECTION 6. Protests against Utility Fee Increases. A. The property owner(s) of parcels subject to the proposed fee increase are entitled to a single protest for each parcel. When a parcel is held as community property or in joint tenancy or as a tenancy in common, any spouse or joint tenant or tenant in common is presumed to have authority to cast a protest on behalf of such parcel. B. If the owner(s) of the property desire to designate a particular owner as the person authorized to cast the protest for such parcel, they may file with the City Clerk, at any time before the commencement of the public hearing or the date of the election, as the case may be, a written 3 of 8 209/231 authorization of such designation, signed by all the owners of record, and acknowledged in the manner that deeds of real property are required to be acknowledged to entitle such deeds to be recorded in the San Bernardino County Recorder's Office. C. Executors, administrators, and guardians may cast a protest on behalf of the estate represented by them. If such representatives are shown on the latest assessment roll as paying taxes and assessments on behalf of the property owner(s), that fact establishes the right of such representative(s) to cast a protest. If such representatives are not shown on the latest assessment roll, the representatives may file with the City Clerk, at any time before the commencement of the public hearing, or the date of the election, as the case may be, certified copies of the written documentation establishing the legal representation. D. The protest of any public or quasi-public corporation, private corporation, or unincorporated association may be signed by any person so authorized in writing by the board of directors or trustees or other managing body thereof. E. The Manager is designated as the voting representative with respect to City-owned property. F. In any case where the documentation provided to the City Clerk in is ambiguous or unclear, the City Attorney will determine whether the documentation is adequate for the purpose provided. G. In the event a property owner loses or misplaces a protest ballot, upon request by the property owner the City will send by first class mail a replacement protest ballot unless a properly filled out protest ballot has already been received for the parcel of property. SECTION 7. Public Hearing. A. Only protest ballots that (i) were provided by the City to the property owner in the form approved by the Council and (ii) are properly filled out and legibly signed by an eligible property owner is made will be counted as a valid protest. Only one protest shall be counted for each parcel of property regardless of the number of protests filed by property owners for the parcel. B. The City Clerk must stamp each written protest the date and time it is filed with the City Clerk for purposes of establishing whether the protest was filed before the close of the public testimony portion of the public hearing. No protest received after the close of the public 4 of 8 210/231 testimony portion of the public hearing can be counted in determining the amount of protest, but the Council may, in its discretion, consider such protests in making its decision. Written protests may be withdrawn in writing at any time before the conclusion of the public testimony portion of the public hearing. C. The City Clerk may begin counting protest ballots before the close of the public hearing without further Council Action, if warranted. The Council may direct that the protest ballots not be opened in the event that (i) there have not been enough unopened protest ballots received to constitute a majority protest, (ii) there have been substantially more protest ballots received than the number that would constitute a majority protest; or (iii) the Council determines that it does not wish to proceed to implement with the proposed fee increase. The protest ballots shall not be public records until such time that they are opened and counted. D. At the time and place fixed for the hearing, or at any time to which the hearing is adjourned, the Council must: 1.Hear all persons interested in the matter of the proposed fee increase; 2.Hear all objections, protests or other written communications from any owner of property subject to the proposed utility fee; and 3. Take and receive oral and documentary evidence pertaining to the proposed fee increase. 4. The hearing may be continued from time to time, as the Council determines necessary to complete its consideration of the proposed fee increase. 5.If the Council determines, after the close of the public testimony portion of the public hearing, that votes were received from property owners representing a majority of the parcels subject to the proposed fee increase, the Council shall adopt a resolution setting forth the results of the protest ballot process and the proceedings shall then be closed and the utility fee cannot be approved by the City Council. 