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Home My WebLink AboutCCUA Water Rate Setting Principles iiii• - - ......„,,,, ,......1%,..,7--:--,- 4 Irl— yam. Pam-- - L y �.� 1111 f 1r ,r _ •. : ./, r' ., .; Y 1 .j e Jeremy Johnston . - * Gal Joseph Ridge Lisa Sterling 11111 - i-A.' V1I ^) ', 2 lip 11; r. III . , . q -._ .... _ • Alk Ai SIPCDM r 1 ,!: - f 1 Smith. it ; i- 4 ..1. . J ...... It- CCUA Rate Structure • ' Evaluation and Alternatives ,,, •"'i _r^ f VYF /ca fr \ to 1' ,J\ , e. ,, -4.0.„ - *: 4 , • : _. — . 2- -"J /44*41itttlici‘ _ *c 0 Introduction and Background 4e.gp , . 47‘7 ,, ll • CCUA Current Rate Structure Assessment bi° . . s• r i ' �► Alternative Rate Structures Discussion Discussion and Next \A/or s o p Steps OutlineQuestions r •t CO O • 4-0 V O S. O 4—• co NMI IrIP ; �- i , • Describe the ce , ' .s.:" CCUA's current water rate structure, and _: ' current rates �.. ,� '," r % • Present potential alternative water rate f. , ., structures Advantages and disadvantages Considerations Meeting Objectives << r _ - 1 A I Sewer rate structure sound ai and consistent with industry standards t "` •Is _ . oh i Reuse rate generally seen as IP ~ lajiii "concession" rate. As demand increases should it move to cost of service rate Water rate solid, identified Executive Summary 1111 some potential revisions for consideration, but no red flags Balance competing criteria: 1 I • . Ede Equity - 41) vertical and horizontal Simplicity - administratively and 11 for customers General Philosophy on Revenue stability Rate Structure Policy goals structure may affect ` . rr1•!m „} jr IIIIIK1 V -•. o - .� -- J \ - ... •- Si• �\�Y` \\'��\\- la•' 1 Y Encourage water wY^^e•9a�`X WSJ wry 7.00 �. '-".a.i•` oGO��.>ay b UdY^elc ' R�09s� uGy nab _�a�,..a cow, dOtrLY �Wotzt, EP O \off`c,e� ,>z`t`, .... ��g conservation •. a^ems z�oK7 - 11101 an to KW^1%•K Encourage industrial development Provide rate relief General Philosophy on tied to essential uses of Rate Structure water Water rate structures _ more frequently look at marginal costs/impacts QSewer rates tend to be � based on average cost The appropriate rate structure for any utility depends on the General Philosophy on interplay of these factors Rate Structure ti Assess current distribution of _ - _ _ _ ` _ _ consumption by bill - - Determine whether revision of tier - - - - boundaries is appropriate i .I ,_ _ - , Assess distribution in revenues -I • _ between fixed charge (rate w • _ stability) and volume sales - _Zil (encourage conservation) Based on that evaluation, identify potential improvements to rate for Evaluatingstructure Approach CCUA Water Rate Evaluate impact on various customer types Structure Current CCUA Residential Water Rate Structure Potable Usage Potable Rates Meter (kgal) (cost/kgal) Size Tier 1 Tier 2 Tier 3 AWS Base Tier 1 Tier2 Tier 3 Tier 4 .625 6 12 18 $1.12 $11.14 $1.54 $3.88 $5.03 $6.45 .75 9 18 27 $1.12 $16.71 $1.54 $3.88 $5.03 $6.45 1 15 30 45 $1.12 $27.92 $1.54 $3.88 $5.03 $6.45 1.5 30 60 90 $1.12 $55.78 $1.54 $3.88 $5.03 $6.45 Three components for Residential Monthly Charges: Alternative Water Supply Charge — fixed rate Base rate — fixed rate scaled by meter size Volumetric — increasing block tiered rate Revenue split is approximately 50% fixed fee and 50% volumetric Current CCUA Non - Residential Water Rate Structure Potable Rates Meter (cost/kgal) Three components for Size AWS Base Tier 1 General Use Monthly .625 $1.12 $11.14 $2.06 Charges: .75 $1.12 $16.71 $2.06 Alternative Water Supply 1 $1.12 $27.92 $2.06 Charge - fixed rate 1.5 $1.12 $55.78 $2.06 Base rate - fixed rate scaled by 2 $1.12 $89.27 $2.06 meter size 3 $1.12 $178.51 $2.06 Volumetric - flat rate of $2.06 4 $1.12 $278.94 $2.06 6 $1.12 $557.87 $2.06 8 $1.12 $892.60 $2.06 10 $1.12 $1,283.12 $2.06 12 $1.12 $2,396.96 $2.06 Current CCUA Residential Sewer Rate Structure minEr Sewer Rates Meter Size (kgal) (cost/kgal) Cap Base Tier 1 .625 10 $25.26 $3.77 .75 10 $25.26 $3.77 1 10 $25.26 $3.77 1.5 10 $25.26 $3.77 Two components for Residential Monthly Charges: Base rate — fixed rate Volumetric — flat rate of $3.77 Rate structure follows industry standard approach and guidelines Recognizes that costs of service are largely based on average costs Current CCUA Non - Residential Sewer Rate Structure . ILELZigal. Meter (cost/kgal) Size Two components for General Use Base Tier 1 Monthly Charges: .625 $25.26 $4.60 Base rate — fixed rate scaled by meter size .75 $34.68 $4.60 Volumetric — flat rate of $4.60 1 $63.17 $4.60 1.5 $126.31 $4.60 General service fees are structured 2 $202.16 $4.60 similarly to residential . 3 $404.33 $4.60 Both the base fee and the volume charge 4 $631.56 $4.60 are higher than that for residential 6 $1,263.13 $4.60 Reflects potentially higher concentrations 8 $2,021.51 $4.60 of BOD, TSS and nutrients in the discharge 10 $2,904.81 $4.60 12 $5,431.13 $4.60 p ,, 0 „ 4 -7f-----\ "Vt:- % ' ' . — _, crf‘ k �t mii:— .. fr": 0 ri( O f , ° No changes to sewer rate O structure needed except r -h if .�' j a addition of surcharges 44; (s _ , ' n ' — Unit cost for potable water to residential customers decreases as meter size increases \\ • Iry Potable water cost for residential customers is generally higher than that for non- residential and irrigation customers Thoughts on Existing Is this an explicit policy Structure decision? Tier Limits by Customer Class / Meter Size 300 c 0 4•', o o "' 0 250 l• c Y IP o �' E .: + 0 200 — allIMIIMPli. 4\ k lik u L • o ID i ... 150 100 As meter size increases, tier thresholds 50 -J_ ill increase resulting in a lower unit cost per g g gallon for larger users 0 ■1i ■'l I • Residential Residential Residential Residential Irrigation Irrigation Irrigation 5/8 3/4 1 1.5 5/8 3/4 1.5 ■Tier 1 Consumption ■Tier 2 Consumption ■Tier 3 Consumption Volume Charge Differences by Meter Size and Customer Type AL mi. iin Water Usa:e k:al/month IIIIiil 3,000 6,000 9,000 12,000 15,000 18,000 25,000 Residential Meter Size 0.625 $4.62 $9.24 $20.88 $32.52 $47.61 $62.70 $107.85 0.75 $4.62 $9.24 $13.86 $25.50 $37.14 $48.78 $83.99 1 $4.62 $9.24 $13.86 $18.48 $23.10 $34.74 $61.90 $4.62 $9.24 $13.86 $18.48 $23.10 $27.72 $38.50 ENEMEIN All Meter Sizes $6.18 $12.36 $18.54 $24.72 $30.90 $37.08 $51.50 Irrigation Meter Size 0.625 $4.62 $9.24 $13.86 $23.16 $34.80 $46.44 $73.60 0.75 $4.62 $9.24 $13.86 $18.48 $23.10 $34.74 $61.90 $4.62 $9.24 $13.86 $18.48 $23.10 $27.72 $38.50 DISCUSION DRAFT Assessment of Current Residential Consumption Patterns Total % of Residential 5/8 Bills 16.00% i Tier 1 Tier 2 Tier 3 Tier 4 Ad I 14.00% 12.00% 10.00% 8.00% li 1 Median - 5,630 gallons per bill Standard Deviation - 5,730 gallons 6.00% 4.00% 2.00% 0.00% r 1 '')".0 ' St 420 620 cP 9 10 11 1V) 1,, 1Q 1s5. 16. 1> Id] 19 v0 71 � 7�' v3Q 100 '000 000 000 000 00 000 '0 00 000 '000 00 00 00 _00 00 00 00 '00 00 00 00 00 00 00 00 ;O 0 O O O O O O O O O O O O O O O 0 �00 .�00 .QOO .500 .600 )0 -oo .900 .100 11 1� 1J 1Q 1S 1o' 1] 1� 19 20 �1 �� J �Q �S 0 O O O O O O O O 00 00 '00 '00 '00 '00 '00 '00 '00 '00 '00 "00 '00 '00 '00 '00 O O O O O O O O O O O O O O O Consumption on bill (Gallons per month) •Total%of Residential 5/8 Bills Residential Revenues by Consumption Level Total % of Revenue 25.00% 20.00% 15.00% 10.00% 5.00% 0.00% illliliiii . v S 6 8 9 1 1 1 1 00 00 00 00 00 00 00 00 00 OO 10 ,, 1�0 "000 O O O O O O O, O O 00 00 00 O ,' v 'S 6 '.