City of Davis Water Rate FAQs - Pages - Metropolitan Water ... 2016 Background Materials/City... · Proposition 218 is the initiative passed by California voters in November 1996

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City of Davis Water Rate FAQs Why is my July water bill still billed under rates passed March 19, 2013? With the passing of Measure P on June 3, water used after July 4 will roll-back to 2010 rates. These rates for water used between July 4 and early August will appear on your September bill. These 2010 water rates will remain in effect until the City of Davis City Council implements new water rates, which will undergo a Proposition 218 process. What are the 2010 water rates that will take effect starting July 4, 2014? According to Ordinance No. 2364, for utility bills generated on and after August 1, 2010, the monthly base rates for all accounts, with the exception of Condominium Common Area customer accounts, are as follows: Meter Monthly Base Size Rate Charge

5/8-and 3/4-inch $ 11.50 1-inch $ 16.20 1.5-inch $ 27.90 2-inch $ 42.00 3-inch $ 80.00 4-inch $122.00 6-inch $238.00 8-inch $379.00 Classifications and tiered rates effective:

User Classification Use Tiers Unit Charge

Single Family Residential (use per dwelling unit)

Tier 1: 0 - 18 ccf $1.50

Tier 2: over 18 ccf $1.90

Multi-Family Residential (use per dwelling unit)

Tier 1: 0 - 7 ccf $1.42

Tier 2: over 7 ccf $1.90 Small

Commercial/Industrial (use per account)

Tier 1: 0 - 58 ccf $1.41


Large Commercial/Industrial

(use per account)

Tier 1: 0 - 310 ccf $1.51


Irrigation Tier 1: 0 -182 ccf $1.41

(use per acre) Tier 2: over 182 ccf $1.90

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What is the process for deciding on new water rates? The City Council worked with the Utility Rate Advisory Committee (URAC) to try to decide on the most equitable rate structure for the City of Davis.

The URAC could not make a formal rate structure recommendation to the City Council. Therefore the City Council will finalize the rate design and give direction for a Proposition 218 notice to property owners.

Once the rate design is approved, the City Council will adopt the rate study prepared by rate consultant Bartle-Wells Associates and approve the Proposition 218 notice to property owners.

The Proposition 218 mailers are then sent to all property owners over the course of approximately two weeks, but not later than July 31, 2014.

Property owners have 45 days to protest under the Proposition 218 process before a public hearing is held and the first reading of a water rates ordinance takes place. The public hearing is tentatively scheduled for September 16, 2014.

Approximately two weeks later, the City will follow up with a second reading of a water rates ordinance. The ordinance is then adopted.

One month later the new rates go into effect. The following month is the first billing cycle under the new rates.

What is Proposition 218? Proposition 218 is the initiative passed by California voters in November 1996 that establishes the process by which public agencies can raise fees for services. It was designed to provide greater public involvement in the entire rate setting process. Among other things, Proposition 218 requires the agency to mail a public notice to every single property owner regarding the proposed rate increase and then to hold a public hearing. It also establishes a protest process for the public to follow if they wish to oppose the proposed rates. When will I receive a Proposition 218 mailer? Once the City Council approves a final rate structure, which is expected in July, a Proposition 218 mailer to property owner will be prepared. Over the course of two weeks following the rate design approval, residents can expect to receive a Proposition 218 notice in the mail from the City. Why has the City accelerated the water rate schedule? With the passage of Measure P, water rates will roll back into what was in place in 2010. This means the City will lose $200,000 - $400,000 per month in revenue during summer months when water use is at its highest. The City has applied for a state revolving fund loan. This has the potential to save the City more than $2 million per year, which comes out to $10 per account per month in savings. If the City does not move quickly, the chances of obtaining this loan decrease.

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What are the new water rate structures under consideration? The City Council has narrowed the water rate options down to the following, which Bartle-Wells Associates will place into their rate model to change the different components and test resiliency with the cost of service analysis for comparison. These are conventional rate designs with a uniform block rates by customer class that have the following revenue characteristics:

1. 40% of the annual revenue will be derived from the fixed component of the rates. The fixed component shall be based on meter size in compliance with ratios established by the American Water Works Association (AWWA). The remaining 60% of the revenue will come from the uniform block rates charges to each specific customer class in accordance with the Cost of Service Study.

2. 30% of the annual revenue will be derived from the fixed component of the rates. The fixed component shall be based on meter size in compliance with ratios established by AWWA. The remaining 70% of the revenue will come from the uniform block rates charges to each specific customer class in accordance with the Cost of Service Study.

3. 13% of the annual revenue will be derived from the fixed component of the rates. The fixed component shall be based on meter size in compliance with ratios established by AWWA. The remaining 87% of the revenue will come from the uniform block rates charges to each specific customer class in accordance with the Cost of Service Study.

Does the City have a low-income assistance program for water costs? Yes, the City of Davis has a low income assistance program, which is $10 a month. To find out more about the Water Assistance Program and how to apply, visit water.cityofdavis.org/water-assistance-program or call 530-757-5602. Facebook.com/CityofDavis CityofDavis.nextdoor.com @CityofDavis

http://water.cityofdavis.org/water-assistance-program

WATER RATE COST OF SERVICE STUDY

Final Report March 12, 2013

BARTLE WELLS ASSOCIATES Independent Public Finance Consultants 1889 Alcatraz Avenue Berkeley, California 94703 www.bartlewells.com Tel: 510/653-3399

http://www.bartlewells.com/

City of Davis – Water Rate Study 2013

TABLE OF CONTENTS

SECTION 1: INTRODUCTION AND EXECUTIVE SUMMARY ....................................1

Study Overview ...................................................................................................................... 1

Surface Water Supply Project ................................................................................................ 2

Water Advisory Committee (WAC) ........................................................................................ 2

Current Rate Structure ........................................................................................................... 3

Consumption-Based Fixed Rate (CBFR) Structure ................................................................. 4

Procedural Requirements of Proposition 218 ....................................................................... 6

Rate Study Process ................................................................................................................. 7

Findings and Recommendations ............................................................................................ 8

Financial Plan Projections/Revenue Requirements ....................................................... 8

Cost of Service Analysis .................................................................................................. 9

Final Rate Recommendation ........................................................................................ 12

SECTION 2: WATER ENTERPRISE OVERVIEW ................................................ 14

City of Davis Current Water Supply ..................................................................................... 14

Woodland Davis Clean Water Agency - Surface Water Project........................................... 14

Current Water Rates ............................................................................................................ 15

Water Consumption ............................................................................................................. 16

Customers and Usage by Class ............................................................................................ 17

SECTION 3: FINANCIAL PLAN / REVENUE REQUIREMENTS ................................ 19

Water Fund Reserves ........................................................................................................... 19

Recommended Operating Fund (Fund 511) Reserve Balance ..................................... 19

Recommended New Rate Stabilization Fund Reserve ................................................. 20

Recommended Capital Replacement and Expansion Fund Reserve Target ................ 20

Projected Future Growth ..................................................................................................... 20

Revenues .............................................................................................................................. 20

Baseline Operating Expenses ............................................................................................... 21

Local Capital Improvement Projects .................................................................................... 22

Surface Water Project Costs ................................................................................................ 23

Surface Water Project Capital Costs............................................................................. 23

Surface Water Project Operating Costs ....................................................................... 24


Existing Debt Service ............................................................................................................ 25

Financing Alternatives .......................................................................................................... 26

Future Conservation and Price Elasticity ............................................................................. 30

Cash Flow Scenarios ............................................................................................................. 31

Scenario I: Baseline Expenses Only (No WDCWA Participation) ................................. 32

Scenario 2: WDCWA 30 mgd (Davis: 12 mgd) Partial Pay-As-You-Go ......................... 34

Scenario 3: WDCWA 30 mgd (Davis: 12 mgd) All Debt ............................................... 36

Comparison of Revenue Requirements ............................................................................... 38

SECTION 4: COST OF SERVICE .................................................................. 40

Fixed vs. Variable Charges ................................................................................................... 40

Current Revenue Allocations ............................................................................................... 41

Commodity Demand Cost Allocation ................................................................................... 42

Functional Cost Components ............................................................................................... 42

Customer Classes ................................................................................................................. 47

Customer Water Consumption Analysis .............................................................................. 47

Unit Costs of Service Components ....................................................................................... 49

Water Meter Replacement Charge ...................................................................................... 52

Administrative Billing Charges ............................................................................................. 53

SECTION 5: RATE DESIGN & RATE STRUCTURE ALTERNATIVES .......................... 54

Rate Development Principles ............................................................................................... 54

Fixed Charges: Traditional Rate Structure ........................................................................... 54

BWA’s Fixed Charge Recommendation: Meter Ratios ................................................ 55

Variable Rate Structures ...................................................................................................... 55

Uniform Block Rate ....................................................................................................... 55

Inclining Block Rates ..................................................................................................... 56

Water Budgets .............................................................................................................. 57

Seasonal Rates .............................................................................................................. 58

BWA’s Variable Rate Recommendation: Single Family Residential ............................. 59

BWA’s Variable Rate Recommendation: Multi-Family, Commercial, and Irrigation ... 61

Traditional Rate Structure: Proposed Water Rates ............................................................ 61

Traditional Rate Structure: Bill Impacts .............................................................................. 63

SECTION 6: CONSUMPTION-BASED FIXED RATE STRUCTURE ............................. 64


Consumption-Based Fixed Rate Structure ........................................................................... 64

CBFR: Cost of Service Analysis ............................................................................................. 65

Traditional Fixed vs. Consumption-Based Fixed Rate Structure .......................................... 68

CBFR Rate Structure: Proposed Water Rates ...................................................................... 69

CBFR Rate Structure: Bill Impacts ....................................................................................... 70

SECTION 7: CONCLUSIONS AND RECOMMENDATIONS ................................... 71

How to Estimate Future Water Charges .............................................................................. 73

APPENDICES ........................................................................................ 75

Appendix A: Proposition 218 Notice Mailed to Property Owners .............................. 76

Appendix B: Scenario 3 (All Debt) – Cash Flow Projection .......................................... 77

Appendix C: CBFR Calculations .................................................................................... 81

LIST OF TABLES Table 1. Revenue Requirement Comparison ................................................................................. 9

Table 2. Meter Ratios ................................................................................................................... 10

Table 3. Single Family Residential Inclining Tiers ......................................................................... 10

Table 4. Final Proposed Water Rates ........................................................................................... 13

Table 5. Current Water Rates ...................................................................................................... 16

Table 6. Current Water Accounts................................................................................................. 18

Table 7. 2011 Water Consumption .............................................................................................. 18

Table 8. Estimated Water Fund Reserves .................................................................................... 19

Table 9. Baseline Operating Expenses ......................................................................................... 22

Table 10. Local Repairs & Replacements (R&R) Capital Improvement Program......................... 23

Table 11. WDCWA Surface Water Project: City of Davis Estimated Capital Costs ...................... 24

Table 12. Surface Water Project (Davis : 12 mgd): Davis’ Share of Project Costs by Year ......... 25

Table 13. Existing Debt Service .................................................................................................... 26

Table 14. Scenario 2: Borrowing Assumptions and Debt Service Estimates ............................... 28

Table 15. Scenario 3: Borrowing Assumptions and Debt Service Estimates ............................... 29

Table 16. Price Elasticity Assumptions ......................................................................................... 31

Table 17. Scenario 1: Baseline Expenses Only ............................................................................ 33

Table 18. Scenario 1: Elasticity and Conservation Assumptions................................................. 34

Table 19. Scenario 2: WDCWA 30 mgd (Davis: 12 mgd) Partial Pay-As-You-Go......................... 35


Table 21. Scenario 3: WDCWA 30 mgd (Davis: 12 mgd) All Debt ............................................... 37


Table 23. Scenario Comparison: Revenue Requirements ............................................................ 39


Table 24. Current Fixed vs. Variable Revenue Allocation (1) ....................................................... 41

Table 25. Commodity Demand Allocation: Baseline Operating Expenses .................................. 44

Table 26. Commodity Demand Allocation: Local R&R Projects and Water System Fixed Assets 45

Table 27. Commodity Demand Allocation: WDCWA Surface Water Project Costs ..................... 46

Table 28. Commodity Demand Allocation: Total All Expenses .................................................... 46

Table 29. Proposed Customer Classes ......................................................................................... 47

Table 30. 2011 Water Consumption (ccf) by Proposed Customer Classes .................................. 48

Table 31. 2011 Average and Peaking Ratios by Proposed Customer Classes.............................. 49

Table 32. 2011 Allocation of Average and Peaking Costs ............................................................ 49

Table 33. Fixed and Variable Charges: Rate Derivation (Based on Scenario 3) .......................... 50

Table 34. Proposed Rates Adjusted for Conservation ................................................................. 51

Table 35. Water Meter Replacement Program Annual Cost Estimate ........................................ 52

Table 36. Monthly Meter Replacement Charge .......................................................................... 53

Table 37. Administrative Bill Charges .......................................................................................... 53

Table 38. Current and Proposed Single Family Residential Inclining Tiers .................................. 60

Table 39. Traditional Rate Structure: Proposed Water Rates ..................................................... 62

Table 40. Traditional Rate Structure: Sample Bill Impacts ......................................................... 63

Table 41. CBFR Rate Structure: Proposed Water Rates ............................................................... 69

Table 42. CBFR Rate Structure: Sample Bill Impacts ................................................................... 70

Table 43. Final Proposed Water Rates ......................................................................................... 72

Table 44. Final Proposed Water Rates: Sample Bill Impacts ...................................................... 73

Table 45. Bill Estimation Tool for 2013 (Traditional Rate Structure) ........................................... 74

Table 46. Bill Estimation Tool for 2015 (CBFR Structure) ............................................................ 74

LIST OF FIGURES Figure 1. CBFR Rate Structure ........................................................................................................ 5

Figure 2. Total Annual Water Consumption ................................................................................ 17

Figure 3. Annual Revenue Requirement Comparison ................................................................. 39

Figure 4. 2011 Bi-Monthly Water Consumption (ccf) by Class .................................................... 48

Figure 5. CBFR Structure: Cost Allocation .................................................................................... 67

Figure 6. Traditional Fixed vs. CBFR Structures: Revenue Recovery Comparison ....................... 68


LIST OF ACRONYMS & ABBREVIATED TERMS

AF: Acre feet

AMR: Automated radio-read metering

AWWA: American Water Works Association

BMP: Best Management Practices

BWA: Bartle Wells Associates

CBFR: Consumption Based Fixed Rate structure

CCF: Hundred cubic feet (equivalent to 748 gallons)

City: City of Davis

COPs: Certificates of Participation

CPG: Conaway Preservation Group

CPI: Consumer Price Index

CPUC: California Public Utility Commission

CUWCC: California Urban Water Conservation Council

DWR: Department of Water Resources

DWWSP: Davis Woodland Water Supply Project

Local R&R: Local capital repairs and replacements

MG: Million gallons

MGD: Million gallons per day

Proposition 218: California Constitution Article XIII C

R&R: Repairs and replacements

WAC: Water Advisory Committee

WDCWA: Woodland Davis Clean Water Agency

City of Davis – Water Rate Study 2013 Page 1

SECTION 1: INTRODUCTION AND EXECUTIVE SUMMARY

Study Overview The City of Davis (City) provides water service to a population of approximately 65,600 in an

area encompassing roughly 10.5 square miles. Located 11 miles west of Sacramento, Davis is

the largest city in Yolo County, California. The University of California at Davis is the largest

employer in the City and operates and maintains its own water system, separate from the

City’s. Many of the students attending UC Davis live in off-campus housing in the City.

Currently, the City’s source of water supply is groundwater, pumped from local wells. The City

is considering participation in the proposed Davis Woodland Water Supply Project (DWWSP) to

obtain surface water supplies. A mail-in ballot election is scheduled for March 5, 2013.

The City’s water utility is operated as a self-supporting enterprise fund. Revenues are derived

primarily from water service charges and must be adequate to fund the water system’s

operating and capital programs. The water rates were last adjusted in 2008.

In November 2011, the City convened a citizen’s advisory group, the Water Advisory Committee

(WAC), to advise the city on water rates and other water policy issues. In February 2012, the

City retained Bartle Wells Associates (BWA) to work with the City and the WAC to develop a

long-term financial plan and to conduct a comprehensive cost-of-service water rate study. The

purpose of the rate study is to review the City’s current water rates and develop alternative

rate structures to fund a regional water quality project to ensure a sustainable and reliable

water supply.

The water rates were developed through an extensive process with considerable input from

stakeholders, including City staff, the WAC, the Davis Chamber of Commerce, members of the

public and the City Council. The study incorporates American Water Works Association

(AWWA) recommended methodologies tailored to meet the City’s unique characteristics and

develops water rates that proportionately allocate the cost of providing water service from

each customer class. The objectives of the water rate study are to:

Recover the City’s annual revenue requirement and costs of providing water service

Provide adequate funding for the City’s local and surface water project capital needs

Develop a water rate structure that proportionately allocates the cost of service to all

customers and encourages water use efficiency and conservation (generally referred to

throughout this report as “conservation”)


Comply with the legal requirements of Proposition 218 and other pertinent California

law

Phase in rate increases gradually to the extent possible to minimize the impacts on

customers

This executive summary provides a brief background of the surface water supply project,

discusses the development of an innovative Consumption Based Fixed (CBFR) Rate structure,

reviews the costs and expenses of the water system, summarizes procedural requirements of

Proposition 218, details the rate study process, and provides final study conclusions and rate

recommendations.

Surface Water Supply Project The City currently relies on groundwater for all of its water supply. Today both the quality and

quantity of the groundwater is declining with elevated concentrations of minerals affecting

both the water and wastewater systems. Due to the mineral concentrations in the City’s water,

many users have installed and utilize water softeners in an effort to improve the water quality.

The City is concerned about the long-term viability of the current water supply and the

potential damage to the groundwater aquifer from over-pumping. Moreover, the existing

groundwater supply will not meet increasingly stringent wastewater discharge regulations or

future drinking water standards. After years of analyzing various water supply alternatives, the

City is pursuing the DWWSP as a participant in the Woodland Davis Clean Water Agency

(WDCWA), a joint powers agency of the Cities of Davis and Woodland.

The proposed surface water project includes a jointly-owned and operated intake facility on the

Sacramento River, raw water pipelines connecting to a new regional water treatment plant, and

separate pipelines delivering treated water to Davis and Woodland. If approved, the City would

utilize treated surface water as the primary water supply and continue to use groundwater as a

supplemental supply to meet peak water demands especially during the hot summer months.

Davis’ share of the cost of the surface water project is currently estimated at $113.8 million.

The project was submitted to voters for their consideration in an all- mailed ballot election and

was approved on March 5, 2013.

Water Advisory Committee (WAC)

In November 2011, the City Council convened the WAC to advise the City on water rates and

other water policy issues. Since February 2012, BWA has make presentations at 12 WAC

meetings, in which committee members analyzed project alternatives, rate structure options,

conservation assumptions, and potential impacts on customers. The complete proceedings of

the WAC can be accessed via the City’s website at www.cityofdavis.org.

http://www.cityofdavis.org/


In October 2012, after a thorough examination of various project alternatives, the WAC

recommended that the City pursue the 30 million gallon per day (mgd) DWWSP (Davis’ share:

12 mgd) as the preferred water supply project. In November 2012, the WAC recommended to

the City Council to increase the water rates to fund the water supply project and to implement

a new rate structure called the consumption-based fixed rate (CBFR) structure.

Current Rate Structure The existing water rates are based on a traditional rate structure which includes both a fixed

charge based on meter size and a volumetric component based on current period consumption.

The current water rates are summarized on Table 5.

1. Fixed base charge - varies based on meter size and is levied regardless of water

consumption. The typical or most common method to levy fixed charges is by meter

size. Meter size is used as a proxy for the estimated demand that each customer can

place on the water system. A significant portion of a water system’s design and in turn,

the utility’s operating and capital costs are related to meeting capacity requirements.

The basic service charge recognizes the fact that even when a customer does not use

any water, the City incurs fixed costs in connection with maintaining the ability or

readiness to serve each connection. Fixed costs include staffing, customer service, debt

service, system maintenance, and repairs. All customers, residential and non-

residential, are charged the same fixed charges – based on their meter size.

2. Metered volumetric charge - billed per each hundred cubic feet (ccf) of metered water

use consumed in the prior two-month billing period. A hundred cubic feet (ccf) unit of

water is equal to 748 gallons of water. The amount of water and rate per unit allotted

in each tier varies based on customer class. All customer classes, except for

City/municipal use, are billed according to two-tiered inclining volumetric rate structure.

The City/municipal use rate is a single-tier, uniform block rate.

The metered volumetric charge is intended to recover costs that vary based on the

amount of water consumed. These costs can include utilities, chemicals, and water

purchases. Conservation is most often achieved through the variable rate component.

The most common variable rate structures that promote conservation pricing are: (1)

uniform block, (2) inclining block, (3) water budget or allocation based rates, and (4)

seasonal block rates.


Consumption-Based Fixed Rate (CBFR) Structure Two members of the WAC, Frank Loge and Matt Williams, developed an innovative, new

method, the CBFR structure which recovers to recover a portion of the fixed costs of providing

water service based on each customer’s actual consumption. Instead of using the conventional

method of meter size as the basis for recovering all or a portion of the water system’s fixed

costs, CBFR is structured so that each ratepayer’s proportionate share of the fixed costs related

to water supply and treatment is based on their actual water usage from the previous summer

months of May through October (when consumption is typically at its peak). As shown on

Figure 1, the CBFR rate structure is comprised of three components: (1) a distribution charge,

(2) a variable charge, and (3) a supply charge. The rates for each of these components apply to

all water customers within the City. BWA and City staff worked with Mssrs. Loge and Williams

to refine the CBFR structure to ensure the proportionate allocation of water rates and the costs

of service in compliance with Proposition 218. BWA completed a comprehensive cost of service

analysis and rate study design to proportionately allocate the costs of providing water service

among all customer classes.

In December 2012, after considering the WAC’s recommendation, the City Council

recommended submitting to property owners for their consideration a hybrid rate approach.

The City Council determined it was appropriate to adopt five years of rate increases and to

delay the implementation of the CBFR rate structure until January 1, 2015. The delayed

implementation would allow customers time to understand and adjust their consumption

patterns in anticipation of the new rate structure. The hybrid approach was included in the

notice of the public hearing on the proposed water rates mailed to property owners. This

report details the hybrid approach and the transition from a traditional water rate structure to

the new CBFR structure over the next five years.


Figure 1. CBFR Rate Structure


Procedural Requirements of Proposition 218 Proposition 218, the “Right to Vote on Taxes Act”, was approved by California voters in

November 1996 and is codified as Articles XIIIC and XIIID of the California Constitution.

Proposition 218 establishes requirements for imposing any new or increasing any existing

property-related fees and charges. For many years, there was no legal consensus on whether

water service fees met the definition of “property-related fees.” In July 2007, the California

Supreme Court essentially confirmed that Proposition 218 applies to water service fees.

The City must follow the procedural requirements of Proposition 218 for all water rate

increases. These requirements include:

1. Noticing Requirement: The City must mail a notice of the proposed rate increases to all

affected property owners. The notice must specify the amount of the fee, the basis

upon which it was calculated, the reason for the fee, and the date/time/location of a

public rate hearing at which the proposed rates will be considered/adopted.

2. Public Hearing: The City must hold a public hearing prior to adopting the proposed rate

increases. The public hearing must be held not less than 45 days after the required

notices are mailed.

3. Rate Increases Subject to Majority Protest: At the public hearing, the proposed rate

increases are subject to majority protest. If more than 50% of affected property owners

submit written protests against the proposed rate increases, the increases cannot be

adopted.

Proposition 218 also established a number of substantive requirements that apply to water

rates and charges, including:

1. Cost of Service - Revenues derived from the fee or charge cannot exceed the funds

required to provide the service. In essence, fees cannot exceed the “cost of service”.

2. Intended Purpose - Revenues derived from the fee or charge can only be used for the

purpose for which the fee was imposed.

3. Proportional Cost Recovery - The amount of the fee or charge levied on any customer

shall not exceed the proportional cost of service attributable to that customer.

4. Availability of Service - No fee or charge may be imposed for a service unless that

service is used by, or immediately available to, the owner of the property.

5. General Government Services - No fee or charge may be imposed for general


governmental services where the service is available to the public at large.

Charges for water, sewer, and refuse collection are exempt from additional voting

requirements of Proposition 218, provided the charges do not exceed the cost of providing

service and are adopted pursuant to procedural requirements of Proposition 218.

Rate Study Process This section details the development of the City’s water rates and compliance with Proposition

218 through a comprehensive cost of service and rate design study process as shown in the

following chart.

The following is a brief description of the water financial plan and rate design process:

Financial Plan Projections/Revenue Requirements: Revenue requirements are

analyzed through the development of a long-term financial plan. Based on the best

information currently available, the financial plan incorporates projected operation and


maintenance costs, capital expenditures, debt service, growth, and conservation

assumptions to estimate annual revenue requirements. The plan serves as a roadmap

for funding the water enterprise’s future operating and capital programs while

maintaining long-term fiscal stability. The financial plan projections determine the

annual water revenue requirements to be recovered through water rates and other

revenue sources.

Cost of Service: The cost of service process builds on the financial plan analysis and

assigns water system costs to functional cost components which are then allocated to

the various customer classes. This process is intended to proportionately allocate costs

associated with each customer class based on the demand that they place on the

system.

Rate Design: Rate design involves developing a rate structure that proportionately

recovers costs from water system customers. Final rate recommendations are designed

to (a) fund the utility’s short- and long-term costs of providing service;

(b) proportionately allocate costs to all customers and customer classes; (c) provide a

prudent balance of revenue stability and conservation incentive; and (d) comply with

the substantive requirements of Proposition 218.

Findings and Recommendations As noted earlier, the findings and recommendations presented in this report were developed

with substantial input and overview from City staff, the WAC, the Chamber of Commerce,

members of the public and City Council. The financial projections and rate recommendations

include modifications to the water rates, user classifications, and cost allocations. The final

rates are designed to recover the water utility’s cost of service and proportionately recover

costs from all customer classes. Rate increases are phased in over a five-year period to buffer

impacts on ratepayers. The first rate adjustments will take effect on May 1, 2013. Rate

increases thereafter will be effective on January 1, beginning on January 1, 2014 through

January 1, 2018.

Financial Plan Projections/Revenue Requirements BWA developed various financial plan scenarios to determine the effect on the water utility’s

finances and on ratepayers. The scenarios were developed to minimize impacts on customers

while covering operating and capital costs, meeting debt service coverage, building reserves,

and maintaining the long-term viability of the water enterprise. The three scenarios evaluated

are:


Scenario 1: Baseline Expenses Only: This scenario does not include any operating or

capital costs related to the surface water project. The projected revenues will

adequately fund the water enterprise in the short-term, however, this scenario may not

be viable over a long-term horizon from a water supply perspective.

Scenario 2: WDCWA 30 mgd (Davis: 12 mgd) Partial Pay-As-You-Go: This scenario

includes all operating and capital expenditures for the surface water project and

assumes that a portion of capital costs are funded on a pay-as-you-go (cash) basis.

Scenario 3: WDCWA 30 mgd (Davis: 12 mgd) All Debt: This scenario includes all

operating and capital expenditures for the surface water project and assumes that all

capital costs are debt-financed.

Table 1 summarizes the annual revenue adjustments and revenue requirements for each of the

three scenarios. In January 2013, the City Council voted to pursue Scenario 3: WDCWA 30 mgd

(Davis: 12 mgd) All Debt.

Table 1. Revenue Requirement Comparison

Cost of Service Analysis The cost of service analysis for the traditional rate structure is based on AWWA’s “Commodity

Demand” methodology as outlined in the AWWA Manual M1. The cost of service analysis for

the CBFR structure is also based on the Commodity Demand methodology with costs further

allocated among the three CBFR components: distribution charge, a variable charge and a

supply charge.

BWA initially presented rate recommendations based on a traditional fixed - volumetric rate

structure and proposed aligning the fixed charges with the AWWA meter capacity ratios. The

proposed AWWA meter ratios are detailed on Table 2. These capacity-based meter ratios are

1-May-13 1-Jan-14 2014/15 2015/16 2016/17 2017/18

Scenario 1: Baseline Expenses Only (No WDCWA Participation)

Revenue Adjustment 8% 8% 15% 15% 9% 9%

Revenue Requirement $10,726,500 $11,475,000 $13,196,000 $15,175,000 $16,541,000 $18,030,000

Scenario 2: WDCWA 30 mgd (Davis: 12 mgd) Partial Pay-As-You-Go



Scenario 3: WDCWA 30 mgd (Davis: 12 mgd) All Debt - Council Selected Scenario




widely used in California rate setting and are consistent with meter ratios adopted by the

California Public Utilities Commission (CPUC) for private water companies.

Table 2. Meter Ratios

For the variable charges, BWA proposed maintaining an inclining block tier rate structure for

single family residential customers and adding a third tier to provide more conservation

incentive at moderate to high levels of use. The tier breakpoints are designed to provide

sufficient indoor and outdoor water use for a typical single family residential household. The

addition of the third tier is projected to impact the top 10 percent of all single family residential

bills which account for 11 percent of total water consumption as summarized on Table 3.

Table 3. Single Family Residential Inclining Tiers

For all other customer classes, BWA recommended eliminating the current two-tiered rate

structure and implementing a single uniform block rate. Uniform block rates for non-residential

customers are common in the industry because it is difficult to design tiers that accommodate a

variety of uses. For example, a commercial customer who uses a lot of water does not

necessarily indicate that the customer is using water inefficiently. Inclining tiered rates are

Meter Current Bi-Monthly Current Proposed AWWA

Size Base Rate Meter Ratios Meter Ratios

5/8" or 3/4" $23.00 1.00 1.00

1" $32.40 1.41 1.67

1½" $55.80 2.43 3.33

2" $84.00 3.65 5.33

3" $160.00 6.96 10.67

4" $244.00 10.61 16.67

6" $476.00 20.70 33.33

8" $758.00 32.96 53.33

Bills Ending Water Use Bills Ending Water Use

in Tier % in Tier in Tier % in Tier

Tier 1 0 - 36 ccf 73.9% 76.0% Tier 1 0 - 36 ccf 73.9% 76.0%

Tier 2 Over 36 ccf 26.1% 24.0% Tier 2 37 - 58 ccf 15.9% 12.8%

Tier 3 Over 58 ccf 10.1% 11.2%

CURRENT BI-MONTHLY TIERS PROPOSED BI-MONTHLY TIERS


more practical to implement for single family residential customers because the overall

consumption patterns for this class is fairly homogenous. To proportionately allocate the costs

amongst all customer classes, the unit cost for each customer class varies based on peak

demand.

Consumption-Based Fixed Rate Structure The CBFR rate structure is comprised of three components - a distribution charge, a variable

charge, and a supply charge. The rates for each of these components will apply to all water

customers within the City (See Figure 1).

1. Distribution Charge: The distribution charge is a fixed “readiness to serve” charge

based on meter size and is structured to recover a portion of the City’s fixed costs

related to the water distribution system. The charge recovers the fixed costs related to

water mains and pipelines, water tanks, fire flow, meters, and customer service for

meter reading and billing. The distribution charge comprises approximately 13 percent

of an average monthly bill.

2. Variable Charge: The variable charge is based on a customer’s consumption during the

current billing period. The charge is structured to recover the costs that vary directly

with water usage, such as electricity for treatment and pumping, chemicals for

treatment, and other variable costs. Under the CBFR rate structure, the variable charge

for all customers is based on a uniform tier. The variable charge comprises

approximately 20% of an average monthly bill.

3. Supply Charge: The supply charge is structured to recover certain fixed costs related to

water supply and treatment, including existing and future groundwater sources (wells),

construction and operation of the 12 million gallon per day (mgd) surface water

treatment plant, a portion of surface water rights, and water system planning and

environmental compliance expenses. The supply charge is based on a customer’s prior

year’s water usage during the 6-month peak period (May through October). The supply

charge comprises approximately 67% of an average monthly bill.

The supply charge is calculated by using the projected annual revenue requirement for

water supply and treatment and dividing it by the total projected 6-month peak period

(May through October) water use of the entire system to produce a per-ccf rate. Each

individual customer’s fee is then calculated by taking the per-ccf rate and multiplying it

by the individual customer’s prior year’s 6-month peak period water use. For instance,

if a customer uses 100 ccf during May through October and the CBFR supply rate is


$0.32/ccf, then the supply charge will be 100 ccf x $0.32 = $32 per month. Each year,

the CBFR amount is recalculated based on actual consumption during the prior 6-month

May through October peak consumption period.

Final Rate Recommendation After considering the WAC’s recommendation to fund the water supply project and implement

the CBFR rates, the City Council voted on a hybrid approach to notice five years of rate

increases and delay the implementation of the CBFR rate structure until January 1, 2015 to

educate ratepayers on the new CBFR rate structure. The first two rate increases (May 1, 2013

and January 1, 2014) are based on the traditional fixed-volumetric rate structure and include

BWA’s recommended adjustments to the meter ratios, variable charges, and the addition of a

third tier. The remaining rate increases from January 2015 onward are based on the CBFR

structure. The final proposed rates which were included in the Proposition 218 notice are

shown on Table 4.