6.If the Council determines at the close of the public testimony portion of the public hearing that written protests were not received from property owners representing a majority of the parcels subject to the proposed utility fee, the Council shall 5 of 8 211/231 adopt a resolution setting forth the results of the protest ballot process and then may by Ordinance or Resolution (in accordance with legal requirements) change the utility fee so long as in an amount that does exceed the amount and methodology set forth in the public notices sent to the property owners. SECTION 8. Environmental Review. This Resolution is exempt from review under the California Environmental Quality Act (California Public Resources Code §§ 21000, et seq., "CEQA") and CEQA regulations (14 California Code of Regulations §§ 15000, et seq.) because it establishes rules and procedures to implement government funding mechanisms; does not involve any commitment to a specific project which could result in a potentially significant physical impact on the environment; and constitutes an organizational or administrative activity that will not result in direct or indirect physical changes in the environment. Accordingly, this Resolution does not constitute a "project" that requires environmental review (see specifically 14 CCR § 15378(b)(4-5)). SECTION 9. If any part of this Resolution or its application is deemed invalid by a court of competent jurisdiction, the city council intends that such invalidity will not affect the effectiveness of the remaining provisions or applications and, to this end, the provisions of this Resolution are severable. SECTION 10. Repeal of any provision of the Chino Hills Municipal Code, or other Resolution, does not affect any penalty, forfeiture, or liability incurred before, or preclude prosecution and imposition of penalties for any violation occurring before this Resolution's effective date. Any such repealed part will remain in full force and effect for sustaining action or prosecuting violations occurring before the effective date of this Resolution. SECTION 11. The City Clerk shall certify as to the adoption of this resolution. PASSED, APPROVED, AND ADOPTED this 11th day of August 2015 CYNTHIA MORAN, MAYOR ATTEST: Itated CHERYL BALZ, CITY C'L- RK 6 of 8 212/231 APPROVED AS TO FORM: moi, / i dv,----i—oissk•. c‘ tA ifr'7" fir- MARK D,°NENSLEY, CITY ATTORNEY 7 of 8 213/231 STATE OF CALIFORNIA COUNTY OF SAN BERNARDINO CITY OF CHINO HILLS I, Cheryl Balz, City Clerk of the City of Chino Hills, DO HEREBY CERTIFY that the foregoing Resolution No. 2015R-43 was duly adopted at a special meeting of the City Council of the City of Chino Hills held on the 11th day of August, 2015, by the following roll call vote, to wit: AYES: COUNCIL MEMBERS: MORAN, BENNETT, GRAHAM, MARQUEZ, AND ROGERS NOES: COUNCIL MEMBERS: NONE ABSENT: COUNCIL MEMBERS: NONE CHERYL'tALL,-E TYStIffiK J SEAL) The foregoing is the original of Resolution No. 2015R-43 duly passed and adopted by the Chino Hills City Council at their regular meeting held August 11, 2015. SEAL) CHERYL BStiZ;"tI'tY CLEa4t 8 of 8 214/231 PSA Page 1 of 9 WRS Prop 218 noticing service AGREEMENT NO. A2018- FOR PROFESSIONAL SERVICES BETWEEN THE CITY OF CHINO HILLS AND KOPPEL & GRUBER PUBLIC FINANCE WATER RATE INCREASE NOTICING SERVICES FOR 2018 THIS AGREEMENT, made and entered into this 13th day of February, 2018, between the CITY OF CHINO HILLS, a municipal corporation, hereinafter referred to as "City" and KOPPEL & GRUBER PUBLIC FINANCE hereinafter referred to as "Consultant". In consideration of the mutual covenants and conditions set forth herein, the parties agree as follows: 1. SCOPE OF SERVICES. Consultant agrees to perform the services set forth in Exhibit A "SCOPE OF SERVICES" attached hereto and made a part hereof. Consultant shall submit its work to the City for its review after completing each phase of the project as described in Exhibit A, or when otherwise requested by the City. Consultant shall, at its own cost, make any revisions of its own work as required by the City and re-do, at its own cost, any work which the City finds unsatisfactory due to Consultant’s or subcontractor’s error s or omissions. Consultant represents and warrants that it has the qualifications, experience and facilities to properly perform said services in a thorough, competent and professional manner and shall, at all times during the term of this Agreement, have in full force and effect, all licenses required of it by law. Consultants shall begin its services under this Agreement on February 14, 2018. . 2. STATUS OF CONSULTANT. Consultant is and shall at all times remain as to the City a wholly independent contractor. The personnel performing the services under this Agreement on behalf of Consultant shall at all times be under Consultant's exclusive direction and control. Neither City nor any of its officers, employees or agents shall have control over the conduct of Consultant or any of Consultant's officers, employees or agents, except as set forth in this Agreement. Consultant shall not at any time or in any manner represent that it or any of its officers, employees or agents are in any manner officers, employees or agents of the City. Consultant shall not incur or have the power to incur any debt, obligation or liability whatever against City, or bind City in any manner. Consultant shall not disseminate any information or reports gathered or created pursuant to this Agreement without the prior written approval of City except information or reports required by government agencies to enable Consultant to perform its duties under this Agreement. 