2011 01-20 Water Rates 101_HDRSOUTH TAHOE PUBLIC UTILITY DISTRICT
BOARD WORKSHOP
Thursday, January 20, 2011
12:30 A.M. — 2:00 P.M.
District Board Room
1275 Meadow Crest Drive, South Lake Tahoe, California
Richard Solbrig, General Manager Paul Sciuto, Assistant General Manager
Dale Rise, President
James R. Jones, Director
BOARD MEMBERS Mary Lou Mosbacher, Vice President
Eric W. Schafer, Director Chris Cefalu, Director
While a quorum of the South Tahoe Public Utility District Board of Directors may be attending this Workshop to
discuss the item listed below, there will be no action taking place on their behalf.
AGENDA
1. "WATER RATES 101" - HDR CONSULTANTS
2. ADJOURNMENT
Participation is encouraged. The meeting location is accessible to people with disabilities. Every reasonable
effort will be made to accommodate participation of the disabled in all of the District's public meetings. If
particular accommodations for the disabled are needed (i.e., hearing aids or other disability - related aids),
please contact the Clerk of the Board at (530) 544 -6474, extension 6203, at least 24 hours in advance of the
meeting.
Please note: This meeting will include a working lunch for Board members and designated staff. A pre- arranged
lunch can be purchased by contacting Kathy Sharp, Clerk of the Board, at 530.543.6203 or
ksharp @stpud.dst.ca.us 24 hours in advance. Otherwise, lunch will be the responsibility of the individual.
South Tahoe Public Utility District • 1275 Meadow Crest Drive • South Lake Tahoe, CA 96150
Phone 530.544.6474 • Facsimile 530.541.0614 • www.stpud.us
DISTRIcT
SETTING COST BASED WATER RATES
Presen`Aa ion by: Shawn Koorn, HDR Engineering Inc.
January 20, 2011
Overview and Purpose of the Presentation
• Provide an overview of the water rate study
being conducted for the District
• Explain why establishing and maintaining cost -
based water rates is important
• Review of the "generally accepted"
methodologies used to establish cost -based
water rates
Answer any questions
Overview of the District's Study
• Currently developing the technical analysis of
the water rate study
• Developing the analysis around the unique
customers on District's system
✓ Un- metered
✓ Metered
• Key issue:
✓ Equitable allocation of costs to the various customers
✓ Designing & transitioning to a metered rate and
comparable flat rates
3
Overview of the Scope of Services
r
Planning
Analysis
Task 1
Initial Project
Meeting
Task 2
Data Collection
J
Task 3
Revenue Requirement
Analysis
Task 4
Cost of Service Analysis
Communication
6
sentations
Task 5 Task 8
Rate Design Analysis omputer Mo
el
What is "Generally Accepted?"
principles of Water
Oh Rate s , Fees, and Charges
5
Overview of Rate Study
Revenue Requirement
Analysis
Cost of Service Analysis
l
Rate Design Analysis
Compares the sources of funds
(revenues) to the expenses of the
utility to determine the overall
rate adjustment required
Allocates the revenue requirement
to the various customer classes of
service in a "fair and equitable"
manner
Considers both the level and
structure of the rate design to collect
the target
level of revenues
Developing Revenue Requirements
A "Step by Step" Approach
7
Developing The Revenue Requirement
iii■••■••■••=ww.mminammomis
Overall Objective
✓ Compare sources of funds (revenues) with the MI
application of funds (expenses) to determine overall
level of rate adjustment
• Select a "time period" to review rates
✓ Typically looking ahead (project time period)
✓ Extended time period (e.g. 6 years)
Uses a "generally accepted" method to
accumulate costs (cash basis approach)
"Cash Basis"
Revenue Requirement Methodology
"Cash Basis" Revenue Requirement
+ O &M Expenses
+ Taxes /Transfer Payments
+ Debt Service (P +I)
(i + Term)
Funding of Capital Projects
+ Capital Projects Funded from Rates
= Total Revenue Requirement
- Miscellaneous Revenues
= Balance Required from Rates
Total Capital
Improvement Projects
- Outside Funding Sources
✓ Long -Term Financing
✓ Capacity Charges
✓ Reserves
✓ Grants
Capital Projects
Funded from Rates
9
Prudent Financial Planning
Considerations
Debt service coverage ra o equal,
to or greater than 1.25 - 1.50
• Reserve levels (District Policy)
✓ Operating = 60 Days O&M
✓ Capital = 1 year's capital spending
✓ Rate Stabilization = 1 year's water
consumption revenue
• Minimum funding of CIP from
rates
✓ >_ Annual depreciation expense
✓ 1% - 2% of total plan
✓ Annual repair and replacement
Summary of Revenue
Requirement Analysis
• Based upon overall utility
objectives and "generally
accepted" methodologies
• Based on prudent financial
planning criteria
• Determines adequate funding for
utility to operate on a financially
stable basis (0 &M and capital)
Yew-
1 1
Cost of Service Studies
"Splitting the Pie"
Cost of Service Analysis
• What is a cost of service?