Table 4. Final Proposed Water Rates

Rates Effective 1-May-13 1-Jan-14 1-Jan-15 1-Jan-16 1-Jan-17 1-Jan-18

DISTRIBUTION (FIXED) CHARGE

Meter Size

3/4" $17.33 $19.68 $10.21 $11.38 $11.90 $13.67

1" $27.13 $31.05 $15.22 $17.19 $18.09 $20.92

1-1/2" $50.68 $58.51 $26.78 $30.76 $32.62 $38.01

2" $80.27 $92.80 $42.02 $48.41 $51.40 $59.96

3" $152.91 $177.97 $76.19 $89.09 $95.19 $111.72

4" $236.26 $275.42 $116.33 $136.53 $146.12 $171.73

6" $464.71 $543.02 $224.63 $265.13 $284.43 $335.05

8" $737.57 $862.88 $353.27 $418.17 $449.16 $529.67

VARIABLE CHARGE ($/ccf of Current Billing Period Use)

Single Family Residential Tiered Rates ($/ccf)

Tier 1: 0 - 18 $1.23 $1.53 - - - -

Tier 2: 18 - 29 ccf $1.37 $1.69 - - - -

Tier 3: 30 + ccf $2.33 $2.87 - - - -

All Other Customer Classes Uniform Rate ($/ccf)

Multi Family Residential $1.81 $2.24 - - - -

Commercial $1.51 $1.87 - - - -

Irrigation $2.37 $2.94 - - - -

CBFR UNIFORM RATES ($/ccf of Current Billing Period Use)

All Classes - - $0.86 $1.02 $1.12 $1.32

CBFR SUPPLY CHARGES ($/ccf of Prior Year Peak Period Water Consumption)

All Classes - - $0.32 $0.40 $0.45 $0.54


SECTION 2: WATER ENTERPRISE OVERVIEW

City of Davis Current Water Supply The City of Davis currently relies on groundwater from the Sacramento Valley groundwater

basin for all of its water supply. The City’s water system was developed in the 1950s, when

groundwater sources easily kept pace with community demands. However, today both the

quality and quantity of the groundwater is declining due to elevated concentrations of minerals

which affect both the water and wastewater treatment systems. The City has been drilling

deeper wells to get to better quality water lower down in the aquifer. These deep aquifer wells

are more expensive to construct and may not be sufficient for future water needs. Additionally,

in the future, the current groundwater supplies will likely not meet increasingly stringent

wastewater discharge regulations or impending drinking water standards.

Woodland Davis Clean Water Agency - Surface Water Project To meet the long-term viability of the City’s water supply and to prevent potential issues with

the groundwater aquifer from over-pumping, the City is proposing to develop joint surface

water supply project with the City of Woodland to draw water from the Sacramento River as a

participant of the Woodland Davis Clean Water Agency (WDCWA). The Cities of Davis and

Woodland formed the joint powers agency (WDCWA) in September 2009 to implement and

oversee the surface water supply project. The WDCWA is overseen by a six-member Board

comprised of two City Council Members from each city, and two non-voting members, one

each from UC Davis and Yolo County.

The proposed surface water project includes a jointly-owned and operated intake on the

Sacramento River, raw water pipelines connecting to a new regional water treatment plant, and

separate pipelines delivering treated water to Davis and Woodland. The new water supply will

be used in lieu of groundwater supplies except during the summer months when there is a peak

demand for water. During that time, groundwater supplies will be used as a supplement to

meet peak water demands.

The regional water treatment facility will be constructed to supply up to 30 million gallons of

water per day (mgd), with an option for future expansion to 34 million gallons per day. Of that

amount, Woodland's share of treated surface water will be 18 million gallons per day, with

Davis' share at 12 million gallons per day. Approximately 5.1 miles of pipeline will transport

"raw" water from the surface water intake on the Sacramento River to the water treatment

plant located south of Woodland. From there, the treated water will travel 7.8 miles via

http://www.wdcwa.com/the_project


pipeline to Davis, and 1.4 miles to Woodland. The City’s share of the project’s costs is detailed

in the “Surface Water Project Costs” section.

The City’s participation in the surface water project was submitted to the voters for their

approval through a Citywide mailed ballot election. The measure passed on March 5, 2013.

Current Water Rates The City bills water service on a bi-monthly basis on a combined bill that includes charges for

water, sewer, sanitation, storm water, a municipal service tax, and a public safety charge. The

current water rates are based on a traditional rate structure and include two components:

1. A fixed base charge that varies based on meter size and is levied regardless of water

consumption. This basic service charge recognizes the fact that even when a customer

does not use any water, the City incurs fixed costs in connection with the ability or

readiness to serve each connection. Fixed costs include staffing, customer service, debt

service, system maintenance, and repairs. All customers, residential and non-

residential, are charged the same base charges.

2. A metered variable charge billed per each hundred cubic feet (ccf) of metered water

use. A hundred cubic feet (ccf) of water is equal to 748 gallons of water. All customer

classes, except for City/municipal use, are billed according to two-tiered inclining

volumetric rate structure. (City/municipal irrigation is subject to a single tier volumetric

rate). The amount of water allotted in each tier varies based on customer class. The

quantity charge is intended to recover costs that vary based on the amount of water

consumed. These variable costs can include utilities, chemicals, and water purchases.

The current water rates are shown on Table 5:


Table 5. Current Water Rates

Water Consumption

BWA evaluated the water consumption within the City for calendar years 2009 through 2011 as

shown on Figure 2. During this period, total usage declined approximately 10 percent. Like

many other California cities and water utilities in the State, the City has experienced a

significant decrease in water usage which can generally be attributed to a combination of

BASE RATE

Meter Size

5/8" or 3/4" $11.50 $23.00

1" $16.20 $32.40

1-1/2" $27.90 $55.80

2" $42.00 $84.00

3" $80.00 $160.00

4" $122.00 $244.00

6" $238.00 $476.00

METERED RATE CHARGE - PER HUNDRED CUBIC FEET (CCF)

Use Classification Use Tiers Unit Charge Use Tiers Unit Charge

Single Family Residential Tier 1: 0 - 18 ccf $1.50 Tier 1: 0 - 36 ccf $1.50

(Use per dwelling unit) Tier 2: Over 18 ccf $1.90 Tier 2: Over 36 ccf $1.90

Multi-Family Residential Tier 1: 0 - 7 ccf $1.42 Tier 1: 0 - 14 ccf $1.42


Small Commercial/Industrial Tier 1: 0 - 57.5 ccf $1.41 Tier 1: 0 - 115 ccf $1.41

Up to 1-1/2" meters Tier 2: Over 57.5 ccf $1.90 Tier 2: Over 115 ccf $1.90

Large Commercial/Industrial Tier 1: 0 - 309.5 ccf $1.51 Tier 1: 0 - 619 ccf $1.51

2" meters and larger Tier 2: Over 309.5 ccf $1.90 Tier 2: Over 619 ccf $1.90

Irrigation Tier 1: 0 - 181.5 ccf $1.41 Tier 1: 0 - 363 ccf $1.41

(Use per acre) Tier 2: Over 181.5 ccf $1.90 Tier 2: Over 363 ccf $1.90

Municipal All Consumption $1.41 All Consumption $1.41

* CCF = hundred cubic feet (1 ccf = 748 gallons)

Monthly Bi-Monthly


factors including the success of conservation programs, the economic slowdown, foreclosures,

and a milder summer climate.

Figure 2. Total Annual Water Consumption

Customers and Usage by Class The City provides water service to a population of approximately 65,600, (not including UC

Davis which is served by its own water system). Residential accounts (single family and multi-

family residential) account for nearly 93 percent of all water customers and represent 77

percent of total water usage as shown in Tables 6 and 7, respectively. Commercial customers

(small commercial, large commercial, and city domestic) comprise nearly 4 percent of all

accounts and represent 10 percent of total consumption. Irrigation accounts make up 3

percent of all accounts and represent 13 percent of the annual usage within the City.


Table 6. Current Water Accounts

Table 7. 2011 Water Consumption

Meter Single Family Multi-Family Small Large City City Total % of

Size Residential Residential Commercial Commercial Irrigation Domestic Irrigation Customers Total

5/8" or 3/4" 11,892 85 143 0 27 6 28 12,181 74.1%

1" 2,744 201 265 0 65 7 82 3,364 20.5%

1½" 95 76 151 0 104 5 25 456 2.8%

2" 5 77 0 106 53 7 47 295 1.8%

3" 0 51 0 20 2 0 17 90 0.5%

4" 1 22 0 3 4 1 9 40 0.2%

6" 0 0 0 3 0 0 0 3 0.0%

8" 0 4 0 0 0 0 0 4 0.0%

Total 14,737 516 559 132 255 26 208 16,433 100.0%

% of Total 89.7% 3.1% 3.4% 0.8% 1.6% 0.2% 1.3% 100.0%

Customer Class Total % of Total

Single Family Residential 2,534,160 55.7%

Multi-Family Residential 982,053 21.6%

Small Commercial 256,142 5.6%

Large Commercial 171,796 3.8%

Irrigation 328,000 7.2%

City Domestic 12,512 0.3%

City Irrigation 265,275 5.8%

Total 4,549,938 100.0%


SECTION 3: FINANCIAL PLAN PROJECTIONS/ REVENUE

REQUIREMENTS

BWA developed multi-year financial plan projections through 2049/50 to estimate annual

revenue requirements and necessary rate adjustments to fund the water system’s operating

and capital needs. As a self-supporting enterprise fund, the majority of revenues are derived

from water service charges (rates). As noted earlier, the City is considering a $113.8 million

surface water project to ensure the long-term viability of the water supply. This section details

the revenue and expenditure assumptions used to estimate and project the water utility’s

annual revenue requirements. The financial projections are included as Appendix B of this

report.

Water Fund Reserves As of July 1, 2012, the water enterprise held a working capital of nearly $6.2 million in

operations, capital, and replacement reserve funds as shown in Table 8.

Table 8. Estimated Water Fund Reserves

Maintaining a prudent minimal level of fund reserves provides a financial cushion for dealing

with unanticipated expenses, revenue shortfalls, debt requirements, and emergency capital

repairs. The fund reserve target should escalate over time as the City’s revenues and expenses

gradually increase. It is acceptable if reserves fall below the target on a temporary basis,

provided action is taken to achieve the target over the longer term.

Recommended Operating Fund (Fund 511) Reserve Balance BWA recommends continuation of the current minimum water fund operating reserve balance

equivalent to 25 percent (or 3 months) of annual operating and maintenance expenses. This is

a reasonable level of operating reserves and consistent with water industry practices.

Fund Description July 1, 2012

511 Maintenance & Operation $3,272,975

512 Capital Replacement Reserve 6,520,871

513 Capital Expansion Reserve (3,568,309)

Total 6,225,537

Source: Final Budget 2012-13 Summary of Fund Balances, Revenues, and Expenditures/Encumbrances by Fund, 6/20/12


Recommended New Rate Stabilization Fund Reserve BWA recommends the establishment of a rate stabilization reserve fund to allow smoothing of

the phase-in of the rate increases. Funds can be drawn from this reserve to provide adequate

debt service coverage to comply with bond covenants. The reserves in the rate stabilization

fund can be used as revenues of the water utility for the calculation of ongoing debt service

coverage. Based on the financial projections, BWA recommends this fund have a balance target

of $5 million. This fund will initially be funded from existing unrestricted fund balances in the

amount of $5 million beginning in fiscal year 2013/14.

Recommended Capital Replacement and Expansion Fund Reserve Target BWA recommends the existing capital reserves (Funds 512 and 513) have a combined minimum

capital fund target of $2 million. This minimum balance is designed to provide emergency

funding for unexpected capital projects.

Projected Future Growth The City anticipates a moderate level of future growth. The projections include growth of 0.5

percent per year through fiscal year 2015/16. Beginning in fiscal year 2016/17 and continuing

thereafter, 1.0 percent annual growth is assumed.

Revenues Water utility funding comes from “Operating Revenues” and “Debt Proceeds.” Operating Revenues:

Water Rates: Revenues from rates are derived from the fixed and volumetric water

rates paid by customers. Without taking into account any rate increases, water sales

for fiscal year 2012/13 are projected at nearly $9.98 million, representing 93 percent

of the water utility’s total revenues. Future annual water rate revenues are

projected based on the required revenue increases with adjustments made for

customer growth and consumption reductions due to conservation based on

standard elasticity factors.


Interest Earnings: Interest is earned on water utility reserve funds. For fiscal year

2012/13, interest revenues are estimated at $62,000. Based on current market

interest rates, the financial projections assume a 1 percent rate for interest earnings

through fiscal year 2014/15, a 1.5 percent rate through fiscal year 2017/18, and a

2.0 percent rate thereafter.

Water Meter Replacement Charge Revenues: Water meter replacement charges

are included in the new rates. These charges are based on the estimated cost of

replacing an automatic read meter on a 15-year lifecycle. The meter replacement

charge is escalated by 3 percent each year beginning in fiscal year 2014/15. The

charges are further discussed in “Section 4 - Water Meter Replacement Charge.”

Other Revenues: All Other Revenues fall into this category. These revenues include

capacity fees, sale of surplus/salvage, water shut off and reconnection fees, fire

hydrant use permits, water meter installation fees, cross connection certification

fees, encroachment permits, North Davis Meadows water service, and other

investments. Other Revenues are estimated at $640,000 for fiscal year 2012/13.

Future revenues are projected to increase annually by cost inflation, which is

estimated at 3 percent each year.

Debt Proceeds: All debt proceeds in the financial projections are assumed to be from issuance

of water revenue bonds. Proceeds shown are the amount the City would receive after

financing and issuance costs are paid. Borrowing assumptions are included in the “Financing

Alternatives” section. It should be noted that the City and WDCWA are pursuing low-cost

project funding from the state and federal governments. However, to be conservative, the

financial projections assume 100 percent revenue bond financing.

Baseline Operating Expenses Operating costs are expenditures that the City incurs in the daily operations of the water

system. For transparency, operating expenses were allocated between baseline expenditures

for the City’s local water system and surface water project operating costs. Baseline operating

expenses are the water system’s basic operating and capital costs that are incurred outside of

the surface water project and are detailed on Table 9. These include employee salaries and

wages, well and tank operations, general office, building maintenance, city vehicles, equipment,

professional services, lab analysis, utilities, mechanical, conservation, and other miscellaneous

expenses. Salaries and wages, other baseline expenses, and expenditures for the East Area


Tank and wells are based on City staff budget projections through fiscal year 2016/17 and

include additional costs for conservation programs.

In general, all baseline expenses, except for salaries and wages, are escalated by 3 percent to be

conservative. The average change in the Consumer Price Index (CPI) (All Urban Consumers,

West Region) over the last 10 years has been 2.2 percent. Labor costs generally increase at a

different rate than general inflation. Based on discussion with City staff on current and

expected staffing levels, future salaries and wages are escalated by 3.8 percent.

Table 9. Baseline Operating Expenses

Water Meter Replacement Program: The annual costs for the water meter replacement

program are based on the estimated cost of replacing an automatic read meter on a 15-year

lifecycle. The automatic meter read (AMR) retrofit will provide more timely and accurate

consumption information which is critical as the new CBFR rate structure will base about 87% of

the customer’s charge on metered consumption data. The charges are further discussed in

“Section 6 - Water Meter Replacement Charge.”

Local Capital Improvement Projects The City’s ongoing local capital repairs and replacements (“local R&R”) program does not

include any capital projects for the surface water project. As presented in Table 10, City staff

developed a local R&R plan through 2019/20 that includes projects for water main

replacements, well improvements, anode installation, the installation of automated meters,

main upsizing, well irrigation, tank improvements, and the replacement of deep wells. These

projects are necessary to maintain the integrity of the current water system.

Budget

2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19 2019/20

Baseline Expenses without Surface Water Project

Labor - Salaries/Wages (1) 3,696,000 3,836,000 3,981,000 4,132,000 4,288,000 4,450,000 4,619,000 4,795,000 4,977,000

Other Baseline Expenses (2) 2,932,000 3,233,000 3,348,000 3,467,000 3,591,000 3,303,000 3,402,000 3,504,000 3,609,000

Additional for East Area Tank 60,000 61,000 63,000 64,000 66,000 67,000 69,000 71,000 73,000

Additional for Well 32 324,267 405,333 415,467 425,853 436,500 447,412 461,000 475,000 489,000

Additional for Well 34 0 405,333 415,467 425,853 436,500 447,412 461,000 475,000 489,000

JPA Contribution 2,767,268 0 0 0 0 0 0 0 0

Local R&R Projects (not incl Water Main Replacements) (3) 2,000,000 1,844,440 4,189,860 2,922,080 638,000 4,295,500 2,201,220 7,955,630 7,379,360

Water Main Replacements from Assessment 0 0 0 722,400 1,538,160 2,182,840 1,486,800 3,168,890 0

Existing Debt Service 1,147,489 1,110,000 1,110,000 910,000 910,000 910,000 910,000 910,000 910,000

Water Meter Replacement Program 0 0 452,000 466,000 480,000 494,000 509,000 524,000 540,000

Total Baseline Expenses 12,927,024 10,895,107 13,974,793 13,535,187 12,384,159 16,597,164 14,119,020 21,878,520 18,466,360

1 - Source: OM Costs (City of Davis). Assumes Labor costs account for 56% of total baseline expenses. Escalated by 3.8% annually

2 - Source: OM Costs (City of Davis). Other Baseline Expenses = Budget Baseline less Labor Costs. Costs are escalated by 3% beginning in 2017/18.

3 - Estimates for Local Projects R&R are estimated based on historical average beginning 2020/21. Includes $3M (2012 dollars, escalated by 4%) to replace intermediate well in 2016/17.

Projected


Capital cost inflation is commonly linked to the Engineering News Record Construction Cost

Index (ENR CCI) which has generally increased at a rate between 3 to 4 percent over the last 10

years. Capital costs have therefore been escalated by 4.0 percent to be conservative. Total

escalated local R&R expenditures through fiscal year 2019/20 are estimated at $38.9 million.

Beginning in fiscal year 2020/21, local R&R projects are estimated at $3 million per year based

on the annual average of previous years and are escalated by 4 percent each year thereafter.

The financial plan for Scenario 3: All Debt assumes that all local R&R projects through fiscal

year 2019/20 will be debt financed.

Table 10. Local Repairs & Replacements (R&R) Capital Improvement Program

Surface Water Project Costs The financial plan includes the latest capital and operating costs for the surface water project

based on estimates from West Yost Associates. Construction is expected to begin in fiscal year

2012/13 and will continue through fiscal year 2016/17.

Surface Water Project Capital Costs Total project costs for the City’s share of the 30 mgd (Woodland : 18 mgd, Davis: 12 mgd)

surface water project are shown on Table 11. Davis’ share of capital costs are estimated at

$113.8 million. Approximately $14.7 million of the total cost is allocated for local facility

projects (capital projects that only benefit the City). These capital costs are related to the new

water supply project and are separate from the local R&R capital projects previously described.

The surface water project capital costs included in the cash flow projections have been

Project (1) 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19 2019/20 Total

Well 34 (Corp Yard) (8174) $2,200,000 $2,200,000

EM Valve Replacements (8158) 200,000 200,000

Water Main Replacements (8190) 300,000 300,000 300,000 300,000 300,000 300,000 300,000 300,000 2,400,000

Water Main Replacements from Assessment 645,000 1,326,000 1,804,000 1,180,000 2,419,000 7,374,000

Anode Installation (8186) 250,000 250,000 250,000 250,000 1,000,000

AMR (8187) (2) 929,500 929,500 1,859,000 3,718,000

Water Main Corr Prev (8210) 200,000 200,000

SCADA (8183) 250,000 250,000

East Area Main Upsizing (8224) 294,000 294,000

Well Irrigation Ph 1&2 (8225) 775,000 1,573,000 926,000 3,274,000

Aquifer Storage and Recovery (8223) 0

Decommission Wells 0

Make Improvements at Elevated Tank 537,000 537,000

Improve West Area Tank Overflow Capacity 135,000 135,000

Replacement Deep Wells ________ ________ ________ ________ ________ ________ 4,200,000 4,200,000 8,400,000

Subtotal Local Project R&R 1,773,500 3,879,500 3,254,000 1,876,000 2,354,000 2,927,000 8,492,000 5,426,000 29,982,000

ESCALATED PROJECT COSTS

Escalation - 4% annually 1.04 1.08 1.12 1.16 1.21 1.26 1.31 1.36

Total Local Project R&R Escalated 1,844,440 4,189,860 3,644,480 2,176,160 2,848,340 3,688,020 11,124,520 7,379,360 38,895,180

1 - Source: CIP 5 Year Water (City of Davis)

2 - Future meter replacements will be funded by separate Water Meter Replacement Charge.


escalated based on the 2012 OMB Circular No. A-94 from the Executive Office of the President,

Office of Management and Budget. Use of this escalation rate for the surface water projects

was by consensus of the WAC. To be conservative, BWA used a higher 4 percent annual rate

for escalating all other (non-surface water project) capital costs. (The 2012 OMB Circular No. A-

94 rates vary between 0.53 percent and 1.80 percent per year.) Table 12 summarizes the

project capital costs in both current and escalated costs.

In addition to local R&R projects/surface water project costs shown, a 4 million gallon (MG)

storage tank is planned for fiscal year 2024/25 at an escalated cost of $12 million.

Table 11. WDCWA Surface Water Project: City of Davis Estimated Capital Costs

Surface Water Project Operating Costs Following the construction of the surface water project, payments to the WDCWA for regional

treatment operations and agency administration will begin in fiscal year 2016/17 and are

estimated at $2.4 million per year. The surface water operating and agency administration

costs included in the cash flow projections have been escalated based on the 2012 Office of

Total

Cost Category Davis' Share

Agency Administration $1,708,000

Program Management 1,655,000

Pre-Design 2,849,000

Water Supply 382,000

Environmental & Permitting 767,000

Land/RW Acquisitions (1) 1,997,000

Capital Contingency 3,514,000

Construction Phase

Design, CM, Eng. Services During Construction, etc. 9,441,000

Intake Facility Construction 5,516,000

Raw Water Pipelines Construction 9,008,000

Regional Water Treatment Facility Construction 38,964,000

Davis Treated Water Pipeline Construction 19,843,000

Costs Expended (Sept 2009 - June 2011) 3,476,000

Local Facility Costs 14,655,000

Total Estimated Capital Costs - Davis' Share $113,775,000

1 - RWTF site fill costs were transferred from Regional Water Treatment Facility Construction cost category

in the old estimate to the Land/RW Acquisitions cost category in the current estimate.


Management and Budget (OMB) Circular No. A-94 from the Executive Office of the President,

Office of Management and Budget to account for cost inflation (per WAC consensus).

In addition to capital and operations costs, the City must pay their portion of the water rights

which have been purchased from the Conaway Preservation Group (CPG). In December 2010,

the WDCWA executed a Water Agreement with the CPG for a total of 10,000 acre-feet (AF) per

year. The City’s payments begin in fiscal year 2015/16 at $1.2 million per year. Table 12

summarizes the capital expenses, operating costs, agency administrative costs, and the water

rights purchases in both current and escalated dollars.

Table 12. Surface Water Project (Davis : 12 mgd): Davis’ Share of Project Costs by Year

Existing Debt Service The water utility has three outstanding debt issues – a 2002 Department of Water Resources

Loan for $5 million, a 2009 California Infrastructure and Economic Development Bank (IBank)

Loan for $10 million, and a 2011 Wells Fargo Line of Credit with a current balance of $8 million.

Table 13 details the City’s current debt service payments for the DWR and IBank loans.

2002 Department of Water Resources (DWR) Loan: In 2002, the City entered into a loan

agreement with the DWR for $5 million to assist in the funding of the City’s Water Storage Tank

project. The loan cannot exceed $5 million and bears interest at 2.6 percent per year. Annual

debt service payments are $324,000 with the last payment due in 2022.

Projected

Expenditures

Sept. 2009 -

June 30, 2012 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19 2019/20 Total

Current Dollars (1)

Regional Project Facility Costs $6,032,649 $4,752,000 $12,015,000 $32,120,000 $35,380,000 $8,820,167 $0 $0 $0 $99,119,816

Davis Local Facility Costs 0 1,500,000 9,501,000 3,654,000 0 0 0 0 0 14,655,000

Agency Administrative Costs 0 0 0 0 0 255,833 260,000 260,000 260,000 1,035,833

Water Purchase Costs 0 0 0 0 1,199,000 1,199,000 1,199,000 1,199,000 1,199,000 5,995,000

Operation & Maintenance Costs 0 0 0 0 0 2,148,000 2,577,000 2,577,000 2,577,000 9,879,000

Total Current 6,032,649 6,252,000 21,516,000 35,774,000 36,579,000 12,423,000 4,036,000 4,036,000 4,036,000 130,684,649

Projected Escalated Dollars (2)

Regional Project Facility Costs $6,032,649 $4,752,000 $12,079,000 $32,636,000 $36,523,000 $9,255,000 $0 $0 $0 $101,277,649

Davis Local Facility Costs 0 1,500,000 9,552,000 3,713,000 0 0 0 0 0 14,765,000

Agency Administrative Costs 0 0 0 0 0 268,000 277,000 282,000 287,000 1,114,000

Water Purchase Costs (3) 0 0 0 0 1,199,000 1,223,000 1,247,000 1,272,000 1,297,000 6,238,000

Operation & Maintenance Costs 0 0 0 0 0 2,254,000 2,750,000 2,798,000 2,849,000 10,651,000

Total 6,032,649 6,252,000 21,631,000 36,349,000 37,722,000 13,000,000 4,274,000 4,352,000 4,433,000 134,045,649

1 - Costs shown are in April 2012 dollars. Source: West Yost Associates

2 - Inflation rate consistent with August 31, 2011 Davis-Woodland Water Supply Project Updated Cost Estimate and Comparison TM. Real rates based on 2012 Discount Rates for OMB Circular No. A-94 from

the Executive Office of the President, Office of Management and Budget dated January 3, 2012.

3 - Source: Table A Purchase Installment Agreement Payment Schedule 2016-2039


2009 IBank Loan: In July 2009, the City entered into an enterprise fund installment sale

agreement with the IBank to finance the East Area Tank and other components of the Davis

Wells Capacity Environmental Impact Report (EIR) project. The loan cannot exceed $10 million

and bears interest at 4.0 percent per year. Annual debt service payments are $324,000 with

the last payment due in 2038.

2011 Wells Fargo Line of Credit: In February 2011, the City executed a credit agreement with

Wells Fargo Bank for a non-revolving line of credit in the amount of not to exceed $15 million to

finance engineering and planning costs related to the surface water project. Outstanding

principle balance bears interest from the date the City draws the amount while any unused

amount is charged an unused commitment fee. The City has drawn down about $8 million to

date. The City expects to refinance the Wells Fargo line of credit into a long-term, fixed-rate

obligation with debt service estimated at $544,000 per year beginning in fiscal year 2013/14.

Table 13. Existing Debt Service

Financing Alternatives The financial plan assumes conservatively that all debt financing will be via issuance of tax

exempt municipal revenue secured debt. This is a conservative “worst case” scenario for

financial planning purposes. However, the City and WDCWA are applying for Federal and State

grant and loan funding to minimize the overall cost of the project. All new debt will be

structured around the City’s existing debt.

Revenue-secured debt whether issued as revenue bonds, Certificates of Participation (COPs), or

other similar debt obligations such as direct bank loans are the most common types of debt

financing used by municipal water utility enterprises. Although there are some technical

differences between bonds, COPs and other debt instruments, all function almost exactly the

same from the issuer’s standpoint. Debt repayment is secured by an agency’s binding legal

pledge to raise rates and charges as necessary to repay debt and achieve a specified debt

service coverage ratio. Revenue bonds are typically issued with terms of up to 30 years and

offer relatively low tax-exempt municipal interest rates. Many agencies are required to obtain

Issue Amount Due 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19 2019/20

2002 DWR Loan #2 - West Area Tank $5,000,000 2022 324,000 324,000 324,000 324,000 324,000 324,000 324,000 324,000

2009 I-Bank Loan - East Area Tank $10,000,000 2038 586,000 586,000 586,000 586,000 586,000 586,000 586,000 586,000

Total Existing Debt 910,000 910,000 910,000 910,000 910,000 910,000 910,000 910,000

Terms Annual Debt Service


voter-approval for the direct issuance of revenue bonds. However, voter approval is not

required for issuance of COPs, bank loans, or other similar revenue-secured debt.

As shown on Tables 14 and 15 , NHA Advisors, the City’s financial advisor, provided debt service

estimates for Scenario 2 (WDCWA 30 mgd (Davis: 12 mgd) Partial Pay-As-You-Go) and Scenario

3 (WDCWA 30 mgd (Davis: 12 mgd) All Debt). Scenario 2 includes a total of seven debt issues

through fiscal year 2024/25 to generate a total of $133.2 million in funding for projects. Total

debt service payments for Scenario 2 are estimated at $296.4 million. Scenario 3 includes a

total of nine debt issues through fiscal year 2024/25 to generate a total of $166.9 million in

funding for projects. Total debt service payments for Scenario 3 are estimated at $375.4

million. Debt proceeds shown in the cash flow projections are aligned with the capital funding

requirements for the surface water project. The City’s actual debt issuances from year to year

may vary based on actual financing needs, the availability of low-cost State and/or Federal

financing and other factors.