3. CONSULTANT'S KNOWLEDGE OF APPLICABLE LAWS. Consultant shall keep itself informed of applicable local, state and federal laws and regulations which may affect those employed by it or in any way affect the performance of its services pursuant to this Agreement. Consultant shall observe ATTACHMENT 3 215/231 PSA Page 2 of 9 WRS Prop 218 noticing service and comply with all such laws and regulations affecting its employees. City and its officers and employees, shall not be liable at law or in equity as a result of any failure of Consultant to comply with this section. 4. PERSONNEL. Consultant shall make every reasonable effort to maintain the stability and continuity of Consultant's staff assigned to perform the services hereunder and shall obtain the approval of the City Manager of all proposed staff members performing services under this Agreement prior to any such performance. 5. COMPENSATION AND METHOD OF PAYMENT. Compensation to the Consultant shall be as set forth in Exhibit A attached hereto and made a part hereof. Total compensation shall not exceed $30,000. Payments shall be made within forty-five (45) days after receipt of each invoice as to all undisputed fees. If the City disputes any of consultant's fees it shall give written notice to Consultant within 30 days of receipt of an invoice of any disputed fees set forth on the invoice. 6. ADDITIONAL SERVICES OF CONSULTANT. Consultant shall not be compensated for any services rendered in connection with its performance of this Agreement which are in addition to those set forth herein or listed in Exhibit A, unless such additional services are authorized in advance and in writing by the City Manager. Consultant shall be compensated for any additional services in the amounts and in the manner as agreed to by City Manager and Consultant at the time City's written authorization is given to Consultant for the performance of said services. 7. ASSIGNMENT. All services required hereunder shall be performed by Consultant, its employees or personnel under direct contract with Consultant. Consultant shall not assign to any subcontractor the performance of this Agreement, nor any part thereof, nor any monies due hereunder, without the prior written consent of City Manager. 8. FACILITIES AND RECORDS. Consultant shall maintain complete and accurate records with respect to sales, costs, expenses, receipts and other such information required by City that relate to the performance of services under this Agreement. Consultant shall maintain adequate records of services provided in sufficient detail to permit an evaluation of services. All such records shall be maintained in accordance with generally accepted accounting principles and shall be clearly identified and readily accessible. Consultant shall provide free access to the representatives of City or its designees at reasonable times to such books and records, shall give City the right to examine and audit said books and records, shall permit City to make transcripts therefrom as necessary, and shall allow inspection of all work, data, documents, proceedings and activities related to this Agreement. Such records, together with supporting documents, shall be maintained for a period of three (3) years after receipt of final payment. 216/231 PSA Page 3 of 9 WRS Prop 218 noticing service 9. TERMINATION OF AGREEMENT. This Agreement will terminate on February 13, 2019, unless otherwise extended in advance and in writing by the City Manager for an additional one-year renewal option. This Agreement may be terminated with or without cause by either party upon 30 days written notice. In the event of such termination, Consultant shall be compensated for non-disputed fees under the terms of this Agreement up to the date of termination. 10. COOPERATION BY CITY. All public information, data, reports, records, and maps as are existing and available to City as public records, and which are necessary for carrying out the work as outlined in the Scope of Services, shall be furnished to Consultant in every reasonable way to facilitate, without undue delay, the work to be performed under this Agreement. 11. OWNERSHIP OF DOCUMENTS. Upon satisfactory completion of, or in the event of termination, suspension or abandonment of, this Agreement, al l original maps, models, designs, drawings, photographs, studies, surveys, reports, data, notes, computer files, files and other documents prepared in the course of providing the services to be performed pursuant to this Agreement shall, become the sole property of City. With respect to computer files, Consultant shall make available to the City, upon reasonable written request by the City, the necessary computer software and hardware for purposes of accessing, compiling, transferring and printing computer files. 