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02-22-2011 CC Rpt A12 COUNCIL AGENDA STAFF REPORT cIgEGFILVE r I_Y Meeting Date: February 22. 2011 2011 FEB 14 AM 9: 3 oye }a Public Hearing: ❑ / OFFICE OF CITY CLERK Discussion Item: i/ °NNO HILLS Consent Item: ❑ February 15, 2011 TO: HONORABLE MAYOR AND CITY COUNCIL MEMBERS FROM: CITY MANAGER SUBJECT: WATER RATE STUDY RECOMMENDATION: Review and provide direction regarding the water rate study. BACKGROUND/ANALYSIS: In 2008, the City Council approved a 5-year water rate adjustment based upon the 2007 Water Rate Study performed by Black & Veatch. The City is currently in the fourth year of the approved 5-year plan. At the November 9, 2010, City Council meeting, staff recommended to update the assumptions and projections in the 2007 Water Rate Study. From the time the 2007 Water Rate Study was conducted, significant changes in the water conditions, allocations and prices have occurred. In addition, the growth projections incorporated in the Water Rate Study did not materialize and there was a very limited pass-thru provision for increased water costs. The City Council authorized execution of Agreement No. A10-50 with Glenn M. Reiter & Associates to prepare a Water Rate Study. For several months, three City departments (Engineering, Finance and Public Works) worked together in conjunction with Glenn M. Reiter & Associates to complete the 2010 Water Rate Study. On February 2, 2011, staff presented the 2010 Water Rate Study to the Public Works Commission. The Public Works Commission approved the Water Rate Study; however, recommended that staff present for City Council consideration, two alternate models structured to send a price signal to high consumption users to encourage water conservation while remaining revenue neutral. At the February 8, 2011, City Council meeting, staff presented the 2010 Water Rate Study with three models to consider: Base model, Option 1 (increasing commodity charge), and Option 2 (reducing tier breaks). The City Council directed staff to revise the multi-family tier breaks on the base model to encourage water conservation and present to the City Council for further consideration. >c" AGENDA DATE: FEBRUARY 22, 2011 SUBJECT: WATE RATE STUDY PAGE TWO Staff recommends the multi-family tier breaks to be as follows: Current Proposed Base Model Base Model (Original) (Revised) Tier 1 0-12 ccf 0-7 ccf Tier 2 13-30 ccf 8-20 ccf Tier 3 31+ ccf 21+ ccf The tier breaks being recommended on the revised base model provides for basic indoor water usage of up to 7 ccf for Tier 1; Tier 2 provides for reasonable outdoor water usage of up to 13 ccf; and Tier 3 provides a penalty break to achieve water conservation. REVIEW BY OTHERS: This agenda item has been reviewed by the City Engineer and the Public Works Director. FISCAL IMPACT: The recommendation to increase water rates and fees will fund a financial plan to cover ongoing operating/maintenance and capital replacement costs. Respectfully submitted, Recommended by: LW< Q1)441 /. 9 , 7-1 Michael S. Fleag)C1ty Manager Ju �d Ft Laffaster, Finance Director MF:JRL:dk v DRAFT EXECUTIVE SUMMARY of WATER COST OF SERVICE AND RATE DESIGN STUDY for CITY OF CHINO HILLS �.r by GLENN M. REITER S ASSOCIATES February 14, 2011 DRAFT Contents Background 1 Rate Development Process 2 Determine Revenue Requirement 2 Operations and Maintenance Cost 3 Fixed versus Variable Costs 3 Variable Water Supply Cost 4 Fixed Costs 4 New Accounts and Water Sales 6 Allocation of Cost to Rate Class 8 Existing Customer Classes 8 Service Areas - Elevation 9 Use of System 9 Water Conservation Legislation and its Impact on Rate Setting 9 Cost and Rate by User Class and Elevation 10 User Profile 13 Testing of Rates 13 Projected Results 14 Impact on Single Family Residential User 15 Comparison of Current and Proposed Rates with Other Agencies 15 Conclusion 18 Disclaimer 19 Appendix - Sample Bills with Proposed Rates - Single Family Residential 20 Low Zone - 5/8" meter using 12 ccf 20 Intermediate Zone--%" meter using 22 ccf 21 High Zone—%" meter using 22 ccf 22 City of Chino Hills - Executive Summary—February 14, 2011 Page i DRAFT Background Since the City of Chino Hills' last water rate study in October 2007, the economy has taken a dramatic downturn. New construction and building activity is virtually non-existent, thus very few new meter installations are occurring. Building and economic forecasts throughout the region are not optimistic for a recovery in the near future. Some economists are calling current conditions 'The New Normal'. As a result, the growth assumed and used as a basis for Chino Hills in the 2007 study did not materialize. In addition, wholesale water costs have risen appreciably and water sales have dropped as a result of regional water shortages, conservation and, more recently, higher rainfall. The combination of increased costs and reduced revenues has resulted in the need to reduce the water department's operating budget, defer capital projects, and not fund depreciation or the rate stabilization fund. It has also been necessary to draw down working capital in order to cover operating expenses. From a water supply standpoint, the City is fortunate in that it has multiple sources of water supply: groundwater, the Monte Vista Water District (MVWD), the Water Facilities Authority (WFA), Chino Desalter Authority (CDA), and the Inland Empire Utilities Agency (IEUA). These five sources provide the City