Table 14. Scenario 2: Borrowing Assumptions and Debt Service Estimates

Fiscal Year of Issuance 2013/14 2013/14 2014/15 2015/16 2016/17 2018/19 2024/25 2012/13 Total Debt Proceeds

Net Proceeds $6,085,000 $19,752,000 $35,450,000 $36,546,000 $10,318,000 $5,000,000 $12,042,000 $8,000,000 $133,193,000

Cost of Issuance $150,000 $175,000 $200,000 $225,000 $250,000 $250,000 $250,000 $150,000

Underwriter's Discount 0.75% 0.75% 0.75% 0.75% 0.75% 0.75% 0.75% 0.75%

Coupon 4.75% 5.00% 5.50% 6.00% 6.25% 6.25% 6.50% 4.50%

Term 30 years 30 years 30 years 30 years 30 years 30 years 30 years 30 years

Wells Fargo Total Annual

Fiscal Year Credit Line Refi Debt Service

2013/14 $544,000 544,000

2014/15 421,826 1,392,500 544,000 2,358,326

2015/16 421,839 1,391,250 2,644,710 544,000 5,001,798

2016/17 421,614 1,389,250 2,640,285 2,889,264 544,000 7,884,412

2017/18 421,151 1,391,500 2,644,485 2,888,964 855,691 544,000 8,745,790

2018/19 420,451 1,392,750 2,641,760 2,891,864 856,941 544,000 8,747,765

2019/20 424,514 1,393,000 2,642,385 2,892,664 857,566 418,000 544,000 9,172,128

2020/21 423,101 1,392,250 2,641,085 2,891,364 852,566 418,000 544,000 9,162,365

2021/22 421,451 1,390,500 2,642,860 2,887,964 857,253 418,000 544,000 9,162,028

2022/23 424,564 1,392,750 2,642,435 2,887,464 856,003 418,000 544,000 9,165,215

2023/24 422,201 1,388,750 2,644,810 2,889,564 854,128 418,000 544,000 9,161,453

2024/25 424,601 1,388,750 2,644,710 2,888,964 856,628 418,000 544,000 9,165,653

2025/26 421,526 1,392,500 2,642,135 2,890,664 853,191 418,000 $868,382 544,000 10,030,397

2026/27 423,214 1,389,750 2,642,085 2,889,364 854,128 418,000 1,038,382 544,000 10,198,922

2027/28 424,426 1,390,750 2,644,285 2,890,064 854,128 418,000 1,037,332 544,000 10,202,985

2028/29 425,164 1,390,250 2,643,460 2,892,464 853,191 418,000 1,035,632 544,000 10,202,160

2029/30 420,426 1,388,250 2,644,610 2,891,264 856,316 418,000 1,038,282 544,000 10,201,147

2030/31 420,451 1,389,750 2,642,460 2,891,464 853,191 418,000 1,034,957 544,000 10,194,272

2031/32 420,001 1,389,500 2,642,010 2,887,764 854,128 418,000 1,035,982 544,000 10,191,385

2032/33 424,076 1,392,500 2,642,985 2,890,164 853,816 418,000 1,036,032 544,000 10,201,572

2033/34 422,439 1,388,500 2,640,110 2,888,064 857,253 418,000 1,035,107 544,000 10,193,472

2034/35 420,326 1,392,750 2,643,385 2,891,464 854,128 418,000 1,033,207 544,000 10,197,260

2035/36 422,739 1,389,750 2,642,260 2,889,764 854,753 418,000 1,035,332 544,000 10,196,597

2036/37 424,439 1,389,750 2,641,735 2,887,964 853,816 418,000 1,036,157 544,000 10,195,860

2037/38 420,426 1,392,500 2,641,535 2,890,764 856,316 418,000 1,035,682 544,000 10,199,222

2038/39 420,939 1,392,750 2,641,385 2,887,564 856,941 418,000 1,033,907 544,000 10,195,485

2039/40 420,739 1,390,500 2,641,010 2,888,364 855,691 418,000 1,035,832 544,000 10,194,135

2040/41 424,826 1,390,750 2,640,135 2,892,564 852,566 418,000 1,036,132 544,000 10,198,972

2041/42 422,964 1,388,250 2,643,485 2,889,564 852,566 418,000 1,034,807 544,000 10,193,635

2042/43 420,389 1,393,000 2,640,510 2,889,364 855,378 418,000 1,036,857 9,653,497

2043/44 (5,199) (10,500) 2,641,210 2,891,364 855,691 418,000 1,036,957 7,827,522

2044/45 (18,066) 2,889,964 853,503 418,000 1,035,107 5,178,509

2045/46 (17,336) 853,816 418,000 1,036,307 2,290,787

2046/47 (5,559) 418,000 1,035,232 1,447,673

2047/48 418,000 1,036,882 1,454,882

2048/49 418,000 1,035,932 1,453,932

2049/50 418,000 1,037,382 1,455,382

2050/51 1,035,907 1,035,907

2051/52 1,036,507 1,036,507

2052/53 1,033,857 1,033,857

2053/54 1,037,957 1,037,957

2054/55 (10,443) (10,443)

Total Debt Service $296,354,376

1 - Debt service estimates based on NHA Advisors projections

Scenario 2: Borrowing Assumption and Debt Service Estimates (1)

Net Debt Service


Table 15. Scenario 3: Borrowing Assumptions and Debt Service Estimates

The City continues to evaluate alternative funding options to reduce project costs and is

applying for State Revolving Fund (SRF) low interest loans from the State Department of Public

Health. The State Revolving Fund program offers 20-year fixed-rate loans for eligible water

projects. The program can currently be used to fund up to $50 million of projects per year. The

interest rate is set at roughly one half of the state’s general obligation bond rate; current

interest rates are below 2.7%. Debt service repayment starts one year after the project is

completed. Debt repayment is typically secured by an agency’s legal pledge to raise rates and

Fiscal Year of Issuance 2013/14 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19 2019/20 2024/25 2012/13 Total Debt Proceeds

Net Proceeds $8,096,440 $25,820,860 $39,993,480 $38,699,160 $12,103,340 $3,688,020 $11,124,520 $7,379,360 $12,042,000 $8,000,000 166,947,180

Cost of Issuance $150,000 $175,000 $200,000 $225,000 $250,000 $250,000 $250,000 $250,000 $250,000 $150,000

Underwriter's Discount 0.75% 0.75% 0.75% 0.75% 0.75% 0.75% 0.75% 0.75% 0.75% 0.75%

Coupon 4.75% 5.00% 5.50% 6.00% 6.25% 6.25% 6.25% 6.25% 6.50% 4.50%

Term 30 years 30 years 30 years 30 years 30 years 30 years 30 years 30 years 30 years 30 years

Wells Fargo Total Annual

Fiscal Year Credit Line Refi Debt Service

2013/14 $544,000 544,000

2014/15 $419,408 $1,393,971 544,000 2,357,380

2015/16 569,408 1,843,971 $2,383,371 544,000 5,340,751

2016/17 567,283 1,846,471 2,383,371 $2,526,298 544,000 7,867,423

2017/18 569,921 1,842,721 3,073,371 3,101,298 $837,088 544,000 9,968,398

2018/19 567,083 1,842,971 3,070,421 3,101,798 1,012,088 $267,113 544,000 10,405,473

2019/20 569,008 1,841,971 3,070,546 3,100,198 1,011,150 322,113 $770,925 544,000 11,229,911

2020/21 570,458 1,844,721 3,073,471 3,101,498 1,014,588 323,675 930,925 $517,158 544,000 11,920,493

2021/22 566,433 1,845,971 3,073,921 3,100,398 1,012,088 324,925 930,925 627,158 544,000 12,025,818

2022/23 567,171 1,845,721 3,071,896 3,101,898 1,013,963 325,863 935,300 625,283 544,000 12,031,093

2023/24 567,433 1,843,971 3,072,396 3,100,698 1,014,900 321,488 933,738 623,095 544,000 12,021,718

2024/25 567,221 1,845,721 3,075,146 3,101,798 1,009,900 322,113 931,550 625,595 544,000 12,023,043

2025/26 566,533 1,845,721 3,074,871 3,104,898 1,014,275 322,425 933,738 627,470 $868,382 544,000 12,902,313

2026/27 570,371 1,843,971 3,071,571 3,099,698 1,012,400 322,425 934,988 623,720 1,038,382 544,000 13,061,525

2027/28 568,496 1,845,471 3,075,246 3,101,498 1,014,588 322,113 930,300 624,658 1,037,332 544,000 13,063,700

2028/29 566,146 1,844,971 3,075,346 3,099,698 1,010,525 321,488 934,988 624,970 1,035,632 544,000 13,057,763

2029/30 568,321 1,842,471 3,071,871 3,104,298 1,010,525 325,550 933,425 624,658 1,038,282 544,000 13,063,400

2030/31 569,783 1,842,971 3,074,821 3,099,698 1,014,275 323,988 930,925 623,720 1,034,957 544,000 13,059,138

2031/32 565,533 1,846,221 3,073,646 3,101,198 1,011,463 322,113 932,488 627,158 1,035,982 544,000 13,059,800

2032/33 565,808 1,841,971 3,073,346 3,103,198 1,012,400 324,925 932,800 624,658 1,036,032 544,000 13,059,138

2033/34 570,371 1,845,471 3,073,646 3,100,398 1,011,775 322,113 931,863 626,533 1,035,107 544,000 13,061,275

2034/35 568,983 1,846,221 3,074,271 3,102,798 1,014,588 323,988 934,675 627,470 1,033,207 544,000 13,070,200

2035/36 566,883 1,844,221 3,074,946 3,099,798 1,010,525 325,238 930,925 627,470 1,035,332 544,000 13,059,338

2036/37 569,071 1,844,471 3,070,396 3,101,398 1,009,900 320,863 930,925 626,533 1,036,157 544,000 13,053,713

2037/38 565,308 1,841,721 3,070,621 3,101,998 1,012,400 321,175 934,363 624,658 1,035,682 544,000 13,051,925

2038/39 565,833 1,845,971 3,075,071 3,101,298 1,012,713 320,863 930,925 626,845 1,033,907 544,000 13,057,425

2039/40 570,408 1,841,721 3,073,196 3,103,998 1,010,838 324,925 930,925 627,783 1,035,832 544,000 13,063,625

2040/41 568,796 1,844,221 3,074,996 3,104,498 1,011,775 323,050 934,050 627,470 1,036,132 544,000 13,068,988

2041/42 566,233 1,842,971 3,074,921 3,102,498 1,010,213 320,550 929,988 625,908 1,034,807 544,000 13,052,088

2042/43 567,721 1,842,971 3,072,696 3,102,698 1,011,150 322,425 934,050 623,095 1,036,857 12,513,663

2043/44 (5,304) (11,779) 3,073,046 3,104,498 1,014,275 323,363 930,613 624,033 1,036,957 10,089,700

2044/45 (20,379) 3,102,298 1,014,275 323,363 929,988 623,408 1,035,107 7,008,058

2045/46 (19,703) 1,011,150 322,425 931,863 626,220 1,036,307 3,908,262

2046/47 (5,100) 325,550 930,925 627,158 1,035,232 2,913,765

2047/48 (5,075) 932,175 626,220 1,036,882 2,590,202

2048/49 (9,700) 623,408 1,035,932 1,649,640

2049/50 (7,217) 1,037,382 1,030,165

2050/51 1,035,907 1,035,907

2051/52 1,036,507 1,036,507

2052/53 1,033,857 1,033,857

2053/54 1,037,957 1,037,957

2054/55 (10,443) (10,443)

Total Debt Service $375,438,101

1 - Debt service estimates based on NHA Advisors projections

Net Debt Service

Scenario 3: Borrowing Assumption and Debt Service Estimates (1)


fees as needed to repay debt service. The City anticipates that funding a portion of the surface

water project with Federal and/or State low-cost loans and grants will lower overall water

rates.

Debt Service Coverage

When issuing bonds, the City will have to legally abide by a number of debt covenants designed

to ensure adequate repayment security. Key among these is a debt service coverage covenant

that requires the City to raise water rates as needed to achieve 110% coverage on annual debt

service per NHA Advisors. This means that annual net revenues (total revenues less operations

and maintenance expenses) must be at least 110% of combined annual debt service payments

on all parity (i.e. first lien) water obligations. Operating expenses include baseline operating

expenses, operating costs for the surface water project, and CPG water rights payments.

Coverage ratios are a financial measure of the water utility’s ability to repay outstanding debt

and are a standard legal covenant for securing water revenue bonds or similar debt financing.

Future Conservation and Price Elasticity As previously noted, total water consumption declined over the three-calendar year (2009-

2011) period analyzed in this study. The recommended new water rate structure is designed to

encourage and reward conservation City-wide. Additionally, due to the effects of water price

elasticity, any increases in the water rates are expected to spur additional conservation. The

impacts of this additional conservation due to price elasticity have been estimated and built

into the cash flow projections.

The responsiveness of water consumption to water rates is difficult to accurately forecast. The

price elasticity of demand is the percentage change in quantity of water consumed for each

percent change in price. Water price elasticity is usually negative, signifying that the price and

the quantity demanded move in opposite directions such that an increase in price results in a

decrease in quantity demanded. For example, a price elasticity factor of -1 means that for

every 1 percent increase in price, a corresponding 1 percent decrease in consumption would be

seen.

Price elasticity varies by customer classes, regions, and time of year. This study applies

standard price elasticity factors to estimate conservation as shown on Table 16.


Table 16. Price Elasticity Assumptions

Water demand for outdoor discretionary uses (such as lawn watering, garden irrigation, and car

washing) is generally more elastic than indoor non-discretionary water uses. To reflect the

elasticity of outdoor usage, the projections apply separate price elasticity factors to each single

family residential tier. Elasticity for all customer classes is adjusted down beginning in 2016/17,

assuming that overall conservation will become less elastic after customers have adjusted their

consumption patterns in response to the rate increases and rate structure modifications. Price

elasticity is assumed to apply only to increases above the Consumer Price Index (CPI).

Cash Flow Scenarios BWA developed various cash flow scenarios to determine the impacts on the water utility’s

finances and on ratepayers. The rate increases were phased in to minimize impacts on

customers while covering operating and capital costs, meeting debt service coverage, building

reserves, and maintaining the long-term viability of the water enterprise. Three scenarios were

evaluated:

2012/13 1-May-13 1-Jan-14 1-Jan-15 1-Jan-16 1-Jan-17 1-Jan-18

Elasticity Assumptions

Single Family Residential

Tier 1 -0.20 -0.20 -0.20 -0.20 -0.20 -0.10 -0.10

Tier 2 -0.20 -0.20 -0.20 -0.20 -0.20 -0.10 -0.10

Tier 3 -0.80 -0.80 -0.80 -0.80 -0.60 -0.40 -0.40

Multi Family Residential -0.20 -0.20 -0.20 -0.20 -0.20 -0.10 -0.10

Commercial -0.40 -0.40 -0.40 -0.40 -0.30 -0.20 -0.20

Irrigation -0.80 -0.80 -0.80 -0.80 -0.60 -0.40 -0.40

Source: Elasticity factors based on a presentation titled "Introduction to Conservation Oriented Water Rate Structure and Budget-Based

Rates" by Peter Mayer, P.E., Aquacraft Engineering & Management on Auguest 13, 2008.


Scenario 1: Baseline Expenses Only: This scenario does not include any operating or

capital costs related to the surface water project. Although the revenues will

adequately fund the water enterprise in the short-term, it is assumed that this scenario

is not viable for the long-term horizon.

Scenario 2: WDCWA 30 mgd (Davis: 12 mgd) Partial Pay-As-You-Go: This scenario

includes all operating and capital expenditures for the surface water project and

assumes that a portion of capital costs are funded on a pay-as-you-go basis.

Scenario 3: WDCWA 30 mgd (Davis: 12 mgd) All Debt: This scenario includes all

operating and capital expenditures for the surface water project and assumes that all

portion of capital costs are debt-financed.

The cash flow projections were based on the best information currently available and include

the following assumptions:

Revenues

The first rate adjustments take effect on May 1, 2013. Rate increases thereafter will be

effective on January 1, beginning on January 1, 2014.

Slow to moderate growth is projected in the next 5 years. The projections include growth

of 0.5 percent per year through fiscal year 2015/16. Beginning in fiscal year 2016/17 and

continuing thereafter, 1.0 percent annual growth is assumed.

The interest earning rate is estimated at 0.5 percent each year beginning in fiscal year

2012/13 and gradually increases to 2 percent.

Other Revenues are escalated by 3 percent each year based on historical trends.

Service charges are designed to recover about 40%, and volume charges will recover about

60% of water sales revenues.

The water meter replacement charges begin in fiscal year 2013/14.

The same price elasticity factors were applied to each cash flow scenario.

Expenses

Salaries and wages are escalated by 3.8 percent per year.

Other Baseline expenses are escalated by 3 percent per year.

CPG water rights payments begin in fiscal year 2015/16.

All baseline and local R&R capital projects are included.

Debt service for refunding the 2011 Wells Fargo line of credit is estimated at $544,000

beginning in fiscal year 2013/14.

Scenario I: Baseline Expenses Only (No WDCWA Participation) This scenario calculates the revenue requirements and necessary rate increases for the water

utility without the surface water project. While this option represents the lowest rate increases


over the next five years, it does not adequately plan for the future. The annual revenue

requirements, rate adjustments, and an estimated single family residential bill based on the

current median usage of 11 ccf is shown on Table 17. The rate projections assume no change

in the rate structure.

Table 17. Scenario 1: Baseline Expenses Only

As shown on Table 18, for Scenario 1: Baseline Expenses only, total consumption is projected to

decrease approximately 8 percent for the period between fiscal year 2013/14 through fiscal

year 2017/18 based on the projected rate increases, elasticity factors and growth assumptions.

1-May-13 1-Jan-14 1-Jan-15 1-Jan-16 1-Jan-17 1-Jan-18

Revenue

Adjustment 8% 8% 15% 15% 9% 9%

Revenue

Requirement $10,726,500 $11,475,000 $13,196,000 $15,175,000 $16,541,000 $18,030,000Estim. Median

SFR Bill

(11 ccf/mo) $30.10 $32.36 $37.21 $42.79 $46.64 $50.84


Table 18. Scenario 1: Elasticity and Conservation Assumptions

Scenario 2: WDCWA 30 mgd (Davis: 12 mgd) Partial Pay-As-You-Go Scenario 2 includes all operating and capital expenditures for the surface water project and

assumes that approximately 33 percent of capital projects (essentially the local R&R projects)

are funded on a pay-as-you-go basis, thereby reducing the amount of total projects financed.

This scenario assumes that $57.9 million in local R&R projects and surface water project capital

costs through fiscal year 2024/25 are funded on a pay-as-you-go basis directly from water rates.

The total amount of project funding from revenue bonds in this scenario is $125.2 million. The


Annual Rate Increase 8% 8% 15% 15% 9% 9%

CPI Assumption 3% 3% 3% 3% 3% 3%

Net Rate Increase for Elasticity 5% 5% 12% 12% 6% 6%



Tier 1 -0.20 -0.20 -0.20 -0.20 -0.10 -0.10

Tier 2 -0.20 -0.20 -0.20 -0.20 -0.10 -0.10

Tier 3 -0.80 -0.80 -0.80 -0.60 -0.40 -0.40

Multi Family Residential -0.20 -0.20 -0.20 -0.20 -0.10 -0.10

Commercial -0.40 -0.40 -0.40 -0.30 -0.20 -0.20

Irrigation -0.80 -0.80 -0.80 -0.60 -0.40 -0.40

Customer Growth Assumption

Single Family Residential 0.25% 0.25% 0.5% 0.5% 1.0% 1.0%

Multi Family Residential 0.25% 0.25% 0.5% 0.5% 1.0% 1.0%

Commercial 0.25% 0.25% 0.5% 0.5% 1.0% 1.0%

Irrigation 0.00% 0.00% 0.0% 0.0% 0.0% 0.0%

Annual Consumption Projection (ccf/year) Based on 2011 Usage


Tier 1 1,923,010 1,910,510 1,874,210 1,838,600 1,845,954 1,853,338

Tier 2 328,936 326,798 320,589 314,498 315,756 317,019

Tier 3 270,766 261,695 237,881 221,943 218,836 215,772

Subtotal Single Family Residential 2,522,712 2,499,003 2,432,680 2,375,041 2,380,546 2,386,129

Multi Family Residential 980,548 974,174 955,665 937,507 941,257 945,022

Commercial 435,791 429,036 410,587 397,859 397,063 396,269

Irrigation 571,917 551,328 498,401 462,516 451,416 440,582

Total 4,510,968 4,453,541 4,297,333 4,172,923 4,170,282 4,168,002

Annual Change 1.3% 1.3% 3.5% 2.9% 0.1% 0.1%

Cumulative Use Reduction 0.9% 2.1% 5.6% 8.3% 8.3% 8.4%


annual revenue requirements, rate adjustments, and an estimated single family residential bill

based on median usage of 11 ccf is shown on Table 19. The rate projections are based on the

traditional rate structure for May 1, 2013 and January 1, 2014. Beginning in fiscal year 2014/15,

the rates assume the CBFR structure.

Table 19. Scenario 2: WDCWA 30 mgd (Davis: 12 mgd) Partial Pay-As-You-Go

As shown on Table 20, for Scenario 2: WDCWA 30 mgd (Davis: 12 mgd) Partial Pay-As-You-Go,

total consumption is projected to decrease roughly 22 percent for the period between fiscal

year 2013/14 through fiscal year 2017/18 based on the projected rate increases, elasticity

factors and growth assumptions.




Est. Median SFR Bill

Monthly Use: 11 ccf/mo

May-Oct Use: 17 ccf/mo $33.57 $39.65 $57.09 $72.61 $83.87 $94.26



Scenario 3: WDCWA 30 mgd (Davis: 12 mgd) All Debt Scenario 3 includes all operating and capital expenditures for the surface water project and

assumes that all local R&R and all capital projects for the surface water project are debt

financed. This scenario includes $158.9 million in revenue bonds to fund local R&R projects and

surface water project capital costs through fiscal year 2024/25. The annual revenue

requirements, rate adjustments, and an estimated single family residential bill based on median

usage of 11 ccf per month and average usage of 15 ccf per month is shown on Table 21. The







Tier 1 -0.20 -0.20 -0.20 -0.20 -0.10 -0.10

Tier 2 -0.20 -0.20 -0.20 -0.20 -0.10 -0.10

Tier 3 -0.80 -0.80 -0.80 -0.60 -0.40 -0.40


Commercial -0.40 -0.40 -0.40 -0.30 -0.20 -0.20

Irrigation -0.80 -0.80 -0.80 -0.60 -0.40 -0.40




Commercial 0.25% 0.25% 0.5% 0.5% 1.0% 1.0%

Irrigation 0.00% 0.00% 0.0% 0.0% 0.0% 0.0%



Tier 1 1,870,749 1,808,079 1,737,564 1,669,799 1,669,799 1,669,799

Tier 2 319,997 309,277 297,215 285,624 285,624 285,624

Tier 3 240,510 206,478 171,170 149,431 144,948 140,600



Commercial 411,888 383,262 351,451 330,012 326,712 323,445

Irrigation 507,843 434,714 358,204 310,921 298,484 286,545

Total 4,304,887 4,063,754 3,801,592 3,597,221 3,577,001 3,557,447

Annual Change 5.8% 5.6% 6.5% 5.4% 0.6% 0.5%



rate projections are based on the traditional rate structure for May 1, 2013 and January 1,

2014. Beginning in fiscal year 2014/15, the rates assume the CBFR structure.

Table 21. Scenario 3: WDCWA 30 mgd (Davis: 12 mgd) All Debt

As shown on Table 23, for Scenario 3: WDCWA 30 mgd (Davis: 12 mgd) All Debt, total

consumption is projected to decrease nearly 18 percent for the period between fiscal year

2013/14 through fiscal year 2017/18 based on the projected rate increases, elasticity factors

and growth assumptions.




Est. Median SFR Bill

Monthly Use: 11 ccf/mo

May-Oct Use: 17 ccf/mo $30.89 $36.48 $52.31 $63.40 $70.12 $83.27



Comparison of Revenue Requirements Table 23 and Figure 3 compares the annual revenue adjustments and revenue requirements for

the three cash flow scenarios. By financing all local R&R and surface water project capital

projects, Scenario 3 (WDCWA 30 mgd (Davis: 12 mgd) ALL DEBT) allows the City to more

gradually phase in rate increases. In January 2013, the City Council selected Scenario 3 for

development of the final rates.







Tier 1 -0.20 -0.20 -0.20 -0.20 -0.10 -0.10

Tier 2 -0.20 -0.20 -0.20 -0.20 -0.10 -0.10

Tier 3 -0.80 -0.80 -0.80 -0.60 -0.40 -0.40


Commercial -0.40 -0.40 -0.40 -0.30 -0.20 -0.20

Irrigation -0.80 -0.80 -0.80 -0.60 -0.40 -0.40




Commercial 0.25% 0.25% 0.5% 0.5% 1.0% 1.0%

Irrigation 0.00% 0.00% 0.0% 0.0% 0.0% 0.0%



Tier 1 1,893,976 1,853,256 1,780,979 1,711,521 1,720,079 1,728,679

Tier 2 323,970 317,005 304,642 292,761 294,225 295,696

Tier 3 253,957 230,212 190,846 166,609 164,943 163,294



Commercial 422,511 403,287 369,814 347,255 347,255 347,255

Irrigation 536,321 484,834 399,503 346,769 339,834 333,037

Total 4,396,478 4,233,574 3,953,910 3,737,624 3,743,409 3,749,419

Annual Change 3.8% 3.7% 6.6% 5.5% -0.2% -0.2%



Table 23. Scenario Comparison: Revenue Requirements

Figure 3. Annual Revenue Requirement Comparison

1-May-13 1-Jan-14 2014/15 2015/16 2016/17 2017/18

Scenario 1: Baseline Expenses Only (No WDCWA Participation)



Scenario 2: WDCWA 30 mgd (Davis: 12 mgd) Partial Pay-As-You-Go



Scenario 3: WDCWA 30 mgd (Davis: 12 mgd) All Debt - Council Selected Scenario




SECTION 4: COST OF SERVICE The financial plan and cash flow projections detailed in the previous section determined the

amount of revenue needed to be generated from water rates. The cost of service analysis

builds on the revenue requirements by providing a basis for recovering revenues from

customers based on the unique demands they place on the water system. Proposition 218

requires that agencies providing “property-related services” (including water utility service) set

rates and charges that are based on the cost of providing those services.

The rates proposed in this report were developed using generally accepted cost-based

principles and methodologies for establishing water rates, charges, and fees contained and

discussed in the AWWA’s M1 Manual, Principles of Water Rates, Fees, and Charges, Sixth

Edition, 2012. In developing water rates, it is important to know that there is no “one-size-fits-

all” approach for establishing cost-based water rates. “Rather, as the first edition of the M1

Manual noted “the (M1 Manual) is aimed at outlining the basic elements involved in water

rates and suggesting alternative rules of procedure for formulating rates, thus permitting the

exercise of judgment and preference to meet local conditions and requirements.” 1

The rates and cost of service approach recommended in this report are unique to Davis and

are the result of an extensive public process. During this process, input was received from

many sources including City staff, the WAC, the Davis Chamber of Commerce, members of

the public, and the City Council.

Fixed vs. Variable Charges Water utilities can recover costs from a combination of fixed and variable charges. The

percentage of revenues derived from the fixed and variable charges varies for each agency

and should be proportional to each system’s expenditures and must not exceed the cost of

providing service. A higher level of fixed charges provides better revenue stability and less

dependence on volumetric sales. On the other hand, higher dependence on volumetric

revenues provides a better conservation incentive.

Fixed costs from an accounting stand point are the expenses required to provide basic service

and do not vary with the production or consumption of water. Examples include debt service,

labor, system maintenance, and repairs. These fixed costs are essential for providing water

service to all customers at any given time. In contrast, variable costs fluctuate based on the

1 AWWA Manual M1 Manual, Principles of Water Rates, Fees, and Charges, Sixth Edition, 2012, page 5.


amount of water produced. Examples include utilities, chemicals, conservation efforts, and

water purchases. Typically, the majority of a water system’s costs are fixed, and therefore fixed

rates are assumed to generate sufficient revenue to meet the utility’s fixed expenses.

However, in California agencies typically recover more of their fixed costs through variable

charges to provide conservation incentive.

The California Urban Water Conservation Council (CUWCC) was created to promote efficient

water use statewide through partnerships among urban water agencies, public interest

organizations, and private entities. The CUWCC's goal is to integrate urban water conservation

Best Management Practices (BMP) into the planning and management of California's water

resources. BMP 1.4 (previously BMP 11) on pricing recommends rate structures that recover at

least 70 percent of rate revenues from volumetric rates. The CUWCC provides other options for

complying with BMP 1.4 and recognizes that the 70 percent volumetric guideline is not

appropriate for all signatories.

Current Revenue Allocations Based on 2011 revenue projections, the water enterprise currently collects approximately 26

percent of total revenues from the fixed base charge and 67 percent from the metered charges

as summarized on Table 24. Other revenues account for nearly 7 percent of total revenues.

Table 24. Current Fixed vs. Variable Revenue Allocation (1)

Revenue stability is a major concern for utilities State-wide due to the recent downward trend

in water consumption. An increase in the amount of revenue collected through the fixed

charges would provide increased revenue stability and better align revenue recovery with

actual costs. BWA determined the proportionate allocation of costs through a commodity

demand analysis.

Amount % of Total

Fixed Revenues

Base Service Charges $2,808,000 26.3%

Other Revenues (2) 691,000 6.5%

Variable Revenues

Metered Charges 7,170,000 67.2%

Total Revenues 10,669,000 100.0%

1 - Based on fiscal year 2010/11 revenues

2 - Other revenues include interest, capacity fees, charges for North Davis Meadows water service, and other

miscellaneous fees


Commodity Demand Cost Allocation The American Water Works Association (AWWA) recommends two primary methods to classify

costs among various customers: (1) the Base-Extra Capacity method in which costs are allocated

to the different customer classes proportionate to their use of the water system; and (2) the

Commodity-Demand method in which costs are proportionately allocated to each customer

class based on their peak demand. Although the two methods vary in the way that costs are

allocated, both result in rates designed to recover the reasonable cost of service during periods

of both average and peak demands. BWA selected the commodity demand method for use in

the Davis rate study based on prior experience with cost of service analysis for similar cities.

To determine the proportionate allocation of revenue recovery, this study allocates system

costs using the commodity-demand method. In the commodity-demand method, costs are

separated into four components: (a) commodity costs, (b) demand costs, (c) customer costs,

and (d) direct fire-protection costs. Commodity costs typically vary with the quantity of water

produced. Examples include chemicals, utilities, and water purchases (if bought on a unit

volume basis). Commodity costs also include costs related to reservoirs and other costs that

vary with average daily demand. Demand costs recover the costs of facilities needed to meet

the peak use, or demands, placed on the system by each customer class. Demand costs include

capital-related system costs designed to meet peak requirements and the associated operation

and maintenance expenses. Examples include the water distribution pipeline system which is

sized to meet peak demands. These costs can be further broken down into costs associated

with meeting specific demands, such as maximum-month, maximum-day, excess maximum

hour, or other periods of time that may be appropriate to the utility. Customer costs include

the fixed costs associated with serving customers. These costs are incurred regardless of the

amount of water a customer consumes. Examples include billing, meter reading, customer

accounting and collecting expenses, and maintenance and capital costs for meters. Direct fire-

protection costs comprise costs applied exclusively for fire protection. Examples include public

fire hydrants and related mains and valves.

Functional Cost Components The total cost of water service is analyzed by system function to proportionately distribute

costs of service to the various customer classes. Water utility costs are assigned to three basic

functional cost components: commodity costs, demand costs, and customer administrative

costs. Because the expenses related to direct fire protection were relatively small, they were

combined with the demand cost component.

Expenses were broken down into three general categories of costs by function: (1) baseline


operating costs; (2) local R&R projects and water system fixed assets; and (3) surface water

projects capital costs. Tables 25 through 27 show the results of the commodity demand cost

allocation to each cost component for each of the expense categories.


Table 25. Commodity Demand Allocation: Baseline Operating Expenses

2011/12 Commodity Demand Cust Admin Total Commodity Demand Cust Admin Total

Budget % % % % $ $ $ $

BASELINE OPERATING EXPENSES

Fund 511 - Water

1110-7252 Miscellaneous $351,260 45% 35% 20% 100% $158,067 $122,941 $70,252 $351,260

7520 Utility Resources Management 370,745 30% 70% 0% 100% 111,224 259,522 0 370,745

7522 Water Production 2,869,635 100% 0% 0% 100% 2,869,635 0 0 2,869,635

7523 Water Distribution 2,053,439 50% 50% 0% 100% 1,026,720 1,026,720 0 2,053,439

7526 Cross-Connection Control 121,296 0% 100% 0% 100% 0 121,296 0 121,296

7527 Fire Hydrant Maintenance 702,217 0% 100% 0% 100% 0 702,217 0 702,217

7528 Water Conservation 0 50% 50% 0% 100% 0 0 0 0

7529 New Services/Meter Install 16,906 0% 100% 0% 100% 0 16,906 0 16,906

7531 North Davis Meadows 86,732 50% 50% 0% 100% 43,366 43,366 0 86,732

7536 Water Support - City Facilities 45,395 0% 100% 0% 100% 0 45,395 0 45,395

7565 Water Inter-Department Charges 234,119 10% 10% 80% 100% 23,412 23,412 187,295 234,119

7602 - 8543 Miscellaneous 329,924 45% 35% 20% 100% 148,466 115,473 65,985 329,924

8835 Debt Service 163,789 55% 43% 2% 100% 90,084 70,429 3,276 163,789

9895 Transfer to Capital Replacement Fund 512 2,767,268 55% 43% 2% 100% 1,521,997 1,189,925 55,345 2,767,268

Subtotal Fund 511 $10,112,725 $5,992,970 $3,737,602 $382,153 $10,112,725

Allocation 59% 37% 4% 100%

Fund 512 - Water Capital Replacement

7520 Utility Resources Management $70,000 30% 70% 0% 100% $21,000 $49,000 $0 $70,000

8110-8217 Capital Replacement Misc. 2,981,603 60% 37% 3% 100% 1,790,341 1,098,404 92,857 2,981,603

8543 JPA Contribution 4,275,000 60% 39% 1% 100% 2,570,996 1,680,437 23,567 4,275,000

8836 - 8840 Debt Service 1,042,154 55% 43% 2% 100% 573,185 448,126 20,843 1,042,154

9895 Transfer from Fund 511 (2,767,268) 55% 43% 2% 100% (1,521,997) (1,189,925) (55,345) (2,767,268)

Subtotal Fund 512 $5,601,489 $3,433,525 $2,086,042 $81,922 $5,601,489

Allocation 61% 37% 1% 100%

Fund 513 - Water Capital Expansion

8110-8185 Capital Expansion $349,533 0% 100% 0% 100% $0 $349,533 $0 $349,533

8543-8552 JPA Contribution 0 0% 100% 0% 100% 0 0 0 0

8836 Debt Service 302,416 0% 100% 0% 100% 0 302,416 0 302,416

9895 Contribution transfer (150,000) 0% 100% 0% 100% 0 (150,000) 0 (150,000)

8223-8225 Capital Expansion 1,015,000 0% 100% 0% 100% 0 1,015,000 0 1,015,000

Subtotal Fund 513 $1,516,949 $0 $1,516,949 $0 $1,516,949

Allocation 0% 100% 0% 100%

Total All Baseline Operating Expenses $17,231,163 $9,426,495 $7,340,593 $382,153 $17,149,241

Total Commodity-Demand Allocation 55% 43% 2% 100%


Table 26. Commodity Demand Allocation: Local R&R Projects and Water System Fixed Assets

Commodity Demand Cust Admin Total Commodity Demand Cust Admin Total

Total % % % % $ $ $ $

WATER SYSTEM FIXED ASSETS (Book Value)

Land Water - Well and Tank Site $770,390 90% 10% 0% 100% $693,351 $77,039 $0 $770,390

Buildings - Water 40,274 0% 50% 50% 100% 0 20,137 20,137 40,274

Water Production System 44,962,382 100% 0% 0% 100% 44,962,382 0 0 44,962,382

Water Distribution System 42,684,165 20% 80% 0% 100% 8,536,833 34,147,332 0 42,684,165

Water Maintenance System 57,896 20% 80% 0% 100% 11,579 46,317 0 57,896

Vehicles - Water 14,445 33% 33% 34% 100% 4,767 4,767 4,911 14,445

Total Water Assets $88,529,552 $54,208,912 $34,295,592 $25,048 $88,529,552

Commodity-Demand Allocation 61.2% 38.7% 0.0% 100.0%

LOCAL CIP PROJECTS R&R (FY 2012 through 2020)

Well 34 (Corp Yard) (8174) $2,200,000 100% 0% 0% 100% $2,200,000 $0 $0 $2,200,000

EM Valve Replacements (8158) 200,000 60% 40% 0% 100% 120,000 80,000 0 200,000

Water Main Replacements (8190) 2,400,000 20% 80% 0% 100% 480,000 1,920,000 0 2,400,000

Water Main Replacements from Assessment 7,374,000 20% 80% 0% 100% 1,474,800 5,899,200 0 7,374,000

Anode Installation (8186) 1,000,000 20% 80% 0% 100% 200,000 800,000 0 1,000,000

AMR (8187) 3,718,000 30% 20% 50% 100% 1,115,400 743,600 1,859,000 3,718,000

Water Main Corr Prev (8210) 200,000 20% 80% 0% 100% 40,000 160,000 0 200,000

SCADA (8183) 250,000 60% 40% 0% 100% 150,000 100,000 0 250,000

East Area Main Upsizing (8224) 294,000 20% 80% 0% 100% 58,800 235,200 0 294,000

Well Irrigation Ph 1&2 (8225) 3,274,000 100% 0% 0% 100% 3,274,000 0 0 3,274,000

Aquifer Storage and Recovery (8223) 0 100% 0% 0% 100% 0 0 0 0

Decommission Wells 0 100% 0% 0% 100% 0 0 0 0

Make Improvements at Elevated Tank 537,000 20% 80% 0% 100% 107,400 429,600 0 537,000

Improve West Area Tank Overflow Capacity 135,000 20% 80% 0% 100% 27,000 108,000 0 135,000

Replacement Deep Wells 8,400,000 100% 0% 0% 100% 8,400,000 0 0 8,400,000

Total Local Project R&R $29,982,000 $17,647,400 $10,475,600 $1,859,000 $29,982,000

Commodity-Demand Allocation 59% 35% 6% 100%

Average Fixed Assets and Local CIP Projects R&R Allocation 60% 37% 3% 100%


Table 27. Commodity Demand Allocation: WDCWA Surface Water Project Costs

Table 28. Commodity Demand Allocation: Total All Expenses

Table 28 shows the total allocation combining all water system expenses. Commodity costs

represent 60 percent of all expenses, demand costs account for 38 percent, and customer

administrative costs comprise 2 percent. These allocations are the basis for how costs are

assigned to the fixed and variable rate components (60 percent to variable and 40 percent to

fixed).