12. RELEASE OF INFORMATION/CONFLICTS OF INTEREST. (a) All information gained by Consultant in performance of this Agreement shall be considered confidential and shall not be released by Consultant without City's prior written authorization excepting that information which is a public record and subject to disclosure pursuant to the California Public Records Act, Government Code § 6250, et seq. Consultant, its officers, employees, agents or subcontractors, shall not without written authorization from the City Manager or unless requested by the City Attorney, voluntarily provide declarations, letters of support, testimony at depositions, response to interrogatories or other information concerning the work performed under this Agreement or relating to any project or property located within the City. Response to a subpoena or court order shall not be considered "voluntary" provided Consultant gives City notice of such court order or subpoena. If Consultant or any of its officers, employees, consultants or subcontractors does voluntarily provide information in violation of this Agreement, City has the right to reimbursement and indemnity from Consultant for any damages caused by Consultant's conduct, including the City's attorney's fees. Consultant shall promptly notify City should Consultant, its officers, employees, agents or subcontractors be served with any summons, complaint, subpoena, notice of deposition, request for documents, interrogatories, request for admissions or other discovery request, court order or subpoena from any party regarding this Agreement and the work performed thereunder or with respect to any project or property located within the City. City retains the right, but has no 217/231 PSA Page 4 of 9 WRS Prop 218 noticing service obligation, to represent Consultant and/or be present at any deposition, hearing or similar proceeding. Consultant agrees to cooperate fully with City and to provide City with the opportunity to review any response to discovery requests provided by Consultant. However, City's right to review any such response does not imply or mean the right by City to control, direct, or rewrite said response. (b) Consultant covenants that neither they nor any officer or principal of their firm have any interest in, or shall they acquire any interest, directly or indirectly which will conflict in any manner or degree with the performance of their services hereunder. Consultant further covenants that in the performance of this Agreement, no person having such interest shall be employed by them as an officer, employee, agent, or subcontractor without the express written consent of the City Manager. Consultant further covenants that Consultant has not contracted with nor is performing any services directly or indirectly with any developer(s) and/or property owner(s) and/or firm(s) and/or partnerships owning property in the City or the study area and further covenants and agrees that Consultant and/or its subcontractors shall provide no service or enter into any agreement or agreements with any developer(s) and/or property owner(s) and/or firm(s) and/or partnerships owning property in the City or the study area prior to the completion of the work under this Agreement without the express written consent of the City Manager. 13. DEFAULT. In the event that Consultant is in default of any of the provisions of this Agreement, City shall have no obligation or duty to continue compensating Consultant for any work performed after the date of default and can terminate this Agreement immediately by written notice to the Consultant. 14. INDEMNIFICATION. (a) Consultant represents it is skilled in the professional calling necessary to perform the services and duties agreed to hereunder by Consultant, and City relies upon the skills and knowledge of Consultant. Consultant shall perform such services and duties consistent with the standards generally recognized as being employed by professionals performing similar service in the State of California. (b) Consultant is an independent contractor and shall have no authority to bind City nor to create or incur any obligation on behalf of or liability against City, whether by contract or otherwise, unless such authority is expressly conferred under this agreement or is otherwise expressly conferred in writing by City. City, its elected and appointed officials, officers, agents, employees and volunteers (individually and collectively, "Indemnitees") shall have no liability to Consultant or to any other person for, and Consultant shall indemnify, defend, protect and hold harmless the Indemnitees from and against, any and all liabilities, claims, actions, causes of action, proceedings, suits, damages, judgments, liens, levies, costs and expenses of whatever nature, including reasonable attorneys' fees and disbursements (collectively "Claims"), which the Indemnitees may suffer or incur or to which the Indemnitees may become subject by reason of or arising out of any injury to or death of any person(s), damage to property, loss of use of 218/231 PSA Page 5 of 9 WRS Prop 218 noticing service property, economic loss or otherwise occurring as a result of or allegedly caused by the negligent or wrongful acts or omissions of Consultant, its agents, officers, directors or employees, in performing any of the services under this agreement. If any action or proceeding is brought against the Indemnitees by reason of any of the matters against which Consultant has agreed to indemnify the Indemnitees as above provided, Consultant, upon notice from the CITY, shall defend the Indemnitees at Consultant's expense by counsel acceptable to the City. The Indemnitees need not have first paid any of the matters as to which the Indemnitees are entitled in order to be so indemnified. The insurance required to be maintained by Consultant under paragraph 15 shall ensure Consultant's obligations under this paragraph 14(b), but the limits of such insurance shall not limit the liability of Consultant hereunder. The provisions of this paragraph 14(b) shall survive the expiration or earlier termination of this agreement. The Consultant's indemnification does not extend to Claims occurring as a result of the City's sole negligent or willful acts or omissions. 