with over 41 million gallons per day capacity (MGD). However, the WFA source obtains its water from the Metropolitan Water District of Southern California (MWD) and thus MWD availability and cost is a major factor in the cost of the water supply. Recent state legislation mandating reduced urban water usage statewide is also a factor that was not anticipated when the last rate study was completed. These requirements will also impact future water rates and charges. This update is being developed to allow the City to adequately fund the following: 1 Daily operation and maintenance 2 Critical capital projects 3 Working capital 4 Depreciation 5 Rate stabilization fund 6 Debt coverage City of Chino Hills - Executive Summary—February 14, 2011 Page 1 DRAFT Rate Development Process This study is designed to address the above needs and allocate the revenue requirements to the various benefitting customer classes, while complying with state law, current City policies and its specific service area characteristics. The rate development process consists of the following steps 1 Determine revenue requirement to fund: a. Operations and Maintenance b. Depreciation c. Debt (Insure adequate coverage) d. Working Capital e. Rate stabilization fund 2 Forecast of customers and water demand a. New accounts b. Water sales (with conservation) 3 Allocation of cost to rate classes a. Use of cost of service analysis (modified to comply with conservation) b. Distribution of cost of 0 &M c. Distribution of debt and capital d. Develop portion of total revenue requirement to be recovered from monthly service charge e. Develop portion of total revenue requirement to be recovered from commodity charge 4 Develop rates by class 5 Test rates in rate model to verify revenue and demonstrate impact on customer Determine Revenue Requirement The first step in the study is to determine the amount of revenue required for the next five years. Because of the dramatic drop in revenue, the operating and non-operating budgets were reduced and capital projects deferred. In addition, it is necessary to restore working capital and fund depreciation. Table 1 below is a summary of the revenue needs projected for the next five years. In order to avoid initial rate shock, it is necessary to phase in the funding of depreciation and the Capital Improvement Program (CIP). In addition, $1,650,000 of working capital will be used in order to avoid a large rate increase. Further, future rate increases will be necessary to develop sufficient revenue to fund the department's needs. The goal is to develop a unifourr annual increase for the next four years to reach the City's revenue requirement. City of Chino Hills - Executive Summary—February 14, 2011 Page 2 DRAFT Any funds drawn from working capital are to be replenished by the end of the study period. Table 1—Summary of Revenue Needs,Next 5 Years .'. ' 3. 'y :'.. FY 11 Y2 '.: FY 12-13„' �F?13,14 FY, '0154.62 Use of Fundsy;):1:60.!.„, Total Total ;� Tofai Total 0&MEx0ense $19630268 $20'321;317 $21279,968 $22230489 $22955376 Delit Service Fxisnhg' '$2234600 + $2234,600 ',$2,731,600 $2235100, •:+ $2233000 Transferto Capitalimprovement Program ;$1739200 2 t $1?39;280 $1,739,200 :(4)40.4.0P.*: $1739200 Transferto Depreciation Fund + ';.;{ ;j$0 $1000,000 $1,000,008 i �$2 ODD 000 $2500000 Tra$'sfertd RateStab'lizatibn Euntl ,f ., ,r'..$100000 ''$100,000 , ,;$10 ,000 !,'x$100000 $100,000 Subtotal :'-:'.$23,754,068,. : $25;395,117$26;350,768 ";.':$2$,308,789 "$29,521,176 S'u of Funds '' Szie'ofwiter $1000000` �$100D,000 $5000,000 Frorrl,Wofking Capita) $1650000 fMiceRtinion a dfges $749,200 -$749,200 $749200 $737200 $737200 Interest income' '+:''. � ^ ' ;$izR,RDD :,Svs;RDD i$2.8ROD ‘1.21,86b ',$12esao (Subtotal, i.'. ' $3528.900 $1,878;000, $1878000 '$866000 $866,0& IRevenue Requirement through Rates and Charge, $20,226,068 $23,517,117 $24,472,768 ',$27,442,789 $2$661;776 Operations and Maintenance Cost Fixed versus Variable Costs The majority of costs to properly operate and maintain a water system are fixed. The water system is constructed to provide reliable service 24 hours a day throughout the year. Millions of dollars have been invested in pipe lines, storage tanks,pumps, wells and control systems that all have to be maintained regardless of water sales. Likewise, the indirect costs of labor, insurance, administration, equipment and structural maintenance exist to provide water service and are only slightly affected by actual water sales. The major variable costs are energy to transport the water, any chemicals used to treat the water and the cost to purchase imported water. City of Chino Hills- Executive Summary—February 14, 2011 Page 3 DRAFT Variable Water Supply Cost The City has five sources of water. The cost per acre foot varies rather dramatically as noted in Table 2 below. The annual cost of water is dependent upon the blend of source and amount. Table 2-Cost of Water Supply by Source AF Variable Cost Source Projected Cost Per AF per CCF ChinoBesinWM 2,900 $265.25 $0.61 MVWD 8,350 $617.10 $1.42 WFA 750 $580.00 $1.33 CDA 4,200 $320.00 $0.73 A(Recycled) 2,000 $115.00 $0.26, Note: The variable cog per acre foot does not include other associated fixed costs Fixed Costs As a matter of industry practice, a portion of the fixed costs are recovered in the monthly service charge. The State of California has encouraged water conservation legislatively and through the California Urban Water Conservation Council (CUWCC) and their development of Best Management Practices. Best Management Practice 11 (BMP 11) encourages recovering the maximum amount for revenue from the commodity charge. However, it also recognizes financial and legal constraintsl. The amount in Table 3 represents the fixed cost of the revenue requirement. Table 3-Fixed Costs lankrnfaiikagaiiatiiee Li1`si b�mat 'e'YV�cq.; u t h a k `,L'"" '7 ,l L'.K �: i''�4 iso t ( ,fib`4t rX '.va G J leteYs;'i h it M ` r4y` 'i1�366�k1�p1 'S1101 5) k\ '5 > ?'Lt;: f3Y9"l , iyA 1119.2 De. t&'Cl¢,,; . T+�'`;�: °303;97 09 i y Ln $ � � ' I y tLVW 03/.0700 '.