Western Hills Water DistrictWater Rate Update Board Meeting HFH Consultants, LLC 0November 4, 2015 HFH Consultants, LLC Western Hills Water District

Western Hills Water District Water Rate UpdateBoard Meeting

HF&H Consultants, LLC 1

November 4, 2015

HF&H Consultants, LLC

Western Hills Water DistrictWater Rate Update

Board MeetingNovember 4, 2015



November 4, 2015

Agenda

• Purpose of the meeting• Study Process & Background• Revenue Requirements• Cost of Service Analysis• Rate Structure Recommendation• Bill Impacts (current vs proposed rates)• Summary• Questions & Discussion



November 4, 2015

Purpose of the Meeting

• Present revised rate alternatives based on feedback from September Town Hall meeting

• Elicit input from rate payers and Board members• Authorize staff to draft and mail notices to rate

payers



November 4, 2015

Study Process• Kickoff meeting – October 6, 2014

– Preliminary analysis: Revenue requirements, cost of service analysis, rate design

• Town Hall meeting – May 20, 2015– Received public input; developed additional alternatives

• 2nd Town Hall meeting – September 27, 2015– Received public input; developed additional alternatives

• Board Meeting – November 4, 2015– Present rate alternatives– Board authorizes mailing notices to rate payers

• Protest Hearing – At least 45 days after November 4 Board Meeting– Board adopts rates if no majority protest



November 4, 2015

Background• Ad Hoc Water Committee completed review of usage and cost

data – February 2011• District adopted water rate increases – June 2011

FY 11-12 FY 12-13 FY 13-14 FY 14-15 FY15-16**

Treated – Residential

Service charge $51.67 $68.34 $85.00 $87.55 $89.56

Usage charge $/750 gals $1.25 $1.25 $1.25 $1.29 $1.32

Treated – Commercial

Service charge None None None None None

Usage charge $/750 gals $1.65 $3.30 $4.95 $5.10 $5.22

Raw Water

Service charge None None None None None

Usage charge $/AF* $1,075.00 $1,275.00 $1,475.00 $1,519.25 $1,554.19* AF = 435.6 HCF = 325,851 gallons** 2.3% CPI increase over FY 14-15



November 4, 2015

FY 2014-15 Rate Structure

Observations:• Industry standard: revenue from service charges should be ~30%.• Industry standard: all services should pay service charges.• Industry standard: service charges should be proportionate to size of

connection.• Current rates do not allow for contributions to operating or capital reserves• Current revenue < cost of service.

Per Month % of Revenue Per ccf/mo. % of Revenue

Treated WaterResidential $87.55 80% $1.29 20%HOA $0.00 0% $5.10 100%Non-residential $0.00 0% $5.10 100%Combined 76% 24%

Raw Water $0.00 0% $3.49 100%= $1,519.25/AF

Service Charge Usage ChargeRate Structure



November 4, 2015

Projected Revenue Requirements



November 4, 2015

Cost of Service Analysis

• Total Revenue Requirement allocated to customer classes based on their proportionate share of costs.

• For example:– Water treatment costs allocated to residential and non-

residential customer classes based on their percentage share of water used

– Raw water customers are not allocated any water treatment costs

– Pump station costs are allocated based on each customer classes share of water used (including raw water customers)



November 4, 2015

FY2015-16 Estimated# of % of Cost of Revenue at % of

Customer Class Customers Customers Service FY2015-16 Rates $ Current Rev

Treated Water Cost of Service - Residential $1,503,209

Current Residents 437 54.6% $820,752 $592,590 ($228,162) 38.5%Residential Growth 363 45.4% $682,457 $0 ($682,457)

800 $1,503,209 $592,590 ($910,619) 153.7%

Allocate Resi COS Revenue Surplus/(Shortfall)

Cost of Service Allocation Summary

Current annual shortfall covered by Developer

Breakout of Residential $910k Revenue Shortfall

FY2015-16 EstimatedCost of Revenue at % of

Customer Class Service FY2015-16 Rates $ Current Rev

Treated WaterResidential $1,503,209 $592,590 ($910,619) 154%Non-Residential $294,478 $26,838 ($267,640) 997%

$1,797,687 $619,428 ($1,178,259) 190%

Raw Water $1,415,355 $1,230,473 ($184,882) 15%Total $3,213,042 $1,849,901 ($1,363,141) 74%

Revenue Surplus/(Shortfall)



November 4, 2015

Cost of Service Allocation Summary



November 4, 2015

Bridging the $228k Gap• Alternatives discussed at the September

Town Hall meeting, included:– Timing of revenue increases

• Immediate or over 3-year period– With and without contributions to operating

and capital reserves for existing infrastructure only; not for growth-related expenses



November 4, 2015

Bridging the $228k Gap• Revised alternatives include:

– 4-year phase-in period– Reserve contributions

• 45-day (six week) operating reserve• 5-year annual average for capital projects• $46,000 annually for operations and capital• Capital reserves for existing infrastructure

only; not for growth-related capital expenses



November 4, 2015

Revised Rate Alternatives

• Alternative 1: Phase-in over 4-year period w/o contribution to Reserves– Fixed charges reduced from $89.56/mo to $62.00/mo by FY2018-19– Per-unit usage charges increase from $1.32 per hcf ($0.00176/gal.) to

$7.53 per hcf ($0.01004/gal.) by FY2018-19– No contribution towards reserves during phase-in; revisit after phase-in

period is complete

• Alternative 2: Phase-in over 4-year period w/ contribution to Reserves– Fixed charges reduced from $89.56/mo to $62.00/mo by FY2018-19– Per-unit usage charges increase from $1.32 per hcf ($0.00176/gal.) to

$8.19 per hcf ($0.01092/gal.) by FY2018-19– $46,000 annual contribution to reserves



November 4, 2015

Revised Rate Alternatives• Both alternatives:

– Shifts revenue from the fixed service charge to the usage charges• Reduces fixed revenue from 80% to 40%• Increases usage revenue from 20% to 60%• Improves balance between rate payer equity and revenue

stability– Requires the developer to contribute revenue so that current

residents are not covering the costs of future customers (approx. $3M over the 4-year phase-in period)



November 4, 2015

Revised Rate AlternativesPhase-in Rate Increases over a 4-year Period

Increased Revenue By

Year 4Alt. 1 – No Reserve

Contribution

10.3% per year $228,000

Incremental Increase For

Reserves

1.5% per year $46,000

Alt. 2 – With Reserve

Contribution

11.8% per year $274,000



November 4, 2015

Rates and Sample Bills (Water Only): Alt. #1

• No contribution to reserves

• Reduced fixed service charge phased-in over 4 years

• Usage rate increase phased-in over 4 years

• Note: In addition, residents pay a monthly storm drain and sewer charge

• Sewer = $55.79/mo• Storm Drain = $5.00/mo

A B C D E F1 Alt. # 1: 4-Year Phase-in WITHOUT Contribution to Reserves2 Rates Current FY2015-16 FY2016-17 FY2017-18 FY2018-193 Fixed Charge ($/Month) $89.56 $84.00 $77.00 $70.00 $62.004 Usage Charge ($/hcf) $1.32 $2.64 $4.14 $5.74 $7.535 Usage Charge ($/gal) $0.00176 $0.00352 $0.00552 $0.00765 $0.0100467 Sample Bill Impacts (monthly) Current FY2015-16 FY2016-17 FY2017-18 FY2018-198 Low Water User - 4,500 gal./mo.9 Fixed Charge $89.56 $84.00 $77.00 $70.00 $62.00

10 Usage Charge $7.92 $15.84 $24.84 $34.44 $45.1811 Total Monthly Water Bill $97.48 $99.84 $101.84 $104.44 $107.1812 $ incr $2.36 $2.00 $2.60 $2.7413 % incr 2.4% 2.0% 2.6% 2.6%1415 Med. Water User - 9,750 gal./mo.16 Fixed Charge $89.56 $84.00 $77.00 $70.00 $62.0017 Usage Charge $17.16 $34.32 $53.82 $74.62 $97.8918 Total Monthly Water Bill $106.72 $118.32 $130.82 $144.62 $159.8919 $ incr $11.60 $12.50 $13.80 $15.2720 % incr 10.9% 10.6% 10.5% 10.6%2122 High Water User - 22,500 gal./mo.23 Fixed Charge $89.56 $84.00 $77.00 $70.00 $62.0024 Usage Charge $39.60 $79.20 $124.20 $172.20 $225.9025 Total Monthly Water Bill $129.16 $163.20 $201.20 $242.20 $287.9026 $ incr $34.04 $38.00 $41.00 $45.7027 % incr 26.4% 23.3% 20.4% 18.9%28



November 4, 2015

Range of Bill Impacts: Alt #1• FY2015-16 average bill impacts

• Bills vary month-to-month based on actual usage• 52.4% of bills will see no more than a $5 increase• When any resident uses less than 3,150 gallons in a month,

their bill will be less

• Similar $/mo. Increases: effective July 1, 2016; July 1, 2017; and, July 1, 2018

Cumulative% of bills

0.1 to 4.2 50 to 3,150 22.8% 22.8% ($5.43) to ($0.02) -6.1% to 0.0%4.3 to 7.9 3,151 to 5,925 29.6% 52.4% $0.12 to $4.87 0.1% to 4.9%8.0 to 11.9 5,926 to 8,925 18.0% 70.4% $5.00 to $10.15 5.0% to 9.6%

