Presentation for a W ATER R ATE S TUDY Chris Fisher Jeff McGarvey Tony Thrasher CITY OF SOLEDAD, CALIFORNIA Presented by

Presentation for a

WATER RATE STUDYChris FisherJeff McGarveyTony Thrasher

CITY OF

SOLEDAD, CALIFORNIA

Presented by

Presentation to the City of Soledad | Water Rate Study | 2

PRESENTATION CONTENTS• Introductions• Utility Rate Setting Process• Results of Analyses– Major Assumptions– Customer Information– Financial Outlook• Current State: “Do – Nothing” or Status Quo• Recommendation: Proposed Revenue Path

• Questions and Discussion

PURPOSE OF THE RATE STUDY

CITY OF

SOLEDAD, CALIFORNIA


PURPOSE OF THE RATE STUDY

• Evaluate sufficiency of the existing water rate revenue stream to:–Provide funding for current and future operating /

capital expenses–Meet minimum reserve level requirements–Meet legal obligations associated with outstanding

debt• Develop rates and charges which will generate

sufficient revenue / meet cost of service standards (Prop 218)

UTILITY RATE SETTING PROCESS

CITY OF

SOLEDAD, CALIFORNIA



Utility Rates

Regulatory Requirements

System Needs

Political Pressures

Economic Impact

Financial Goals



Typical utility rate-setting processPlanning

Project Initiation & Management

• Data Collection & Assessment

• Confirmation of Goals and Objectives

• Frequent Communication

Analysis

Rate Setting & Financial Plan

• Customer Statistics

• System Revenue Requirements

• Integration of Capital Improvement Plan

• Multi-year Financing Analysis

• Alternatives Analyses

Communication

SummaryReport

• Written

• Public Presentations

Adopted Rates & Financial Plan


Comprehensive rate-setting process…



Evaluate Current Financial ConditionOperating Revenues

less Operating Expensesless Debt Serviceless Transfersless Capital Expendituresless Reserve Requirements

= Total Available Resources vs. Needed Capital Additions and O&M

Identify Optimum Funding Strategy



Rates & Rate Design Issues:Revenue Related Cost Related Practical

• Meet total revenue requirements

• Revenue stability and predictability

• Rate stability and predictability

• Promote efficient use of water

• Reflect internal costs

• Fairness of rates

• Non-discriminatory

• Responsiveness to changes in demand/supply

• Easy to understand and administer

• Free from controversy

• Defensible (Prop 218)



UTILITY RATE SETTING PROCESSHolistic Approach to Rate Design:

RESULTS OF ANALYSES

CITY OF

SOLEDAD, CALIFORNIA


MAJOR ASSUMPTIONS• AMBAG Regional Growth Forecast provided account

class specific growth assumptions• Yearly escalation factors: – Materials & Supply 4%– S&B 3%, Pension 4%– Admin & General 3% – Utility 3%

• Staff provided an updated CIP schedule to ensure proper utility function for the next decade

• Reserve targets: – O&M reserve of 90 days– Depreciation is fully funded after the second year


CUSTOMER INFORMATION

Description Growth FY 2014/15 FY 2015/16 FY 2016/17 FY 2017/18 FY 2018/19

Accounts:

Public 0.00% 67 67 67 67 67

Commercial 2.15% 189 193 197 201 206

Multi-Residential 1.08% 382 386 390 395 399

Single-Family Residential 1.73% 3,066 3,119 3,173 3,228 3,284

School 0.00% 17 17 17 17 17

Total Accounts 3,721 3,782 3,844 3,908 3,972

Total Meter Equivalents 5,595 5,595 5,687 5,780 5,876


CUSTOMER INFORMATION

Description Avg/Cust FY 2014/15 FY 2015/16 FY 2016/17 FY 2017/18 FY 2018/19

Consumption (HCF*):

Public 1,147 76,530 76,530 76,530 76,530 76,530

Commercial 597 112,792 115,217 117,695 120,225 122,810

Multi-Residential 382 146,066 147,643 149,238 150,849 152,479

Single-Family Residential 216 661,296 646,833 658,017 669,395 680,969

School 5,078 86,328 86,328 86,328 86,328 86,328

Total Consumption 7,420 1,083,012 1,072,552 1,087,807 1,103,328 1,119,116

* HCF is one hundred cubic feet, which is 748 gallons


Description FY 2014/15 FY 2015/16 FY 2016/17 FY 2017/18 FY 2018/19

Revenues $1,453 $1,476 $1,501 $1,526 $1,551 Less: Operating Expenses [1] 1,226 1,277 1,329 1,382 1,438Non-Operating Expenses 80 80 80 80 80Debt Service 300 298 302 300 299Capital Expenditures 950 372 277 337 177