�;�Zp,)�91 %;:;M. ''a 7:"AUtalM;> ?uS.A;5;18?Li. 59 The collection of the fixed cost is based on the relative delivery capacity of each meter in the City's system. As noted in Table 4 below, the City has meter sizes ranging from 5/8" to 10". 1 In Bighom-Desert View Water Agency v.Virjil the California Supreme Court applied Proposition 218's* provisions embodied in Articles XIII C and D of the California Constitution to ongoing water service.In addition,Article XIII D,Section 6 imposes procedural and substantive requirements on new or increased fees or charges for on-going water service. The Council considers the conservation principles of BMP 11 to be compatible with the cost of service requirements of Proposition 216. However, should a case arise in which a Water Agency's good faith efforts were unable to meet BMP 11's requirements due to legal constraints (e.g. Proposition 218),this would be grounds for exemption,as specified in MOU Section 4.5. City of Chino Hills- Executive Summar City Summary—February y— y 14, zo11 Page 4 DRAFT The delivery capacity of each meter is noted based on American Water Works Association (AWWA) Manual M6. The 3/4" meter is used as the base for the calculation of the relative capacity of larger sizes. This develops a meter equivalency for each meter size. The equivalency is multiplied by the number of meters to determine the total meter equivalents. The portion of the fixed cost to be recovered from the monthly service charge is then developed by dividing that portion by the number of meter equivalents. In turn, that cost is multiplied by the number of meter equivalents for each meter size and divided into a monthly service charge. Table 4—Monthly Service Charge per Meter Size Annual Capacity Capacity Fixed Cost Monthly Meter Capacity Meter No Meter Meter Service Charge Size GPM Equivalent Meters Equivalents Equivalent per Meter 5/8 15gpm 0.67 4,291 7,875 $766,902;!1';;;, ::'"$14:8,9 3/4 30gpm 1.00 12,146 12,146 $3,239,959;*.': ' '.$2S,23 1 50gpm 1.61 3,628 6,047 51,612,955 ,:, ':„',,,$37.45 11/2 100gpm 3.33 421 1,403 5374,341 ;,,,,$74,10 2 160gpm 5.33 520 2,773 5739,790_ :, "::',''',:5118:56 3 350 gpm 11.67 26 303 580915 `,r'( >;';$25934 20.00 38 745 1.. 4 600 gpm $198,676'.�c'.�'-�;:':,'$435;64 6 1,250 gpm 41.67 35 4418 $378,349 ' :'.,.1';',$900..$3 8 1,800 gpm 60,00 106 5,660 $1,509,918': :"..::::$41.004 10 2,900 gpm 96.67 9 783 $208,866 "{$1,933.95 Total 21,220 34,154 $9,110,671 Less adjustment of Fire Service-17%of comparable meter size $1,460,525 Net $7,650,146 City policy is to charge Fire Service a monthly fee which is 17% of the monthly cost of the comparable meter size for other deliveries. After adjusting for this factor, net revenues from service charges amount to $7,650,146 or about 38% of total revenues. The remaining amount of the revenue requirement will be distributed over the charge per ccf by user class. CityofChino .... .......... .. .._ Chino Hills - Executive Summary—February 14, 2011 Page 5 DRAFT Table 5-5 Year Monthly Service Charge WF.,a s r4 ttxv' v.:?'%Ab,�dl �i xl Y a"c'; Meter Current Fr 9 ° '�'DIc``.�` ' ,9SIOSS. 9-e ,sl Size I FY 10-11 FY 11-12 FY 12-13 FY 13-14 FY 14-15 FY 15-16 5/8 $13.60 $14.89 $16.37 $18.00 $19.79 $21,76 3/4 $20.36 $22.23 $24.44 $26.87 $29.54 $32.47 1.00 $34.00 $37.05 $40.73 $44.78 $49.23 $54.12 1.50 $67.99 $74.10 $81.46 $89.56 $98.46 $108.25 2.00 $108.79 $118.56 $130.34 $143.30 $157.54 $173.20 3.00 $206.59 $259.34 $285.12 $313.46 $344.62 $378.87 4.00 $345.19 $435.69 $479.00 $526.61 $578.96 $636.51 6.00 $692.99 $900.83 $990.37 $1,088.82 $1,197.05 $1,316.03 8.00 $1,142.94 $1,187.04 $1,305.03 $1,434.76 $1,577.37 $1,734.16 10.00 $1,714.41 $1,933.95 $2,126.18 $2,337.52 $2,569.87 $2,825.32 Table 6-5 Year Monthly Service Charge-Fire Meters Meter 17.00% of Regular Size FY 11-12 FY 12-13 FY 13-14 FY 14-15 FY 15-16 4.00 $74.07 $81.43 $89.52 $98.42 $108.21 6.00 $153.14 $168.36 $185.10 $203.50 $223.73 8.00 $201.80 $221.86 $243.91 $268.15 $294.81 10.00 $328.77 $361.45 $397.38 $436.88 $480.30 New Accounts and Water Sales Chino Hills is primarily a residential community with some commercial and institutional users. Since October 2007, the City has added only 200 new connections, resulting in a total of 21,220 active customer accounts. In 2007, it was projected that the City would have 24,705 accounts in 2010-2011. This reduction of 3,485 accounts (14.11%) in forecasted accounts has dramatically affected revenues. The construction of new homes remains stagnant. Real estate forecasts indicate that a recovery in new home construction may take a considerable time, thus the projected new connections have been revised downward to less than 1% per year. Table 7 below shows the projected number of new accounts over the next five years used in this study. City of Chino Hills - Executive Summary-February 14, 2011 Page 6 DRAFT Table 