1. Town of Yountville B ARTLE W ELLS A SSOCIATES Independent Public Finance Advisors Water and Wastewater Rates Prop. 218 Hearing February 15, 2011

2. 2  Independent review of Town’s water and wastewater rates and finances  Develop long-term financial projections and annual revenue requirements  Recommend rates that: Recover the cost of providing service Are fair and equitable to all customers Phase out subsidies from the general fund  Phase in rate increases to help minimize the annual impact on customers B W Objectives

3. 3 Enterprise Fund  The water and wastewater utilities are enterprise funds  Definition: Fund that provides goods or services similar to the operation of a commercial enterprise to the public for a fee or charge that makes the entity self- supporting  Other examples of enterprise funds include solid waste, storm water, electricity  User charges are main source of revenue and need to recover the cost of providing service: - System operations & maintenance - Water purchases - Capital improvement projects - Repairs and replacements - Debt service - Reserves

4. 4 WATER UTILITY

5. 5 Overview of Water Enterprise  Last rate increase was in 2007  The Town provides water service to about 769 connections - Residential accounts (SFR, multi-family, & mobile home) = 87%  2010/11 Budget  Water fund has been operating in deficit mode and received over $3 million in subsidies from the General Fund over the past decade  Water sales revenue account for 97% of total water enterprise revenues  Total 2009/10 Annual Use = 142,508,000 gallons Average SFR bi-monthly water consumption = 22,000 gallons

6. 6 Water System  Town’s main source of water is rainfall runoff captured in the Rector Reservoir  In 2009, the Town distributed 476 acre feet (AF) or 155 million gallons of water. 2010/11 Budget projects purchasing 510 AF from the Veteran’s Home.  Water Distribution System includes the Yountville Municipal Well and 6.9 miles of water distribution mains

7. 7 General Fund Subsidies General Fund Subsidies total over $3 million

8. 8 Current water rates include 2 components: 1) Water Service Charge - Fixed charge based on meter size - Same charge for residential and nonresidential customers - Recovers fixed cost, i.e. salaries, supplies, repairs 2) Water Commodity Charge - 4 tiers – price per unit increases as water use increases - Different breakpoints and rates for SFR, multi-family, and nonresidential - Conservation incentive - Recovers costs that vary based on the amount of water sold, i.e. electricity, water purchases Water Rate Structure

9. 9 Current Water Rates  Bimonthly Meter Water Service Charge – Residential and Non-Residential  Water Commodity Rate per 1,000 gallon Billing Unit (BU)

10. 10 Why Rate Increases are Needed  Operating Deficit and General Fund Subsidies - Without rate increases, the operating deficit will continue to grow and deplete reserves - The General Fund has been subsidizing the water utility for over 10 years  Water Purchases from Veteran’s Home - Largest expenditure for water utility – nearly 54% of all operating expenses - In past 5 years, cost per AF has increased $250 per AF or 50%  2010/11 – 2014/15 Capital Improvement Program - Five-year total for water distribution projects = $442,082 - Projects include main replacement program, water meter replacements, pipes and blow offs, pressure pit upgrades, an upgrade to the groundwater management plan, and a fireflow study  Operating Expenses - Operating expenses will continue to increase in the future - Cost escalation: 4% for personnel services, 3% for other expenses (not including water purchases)

11. 11 Water Expenses Water Expenses

12. 12 Water Purchases  Projections assume an annual escalation factor of 7.5% for water purchases  Pass-Through Provision allows Town to raise rates within 30 days if wholesale rates increase above budgeted projections

13. 13 Water Capital Improvement Projects Water Capital Improvement Projects

14. 14 Rate Structure Modifications  Meter Ratio Equivalents - Current ratios are lower than those recommended by the American Water Works Association (AWWA) - Recommendation: Align the service charges with meter ratios recommended by the AWWA to bring the cost of service in line with meter capacity  Multi-Family Tiers - Current tiers are unfair because most water is sold in Tier 4 - Recommendation: Multi-family customers should be charged a uniform commodity rate like non-residential customers. The commodity rate for both multi-family and non-residential customers will be based on the average single family residential rate

15. 15 Rate Structure Modifications  Outside Town Rates - Current outside town rates are unequal: 78% within town service charge and 25% within town commodity charge - Recommendation: Outside town rate for both the service charge and commodity charge should be 75% of the within town charges  Fixed vs. Variable Revenue Allocation - Current revenue allocation is 28% fixed and 72% commodity which does not reflect the Town’s proportion of fixed vs. variable operating costs - Recommendation: Modify the allocation to collect 50% of revenue from the fixed charge and 50% of revenue from the variable charge - Changing the fixed vs variable relationship will result in larger rate increases in 2011/12 for some customers

16. 16 Water System Replacement Fee  No current annual funding revenue for capital projects and replacements and repairs  Recommendation: Establish annual revenue stream based on water system’s depreciation collected through the “Water System Replacement Fee.” The fee will be a separate charge on the bi-monthly bill and earmarked only for capital projects.