15. INSURANCE. A. Insurance Requirements. Consultant shall provide and maintain insurance acceptable to the City Attorney in full force and effect throughout the term of this Agreement, against claims for injuries to persons or damages to property which may arise from or in connection with the performance of the work hereunder by Consultant, its agents, representatives or employees. Insurance is to be placed with insurers with a current A.M. Best's rating of no less than A:VII. Consultant shall provide the following scope and limits of insurance: (1) Minimum Scope of Insurance. Coverage shall be at least as broad as: (a) Insurance Services Office form Commercial General Liability coverage (Occurrence Form CG 0001). (b) Insurance Services Office form number CA 0001 (Ed. 1/87) covering Automobile Liability, including code 1 "any auto" and endorsement CA 0025, or equivalent forms subject to the written approval of the City. (c) Workers' Compensation insurance as required by the Labor Code of State of California and Employer's Liability insurance and covering all persons providing services on behalf of the Consultant and all risks to such persons under this Agreement. (d) Errors and omissions liability insurance appropriate to the Consultant's profession. (2) Minimum Limits of Insurance. Consultant shall maintain limits of insurance no less than: (a) General Liability: $1,000,000 per occurrence for bodily injury, personal injury and property damage. If Commercial General Liability Insurance or other form with a general aggregate limit is used, either the general aggregate limit shall apply separately to the activities related to this Agreement or the general aggregate limit shall be twice the required occurrence limit. 219/231 PSA Page 6 of 9 WRS Prop 218 noticing service (b) Automobile Liability: $1,000,000 per accident for bodily injury and property damage. (c) Workers' Compensation and Employer's Liability: Workers' Compensation as required by the Labor Code of the State of California and Employers Liability limits of $1,000,000 per accident. (d) Errors and Omissions Liability: $1,000,000 per claim. If coverage is maintained on a claims-made basis, Consultant shall maintain such coverage for an additional period of three (3) years following termination of the contract. B. Other Provisions. Insurance policies required by this Agreement shall contain the following provisions: (1) All Policies. Each insurance policy required by this paragraph 15 shall be endorsed and state the coverage shall not be suspended, voided, canceled by the insurer or either party to this Agreement, reduced in coverage or in limits except after 30 days' prior written notice by Certified mail, return receipt requested, has been given to the City. (2) General Liability and Automobile Liability Coverages. (a) City, its officers, officials, and employees and volunteers are to be covered as additional insureds as respects: liability arising out of activities Consultant performs, products and completed operations of Consultant; premises owned, occupied or used by Consultant, or automobiles owned, leased or hired or borrowed by Consultant. The coverage shall contain no special limitations on the scope of protection afforded to City, its officers, officials, or employees. (b) Consultant's insurance coverage shall be primary insurance as respect to City, its officers, officials, employees and volunteers. Any insurance or self-insurance maintained by City, its officers, officials, employees or volunteers shall apply in excess of, and not contribute with, Consultant's insurance. (c) Consultant's insurance shall apply separately to each insured against whom claim is made or suit is brought, except with respect to the limits of the insurer's liability. (d) Any failure to comply with the reporting or other provisions of the policies including breaches of warranties shall not affect coverage provided to the City, its officers, officials, employees or volunteers. (3) Workers' Compensation and Employer's Liability Coverage . Unless the City Manager otherwise agrees in writing, the insurer shall agree to waive all rights of subrogation against City, its officers, officials, employees and agents for losses arising from work performed by Consultant for City. C.Other Requirements. Consultant agrees to deposit with City, at or before the effective date of this contract, certificates of insurance necessary to satisfy City that the insurance provisions of this contract have been complied with. The City Attorney may require that Consultant furnish City with copies of original 220/231 PSA Page 7 of 9 WRS Prop 218 noticing service endorsements effecting coverage required by this Section. The certificates and endorsements are to be signed by a person authorized by that insurer to bind coverage