Commodity Demand Cust Admin Total Commodity Demand Cust Admin Total

Total % % % % $ $ $ $

WDCWA SURFACE WATER PROJECT 30 MGD (DAVIS: 12 MGD) PROJECT COSTS

Agency Administration $1,708,000 60% 30% 10% 100% $1,024,800 $512,400 $170,800 $1,708,000

Program Management 1,655,000 60% 40% 0% 100% 993,000 662,000 0 1,655,000

Pre-Design 2,849,000 60% 40% 0% 100% 1,709,400 1,139,600 0 2,849,000

Water Supply 382,000 100% 0% 0% 100% 382,000 0 0 382,000

Environmental & Permitting 767,000 60% 40% 0% 100% 460,200 306,800 0 767,000

Land/RW Acquisitions (1) 1,997,000 60% 40% 0% 100% 1,198,200 798,800 0 1,997,000

Capital Contingency 3,514,000 60% 40% 0% 100% 2,108,400 1,405,600 0 3,514,000

Construction Phase

Design, CM, Eng. Services During Const., etc. 9,441,000 60% 40% 0% 100% 5,664,600 3,776,400 0 9,441,000

Intake Facility Construction 5,516,000 60% 40% 0% 100% 3,309,600 2,206,400 0 5,516,000

Raw Water Pipelines Construction 9,008,000 60% 40% 0% 100% 5,404,800 3,603,200 0 9,008,000

Regional Water Treatment Facility Construction 38,964,000 60% 40% 0% 100% 23,378,400 15,585,600 0 38,964,000

Davis Treated Water Pipeline Construction 19,843,000 60% 40% 0% 100% 11,905,800 7,937,200 0 19,843,000

Costs Expended (Sept 2009 - June 2011) 3,476,000 60% 40% 0% 100% 2,085,600 1,390,400 0 3,476,000

Local Facility Costs 14,655,000 60% 37% 3% 100% 8,799,781 5,398,812 456,407 14,655,000

Total Capital Costs $113,775,000 $68,424,581 $44,723,212 $627,207 $113,775,000

Commodity-Demand Allocation 60% 39% 1% 100%


Est. Amount % % % % $ $ $ $

City of Davis Water System Baseline Expenses

Baseline Operating Expenses $10,856,000 59% 37% 4% 100% $6,419,000 $4,023,000 $432,000 $10,874,000

Fixed Assets and Local CIP Projects R&R (1) 3,000,000 59% 38% 3% 100% 1,781,000 1,129,000 90,000 $3,000,000

Subtotal $13,856,000 $8,200,000 $5,152,000 $522,000 $13,874,000


Davis' Share of Surface Water Project Expenses

Surface Water Project Expenses $13,146,000 60% 39% 1% 100% $7,894,000 $5,181,000 $71,000 $13,146,000

Subtotal $13,146,000 $7,894,000 $5,181,000 $71,000 $13,146,000


Total All Expenses $27,002,000 $16,094,000 $10,333,000 $593,000 $27,020,000

Total Commodity-Demand Allocation 60.0% 38.0% 2.0% 100.0%

1 - Based on average annual replacement projects = $3,000,000


Customer Classes Once the costs of operating the system assets have been properly categorized by function, they

can be classified and allocated to the various customer classes by determining the

characteristics of those classes and the customer class’ contribution to the incurred costs. This

analysis includes a review of such matters as system operations and water usage data. The

impact that these matters have on system operations determines how the costs are allocated

among various customer classes.

Based on review of water consumption data, customer classes with similar peaking and usage

characteristics were grouped together. BWA recommends consolidating the existing seven

customer classes into four customer classes as shown on Table 29. The proposed categories

combine the current small and large commercial classes into a single “Commercial” category.

Additionally, City domestic accounts (e.g. City Hall) will be charged the “Commercial” rate, and

City/Municipal (irrigation) will be billed the “Irrigation” rate.

Table 29. Proposed Customer Classes

Customer Water Consumption Analysis BWA analyzed 2011 water consumption data for all customer classes to evaluate usage

patterns and proposed rate structure adjustments for a more proportionate allocation of the

costs of providing water service and to encourage water conservation. Water consumption

patterns over the course of a year show that each customer class has different peak demands.

Table 30 shows bi-monthly annual consumption and peaking ratios by class. Figure 4 shows

annual water usage graphically. It is important to note that the City is in the process of

metering all of its City and park accounts and therefore not all usage may be fully captured in

the data.

Current Classes Recommended Classes

Single Family Residential Single Family Residential

Multi-Family Residential Multi-Family Residential

Commercial

- Small: Under 1-1/2" meter

- Large: Over 2" meter

Irrigation

- City

- All Other Customers

City Domestic Accounts Combine with Commercial

Commercial

Irrigation


Table 30. 2011 Water Consumption (ccf) by Proposed Customer Classes

Figure 4. 2011 Bi-Monthly Water Consumption (ccf) by Class

Table 31 shows the peaking ratio for each customer class. The peak ratio is calculated by taking

the highest use month over average annual use. Irrigation accounts have the highest peaking

factor, followed by single family residential customers. As expected, these classes tend to use

more water during the summer months for outdoor use.

Customer Class Jan/Feb Mar/Apr May/Jun Jul/Aug Sept/Oct Nov/Dec Total

Single Family Residential 211,655 319,455 541,267 682,622 501,043 278,118 2,534,160

Multi-Family Residential 137,573 155,415 188,376 198,744 174,755 127,190 982,053

Commercial 48,339 59,123 86,082 100,993 84,548 61,365 440,450

Irrigation 9,398 40,158 145,113 205,218 146,349 47,039 593,275

Total 406,965 574,151 960,838 1,187,577 906,695 513,712 4,549,938

Percent of Total 8.9% 12.6% 21.1% 26.1% 19.9% 11.3% 100.0%


Table 31. 2011 Average and Peaking Ratios by Proposed Customer Classes

Unit Costs of Service Components In order to provide adequate service to its customers at all times, the water system must be

capable of not only providing the average amount of water used, but also supplying water at

peak or maximum rates of demand. Therefore, rates are designed to recover system expenses

needed to provide both average and peak use. Table 32 shows the allocation of the $9,978,000

2012/13 revenue requirement to each customer class, assuming that 50 percent of expenses

are allocated to average costs and 50 percent are allocated to peaking costs. Table 32 also

calculates the relative peaking impacts for each customer class.

Table 32. 2011 Allocation of Average and Peaking Costs

To proportionately recover costs from each customer class, system expenses are allocated to

each class based on their calculated peaking impact as detailed in Table 33. The peaking impact

is the percentage of the total allocation less the percentage of the allocation to average costs.

Demand costs are recovered from the fixed charges. All customer classes are charged the same

fixed charge based on meter size. Commodity costs are recovered from the consumption or

variable charges.

Customer Class Total (ccf) % of Total Peak (ccf) Average (ccf) Ratio Total x Ratio % of Total

Single Family Residential 2,534,160 55.7% 682,622 422,360 1.62 4,095,732 57.4%

Multi-Family Residential 982,053 21.6% 198,744 163,676 1.21 1,192,464 16.7%

Commercial 440,450 9.7% 100,993 72,744 1.39 611,496 8.6%

Irrigation 593,275 13.0% 205,218 98,879 2.08 1,231,305 17.3%

Total 4,549,938 100.0% 1,187,577 757,658 1.57 7,130,997 100.0%

Peaking Impact

Customer Class $ % $ % $ % Total less Avg

Single Family Residential 2,778,703 55.7% 2,865,463 57.4% 5,644,165 56.6% 0.9%

Multi-Family Residential 1,076,820 21.6% 834,274 16.7% 1,911,093 19.2% -2.4%

Commercial 482,953 9.7% 427,816 8.6% 910,769 9.1% -0.6%

Irrigation 650,525 13.0% 861,448 17.3% 1,511,972 15.2% 2.1%

Total 4,989,000 100.0% 4,989,000 100.0% 9,978,000 100.0% 0.0%

1 - Assumes costs allocated 50%/50% to average and peak.

Allocation to Peaking Costs Total AllocationAllocation to Average Costs


Table 33. Fixed and Variable Charges: Rate Derivation (Based on Scenario 3)

Example 2012/13 1-May-13 1-Jan-14 1-Jan-15 1-Jan-16 1-Jan-17 1-Jan-18

REVENUE REQUIREMENT ALLOCATIONAnnual Revenue Requirement (Scenario 3) $9,978,000 $9,978,000 $11,474,500 $12,971,000 $16,214,000 $20,268,000 $21,889,000 $23,640,000

Admin Cust Bill Chg $394,000 $408,000 $421,000 $421,000 $436,000 $453,000 $471,000 $490,000

$/Meter per Month $2.00 $2.06 $2.12 $2.12 $2.18 $2.24 $2.31 $2.38

Net Revenue Requirement Allocation $9,584,000 $9,570,000 $11,053,500 $12,550,000 $15,778,000 $19,815,000 $21,418,000 $23,150,000

% From Meter Charges 39%

Fixed Meter Chg Revenue $3,716,245 $3,710,816 $4,286,051.02 $4,866,327 $6,118,000 $7,683,367 $8,304,939 $8,976,531

Total 3/4" Meter Equivalents 22,821 22,821 22,821 22,821 22,821 22,821 22,821 22,821

Monthly cost per 3/4" Meter $13.57 $13.55 $15.65 $17.77 $22.34 $28.06 $30.33 $32.78

% from Comm Chg 61% $5,867,755 $5,859,184 $6,767,449 $7,683,673 $9,660,000 $12,131,633 $13,113,061 $14,173,469

ADJUSTMENTSPeaking Adustments Peaking Impact

Single-Family Residential 0.9% $81,667 $81,548 $94,189 $106,941 $134,448 $168,848 $182,507 $197,266

Multi-Family Residential -2.4% -$228,309 -$227,976 -$263,316 -$298,965 -$375,862 -$472,031 -$510,218 -$551,478

Commercial -0.6% -$51,900 -$51,825 -$59,858 -$67,962 -$85,443 -$107,305 -$115,985 -$125,365

Irrigation 2.1% $198,542 $198,252 $228,985 $259,986 $326,858 $410,488 $443,696 $479,576

Adjustments to get Uniform Meter charges for All Classes

Single Fam Adjustment (%) -3.240% -3.240% -3.240% -3.240% -3.240% -3.240% -3.240% -3.240%

Multi Fam Adjustment (%) 2.615% 2.615% 2.615% 2.615% 2.615% 2.615% 2.615% 2.615%

Commercial Adjustment (%) 0.000% 0.000% 0.000% 0.000% 0.000% 0.000% 0.000% 0.000%

Irrigation Adjustment (%) 2.487% 2.487% 2.487% 2.487% 2.487% 2.487% 2.487% 2.487%

Single Fam Adjustment ($) -310,522 -310,068 -358,133 -406,620 -511,207 -642,006 -693,943 -750,060

Multi Fam Adjustment ($) 250,669 250,303 289,104 328,245 412,673 518,261 560,187 605,488

Commercial Adjustment ($) 0 0 0 0 0 0 0 0

Irrigation Adjustment ($) 238,311 237,963 274,851 312,062 392,328 492,710 532,569 575,636

FIXED METER CHARGES% of Total

Adjusted Meter Revenues Water Use Meter Revs

Single Family Res (w Peaking) 55.7% $2,462,011 $2,458,414 $2,839,507 $3,223,939 $4,053,172 $5,090,227 $5,502,018 $5,946,947

Multi Family Res (W Peaking) 21.6% $323,131 $322,659 $372,676 $423,132 $531,966 $668,076 $722,122 $780,518

Commercial (W Peaking) 9.7% $307,845 $307,396 $355,047 $403,115 $506,801 $636,473 $687,962 $743,595

Irrigation (W/O Peaking) 13.0% $246,257 $245,897 $284,015 $322,467 $405,409 $509,138 $550,327 $594,830

Total 100.0% $3,339,244 $3,334,366 $3,851,245 $4,372,653 $5,497,349 $6,903,914 $7,462,429 $8,065,890

No. of Equiv

Cost for 3/4" Meter Equivalent Meters

Single Family Res 16,825 $12.19 $12.18 $14.06 $15.97 $20.07 $25.21 $27.25 $29.45

Multi Family Res 2,208 $12.20 $12.18 $14.07 $15.97 $20.08 $25.21 $27.25 $29.46

Commercial 2,105 $12.19 $12.17 $14.06 $15.96 $20.06 $25.20 $27.24 $29.44

Irrigation 1,683 $12.20 $12.18 $14.07 $15.97 $20.08 $25.21 $27.25 $29.46

Total 22,821

Annual Growth Rate 0.50% 0.25% 0.25% 0.50% 0.50% 1.00% 1.00%

Cumulative growth 0.50% 0.75% 1.00% 1.51% 2.02% 3.04% 4.07%

Calculated Raw Meter Charges No. of

Meters Meters

3/4-in 12,181 $12.19 $12.12 $13.96 $15.81 $19.78 $24.71 $26.45 $28.30

1-in 3,364 $20.32 $20.19 $23.26 $26.35 $32.96 $41.19 $44.08 $47.17

1-1/2-in 456 $40.65 $40.39 $46.53 $52.70 $65.92 $82.38 $88.16 $94.34

2-in 295 $65.03 $64.62 $74.45 $84.32 $105.47 $131.80 $141.05 $150.95

3-in 90 $130.07 $129.23 $148.89 $168.63 $210.95 $263.61 $282.11 $301.90

4-in 40 $203.23 $201.93 $232.65 $263.48 $329.61 $411.88 $440.80 $471.72

6-in 3 $406.47 $403.85 $465.29 $526.97 $659.22 $823.77 $881.59 $943.45

8-in 4 $650.34 $646.16 $744.47 $843.15 $1,054.75 $1,318.03 $1,410.55 $1,509.52

Total 16,433

VARIABLE (CONSUMPTION) RATESAdjusted Consumption Revenues

Single Family Res $2,957,618 $2,953,297 $3,411,105 $3,872,924 $4,869,083 $6,114,899 $6,609,584 $7,144,079

Multi Family Res $1,517,158 $1,514,942 $1,749,782 $1,986,680 $2,497,676 $3,136,738 $3,390,495 $3,664,672

Commercial $568,020 $567,190 $655,113 $743,807 $935,122 $1,174,385 $1,269,391 $1,372,042

Irrigation (W Peaking) $1,201,960 $1,200,205 $1,386,255 $1,573,936 $1,978,770 $2,485,063 $2,686,101 $2,903,316

Total $6,244,756 $6,235,634 $7,202,255 $8,177,347 $10,280,651 $12,911,086 $13,955,571 $15,084,110

2011

Calculated Raw Consumption Rates CCF/YR

Single Family Res 2,534,160 1.17 1.17 1.35 1.53 1.92 2.41 2.61 2.82

Multi Family Res 982,053 1.54 1.54 1.78 2.02 2.54 3.19 3.45 3.73

Commercial 440,450 1.29 1.29 1.49 1.69 2.12 2.67 2.88 3.12

Irrigation (With Peaking) 593,275 2.03 2.02 2.34 2.65 3.34 4.19 4.53 4.89

Total 4,549,938

Charge per Meter

Avg Cost per CCF


Table 34. Proposed Rates Adjusted for Conservation


FIXED METER CHARGESCalculated Raw Fixed Charges

3/4-in $13.96 $15.81 $19.78 $24.71 $26.45 $28.30

1-in $23.26 $26.35 $32.96 $41.19 $44.08 $47.17

1-1/2-in $46.53 $52.70 $65.92 $82.38 $88.16 $94.34

2-in $74.45 $84.32 $105.47 $131.80 $141.05 $150.95

3-in $148.89 $168.63 $210.95 $263.61 $282.11 $301.90

4-in $232.65 $263.48 $329.61 $411.88 $440.80 $471.72

6-in $465.29 $526.97 $659.22 $823.77 $881.59 $943.45

8-in $744.47 $843.15 $1,054.75 $1,318.03 $1,410.55 $1,509.52

Final Fixed Charges After Rounding (1)

3/4-in $13.46 $15.81 $19.78 $23.64 $25.41 $29.82

1-in $22.43 $26.35 $32.97 $39.40 $42.35 $49.70

1-1/2-in $44.88 $52.71 $65.93 $78.80 $84.71 $99.41

2-in $71.80 $84.33 $105.50 $126.09 $135.53 $159.05

3-in $143.61 $168.67 $210.99 $252.17 $271.07 $318.11

4-in $224.39 $263.55 $329.67 $394.02 $423.54 $497.04

6-in $448.79 $527.10 $659.34 $788.04 $847.09 $994.08

8-in $718.06 $843.37 $1,054.95 $1,260.86 $1,355.34 $1,590.53

VARIABLE CHARGESCalculated Single Family Residential Raw Consumption Rates

Avg SFR Rate ($/CCF) $1.35 $1.53 $1.92 $2.41 $2.62 $2.83

Adjustment for Estimated Conservation and Rounding

Estimated Conservation 3% 11% 13% 17% 17% 17%

Adjusted Rate $1.40 $1.69 $2.17 $2.82 $3.06 $3.30

Variable Charges After Adjustments for Conservation and Rounding (1)

SFR Tiered Rates ($/ccf)

Tier 1: 0 - 18 $1.26 $1.53 $1.95 $2.54 $2.75 $2.97

Tier 2: 18 - 29 $1.40 $1.69 $2.17 $2.82 $3.06 $3.30

Tier 3: 30 + $2.36 $2.85 $3.66 $4.75 $5.16 $5.56

MFR Rate ($/ccf) $1.81 $2.24 $2.88 $3.73 $4.05 $4.37

Comm Rate ($/ccf) $1.51 $1.87 $2.40 $3.11 $3.38 $3.65

Irrig Rate ($/ccf) $2.37 $2.94 $3.77 $4.89 $5.31 $5.73

1 - The final rates reflect some rounding to conform the model-calculated rates for Scenario 3 with the rates presented

to the City Council on January 15, 2013 which were based on a straight percent decrease from the model-

calculated rates for Scenario 2.


Table 33 summarizes the calculation of the “raw” meter and consumption charges. Table 34

takes the “raw” variable rates from Table 33 and adjusts them to reflect estimated

conservation.

Water Meter Replacement Charge The City is implementing a new automated radio-read metering (AMR) system throughout the

service area. Water meters often lose accuracy as they age and should be replaced

approximately every 15 years. The new meters are an investment in the system’s infrastructure

that will bring efficiency to meter reading and ensure accuracy of billing operations. The

estimated cost of the annual meter replacement program is projected at $416,000 as shown on

Table 35.

Table 35. Water Meter Replacement Program Annual Cost Estimate

To fund the cost of the meter replacement program, all customers will pay a new monthly

charge as a component of the fixed distribution fee based on meter size. Revenues from the

new fee will be used for the meter replacement program. The fees are escalated by 3 percent

based on estimated inflation beginning in fiscal year 2014/15. The monthly meter replacement

charges through fiscal year 2017/18 are listed on Table 36. These charges are included in both

the traditional and CBFR fixed charges.

Average Est. Replacement Est. Total Est.

Meter Useful Meter Cost Installation Replacement Annual Monthly Total No. Annual

Size Life (Yrs) (AMR) (1) Cost (1) Cost Cost Cost (2) of Meters Amount

5/8" or 3/4" 15 $180 $135 $315 $21.00 $1.75 12,181 $255,801

1" 15 $290 $175 $465 $31.00 $2.58 3,364 $104,149

1½" 15 $467 $195 $662 $44.13 $3.68 456 $20,137

2" 15 $908 $235 $1,143 $76.20 $6.35 295 $22,479

3" 15 $1,012 $280 $1,292 $86.13 $7.18 90 $7,754

4" 15 $1,415 $340 $1,755 $117.00 $9.75 40 $4,680

6" 15 $2,044 $440 $2,484 $165.60 $13.80 3 $497

8" 15 $2,580 $550 $3,130 $208.67 $17.39 4 $835

Total 16,433 $416,332

1 - Source: BWA Estimates


Table 36. Monthly Meter Replacement Charge

Administrative Billing Charges Accounting for about 2 percent of total expenses, administrative costs associated with serving

customers, regardless of the amount of water consumed, are separated. Table 37 summarizes

the calculation of the administrative billing charges (which are included in both the traditional

and CBFR fixed charges).

Table 37. Administrative Bill Charges

Meter Size 1-May-13 1-Jan-14 1-Jan-15 1-Jan-16 1-Jan-17 1-Jan-18

5/8" or 3/4" $1.75 $1.75 $1.80 $1.85 $1.91 $1.97

1" $2.58 $2.58 $2.66 $2.74 $2.82 $2.90

1½" $3.68 $3.68 $3.79 $3.90 $4.02 $4.14

2" $6.35 $6.35 $6.54 $6.74 $6.94 $7.15

3" $7.18 $7.18 $7.40 $7.62 $7.85 $8.09

4" $9.75 $9.75 $10.04 $10.34 $10.65 $10.97

6" $13.80 $13.80 $14.21 $14.64 $15.08 $15.53

8" $17.39 $17.39 $17.91 $18.45 $19.00 $19.57

2011/12 2012/13 1-May-13 1-Jan-14 2014/15 2015/16 2016/17 2017/18 2018/19 2019/20

Annual Admin/Billing Expenses (1) $394,000 $408,000 $421,000 $421,000 $436,000 $453,000 $471,000 $490,000 $510,000 $530,000

Less Savings from Automatic Reading (2) $0 $0 $0 $0 $0 $0 $0 $0 $0 $0

Total Admin/Billing Expenses $394,000 $408,000 $421,000 $421,000 $436,000 $453,000 $471,000 $490,000 $510,000 $530,000

Number of Meters

3/4-in 12,181 12,242 12,273 12,304 12,366 12,490 12,615 12,741 12,868 12,997

1-in 3,364 3,381 3,389 3,397 3,414 3,448 3,482 3,517 3,552 3,588

1-1/2-in 456 458 459 460 462 467 472 477 482 487

2-in 295 296 297 298 299 302 305 308 311 314

3-in 90 90 90 90 90 91 92 93 94 95

4-in 40 40 40 40 40 40 40 40 40 40

6-in 3 3 3 3 3 3 3 3 3 3

8-in 4 4 4 4 4 4 4 4 4 4

Total Number of Meters 16,433 16,514 16,555 16,596 16,678 16,845 17,013 17,183 17,354 17,528

Growth % 0.5% 0.25% 0.25% 0.5% 1.0% 1.0% 1.0% 1.0% 1.0%

Growth (# of units) 81 41 41 82 167 168 170 171 174

Monthly Admin Charge per Account $2.00 $2.06 $2.12 $2.12 $2.18 $2.24 $2.31 $2.38 $2.45 $2.52

Percent Change 3.0% 2.9% 0.0% 2.8% 2.8% 3.1% 3.0% 2.9% 2.9%

1 - FY11/12 expenses escalated by 3% each year and by annual growth percentage

2 - Estimated savings from meter reading is $103,000 (in today's dollars) per City staff. Meters are to be installed in 2013/14. Savings is escalated by 3% each year and by

annual growth percentage.


SECTION 5: RATE DESIGN & RATE STRUCTURE ALTERNATIVES

The final step of the water rate study process is the design of water rates to generate the level

of revenues needed to meet annual revenue requirements. The evaluation of rate structure

alternatives takes into account both the level of rate increases and the structure of the rates.

The level of increases refers to the amount of revenue to be collected from a specific rate

design. The rate structure refers to the way in which the revenues are collected from the

customers.

Rate Development Principles In reviewing rate structure options, BWA uses the following criteria in developing our

recommendations:

1. Revenue Sufficiency: Rates should recover the annual cost of service and provide

revenue stability.

2. Proportionality: Rates should be proportionately allocated among all customer

classes based on their estimated demand characteristics, i.e. each user class only

pays its proportionate share.

3. Practical: Rates should be simple in form and, therefore, adaptable to changing

conditions, easy to administer, and easy to understand.

4. Provide Incentive: Rates provide price signals which serve as indicators to use water

efficiently.

Fixed Charges: Traditional Rate Structure As previously noted, most water rate structures are comprised of a fixed component and a

variable charge. Fixed charges may be called base charges, readiness to serve charges,

minimum charges, meter charges, to name a few, and are typically collected on a monthly or bi-

monthly basis. Despite the label used, the purpose of the fixed charges is to recover a portion

of costs that do not vary based on a customer’s actual consumption.

The “traditional” or most common method to levy fixed charges is by meter size. The base

meter is the smallest meter, most commonly a 5/8-inch or ¾-inch meter. The ratio at which the

meter charge increases is typically a function of either meter investment (estimated cost) or the

meter’s safe operating capacity. (American Water Works Association, Principles of Water

Rates, Fees and Charges – M1 Manual). A significant portion of a water system’s design and, in

turn, the utility’s operating and capital costs are related to meeting capacity requirements.


Meter size is used as a proxy for the estimated demand that each customer places on the water

system. For example, based on the AWWA meter capacity ratios, a customer that has a 3-inch

meter has the capacity equivalency of nearly eleven 3/4-inch meters. And so, in developing

fixed meter charges, a customer with a 3-inch meter should have a fixed meter charge that is

eleven times greater than the 3/4-inch meter.

BWA’s Fixed Charge Recommendation: Meter Ratios The current fixed service charge is based on a “traditional” rate structure in which the fixed

charge is based on meter size for all customers. BWA recommends aligning the fixed charges

with the AWWA meter capacity ratios as shown on Table 2. These capacity-based meter ratios

are widely used in California rate setting and are consistent with meter ratios adopted by the

California Public Utility Commission for private water companies. The recommended AWWA

meter ratios will result in larger impacts to the fixed charge for meters 1” and larger.

Variable Rate Structures Variable charges are calculated on the basis of the cost of providing water and will also

generally recover a portion of the fixed costs for a utility. Variable charges may also be labeled

volumetric charges, usage rates, consumption charges, block rates, commodity rates, etc.

Regardless of the name, all variable charges are based upon metered water consumption and

levied on a per-unit cost.

Conservation is most effectively encouraged through the variable rate component. The

CUWCC defines conservation pricing as providing “economic incentives (a price signal) to

customers to use water efficiently.”

The most common variable rate structures that promote conservation pricing are: (1) uniform

block, (2) inclining block, (3) water budget or allocation based rates, and (4) seasonal block

rates. The following section provides an overview of these variable charge rate structures that

were also presented to the Water Advisory Committee for discussion.

Uniform Block Rate Under a uniform block rate structure, all water use is billed at the same rate per unit. This rate

structure provides a conservation incentive since customers have to pay for each unit of water

use. Uniform block rates are commonly applied to a broad customer base with different water

needs, such as commercial and multi-family classes. The advantages of a uniform block rate

structure are that they are easy to understand and administer and generally garner the least

complaints from high water users. The drawbacks are that a single uniform tier does not

provide clear price signals to conserve.


Inclining Block Rates Under this rate structure, customers pay a higher price per unit as water use increases through

various usage blocks. For example, the rate might be $2.00 per unit for the first 10 units of

water, $3.00 per unit for the next 30 units of water, and $4.00 per unit for water use thereafter.

Compared to a uniform rate, this rate structure generally provides increased conservation

incentive, particularly on high water use, while helping to minimize rate increases on customers

with low water use. Inclining block rates are most commonly applied to single family residential

customers because their consumption as a class is, on average, homogenous, and typical usage

patterns can be estimated based on industry statistics. The tier breakpoints can also be set

based on each agency’s unique demand characteristics and can be easily adjusted in drought

conditions. However, the application of multi-tiered rates to commercial and multi-family

classes can be difficult to structure, given that the consumption patterns of these other

customer classes vary widely.


Water Budgets Under a water budget rate structure, each customer is assigned a “water budget” based on

their estimated indoor and outdoor water needs. Water budgets are a form of inclining block

rates, except that the block breakpoints are tailored for each individual customer. The tier

allocations may be based on, but not limited to (a) customer class, (b) number of occupants, (c)

lot size or area of landscape, and (d) evapotranspiration. Customers can be charged lower rates

for water use within their indoor water budget, moderate rates for use in their outdoor budget,

and higher rates for water use in excess of their budget. This option theoretically tailors each

customer’s water rate structure to their estimated needs.

The benefits of water budgets are that they provide a strong incentive to conserve and clear

price signals. However, many agencies have opted to only use water budgets for landscape

irrigation accounts because water budgets (a) raise issues since two neighbors could pay

different rates for the same amount of water use; (b) provide more low-cost water to

customers with larger yards, thereby requiring higher rates for all other use; (c) are typically

costly and time-consuming to implement and administer, including the high likelihood of

variances as customers challenge their water budget; and (d) provide minimal to no additional

conservation incentive over standard inclining block rates, but with substantial additional

complexity.

$0.00

$1.00

$2.00

$3.00

$4.00

$5.00

0 5 10 15 20 25 30 35 40 45 50

Water Use

Ra

te p

er

Un

it

Inclining Block Rates


Seasonal Rates A seasonal rate structure is similar to an inclining block rate structure, except that the tier

breakpoints or unit cost per tier or both vary based on the change in seasons. Seasonal rates

are aimed at reducing discretionary or non-essential (typically outdoor use) during the summer.

Seasonal rates can be structured as larger tiers in the summer and/or higher rates, or can be

designed to impact only the top tiers. For example, a seasonal price structure can use two

rates: a higher rate during the peak (summer) season and a lower rate during the off-peak

(winter) season. Another example is adjusting the tier breakpoints, allowing for larger

allotments in each tier block during the summer.

The advantage is that a seasonal rate structure tracks actual consumption profiles more closely.

However, seasonal rates are more complicated than basic tiered rates in terms of customer

understanding and can be more difficult to administer.

$0.00

$1.00

$2.00

$3.00

$4.00

$5.00

0 5 10 15 20 25 30 35 40 45 50

Water Use

Ra

te p

er

Un

it

Water Budgets

Small Customer

Larger Customer

Indoor

Outdoor

Outdoor

Indoor


The variable rate structure concepts described above may be combined within an agency’s rate

schedule. For example, an agency may apply an inclining block rate to residential customers, a

uniform block for commercial classes, and water budgets for irrigation accounts.

BWA’s Variable Rate Recommendation: Single Family Residential The City’s current variable rate structure is based on a two-tiered rate structure for all customer

classes, except for Municipal/City consumption which is billed at a single tier. The amount of

water in each tier and the Tier 1 charge differs based on customer class, ranging from $1.41 to

$1.50. The Tier 2 charge for all classes is $1.90.

BWA proposes maintaining an inclining block tier rate structure for single family residential

customers and adding a third tier to provide more conservation incentive at moderate to high

levels of use. A three-tiered rate structure can also easily be transitioned to a water budget

rate structure in the future.

Under the current single family residential tiers, 76 percent of the total single family residential

water use is billed at the Tier 1 rate with 24 percent of use billed at the Tier 2 rate. Based on a

detailed analysis of the City’s water usage data and input from the WAC and City Council, the

proposed single family residential rate tier breakpoints are shown on Table 38.


Table 38. Current and Proposed Single Family Residential Inclining Tiers

The tier breakpoints are designed to provide a reasonable amount of water for efficient indoor

and outdoor water use within the first two tiers for a typical single family residential household.

The addition of the third tier is projected to impact 10 percent of all single family residential

bills which account for about 11 percent of total water consumption.

Bills Ending Water Use Bills Ending Water Use

in Tier % in Tier in Tier % in Tier

Tier 1 0 - 36 ccf 73.9% 76.0% Tier 1 0 - 36 ccf 73.9% 76.0%

Tier 2 Over 36 ccf 26.1% 24.0% Tier 2 37 - 58 ccf 15.9% 12.8%

Tier 3 Over 58 ccf 10.1% 11.2%

Tier 1

Tier 2

Tier 3

0.013368984

18400.8

61.5

92.8

1.905

-0.210526316

0.266666667

CURRENT BI-MONTHLY TIERS PROPOSED BI-MONTHLY TIERS

Tier 176.0%

Tier 224.0%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1

% of Single Family

Water Sales per Tier

Tier 176.0%

Tier 212.8%

Tier 311.2%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1

% of Single Family

Water Sales per Tier

CURRENT PROPOSED


BWA’s Variable Rate Recommendation: Multi-Family, Commercial, and Irrigation BWA recommends eliminating the current two-tiered rate structure for all other (non-SFR)

customer classes and implementing a single uniform block rate. Uniform block rates for non-

residential customers are common in the industry because it is difficult to design tiers that will

accommodate a variety of uses. For example, a commercial customer who uses a lot of water

does not necessarily mean that the customer is using water inefficiently. Inclining tiered rates

are more practical to implement for single family residential customers because the overall

consumption patterns for this class is fairly homogenous. To proportionately allocate costs

among all customer classes, the unit cost for each customer class varies based on peak demand.