7-Projection of New Accounts I Additional Meter sets annual growth 11 0.00% 0.75% 0.75% 0.75% 0.75% Description Pt 11-12 FY 12-13 FY 13-14 FY 14-15 FY 15-16 1 Single Family Residential 19,495 19,641 19,789 19,937 20,086 2 Multi-Family Residential 612 617 621 626 631 3 Non Residential 287 289 291 294 296 4 Construction 0 0 0 0 0 5 Institutional 46 46 47 47 47 6 Dedicated Irrigation 556 560 564 569 573 7 Agricultural 3 3 3 3 3 8 Recycled Water 102 103 104 104 105 9 Recycled Water(Construction) 0 0 0 0 0 10 Fire lines 119 120 121 122 123 11 Total 21,220 21,379 21,539 21,701 21,864 Table 8 includes the study assumptions for future water sales. Note that the sales volume is projected to remain flat. The study assumes that the combination of slower growth coupled with the mandate to reduce urban per capita consumption will result in little or no increase in sales volume. It should be noted that the new state conservation legislation requires a reduction in water use by 2015. Further, previous experience has indicated that an increase in rates frequently results in a voluntary reduction in use. This is considered a conservative forecast because an increase in sales above what is assumed will have a positive effect on revenues. Table 8-Forecast of Future Water Sales Description FY11-12 FY12-13 FY13-14 FY14-15 FY15-16 1 Single Family Residential 4,383,309 4,383,309 4,383,309 4,383,309 4,383,309 2 Multi-Family Residential 333,841 333,841 333,841 333,841 333,841 3 Non Residential 534,571 534,571 534,571 534,571 534,571 4 Construction 0 0 0 0 0 5 Institutional 48,681 48,681 48,681 48,681 48,681 6 Dedicated Irrigation 980,746 980,746 980,746 980,746 980,746 7 Agricultural 13,097 13,097 13,097 13,097 13,097 8 Recycled Water 497,091 497,091 497,091 497,091 497,091 9 Recycled Water(Construction) 0 0 0 0 0 10 Fire Protection 52,957 52,957 52,957 52,957 52,957 11 Total CCF 6,844,292 6,844,292 6,844,292 6,844,292 6,844,292 12 Acre Feet 15,712 15,712 15,712 15,712 15,712 City of Chino Hills - Executive Summary-February 14, 2011 Page 7 DRAFT Allocation of Cost to Rate Class The allocation of cost to user classes is determined in conformance with AWWA Manual Ml, modified to comply with California state laws that mandate the development of fees and charges not exceed the reasonable cost of the service (Proposition 218)2, case law, AB 28823 and SBX7- 74 Existing Customer Classes The City's current rate schedule includes the following customer classes: • Residential • Single Family Residential - Low zone • Single Family Residential - Intermediate zone • Single Family Residential - High Zone • Multi Family - Low Zone • Multi Family- Intermediate Zone • Multi Family - High Zone • Non-Residential, • Low Zone • Intermediate Zone • High Zone • Temporary(Construction) • Agricultural • Institutional • Low Zone • Inteuuediate Zone • High Zone • Recycled Water • Low Zone • Intermediate Zone • High Zone • Temporary (Construction) • Agricultural • Private Fire Protection 2 California Constitution Article 13ll 3 AB 2882 Water Code Allocation Based Water Conservation Pricing I SB 7 Water Conservation, Water Code Section 10608 City of Chino Hills - Executive —February . .,. ...0 aryuary 14, 2011 Page 8 DRAFT The City's existing customer classes includes dedicated irrigation in the Non-Residential class. Most of the water sold in this class is for median strips and City landscaping. The City has three customers participating in the MWD Interim Agricultural Water Program. This program is being phased out by MWD, however, the City opted out of the program in 2008, resulting in the City subsidizing these agriculture customers. We are proposing to transition the existing agriculture customers to the non-residential rate over the next five years. Service Areas - Elevation The City is relatively new and is comprised of recent development as well as established areas. Its topography varies in elevation, which means that water must be pumped to two elevations or pressure zones. The intermediate zone requires a pump lift of 226 feet and the next lift is an additional 232 feet. The energy to provide this lift is charged to the customers in the respective pump zones. The AWWA Base Extra Capacity method was used in the study to distribute costs to the various user classes. This approach has been slightly modified to take into consideration particular characteristics of the service area and compliance with conservation goals. The development of the rates by class takes into consideration their relative use of the City's water facilities. Since the City does not have actual field data, it was necessary to use standard industry data. Use of System Distribution of cost of the water system is calculated based on use of that system by various user classes. This was accomplished by developing a matrix of customer classes, determining the amount of water used by each class and then verifying the relative peaking demands on the system by each class of user. This data provided the foundation for distributing costs to Base Water Use (Total Use), Maximum Day and Maximum Hour. The annual costs for Operations and Maintenance were distributed based on the foregoing calculations, as was capital/debt. The results of the distributions were then combined to provide a unit cost that could be applied to the specific user class. Water Conservation Legislation and its Impact on Rate Setting In the development of the recommended rates, compliance with the Water