on its behalf. City reserves the right to inspect complete, certified copies of all required insurance policies, at any time. (1) Consultant shall furnish certificates and endorsements from each subcontractor identical to those Consultant provides. (2) Any deductibles or self-insured retentions must be declared to and approved by City. At the option of the City, either the insurer shall reduce or eliminate such deductibles or self-insured retentions as respects the City, its officers, officials, employees and volunteers; or the Consultant shall procure a bond guaranteeing payment of losses and related investigations, claim administration, defense expenses and claims. (3) The procuring of such required policy or policies of insurance shall not be construed to limit Consultant's liability hereunder nor to fulfill the indemnification provisions and requirements of this Agreement. 16. NONDISCRIMINATION/NONPREFERENTIAL TREATMENT STATEMENT. In performing this Agreement, the Parties shall not discriminate or grant preferential treatment on the basis of race, sex, color, age, religion, sexual orientation, disability, ethnicity, or national origin, and shall comply, to the fullest extent allowed by law, with all applicable local, state and federal laws relating to nondiscrimination. 17. UNAUTHORIZED ALIENS. Consultant hereby promises and agrees to comply with all of the provisions of the Federal Immigration and Nationality Act (8 U.S.C.A. & 1101, et seq.), as amended; and in connection therewith, shall not employ unauthorized aliens as defined therein. Should Consultant so employ such unauthorized aliens for the performance of work and/or services covered by this contract, and should the Federal Government impose sanctions against the City for such use of unauthorized aliens, Consultant hereby agrees to, and shall, reimburse City for the cost of all such sanctions imposed, together with any and all costs, including attorneys' fees, incurred by the City in connection therewith. 18. ENTIRE AGREEMENT. This Agreement is the complete, final, entire and exclusive expression of the Agreement between the parties hereto and supersedes any and all other agreements, either oral or in writing, between the parties with respect to the subject matter herein. Each party to this Agreement acknowledges that no representations by any party which are not embodied herein and that no other agreement, statement, or promise not contained in this Agreement shall be valid and binding. 19. GOVERNING LAW. The City and Consultant understand and agree that the laws of the State of California shall govern the rights, obligations, duties and liabilities of the parties to this Agreement and also govern the interpretation of this Agreement. Any litigation concerning this Agreement shall take place in the San Bernardino County Superior Court. 221/231 PSA Page 8 of 9 WRS Prop 218 noticing service 20. ASSIGNMENT OR SUBSTITUTION. City has an interest in the qualifications of and capability of the persons and entities who will fulfill the duties and obligations imposed upon Consultant by this Agreement. In recognition of that interest, neither any complete nor partial assignment of this Agreement may be made by Consultant nor changed, substituted for, deleted, or added to without the prior written consent of City. Any attempted assignment or substitution shall be ineffective, null, and void, and constitute a material breach of this Agreement entitling City to any and all remedies at law or in equity, including summary termination of this Agreement. Subcontracts, if any, shall contain a provision making them subject to all provisions stipulated in this Agreement. 21. MODIFICATION OF AGREEMENT. The terms of this Agreement can only be modified in writing approved by the City Council and the Consultant. The parties agree that this requirement for written modifications cannot be waived and any attempted waiver shall be void. 22. AUTHORITY TO EXECUTE. The person or persons executing this Agreement on behalf of Consultant warrants and represents that he/she/they has/have the authority to execute this Agreement on behalf of his/her/their corporation and warrants and represents that he/she/they has/have the authority to bind Consultant to the performance of its obligations hereunder. 23. NOTICES. Notices shall be given pursuant to this Agreement by personal service on the party to be notified, or by written notice by email, or upon such party deposited in the custody of the United States Postal Service addressed as follows: City. Attention: City Clerk City of Chino Hills 14000 City Center Drive Chino Hills, California 91709 Email: cityclerk@chinohills.org Consultant. Attention:Lyn Gruber Koppel & Gruber Public Finance 334 Via Vera Cruz, Suite 256 San Marcos, CA 92078 The notices shall be deemed to have been given as of the date of personal service, or three (3) days after the date of deposit of the same in the custody of the United States Postal Service. 