17. 17 Proposed Water Rate Increases Proposed Water Rate Increases

18. 18 Sample Customer Impacts Sample Customer Impacts  Projected Average Single Family Resid. Bill – ¾” meter, 22,000 gallons  Projected Commercial Bill – 2” meter, 115,000 gallons

19. 19 Water Regional Survey Water Regional Survey

20. 20 WASTEWATER UTILITY

21. 21 Overview of Wastewater Enterprise  Last rate increase was in 2007  The Town provides wastewater service to 628 residential accounts (1,153 dwelling units) and 79 non-residential accounts - Residential accounts = 94%  2010/11 Budget  Wastewater fund has been operating in deficit mode  Wastewater sales revenue = 96% of total enterprise revenues - Veteran’s Home = 42%

22. 22 Wastewater System  Town-owned wastewater treatment plant also treats wastewater for the Veteran’s Home.  Town has been treating recycled water since the mid-1970’s  Approximately 127 million gallons generated in 2009 – 87% was recycled  Collection system includes 8 miles of piping in Town, 0.75 miles of force main from the pump station to the WWTP, 1.4 miles of gravity discharge piping from WWTP to the River, and 4 miles of force main recycled water lines

23. 23 Residential Wastewater Rates - Bi-monthly Sewer Service Charge

24. 24 Non-Resid. Wastewater Rates - Fixed charge based on meter size and customer type - Volume per BU charged based on customer type and water use

25. 25 Sample Non-Residential Bill - Medium Strength Customer with 2” meter, using 90 BUs Fixed Charge = $ 77.45 Volume Charge 85% x 90 BUs = 76.5 BUs 76.5 BUs x $1.872 = $143.21 Total Bi-monthly Wastewater Charge=$374.27

26. 26 Why Rate Increases are Needed  Operating Deficit - Without rate increases, the operating deficit will continue to grow and deplete reserves  2010/11 – 2014/15 Capital Improvement Program - Five-year total for wastewater and reclaimed water projects = $2.4 million - National Pollutant Discharge Elimination System (NPDES) permit requires Town to upsize recycled water distribution pumps, variable frequency drives, and electrical systems by December 1, 2013 - Other projects include main and lateral replacement program, inflow and infiltration reduction program, and dredging wastewater ponds - Town is applying for a low cost loan from the State Revolving Fund (SRF)  Operating Expenses - Operating expenses will continue to increase in the future - Cost escalation: 4% for personnel services, 3% for other expenses

27. 27 Wastewater Expenses Wastewater Expenses

28. 28 Wastewater Capital Projects Wastewater Capital Projects

29. 29 SRF Loan SRF Loan  Town anticipates obtaining a $2.4 million loan in 2012/13  The Clean Water State Revolving Fund (SRF) Loan program offers 20- year fixed rate loans for wastewater projects  Interest rate = 50% of State’s general obligation bond rate Current interest rate = 2.6%  First debt service payment is not due until 1 year after project is completed  Debt service covenant requires the Town to maintain a ratio of 120%  To obtain SRF loan, Town must show that adopted rates will provide sufficient revenue for debt service repayment and provide adequate coverage

30. 30 Veteran’s Home Share Veteran’s Home Share  Veteran’s Home pays 50% of all costs related to the joint wastewater treatment plant

31. 31 Rate Structure Modification: Non-Residential Fixed Charge  Current non-residential fixed charges are disproportionate; medium customers charged less than low and high customers  Recommendation: charge all non-residential (low, medium, and high) customers the same fixed charge based on meter size.  Align fixed charges with new meter ratios recommended by the AWWA

32. 32 Rate Structure Modification: Wastewater System Replacement Fee  Current annual capital transfer of $50,000 is insufficient for funding wastewater capital projects and replacements and repairs  Recommendation: Establish annual revenue stream based on wastewater system’s depreciation collected through the “Wastewater System Capital Fee.” The fee will be a separate charge on the bi-monthly bill and earmarked only for capital projects.

33. 33 Proposed Wastewater Rates Proposed Wastewater Rates

34. 34 Sample Customer Impacts Sample Customer Impacts

35. 35 Wastewater Regional Survey Wastewater Regional Survey 1. Rates shown based 3 people per household. 2. Includes the sewer drainage charge.

36. 36 Miscellaneous Fees

37. 37 How Town is Controlling Costs  Controlling Labor and Benefit Expenses - Labor agreements included no cost of living adjustments for past 2 years, set a cap for medical insurance cost share, and implemented retiree medical benefit caps  Proactive Efforts to Reduce Energy Costs - Town will replace several 35-year old pumps motors with new, more efficient motors using grants and low interest loan programs - Town is also evaluating solar and methane gas recapture options  Applying for Grants and Low Cost Financing - To fund capital projects, the Town is applying for grants and loans from the US Dept of Agriculture. California State Revolving Fund, and US Board of Reclamation

38. 38 Conclusion  Both the water and wastewater enterprises have been operating in deficit mode  The water enterprise has been supported by the General Fund for over 10 years, receiving approximately $3 million in subsidies  Both enterprises need to complete capital projects to comply with State mandates. Five-year CIP costs are projected at $442,000 for water and $2.4 million for wastewater.  Proposed rate increases are based on the cost of service. Water purchase costs have increased 50% since 2006/07.  Rate structures modifications are intended to make rates more equitable  Town’s rates expected to remain in the low to middle range in comparison to the surrounding region