✓ An analysis to equitably allocate
the revenue requirement to the
various customer classes of
service
• What are its objectives?
✓ Determine what cost differences
exist, if any, to serve the District's
different types of customers
✓ Determine "cost- based" rates
(before any policy input or
decisions)
13
Cost of Service Considerations
• Single -year est period (2012)
• Customer classes
✓ Residential
✓ Multi - Family
✓ Commercial
• Develop Allocation Factors to Equitably Allocate
Costs between the Customer Classes
✓ Commodity Allocation Factors
✓ Capacity Allocation Factors
✓ Fire Protection
• Public
• Private
14
Overview of a
Water Cost of Service Study
FUNCTIONALIZATION
Total
Expenses
- Sources of Supply
- Treatment
- Pumping
- Etc.
CLASSIFICATION
Capacity
Related
Commodity
Related
Customer
Related
Residential
Multi - Family
Commercial
ALLOCATION
Residential
Multi - Family
Commerci
al
Residential
Multi - Family
Commercial
Residential
Rate
Multi - Family
Rate
Commercial
Rate
Cost Allocation Process and Results
• Equitable allocation of
costs considering:
✓ Usage characteristics
✓ Facility requirements
• Sharing of capital costs
• Average unit costs
✓ Cost -based rate design
Rate Design
"Level and Structure"
17
Typical Goals of Rate Design
• Easy to understand
• Easy to administer
• Continuity in philosophy
• Equitable and non-
discriminating (cost - based)
• Provide revenue stability
• Promote efficient allocation of
resources (conservation)
The problem of competing goals!
18
Rate Level versus Structu
• Level
✓ Refers to the amount of revenue to be collected,
either overall by the utility, or for a specific customer
group
✓ Overall level is determined within the revenue
requirements and level for a customer group (e.g.
residential) is determined within the cost of service
• Structure
✓ The rate form or design used to collect the targeted
revenue levels
✓ Structures are typically composed of a fixed and
variable charge
19
Rate Design Considerations
.si • Timing, and number, of mew terecniate transition
• Transitioning from flat rate to metered volume
rates
✓ How much to collect from the volume component?
✓ Reduction in consumption as customers are metered?
✓ Rate Stability?
✓ Billing Frequency
• Private Fire Protection Rates
Prop 218 process
• Uniform Block
All Usage @ $1.90 /CCF
• Seasonal Rate
Summer - $1.90 /CCF
Winter - $1.60 /CCF
$ /CCF
$ /CCF
Usage
Jan.
Time
Dec.
21
Types of Volume -Based
Rate Design Structures (continued)
• Declining Block
0 - 10 CCF @ $1.90 /CCF
11 - 100 CCF @ 1.80 /CCF
101 - 1,000 CCF @ 1.70 /CCF
Over 1,001 CCF @ 1.60 /CCF
Inverted (Increasing) Block*
0 - 10 CCF @ $1.50 /CCF
11 - 50 CCF @ 1.75 /CCF
Over 51 CCF @ 1.95 /CCF
$ /CCF
$ /CCF
* Note: May also be called a "tiered" rate structure
Summary of Rate Design Process
• Final rates are designed to:
✓ Reflect findings and conclusions
of revenue requirement and cost
of service analysis
✓ Meet the goals and objectives of
the District (reflect policy input)
✓ Produce sufficient revenues to
meet the target revenue levels for
the class of service
✓ Cost -based and equitable
23
Summary of the Comprehensive
Rate Study Process
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zArikAPAlk
Develops cost -based rates using
"generally accepted"
methodologies
• Provides the basis for "fair and
equitable" rates
• Develops rates that reflect the
reason for costs being incurred
• Provides the information to alto
the District Board to make sound
and rational decisions
Questions and Answers