24.CONSISTENCY. In interpreting this Agreement and resolving any ambiguities, the main body of this Agreement takes precedence over the attached Exhibit; this Agreement supersedes any conflicting provisions. Any inconsistency 222/231 between the Exhibits will be resolved in the order in which the Exhibits appear below: A.Exhibit A:Scope of Work and Compensation 25.SEVERABILITY.The invalidity in whole or in part of any provision of this Agreement shall not void or affect the validity of the other provisions of this Agreement. IN WITNESS WHEREOF,the parties hereto have caused this Agreement to be executed on the day and year first written above. CITY OF CHINO HILLS Peter J.Rogers Mayor ATTEST: Cheryl Balz City Clerk (Date) APPROVED AS TO FORM: Mark D.Hensley City Attorney PSA KOPPEL &GRUBER PUBLIC FINANCE (Signature) Lyn Gruber,President (Printed name/Title) 2/8/2018 (Date) (Signature) Scott Koppel,Chief Financial Officer (Printed Name/Title) 2/8/2018 (Date) Page 9 of 9 WRS Prop 218 noticing service 223/231 224/231 225/231 226/231 227/231 228/231 229/231 230/231 231/231 WATER RATE STUDY PROPOSED RATES CITY COUNCIL MEETING February 13, 2018 Goals of Today’s Meeting 1.Review rate design process 2.Review project financial plan and rate design 3.Show rates 2/13/18 City Council Meeting 2 Four Rate Study Steps Rate Setting Framework •Financial goals and policies •Pricing objectives Financial Plan •Evaluation of CIP and financing options •Cash flow analysis for financial sufficiency Cost of Service & Rate Design •Cost allocations •Rate design ̶Rate calculations ̶Customer impact analyses •Report •Prop 218 Notice •Public Hearing 2/13/18 City Council Meeting 3 Policy Goals Provides affordability for essential use Increases water usage efficiency Readjusts rate structure to reflect the City’s costs Creates a drought management tool responsive to multiple levels of drought Creates a tool to enable the City to be proactive in meeting future State requirements 2/13/18 City Council Meeting 4 Key Legislation in California Water Conservation Article X, section 2 of California Constitution ◦Prevent the wasteful and unreasonable use of water SB X7-7 – 20% reduction by 2020 Executive Order B-29-15 (25% reduction State-Wide) ◦Identified specific water conservation goals for each agency Executive Order B-36-15 (Extended Water Conservation) ◦Continued monitoring and reporting to SWRCB Rate Development Cost of Service Requirements ◦Proposition 218 (Article XIIIC and XIIID of California Constitution) ◦Proposition 26 ◦California Government Code 54999 Pass-through Provision ◦AB 3030 – Section 53756 of the Government Code 2/13/18 City Council Meeting 5 CASE STUDY: City of San Juan Capistrano Recent Litigation: CTA vs. City of SJC Rate payers (Capistrano Taxpayer Association, CTA) sued the City of San Juan Capistrano over its water budget rate structure ◦In August 2013, the Orange County Superior court ruled that the rates did not meet the nexus requirement Key factors: ◦Lack of administrative record ◦City used multipliers to justify the tiered rates without any administrative record of an underlying rationale 2/13/18 City Council Meeting 6 Status Quo Financial Plan 2/13/18 City Council Meeting 7 Red Line: Required debt coverage Green Line: Calculated debt coverage Red Line: Revenue under existing rates Green Line: Revenue under proposed rates (behind red bar) Stacked Bars: Revenue requirements Status Quo Financial Plan 2/13/18 City Council Meeting 8 Green Bars: Annual pay-as- you-go (PAYGO) CIP spending Red Line: Target ending balance Green Bars: Projected ending balance Proposed Financial Plan City Council Meeting 9 Showing 8% rate increases beginning in FY 18/19, revenue adjustments occur in July of each FY Reserve levels remain above City target of 50% Operating Reserve 2/13/18 WATER BUDGET & RATE DESIGN 2/13/18 City Council Meeting 10 Current SFR Tier Definition Tier 1 ◦1 to 12 CCF Tier 2 ◦13 to 30 CCF Tier 3 ◦Anything above 30 CCF 1 CCF = 748 gallons 11 2/13/18 City Council Meeting Water Budget Allocation Tier 1: Indoor allocation based on household size and gallons per capita per day (gpcd) ◦Household size of 4 and 55 gpcd 55 gpcd is State Guideline on efficiency Tier 2: Outdoor allocation ◦Factors taken into account: landscape area, weather, evapotranspiration (ET) adjustment factor ET adjustment will be consistent with landscape Model Ordinance 2/13/18 City Council Meeting 12 Water Budget Allocation Structure Tier 1: Indoor Allocation ◦55 gpcd X 4 household size = average of 9 ccf per month Tier 2: Outdoor Allocation ◦Based on irrigated area of 34.3% of total lot size Empirical analysis was conducted using GIS and lot size measurement Landscape area cap of 3,100 sq. ft. is recommended Tier 3: Above Outdoor Allocation 2/13/18 City Council Meeting 13 Changing MFR Tier Definition Tier 1 ◦Current: 1 to 7 CCF ◦Proposed: 1 to 9 CCF (mirrors SFR) Tier 2 ◦Current: 8 to 20 CCF ◦Proposed: 10 to 13 CCF Equivalent 1,000 sq. ft. of irrigated area during summer period Tier 3 ◦Current: above 20 CCF ◦Proposed: above 13 CCF 1 CCF = 748 gallons 14 2/13/18 City Council Meeting Rate Structure Framework Commodity rate will be based on water supply and conservation cost Fixed meter charge will be based on the infrastructure and customer service cost 2/13/18 City Council Meeting 15 Tier 2 Framework: Rationale for lot size The rate structure is designed to provide cheaper water for efficient users ◦Lot size is a proxy for estimating appropriate use of water ◦Consistent with the beneficial use argument of California Constitution, Article X 2/13/18 City Council Meeting 16 Water Supply