Retail Water Rates. Board of Directors August 2, 2017

Transcription

1 Western Municipal Water District Retail Water Rates Board of Directors August 2, 2017

2 Background

3 BACKGROUND On February 15, the Board of Directors voted to cancel the March 15 retail water rates public hearing in order to allow time to finalize and gain adoption of new, long-term wheeling and surplus water agreements with the City of Riverside. The agreements provide customers with the two-fold benefit of: Additional long-term local water supply reliability Lower cost, locally supplied water compared to Metropolitan Water District (MWD) 3

4 RATE DEVELOPMENT PROCESS Began in May 2015 Hired Raftelis Financial Consultants Input from Water Resources and Engineering Departments Collaborative effort to produce rate models Consultation with legal counsel Final Deliverable: Cost of Service Study Report 4

5 RATE DEVELOPMENT GOALS Legal Compliance Cover Cost of Service Equity by Customer Class Customer Rates 5

6 TIMELINE Recent Board Workshops: June 14 June 21 July 12 July 19 Public Hearing recommended to be scheduled for October 4, 2017 Effective Dates: January 1, 2018, 2019,

7 Water Rate Design Changes To enhance equity among customer types and provide a legally sound rate structure.

8 WATER BUDGET STRUCTURAL CHANGES A. Dedicated landscape meter budgets Current: 40% of budget at Tier 1 rate and 60% at Tier 2 rate Proposed Year 1: 20% at Tier 1 and 80% at Tier 2 Year 2: 10% at Tier 1 and 90% at Tier 2 Year 3: 0% at Tier 1 and 100% at Tier 2 B. Commercial budgets (mixed use meters) Current: 90% of budget at Tier 1 rate and 10% at Tier 2 rate Proposed: 43% at Tier 1; 57% at Tier 2 8

9 WATER BUDGET STRUCTURAL CHANGES C. Delivery (O&M*) component in all five tiers Current: Tiers 1 & 2 only Proposed: All 5 Tiers D. School budgets (mixed use meters) Current: 3-year rolling average of water use Proposed: Student count plus irrigated area E. Supplemental Marginal Supply (formerly the supply penalty ) Riverside: Based on O&M for Chino Desalter water via La Sierra Pipeline + capital lease factor (affects Tier 5 only) Murrieta: Not applicable * Operations and Maintenance These are the costs to operate and maintain the entire water system. 9

10 FIXED SYSTEM CHARGE Use American Water Works Association (AWWA) rate methodology (enhances equity) AWWA method allocates O&M costs across meter sizes primarily based on a meter s flow capacity Riverside: for 5/8 2 meters, set rates based on AWWA method; for 3 and larger, phase in AWWA-based rates over 3 to 9 years (affects 100 meters, of which half are 3 meters); subsidize phase-in with property tax revenue Murrieta: base all meters on AWWA method right away; affects two customers with a 3 and two with a 4 meter 10

11 MWD READINESS-TO-SERVE (RTS) CHARGE This fixed charge escalates by meter size and is a pass-through of MWD s RTS ($1.1 million this year) Allocate charge based on AWWA meter capacity ratios Applies to all service areas except for Murrieta 11

12 AGRICULTURAL (AG) COMMODITY RATES With MWD s discounted rate program for agricultural water discontinued in 2012, water purchased for agricultural use is the same price as nonagricultural water Western increased Ag rates by 17-23% on Jan. 1, 2014 and again on Jan. 1, 2015 Goal: Ag commodity rate to equal the uniform commercial rate Reach goal over three rate increases; each approximately 15% 12 Subsidize the phase-in with property tax revenue

13 MARCH EAST SERVICE AREA March East and Riverside both use MWD water and are interconnected systems Combine March East and Riverside Potable for rate setting purposes; keep Asset Replacement Reserves separate Add a surcharge to the March East water rate to expedite funding of Asset Replacement Reserve (approx. $200,000 per year) Goal: Both water systems eventually at an equivalent condition No property tax revenue offset in commodity rate 13