> 8 9 `lO ,1 ,1 .1 O 00 00 00 00 00 00 00 00 00 1 c) 8 O O O O O O O O 0 -00 -00 -00 O O O Consumption on bill (Gallons per month) •Total%of Revenue Accounts by Meter Size Non- Meter Equivalent Meter Size Residential Residential Total Equivalency Meters Ratio 0.625 46,776 1,188 47,964 1.0 47,964 0.75 48 317 365 1.5 548 1 66 670 736 2.5 1,840 1.5 1 423 424 5.0 2,120 2 308 308 8.0 2,464 3 41 41 16.0 656 4 37 37 25.0 925 6 6 6 50.0 300 8 3 3 80.0 240 46,891 2,993 49,884 57,056.5 Residential share of accounts 94.0% 5/8-in meters as share of accounts 96.2% 5/8-in residential as share of total 93.8% -- f Based on current consumption data, fr ,..,- _ current tiers for 5/8-in residential M� y -4.,-,- customers are sound . • 4 - _ (98 % ofbWs)) 411110 *‘ ,4 Nii„,44 ll --,,, ,,t7 ,,,, _, 11‘ There are approximately 100 .�►, residential bills that use more 1.0. • ir I than 100,000gallons per month . r May be appropriate to add an additional Tier to incentivize General Conclusions on greater conservation . Existing Rate Structure '""L _r^ VYF /ca Ar- , �,- a M�y = �:, ■ Current cost per gallon decreases as 4 _ / meter size increases. There is no • kiirlira‘ J �y , , apparent cost of service justification for this. -- 4111111111. r':.:40, . 4: i ' `" Approximately 70% percent of water - r 10' 0 rate revenue from residential Less than 5% is from residential accounts with meter larger than 5/8-in General Conclusions on Existing Rate Structure ""L -r^ f ,,, M� �� y =e. ,0,; �:. R Base charge is not tied to any >l&lrJ specific cost categories � J 0 ' z \ ill t .� Base charge is a fixed charge iirlirw,1.0. ��. -`+ - L _ • unrelated to the volume of water • used Frequently it is tied to budgetary fixed costs, capital and debt service are the most common General Conclusions on Existing Rate Structure a) a) V (I) a) 4--) CD CC a) a--+ Ca a) 4--) all .4) i4t II® - Revenue Base Rate Volumetric 1 Tie base charges to annual capital and debt service charge (approximately 1/3 of the revenue requirement) Establish base charges to generate 2/3 of the revenue 4 requirement Ir* Add an additional tier for monthly consumption exceeding 25,000 gallons/month to encourage conservation Rate Structure Tie residential and non- Changes to be residential rate structures together Considered rr. w ` 4VY r r R I} ...40 °�'' � Small Residential • * y, '1 ='+il' 5/8-in meter -,) '�" Monthly consumption of 2,500 gallons y ,� (30,000 gallons per year) .Nogg a - r a Mediumesi Re sidential 7 i - _ / / • 5/8-in meter. '" __ ^ y - f Median consumption 5,600 gallons/month - • (67,200 gallons per year) ;.- .., . v \ I , 4 . _ • ' �1., Large Residential - ! ' • 5/8-in meter -_ =� b �, �� P , i� �� , - Monthly consumption of 18,000 gallons w a „,c � �.; p ,,t�`. , � , (216,000 gallons/year) Very Large Residential Created Several 5/8 in meter Monthly consumption of 25,000 gallons (1,200,000 gallons/year) Custom er Types to Typical Commercial Illustrate Alternatives' 4-in meter Monthly consumption 50,000 gallons m pacts (600,000 gallons/yr) Customer Examples for Illustrating Impact of Rate Alternatives for majority of customers' Water Service LargeResdentiai Uses 1 1 ii.-- h:1ed an Resdent+a Use Au Sria is R es+dent a UserEr $0 $20 $40 $60 $80 $100 Surcharge Rate >25,000 • 1/3 Base ■ 2/3 Base ■ Current Customer Examples for Illustrating Impact of Rate Alternatives on Water Service LargeCommercial User Very Large Rescient-a II Large Resdent a' User KUI Median Residential User Small Resdentiat User SO $10O $20O $300 $400 $500 $600 $700 $80O Surcharge Rate >25,000 ■ 1/3 Base •2/3 Base ■ Current W ^X W z L) CO 0 • N MI Ali mi4 110- -0 1"-ir , ' fi I Reclaimed Water le, It Perform cost of service evaluation to '1 I r I 1 1 111 I 4 6 4 1 1 iii-,4 I set reclaimed rates based on actual cost Work with Engineering and Operations staff to assess the incremental cost for reclaimed Al Review reclaimed usage data and rate structure similarly to Potable and Sewer reviews Wastewater Evaluate surcharges in 3-4 years when industrial customer base is N ext Ste ps present 10- ft , vip . . It go sivi v � Develop revenue requirements for Potable, Sewer, and Reclaimed (20 year) Recommend rates for next 5 years N ext Ste ps co 0 .41 , .