Conservation Act of 2009 was taken into account. The cost of service had to include provisions for conservation incentives. The City has access to various quantities of water at various prices (see Table 2). The exact mixture at any one time is difficult to predict, as the selection is dependent upon system operations. With that in mind, it was determined that a weighted average of water sources would be used to reflect the added cost of water at higher volumes. City of Chino Hills- Executive Summary—February 14, 2011 Page 9 DRAFT The study takes into consideration SBX7-7, The Water Conservation Act of 2009, which mandates a 20% reduction in urban per capita consumption by 2020. In Chapter 3 of SBX7-7, Urban Retail Water Suppliers are advised as follows: (b) An urban water retailer shall adopt one of the following methods for determining its urban water use target pursuant to subdivision(a): (1) Eighty percent of the urban retail water supplier's baseline per capita daily water use. (2) The per capita daily water use that is estimated using the sum of the following performance standards: a. For indoor residential water use, 55 gallons per capita daily water use as a provisional standard. Upon completion of the department's 2016 report to the Legislature pursuant to Section 10608.42, this standard may be adjusted by the legislature by statute. b. For landscape irrigation through dedicated or residential meters or connections, water efficiency equivalent to the standards of the Model Water Efficient Landscape Ordinance set forth in Chapter 2.7." c. For commercial, industrial, and institutional, a 10 percent reduction in water use from the baseline commercial, industrial, and institutional use by 2020. (3) Ninety-five percent of the applicable state hydrologic region target as set forth in the state's draft 20x2020 Water Conservation Plan. (4) A method that shall be identified and developed by the department, through a public process." Cost and Rate by User Class and Elevation The City primarily provides service to residential and some commercial-institutional customers. Based on the City's master plans, peaking characteristics were used to deteiniine Maximum Day and Maximum Hour demands. These factors were used to distribute the operations, maintenance and capital/debt costs to the major cost centers. This was then distributed to the customer classes using industry peaking ratios for customer classes. 5 Water and Sewer Master Plan PBS&J October 2005 City of Chino Hills-Executive Summary—February 14, 2011 Page 10 DRAFT Each customer class was allocated its respective unit demand. This was used to create unit costs for the development of the cost for each customer class' use of the system based on "Base Demand, Maximum and Hourly Demand". The unit costs were then multiplied by each customer class' system demand and spread over the amount of water used. This resulted in a cost/ccf by customer class. The first tier is intended to provide water for basic indoor use. Southern California indoor per capita consumption is about 55 gallons per person per day. The City's demographics indicate 3.3 persons per household. For one month, this is equal to 5,445 gallons or 7.5 ccf of water used. The next step was to determine the cost of water for higher consumption levels and to encourage conservation. Tiers 1 through 3 were adjusted accordingly. For single family residential, Tier 1 will remain at 0-12 ccf, Tier 2 is proposed to be lowered by 5 ccf to 13-30 ccf and Tier 3 is proposed to be 30+ ccf. For multi-family residential, Tier 1 is proposed to be 0-7 ccf, Tier 2 is proposed to be 8-20 ccf, and Tier 3 is proposed to be 20+ ccf. The final step was to add the cost of energy to the pumping zones (Intermediate and High). The City pumps water from elevation 828' to 1054' then to 1286'. A small amount of water is pumped to elevation 1502'. This expense was determined from City records for energy use and cost. The cost to pump to the intermediate zone is $0.13/ccf; it is another $0.20/ccf to the combined height zones. City of Chino Hills- Executive Summary—February 14, 2011 Page 11 DRAFT Table 9 is a summary of current and proposed commodity charge schedules. Table 9-Summary of Current and Proposed Commodity Charges 9dlgicrease 93434 161nerenen ,Q.Q4%%lncreaw4.I.i mete 9S42a Proposed i i'lost% riv. ...- : ilifiPsed . freiTii,T• .,ic‘4 ...: ,Prod d FT 17-17 l'„,:,K1/41;i0, '.itribi,„, „raiO4.:,:,,&.1.4tOgith.6114).,:iiix. ",.,:,'";.'"' ::4'1•6{:r,:',:ktVt§iit6 -43.,it.;', ,i '. .:::,•;:.sled:: -$/e .., .0",-..,6“4,c,S.-itislt,', ''..• , ' ' Residential Si-ft MIS $iccf 5/cdTt:iiT . :W,FEr' i',..kV, $:(44' 5/cd : ;'.1Wcrt :i'40ect-ce.itk;.. sled , 5/cd tsw,zme '.:' '...,:ii SFR tont Sfft? r1:;'.hIERt304,2.4ett,-410 ''),::.; ,,ve ,..41f,,Afp, Tier 1 ::12 ii 1,7 51.40 St4o1"(:, $154.: :LS*4,1tstmossirii:Aal',:$1491"6.1.0\:03,At124 -'.. i..214 $228 der 2 :-40. -,29:, $1.62 $1.62;t1; :::$7:714;i ;;;$1,,stft:itt,VAPP6,t;:4245:c:.:::#1. 04teisIgly-egal:;','$03 '$2:6 lier 3 i,ireiiirTki $273/ $220,',; ;i$341T, ;.$2,49i/ts tscia.,,,, $a.61.,;.,),'sicatz.nottl•3.0:4:;'', '.'$3.tir,'',i,$3.54 intermedate Zone ,,j„ ,,i,%,:?;ii;1 i:.,;;;,il'i c:,,,tgatiit „.atir ,..,:,! 401:t0eP;tt'i', Tier 1 .;1?; -7 .,l; ;.; 51:72 51.72:;r;;'' 363 ;;'4.09s44$ rz*3*ege., 12.64 : :42:tge . :, ..022. - $2.47 - $2.47 lier 2 ''S;till); d1-97 $192 $1.91 49;4;' i:$1-ri74:04,.. .,.,$4.10 ';.:04.1 :7' $2414-14fg. gt...ft't tit 1'1'$2314',) ;$2:i9 der 3 ,,744 t:TS; $231 $2.31 ;'; ';$31.7;;-;;;;eislYglittit S:G4t.i3ii.7.l'.143.17t,afMt-Wis ..siii. ,;$3.e3 ---.,,,,,eiv„s „:,:,„5,3,,,v,,:.,..