Traditional Rate Structure: Proposed Water Rates Table 39 shows the proposed water rates for Scenario 3: WDCWA (Davis: 12 mgd) All Debt. The

rates incorporate the rate structure changes described above and recover the proportionate

costs of providing water service to each customer class. The rate structure has four customer

classes: (1) single family residential, (2) multi-family residential, (3) commercial, and (4)

irrigation, and is comprised of two components: (1) a fixed charge and (2) a variable charge.

1. Fixed Charge: The fixed charge is based on meter size and is structured to recover a

portion of the City’s fixed costs of providing water service, including the water

distribution system as well as a portion of the surface water rights. The charge also

recovers the cost of customer service for meter reading and billing service. The

distribution charge comprises approximately 40 percent of an average monthly bill.

2. Variable Charge: The variable charge is based on a customer’s consumption for a billing

period. The charge is structured to recover a portion of the fixed costs of the utility,

pumping water, a portion of the surface water rights, managing the City’s water

resources, deterring water waste, and encouraging efficient water use. For single family

residential customers, the variable charge consists of three tiers which impose a higher

rate per unit as consumption levels increase. For all other customers, the variable

charge is a uniform rate per unit based on customer class. The variable charge

comprises approximately 60% of an average monthly bill.


Table 39. Traditional Rate Structure: Proposed Water Rates


Meter Replacement Charge

3/4" $1.75 $1.75 $1.80 $1.85 $1.91 $1.97

1" $2.58 $2.58 $2.66 $2.74 $2.82 $2.90

1-1/2" $3.68 $3.68 $3.79 $3.90 $4.02 $4.14

2" $6.35 $6.35 $6.54 $6.74 $6.94 $7.15

3" $7.18 $7.18 $7.40 $7.62 $7.85 $8.09

4" $9.75 $9.75 $10.04 $10.34 $10.65 $10.97

6" $13.80 $13.80 $14.21 $14.64 $15.08 $15.53

8" $17.39 $17.39 $17.91 $18.45 $19.00 $19.57

Administrative Charge

All $2.12 $2.12 $2.18 $2.24 $2.31 $2.38

Readiness to Serve Charge

3/4" $13.46 $15.81 $19.78 $23.64 $25.41 $29.82

1" $22.43 $26.35 $32.97 $39.40 $42.35 $49.70

1-1/2" $44.88 $52.71 $65.93 $78.80 $84.71 $99.41

2" $71.80 $84.33 $105.50 $126.09 $135.53 $159.05

3" $143.61 $168.67 $210.99 $252.17 $271.07 $318.11

4" $224.39 $263.55 $329.67 $394.02 $423.54 $497.04

6" $448.79 $527.10 $659.34 $788.04 $847.09 $994.08

8" $718.06 $843.37 $1,054.95 $1,260.86 $1,355.34 $1,590.53

TOTAL DISTRIBUTION (FIXED) CHARGE

Meter Size

3/4" $17.33 $19.68 $23.76 $27.73 $29.63 $34.17

1" $27.13 $31.05 $37.81 $44.38 $47.48 $54.98

1-1/2" $50.68 $58.51 $71.90 $84.94 $91.04 $105.93

2" $80.27 $92.80 $114.22 $135.07 $144.78 $168.58

3" $152.91 $177.97 $220.57 $262.03 $281.23 $328.58

4" $236.26 $275.42 $341.89 $406.60 $436.50 $510.39

6" $464.71 $543.02 $675.73 $804.92 $864.48 $1,011.99

8" $737.57 $862.88 $1,075.04 $1,281.55 $1,376.65 $1,612.48

VARIABLE CHARGE


Tier 1: 0 - 18 $1.23 $1.53 $2.02 $2.52 $2.75 $3.26

Tier 2: 18 - 29 ccf $1.37 $1.69 $2.24 $2.80 $3.05 $3.63

Tier 3: 30 + ccf $2.33 $2.87 $3.81 $4.74 $5.17 $6.15


Multi Family Residential $1.81 $2.24 $2.96 $3.70 $4.04 $4.80

Commercial $1.51 $1.87 $2.47 $3.10 $3.37 $4.01

Irrigation $2.37 $2.94 $3.89 $4.86 $5.30 $6.30


Traditional Rate Structure: Bill Impacts Sample bill impacts for the traditional rate structure are included on Table 40. Actual impacts

to each customer will vary based on meter size and actual consumption.

Table 40. Traditional Rate Structure: Sample Bill Impacts

Average Monthly

Meter Monthly Current

Size Usage (ccf) Bill (1) 1-May-13 1-Jan-14 1-Jan-15 1-Jan-16 1-Jan-17 1-Jan-18


Low Use 3/4" 4 $18 $22 $26 $32 $38 $41 $47

Low to Median Use 3/4" 6 $21 $25 $29 $36 $43 $46 $54

Median Use 3/4" 11 $28 $31 $36 $46 $55 $60 $70

Median to High Use 3/4" 18 $39 $40 $47 $60 $73 $79 $93

High Use 3/4" 29 $59 $55 $66 $85 $104 $113 $133

Multi-Family Residential

Small Apartment Building, 39 units 2" 147 $251 $347 $423 $549 $679 $739 $874

Large Apartment Building, 124 units 4" 408 $701 $976 $1,191 $1,550 $1,916 $2,085 $2,469

Commercial

Drug Store 1-1/2" 41 $86 $113 $135 $173 $212 $229 $270

Medical Clinic 2" 57 $128 $166 $199 $255 $312 $337 $397

Dentist 3" 81 $205 $275 $329 $421 $513 $554 $653

Business Complex 4" 163 $368 $482 $580 $745 $912 $986 $1,164

Irrigation

Small City Irrigation 2" 59 $125 $220 $267 $344 $422 $457 $540

Large City Irrig/School District 4" 1176 $2,267 $3,028 $3,738 $4,917 $6,122 $6,669 $7,919

1 - Current bill based on average use

ESTIMATED MONTHLY BILL IMPACTS

Traditional Structure


SECTION 6: CONSUMPTION-BASED FIXED RATE STRUCTURE

Consumption-Based Fixed Rate Structure Two members of the WAC, Frank Loge and Matt Williams, developed a new rate structure for

allocating costs, the Consumption-Based Fixed Rate (CBFR) structure, to recover a portion of

the fixed costs based on each customer’s actual consumption. Instead of using meter size as

the basis for recovering all of the water system’s fixed costs, CBFR is structured so that each

ratepayer’s proportionate share of the fixed costs related to water supply and treatment is

based on their actual water usage from the previous summer months of May through October

(when consumption is typically at its peak).

The CBFR structure is comprised of three components: (1) a distribution charge, (2) a variable

charge, and (3) a supply charge. The rates for each of these components will apply to all water

customers within the City.

1. Distribution Charge: The distribution charge is a fixed charge based on meter size and is

structured to recover a portion of the City’s fixed costs of providing water service,

including the water distribution system. The charge also recovers the costs of customer

service for meter reading, billing service, and meter replacement. The distribution

charge comprises approximately 13 percent of an average monthly bill.

2. Variable Charge: The variable charge is based on a customer’s consumption for a billing

period. The charge is structured to recover the costs of providing water, including

utilities, pumping water, managing the City’s water resources, deterring water waste,

and encouraging efficient water use. Under the CBFR rate structure, the variable charge

for all customer classes are based on a uniform tier. The variable charge comprises

approximately 20 percent of an average monthly bill.

3. Supply Charge: The supply charge is structured to recover certain fixed costs related to

water supply and treatment, including existing and future groundwater sources (wells),

construction and operation of the 12 million gallon per day (mgd) surface water

treatment plant, surface water rights, and any planning and environmental compliance

expenses related to supply and treatment. The supply charge is based on a customer’s

prior year’s water usage during the 6-month peak period (May through October). The

supply charge comprises approximately 67 percent of an average monthly bill.


The supply charge is calculated by using the projected annual revenue requirement for

water supply and treatment and dividing it by the total projected 6-month peak period

(May through October) water use of the entire system to produce a per-ccf rate. Each

individual customer’s fee is then calculated by taking the per-ccf rate and multiplying it

by the individual customer’s prior year six-month peak period water use. For instance, if

a customer uses 100 ccf during May through October and the CBFR supply charge is

$0.32, then the supply charge will be 100 ccf x $0.32 = $32 per month. Each year, the

CBFR amount is recalculated based on each customer’s actual consumption during the

prior 6-month May through October peak consumption period.

If approved, the January 1, 2015 CBFR will be calculated using summer of 2014 water

usage. For new accounts, the CBFR charge will be based on estimated consumption

until actual peak period (May through October) usage is established at which time a

true-up will be accomplished.

CBFR: Cost of Service Analysis The CBFR structure is a conservation-based water rate structure and establishes a nexus

between the way in which customers consume water during the peak consumption period and

the way in which the water utility incurs costs to meet its customers’ demands. The

proportionate cost of providing water service is based on each customer’s actual consumption.

In essence, those who consume more should pay more. Rates are based on annual revenue

requirements to meet projected demand. Projected demand is based on a customer’s actual

water use during the prior peak (May through October) demand period. CBFR shifts more costs

to actual water demand on the basis that those who create a cost burden should pay for it.

The CBFR rate structure is designed to provide fiscal stability for both customers and the water

system by recovering 100 percent of the water system’s fixed costs in each year of the rate

structure’s five year, phase-in period. By recovering 100 percent of the system’s fixed costs, a

water consumer will see reliable, proportional, stable, and sustainable rates for the entire five-

year period. Variable costs are recovered through a volumetric use charge.

The rate structure is composed of three components that reflect the DWWSP project approved

by the WAC and City Council. The components are:

1) DISTRIBUTION - Monthly Fixed Charge Based on Meter Size (flat fee)

Charges that cover the costs the City has incurred related to the water distribution

system (mains and pipes, storage tanks, fireline facilities and meters). This also covers


the cost of customer service, which includes meter reading and billing and the meter

replacement costs shown on Table 35. This fee is based on meter size.

2) SUPPLY - Monthly CBFR Fee Based on Peak Consumption ($/unit of water)

Charges that cover the fixed costs related to water supply and treatment including

existing and future groundwater sources (wells), construction and operation of the 12

million gallon per day (mgd) surface water treatment plant, and water system planning

and environmental compliance costs. The Supply fee is calculated by using the

projected fixed supply costs of the Water Utility and dividing it by the total projected

six-month (May through October) peak period water use of the Water Utility to produce

a unit CBRF water rate. The individual CBFR fee per customer is then calculated by

taking the per-unit CBFR water rate and multiplying it by the individual customer’s prior

year’s six-month peak period water use. This then becomes the monthly fee. Each year,

this CBFR amount is recalculated based on an individual’s actual water use during the

prior six-month May through October peak period.

3) VARIABLE - Volumetric Rate applied to Monthly Consumption ($/unit of water)

Charges that cover the variable costs that the City incurs to operate the water system as

required based on consumption. The new rates for all customers have single-tiered

volume rates.

Figure 5 illustrates the allocation of costs to the three components based on the CBFR rate

structure.


Figure 5. CBFR Structure: Cost Allocation

Total Costs

Administration/ Billing

Fireline

Demand

Commodity

36% 36% 20%

Fixed Variable

2% 6% 4.5% 67.5% 20%

Administration/ Billing

Fireline

Readiness To Serve

CBFR

Variable Operations

Distribution Infrastructure Charge

Water Supply Infrastructure

Charge

Operations

Charge

Fireflow/Readiness Charge

Summer Peak Sourcing Charge

Variable Operations

Charge

Fireflow/Readiness Charge

Summer Peak Sourcing Charge

Variable Operations

Charge


Traditional Fixed vs. Consumption-Based Fixed Rate Structure The rates developed under the traditional fixed and CBFR structures are based on the same

revenue requirements and assume the same elasticity and growth factors. The difference

between the traditional fixed and CBFR is the method in which costs are recovered.

Figure 6. Traditional Fixed vs. CBFR Structures: Revenue Recovery Comparison

As shown on Figure 6. Traditional Fixed vs. CBFR Structures: Revenue Recovery Comparison,

the traditional fixed rate structure recovers 40 percent of costs based on meter size which

represents each customer’s potential demand. Water systems are designed to meet a certain

level of capacity and that capacity is determined based on the total potential demand of the

customer base. Peaking costs are recovered through the variable charge which recovers 60

percent of total system costs. The variable charge is based on actual water consumed during a

specific billing period. The rate per unit varies for each customer class because each user class

has a different peaking factor that the system must accommodate.


Under CBFR, actual peak period prior year demand and meter size are used as the basis for

recovering the majority of water system costs. Approximately 13 percent of costs are collected

on the basis of meter size through the distribution charge. Supply, treatment, and peaking

costs are collected through the supply charge which recovers roughly 67 percent of costs. The

supply charge is based on each customer’s consumption during the prior year’s months of May

through October. This is the period when City-wide use peaks. All customers, regardless of

user class, are charged the same rate per unit. The variable charge recovers 20 percent of total

costs and is based on consumption during a given billing period. Like the supply charge, all

customers are charged the same rate per unit of water irrespective of user class. In total, CBFR

recovers 87 percent of costs based on each customer’s actual water consumption.

CBFR Rate Structure: Proposed Water Rates The proposed CBFR rates are shown on Table 41. Calculation of the CBFR rates is presented in

Appendix C. All customers are treated the same under the CBFR structure. The variable charge

is based on a uniform tier for all user classes. Ratepayers can estimate their future water bills

based on their prior year’s water use and can manage a significant portion of their water bills

by reducing their consumption levels.

Table 41. CBFR Rate Structure: Proposed Water Rates


DISTRIBUTION CHARGES (1)

5/8" or 3/4" $8.10 $8.84 $10.21 $11.38 $11.90 $13.67

1 - inch $11.77 $13.00 $15.22 $17.19 $18.09 $20.92

1 1/2 - inch $19.97 $22.44 $26.78 $30.76 $32.62 $38.01

2 - inch $31.16 $35.10 $42.02 $48.41 $51.40 $59.96

3 - inch $54.70 $62.59 $76.19 $89.09 $95.19 $111.72

4 - inch $82.83 $95.15 $116.33 $136.53 $146.12 $171.73

6 - inch $157.86 $182.50 $224.63 $265.13 $284.43 $335.05

8 - inch $246.63 $286.05 $353.27 $418.17 $449.16 $529.67

VARIABLE CHARGE

All Classes $0.55 $0.61 $0.86 $1.02 $1.12 $1.32

SUPPLY CHARGE

All Classes $0.20 $0.24 $0.32 $0.40 $0.45 $0.54

1 - Includes meter replacement charge (Table 35) and administrative billing charge (Table 36).


CBFR Rate Structure: Bill Impacts Table 42 shows estimated bill impacts for a sample of customers. The sample bills assume that

no conservation measures are implemented. Actual bills would be lower if customers

consumed less water.

Table 42. CBFR Rate Structure: Sample Bill Impacts

Summer Average Monthly

Meter Monthly Monthly Current

Size Usage (ccf) Usage (ccf) Bill (1) 1-May-13 1-Jan-14 1-Jan-15 1-Jan-16 1-Jan-17 1-Jan-18


Low Use 3/4" 6 4 $18 $18 $20 $25 $30 $33 $38

Low to Median Use 3/4" 9 6 $21 $22 $25 $33 $39 $43 $51

Median Use 3/4" 17 11 $28 $35 $40 $52 $63 $70 $83

Median to High Use 3/4" 28 18 $39 $52 $60 $79 $97 $108 $83

High Use 3/4" 45 29 $59 $78 $91 $122 $149 $166 $198


Small Apartment Building, 39 units 2" 167 147 $251 $312 $365 $489 $599 $667 $795

Large Apartment Building, 124 units 4" 465 408 $701 $865 $1,014 $1,360 $1,669 $1,859 $2,217

Commercial

Drug Store 1-1/2" 50 41 $86 $113 $135 $158 $193 $214 $254

Medical Clinic 2" 70 57 $128 $166 $199 $225 $275 $304 $362

Dentist 3" 100 81 $205 $275 $329 $338 $412 $456 $543

Business Complex 4" 200 163 $368 $482 $580 $640 $783 $869 $1,035

Irrigation

Small City Irrigation 2" 100 59 $125 $184 $215 $285 $349 $387 $462

Large City Irrig/School District 4" 2000 1176 $2,267 $3,130 $3,693 $4,968 $6,136 $6,863 $8,204



CBFR Rate Structure


SECTION 7: CONCLUSIONS AND RECOMMENDATIONS The final water rate recommendations contained in this report are a result of an extensive,

public process with input received from many sources including City staff, the WAC, the Davis

Chamber of Commerce, the public and the City Council. The rate study process produced an

innovative new rate structure, the Consumption Based Fixed Rate structure. The

recommended rates are designed to produce revenues adequate to fund the new $113.8

million surface water project and all other water system costs. Rate increases are phased in

over a five-year period to reduce impacts to ratepayers. The recommended rates are shown on

Table 43.

Under the recommended rates, a median single-family customer using 11 ccf per month and a

peak period average of 17 ccf per month would see their monthly water bill rise from the

current $28 to $83 by the end of the five-year phase-in period. Actual rate increases may be

lower than the recommended rates if the surface water project cost comes in below estimates

and/or the City receives low cost State and/or Federal financing for a portion of the project.

The rates recommended in this report were based on the best information available at the

time. Regular updates of the financing and rate projections should be performed as better and

more complete information becomes available. Updates should be performed at least annually

to reflect the results of local and WDCWA project construction bids, conservation patterns,

actual O&M costs, and the actual financing received for the projects.


Table 43. Final Proposed Water Rates

Table 44 shows the estimated bill impacts for a sample of customers. The sample bills assume

that no conservation measures are implemented. Bill impacts for each customer will vary

based on actual use.


DISTRIBUTION (FIXED) CHARGE (1)

Meter Size

3/4" $17.33 $19.68 $10.21 $11.38 $11.90 $13.67

1" $27.13 $31.05 $15.22 $17.19 $18.09 $20.92

1-1/2" $50.68 $58.51 $26.78 $30.76 $32.62 $38.01

2" $80.27 $92.80 $42.02 $48.41 $51.40 $59.96

3" $152.91 $177.97 $76.19 $89.09 $95.19 $111.72

4" $236.26 $275.42 $116.33 $136.53 $146.12 $171.73

6" $464.71 $543.02 $224.63 $265.13 $284.43 $335.05

8" $737.57 $862.88 $353.27 $418.17 $449.16 $529.67

VARIABLE CHARGE ($/ccf of Current Billing Period Use)


Tier 1: 0 - 18 $1.23 $1.53 - - - -

Tier 2: 18 - 29 ccf $1.37 $1.69 - - - -

Tier 3: 30 + ccf $2.33 $2.87 - - - -


Multi Family Residential $1.81 $2.24 - - - -

Commercial $1.51 $1.87 - - - -

Irrigation $2.37 $2.94 - - - -

CBFR UNIFORM RATES ($/ccf of Current Billing Period Use)

All Classes - - $0.86 $1.02 $1.12 $1.32

CBFR SUPPLY CHARGES ($/ccf of Prior Year Period Water Consumption)

All Classes - - $0.32 $0.40 $0.45 $0.54

1 - Includes meter replacement charge (Table 35) and administrative billing charge (Table 36).


Table 44. Final Proposed Water Rates: Sample Bill Impacts

How to Estimate Future Water Charges To assist customers with calculating their future monthly water bills for the proposed rate

structures, the City has provided a rate calculator on the City’s website at the cityofdavis.org.

The City currently reads meters and bills on a bi-monthly basis. To estimate one’s monthly bill,

a customer will need to find their water meter size, bi-monthly water use, and last year’s six-

month water use for May through October. Customers will need to divide their bi-monthly

water use by two to get an average monthly water use.

Table 45 provides a bill calculation for monthly bills for the May 1, 2013 proposed rates. The

rates are based on the traditional rate structure.

Summer Average Monthly

Meter Monthly Monthly Current

Size Usage (ccf) Usage (ccf) Bill (1) 1-May-13 1-Jan-14 1-Jan-15 1-Jan-16 1-Jan-17 1-Jan-18


Low Use 3/4" 6 4 $18 $22 $26 $25 $30 $33 $38

Low to Median Use 3/4" 9 6 $21 $25 $29 $33 $39 $43 $51

Median Use 3/4" 17 11 $28 $31 $36 $52 $63 $70 $83

Median to High Use 3/4" 28 18 $39 $40 $47 $79 $97 $108 $83

High Use 3/4" 45 29 $59 $55 $66 $122 $149 $166 $198


Small Apartment Building, 39 units 2" 167 147 $251 $347 $423 $489 $599 $667 $795

Large Apartment Building, 124 units 4" 465 408 $701 $976 $1,191 $1,360 $1,669 $1,859 $2,217

Commercial

Drug Store 1-1/2" 50 41 $86 $113 $135 $158 $193 $214 $254

Medical Clinic 2" 70 57 $128 $166 $199 $225 $275 $304 $362

Dentist 3" 100 81 $205 $275 $329 $338 $412 $456 $543

Business Complex 4" 200 163 $368 $482 $580 $640 $783 $869 $1,035

Irrigation

Small City Irrigation 2" 100 59 $125 $220 $267 $285 $349 $387 $462

Large City Irrig/School District 4" 2000 1176 $2,267 $3,023 $3,738 $4,968 $6,136 $6,863 $8,204


Traditional Structure CBFR Structure



Table 45. Bill Estimation Tool for 2013 (Traditional Rate Structure)

Table 46 provides a bill calculation for monthly bills for the January 1, 2015 proposed rates. The

rates are based on the CBFR structure. Actual bills will be based on May through October 2014

water usage.

Table 46. Bill Estimation Tool for 2015 (CBFR Structure)

Distribution Fee Variable Charge Total Bill

(based on meter size) (based on current month's consumption) for the Month

_____________ ___________ x___________ Total Bill

Fee for Your meter (Monthly Volume x Charge for Your Tier) for the Month

Example Calculation $17.33 11 ccf x $1.23 Total Bill

(typical home) (3/4" meter) Monthly Volumes (ccf) x $ccf for the Month

Example Figures

(typical home)$13.53

=

=

= $30.86

Type of Charge + =

Charge Equation +

+

+$17.33

Distribution Fee Variable Charge Supply Fee Total Bill

(based on meter size) (based on current (based on summer for the Month

month's consumption) consumption)

____________ ______ x $0.86 ______ x $0.32 Total Bill

Fee for Your meter (Monthly Volume) (6 Month Peak Use) for the Month

Example Calculation $10.21 11 ccf x $0.86 102 ccf x $0.32 Total Bill

(typical home) (3/4" meter) Monthly Volumes (ccf) Prior Year's May-Oct for the Month

x $ccf (ccf) use x $ccf

Example Figures

(typical home)$52.31

+

+

+

+ $32.64

+ =

$10.21 + $9.46 =

Type of Charge + =

Charge Equation + =


APPENDICES A. Proposition 218 Notice Mailed to Property Owners

B. Scenario 3 (All Debt) Cash Flow Projections

C. CBFR Calculations


Appendix A: Proposition 218 Notice Mailed to Property Owners


Appendix B: Scenario 3 (All Debt) – Cash Flow Projection

2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21

Assumptions:

Revenue Increase (First increase May 1, 13 and Jan-1 thereafter) 0.0% 30.0% 25.0% 25.0% 8.0% 8.0% 5.0% 5.0% 5.0%

Interest Earnings Rate 1.0% 1.0% 1.0% 1.5% 1.5% 1.5% 2.0% 2.0% 2.0%

Growth 0.5% 0.5% 0.5% 0.5% 1.0% 1.0% 1.0% 1.0% 1.0%

Monthly SFR Bill based on 15 CCF $34.00 $44.20 $55.25 $69.06 $74.59 $80.55 $84.58 $88.81 $93.25

Beginning Fund Balance - Fund 511 $6,225,537 $8,054,870 $11,191,317 $14,306,231 $16,585,481 $17,152,234 $16,488,835 $16,649,362 $16,815,452

0 0

12 MONTH RATE REVENUE TARGET 9,978,000 12,971,000 16,214,000 20,268,000 21,889,000 23,640,000 24,822,000 26,063,000 27,366,000

Effective Date of Rate Increase 5/1/13 & 1/1/14 1/1/15 1/1/16 1/1/17 1/1/18 1/1/19 1/1/20 1/1/21

REVENUES (1)

Operating Revenues

Projected FY Water Sales 9,978,000 12,073,380 14,106,000 17,633,000 20,835,000 22,502,000 24,054,000 25,256,000 26,519,000

Water Meter Replacement Charge Revenues 0 416,330 434,740 451,630 470,370 489,510 509,380 529,750 550,500

Interest 62,000 81,000 112,000 215,000 249,000 257,000 330,000 333,000 336,000

Rate Stablization Fund Draws 0 0 0 0 1,000,000 1,300,000 500,000 600,000 500,000

Other Revenues (2) 640,000 659,000 679,000 699,000 720,000 742,000 764,000 787,000 811,000

Subtotal Operating Revenues 10,680,000 13,229,710 15,331,740 18,998,630 23,274,370 25,290,510 26,157,380 27,505,750 28,716,500

Debt Proceeds

Debt For Prior Pay-Go Projects 2,011,440 5,867,860 5,284,480 3,809,160 2,848,340 3,688,020 6,124,520 7,379,360 0

Water Revenue Bonds (3) 6,085,000 19,953,000 34,709,000 34,890,000 9,255,000 0 5,000,000 0 0

Subtotal Debt Proceeds 8,096,440 25,820,860 39,993,480 38,699,160 12,103,340 3,688,020 11,124,520 7,379,360 0

TOTAL REVENUES 18,776,440 39,050,570 55,325,220 57,697,790 35,377,710 28,978,530 37,281,900 34,885,110 28,716,500

109,892,000

37,013,180 2,011,440 5,867,860 5,284,480 3,809,160 2,848,340 3,688,020 6,124,520 7,379,360

EXPENSES 137,000 411,000 393,000 301,000 231,000 308,000 512,000 617,000

Baseline Expenses w/o Surface Water Project

Labor - Salaries/Wages (4) 3,836,000 3,981,000 4,132,000 4,288,000 4,450,000 4,619,000 4,795,000 4,977,000 5,166,000

Other Baseline Expenses (5) 3,233,000 3,348,000 3,467,000 3,591,000 3,303,000 3,402,000 3,504,000 3,609,000 3,746,142

Additional for East Area Tank (5) 61,000 63,000 64,000 66,000 67,000 69,000 71,000 73,000 75,000

Additional for Well 32 (5) 405,333 415,467 425,853 436,500 447,412 461,000 475,000 489,000 504,000

Additional for Well 34 (5) 405,333 415,467 425,853 436,500 447,412 461,000 475,000 489,000 504,000

JPA Contribution (6) 0 0 0 0 0 0 0 0 0

Local R&R Projects (not incl Water Main Replacements) (7) 1,844,440 4,189,860 2,922,080 638,000 665,500 2,201,220 7,955,630 7,379,360 3,000,000

Water Main Replacements from Assessment 0 0 722,400 1,538,160 2,182,840 1,486,800 3,168,890 0 0

Existing Debt Service 910,000 910,000 910,000 910,000 910,000 910,000 910,000 910,000 910,000

Water Meter Replacement Program 0 416,330 434,740 451,630 470,370 489,510 509,380 529,750 550,500

Subtotal Baseline Expenses w/o SWP 10,695,107 13,739,123 13,503,927 12,355,789 12,943,534 14,099,530 21,863,900 18,456,110 14,455,642

DWWSP Project

Pay-As-You-Go Capital Costs 167,000 1,678,000 1,640,000 1,633,000 0 0 0 0 0

Debt Financed Capital Costs (8) 6,085,000 19,953,000 34,709,000 34,890,000 9,255,000 0 0 0 0

CPG Water Purchase (9) 0 0 0 1,199,000 1,223,000 1,247,000 1,272,000 1,297,000 1,323,000

Operation & Maintenance (8) 0 0 0 0 2,254,000 2,750,000 2,798,000 2,849,000 2,899,000

Agency Administration 0 0 0 0 268,000 277,000 282,000 287,000 293,000

Subtotal DWWSP Project Expenses 6,252,000 21,631,000 36,349,000 37,722,000 13,000,000 4,274,000 4,352,000 4,433,000 4,515,000

Debt Service

Debt Service (Refi WFB Line of Credit) 2012-13 (10) 0 544,000 544,000 544,000 544,000 544,000 544,000 544,000 544,000

Debt Service - 2013-14 (11) 0 0 1,813,380 2,413,380 2,413,755 2,412,642 2,410,055 2,410,980 2,415,180

Debt Service - 2014-15 (11) 0 0 0 2,383,371 2,383,371 3,073,371 3,070,421 3,070,546 3,073,471

Debt Service - 2015-16 (11) 0 0 0 0 2,526,298 3,101,298 3,101,798 3,100,198 3,101,498

Debt Service - 2016-17 (11) 0 0 0 0 0 837,088 1,012,088 1,011,150 1,014,588

Debt Service - 2017-18 (11) 0 0 0 0 0 0 267,113 322,113 323,675

Debt Service - 2018-19 (11) 0 0 0 0 0 0 0 770,925 930,925

Debt Service - 2019-20 (11) 0 0 0 0 0 0 0 0 517,158

Debt Service - 2024-25 (11) 0 0 0 0 0 0 0 0 0

Subtotal Debt Service 0 544,000 2,357,380 5,340,751 7,867,423 9,968,398 10,405,473 11,229,911 11,920,493

TOTAL EXPENSES 16,947,107 35,914,123 52,210,306 55,418,540 33,810,957 28,341,928 36,621,373 34,119,021 30,891,135

Net Revenues 1,829,333 3,136,447 3,114,914 2,279,250 1,566,753 636,602 660,527 766,089 (2,174,635)

Ending Fund Balance 8,054,870 11,191,317 14,306,231 16,585,481 17,152,234 16,488,835 16,649,362 16,815,452 14,140,816

Debt Service Coverage - Min. 1.10 3.01 3.44 2.09 1.44 1.26 1.13 1.13 1.13 1.13

Debt Service Coverage Met yes yes yes yes yes yes yes yes yes

Fund Reserve Target (12) 8,985,167 9,055,733 9,128,677 9,204,500 9,742,206 9,940,500 10,029,500 10,121,500 10,223,536

Reserve Fund Target Met no yes yes yes yes yes yes yes yes

Projected


2021/22 2022/23 2023/24 2024/25 2025/26 2026/27 2027/28 2028/29 2029/30 2030/31

Assumptions:

Revenue Increase (First increase May 1, 13 and Jan-1 thereafter) 5.0% 5.0% 5.0% 4.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0%

Interest Earnings Rate 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0%

Growth 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0%

Monthly SFR Bill based on 15 CCF $97.91 $102.81 $107.95 $112.27 $114.51 $116.80 $119.14 $121.52 $123.95 $126.43

Beginning Fund Balance - Fund 511 $14,140,816 $12,114,503 $11,221,151 $11,227,797 $12,085,912 $12,544,501 $12,902,341 $13,307,953 $13,761,682 $14,244,930

12 MONTH RATE REVENUE TARGET 28,734,000 30,171,000 31,680,000 32,947,000 33,606,000 34,278,000 34,964,000 35,663,000 36,376,000 37,104,000

Effective Date of Rate Increase 1/1/22 1/1/23 1/1/24 1/1/25 1/1/26 1/1/27 1/1/28 1/1/29 1/1/30 1/1/31

REVENUES (1)

Operating Revenues

Projected FY Water Sales 27,845,000 29,237,000 30,699,000 32,123,000 33,178,000 33,841,000 34,518,000 35,209,000 35,913,000 36,631,000

Water Meter Replacement Charge Revenues 572,100 595,770 619,870 644,470 670,010 696,090 724,320 753,670 783,560 814,120

Interest 283,000 242,000 224,000 225,000 242,000 251,000 258,000 266,000 275,000 285,000

Rate Stablization Fund Draws 0 0 0 0 0 0 0 0 0 0

Other Revenues (2) 835,000 860,000 886,000 913,000 940,000 968,000 997,000 1,027,000 1,058,000 1,090,000

Subtotal Operating Revenues 29,535,100 30,934,770 32,428,870 33,905,470 35,030,010 35,756,090 36,497,320 37,255,670 38,029,560 38,820,120

Debt Proceeds

Debt For Prior Pay-Go Projects 0 0 0 0 0 0 0 0 0 0

Water Revenue Bonds (3) 0 0 0 12,042,000 0 0 0 0 0 0

Subtotal Debt Proceeds 0 0 0 12,042,000 0 0 0 0 0 0

TOTAL REVENUES 29,535,100 30,934,770 32,428,870 45,947,470 35,030,010 35,756,090 36,497,320 37,255,670 38,029,560 38,820,120

12,042,000

0

EXPENSES


Labor - Salaries/Wages (4) 5,362,000 5,566,000 5,778,000 5,998,000 6,226,000 6,463,000 6,709,000 6,964,000 7,229,000 7,504,000

Other Baseline Expenses (5) 3,888,495 4,036,258 4,189,636 4,348,842 4,514,098 4,685,634 4,863,688 5,048,508 5,240,351 5,439,484

Additional for East Area Tank (5) 77,000 79,000 81,000 83,000 85,000 88,000 91,000 94,000 97,000 100,000

Additional for Well 32 (5) 519,000 535,000 551,000 568,000 585,000 603,000 621,000 640,000 659,000 679,000


JPA Contribution (6) 0 0 0 0 0 0 0 0 0 0

Local R&R Projects (not incl Water Main Replacements) (7) 3,090,000 3,183,000 3,278,000 3,376,000 3,477,000 3,581,000 3,688,000 3,799,000 3,913,000 4,030,000

Water Main Replacements from Assessment 0 0 0 0 0 0 0 0 0 0

Existing Debt Service 910,000 586,000 586,000 586,000 586,000 586,000 586,000 586,000 586,000 586,000