12.0 to 19.9 8,926 to 14,925 18.3% 88.8% $10.28 to $20.44 9.8% to 17.7%20.0 to 29.9 14,926 to 22,425 6.5% 95.3% $21.10 to $33.25 18.2% to 25.9%30.0 to 39.9 22,426 to 29,925 2.7% 97.9% $34.17 to $44.73 26.4% to 32.0%40.0 to 60.0 29,926 to 45,000 2.1% 100.0% $56.74 to $70.21 37.4% to 42.5%

100.0%

hcf/mo gallons per month $ Impact % ImpactRange of Usage (monthly) %

of billsMonthly Bill Increase/(Decrease)



November 4, 2015

Rates and Sample Bills (Water Only): Alt. #2

• $46,000 annual contribution to reserves

• Reduced fixed service charge phased-in over 4 years

• Usage rate increase phased-in over 4 years

• Note: In addition, residents pay a monthly storm drain and sewer charge

• Sewer = $55.79/mo• Storm Drain = $5.00/mo

A B C D E F1 Alt. # 2: 4-Year Phase-in WITH Contribution to Reserves2 Rates Current FY2015-16 FY2016-17 FY2017-18 FY2018-193 Fixed Charge ($/Month) $89.56 $84.00 $77.00 $70.00 $62.004 Usage Charge ($/hcf) $1.32 $2.76 $4.41 $6.19 $8.195 Usage Charge ($/gal) $0.00176 $0.00367 $0.00588 $0.00825 $0.0109267 Sample Bill Impacts (monthly) Current FY2015-16 FY2016-17 FY2017-18 FY2018-198 Low Water User - 4,500 gal./mo.9 Fixed Charge $89.56 $84.00 $77.00 $70.00 $62.00

10 Usage Charge $7.92 $16.53 $26.44 $37.12 $49.1511 Total Monthly Water Bill $97.48 $100.53 $103.44 $107.12 $111.1512 $ incr $3.05 $2.91 $3.68 $4.0213 % incr 3.1% 2.9% 3.6% 3.8%1415 Med. Water User - 9,750 gal./mo.16 Fixed Charge $89.56 $84.00 $77.00 $70.00 $62.0017 Usage Charge $17.16 $35.82 $57.29 $80.44 $106.4818 Total Monthly Water Bill $106.72 $119.82 $134.29 $150.44 $168.4819 $ incr $13.10 $14.47 $16.15 $18.0520 % incr 12.3% 12.1% 12.0% 12.0%2122 High Water User - 22,500 gal./mo.23 Fixed Charge $89.56 $84.00 $77.00 $70.00 $62.0024 Usage Charge $39.60 $82.67 $132.21 $185.62 $245.7325 Total Monthly Water Bill $129.16 $166.67 $209.21 $255.62 $307.7326 $ incr $37.51 $42.54 $46.42 $52.1127 % incr 29.0% 25.5% 22.2% 20.4%28



November 4, 2015

Range of Bill Impacts: Alt #2• FY2015-16 average bill impacts

• Bills vary month-to-month based on actual usage• 48.2% of bills will see no more than a $5 increase• When any resident uses less than 2,850 gallons in a month,

their bill will be less

• Similar $/mo. Increases: effective July 1, 2016; July 1, 2017; and, July 1, 2018

Cumulative% of bills

0.1 to 3.8 50 to 2,850 19.8% 19.8% ($5.42) to ($0.10) -6.0% to 0.5%3.9 to 7.3 2,851 to 5,475 28.4% 48.2% $0.04 to $4.92 0.6% to 5.8%7.4 to 11.9 5,476 to 8,925 22.2% 70.4% $5.06 to $11.52 5.9% to 10.9%

12.0 to 19.9 8,926 to 14,925 18.3% 88.8% $11.67 to $22.72 11.1% to 19.7%20.0 to 29.9 14,926 to 22,425 6.5% 95.3% $23.44 to $36.65 20.2% to 28.5%30.0 to 39.9 22,426 to 29,925 2.7% 97.9% $37.65 to $49.14 29.1% to 35.1%40.0 to 60.0 29,926 to 45,000 2.1% 100.0% $62.20 to $76.84 41.0% to 46.5%

100.0%

Range of Usage (monthly) % of bills

Monthly Bill Increase/(Decrease)hcf/mo gallons per month $ Impact % Impact



November 4, 2015

Summary

• Current rate revenue is less than the cost of service.• Current rate structure does not reflect industry standards.

– Service and usage charges could be aligned closer to cost structure

• Rate structure modifications can be gradually made in conjunction with rate increases over a period of time.



November 4, 2015

QUESTIONS & DISCUSSION

HF&H Consultants, LLC

201 N. Civic Drive, Suite 230, Walnut Creek, CA 94596 925-977-6950

John Farnkopf Rick Simonson

Senior Vice President Vice President

Documents

Western Hills Water DistrictWater Rate Update Board Meeting HFH Consultants, LLC 0November 4, 2015 HFH Consultants, LLC Western Hills Water District