Finance Committee Meeting Water Rate Study Update Habib Isaac – Principal Gregg Tobler – Task Manager August 13, 2012

Elk Grove Water District - Utility Rate Project | 2 Water Rate Study Timeline Willdan assisted District with 5yr/10yr financial plan (revenue requirements) as part of District’s FY budgetary process –Account for District’s operation and maintenance costs –Incorporate new reserve policies and capital improvement plan –Ensure sufficient coverage on debt in compliance with bond covenants Multiple Financial Plans presented to District Board for consideration District created Community Advisory Committee for public input First CAC meeting held on Tuesday, August 7 –Meeting included Willdan and District Staff

Elk Grove Water District - Utility Rate Project | 3 Community Advisory Meeting Discussion CAC involvement Financial plan –Revenue adjustments –Debt restructuring How revenue is collected –Fixed versus Variable Existing rate structure –2007 Study Options available for updating rate structure –Fixed / Variable split

Elk Grove Water District - Utility Rate Project | 4 Revenue Requirements Analysis Determine revenue needed to meet utility costs Project O&M, capital and debt expenses Analyzes 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 Encourage water conservation CAC Involvement in Water Rate Study Developed Financial Plan Scenarios Engage CAC CAC Feedback Update Board – Select Financial Plan

Elk Grove Water District - Utility Rate Project | 5 Revenue Requirements –Revenue adjustments commencing in January 2013 –Revenue adjustments commencing in July 2013 –Revenue adjustments deferred for four years –Debt restructuring options –Reserves and future CIP reinvestment Financial Plan

Elk Grove Water District - Utility Rate Project | 6 Revenue broken out into two components –Fixed revenue (monthly meter charge) –Variable revenue (charge based on water consumption) Fixed revenue –Costs are either apportioned evenly over all accounts or meter equivalency –Meter Equivalency – size of meter (flow capacity) determines charge Larger meters pay more –Both criteria are used ; selection depends on type of expenditure Variable revenue –Based on water consumption –Variable costs are allocated between customer classes based on usage Variable characteristics include: total water used and peaking Peaking – Increase in demand at a specific point in time –After variable cost are allocated to customer classes, rate design determines most appropriate method to collect revenue How is revenue recovered?

Elk Grove Water District - Utility Rate Project | Water Rate Analysis –One rate structure applied to all accounts –Last 5 years of revenue adjustments: 32%, 20%, 15%, 3%, 3% –3 years of 3% revenue adjustments were deferred by District Actual revenue adjustments implemented : 32%, 20%, 12%, 0%, 0% Slow economy in recent years Healthy reserves and cost cutting measures utilized to defer adjustments –Fixed charge – 60% of revenue –Variable charge (two tiered structure) – 40% of revenue Tier 1 – 30 HCF = $1.46 Tier 2 – >30 HCF = $1.80 Existing Rate Structure

Elk Grove Water District - Utility Rate Project | 8 Fixed / Variable Revenue Split What % of District revenue should come from each component? –Actual split is ~65% fixed / 35% variable based on existing consumption –Percentage split based on District objectives and industry standards Revenue stability, debt service coverage; conservation objectives –Certain costs are strictly designated i.e. customer service – fixed; treatment – variable Proposed scenarios distribute cost as follows: –Fixed / Variable: 60% / 40% 50% / 50% 40% / 60% –If revenue shifts from fixed to variable the following occurs: Lower monthly fixed charge Per unit cost of water increases Customers gain greater control over monthly bill by adjusting consumption Decreases revenue stability to District One way to assist District in meeting the State’s Goal of (20 x 2020)

Elk Grove Water District - Utility Rate Project | 9 Financial plan –January implementation will provide customers time each year to adjust to new rates prior to peak summer season Debt restructuring –Leveling debt service should be considered if sufficient savings are achieved Options available for updating rate structure –CAC would like to see all three options modeled when calculating rates to compare and understand differences Next CAC meeting will be scheduled in next couple of weeks –Review rates and impact on customers Community Advisory Meeting Feedback

Elk Grove Water District - Utility Rate Project | 10 Next Steps - Tiering Analysis Option 1 –60% fixed / 40% variable Option 2 –50% fixed / 50% variable Option 3 –40% fixed / 60% variable Consumption DataRevenue Analysis

Elk Grove Water District - Utility Rate Project | 11 Tiering Analysis Considerations 40% fixed / 60% variable Primary Drivers Rates Recalibrated to ensure revenue sufficiency Reduced ConsumptionLost Revenue

Elk Grove Water District - Utility Rate Project | 12 Revenue sufficiency Financial health of utility in short and long-term –Reserve funding Conservation objectives –20% by 2020 Customer impact –Monthly meter charge –Tier structure Prop. 218 compliance –Rates based upon cost of providing service –Achieve equity across/within customer classes CAC feedback Policy Considerations