Expenditures $2,556 $2,027 $1,988 $2,100 $1,994 Difference ($1,104) ($551) ($487) ($574) ($442)

FINANCIAL OUTLOOK• Current State: No revenue increases – cumulative

negative cash flow of $3.2 million

All figures in thousands[1] Excludes depreciation expense


FINANCIAL OUTLOOK• Current State: No revenue Increases

– Graph shows cumulative effect and includes beginning operating fund cash balance



Proposed Revenue Increase 0.00% 0.00% 0.00% 0.00% 0.00%

Net Income (incl depr, excl CIP) ($548) ($573) ($604) ($631) ($659)

Metrics:

Days of Operating Reserves 6 (98) (201) (313) (397)

Debt Service Coverage (125%) (56%) (65%) (73%) (83%) (94%)

Operating Fund Balance $28 ($544) ($1,148) ($1,779) ($2,438)

Capital R&R Fund Balance ($210) $22 $22 ($98) $52

FINANCIAL OUTLOOK• Current State: No revenue increases

** All figures in thousands



Revenues $1,558 $2,181 $2,538 $2,658 $2,784 Less: Operating Expenses [1] 1,226 1,277 1,329 1,382 1,438Non-Operating Expenses 80 80 80 80 80Debt Service 300 298 302 300 299Capital Expenditures 950 372 277 337 177

Expenditures $2,556 $2,027 $1,988 $2,100 $1,994

Difference ($999) $154 $551 $559 $790

FINANCIAL OUTLOOK• Recommendation: FY 2013/14 - 30% revenue increase - implemented in Q4, and;• FY 2014/15 - 30% revenue increase – implemented mid-year (Jan 1), and;• CPI inflator (maximum 3%) implemented mid-year (Jan 1) each subsequent year

All figures in thousands


FINANCIAL OUTLOOK• Recommendation: FY 2013/14 30% and FY2014/15 30% revenue Increases, with CPI inflator

– Graph shows cumulative effect and includes beginning operating fund cash balance



Proposed Revenue Increase 30.00% 30.00% 3.00% 3.00% 3.00%

Net Income ($443) $132 $434 $502 $573

Net Income (Incl Depr, excl CIP) ($443) ($150) $157 $285 $246

Metrics:

Days of Operating Reserves 29 48 95 95 95

Debt Service Coverage (125%) (21%) Covered Covered Covered Covered

Operating Fund Balance $134 $266 $538 $537 $580

Capital R&R Fund Balance ($210) $22 $183 $566 $1,247

FINANCIAL OUTLOOK• Recommendation: FY 2013/14 30% and FY2014/15 30% revenue

increases, with CPI inflator

All figures in thousands


FINANCIAL OUTLOOK• Using CPI as an inflator each year since previous rate analysis, the 2014 rates would be

54% higher than the 1996 rates • FYE 2014 cash flow deficiency is projected to be 64% of current revenue• Based on past bills PG&E rates have risen 6.7% per year, on average, since 1997

Year Flat Charge Tier 1 Tier 2 Tier 3 Tier 4 CPI1996 11.73 0.63 0.95 1.10 1.44 X1997 12.08 0.65 0.98 1.13 1.48 3.0%1998 12.36 0.66 1.00 1.16 1.52 2.3%1999 12.56 0.67 1.02 1.18 1.54 1.6%2000 12.83 0.69 1.04 1.20 1.58 2.2%2001 13.27 0.71 1.07 1.24 1.63 3.4%2002 13.64 0.73 1.10 1.28 1.67 2.8%2003 13.86 0.74 1.12 1.30 1.70 1.6%2004 14.18 0.76 1.15 1.33 1.74 2.3%2005 14.56 0.78 1.18 1.37 1.79 2.7%2006 15.06 0.81 1.22 1.41 1.85 3.4%2007 15.54 0.83 1.26 1.46 1.91 3.2%2008 15.97 0.86 1.29 1.50 1.96 2.8%2009 16.58 0.89 1.34 1.55 2.04 3.8%2010 16.51 0.89 1.34 1.55 2.03 -0.4%2011 16.78 0.90 1.36 1.57 2.06 1.6%2012 17.32 0.93 1.40 1.62 2.13 3.2%2013 17.68 0.95 1.43 1.66 2.17 2.1%2014 18.05 0.97 1.46 1.69 2.22 2.1%

Scenario: Using CPI each year since last rate analysis

QUESTIONS & DISCUSSION

CITY OF

SOLEDAD, CALIFORNIA

Documents

Presentation for a W ATER R ATE S TUDY Chris Fisher Jeff McGarvey Tony Thrasher CITY OF SOLEDAD, CALIFORNIA Presented by