„,F.,,,,p,;.,.-izaz:-Q,,,i2;',:.„4„•-v,,,,L5.,?4,,,k;;3,a,,,,,,;,,ffssoses?,-,..-1,2*-.L .f:.gtm4yawattmaiivegis- i-igh zone ,:0.1 ‘. . .,:r '-', ,,...,41,Attipi.t1 , , , veromirgKt: ',i:.: ,, Sent i13 ii:,1 $1.75 $1.75)iii',ii:/$1..PP 'i $1.89 $223 C i i $1/273t1;$2;2Pbt41429,;i7kir: ;''' $2;76:C;'i$:2:76 Tier 2 ;‘30 l; $1.99 $199 7i;!'i; $71i;:;;:'.$2.111Apgerk,,,:wetit, .0755,.:;::.Sassvtgltril-goftt. :sil'( • $3 09 : $3129 Tier 3 i,onelja $2,34 $2,34; ;:;.$i.o",,,.:,.-.$.2.ii.kg?'0,t10.1kIrailit<.;,....sfc4.1,f.,,:t4:4±5,AA Ilittg•At, :‘,-$4.1z .,•,,,s4:i2 towZone $152 : , $0?: , al4ikes„,,..kc, - -;4,: :.4..,.2). ...,‘,'. ,,_-,_--,48sap„?f44 Intemedte Zone $124 $294,,r $7;, t : Weve.3.4l: s7?--572 tghZone $127 02d k02 $i66i. gsigitt sin. Tempoary $2. c4 I..av?:7in5ia;pt:tg4;iik,t $2.13ittkc'i4,-c. PiEt,.. 4' ;cultu $1.04 $1.49 aa72e ,A.1 $.73: 2'5.1 ,-.15.!:...45;i::f3 ;Wrs!)- TA.Y.gg.,.:;:.(4Q;.ZSa;.,4:.W:"5;;: ::irzcts.aVe.;',541,11.1'Al.;].gcfg,:::',ii,i'iggt-if:;t,(Vgli,eit=filgtgalf-fetAL,Q''11;tiffikkindalgggili2. institutional :rtcist.so,ltkv .-':/' ( ',,}iF47-4:7c$3i4231,4g,94R tow $1.52 ipA.%%i/41sa .r,.„.:i: si....ii ktemiedateZone $124 Sidd4t2iP ; t1?00 , $2-§2 14ghZone $127 $2.20 r)l24ie9 066-- , -t44-V-9444;',Wa, SP'n7 ,iiicaainTi-ini;i4iii47:tiTT.iliatisicii73i2C747iTi74177inizn:43TnaniWii;iiiT:Xeitt1diniPii1Ditiiii4PPiiSilk:Virgiti7MitSigtariai'icaRRiailiiiliSliTinitigiigginigiTZ Recycled Water , 1 ,.'5 ,cWXTetrtowZone $1.22 $349 ;atttftWitgieWAc.)M , :,iiii ntermedateZone L• ; .: tagh Zone $1,51 ;:. `,'43,35 „'-', ,,,.:. s.akeimnitg,.; ,;. 0.1„3 „61fili4':3V-Aze'ell)0' '57- Temporary $126 i,:;; :`;',tn.::; : ; '''.?•344T,VP10.4,1‘7,4;": ;'''; : ;kiirgt0Wityek;O:' Agriculture $025 i ;'.' "' '2;i7.,[;21;';m04;':• , ,QcAf.r2,::fl ..' '.. .f:fcl..Lav'.,:.:.Cr......,... ;........:.:1-.::,),.,m: ::Iv.:.1 ..]..f,,.-. .... ;r:gcgo.:)q.n:.‘9:stP2.;•;”j3W.;-;;;;g:C.n'i,513(5Sliz:5i57-'n' agtilg.61Aciaizn,nr.,: volggsnwif.4avg..-,,igw.:ia,..a Private Fire Protection $1.40 ii];iii,$282./,,i i,7",74.Tion .tm .-".$3.41 :. f :;.;g4t.o...*,,KW.Mg'.1,: $412 Note: Current rates reflect effective rates scheduled for July 1,2011. .,.... _„. . . „ . ... . City of Chino Hills- Executive Summary-February 14, 2011 Page 12 DRAFT User Profile Knowledge of the service area's use pattern is an important guide in developing tiered rates for water conservation. In addition, knowledge as to how much water is consumed by each customer assists in the development of the appropriate tiers. The following chart is a user profile for the service area. Customer Use Profile WO Ii 04_ P - Beeneeeessawersievegglu E 11 C niumil pNurBndbG It can be noted that the number of occurrences of specific water consumption produced a bell shaped curve. The median is 16 ccf, with an average monthly usage of 22 ccf. There are also sales as high as 600 ccf per month or more. For the most part, these large uses are a result of master meter multi-housing. In compliance with the conservation legislation and BMP, the City uses a three tier system for water pricing. Rates are developed taking into consideration the customer class and pumping zone. Likewise, tiers are determined in such a manner that the first tier provides water to meet indoor needs, the second tier is designed to provide landscaping for an average home, and the top tier is priced to encourage conservation. Testing of Rates Once a schedule of rates has been developed, the projected rates are input into a model that contains all the City's active meters for the test year FY 09-10. The model is then run to verify revenue generation and to demonstrate impact on customers by calculating a new bill by meter size and use. It should be noted that the model includes only active meters. City of Chino Hills - Executive Summary—February 14, 2011 Page 13 DRAFT Projected Results The projected revenue is entered into a projected operating results cash flow to demonstrate the financial results on a year by year basis for the study period. The results demonstrate the cash balance and the revenue program's ability to fund what is required while at the same time providing proper debt coverage. (Table 10) Table 10—Water Department Projected Operating Results `, ,,+ FY 11-12 �s}13 FY 13-14 FY 14-15 FY 1516 <^"+r��4li,EZ ..\. (.rY ti+.'Y:: r v , 1 h' ',F, �,.�. , :6da:�'<,::Cst;.- :�f4>.z��e�gtnwR`��su�anae;!;;�4��2;.5�A:�;:!1$1der.�,6�Q'+�;iti�5�78;1�D:�(s:o-1„=,��ji3io-/i-1;793.@%�"f"S"i��;$Lvi544�{S r fit, Revenue GService Fee $ 7,650,146 $ 8,623,790 $ 9,552,103 $ 10,580,344 $ 11,719,270 �8'M Commodity $ 12,768,942 $ 14,038,321 $ 15,433,890 $ 16,968,196 $ 12,655,029 t"�`Sale of Water $ 1,000,000 $ 1,000,000 $ 1,000,000 $ - $ ry it� S`r $ 749,200 $ 749,200 $ 749,200 $ 737,200 $ 737,2W x�sMisc (^��'' 'Y $ 128,800 $ 128,8(0 $ 128,800 5 128,800 5 12&800 �Interest go, Total Revenue $22,297,088 $24,540,111 $72,863,993 $28,414,539 $31,240,299 r'erExpenses IS_ rtaProduction and Storage $(12,111,627) $(12,120,345) $(13,147,418) $(13,443,513) $(14,052,998) 1;46�td,*Pumping Power $ (1,021,300) $ (1,093,500) $ (1,170,000) $ (1,251,9W) $ (1,339,500) `*' '�t.g (2,212,678) (2,244,292)+ {I.tTransmission&Distribution $ (1,936,140) $ (2,290,795) $ (2,037,294) $ $ t. .., t..: ta Administration $ (2,492,192) $ (2,676,861) $ (2,684,010) $ (3,031,741) $ (2,945,022) i,,,,4 Meter Service $ (1,366,610) $ (1,409,416) $ (1,480,946) $ (1,507,757) $ (1,555,664) SA Customer Se rvice&Engineering $ (752,400) $ (730,400) $ (7(0,300) $ (786,9W) $ (818,100) O Total Expenses $(19,680,268) 5(20,321,317) 5(21,279,968) 5(22,234,489) $(22,955,576) sem p�'gSi Net Revenue $2,616,820 $4,218,795 $5,584,025 $6,180,050 $8,284,723 1sg ,, . _—_ _. t:. u R; gr Non Operating Expense t,hi s iza�;�� FIF;Ie�BMi Interest Payments $ (954,600) $ (909,600) $ (861,6W) $ (810,100) $ (753,000) F;..