14 District Asset Replacement Reserves ADDITIONAL PROPOSED CHANGES Lowest cost water all in Tier 1 of rate structure (encourages efficient use) No increase to the Water Reliability Charge Shift more fixed O&M costs to the Fixed System Charge (enhances revenue assurance & stability) Limit the amount of property tax revenue available to offset O&M component in Tiers 1 & 2 (Riverside service area only); future growth in property taxes would be set aside to fund System Improvement capital projects 14

15 PASS-THROUGH PROVISION Continue the District s practice of passing through increases in costs and charges from wholesale water providers and from energy providers Each pass-through is limited to 12% per year, and will not exceed the cost of providing water service 15

16 Proposed Rates and Effective Dates

17 RESIDENTIAL RATE IMPACT The increase in an average month s bill from proposed rates for a median residential customer are as follows: Current Originally proposed Service Area Year 1 Year 2 Year 3 % $ % $ % $ Riverside 5.5% $ % $ % $ 5.14 Riverside 6.8% $ % $ % $ 6.52 Murrieta 6.8% $ % $ % $ 6.85 Rainbow 6.8% $ % $ % $ 6.36 Proposed effective dates: January 1, 2018, 2019, 2020 Last increase 36 months prior: January 1,

18 HISTORICAL RATE INCREASES For a median residential customer: Effective Date Riverside Murrieta Rainbow Jan. 1, % 5.5% 9.5% Jan. 1, % 5.3% 7.6% Jan. 1, % 6.0% 6.5% Jan. 1, % 6.0% 5.1% Jan. 1, % 0% 0% Jan. 1, % 0% 0% Proposed Jan. 1, % 6.8% 6.8% Jan. 1, % 6.8% 6.8% Jan. 1, % 6.8% 6.8% 18

19 COST PER GALLON Based on the median residential customer s average monthly water use. Riverside Murrieta Monthly HCF Converted to Gallons 14,960 13,464 Average Bill $ $ Cost per Gallon < 1 < 1 19

20 NON-RESIDENTIAL CUSTOMER IMPACT Customer Type Range Irrigation (Landscape) 6-8% Commercial 5-8% Nonpotable Irrigation 6-8% Agricultural 5-15% 20

21 OVERALL RATE IMPACT The overall increase in revenue from all Riverside service area rate payers *: 5.6% * Excludes revenue from penalty tiers. 21

22 Cost Drivers

23 WHERE OUR WATER COMES FROM Western s Riverside Potable Water Supply 60% State Water Project from Metropolitan Water District 40% Regional Water Supplies from Neighboring Agencies 23

24 WATER SOURCES IN RATE MODEL Riverside Service Area Potable Water Source Acre Feet Meeks & Daley 4,208 Riverside Public Utilities 4,125 MWD 12,693 Total 21,026 Groundwater approx. $150 per Acre Feet (AF) (Western has no groundwater in Riverside Service Area) Locally purchased water approx. $637 per AF MWD purchased water $1,015 per AF 24

25 District Asset Replacement Reserves MWD RATE INCREASES MWD Tier 1 Potable Rate Increases: Jan % Jan % Jan % Total 9.7% 25

26 COST DRIVERS YEAR 1 26 Of the increase in cost to provide water service, 55% is from the rise in purchased water costs, 44% from O&M costs, 3.5% from power, offset in part by a 2.5% decrease in other costs.