Water Meter Replacement Program 572,100 595,770 619,870 644,470 670,010 696,090 724,320 753,670 783,560 814,120

Subtotal Baseline Expenses w/o SWP 14,937,595 15,116,028 15,634,506 16,172,312 16,728,108 17,305,724 17,904,008 18,525,178 19,166,911 19,831,604

DWWSP Project

Pay-As-You-Go Capital Costs 0 0 0 0 0 0 0 0 0 0

Debt Financed Capital Costs (8) 0 0 0 12,042,000 0 0 0 0 0 0

CPG Water Purchase (9) 1,350,000 1,377,000 1,404,000 1,432,000 1,461,000 1,490,000 1,520,000 1,551,000 1,582,000 1,613,000

Operation & Maintenance (8) 2,949,000 2,999,000 3,051,000 3,103,000 3,157,000 3,212,000 3,268,000 3,325,000 3,384,000 3,445,000

Agency Administration 299,000 305,000 311,000 317,000 323,000 329,000 336,000 343,000 350,000 357,000

Subtotal DWWSP Project Expenses 4,598,000 4,681,000 4,766,000 16,894,000 4,941,000 5,031,000 5,124,000 5,219,000 5,316,000 5,415,000

Debt Service

Debt Service (Refi WFB Line of Credit) 2012-13 (10) 544,000 544,000 544,000 544,000 544,000 544,000 544,000 544,000 544,000 544,000

Debt Service - 2013-14 (11) 2,412,405 2,412,892 2,411,405 2,412,942 2,412,255 2,414,342 2,413,967 2,411,117 2,410,792 2,412,755

Debt Service - 2014-15 (11) 3,073,921 3,071,896 3,072,396 3,075,146 3,074,871 3,071,571 3,075,246 3,075,346 3,071,871 3,074,821

Debt Service - 2015-16 (11) 3,100,398 3,101,898 3,100,698 3,101,798 3,104,898 3,099,698 3,101,498 3,099,698 3,104,298 3,099,698

Debt Service - 2016-17 (11) 1,012,088 1,013,963 1,014,900 1,009,900 1,014,275 1,012,400 1,014,588 1,010,525 1,010,525 1,014,275

Debt Service - 2017-18 (11) 324,925 325,863 321,488 322,113 322,425 322,425 322,113 321,488 325,550 323,988

Debt Service - 2018-19 (11) 930,925 935,300 933,738 931,550 933,738 934,988 930,300 934,988 933,425 930,925

Debt Service - 2019-20 (11) 627,158 625,283 623,095 625,595 627,470 623,720 624,658 624,970 624,658 623,720

Debt Service - 2024-25 (11) 0 0 0 0 868,382 1,038,382 1,037,332 1,035,632 1,038,282 1,034,957

Subtotal Debt Service 12,025,818 12,031,093 12,021,718 12,023,043 12,902,313 13,061,525 13,063,700 13,057,763 13,063,400 13,059,138

TOTAL EXPENSES 31,561,413 31,828,121 32,422,224 45,089,355 34,571,421 35,398,249 36,091,708 36,801,941 37,546,311 38,305,742

Net Revenues (2,026,313) (893,351) 6,646 858,115 458,589 357,841 405,612 453,729 483,249 514,378

Ending Fund Balance 12,114,503 11,221,151 11,227,797 12,085,912 12,544,501 12,902,341 13,307,953 13,761,682 14,244,930 14,759,308

Debt Service Coverage - Min. 1.10 1.15 1.25 1.33 1.41 1.37 1.36 1.38 1.39 1.41 1.42

Debt Service Coverage Met yes yes yes yes yes yes yes yes yes yes

Fund Reserve Target (12) 10,328,624 10,437,565 10,550,409 10,667,211 10,788,025 10,913,659 11,043,422 11,177,877 11,317,088 11,461,621

Reserve Fund Target Met yes yes yes yes yes yes yes yes yes yes

Projections


2031/32 2032/33 2033/34 2034/35 2035/36 2036/37 2037/38 2038/39 2039/40 2040/41

Assumptions:

Revenue Increase (First increase May 1, 13 and Jan-1 thereafter) 2.0% 2.0% 2.0% 2.0% 2.0% 3.0% 0.0% 0.0% 0.0% 0.0%


Growth 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0%

Monthly SFR Bill based on 15 CCF $128.96 $131.54 $134.17 $136.85 $139.59 $143.78 $143.78 $143.78 $143.78 $143.78


12 MONTH RATE REVENUE TARGET 37,846,000 38,603,000 39,375,000 40,163,000 40,966,000 42,195,000 42,195,000 42,195,000 42,195,000 42,195,000


REVENUES (1)

Operating Revenues

Projected FY Water Sales 37,364,000 38,111,000 38,873,000 39,651,000 40,444,000 41,396,000 42,195,000 42,195,000 42,195,000 42,195,000

Water Meter Replacement Charge Revenues 847,470 881,580 916,950 953,030 991,730 1,031,640 1,072,410 1,116,370 1,161,210 1,207,570

Interest 295,000 306,000 317,000 327,000 338,000 348,000 360,000 371,000 364,000 375,000

Rate Stablization Fund Draws 0 0 0 0 0 0 0 0 0 0

Other Revenues (2) 1,123,000 1,157,000 1,192,000 1,228,000 1,265,000 1,303,000 1,342,000 1,382,000 1,423,000 1,466,000

Subtotal Operating Revenues 39,629,470 40,455,580 41,298,950 42,159,030 43,038,730 44,078,640 44,969,410 45,064,370 45,143,210 45,243,570

Debt Proceeds

Debt For Prior Pay-Go Projects 0 0 0 0 0 0 0 0 0 0

Water Revenue Bonds (3) 0 0 0 0 0 0 0 0 0 0

Subtotal Debt Proceeds 0 0 0 0 0 0 0 0 0 0

TOTAL REVENUES 39,629,470 40,455,580 41,298,950 42,159,030 43,038,730 44,078,640 44,969,410 45,064,370 45,143,210 45,243,570

0

0

EXPENSES


Labor - Salaries/Wages (4) 7,789,000 8,085,000 8,392,000 8,711,000 9,042,000 9,386,000 9,743,000 10,113,000 10,497,000 10,896,000

Other Baseline Expenses (5) 5,646,184 5,860,739 6,083,447 6,314,618 6,554,573 6,803,647 7,062,186 7,330,549 7,609,110 7,898,256

Additional for East Area Tank (5) 103,000 106,000 109,000 112,000 115,000 118,000 122,000 126,000 130,000 134,000



JPA Contribution (6) 0 0 0 0 0 0 0 0 0 0

Local R&R Projects (not incl Water Main Replacements) (7) 4,151,000 4,276,000 4,404,000 4,536,000 4,672,000 4,812,000 4,956,000 5,105,000 5,258,000 5,416,000

Water Main Replacements from Assessment 0 0 0 0 0 0 0 0 0 0

Existing Debt Service 586,000 586,000 586,000 586,000 586,000 586,000 586,000 586,000 586,000 586,000

Water Meter Replacement Program 847,470 881,580 916,950 953,030 991,730 1,031,640 1,072,410 1,116,370 1,161,210 1,207,570

Subtotal Baseline Expenses w/o SWP 20,520,654 21,235,319 21,975,397 22,740,648 23,535,303 24,359,287 25,211,596 26,096,919 27,013,320 27,963,826

DWWSP Project

Pay-As-You-Go Capital Costs 0 0 0 0 0 0 0 0 0 0

Debt Financed Capital Costs (8) 0 0 0 0 0 0 0 0 0 0

CPG Water Purchase (9) 1,645,000 1,678,000 1,712,000 1,746,000 1,781,000 1,817,000 1,853,000 1,890,000 0 0

Operation & Maintenance (8) 3,506,000 3,569,000 3,634,000 3,699,000 3,766,000 3,833,000 3,902,000 3,973,000 4,044,000 4,117,000

Agency Administration 364,000 371,000 378,000 386,000 394,000 402,000 410,000 418,000 426,000 435,000

Subtotal DWWSP Project Expenses 5,515,000 5,618,000 5,724,000 5,831,000 5,941,000 6,052,000 6,165,000 6,281,000 4,470,000 4,552,000

Debt Service

Debt Service (Refi WFB Line of Credit) 2012-13 (10) 544,000 544,000 544,000 544,000 544,000 544,000 544,000 544,000 544,000 544,000

Debt Service - 2013-14 (11) 2,411,755 2,407,780 2,415,842 2,415,205 2,411,105 2,413,542 2,407,030 2,411,805 2,412,130 2,413,017

Debt Service - 2014-15 (11) 3,073,646 3,073,346 3,073,646 3,074,271 3,074,946 3,070,396 3,070,621 3,075,071 3,073,196 3,074,996

Debt Service - 2015-16 (11) 3,101,198 3,103,198 3,100,398 3,102,798 3,099,798 3,101,398 3,101,998 3,101,298 3,103,998 3,104,498

Debt Service - 2016-17 (11) 1,011,463 1,012,400 1,011,775 1,014,588 1,010,525 1,009,900 1,012,400 1,012,713 1,010,838 1,011,775

Debt Service - 2017-18 (11) 322,113 324,925 322,113 323,988 325,238 320,863 321,175 320,863 324,925 323,050

Debt Service - 2018-19 (11) 932,488 932,800 931,863 934,675 930,925 930,925 934,363 930,925 930,925 934,050

Debt Service - 2019-20 (11) 627,158 624,658 626,533 627,470 627,470 626,533 624,658 626,845 627,783 627,470

Debt Service - 2024-25 (11) 1,035,982 1,036,032 1,035,107 1,033,207 1,035,332 1,036,157 1,035,682 1,033,907 1,035,832 1,036,132

Subtotal Debt Service 13,059,800 13,059,138 13,061,275 13,070,200 13,059,338 13,053,713 13,051,925 13,057,425 13,063,625 13,068,988

TOTAL EXPENSES 39,095,454 39,912,457 40,760,672 41,641,848 42,535,641 43,465,000 44,428,521 45,435,344 44,546,945 45,584,814

Net Revenues 534,016 543,123 538,278 517,182 503,089 613,640 540,889 (370,974) 596,265 (341,244)


Debt Service Coverage - Min. 1.10 1.43 1.44 1.46 1.47 1.48 1.50 1.51 1.46 1.55 1.49

Debt Service Coverage Met yes yes yes yes yes yes yes yes yes yes

Fund Reserve Target (12) 11,610,546 11,765,185 11,925,612 12,091,155 12,262,893 12,440,662 12,624,797 12,815,637 13,013,028 13,217,814

Reserve Fund Target Met yes yes yes yes yes yes yes yes yes yes

Projected


Footnotes:

1 - Source: Enterprise Revenue Actuals 08-11. Estimated based on 2010/11 Revenues.

2 - Includes Sale of Surplus/Salvage, Prior Yr Enc Cancelled

3 - BWA estimates. $5M bond issue was added to minimize rate increases. 4 - Source: OM Costs. Assumes Labor costs account for 56% of total baseline expenses. Escalated by 3.8% annually 5 - Source: OM Costs. Other Baseline Expenses = Budget Baseline less Labor Costs. Costs are escalated by 3% beginning in 2017/18.

6 - Source: 2011-12 Budget, Contribution Transfers 7 - Project costs escalated by 4% annually. Projected costs for Local Projects R&R are estimated based on historical average beginning 2020/21. 8 - Source: DWWSP - Project Cost Allocation W5b, Davis Portion of Costs (April 2012 dollars) from West Yost. Includes 4MG tank in 2024/25 - estimated at $10M in current dollars and escalated by 4% each year.

9 - Source: Table A Purchase Installment Agreement Payment Schedule 2016-2039. Costs have been escalated.

10 - Assumes $8M Wells Fargo Line of Credit refinancing in 2012/13.

11 - Debt service estimates from NHA Advisors (2/6/13) and BWA. 12 - Recommended fund reserve target is equivalent to 3 months (25%) of O&M expenses plus $5 million for Rate Stabilization plus $2 million for Capital.


Appendix C: CBFR Calculations

Rates Effective 1-May-2013 1-Jan-2014 1-Jan-2015 1-Jan-2016 1-Jan-2017 1-Jan-2018 1-Jan-2019 1-Jan-2020 1-Jan-2021 1-Jan-2022 1-Jan-2023

Annual Revenue Requirement

Budget

2011/12

Annualized

2012/132013/14 2014/15 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21 2021/22 2022/23

Scenario 3: All Debt Revenue Rqmt $9,978,000 $11,474,500 $12,971,000 $16,214,000 $20,268,000 $21,889,000 $23,640,000 $24,822,000 $26,063,000 $27,366,000 $28,734,000 $30,171,000

115% 130% 162% 203% 219% 237% 249% 261% 274% 288% 302%

Variable Operations 20.0% $2,294,900 $2,594,200 $3,242,800 $4,053,600 $4,377,800 $4,728,000 $4,964,400 $5,212,600 $5,473,200 $5,746,800 $6,034,200

Billing Admin $419,073 $420,091 $434,073 $448,197 $466,694 $485,520 $504,651 $524,260 $545,388 $567,367 $590,232

Meter Replacement $0 $416,330 $428,820 $441,680 $454,930 $468,580 $482,640 $497,120 $512,030 $527,390 $543,210

Fireline 6.0% $688,470 $778,260 $972,840 $1,216,080 $1,313,340 $1,418,400 $1,489,320 $1,563,780 $1,641,960 $1,724,040 $1,810,260

Readiness To Serve 4.5% $516,353 $583,695 $729,630 $912,060 $985,005 $1,063,800 $1,116,990 $1,172,835 $1,231,470 $1,293,030 $1,357,695

Summer Peak Sourcing (CBFR) $7,555,704 $8,594,754 $10,834,657 $13,638,063 $14,746,161 $15,944,280 $16,746,639 $17,589,525 $18,473,982 $19,402,763 $20,378,613

Fund Reserve Annual Contribution $0 $0 $0 $0 $0 $400,000 $0 $0 $0 $0 $0

Total Revenue Requirement $11,474,500 $13,387,330 $16,642,820 $20,709,680 $22,343,930 $24,508,580 $25,304,640 $26,560,120 $27,878,030 $29,261,390 $30,714,210

Volume Stats

Accounts Meter Current 2012/2013 2013/2014 2014/15 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21 2021/22 2022/23

Accounts 16,433 16,473 16,513 16,593 16,674 16,836 17,000 17,165 17,337 17,510 17,685 17,862

100.0% 100.2% 100.5% 101.0% 101.5% 102.5% 103.5% 104.5% 105.5% 106.6% 107.6% 108.7%

Monthly Cost for Customer Billing and Administration

Current 2012/2013 2013/2014 2014/15 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21 2021/22 2022/23

$2.06 $2.12 $2.12 $2.18 $2.24 $2.31 $2.38 $2.45 $2.52 $2.60 $2.67 $2.75

Monthly Meter Replacement Charges

Meter Code Meter Size Current 2012/2013 2013/2014 2014/15 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21 2021/22 2022/23

01 5/8" or 3/4" $1.75 $1.75 $1.80 $1.85 $1.91 $1.97 $2.03 $2.09 $2.15 $2.21 $2.28

02 1 - inch $2.58 $2.58 $2.66 $2.74 $2.82 $2.90 $2.99 $3.08 $3.17 $3.27 $3.37

03 1 1/2 - inch $3.68 $3.68 $3.79 $3.90 $4.02 $4.14 $4.26 $4.39 $4.52 $4.66 $4.80

04 2 - inch $6.35 $6.35 $6.54 $6.74 $6.94 $7.15 $7.36 $7.58 $7.81 $8.04 $8.28

06 3 - inch $7.18 $7.18 $7.40 $7.62 $7.85 $8.09 $8.33 $8.58 $8.84 $9.11 $9.38

07 4 - inch $9.75 $9.75 $10.04 $10.34 $10.65 $10.97 $11.30 $11.64 $11.99 $12.35 $12.72

08 6 - inch $13.80 $13.80 $14.21 $14.64 $15.08 $15.53 $16.00 $16.48 $16.97 $17.48 $18.00

09 8 - inch $17.39 $17.39 $17.91 $18.45 $19.00 $19.57 $20.16 $20.76 $21.38 $22.02 $22.68

Monthly Fireline Charges


01 5/8" or 3/4" $2.51 $2.84 $3.55 $4.44 $4.80 $5.18 $5.44 $5.71 $6.00 $6.30 $6.61

02 1 - inch $4.19 $4.74 $5.92 $7.40 $7.99 $8.63 $9.06 $9.52 $9.99 $10.49 $11.02

03 1 1/2 - inch $8.38 $9.47 $11.84 $14.80 $15.99 $17.26 $18.13 $19.03 $19.99 $20.99 $22.03

04 2 - inch $13.41 $15.16 $18.95 $23.68 $25.58 $27.62 $29.00 $30.45 $31.98 $33.58 $35.26

06 3 - inch $26.82 $30.31 $37.89 $47.37 $51.16 $55.25 $58.01 $60.91 $63.96 $67.15 $70.51

07 4 - inch $41.90 $47.37 $59.21 $74.01 $79.93 $86.32 $90.64 $95.17 $99.93 $104.93 $110.17

08 6 - inch $83.80 $94.73 $118.41 $148.02 $159.86 $172.65 $181.28 $190.34 $199.86 $209.85 $220.35

09 8 - inch $134.08 $151.57 $189.46 $236.83 $255.78 $276.24 $290.05 $304.55 $319.78 $335.76 $352.55

Monthly Readiness To Serve Charges


01 5/8" or 3/4" $1.89 $2.13 $2.66 $3.33 $3.60 $3.88 $4.08 $4.28 $4.50 $4.72 $4.96

02 1 - inch $3.14 $3.55 $4.44 $5.55 $5.99 $6.47 $6.80 $7.14 $7.49 $7.87 $8.26

03 1 1/2 - inch $6.29 $7.10 $8.88 $11.10 $11.99 $12.95 $13.60 $14.28 $14.99 $15.74 $16.53

04 2 - inch $10.06 $11.37 $14.21 $17.76 $19.18 $20.72 $21.75 $22.84 $23.98 $25.18 $26.44

06 3 - inch $20.11 $22.74 $28.42 $35.53 $38.37 $41.44 $43.51 $45.68 $47.97 $50.36 $52.88

07 4 - inch $31.43 $35.52 $44.41 $55.51 $59.95 $64.74 $67.98 $71.38 $74.95 $78.69 $82.63

08 6 - inch $62.85 $71.05 $88.81 $111.02 $119.90 $129.49 $135.96 $142.76 $149.89 $157.39 $165.26

09 8 - inch $100.56 $113.68 $142.10 $177.63 $191.83 $207.18 $217.54 $228.41 $239.83 $251.82 $264.41

Monthly Fixed Charges


01 5/8" or 3/4" $11.50 $8.27 $8.84 $10.20 $11.86 $12.61 $13.41 $14.00 $14.60 $15.24 $15.90 $16.60

02 1 - inch $16.20 $12.03 $12.99 $15.20 $17.93 $19.12 $20.39 $21.30 $22.26 $23.25 $24.31 $25.40

03 1 1/2 - inch $27.90 $20.47 $22.38 $26.69 $32.04 $34.31 $36.73 $38.43 $40.22 $42.09 $44.06 $46.11

04 2 - inch $42.00 $31.93 $34.99 $41.88 $50.43 $54.01 $57.87 $60.57 $63.40 $66.37 $69.47 $72.73

06 3 - inch $80.00 $56.23 $62.35 $75.89 $92.75 $99.68 $107.15 $112.30 $117.69 $123.36 $129.30 $135.53

07 4 - inch $122.00 $85.20 $94.76 $115.83 $142.10 $152.84 $164.42 $172.37 $180.71 $189.46 $198.64 $208.28

08 6 - inch $238.00 $162.57 $181.70 $223.62 $275.92 $297.15 $320.04 $335.69 $352.10 $369.32 $387.39 $406.36

09 8 - inch $379.00 $254.15 $284.75 $351.65 $435.15 $468.92 $505.36 $530.20 $556.24 $583.58 $612.28 $642.40

Monthly Combined Fixed Charges (Rounded)1


01 5/8" or 3/4" $11.50 $8.27 $8.84 $10.21 $11.38 $11.90 $13.67 $14.00 $14.60 $15.24 $15.90 $16.60

02 1 - inch $16.20 $12.03 $12.99 $15.22 $17.19 $18.09 $20.92 $21.30 $22.26 $23.25 $24.31 $25.40

03 1 1/2 - inch $27.90 $20.47 $22.38 $26.78 $30.76 $32.62 $38.01 $38.43 $40.22 $42.09 $44.06 $46.11

04 2 - inch $42.00 $31.93 $34.99 $42.02 $48.41 $51.40 $59.96 $60.57 $63.40 $66.37 $69.47 $72.73

06 3 - inch $80.00 $56.23 $62.35 $76.19 $89.09 $95.19 $111.72 $112.30 $117.69 $123.36 $129.30 $135.53

07 4 - inch $122.00 $85.20 $94.76 $116.33 $136.53 $146.12 $171.73 $172.37 $180.71 $189.46 $198.64 $208.28

08 6 - inch $238.00 $162.57 $181.70 $224.63 $265.13 $284.43 $335.05 $335.69 $352.10 $369.32 $387.39 $406.36

09 8 - inch $379.00 $254.15 $284.75 $353.27 $418.17 $449.16 $529.67 $530.20 $556.24 $583.58 $612.28 $642.40


Annual Fixed Charges Revenue


01 5/8" or 3/4" $1,651,279 $1,211,717 $1,298,939 $1,506,947 $1,687,833 $1,782,105 $2,067,116 $2,137,140 $2,251,935 $2,373,388 $2,501,321 $2,637,739

02 1 - inch $670,546 $486,913 $526,888 $620,383 $704,103 $748,166 $873,637 $898,225 $947,795 $1,000,212 $1,055,920 $1,114,679

03 1 1/2 - inch $156,838 $112,258 $123,047 $147,967 $170,787 $182,874 $215,167 $219,679 $232,187 $245,418 $259,451 $274,279

04 2 - inch $158,730 $113,322 $124,483 $150,199 $173,885 $186,418 $219,582 $223,963 $236,764 $250,335 $264,668 $279,854

06 3 - inch $86,343 $60,875 $67,665 $83,086 $97,628 $105,326 $124,821 $126,683 $134,098 $141,957 $150,284 $159,097

07 4 - inch $58,341 $40,993 $45,706 $56,382 $66,496 $71,858 $85,275 $86,423 $91,511 $96,903 $102,614 $108,666

08 6 - inch $8,392 $5,867 $6,573 $8,165 $9,685 $10,491 $12,478 $12,623 $13,373 $14,167 $15,009 $15,901

09 8 - inch $17,539 $12,229 $13,735 $17,122 $20,367 $22,088 $26,301 $26,583 $28,168 $29,848 $31,629 $33,517

$2,808,008 $2,044,174 $2,207,035 $2,590,252 $2,930,782 $3,109,326 $3,624,376 $3,731,321 $3,935,830 $4,152,226 $4,380,895 $4,623,731

17.81% 17.02% 15.98% 14.46% 14.20% 15.33% 15.03% 15.10% 15.17% 15.25% 15.33%

Annual Fireflow Readiness Revenue Target 1,623,896$ 2,198,376$ 2,565,363$ 3,018,017$ 3,219,969$ 3,436,300$ 3,593,601$ 3,757,995$ 3,930,848$ 4,111,827$ 4,301,397$

F - E G - F H - G I - H J - I K - J L - K M - L N - M O - N P - O

Annual Meter Replacement Costs $0 $416,330 $428,820 $441,680 $454,930 $468,580 $482,640 $497,120 $512,030 $527,390 $543,210

Annual CBFR Cost Baseline $7,555,704 $8,594,754 $10,834,657 $13,638,063 $14,746,161 $16,344,280 $16,746,639 $17,589,525 $18,473,982 $19,402,763 $20,378,613

Annual CBFR Consumption Baseline (ccf) 3,055,110 3,055,110 2,980,972 2,846,802 2,761,821 2,627,805 2,550,952 2,594,396 2,620,340 2,646,543 2,673,009 2,699,740

Cumulative Use Reduction 0.00% 0.00% -2.43% -6.82% -9.60% -13.99% -16.50% -15.08% -14.23% -13.37% -12.51% -11.63%

CBFR Unit Charge per ccf 2.473$ 2.883$ 3.806$ 4.938$ 5.612$ 6.407$ 6.455$ 6.713$ 6.980$ 7.259$ 7.548$

CBFR Unit Charge per ccf per month 0.20609$ 0.24027$ 0.31716$ 0.41151$ 0.46763$ 0.53393$ 0.53791$ 0.55939$ 0.58170$ 0.60490$ 0.62903$

CBFR Unit Charge per ccf per month (rounded)1 0.210$ 0.240$ 0.320$ 0.400$ 0.450$ 0.540$ 0.540$ 0.560$ 0.580$ 0.610$ 0.630$

Annual CBFR Volumetric Revenue

Current 2012/2013 2013/2014 2014/15 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21 2021/22 2022/23

$7,698,877 $8,585,199 $10,931,720 $13,256,741 $14,190,147 $16,530,169 $16,811,686 $17,608,685 $18,419,939 $19,566,426 $20,410,034

Annual Summer Peak Sourcing Revenue Target $7,555,704 $8,594,754 $10,834,657 $13,638,063 $14,746,161 $16,344,280 $16,746,639 $17,589,525 $18,473,982 $19,402,763 $20,378,613

Annual Traditional Volumetric Revenue

Current 2012/2013 2013/2014 2014/15 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21 2021/22 2022/23

MFR $1,413,771 $580,191 $633,598 $793,399 $902,427 $989,909 $1,165,511 $1,337,690 $1,351,067 $1,364,577 $1,378,223 $1,484,805

Commercial $583,121 $250,483 $268,539 $320,871 $356,212 $386,440 $449,983 $516,458 $521,622 $526,838 $532,106 $573,254

Irrigation $1,106,158 $333,946 $350,424 $426,477 $470,921 $500,025 $569,868 $647,577 $647,577 $647,577 $647,577 $690,749

SFR Low $2,553,567 $1,139,299 $1,244,173 $1,557,968 $1,772,062 $1,943,848 $2,288,673 $2,626,772 $2,653,040 $2,679,570 $2,706,366 $2,915,658

SFR Medium $628,998 $189,447 $206,886 $259,065 $294,665 $323,230 $380,568 $436,788 $441,156 $445,568 $450,023 $484,824

SFR High $830,452 $157,955 $166,187 $203,337 $225,732 $242,162 $278,841 $320,033 $323,234 $326,466 $329,730 $355,229

Total $7,116,068 $2,651,321 $2,869,806 $3,561,117 $4,022,018 $4,385,614 $5,133,443 $5,885,316 $5,937,695 $5,990,595 $6,044,024 $6,504,518

Annual Variable Operations Revenue Target 2,294,900$ 2,594,200$ 3,242,800$ 4,053,600$ 4,377,800$ 4,728,000$ 4,964,400$ 5,212,600$ 5,473,200$ 5,746,800$ 6,034,200$

Annual Total Combined Revenue Generated

Current 2012/2013 2013/2014 2014/15 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21 2021/22 2022/23

$9,924,076 $12,394,372 $13,662,041 $17,083,089 $20,209,541 $21,685,087 $25,287,988 $26,428,323 $27,482,210 $28,562,761 $29,991,344 $31,538,284

Orig 218 Amt $16,642,820 $20,709,680 $22,343,930 $24,108,580

Projected Surplus or (Deficit)

Current 2012/2013 2013/2014 2014/15 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21 2021/22 2022/23

$919,872 $274,711 $440,269 ($500,139) ($658,843) $779,408 $1,123,683 $922,090 $684,731 $729,954 $824,074

Annual Variable Cost Baseline $2,294,900 $2,594,200 $3,242,800 $4,053,600 $4,377,800 $4,728,000 $4,964,400 $5,212,600 $5,473,200 $5,746,800 $6,034,200

20.00% 20.00% 20.00% 20.00% 20.00% 20.00% 20.00% 20.00% 20.00% 20.00% 20.00%

Annual Consumption Baseline $4,430,007 $4,300,446 $3,791,456 $3,751,945 $3,719,661 $3,548,450 $3,722,018 $3,755,922 $3,790,165 $3,824,751 $3,859,682

Uniform Block Rate per ccf $0.518 $0.603 $0.855 $1.080 $1.177 $1.332 $1.334 $1.388 $1.444 $1.503 $1.563

Loge-Williams CBFR Tier Rates

Uniform Block Rate (Rounded)1

$0.595 $0.660 $0.860 $1.020 $1.120 $1.320 $1.500 $1.500 $1.500 $1.500 $1.600

(1) Rounded to conform with rates presented to the City Council on January 15, 2013.

2014 Water Rate Cost of Service Update

July 31, 2014

BARTLE WELLS ASSOCIATES Independent Public Finance Consultants 1889 Alcatraz Avenue Berkeley, California 94703 www.bartlewells.com Tel: 510/653-3399

http://www.bartlewells.com/

City of Davis – Water Rate Cost of Service Update 2014 Page 2

Sections 1 – 7 of the City of Davis March 12, 2013 Water Rate Cost of Service Study is available online at water.cityofdavis.org/rates. SECTION 8: 2014 WATER RATE COST OF SERVICE UPDATE

Measure P On June 3, 2014, Measure P was passed which repealed Ordinance No. 2405. Ordinance No. 2405

was adopted in March 2013 by the Davis City Council, authorizing water rate increases through

January 1, 2018 as recommended in the City of Davis Water Rate Cost of Service Study, Final

Report, March 12, 2013 (“2013 Water Rate Cost of Service Study”). Measure P repealed the 2013-

approved rate schedule in its entirety and reinstated the water rates in effect prior to May 1, 2013

under Ordinance No. 2364 adopted June 1, 2010 (“2010 rates”). The 2010 rates became effective

(again) on July 4, 2014 and are shown below.

2010 Water Rates

BASE RATE

Meter Size

5/8" or 3/4" $11.50 $23.00

1" $16.20 $32.40

1-1/2" $27.90 $55.80

2" $42.00 $84.00

3" $80.00 $160.00

4" $122.00 $244.00

6" $238.00 $476.00

METERED RATE CHARGE - PER HUNDRED CUBIC FEET (CCF)

Use Classification Use Tiers Unit Charge Use Tiers Unit Charge

Single Family Residential Tier 1: 0 - 18 ccf $1.50 Tier 1: 0 - 36 ccf $1.50


Multi-Family Residential Tier 1: 0 - 7 ccf $1.42 Tier 1: 0 - 14 ccf $1.42


Small Commercial/Industrial Tier 1: 0 - 57.5 ccf $1.41 Tier 1: 0 - 115 ccf $1.41

Up to 1-1/2" meters Tier 2: Over 57.5 ccf $1.90 Tier 2: Over 115 ccf $1.90

Large Commercial/Industrial Tier 1: 0 - 309.5 ccf $1.51 Tier 1: 0 - 619 ccf $1.51

2" meters and larger Tier 2: Over 309.5 ccf $1.90 Tier 2: Over 619 ccf $1.90

Irrigation Tier 1: 0 - 181.5 ccf $1.41 Tier 1: 0 - 363 ccf $1.41

(Use per acre) Tier 2: Over 181.5 ccf $1.90 Tier 2: Over 363 ccf $1.90

Municipal All Consumption $1.41 All Consumption $1.41

* CCF = hundred cubic feet (1 ccf = 748 gallons)

Monthly Bi-Monthly


As a result of the rate rollback, the water utility will lose approximately $400,000 per month in

revenue during the summer months when water consumption is typically at its highest. To limit

additional revenue losses, the City retained Bartle Wells Associates (“BWA”) to develop new water

rates based on an updated cost of service study and in compliance with Proposition 218. The

objective is to implement the new water rates beginning on November 1, 2014.

URAC The Utility Rate Advisory Committee (URAC) was established in November 2013 to advise the City

Council on utility rates and related matters. The URAC consists of seven members with one

alternate. Each Councilmember appoints one member. The additional two members and one

alternate are appointed by a majority vote of the City Council. Meetings are typically held on the

second Tuesday of each month at 6:30pm.

In June 2014, BWA met with the URAC at three meetings to discuss updated project costs, rate

structure alternatives, fixed vs. variable revenue recovery, water use assumptions, and potential

impacts on customers. The URAC ultimately could not reach consensus on a formal rate structure

recommendation to the City Council.

Rate Structure Options At the June 24, 2014 City Council meeting, the City Council directed BWA to evaluate three rate

options with a uniform block tier by customer class. The rate options vary in the revenue recovery

between the fixed and variable charges:

40% Fixed/60% Variable

40% of the annual revenue will be derived from the fixed component of the rates. The fixed

component shall be based on meter size in compliance with ratios established by the

American Water Works Association (AWWA) Principles of Water Rates, Fees, and Charges

Manual of Water Supply Practices M1, Sixth Edition, 2012 (M1 Manual). The remaining 60%

of the revenue will come from the uniform block rates charges to each specific customer

class in accordance with the 2013 Water Rate Cost of Service Study.

30% Fixed/70% Variable 30% of the annual revenue will be derived from the fixed component of the rates. The fixed


AWWA M1 Manual. The remaining 70% of the revenue will come from the uniform block

rate charges to each specific customer class in accordance with the 2013 Water Rate Cost

of Service Study.


13% Fixed/87% Variable

13% of the annual revenue will be derived from the fixed component of the rates. The fixed


AWWA M1 Manual. The remaining 87% of the revenue will come from the uniform block

rates charges to each specific customer class in accordance with the 2013 Water Rate Cost

of Service Study.

