Cost of Service Water Rate Study Habib Isaac Principal Greg
Tobler Task Manager May 14, 2012
Slide 2
Elk Grove Water District - Utility Rate Project | 2 Project
Objectives Develop water rate structures that: Provide adequate
revenues in short and long term Update and incorporate CIP Strong
financial outlook for utility Minimize revenue adjustments Rate
Design Are defensible / equitable across customer classes Consider
ability to pay / affordability Minimize rate shock
Slide 3
Elk Grove Water District - Utility Rate Project | 3 Additional
Considerations Revenue Requirements Analysis Determine revenue
needed to meet utility costs Project O&M, capital, and debt
expenses Analyze reserves Cost of Service Analysis Allocate utility
costs by function and customer demand Assign revenue required to
each customer class in a proportionate manner Rate Design Analysis
Develop rate structure for each customer class to collect
appropriate level of revenues Achieve equity and policy objectives
Revenue Requirements Analysis Determine revenue needed to meet
utility costs Project O&M, capital, and debt expenses Analyze
reserves
Slide 4
Elk Grove Water District - Utility Rate Project | 4 Determine
revenue needed to meet utility costs Project O&M, capital and
debt expenses Analyzes reserves Revenue Requirements Analysis
Allocate utility costs by function and customer demand Assign
revenue required to each customer class in a proportionate manner
Cost of Service Analysis Develop rate structure for each customer
class to collect appropriate level of revenues Encourage water
conservation Rate Design Analysis Holistic Approach to Rate
Design
Slide 5
Elk Grove Water District - Utility Rate Project | 5 Analyzed
EGWD Budget EGWD financials embedded within model Model may be used
as part of budgetary process Accounted for specific adjustments
Capital Improvement Plan Debt Management 10-year projection
Reserves Established financial thresholds Created multiple
scenarios to reach five year goal Revenue Requirements
Slide 6
Elk Grove Water District - Utility Rate Project | 6 GUIDE
Comprehensive Modeling Dashboard
Slide 7
Elk Grove Water District - Utility Rate Project | 7 Programmed
scenarios for quick comparisons Visualize impacts on revenue &
rates immediately Variable Assumptions Toggles and Inputs Financial
Thresholds
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Elk Grove Water District - Utility Rate Project | 8 Scenarios
are quickly run with a push of the Run Scenario Button GUIDE
provides the ability to save, name, and compare scenarios to
determine the optimal financial plan.
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Elk Grove Water District - Utility Rate Project | 9 Key
Variables: Numerous assumptions that are easy to modify allow for
easy and instantaneous, yet complex, scenario planning Assumptions
Include: Purchased Water Power Inflation Reserve Policies Debt
Management Reserves Funded
Slide 10
Elk Grove Water District - Utility Rate Project | 10 Immediate
reflection of impacts to revenues & rates
Slide 11
Elk Grove Water District - Utility Rate Project | 11 SCENARIOS
Revenue Options
Slide 12
Elk Grove Water District - Utility Rate Project | 12 Revenue
Adjustments Based on Annual Needs Reserves allow District to defer
two years of increases 4 th and 5 th yr adjustments @ 9% and 11%,
respectively Bond covenants maintained and reserves funded Yearly
fluctuations in revenue collection Rate shock to customers starting
in 4th year Reactive approach to utilitys 5yr/10yr financial
plan
Slide 13
Elk Grove Water District - Utility Rate Project | 13 Financial
Outlook - Reactive
Slide 14
Elk Grove Water District - Utility Rate Project | 14 One Year
Delay on Revenue Adjustments O&M Reserve equals 180 days of
O&M Reserves allow District to defer adjustment for 1 year
Revenue adjustments of 4%, 4%, 4%, 6% for remaining years Bond
covenants satisfied District already has three years of 3%
adjustments approved Essentially two years of new increase (Years 4
and 5) Allows economy to recover Years 6 through 10 not
pro-actively considered
Slide 15
Elk Grove Water District - Utility Rate Project | 15 Financial
Outlook - 1 st Year Delay
Slide 16
Elk Grove Water District - Utility Rate Project | 16 3% Revenue
Adjustments Revenue adjustments of 3% for next five years District
already has three years of 3% adjustments approved O&M Reserve
adjusted from 180 days to 120 days Reserves fully funded including
reserve programs Bond covenants satisfied CIP funded with a
combination of existing Debt and PAYGO Higher increases necessary
in later years
Slide 17
Elk Grove Water District - Utility Rate Project | 17 Financial
Outlook - 3% Adjustments
Slide 18
Elk Grove Water District - Utility Rate Project | 18 O&M
Reserves Adjusted to 90-Days District already has three years of 3%
adjustments approved O&M Reserve adjusted from 180 days to 90
days All five years reflect 3% revenue adjustments Reserves fully
funded including reserve programs CIP funded with a combination of
existing Debt and PAYGO Bond covenants satisfied Funds short-term
and long-term needs Years 6-10 revenue adjustments range between
4%-6%
Slide 19
Elk Grove Water District - Utility Rate Project | 19 O&M
Reserves - 90 Days
Slide 20
Elk Grove Water District - Utility Rate Project | 20 Debt
Restructure with 90-Day O&M Reserve O&M Reserve adjusted
from 180 days to 90 days Debt management allows District to take
advantage of current market conditions Debt obligation reduced Bond
covenants easier to satisfy Reserves fully funded including reserve
programs CIP funded with a combination of refinanced Debt and PAYGO
May consider funding certain improvements with debt restructure
Funds short-term and long-term needs Revenue adjustments in years
6-10 limited to 3%-4%
Slide 21
Elk Grove Water District - Utility Rate Project | 21
Recommended Debt Restructure; 90-Day O&M
Slide 22
Elk Grove Water District - Utility Rate Project | 22
Incorporate consumption data into model Review and correlate CIP
with depreciation Rate Design Analyze peaking factors and demand
characteristics Set unique rates for each customer class Discuss
tiered structure Options for residential Conservation objectives
Collaborate with EGWD staff throughout rate design process Next
Steps