Rate Study - Board of Directors Input. Analysis Update

Transcription

1 Attachment 3 Rate Study Steps Board interaction and guidance The Board established the policy objectives in February, and received updates in March and April. Board comments and input have been and will continue to be incorporated into the rate review process. The Board will continue to receive regular updates up to and through the 2018 rate setting process. The August review provides a status update. The next presentation, scheduled on September 6, 2017, will include preliminary results. Sensitivity analysis for tiered options Accessible public workshops Clear and concise references Provide a sensitivity analysis to demonstrate whether a two- or three-tiered option would have a greater impact on revenues during a future drought, which could lead to subsequent rate adjustments Workshops will be provided at public venues throughout the service area Terms used to described costs should be clear and comprehendible Drought-related impacts should not vary substantially between the two scenarios as the higher tier in both structures would take effect at the same use threshold of average use exceeding approximately 390 gallons per day. Additional information on the potential impacts will be provided by Raftelis at the Board's September 6, meeting. Public workshops will be held at multiple locations within the District's service area to facilitate accessibility to customers. In order to enhance transparency, references to "base" charges in the staff reports and presentations will be replaced with "delivery" to better define the related costs. References to a tiered structure with not include descriptions such as inclining. Public outreach shall include examples that can put the costs into perspective, such as the cost of water remaining below one cent per gallon.

2 Rate Study Steps Provide context to reliance on The methods and analyses The generally accepted rate-setting A WW A standards for rate established by the American methodology includes three setting Water Works Association categories of technical analysis. (A WW A) are considered the The first is the revenue standard within the industry for requirement analysis, which establishing cost-based rates, examines the utility's operating fees, and charges. A WW A's and capital costs to determine the most recent update of its rate total revenue requirement and the setting manual was published adequacy of the utility's existing in rates. Next, a cost-of-service analysis is used to allocate, and equitably distribute the revenue requirements to the various customer classes of service ( e.g., residential, commercial) served by the utility. The final technical analysis is the ratedesign analysis, which uses the results of the first two steps to establish cost-based water rates that meet the overall rate-design goals and objectives. Potential standby charge Consider a possible."stand by" The District has historically or reliability charge for handled these issues as part of customers who primarily rely on recycled water service. project-specific agreements with the wastewater agencies conducting the recycled water project. Page 2 of 5

3 Costs associated with peak use Allocating fixed and variable charges between customer categories customers. The study will evaluate two versus three tiers and the affordability aspect. The distribution of additional costs associated with peak use to the upper tiers is being considered to align costs with higher water use. Demand charges recover costs associated with having facilities available to meet peak demands. The cost allocation will be updated with customers' current peaking patterns, which may have shifted since the last rate study. The distribution of costs to variable and fixed charges will be carefully evaluated. In allocating fixed charges, consideration needs to be given to customers with already low water use. Evaluation of a tiered rate structure was selected for comparison to the District's current uniform rate structure as it best aligned with the pricing objectives of ensuring the cost was affordable to essential use, promoting efficiencies, and minimizing customer impacts in a structure that is simple to understand, administer and update. Comparison to a water budget structure would have added complexities, including the costs and time needed to obtain irrigable parcel measurements for all services. A budget based system also would have increased administrative costs. Evaluation in process Evaluation in process, consistent with A WW A rate setting methodology; Page 3 of 5

4 Consideration of revising calculations for fixed costs The calculations for fixed charges (related to service and demand) are being reviewed to ensure that the costs are being allocated equitably to those customers benefitting from the specific services and facilities. Evaluation in process Annual vs. multi-year notification process The Board directed that the rate setting approval process continue to occur on a yearly basis as this is a critical touchpoint with customers. The Board was open to the possibility of a separate process for future drought rate notices. Per Board direction, District will continue annual Proposition 218 notification and rate-setting process to support customer interaction and transparency. A review of the District's lifeline program, which provides reduced fixed charges to qualified low-income customers, is currently on hold. Consideration of modifying the program will be postponed until after the State Water Board releases the framework for its initiative, which is anticipated to be available in February The use of drought rates encourages conservation and recovers costs when water usage is reduced, resulting in a net neutral financial position. Although establishing drought rates before a drought would allow the District to expedite actions when a drought occurs, the Board voiced concern about a lack of transparency. Establishing drought rates when a drought is invoked would delay implementation by up to three months, but will support open communication when a drought occurs. The cost of service analysis for drought rates will be completed to establish a nexus between cost of service under varying drought scenarios, but finalization of a drought rate structure and any future implementation will be considered separately by the Board, and include a separate Proposition 218 notification process. Page 4 of 5

5 Drought rates vs. drought reserve vs. hybrid Setting drought rates at trigger points Provide public outreach throughout the process The use of drought rates, during a drought emergency, assists with recovering costs during the year the restrictions are in effect. The use of a. drought reserve mitigates the impacts and can be used to offset lower revenues during the subsequent rebound period. The Board.directed that any drought rates, if approved, would be implemented based on the District's declaration of a specific water shortage stage. In order to enhance customer understanding of rate structure and related rate-setting information, the Board requested that the process be transparent, include opportunities for public input, and that feedback be provided within Board presentations. Based on Board input, a hybrid approach will be pursued. The District's drought contingency reserve was drawn down in FY 1 7 to help offset the financial impacts of the five-year drought. The Board will consider the appropriate reserve policy for this account after the adoption of the rate structure study. If approved, a future drought rate structure would be aligned with the water shortage stages (1-5) identified within the District's 2015 Urban Water Management Plan. Initial focus group sessions and public survey have been held, and details provided to the Board. Public outreach rate workshops will be scheduled, with separate workshops held for the impacted customer groups. Potential changes to the rate structure will be communicated to customers to ensure that the methodology is presented in a reasonable, logical, comprehendible manner. Feedback will be received and integrated into the final rate structure, where appropriate, and presented to the Board. A second focus group will be assembled to test and determine final communication messages and tools that best articulate changes in a clear manner to all customers. Information on the rate review process, including the reports and presentations provided to the Board, have been made available on the District's website. Page 5 of 5