°f��.,'.,}9F5.Principal Payments $ (1,280,W0) $ (1,325,003) $ (1,370,000) S (1,425,000) $ (1,480,000) fr?30riCIP $ (1,739,200) $ (1,739,200) $ (1,739,2W) $ (1,739,200) $ (1,739,2W) ¢`y $ - $ - $ - $ - $ t &�t Total Non Operating $ (3,973,800) $ (3,973,800) $ (3,970,800) $ (3,974,300) $ (3,972,200) re 1 (,s1*A �' 340 _ _Net Revenue $ (1,356,980) $ 244,995 $ 1,613,225 $ 2,205,750 $ 4312,_573 ,.+1�.'`;�aty�<� ___ ._ _ Wiz. . �'P551� lir7E?i,F p>,I3¢�,+.,y+ Other Uses �'c'=�a'pDepreciation Fund $ - $ (1,WQ000) $ (1,000,000) $ (2,000,000) $ (2,500,000) 'lf'e3Thr%'.Rate Stabilization Fund $ (100,000) $ (1.00,000) $ (100,000) $ (100,000) $ (100,003) lt,s`n'�� )1'%' Total Other Uses 5 (1W,W0) $ (1,100,0W) $ (1,100,DW) $ (z,1W,410) $ (2,E0o,DW) ,, _�,,;-Net Cash Flow $ (1,456,980) $ (855,005) $ 513,225 $ 105,750 $ 1,712,523 eN to kei .qan:...rtr..w`^t';c�a�ra;f,2s.:ay,.,.c _ _ 5.;,,,,„ 5. a „t tom'$. a'Endrh�Lash Btifari2�;M',S1t1,0'*u 5�74v!"$1B 2ppTi69 y$'I,g OL4?��+ X188191544 F'a2D,5346fi *Npte'tash8alagm 0.i,Npye01*- 40.3 Sr{r ' ,..*+.5.• `r'.30 l' 1;t: '' p !,.,,W r — City of Chino Hills- Executive Summary—February 14, 2011 Page 14 DRAFT Impact on Single Family Residential User In order to develop tiers that reflect the service area, the City's consumption data for FY 09-10 was loaded into a model to allow an analysis of how the water is being consumed. The FY 09-10 data will also be used to test any proposed rate to determine its ability to provide the required revenue and its impact on any particular customer. Comparison of Current and Proposed Rates with Other Agencies The tables below reflect the invoice components for the monthly service charge and commodity charge for a single family residential customer with a' " meter and monthly water consumption of 22 ccf. See Appendix for sample bills with proposed rates. Table 11—Comparative Residential Rates/Current and Proposed Monthly Service Charge crVai6y`'epSY i U . c . t !ara.. �'�,xi?�i. $8.00 I.ohte ' :,^^�a"i' : .fl"tGit +,al 1l $11.37 Tu i'i F hiss-. �`ii€�. `�'�'� '" $11.67 $11.73 ';N ritti1iatlit.= 514.23 ;WaI I I IS '5 :,.I $16.03 a'Tyn 7x 1 'F - Pi N t114.r s.�4�"� `w "' c ,r� $19.47 ms^ + ir. 3.�^^"F.a'3v, pn414 1'ae -',r:. i..5 b Y $21.10 dodci r U t!y.c-pId.eo? te)- ' $22.35 roha,�.;.af..:-. ""'""�'"`�tF7.1 ll $23.66 $25.04 o'sA.1 k3'{ta `CtmOs ma'o $30.23 Monthly Service Charge $35.00 $30.00 $25.00 ' $20.00 {'ha $15.00 KI1E $10.00 "FS F ,$5.00 t�',', � ��$0.00 c � epe wcc�'cza , e °oeac eAdi,' Asepse" 0cA '4 aLS`a ,a6('' --\'‘ ` Q° ` S1 ` Q° a• m qa4C 0% p0 » A to a� „59 i• ° miar ° yee °� w ad` a ‘"\ (- ei` I ° C° OV c ` ZO ° c4° C° J° p City of Chino Hills- Executive Summary—February 14, 2011 Page 15 DRAFT Table 12-Comparative Current and Proposed Residential Customer Invoice with 22 ccf Commodity Use o ` ( 5t.: 4,1 ° ` „OV,',‘,,,' 4 .X r ' $35.06I $27.06 1 . { $8 tattt 09 $ 4349Ur .26" iy i3bvt $1423 I $29 $44.870f ,teU I $33.20. n ttx � . $44521;, 3� ! Rts. d $25 74 a i N $19.47 ., 1lR� ttd �- s2o *:kes Ill : t I6,4.62� I $5,4.85 :'1F3y ntyciM: rg i $3023 ' . " $+;2as. ”''%„bW7,aV ` ts9Tja jt2y $ 0.ir ,' $58 93t2F ” t10 �q�1 , fir � $ 603 � e�sa�:® v � �j uqf�� vllA3v tp4 tia1 'Tango2�2ta �O � IR� : . 4tvX.94lict�W 4 ! a ,a: e 2 3; ,,:;itg.Ss;-i, ,,,4' 5$66,0 ,,.^ l ». �rop,e a 'm rn 2. 3 , 53:$2 ,4 $67.176:0$ymsR3ppedigh $2 $55.44 14 ; baalga $11.73 $5361 $78.65 Ylol �. i ° Ii ' 43 ) $25.04 kfa# $8346tet' ? e $21.10 $62.36> ? *$ $61.50 $83851Y ' is ,7 ' $2235 budget�• > u lPavPF1%.Ewt3wi: 2366 budget yr v; res $ . budget budget rG48 . , i" si $11.37*A1 a » p _ City of Chino Hills- Executive Summary—February 14, 2011 ._,.,........._.__._,._ . _.. .._.._.,.,,.. .,..._... ..... Page 16 DRAFT Note: The City of Corona and Monte Vista Water District have initiated water budgets for their billing; there is not a standard bill for specific water usage. Bill Comparison at 22 ccf $90.00 $80.00 i $70.00 It $60.00 "i $50.00H �i y $40 00 _._ 0 ' ' z � $3000 a : 1 ■' ;� r�z t , fy . u■ M. •Mr'I 1 43 $1000 a i' v t :, �': , 3x •A t,,, Ss i;' $0.00 ' . , ° , . :. . �' „ , . , , , . . . \\��oi` -i ��o oc'e ok `Q4 -& .e Ne 'c' \ewe .`yr . 'P c° (\ �, o` t`6, era, o<J t``��' o6.T`o`A m Loeb i.6, `mea ertir`�ea yea�.