Source 5 Sources: ◦4,200 AF Take or Pay from Chino Basin Desalter ◦2,862 AF Imported from WFA ◦2,120 AF Groundwater from City wells/ Monte Vista Water District (MVWD) Pump ◦900 AF MVWD Remainder is met by MVWD IX Pump 2/13/18 City Council Meeting 17 Water Supply Cost and Availability (CCF) Residential Tier Annual Usage City Wells and MVWD City Allotment WFA Import MVWD Chino Basin Desalter Rate ($/CCF) Available Water 873,763 733,981 1,529,086 1,529,086 Price per CCF $0.73 $2.70 $2.76 $2.93 Tier 1 2,590,903 873,763 733,981 985,961 0 $2.06 Tier 2 992,915 0 0 543,125 512,283 $2.84 Tier 3 1,082,096 0 0 0 1,016,802 $2.93 2/13/18 City Council Meeting 18 Volumetric Rate Calculation $/CCF Customer Class and Tier Supply Cost Conservation Cost Total Proposed Rate Residential Tier 1 $2.06 $0.00 $2.06 Residential Tier 2 $2.84 $0.00 $2.84 Residential Tier 3 $2.93 $0.12 $3.05 Non-Residential Single Rate $2.42 $0.04 $2.46 Construction/Temporary $2.93 $0.07 $3.00 2/13/18 City Council Meeting 19 Volumetric Rates $/CCF Customer Class and Tier Current Rate from FY 14/15 COS Rate FY 18/19 8% Inc. FY 19/20 8% Inc. FY 20/21 8% Inc. FY 21/22 8% Inc. FY 22/23 8% Inc. Residential Tier 1 $2.08 $2.06 $2.23 $2.41 $2.61 $2.82 $3.05 Residential Tier 2 $2.37 $2.84 $3.07 $3.32 $3.59 $3.88 $4.20 Residential Tier 3 $3.31 $3.05 $3.30 $3.57 $3.86 $4.17 $4.51 Non-Residential Single Rate $2.48 $2.46 $2.66 $2.88 $3.12 $3.37 $3.64 Construction/Temporary $3.00 $3.00 $3.24 $3.50 $3.78 $4.09 $4.42 2/13/18 City Council Meeting 20 Fixed Charge Components without Revenue Increase 2/13/18 City Council Meeting 21 Meter Size Meter Totals Proposed Customer Service Charge Proposed Metering Charge Total Proposed Charge Current Rate from FY 14/15 Difference Percent Increase 5/8" 4,306 $3.12 $17.35 $20.47 $19.79 $0.68 3% 3/4" 12,164 $3.12 $26.03 $29.15 $29.54 -$0.39 -1% 1" 3,872 $3.12 $43.38 $46.50 $49.23 -$2.73 -6% 1.5" 403 $3.12 $86.75 $89.87 $98.46 -$8.59 -9% 2" 507 $3.12 $138.80 $141.92 $157.54 -$15.62 -10% 3" 65 $3.12 $260.25 $263.37 $344.62 -$81.25 -24% 4" 71 $3.12 $433.75 $436.87 $578.96 -$142.09 -25% 6" 14 $3.12 $1,084.38 $1,087.50 $1,197.05 -$109.55 -9% 8" 25 $3.12 $1,561.50 $1,564.62 $1,577.37 -$12.75 -1% 10" 0 $3.12 $2,515.75 $2,518.87 $2,569.87 -$51.00 -2% 12" 1 $3.12 $3,730.25 $3,733.37 $2,569.87 $1,163.50 45% Fixed Charges Meter Size Current Rate from FY 14/15 COS Rate FY 18/19 8% Inc. FY 19/20 8% Inc. FY 20/21 8% Inc. FY 21/22 8% Inc. FY 22/23 8% Inc. 5/8" $19.79 $20.47 $22.11 $23.88 $25.80 $27.87 $30.10 3/4" $29.54 $29.15 $31.49 $34.01 $36.74 $39.68 $42.86 1" $49.23 $46.50 $50.22 $54.24 $58.58 $63.27 $68.34 1.5" $98.46 $89.87 $97.06 $104.83 $113.22 $122.28 $132.07 2" $157.54 $141.92 $153.28 $165.55 $178.80 $193.11 $208.56 3" $344.62 $263.37 $284.44 $307.20 $331.78 $358.33 $387.00 4" $578.96 $436.87 $471.82 $509.57 $550.34 $594.37 $641.92 6" $1,197.05 $1,087.50 $1,174.50 $1,268.46 $1,369.94 $1,479.54 $1,597.91 8" $1,577.37 $1,564.62 $1,689.79 $1,824.98 $1,970.98 $2,128.66 $2,298.96 10" $2,569.87 $2,518.87 $2,720.38 $2,938.02 $3,173.07 $3,426.92 $3,701.08 12" $2,569.87 $3,733.37 $4,032.04 $4,354.61 $4,702.98 $5,079.22 $5,485.56 2/13/18 City Council Meeting 22 Elevation Surcharges $/CCF Elevation Surcharge Current Proposed Charge for Intermediate Pumping $0.17 $0.09 Charge for High Pumping $0.44 $0.35 2/13/18 City Council Meeting 23 Elevation Surcharge is designed to recover costs proportional to those associated with electricity for pumping and capital to maintain pumps Elevation Surcharges $/CCF 2/13/18 City Council Meeting 24 Elevation Surcharge Current Rate from FY 14/15 COS Rate FY 18/19 FY 19/20 FY 20/21 FY 21/22 FY 22/23 Charge for Intermediate Pumping $0.17 $0.09 $0.10 $0.11 $0.12 $0.13 $0.15 Charge for High Pumping $0.44 $0.35 $0.38 $0.42 $0.46 $0.50 $0.54 Bill Impacts: Current rate versus Proposed FY 18/19 2/13/18 City Council Meeting 25 Efficient Use Inefficie nt Surrounding Rate Survey 2/13/18 City Council Meeting 26 Total Bill Impacts 2/13/18 City Council Meeting 27 Proposed Recycled Water Rates $/CCF Rate Current Rate from FY 14/15 COS Rate FY 17/18 FY 18/19 No Inc. FY 19/20 10% Inc. FY 20/21 10% Inc. FY 21/22 10% Inc. FY 22/23 10% Inc. Recycled Water Rate $1.74 $1.82 $1.82 $2.01 $2.22 $2.45 $2.70 Non-Residential Rates $2.48 $2.46 $2.66 $2.88 $3.12 $3.37 $3.64 Recycled as Percentage of Non-Residential 70% 74% 68% 70% 71% 73% 74% 2/13/18 City Council Meeting 28 Fixed Meter Charge would be the same as the potable charge. Cost of Service (COS) is based upon an average of costs associated with staff, repairs, materials, etc. Volumetric Rate Comparison ¢/Gallon Customer Class and Tier FY 18/19 FY 22/23 Residential Tier 1 ¢0.298 ¢0.408 Residential Tier 2 ¢0.410 ¢0.561 Residential Tier 3 ¢0.441 ¢0.603 Non-Residential Single Rate ¢0.356 ¢0.487 Construction/Temporary ¢0.433 ¢0.591 2/13/18 City Council Meeting 29 A gallon of water will be less than 1 cent Schedule 8/2/16, 12/7/16, 11/1/17: Public Works Commission Meetings 11/28/17: City Council Workshop 1/18/18: Administrative Record is Finalized 2/13/18: City Council Meeting: Receive study and approve contract for Prop 218 noticing services 3/13/18: Notice to proceed with Prop 218 Notice 5/8/18: Public Hearing 5/22/18: Second Reading 7/1/18: Rates effective 2/13/18 City Council Meeting 30 QUESTIONS AND ANSWER