27 Revenue Sources

28 28 REVENUE SOURCES YEAR 1

29 USE OF $9.2M IN PROPERTY TAX REVENUE Offset O&M in commodity rate (n/a for March East and Murrieta); net O&M is only $.02 in Tier 1 and 2 rates Subsidize the phasing in of the 3 and larger Fixed System Charge rates until equal to AWWA method (Riverside) Subsidize the phasing in of ag water rates until it equals a uniform commercial rate (affects water commodity rate only) Subsidize nonpotable landscape water rate to equal 85% of the Tier 2 water budget rate; for nonpotable ag, 85% of the potable ag rate (affects water commodity rate only) Any growth above the $9.2M would be used to fund System Improvement capital projects 29

30 District Asset Replacement Reserves USE OF WATER RELIABILITY CHARGE FUNDS The proposed rates for Riverside potable water include a new annual offset of $1.1 million from Water Reliability Charge (WRC) revenue to partially pay for the new Capital Recovery component in the city of Riverside s wheeling rate. WRC revenue is used to pay for capital costs that: Increase water system reliability Improve the long-term sustainability of the water supply 30

31 USE OF OPERATING RESERVES - RIVERSIDE Based on Board-adopted Reserve Policy ( M = million) Service Area Min Max 6/30/17 Balance Riverside $ 10 M $ 20 M $ 17 M With System Improvement Projects in the Capital Spending Plan Riverside Total Operating Reserve Beginning Balance $ 17.0 M Sys Imp Projects ($ 2.8 M) ($ 1.8 M) ($ 1.9 M) ($ 6.5 M) Op Reserve Draw ($ 0.7 M) ($ 0.4 M) ($ 1.1 M) Operating Reserve Ending Balance $ 9.4 M 31

32 USE OF OPERATING RESERVES - MURRIETA Based on Board-adopted Reserve Policy M = million K = thousand Service Area Min Max 6/30/17 Balance Murrieta $ 1.1 M $ 2.2 M $ 0.9 M With System Improvement Projects in the Capital Spending Plan Murrieta Total Operating Reserve Beginning Balance $ 900 K Sys Imp Projects ($ 150 K) ($ 150 K) Op Reserve Draw ($ 90 K) ($ 8 K) $ 85 K ($ 13 K) Operating Reserve Ending Balance $ 737 K 32

33 USE OF SUPPLY PENALTY FUNDS Use $834,000 in supply penalty revenue previously received to partially offset local potable water supply costs in Riverside Spread equally over the next three calendar years This continues the District s annual practice used in calendar years 2012 through

34 USE OF GENERAL DIST. PROPERTY TAXES Use $520,000 in General District property tax revenue to smooth the transition of the water budget for dedicated landscape meters as follows: Rate Model Year Budget at Tier 1 Rate Budget at Tier 2 Rate Current 40% 60% Year 1 20% 80% Year 2 10% 90% Year 3 0% 100% Note, the percentages above represent the percent of the landscape customer s total water budget. 34

35 COST REDUCTION EFFORTS Local water supply diversification to ensure reliable supply and long-term lower cost Victoria Recharge Basin Project, La Sierra Pipeline, CDA & Arlington Desalter Expansion Collaboration with city of Riverside/RPU Debt refinancing at lower borrowing costs economic benefit of $5.4M Preventative maintenance program to avoid more expensive failures Vehicle fleet leasing program - avoids $200-$400K annual capital outlay 35

36 COST REDUCTION EFFORTS Lowest cost / best solution for District functions, such as Bringing electrical services, and watermaster reporting in-house Outsourcing meter reading A culture of efficiency and initiative though the BEST award program; $140,000 in ongoing annual savings from last year s awards Low turnover due in part to investments in employee development, recognition for exceptional performance, and team building Increased efficiency and enhanced customer service through technology investments 36

37 Customer Engagement

38 CUSTOMER ENGAGEMENT STRATEGY Informative public hearing notice Targeted customer engagement including personalized communication and 1-on-1 meetings Agricultural accounts Major Commercial accounts Dedicated Landscape Meter accounts Schools, cities, cemetery accounts Customer engagement: Town Halls Messaging vehicles: bill messages and inserts, e-blasts, newsletter 38

39 39

40 SCHEDULE Launch customer engagement strategy Mail customer notices on August 18 Conduct public hearing on October 4 Effective dates: January 1, 2018, 2019,