In accordance with the information presented to the City Council by the City’s Financial Advisor,

the rate structure options were designed with a Rate Stabilization Reserve policy that reflects the

risk associated with the variability of revenues for each option. Additionally, in response to the

State’s severe drought emergency, the rate options included a drought surcharge triggered by

various stages of reduction in consumption.

Constitutional Rate Requirements The California Constitution includes two key articles that directly govern or impact the City’s water

rates: Article 10 and Article 13D. The water rates developed in this 2014 Update were designed to

comply with both of these constitutional mandates as well as various provisions of the California

Water Code and Government Code that support and add further guidance for implementing these

constitutional requirements. In accordance with the constitutional provisions, the proposed rates

are designed to a) recover the City’s cost of providing water service; b) allocate costs in proportion

to the cost for serving each customer class; and c) promote conservation and discourage waste.

Article 10, Section 2 Article 10, Section 2 of the California Constitution was established by voter-approval in 1976 and

requires public agencies to maximize the beneficial use of water, prevent waste, and encourage

conservation. Section 2 states that:

It is hereby declared that because of the conditions prevailing in this State the general

welfare requires that the water resources of the State be put to beneficial use to the fullest

extent of which they are capable, and that the waste or unreasonable use or unreasonable

method of use of water be prevented, and that the conservation of such waters is to be

exercised with a view to the reasonable and beneficial use thereof in the interest of the

people and for the public welfare.

Article 13D, Section 6 Proposition 218 was adopted by California voters in 1996 and added Articles 13C and 13D to the

California Constitution. Article 13D, Section 6 governs property-related charges, which the

California Supreme Court subsequently ruled includes ongoing utility service charges such as


water, sewer, and garbage rates. Article 13D, Section 6 establishes a) procedural requirements for

imposing or increasing property-related charges, and b) substantive requirements for those

charges. Article 13D also requires voter approval for new or increased property-related charges

but exempts from this voting requirement rates for water, sewer, and garbage service.

The substantive requirements of Article 13D, Section 6 require the City’s water rates to meet the

following conditions:

1) Revenues derived from the fee or charge shall not exceed the funds required to provide

the property related service.

2) Revenues derived from 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 a fee or charge imposed upon any parcel or person as an incident of

property ownership shall not exceed the proportional cost of the service attributable to the

parcel.

4) No fee or charge may be imposed for a service unless that service is actually used by, or

immediately available to, the owner of the property in question.

5) No fee or charge may be imposed for general governmental services, such as police or fire

services, where the service is available to the public at large in substantially the same

manner as it is to property owners.

A subsequent appellate court decision in 2011 further clarified that agencies must demonstrate,

satisfactory to a court’s independent judgment, that property-related fees and charges meet the

substantive requirements of Section 6 (3b). This rate study provides that justification. The water

rates derived in this report are based on a cost-of-service methodology that fairly apportions costs

to all customers.

Use of Generally Accepted Rate-Making Principles The rates developed in this 2014 Update use a straightforward methodology to establish an

equitable system of fixed and variable charges that recover the cost of providing service and fairly

apportion costs to each rate component. The rates were developed using generally accepted cost-

based principles and methodologies for establishing water rates, charges, and fees contained and

discussed in the AWWA M1 Manual. In developing water rates, it is important to know that there

is no “one-size-fits-all” approach for establishing cost-based water rates, “the (M1 Manual) is

aimed at outlining the basic elements involved in water rates and suggesting alternative rules of


procedure for formulating rates, thus permitting the exercise of judgment and preference to meet

local conditions and requirements.” 1

Council Recommended Rate Structure: 13% Fixed/87% Variable At the July 1, 2014 meeting, the City Council moved to adopt five-years of water rate increases

based on the 13% Fixed/ 87% Variable rate structure that can be included in a Proposition 218

notice. Consistent with Article X of the California Constitution and in conjunction with Article

XIIID, the City is electing to recover more than 60% of the costs from the volumetric rate. This is to

provide an additional incentive to encourage conservation and discourage the waste or

unreasonable use of water in the City.

The first rate increase is proposed to go into effect on November 1, 2014. The next rate increase

will be effective on January 1, 2016 and each January 1 thereafter through 2018. This 2014

addendum updates the expense and consumption projections used in the 2013 Water Rate Cost of

Service Study to develop water rates that provide the City with the necessary funding to meet

bond coverage requirements, pay future debt service obligations, sustain the capital improvement

program, and cover increased operating and maintenance costs through fiscal year 2018/19. The

proposed rates have been developed using conservation projections based on the most recent

information available at the time.

Number of Meters Table 1 includes the number of customers within the City’s service area by meter size for calendar

years 2011 through 2013 as well as a three-year average summary. Between 2011 and 2013, the

total number of meters increased approximately 1 percent, which is consistent with the growth

projections estimated in the 2013 Water Rate Cost of Service Study.

1 AWWA Manual M1 Manual, Principles of Water Rates, Fees, and Charges, Sixth Edition, 2012, page 5.


Table 1. Customers by Meter Size

Single Family

Residential

Multi-Family

Residential Commercial Irrigation Total

5/8 or 3/4" 11,892 85 149 55 12,181

1" 2,744 201 272 147 3,364

1-1/2" 95 76 156 129 456

2" 5 77 113 100 295

3" 0 51 20 19 90

4" 1 22 4 13 40

6" 0 0 3 0 3

8" 0 4 0 0 4

Total 14,737 516 717 463 16,433

% of Total 90% 3% 4% 3% 100%

Single Family

Residential

Multi-Family


5/8 or 3/4" 11,926 84 145 59 12,214

1" 2,853 201 272 154 3,480

1-1/2" 8 74 113 127 322

2" 0 52 20 22 94

3" 96 74 156 128 454

4" 1 22 4 14 41

6" 0 0 3 0 3

8" 0 4 0 0 4

Total 14,884 511 713 504 16,612

% of Total 90% 3% 4% 3% 100%

Single Family

Residential

Multi-Family


5/8 or 3/4" 11,917 84 145 58 12,204

1" 2,882 200 275 159 3,516

1-1/2" 6 74 112 136 328

2" 0 50 22 21 93

3" 96 75 160 134 465

4" 1 23 4 14 42

6" 0 0 3 0 3

8" 0 4 0 0 4

Total 14,902 510 721 522 16,655

Single Family

Residential

Multi-Family


5/8 or 3/4" 11,912 84 146 57 12,200

1" 2,826 201 273 153 3,453

1-1/2" 36 75 127 131 369

2" 2 60 52 48 161

3" 64 67 112 94 336

4" 1 22 4 14 41

6" 0 0 3 0 3

8" 0 4 0 0 4

Total 14,841 512 717 496 16,567

% of Total 90% 3% 4% 3% 100%

2011 Meter Count

2012 Meter Count

2013 Meter Count

Three-Year (2011-13) Average Meter Count


The most common method to levy fixed charges is by meter size. Meter size is used as a proxy

for the estimated demand that each customer places on the water system. The base meter is

most commonly a 5/8‐inch or 3/4‐inch meter. A meter equivalent ratio represents the capacity

of a base 5/8-inch or 3/4‐inch meter. The ratio at which the meter charge increases is typically

a function of either meter investment (estimated cost) or the meter’s safe operating capacity.

A significant portion of a water system’s design and, in turn, the utility’s operating and capital

costs are related to meeting capacity requirements. Larger meters are converted into meter

equivalents in order to determine a common underlying fixed charge that can be applied to the

capacity of each meter size.

As shown on Table 2, BWA recommends aligning the fixed charges with the AWWA meter

capacity ratios based on the safe maximum operating capacity from the AWWA M1 Manual.

For example, based on the AWWA meter capacity rations, a customer that has a 2‐inch meter

has 5.33 times the capacity equivalency of a customer with a 3/4‐inch meters. (A 2-inch meter

has a safe operating capacity of 160 gallons per minute (gpm) compared to a 3/4‐inch meter

which has a safe operating capacity of 30 gpm). The capacity-based meter ratios are widely

used in California rate setting and are consistent with meter ratios adopted by the California

Public Utility Commission for private water companies.

Table 2. AWWA Meter Capacity Ratios

Table 3 summarizes the City’s meter capacity ratios and three-year (2011 – 2013) average total

number of equivalent meters by customer class. The average total number of equivalent

meters is 24,636.

Meter Size

Safe Max Operating Capacity for

C712-10 Singlejet Type (gpm)

Equivalency Factor based on

3/4-inch meter

5/8-in or 3/4-in 30 1.00

1-in 50 1.67

1-1/2-in 100 3.33

2-in 160 5.33

3-in 320 10.67

4-in 500 16.67

6-in 1000 33.33

8-in 1600 53.33

Source: AWWA's M1 Manual, Principles of Water Rates, Fees, and Charges, Sixth Edition, 2012, Table B-1

AWWA Recommended Meter Capacity Ratios


Table 3. Total Meter Equivalents

Water Consumption The 2013 Water Rate Cost of Service Study utilized water consumption for the calendar year

2011 as the base year to develop rates. For this update, BWA analyzed an additional two years

of consumption for the calendar years 2012 and 2013. Between 2011 and 2013, total City-wide

water use increased approximately 15 percent. The increase in overall consumption may be

attributed to several factors including the weather, meter replacements, and the economy.

Initial water use information for the 2014 January through May period indicates a significant

reduction in consumption. This may be due to a number of factors; including Californian’s

worsening three-year drought, the expected implementation of the Consumption Based Fixed

Rates (CBFR) rate structure (which would have used the customer’s May through Octobers

2014 water consumption amount to set 2015 CBFR rates) or other factors. BWA used the

three-year average of calendar years 2011 through 2013, and subtracted 10 percent to set the

base year (2014/15) consumption by customer class.

Table 4 includes annual water consumption by customer class for the three-year period of 2011

through 2013 as well as a three-year average summary. The table also shows the peaking ratio

for each class. The peak ratio/factor is the ratio of maximum flow to the average daily flow and

is calculated by taking the highest use month over average annual use.

Customer peak demand characteristics, as measured by each customer category’s peak ratio,

have a considerable impact on the cost for providing water service. A significant portion of

Meter Ratio

Single Family

Residential

Multi-Family


5/8 or 3/4" 1.00 11,912 84 146 57 12,200

1" 1.67 4,720 335 456 256 5,767

1-1/2" 3.33 121 249 423 435 1,228

2" 5.33 9 318 275 254 856

3" 10.67 683 711 1,195 999 3,589

4" 16.67 17 372 67 228 683

6" 33.33 0 0 100 0 100

8" 53.33 0 213 0 0 213

Total 17,461 2,283 2,662 2,230 24,636

% of Total 71% 9% 11% 9% 100%

1 - Based on American Water Works Association Standard Meter Capacities

Three-Year (2011 - 2013) Average Total Equivalent Meters


capacity-related costs incurred by a water utility are to accommodate variations in

consumption and to meet peak use requirements. Storage facilities, for example, are designed

and constructed to meet demands during peak periods. Thus, the customers causing peak

demands should pay for the demand-related facilities in proportion to their contribution to

peak demands.

Figure 1 shows the three-year average use graphically. Irrigation accounts have the highest

peaking factor, followed by single family residential customers. As expected, these classes tend

to use more water during the summer months.


Table 4. Water Consumption by Class

Customer Class Jan/Feb Mar/Apr May/Jun Jul/Aug Sept/Oct Nov/Dec Total % of Total Peak Average Peak Ratio

Single Family Residential 211,655 319,455 541,267 682,622 501,043 278,118 2,534,160 55.7% 682,622 422,360 1.62

Multi-Family Residential 137,573 155,415 188,376 198,744 174,755 127,190 982,053 21.6% 198,744 163,676 1.21

Commercial 48,339 59,123 86,082 100,993 84,548 61,365 440,450 9.7% 100,993 73,408 1.38

Irrigation 9,398 40,158 145,113 205,218 146,349 47,039 593,275 13.0% 205,218 98,879 2.08

Total 406,965 574,151 960,838 1,187,577 906,695 513,712 4,549,938 100.0% 1,187,577 758,323 1.57

Percent of Total 8.9% 12.6% 21.1% 26.1% 19.9% 11.3% 100.0%



Multi-Family Residential 142,616 152,951 199,780 207,247 186,586 126,759 1,015,939 19.9% 207,247 169,323 1.22

Commercial 55,396 62,072 98,098 104,837 91,962 55,859 468,224 9.2% 104,837 78,037 1.34

Irrigation 38,044 98,699 233,963 322,484 164,204 22,536 879,931 17.2% 322,484 146,655 2.20

Total 502,796 610,147 1,196,907 1,361,989 992,528 438,618 5,102,986 100.0% 1,361,989 850,498 1.60

Percent of Total 9.9% 12.0% 23.5% 26.7% 19.4% 8.6% 100.0%




Commercial 53,958 72,835 92,800 119,787 90,366 60,721 490,467 9.4% 119,787 81,745 1.47

Irrigation 18,834 115,397 329,166 291,370 152,512 47,933 955,212 18.3% 329,166 159,202 2.07

Total 448,013 728,788 1,231,597 1,296,708 956,364 551,819 5,213,290 100.0% 1,296,708 868,882 1.49

Percent of Total 8.6% 14.0% 23.6% 24.9% 18.3% 10.6% 100.0%




Commercial 52,564 64,677 92,327 108,539 88,959 59,315 466,380 9.4% 108,539 77,730 1.40

Irrigation 22,092 84,751 236,081 273,024 154,355 39,170 809,473 16.3% 273,024 134,912 2.02

Total 452,591 637,695 1,129,781 1,282,091 951,863 501,383 4,955,404 100.0% 1,282,091 825,901 1.55

Percent of Total 9.1% 12.9% 22.8% 25.9% 19.2% 10.1% 100.0%



Multi-Family Residential 127,269 140,422 177,868 186,984 168,274 117,802 918,618 18.5% 186,984 153,103 1.22

Commercial 47,834 58,856 84,017 98,770 80,952 53,977 424,406 8.6% 98,770 70,734 1.40

Irrigation 20,104 77,124 214,833 248,452 140,463 35,644 736,620 14.9% 248,452 122,770 2.02

Total 411,858 580,303 1,028,100 1,166,703 866,195 456,259 4,509,418 91.0% 1,166,703 751,570 1.55

Percent of Total 9.1% 12.9% 22.8% 25.9% 19.2% 10.1% 100.0%

* Based on the three-year (calendar years 2011through 2013) average less 10% to reflect January through May 2014 consumption patterns influenced by the drought and other factors

2011 Water Consumption and Peaking Ratios by Customer Class (ccf)



Three-Year Average Water Consumption and Peaking Ratios by Customer Class (ccf)

Three-Year Average Less 10 Percent Water Consumption and Peaking Ratios by Customer Class (ccf)*


Figure 1. Three- Year (2011 – 2013) Average Water Consumption (ccf) by Class

2013/2014 Water Fund Reserves As shown on Table 5, total working capital in operations, capital, and replacements as of June

30, 2014 is estimated at $7.8 million.

Table 5. Estimated June 30, 2014 Water Fund Reserves

Recommended Reserve Fund Targets Maintaining a prudent minimal level of fund reserves provides a financial cushion for dealing

with unanticipated expenses, revenue shortfalls, and non‐catastrophic emergency capital

repairs. The fund reserve targets will escalate over time as the water utility’s expenses

Fund Description Estimated June 30, 2014

511 Maintenance & Operation $2,991,505

512 Capital Replacement Reserve $5,888,397

513 Capital Expansion Reserve ($1,061,643)

Total $7,818,259

Source: June 30, 2014 email from Pamela Day


gradually increase in future years. BWA recommends the following fund reserve targets for the

water utility:

Operating Fund (Fund 511) Reserve: Minimum balance target equivalent to 25 percent

(or 3 months) of annual operating and maintenance expenses. The target ranges from

$2.12 million in 2014/15 and increases to $3.03 million in 2018/19.

Rate Stabilization Fund Reserve: Minimum balance target equal to two years of 20

percent reduction in volumetric water sales. Deposits into this reserve are made from

current system revenues.

Capital Replacement (Fund 512) and Expansion Fund (Fund 513) Reserve: Minimum

balance target of $2 million to provide emergency funding for unexpected capital

projects.

For the 2014 Water Rate Cost of Service Study Update, BWA proposes to maintain the

minimum fund targets for the Operating Fund Reserve and Capital Replacement and Expansion

Fund Reserve. BWA recommends increasing the minimum target for the Rate Stabilization

Fund Reserve, to account for the increased variability of water sales revenues. The purpose of

the Rate Stabilization Fund Reserve is to establish a means to provide more stable water service

charges to the City’s customers. A Rate Stabilization Fund Reserve buffers the impacts of

unanticipated fluctuations or revenue shortfalls in water fund revenues. Unexpected

fluctuations can include, but are not limited to periods of drought, natural disasters, an

economic downturn, and/or other extraordinary circumstances. The reserves in the rate

stabilization fund may also be used as revenues for the calculation of ongoing debt service

coverage to comply with bond covenants.

The recommended annual fund target is two years of 20 percent of the annual projected

variable revenues. This is judged by BWA to be adequate to allow the City to mitigate

anticipated revenue fluctuations and transition smoothly to a drought surcharge if needed.

The minimum rate stabilization fund reserve target for 2014/15 is $5,236,704 and is calculated

as follows: The “12 Month Rate Revenue Target” (from the estimated cash flow) for 2014/15 is

$15,048,000. The variable portion of the total revenues is estimated at 87 percent or

$13,091,760. Twenty percent of $13,091,760 is $2,618,352. Multiplying this amount by 2 (the

number of years) equals $5,236,704. For 2018/19, the Rate Stabilization Fund Reserve target

increases to $8,457,096.

The recommended reserve policies will result in the accumulation of about $13.5 million in

total water utility fund reserves by 2018/19.


Updated Capital Improvement Project (CIP) Table 6 summarizes the updated capital expenses used to estimate future debt service. Capital

costs include the City’s share of the Surface Water Project (“SWP”), local transmission projects

related to the SWP, and other City local projects not related to the SWP. Annual repairs and

replacements are included with “Other Davis Local Non SWP Costs.” The refinancing of the $30

million Wells Fargo loan that the City obtained in 2011 to fund infrastructure projects is also

included. All costs have been escalated based on the 2012 OMB Circular No. A-94 from the

Executive Office of the President, Office of Management and Budget which was used in the

2013 Water Rate Cost of Service Study.

Table 6. Updated Capital Improvement Projects

Debt Service Estimates The water utility’s only current outstanding debt is a 2009 IBank Loan for the East Area Tank

and other components of the Davis Wells Capacity Environmental Impact Report (EIR) project.

The loan cannot exceed $10 million and bears interest at 4.0 percent per year. Annual debt

service payments are $524,000 with the last payment due in 2038.

As a conservative estimate, the debt service projections assume that the City will fund the SWP

and other capital needs with revenue bonds. Table 7 shows the updated debt service

projections provided by NHA Advisors, the City’s financial advisor. The 2014 Update debt

service projections assume current market rate bonds. Total projected debt service through

2048/49 is estimated at approximately $270 million, compared to the 2013 Water Rate Cost of

Service Study which had estimated roughly $375 million of total debt service. The debt service

projections used in the 2013 Water Rate Cost of Service Study were conservative and based on

preliminary estimated costs for the SWP. Project costs as well as interest rates have since been

updated and refined.

Fiscal Year of Issuance 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19 2019/20 Total

2012 Compounded Inflation Rate 0.53% 1.61% 3.23% 4.93% 6.72% 8.59% 10.54%

Davis Share of WDCWA SWP Costs $50,219,000 $24,783,000 $0 $0 $0 $0 $75,002,000

Davis Local SWP Transmission Costs $0 $19,613,000 $0 $0 $0 $0 $19,613,000

Other Davis Local Non SWP Costs $0 $0 $5,597,000 $5,692,000 $5,792,000 $0 $17,081,000

Refund Wells Fargo loan $30,000,000 $0 $0 $0 $0 $0 $30,000,000

Total $80,219,000 $44,396,000 $5,597,000 $5,692,000 $5,792,000 $0 $141,696,000


The debt proceeds shown in the cash flow projection are aligned with the capital funding

requirements for the SWP. The City’s actual debt issuances from year to year may vary based

on actual financing needs and the availability of low-cost State and/or Federal financing and

other factors.


Table 7. Debt Service Estimates

Fiscal Year Ending

Annual Debt Service

Estimates from 2013 Study (1)

Annual Debt Service Estimates

from 2014 Update (1) Difference

2013 $544,000 $0 $544,000

2014 $2,357,380 $389,250 $1,968,130

2015 $5,340,751 $1,654,716 $3,686,035

2016 $7,867,423 $3,900,306 $3,967,118

2017 $9,968,398 $5,527,474 $4,440,925

2018 $10,405,473 $7,166,360 $3,239,114

2019 $11,229,911 $8,249,974 $2,979,937

2020 $11,920,493 $8,677,357 $3,243,137

2021 $12,025,818 $9,100,518 $2,925,300

2022 $12,031,093 $9,193,875 $2,837,218

2023 $12,021,718 $9,189,950 $2,831,768

2024 $12,023,043 $9,185,147 $2,837,897

2025 $12,902,313 $9,194,423 $3,707,890

2026 $13,061,525 $9,193,293 $3,868,233

2027 $13,063,700 $9,191,051 $3,872,649

2028 $13,057,763 $9,188,105 $3,869,658

2029 $13,063,400 $9,189,549 $3,873,851

2030 $13,059,138 $9,189,799 $3,869,339

2031 $13,059,800 $9,187,579 $3,872,221

2032 $13,059,138 $9,188,279 $3,870,859

2033 $13,061,275 $9,186,139 $3,875,136

2034 $13,070,200 $9,185,445 $3,884,755

2035 $13,059,338 $9,180,795 $3,878,543

2036 $13,053,713 $9,186,781 $3,866,932

2037 $13,051,925 $9,190,118 $3,861,808

2038 $13,057,425 $9,183,415 $3,874,011

2039 $13,063,625 $9,186,360 $3,877,266

2040 $13,068,988 $9,187,651 $3,881,337

2041 $13,052,088 $9,186,375 $3,865,713

2042 $12,513,663 $9,184,175 $3,329,488

2043 $10,089,700 $9,187,438 $902,263

2044 $7,008,058 $9,189,788 ($2,181,729)

2045 $3,908,262 $9,180,138 ($5,271,875)

2046 $2,913,765 $4,517,950 ($1,604,185)

2047 $2,590,202 $1,262,813 $1,327,390

2048 $1,649,640 $842,813 $806,827

2049 $1,030,165 $419,688 $610,477

2050 $1,035,907 $0 $1,035,907

2051 $1,036,507 $0 $1,036,507

2052 $1,033,857 $0 $1,033,857

2053 $1,037,957 $0 $1,037,957

2054 ($10,443) $0 ($10,443)

Total Debt Service $375,438,101 $272,214,878 $103,223,223

1 - Does not include debt service for 2009 Ibank Loan


State Revolving Fund Loan

The City continues to evaluate other financing alternatives to reduce capital costs, including

applying for a low-cost loan from the Clean Water State Refunding Fund (SRF) loan program from

the State Water Resources Control Board (SWRCB). The SRF program offers 30-year fixed-rate

loans for eligible water projects. The program can currently be used to fund up to $50 million of

projects per year. The interest rate is set at roughly one half of the state’s general obligation bond

rate; current interest rates are below 2.5%. Debt service repayment starts one year after the

project is completed. Debt repayment is typically secured by an agency’s legal pledge to raise

rates and fees as needed to repay debt service. The City anticipates that funding a portion of the

surface water project with Federal and/or State low-cost loans and grants will lower overall water

rates.

Debt Service Coverage

When issuing bonds, the City will have to legally abide by a number of debt covenants designed to

ensure adequate repayment security. Key among these is a debt service coverage covenant that

requires the City to raise water rates as needed to achieve 110% coverage on annual debt service

per NHA Advisors. This means that annual net revenues (total revenues less operations and

maintenance expenses) must be at least 110% of combined annual debt service payments on all

parity (i.e. first lien) water obligations. Operating expenses include baseline operating expenses,

operating costs for the SWP, and Conaway Preservation Group (CPG) water rights payments.

Coverage ratios are a financial measure of the water utility’s ability to repay outstanding debt and

are a standard legal covenant for securing water revenue bonds or similar debt financing.

Cash Flow Projections BWA updated the long‐term cash flow projections to determine annual revenue requirements and

project water rate increases as shown on Table 8. The financial projections incorporate the latest

information available as well as a number of reasonable and slightly conservative assumptions:

Revenues

The first rate adjustments are proposed to take effect on November 1, 2014. Rate increases

thereafter are proposed to be effective on January 1, beginning on January 1, 2016.

Slow to moderate growth in the number of new connections is projected in the next 5 years.

The projections include growth of 0.5 percent per year through fiscal year 2015/16. Beginning

in fiscal year 2016/17 and continuing thereafter, 1.0 percent annual growth is assumed based

on staff projections.


The interest earning rate on reserve funds is estimated at 0.5 percent each year beginning in

fiscal year 2012/13 and gradually increases to 2 percent.

Other Revenues are escalated by 3 percent each year based on historical trends. Other

Revenues include capacity fees, sale of surplus/salvage, water shut off and reconnection fees,

fire hydrant use permits, water meter installation fees, cross connection certification fees,

encroachment permits, North Davis Meadows water service, and other investments.

Service (fixed) charges are designed to recover about 13% of total utility costs, and volume

charges will recover about 87% of total expenses.

Water sales are projected to decline based on the elasticity assumptions shown in the next

section.

Expenses

Based on discussion with City staff on current and expected staffing levels, future salaries and

wages are escalated by 3.8 percent.

Other Baseline expenses are escalated by 3 percent per year based on historical inflation

trends.

CPG water rights payments begin in fiscal year 2015/16.

All baseline and local repairs and replacement capital projects are included.

The Wells Fargo loan will be refinanced with the first borrowing.

All capital projects, including projects for the Surface Water Project as well as local City

projects, will be debt-financed.


Table 8. Cash Flow Projections

Base Year

2013/14 2014/15 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21 2021/22 2022/23 2023/24

Assumptions:

Revenue Increase 14.0% 14.0% 14.0% 14.0% 9.0% 9.0% 4.0% 3.0% 3.0% 3.0%


Growth 0.5% 0.5% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0%


0%

12 MONTH RATE REVENUE TARGET 13,200,000 15,048,000 17,155,000 19,557,000 22,295,000 24,302,000 26,489,000 27,549,000 28,375,000 29,226,000 30,103,000


REVENUES (1)

Operating Revenues

Projected FY Water Sales 13,200,000 14,000,000 15,891,000 18,116,000 20,652,000 23,098,000 25,177,000 26,913,000 27,879,000 28,715,000 29,577,000

Water Meter Replacement Charge Revenues 427,000 440,000 453,000 467,000 481,000 495,000 510,000 525,000 541,000 557,000 574,000

Interest 55 78,000 113,000 194,000 192,000 256,000 276,000 316,000 309,000 309,000 314,000

Rate Stabilization Fund Draws 0 0 0 200,000 700,000 0 0 0 0 0 0

Other Revenues (2) 138,000 142,000 146,000 150,000 155,000 160,000 165,000 170,000 175,000 180,000 185,000

Subtotal Operating Revenues 13,765,055 14,660,000 16,603,000 19,127,000 22,180,000 24,009,000 26,128,000 27,924,000 28,904,000 29,761,000 30,650,000

Debt Proceeds

Water Revenue Bonds (3) 0 80,701,000 44,396,000 5,597,000 5,692,000 5,792,000 7,400,000 0 0 0 0

Subtotal Debt Proceeds 0 80,701,000 44,396,000 5,597,000 5,692,000 5,792,000 7,400,000 0 0 0 0

TOTAL REVENUES 13,765,055 95,361,000 60,999,000 24,724,000 27,872,000 29,801,000 33,528,000 27,924,000 28,904,000 29,761,000 30,650,000

142,178,000

0

EXPENSES


Labor - Salaries/Wages (4) 3,981,000 4,132,000 4,288,000 4,450,000 4,619,000 4,795,000 4,977,000 5,166,000 5,362,000 5,566,000 5,778,000

Other Baseline Expenses (5) 3,348,000 3,467,000 3,591,000 3,303,000 3,402,000 3,504,000 3,609,000 3,746,142 3,888,495 4,036,258 4,189,636

Additional for East Area Tank (5) 63,000 64,000 66,000 67,000 69,000 71,000 73,000 75,000 77,000 79,000 81,000

Additional for Well 32 (5) 415,467 425,853 436,500 447,412 461,000 475,000 489,000 504,000 519,000 535,000 551,000

Additional for Well 34 (5) 415,467 425,853 436,500 447,412 461,000 475,000 489,000 504,000 519,000 535,000 551,000

Local R&R Projects (not incl Water Main Replacements) (6) 0 0 0 0 0 0 7,379,360 3,000,000 3,090,000 3,183,000 3,278,000

Water Main Replacements from Assessment (6) 0 0 0 0 0 0 0 0 0 0 0

Existing Debt Service - 2009 IBank Loan 586,000 586,000 586,000 586,000 586,000 586,000 586,000 586,000 586,000 586,000 586,000

Water Meter Replacement Program 427,000 440,000 453,000 467,000 481,000 495,000 510,000 525,000 541,000 557,000 574,000

Subtotal Baseline Expenses w/o SWP 9,235,933 9,540,707 9,856,999 9,767,824 10,079,000 10,401,000 18,112,360 14,106,142 14,582,495 15,077,258 15,588,636

DWWSP Project

Pay-As-You-Go Capital Costs 0 0 0 0 0 0 0 0 0 0 0

Debt Financed Capital Costs (3) 0 80,701,000 44,396,000 5,597,000 5,692,000 5,792,000 0 0 0 0 0

CPG Water Purchase (7) 0 0 1,199,000 1,223,000 1,247,000 1,272,000 1,297,000 1,323,000 1,350,000 1,377,000 1,404,000

Operation & Maintenance 0 0 0 2,254,000 2,750,000 2,798,000 2,849,000 2,899,000 2,949,000 2,999,000 3,051,000

Agency Administration 0 0 0 268,000 277,000 282,000 287,000 293,000 299,000 305,000 311,000

Subtotal DWWSP Project Expenses 0 80,701,000 45,595,000 9,342,000 9,966,000 10,144,000 4,433,000 4,515,000 4,598,000 4,681,000 4,766,000

Debt Service (8)

Wells Fargo Loan 389,250 1,654,716 0 0 0 0 0 0 0 0 0

Surface Water Project Bonds 0 0 3,900,306 5,527,474 7,166,360 8,249,974 8,677,357 9,100,518 9,193,875 9,189,950 9,185,147

2019/20 Bonds 0 0 0 0 0 0 276,030 552,061 552,061 552,061 552,061

Subtotal Debt Service 389,250 1,654,716 3,900,306 5,527,474 7,166,360 8,249,974 8,953,387 9,652,579 9,745,936 9,742,011 9,737,207

TOTAL EXPENSES 9,625,183 91,896,422 59,352,305 24,637,298 27,211,360 28,794,974 31,498,747 28,273,721 28,926,431 29,500,269 30,091,843

Net Revenues 4,139,872 3,464,578 1,646,695 86,702 660,640 1,006,026 2,029,253 (349,721) (22,431) 260,731 558,157


Debt Service Coverage - Min. 1.10 5.68 2.74 1.47 1.13 1.18 1.20 1.29 1.34 1.38 1.42 1.46

Debt Service Coverage Met yes yes yes yes yes yes yes yes yes yes yes

Fund Reserve Target (9)

Operating Reserve 2,055,733 2,128,677 2,204,500 2,742,206 2,940,500 3,029,500 3,121,500 3,223,536 3,328,624 3,437,565 3,550,409

Rate Stabilization 4,593,600 5,236,704 5,969,940 6,805,836 7,758,660 8,457,096 9,218,172 9,587,052 9,874,500 10,170,648 10,475,844

Capital Reserve 2,000,000 2,000,000 2,000,000 2,000,000 2,000,000 2,000,000 2,000,000 2,000,000 2,000,000 2,000,000 2,000,000

Total Fund Reserves 8,649,333 9,365,381 10,174,440 11,548,042 12,699,160 13,486,596 14,339,672 14,810,588 15,203,124 15,608,213 16,026,253

Reserve Fund Target Met no yes yes yes yes yes yes yes yes yes yes

1 - Source: Water Fund Revenue Estimated Actuals March 2014.

2 - Includes revenues From Investments, Sale of Surplus/Salvage, Water Shut Off/Reconn Fee, Fire Hydrant Use Permit, Cross Conn Cert Fee, Encroachment Permit, Water Meter Instal'n Fee, N. Dav Meadow Water Service.

3 - Source: February 24 Revised CIP for Davis for 5% Rate Reduction Scenario. Project costs have been escalated based on the 2012 Discount Rates for OMB Circular No. A-94 from the Executive Office of the President, Office of Management and Budget

dated January 3, 2012. Bond issue for 2019/20 is based on BWA's estimates.

4 - Source: OM Costs. Assumes Labor costs account for 56% of total baseline expenses. Escalated by 3.8% annually.

5 - Source: OM Costs. Other Baseline Expenses = Budget Baseline less Labor Costs. Costs are escalated by 3% beginning in 2017/18.

6 - Assumes all Local R&R projects & Water Main Replacements prior to 2019/20 are debt financed. Projected costs for Local Projects R&R are estimated based on historical average beginning 2020/21.

7 - Source: Table A Purchase Installment Agreement Payment Schedule 2016-2039. Costs have been escalated.

8 - Debt service estimates from NHA Advisors (6/27/14). Assumes Market Rate Bonds with 2015 Bond Series at Current Market Rates.