`O.y�.oe pC'c)v c,` 0 Q`ss CR 3c- • -,\- ace G..c (Le' o�9 {oC _`a' 4' GJcca\r,�e Q`04: -`.itc, �CP 4\ 6 co A\_`a'�e ,\e� o� Q �s ``eaV er cr o'e• <� 4e. a ower C\A \. Ab-e 4� �c, ,A cry O5-'t \:* �5`' a ,'ar*�Q r+s., S 66 JGro�o' r 0'4`\s tr\r �2\c, r\r\h�cer �` yoro gcr.14. `e.? gor Lr �lr) o. Cc,"C City of Chino Hills- Executive Summary—February 14, 2011 Page 17 DRAFT Conclusion This cost of service and rate design study has been conducted with every effort made to understand and prioritize existing and impending conditions and demands on the City of Chino Hills' water department. The rate design included a revision to the tiering structure for all residential customers. For single family residential, 'Tier 1 will remain at 0-12 ccf, Tier 2 is proposed to be 13-30 ccf, and Tier 3 is proposed to be 20+ ccf. For multi-family residential, Tier 1 is proposed to be 0-7 ccf, Tier 2 is proposed to be 8-20 ccf, and Tier 3 is proposed to be 20+ ccf. The City's current rate structure both for monthly service charge and mid-range commodity use is at the mid-point of costs currently charged by 12 other agencies in the region. Due to an increase in the cost of wholesale water, conservation efforts and a drop in water sales, the total revenues received from water sales have not been adequate to meet the department's operating expenses. The City has had to reduce the budget, defer capital projects, not fund reserves and draw down working capital. This is not sustainable in the long term. The rates and charges proposed for the City of Chino Hills for FY2011/12 through FY 2016/17 are shown on Table 5, 6 and 9. New rates will become effective July Pt of each, year, beginning July 1, 2011. This study has also resulted in a financial planning model that the City will be able to use to determine the impact of specific rate changes on classes of users and individual customers. City of Chino Hills - Executive Summary—February 14, 2011 Page 18 DRAFT Disclaimer In developing our rate study for the City of Chino Hills, GMRA interviewed staff and reviewed books, records, agreements, capital improvement programs, customer sales and financial projections of the City's water division. We consider such documents and projections to be reliable, but did not verify the accuracy of the documents. The projections and assumptions made in this report and in the model are intended to be forward looking statements. In developing them, GMRA has made assumptions with respect to future conditions and circumstances for the water department and the City. The methodology used in performing the analyses follows generally accepted practice for such projections. Rate changes were determined in conformance with City policy. While we believe the assumptions are reasonable and valid, outcomes may differ from those projected as a result of actual conditions, events and circumstances. These conditions may include changing demand for water as a result of weather conditions and regulation. The projections may also he impacted by economic, legislative and legal decisions within and beyond the City. City of Chino Hills - Executive Summary— February 14, 2011 Page 19 DRAFT Appendix - Sample Bills with Proposed Rates - Single Family Residential Low Zone - 5/8" meter using 12 ccf Monthly Service Charge Energy Zones Mo Zone: Low (Raze Rev MFR Stc ag Caondi2-R-11 Mazer + Size +'2tireo/ ' Ando'-sed 4' `7lumase'' I 32,011 Tied Tier Tv3 S's $1360 $14.89 5129 - 5'P OHCF L3 HCF 36 HCF 34 52036 n213 5137 7'7. FR Io� iph HEndCF 12.H35HCF 1 S34.00 537.05 $ 05 iic 567.99 574.10 561]. S1C$.79 $11856 59.77 ,.. "t Total Rate I . 's1A0 5162' ;-°T'.52.00,1 3 $206.59 $225934 55175 4 5345.19 5435.69 59050 6 5692.99 590083 $202.84 Proposed lowEnd OHCF 13HCF 31HCF ' $ 51,142.94 51.187.04 54410 SFR R,9999112HC£ 30HCF 1s SL714.41 S1933951 5219.54 '.'...... ,'1''''' 'I 'r C j, Single Month Bill Calculation otaiaate I ysis6 5L75 52:49 Meter I%Rate Ch9I . 1i5so 998a/e' 2i59oIr Size HCF Mo.BM I ! Low Ppppa�y Y Varbnce Percent.(Service 5/8 $ 23.60 Service '(5(8 y 5 1$89,'"�$t }29, 951% Commodity iz ccf $ 16.8D COltmodily .i id 5 4874;S 194 ":h%1 [Total $ 3D.40 ,:.,,•,Total $ 33.63 $ ''.'3131%',.'. 70.64%, City of Chino Hills- Executive Summary—February 14, 2011 Page 20 DRAFT Intermediate Zone - 3/4." meter using 22 ccf Monthly Service Charge Energy Zones 310 Zone: Intermediate Base Rev NFR Svc counci12-8-11 Meter Size yY CU1P261 'PiMn5E11 et41i RSe1 52,011 Tier 1 Tier2 Tier, 6.8 $1360 $1439 $129 SFR I LaivERd I OHCF 3311CF 36HCF 3+4 $2036 2223 $187 Intermediate Hlgb End 12 HCI 3511CF', + 1 534.40 S37.05 $305 i v] 56.99 57410 56.11 $108.79 $11656 59.77 : . .. ,.. '1 Total Rate) -' iS1.72 $L92 :i 52311 3 $206.59 $25934 $52.75 4 $345.19 5435.69 $90.50 6 $692.99 $900.83 $20.84 Pruposd _ tnriEne ( OHCE 13 HCF 3114x. 8 51142.94 $1187.04 54:.10 Sri High,eed 12 HCF 30HCI 10 $1.714.41 $1.93395 $219.5: intermediate Single Month Bill Calculation TotattiiA 3 S1.69 2.2 4C51021 Meter ' %RetedigI 1:64% -0.43%' 33.50% Size RCF . Mo.BM Intermediate Fmtbsed Variance Percent Service 3/4 $ 2036 Commodity fleet $ 39.84 I Commotlity 22 txA S 3942.$ 10.42)% .LOG%I (Total $ 60.20 City of Chino Hills- Executive Summary—February 14 r .. ,,.,..,. ary 1 , 2011 Page 21 DRAFT High Zone- 3/4" meter using 22 ccf Monthly Service Charge Energy Zones M0 Zone: High (ease RevMFR Svc C11 rsunc112-8-11. Meter S'vei,t'.tax'''em;is':i^%'£Pin%ioFeb.,='`:;.I[mease" 1 52,011 Tier Tier 2 nus cg $13.60 S1489 51.29 SFR Lod,End OE[CF > 13HCF 36HC£ 3+4 $20,36 52223 51.87 ' Highl tHlgbEndI 12HCF 35HCF + 1 $34.00 S37.05 53.05 �� r 2lea 567,99 574.10 son 5108.79 517856 59.n 3 5206.59 525934 $5275 4 5345.19 543549 59050 6 5692.99 S90083 $207.83 :Orgwred -"t'. LovrEnd.{':'': JQHCF ";ISHCF„".::r3111CFj `; 8 SL142,9i 51,187.04 843.10 SFR High End 12 HCF 30HCF 4- 10 51.714 411 51,93395 5219.54 His'h re Single Month Sill Calculation "rot6l Rete" 5189 „,/_,52Y3,. 5''82 Meter , %'Retebhgl ; 810°/dna^r ;6,12% 2059% Sae LICE Il'Lo.BO1 Hgh Proposed Variance-, eercent Service 3/4 $ 2036 Service :3+4 $ 22.24'$ '1.87 918 Commodity 22 ccf $ 40.90 .Ca{nlnoFrity ..urxf 5,"43.82,5 z9z 7.ia !Total $ 61261 City of Chino Hills - Executive Summary—February 14, 2011 Page 22