\ M® Terminology Average Demand — average amount of water needed in the system, over certain period of time Billing Frequency— how often does the Authority issue a water bill. Currently, the Authority issues a monthly bill. Consumption —the amount of water used Consumption Block (or Tier) — an amount of water usage within a defined threshold. For example, water usage from 0 to 2,300 cubic feet is a Consumption Block. Cost Allocation - procedure for classifying or assigning the annual costs of service to appropriate cost components for subsequent distribution to respective customer classes Cost of Service - total annual operation and maintenance expense and capital-related costs incurred in meeting various aspects of providing water utility service Cubic Foot — unit of water consumption 1 cubic foot= 7.48 gallons Declining Block Rate Structure — charges a progressively lower usage charge for higher levels of consumption HCF, or CCF — 100 cubic feet Inclining Block Rate Structure - charges a progressively higher usage charge for higher levels of consumption Fixed Charge — a constant $ charge to customers regardless of water use, typically related to meter size or customer (flat fee per customer that may vary by customer type) Authority charges a Monthly Service Charge as a fixed charge M1 —American Water Works Association (AWWA) Manual of Water Supply Practices M1: Principles of Water Rates, Fees and Charges Peak Demand — highest amount of water needed in the system, over a certain time period Rate — an amount charged to utility customers Rate Structure — a user charge or schedule of user charges designed to recover the utility's costs Revenue Requirement — amount of water rate revenue the Authority needs to collect to pay for water related expenses Stabilization Fund — a reserve fund intended to be used to mitigate rate increases and/or cover unexpected drops in revenue Uniform Rate Structure — usage charge does not change with the volume of water consumed Usage Charge — a variable rate that is assessed on customer usage Also referred to as Commodity Rate,Volumetric Rate, or Variable Rate Terminology — Financial Capital Expenditures - expenditures that result in the acquisition or addition of fixed assets Debt Service Payments - amounts of money necessary to pay interest and principal requirements for a given series of years Operations and Maintenance Expenses - necessary costs to operate and maintain source of supply, treatment, pumping, transmission and distribution facilities; as well as the cost of customer service, and administrative and general expenses Revenue Requirement Calculation Cash Needs Approach — method of establishing annual revenue requirements considering the annual budget expenditures for operation and maintenance expenses, debt service payments, cash financed capital improvements, reserve fund requirements, and taxes Utility Basis Approach — method of establishing annual revenue requirements considering annual operation and maintenance expense, depreciation expense, taxes, and return on rate base ^L W L W L V L cf. C� CC t 11 Ida rid 1111 - General Rate Setting Process Calculate Revenue Requirement How much revenue does the Authority need to pay for expenses to fund the water utility? Perform Cost of Service How should the Authority allocate expenses to customers/customer classes, in order to fairly charge customers for their contribution to water expenses? Are customers paying proportional to demand on system? Determine Rate Structure How should the Authority structure its water rates to equitably generate the required water revenue?