9 - Recommended operating fund reserve target is equivalent to 3 months (25%) of O&M expenses. Rate stabilization target is 2 years of 20% of variable revenues. Capital reserve is $2 million for Capital.

2014 Rate Study Projected


Elasticity and Conservation Assumptions Estimating future water usage and the responsiveness of consumption is challenging and difficult

to accurately forecast. As a conservative estimate, the 2014 Water Rate Cost of Service Study

Update uses the calendar years 2011 through 2013 three-year average less 10 percent as the

2013/14 base year consumption. Table 9 shows the adjusted consumption estimates and peaking

ratios.

Price elasticity measures the responsiveness of use to price changes. The price elasticity of

demand is the percentage change in quantity of water consumed for each percentage change in

price after controlling for the influence of other factors that can also alter water demands, such as

income and weather. Water price elasticity is usually negative, signifying that the price and the

quantity demanded move in opposite directions such that an increase in price results in a decrease

in quantity demanded. For example, a price elasticity factor of -1 means that for every 1 percent

increase in price, a corresponding 1 percent decrease in consumption would be seen. Price

elasticity varies by customer classes, regions, and time of year.

Table 9. Base Year Consumption, Average Use, and Peaking

The 2014 Update applies the same standard price elasticity factors as used in the 2013 Water Rate

Cost of Service Study to estimate conservation as shown on Table 10. Elasticity for all customer

classes is adjusted down beginning in 2016/17, assuming that overall conservation will become

less elastic after customers have adjusted their consumption patterns in response to the rate

increases and rate structure modifications. Price elasticity is assumed to apply only to increases

above the Consumer Price Index (CPI) since rates adjusted by the CPI do not represent an increase

in inflation-adjusted dollars.

Customer Class

Three-Year

(2011-2013)

Average Use

(ccf)

Three-Year

(2011-2013)

Average Use

(ccf) Less 10%

Average

% of Total

Peak Month

(ccf)

Average

Month

(ccf)

Peaking

Ratio*

Total x

Peaking Ratio

Peaking

% of Total

Single Family Residential 2,670,081 2,429,774 53.9% 632,497 404,962 1.56 3,794,980 54.2%

Multi-Family Residential 1,009,471 918,618 20.4% 186,984 153,103 1.22 1,121,904 16.0%

Commercial 466,380 424,406 9.4% 98,770 70,734 1.40 592,623 8.5%

Irrigation 809,473 736,620 16.3% 248,452 122,770 2.02 1,490,711 21.3%

Total 4,955,404 4,509,418 100.0% 1,166,703 751,570 1.55 7,000,218 100.0%

* From Table 3


Table 10. Elasticity and Conservation Assumptions

Commodity Demand Cost Allocations The American Water Works Association (AWWA) recommends two primary methods to classify

costs among various customers: (1) the Base-Extra Capacity method in which costs are allocated

to the different customer classes proportionate to their use of the water system; and (2) the

Commodity-Demand method in which costs are proportionately allocated to each customer

class based on their peak demand. Although the two methods vary in the way that costs are

allocated, both result in rates designed to recover the reasonable cost of service during periods

of both average and peak demands.

The 2013 Water Rate Cost of Service Study used the commodity demand method for allocating

system expenses among the customer classes. Although there is no single correct approach for

allocating costs, this is a) a widely-accepted industry standard approach as detailed in the

AWWA M1 Manual; b) the most commonly used approach in California rate-making; c)

appropriate for the City’s available data, and d) equitably apportions costs to the City’s rate

Base Year

2013/14 2014/15 2015/16 2016/17 2017/18 2018/19

Annual Rate Increase (from Cash Flow) 0% 14% 14% 14% 14% 9%

CPI Assumption (1) 3% 3% 3% 3% 3% 3%

Net Rate Increase for Elasticity Calculation 0% 11% 11% 11% 11% 6%


Single-Family Residential -0.40 -0.40 -0.40 -0.20 -0.20 -0.15

Multi-Family Residential -0.20 -0.20 -0.20 -0.10 -0.10 -0.05

Commercial -0.40 -0.40 -0.30 -0.20 -0.20 -0.10

Irrigation -0.80 -0.80 -0.60 -0.40 -0.40 -0.20


Single-Family Residential 0.5% 0.5% 0.5% 0.5% 0.5% 1.0%

Multi-Family Residential 0.5% 0.5% 0.5% 0.5% 0.5% 1.0%

Commercial 0.5% 0.5% 0.5% 0.5% 0.5% 1.0%

Irrigation 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%

Annual Consumption Projection - Three-Year (2011-13) Average (ccf/yr) less 10%

Single-Family Residential 2,429,774 2,335,012 2,243,947 2,205,800 2,168,301 2,170,469

Multi-Family Residential 918,618 903,002 887,651 882,325 877,031 883,170

Commercial 424,406 407,854 396,434 389,695 383,070 384,602

Irrigation 736,620 671,798 627,459 599,851 573,458 566,577

Total 4,509,418 4,317,666 4,155,491 4,077,671 4,001,860 4,004,818

Annual Change 4.3% 3.8% 1.9% 1.9% -0.1%

Cumulative Use Reduction 4.3% 7.8% 9.6% 11.3% 11.2%

1 - Estimated CPI assumption based on historical trends.

2014 Rate Study


components and customer classes.

The commodity demand method used is based on the AWWA M1 Manual and assigns costs to

into four components: (a) commodity costs, (b) demand costs, (c) customer costs, and (d) direct

fire-protection costs. Commodity costs typically vary with the quantity of water produced.

Examples include chemicals, utilities, and water purchases (if bought on a unit volume basis).

Commodity costs also include costs related to reservoirs and other costs that vary with average

daily demand. Demand costs recover the costs of facilities needed to meet the peak use, or

demands, placed on the system by each customer class. Demand costs include capital-related

system costs designed to meet peak requirements and the associated operation and

maintenance expenses. Examples include the water distribution pipeline system which is sized

to meet peak demands. These costs can be further broken down into costs associated with

meeting specific demands, such as maximum-month, maximum-day, excess maximum hour, or

other periods of time that may be appropriate to the utility. Customer costs include the fixed

costs associated with serving customers. These costs are incurred regardless of the amount of

water a customer consumes. Examples include billing, meter reading, customer accounting and

collecting expenses, and maintenance and capital costs for meters. Direct fire-protection costs

comprise costs applied exclusively for fire protection. Examples include public fire hydrants and

related mains and valves.

The 2014 Update uses cost allocations from the 2013 Water Rate Cost of Service Study to

allocate costs. As shown on Table 11, commodity costs represent 60 percent of all expenses,

demand costs account for 38 percent, and customer administrative costs comprise 2 percent.

These allocations are the basis for how costs are assigned to the fixed and variable rate

components (60 percent to variable and 40 percent to fixed) in the next section. Demand costs

are recovered from the fixed charges. All customer classes are charged the same fixed charge

based on meter size. Commodity costs are recovered from the consumption or variable

charges.


Table 11. Commodity Demand Allocation: Total All Expenses

Unit Costs of Service Components In order to provide adequate service to its customers at all times, the water system must be

capable of not only providing the average amount of water used, but also supplying water at peak

or maximum rates of demand. Therefore, rates are designed to recover system expenses needed

to provide both average and peak use. Under the commodity-demand cost allocation method,

commodity costs are distributed to customer classes on the basis of total annual use. Demand-

related costs are distributed to the various classes in proportion to the class total demand

responsibility. Table 12 shows the allocation of the $13.2 million total 2013/14 base year revenue

requirement to each average and peak demand with 60 percent of expenses are allocated to

average (commodity) costs and 40 percent are allocated to peak month (demand) costs based on

the Commodity Demand Allocation (Table 11). Peak demand is calculated by taking the highest

use month over average annual use as shown on Table 4.

Table 12. 2013/14 Base Year Commodity and Demand Allocation


Est. Amount % % % % $ $ $ $

City of Davis Water System Baseline Expenses

Baseline Operating Expenses $10,856,000 59% 37% 4% 100% $6,419,000 $4,023,000 $432,000 $10,874,000

Fixed Assets and Local CIP Projects R&R (1) 3,000,000 59% 38% 3% 100% 1,781,000 1,129,000 90,000 $3,000,000

Subtotal $13,856,000 $8,200,000 $5,152,000 $522,000 $13,874,000


Davis' Share of Surface Water Project Expenses

Surface Water Project Expenses $13,146,000 60% 39% 1% 100% $7,894,000 $5,181,000 $71,000 $13,146,000

Subtotal $13,146,000 $7,894,000 $5,181,000 $71,000 $13,146,000


Total All Expenses $27,002,000 $16,094,000 $10,333,000 $593,000 $27,020,000

Total Commodity-Demand Allocation 60.0% 38.0% 2.0% 100.0%

1 - Based on average annual replacement projects = $3,000,000

% Allocated Total

Total 2013/14 (Base Year) Revenue Requirement (Table 8) 100% $13,200,000

Allocation to Average (Commodity) (Table 11) 60% $7,920,000

Allocation to Peak (Demand) (Table 11) 40% $5,280,000


To proportionately recover costs from each customer class, system expenses are allocated to each

class based on their share of average and peaking impacts from Table 9. Table 13. 2013/14 Base

Year Cost Allocation to Each Customer Class allocates the average (commodity) and demand (peak

month) costs to each customer class based on their relative impacts on the water system.

Table 13. 2013/14 Base Year Cost Allocation to Each Customer Class (1)

Fixed and Variable Cost Recovery Table 14 allocates the “12 Month Rate Revenue Target” or the annual revenue requirement from

Table 8 between the fixed and variable rate components. Based on the City Council’s

recommendation to encourage water conservation, water rates will be designed to recover 13

percent of rate revenues from the fixed charge and 87 percent of rate revenues from the variable

charges.

The total revenue requirement is then allocated to each customer class based on the total

allocation percentages from Table 13. As shown below, approximately 54 percent of the total

costs are allocated to the single family residential class. Nearly 19 percent of costs are allocated to

multi-family residential class. The irrigation class is responsible for about 18 percent of the total

revenue requirement, and 9 percent is allocated to the commercial class.

Customer Class $ % $ % $ %

Single Family Residential $4,267,470 53.9% $2,862,410 54.2% $7,129,880 54.0%

Multi-Family Residential $1,613,392 20.4% $846,210 16.0% $2,459,602 18.6%

Commercial $745,395 9.4% $446,993 8.5% $1,192,387 9.0%

Irrigation $1,293,744 16.3% $1,124,387 21.3% $2,418,131 18.3%

Total $7,920,000 100.0% $5,280,000 100.0% $13,200,000 100.0%

1 - Numbers may not add due to rounding.

Allocation to Average Costs Allocation to Peaking Total Allocation


Table 14. Revenue Requirement Allocation

Fixed/Readiness to Serve Charge The fixed/readiness to serve charge recognizes the fact that even when a customer does not use

any water, the City incurs fixed costs in connection with maintaining the ability or readiness to

serve each connection. The fixed charge is based on meter size and is structured to recover a

portion of the City’s fixed costs of providing water service, including the water distribution system

as well as a portion of the surface water rights. The charge also recovers the cost of customer

service for meter reading and billing services. All customers, residential and non-residential, are

charged a fixed charge based on their meter size. The fixed charge is comprised of three

components: (1) a Water Meter Replacement Charge; (2) an Administrative Billing Charge, and (3)

a Readiness to Service Charge.

Water Meter Replacement Charge The 2013 Water Rate Cost of Service Study established a monthly meter replacement charge to

fund a meter replacement program. Water meters often lose accuracy as they age and should be

replaced approximately every 15 years. New meters are an investment in the system’s

infrastructure that will bring efficiency to meter reading and ensure accuracy of billing operations.

Base Year

2013/14 2014/15 2015/16 2016/17 2017/18 2018/19

TOTAL REVENUE REQUIREMENT (from Cash Flow) $13,200,000 $15,048,000 $17,155,000 $19,557,000 $22,295,000 $24,302,000

% of Rev

Requirement

ADMINISTRATIVE BILLING CHARGE - 2% 2% $264,000 $300,960 $343,100 $391,140 $445,900 $486,040

NET REVENUE REQUIREMENT LESS ADMIN CHARGE $12,936,000 $14,747,040 $16,811,900 $19,165,860 $21,849,100 $23,815,960

% of Rev

Requirement

Less Admin

FIXED METER CHARGE REVENUE REQUIREMENT 11% $1,452,000 $1,655,280 $1,887,050 $2,151,270 $2,452,450 $2,673,220

VARIABLE CHARGE REVENUE REQUIREMENT 89% $11,484,000 $13,091,760 $14,924,850 $17,014,590 $19,396,650 $21,142,740

TOTAL REVENUE REQUIREMENT (CHECK) $12,936,000 $14,747,040 $16,811,900 $19,165,860 $21,849,100 $23,815,960

TOTAL REVENUE REQUIREMENT BY CLASS % of Total

Single-Family Residential 54.0% $6,987,282 $7,965,502 $9,080,821 $10,352,294 $11,801,626 $12,864,011

Multi-Family Residential 18.6% $2,410,410 $2,747,867 $3,132,619 $3,571,241 $4,071,218 $4,437,710

Commercial 9.0% $1,168,540 $1,332,135 $1,518,659 $1,731,298 $1,973,681 $2,151,352

Irrigation 18.3% $2,369,768 $2,701,536 $3,079,801 $3,511,027 $4,002,575 $4,362,887

Total 100.0% $12,936,000 $14,747,040 $16,811,900 $19,165,860 $21,849,100 $23,815,960

2014 Rate Study


All customer classes pay the monthly water meter replacement charge based on meter size. The

estimated cost of the annual meter replacement program has been updated as shown on Table 16.

Table 15. Water Meter Replacement Program Annual Cost Estimate

The water meter replacement charge is escalated by 3 percent based on estimated inflation

beginning in fiscal year 2014/15. The monthly meter replacement charges through fiscal year

2017/18 are listed on Table 16.

Average Est. Replacement Total Est 2013/14

Meter Useful Per Meter Cost Est. Installation Replacement Annual Monthly Number Annual

Size Life (Yrs) (AMR) (1) Cost (1) Cost Cost Cost (2) of Meters Amount

3/4-in 15 $180 $135 $315 $21.00 $1.75 12,200 $256,193

1-in 15 $290 $175 $465 $31.00 $2.58 3,453 $106,915

1-1/2-in 15 $467 $195 $662 $44.13 $3.68 369 $16,280

2-in 15 $908 $235 $1,143 $76.20 $6.35 161 $12,243

3-in 15 $1,012 $280 $1,292 $86.13 $7.18 336 $28,978

4-in 15 $1,415 $340 $1,755 $117.00 $9.75 41 $4,797

6-in 15 $2,044 $440 $2,484 $165.60 $13.80 3 $497

8-in 15 $2,580 $550 $3,130 $208.67 $17.39 4 $835

16,567 $426,738

1 - Source: BWA Estimates.

2 - Monthly cost per meter is escalated by 3% annually beginning in 2014/15.


Table 16. Monthly Meter Replacement Charge

Administrative Billing Charge Administrative costs associated with customer service and billing are estimated to account for

approximately 2 percent of the total revenue requirement expenses. These costs are incurred

irrespective of the amount of water consumed, and are therefore called out separately and billed

as a fixed cost component. The costs associated with administrative and billing expenses have

been updated in Table 17.

Base Year

2013/14 2014/15 2015/16 2016/17 2017/18 2018/19

Annual Escalation (1) 3% 3% 3% 3% 3%

Meter Size

3/4-in $1.75 $1.80 $1.85 $1.91 $1.97 $2.03

1-in $2.58 $2.66 $2.74 $2.82 $2.90 $2.99

1-1/2-in $3.68 $3.79 $3.90 $4.02 $4.14 $4.26

2-in $6.35 $6.54 $6.74 $6.94 $7.15 $7.36

3-in $7.18 $7.40 $7.62 $7.85 $8.09 $8.33

4-in $9.75 $10.04 $10.34 $10.65 $10.97 $11.30

6-in $13.80 $14.21 $14.64 $15.08 $15.53 $16.00

8-in $17.39 $17.91 $18.45 $19.00 $19.57 $20.16

1 - Monthly cost per meter is escalated by 3% annually beginning in 2014/15.

2014 Rate Study


Table 17. Monthly Administrative Billing Charge

Readiness to Serve Charge The fixed meter/readiness to serve charges are designed to recover costs from each meter

proportion to meter capacity and the associated demand placed on the water system by each

meter size. The fixed meter/readiness to serve charges are calculated by multiplying a) the annual

revenue requirement by b) the percentage of costs allocated for fixed charge revenue recovery

from Table 14. This funding target is then divided by c) the total number of projected meter

equivalents the City will serve each year in order to determine d) the fixed charge per meter

equivalent. A meter equivalent represents the capacity of a base 3/4‐inch meter. Larger meters

are converted into meter equivalents in order to determine a common underlying fixed charge

that can be applied to the capacity of each meter size. Table 18 shows the rate derivation for the

fixed meter/readiness to serve charge.

Base Year

2013/14 2014/15 2015/16 2016/17 2017/18 2018/19

Annual Admin/Billing Expenses (1) $264,000 $300,960 $343,100 $391,140 $445,900 $486,040

Number of Meters

3/4-in 12,200 12,261 12,384 12,508 12,633 12,759

1-in 3,453 3,471 3,506 3,541 3,576 3,612

1-1/2-in 369 371 375 379 383 387

2-in 161 161 163 165 167 169

3-in 336 338 341 344 347 350

4-in 41 41 41 41 41 41

6-in 3 3 3 3 3 3

8-in 4 4 4 4 4 4

Total Number of Meters 16,567 16,650 16,817 16,985 17,154 17,325

Growth % 0.5% 0.5% 1.0% 1.0% 1.0% 1.0%

Growth (# of units) 83 167 168 169 171

Monthly Admininstrative Charge per Acct $1.33 $1.51 $1.70 $1.92 $2.17 $2.34

% Change 13.5% 12.6% 12.9% 13.0% 7.8%

1 - Estimated at 2% of total annual revenue requirement

2014 Rate Study


Table 18. Fixed Meter/Readiness to Serve Charge Rate Derivation

Variable Charge The variable charge is based on a customer’s consumption for a billing period. The charge is

structured to recover all water expenses that vary with water use, a portion of the fixed costs of

the utility, pumping water, a portion of the surface water rights, managing the City’s water

resources, deterring water waste, and encouraging efficient water use. The variable charge is a

uniform rate per unit based on customer class.

Revenue requirements from variable rates are calculated by subtracting a) the projected fixed

meter charge revenue by customer class as shown in Table 18 from b) the total revenue

requirement by class from Table 14 to derive a (c) total variable charge requirement by class in

Table 19. This funding target is divided by c) the total volume of projected annual water sales by

class to calculate d) a rate per unit of metered water use for each customer class also known as a

raw variable charge. The raw variable charges are then multiplied by (e) the total cumulative use

reduction percentages from Table 10 to derive the (f) variable charges for each customer class that

have been adjusted for elasticity. The derivation of the variable charges is shown on Table 19.

Base Year

2013/14 2014/15 2015/16 2016/17 2017/18 2018/19

TOTAL FIXED METER/READINESS TO SERVE REVENUE REQUIREMENT $1,452,000 $1,655,280 $1,887,050 $2,151,270 $2,452,450 $2,673,220

Total 3/4" Meter Equivalents 24,636 24,756 24,863 25,110 25,359 25,609

Monthly Charge per 3/4" Meter $4.91 $5.57 $6.32 $7.14 $8.06 $8.70

PROPOSED FIXED METER CHARGES

Meter Size

Equivalent

Factor

Total Equiv.

Meters

3/4-in 1.00 12,200 $4.91 $5.57 $6.32 $7.14 $8.06 $8.70

1-in 1.67 5,767 $8.20 $9.31 $10.56 $11.92 $13.46 $14.53

1-1/2-in 3.33 1,228 $16.36 $18.55 $21.06 $23.77 $26.84 $28.97

2-in 5.33 856 $26.18 $29.70 $33.71 $38.05 $42.96 $46.36

3-in 10.67 3,589 $52.41 $59.45 $67.49 $76.18 $85.99 $92.82

4-in 16.67 683 $81.87 $92.88 $105.43 $119.02 $134.35 $145.01

6-in 33.33 100 $163.70 $185.71 $210.81 $237.96 $268.61 $289.93

8-in 53.33 213 $261.93 $297.15 $337.30 $380.75 $429.79 $463.91

Total 24,636

FIXED METER CHARGE PROJECTED REVENUE BY CLASS

Single-Family Residential 17,461 $1,028,836 $1,173,148 $1,337,347 $1,525,798 $1,740,055 $1,897,278

Multi-Family Residential 2,283 $134,560 $152,909 $173,682 $198,083 $225,910 $246,312

Commercial 2,662 $156,911 $179,220 $204,684 $233,220 $265,743 $289,590

Irrigation 2,230 $131,429 $150,013 $170,657 $194,207 $221,020 $240,479

Total 24,636 $1,451,737 $1,655,290 $1,886,370 $2,151,307 $2,452,727 $2,673,659

2014 Rate Study


Table 19. Variable Charge Derivation

Proposed Rates Table 20 summarizes the proposed rates for the 13% Fixed / 87% Variable rate structure. The

following table shows a 5‐year schedule of proposed water rates incorporating a) the overall

level of required rate increases to fund the City’s costs of providing service, b) the proposed rate

structure adjustments, and c) the revenue recovery allocations that fairly apportion costs to City

customers. The first rate increase is scheduled to become effective November 1, 2014.

Subsequent rate increases are scheduled to become effective each January 1 beginning in 2016

when water use is low.

Base Year

2013/14 2014/15 2015/16 2016/17 2017/18 2018/19

TOTAL VARIABLE CHARGE REVENUE REQUIREMENT BY CLASS $11,484,000 $13,091,760 $14,924,850 $17,014,590 $19,396,650 $21,142,740

Single-Family Residential $5,958,446 $6,792,354 $7,743,473 $8,826,496 $10,061,571 $10,966,733

Multi-Family Residential $2,275,850 $2,594,958 $2,958,938 $3,373,158 $3,845,309 $4,191,399

Commercial $1,011,628 $1,152,915 $1,313,975 $1,498,077 $1,707,939 $1,861,762

Irrigation $2,238,339 $2,551,523 $2,909,144 $3,316,820 $3,781,555 $4,122,408

Total $11,484,263 $13,091,750 $14,925,530 $17,014,553 $19,396,373 $21,142,301

RAW VARIABLE CHARGES BY CUSTOMER CLASS 3-Year Avg less 10%

Single-Family Residential 2,429,774 $2.45 $2.80 $3.19 $3.63 $4.14 $4.51

Multi-Family Residential 918,618 $2.48 $2.82 $3.22 $3.67 $4.19 $4.56

Commercial 424,406 $2.38 $2.72 $3.10 $3.53 $4.02 $4.39

Irrigation 736,620 $3.04 $3.46 $3.95 $4.50 $5.13 $5.60

Total 4,509,418

VARIABLE CHARGES BY CUSTOMER CLASS ADJUSTED FOR CONSERVATION

Estimated Conservation (Cumulative Use Reduction from Table 9) 4.3% 7.8% 9.6% 11.3% 11.2%

Single-Family Residential $2.45 $2.92 $3.44 $3.98 $4.61 $5.01

Multi-Family Residential $2.48 $2.94 $3.47 $4.02 $4.66 $5.07

Commercial $2.38 $2.84 $3.34 $3.87 $4.47 $4.88

Irrigation $3.04 $3.61 $4.26 $4.93 $5.71 $6.23

2014 Rate Study


Table 20. Proposed Rates

1-Nov-14 1-Jan-16 1-Jan-17 1-Jan-18 1-Jan-19

Meter Replacement

3/4" $1.80 $1.85 $1.91 $1.97 $2.03

1" $2.66 $2.74 $2.82 $2.90 $2.99

1-1/2" $3.79 $3.90 $4.02 $4.14 $4.26

2" $6.54 $6.74 $6.94 $7.15 $7.36

3" $7.40 $7.62 $7.85 $8.09 $8.33

4" $10.04 $10.34 $10.65 $10.97 $11.30

6" $14.21 $14.64 $15.08 $15.53 $16.00

8" $17.91 $18.45 $19.00 $19.57 $20.16

Admin/Billing Charge

All $1.51 $1.70 $1.92 $2.17 $2.34

Readiness to Serve

3/4" $5.57 $6.32 $7.14 $8.06 $8.70

1" $9.31 $10.56 $11.92 $13.46 $14.53

1-1/2" $18.55 $21.06 $23.77 $26.84 $28.97

2" $29.70 $33.71 $38.05 $42.96 $46.36

3" $59.45 $67.49 $76.18 $85.99 $92.82

4" $92.88 $105.43 $119.02 $134.35 $145.01

6" $185.71 $210.81 $237.96 $268.61 $289.93

8" $297.15 $337.30 $380.75 $429.79 $463.91

TOTAL MONTHLY FIXED/READINESS TO SERVE CHARGE

3/4" $8.88 $9.87 $10.97 $12.20 $13.07

1" $13.48 $15.00 $16.66 $18.53 $19.86

1-1/2" $23.85 $26.66 $29.71 $33.15 $35.57

2" $37.75 $42.15 $46.91 $52.28 $56.06

3" $68.36 $76.81 $85.95 $96.25 $103.49

4" $104.43 $117.47 $131.59 $147.49 $158.65

6" $201.43 $227.15 $254.96 $286.31 $308.27

8" $316.57 $357.45 $401.67 $451.53 $486.41

VARIABLE CHARGES

SFR Rate ($/ccf) $2.92 $3.44 $3.98 $4.61 $5.01

MFR Rate ($/ccf) $2.94 $3.47 $4.02 $4.66 $5.07

Comm Rate ($/ccf) $2.84 $3.34 $3.87 $4.47 $4.88

Irrig Rate ($/ccf) $3.61 $4.26 $4.93 $5.71 $6.23

13% FIXED/87% VARIABLE, UNIFORM TIER BY CLASSPROPOSED


Water Rate Impacts Table 21 shows the impacts of the proposed water rates on a sample of customer profiles.

Customers can mitigate the impact of rate increases by reducing water use. Note that water

consumption, particularly for single family customers, typically varies from month to month due

to seasonal variations in weather and/or other factors. Hence customers could face a range of

impacts throughout the year depending on their level of water use in each billing period.

Table 21. Sample Water Bill Impacts

Proposed Drought Surcharge The City currently has not declared any mandatory reduction levels; however, after three

consecutive years of below-normal rainfall, California is facing a severe drought emergency. On

January 17, 2014, Governor Jerry Brown declared a State of Emergency and called for

Californians to decrease water use by 20 percent voluntarily and mandatory rationing could be

proclaimed in their near future. State officials were also directed to take all actions necessary

to prepare for existing drought conditions and their impact on water supplies in California. The

amount of water available for consumption by customers can be affected by climatic and other

environmental conditions, such as the current drought. In such instances, it may become

necessary for the City to implement water conservation measures and to establish a surcharge

on the rates (water shortage surcharge) for its water service fees.

Meter Monthly Current

Size Use 1-Jan-14 1-Nov-14 1-Jan-16 1-Jan-17 1-Jan-18 1-Jan-19


Low Use 3/4" 6 $28.86 $26.40 $30.51 $34.85 $39.86 $43.13

Median Use 3/4" 11 $36.51 $41.00 $47.71 $54.75 $62.91 $68.18

High Use 3/4" 29 $65.81 $93.56 $109.63 $126.39 $145.89 $158.36


Small Apartment Building, 39 units 2" 147 $422.08 $469.93 $552.24 $637.85 $737.30 $801.35

Large Apartment Building, 124 units 4" 408 $1,189.34 $1,303.95 $1,533.23 $1,771.75 $2,048.77 $2,227.21

Commercial

Drug Store 1-1/2" 41 $135.18 $140.29 $163.60 $188.38 $216.42 $235.65

Medical Clinic 2" 57 $199.39 $199.63 $232.53 $267.50 $307.07 $334.22

Dentist 3" 81 $329.44 $298.40 $347.35 $399.42 $458.32 $498.77

Business Complex 4" 163 $580.23 $567.35 $661.89 $762.40 $876.10 $954.09

Irrigation

Small City Irrigation 2" 59 $266.85 $250.74 $293.49 $337.78 $389.17 $423.63

Large City Irrigation/School District 4" 1,176 $3,744.62 $4,349.79 $5,127.23 $5,929.27 $6,862.45 $7,485.13

Proposed


Drought rates are designed to recover revenue shortfalls as well as to achieve a targeted

reduction in water consumption. Water agencies have many fixed expenses that must be paid

regardless of the amount of water that is used. During times of drought, a water utility has two

core objectives: 1) to reduce the amount of water customers consume, and 2) to maintain an

adequate amount of revenue to fund the costs of providing service. The two competing

objectives work against each other because as less water is sold the more difficult it is to

maintain adequate revenue to cover an agency’s operating costs. Agencies can combat lost

revenue by using reserves (typically a rate stabilization fund) and by implementing drought

rates.

Water Shortage Contingency Plan

The City has developed a four-stage water shortage contingency plan that may be invoked

during declared water shortages. The Water Shortage Contingency Plan is detailed in Section 8,

Table 8-1 of the 2010 Urban Water Management Plan (“2010 UWMP”) and is shown in the

table below. The plan includes voluntary and mandatory goals for reductions in water use,

depending on the causes, severity, and anticipated duration of the water supply shortage.

Stage 2 may become mandatory in the future by regulatory or legislative action by the State or

by the City Council.

In response to the Governor’s declaration of a State water emergency and in anticipation of

possible mandatory reductions, the drought surcharges are developed for Stages 2 through 4,

ranging from 20 to 50 percent of overall reduction. The drought surcharges would only be

implemented during mandatory restriction declarations by the City Council. If the mandatory

reduction in water use falls between two blocks, the rates are pro-rated accordingly.

The drought surcharge is a percent increase levied on all water consumption and would only be

applied to the variable charge. The City recognizes that ratepayers are already doing their part


to conserve. Therefore, applying the drought surcharge to only the variable charge component

gives customers the increased ability to control a portion of their water bills. The drought

surcharge percentage increase is calculated on Table 22.

Table 22. Drought Surcharge Percentage Increase Calculation

Table 23 shows the additional drought surcharge percentage increases for each stage of

drought. In the event of a declared mandatory reduction in water use, the City may implement

the water shortage surcharges up to the maximum percentages set forth in Table 23.

Table 23. Proposed 2014/15 Drought Surcharge - Projected Reduced Consumption

For example, if a Stage 2 water shortage is declared with mandatory water use reductions

imposed for that stage (up to 20% reduction) then there will be an additional, up to 25%,

surcharge imposed on the then current rate for water meter charge. For example, if a median

usage (11 ccf/month) single family customer achieved a 20% reduction, that customer's usage

would be reduced to approximately 9 ccf/month. A sample calculation of a 2014/15 bill with

the surcharge for a single family customer based on a 9 ccf/month usage is below:

1 1

1 - 20% 0.8

1 1

1 - 30% 0.7

1 1

1 - 50% 0.5

Stage 2: 20% Reduction



= = 2.00

= = 1.25

= = 1.43

Stage 2 Stage 3 Stage 4

Reduction Target 20% 30% 50% or Greater

Additional Surcharge 25% 43% 100%


Sample Calculation of a 2014/15 Monthly Single Family Residential Bill

It is important to emphasize that drought rates alone will not achieve the desired reduction

levels amongst customers. The City will also need to implement a considerable outreach and

education campaign to encourage water conservation. If the drought conditions persists or

becomes more severe, the City may also have to consider enforcement penalties or fines and

other options to considerably decrease water use.

Meter Size

Monthly

Usage (ccf) Fixed Charge Variable Charge Total Monthly Bill

Nov 1, 2014 Water Rates 3/4" 11 $8.88 + ($2.92 x 11 ccf) = $32.12 = $41.00

Nov 1, 2014 Water Rates with Drought Surcharge 3/4" 9 $8.88 + ($2.92 x 1.25 x 9ccf) = $40.15 = $41.73

City of Davis, CA : Schedule of Base Rate and Meter Retrofit Charges

http://cityofdavis.org/city-hall/finance/city-services/utility-rates/schedule-of-base-rate-and-meter-retrofit-charges[2/19/2016 10:43:39 AM]

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Water Base Rate and Meter Retrofit Charges

Water Base Rate and Metered Rate Charges

WATER BASE RATE AND METERED RATE CHARGES

For utility bills generated on and after January 2015, the monthly base rate

for all accounts with the exception of condominium common area accounts,

shall be as follows:

Meter Monthly

Size Base Rate

5/8" or 3/4" $8.88

1 - inch $13.48

1 1/2 - inch $23.85

2 - inch $37.75

3 - inch $68.39

4 - inch $104.43

6 - inch $201.43

8 - inch $316.57

* outside City of Davis city limits = 20% surcharge

* La Buena Vida Homeowners Association - per dwelling unit: meter (base)

charges are at 80%, domestic and irrigation meters

SCHEDULE OF METERED RATE CHARGES

For water used beginning November 1, 2014, the monthly water consumption

charge for all metered rate customers shall be as follows:

User Classification Unit Charge ( per CCF)

Single Family Residential $2.92

Multi-Family Residential $2.94

Commercial $2.84

Irrigation $3.61

1 acre = 43,560 Square Feet

CCF = hundred cubic feet

748 Gallons = 1 CCF

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City of Davis, CA : Schedule of Base Rate and Meter Retrofit Charges

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Documents

City of Davis Water Rate FAQs - Pages - Metropolitan Water ... 2016 Background Materials/City... · Proposition 218 is the initiative passed by California voters in November 1996