1. 1 Shasta Lake Water Rate Study City Council Presentation June 7, 2016

2. 2 AGENDA 1.Rate Setting Legal Environment/Overview 2.Financial Plan 3.Rate Setting 101 4.Water Rates 5.Customer Impacts 6.Drought Rates

3. 3 Rate Study Overview

4. 4 S TEPS IN C ONDUCTING A R ATE S TUDY Rate Setting Framework Financial goals and policies Pricing objectives Financial Plan Evaluation of CIP and financing options Cash flow analysis for financial sufficiency Cost of Service & Rate Design Cost allocations Rate design ̶Rate calculations ̶Customer impact analyses

5. 5 L EGAL E NVIRONMENT OF R ATE M AKING Cost of Service Requirements −Proposition 218 and Proposition 26 (Article XIIIC and XIIID of California Constitution) −California Government Code 54999 Pass-through Provision −AB 3030 – Section 53756 of the Government Code Water Conservation −Article X of California Constitution −CA Water Code Chapter 3.4 – Allocation-based Conservation Water Pricing (AB 2882) −SB X7-7 – 20% reduction by 2020 −New SWRCB regulations call for each agency to self certify that they have adequate supplies for three years assuming drought of 2012-2015 and set conservation standards equal to their projected supply shortage

6. 6 C ITY OF S AN J UAN C APISTRANO Recent Litigation: CTA vs. City of SJC −Rate payers (Capistrano Taxpayer Association, CTA) sued the City of San Juan Capistrano over its water budget rate structure The Orange County Superior court ruled that the rates did not meet the nexus requirement in August 2013 Key Factors: −Lack of administrative record −City used multipliers to justify the tiered rates without any administrative record of an underlying rationale RFC hired to justify rates −Revised tiered rates by establishing a nexus between costs incurred by each tier −New rates approved in June 2014 −Representatives from CTA concurred that RFC’s tiered rate structure complied with Prop. 218

7. 7 P ROPOSITION 218 R EQUIREMENTS A FTER R ECENT C OURT C ASES ( I. E. C APISTRANO T AXPAYERS A SSOCIATION VS. C ITY OF S AN J UAN C APISTRANO ) Agencies must develop a nexus between their tiered rates and their costs to serve those tiers and document the methodology used in a report Nexus between rates and cost of service by creating unit rates TOTAL VOLUMETRIC RATE FOR EACH TIER ($ /HCF) EXTRA CAPACITY (Peaking Costs) Peaking rate ($ /HCF) CONSERVATION Conservation program rate ($ /HCF) DELIVERY Delivery rate ($ /HCF) SUPPLY Water supply rate ($ /HCF)

8. 8 Financial Plan Policies & Assumptions

9. 9 F INANCIAL P LAN – W ATER S ALES A SSUMPTIONS

10. 10 F INANCIAL P LAN – R ESERVE A SSUMPTIONS ReservesTarget LevelsBases Operating Reserve90 days (25% of O&M)Monthly billing Capital Reserve 1 Year of Average CIP Expenditure Industry Norm

11. 11 F INANCIAL P LAN – A SSUMING N O R EVENUE A DJUSTMENTS

12. 12 F INANCIAL P LAN – P ROPOSED R EVENUE A DJUSTMENTS

13. 13 Rate Setting 101

14. 14 B ALANCING C OMPETING P RICING O BJECTIVES Equity & Defensibility (Fairness) ConservationAffordability Admin Ease & Customer Understanding (Simplicity) Revenue Stability Five main Pricing Objectives that compete with one another

15. 15 FINANCIAL PLAN Revenue Adjustment Schedule Multi-yr Financial Plan EXPENSES O&M CIP Debt Reserve Funding REVENUE Operating Non-Operating FINANCIAL POLICIES Reserve Levels Coverage Ratios

16. 16 COST OF SERVICE »Recovers costs from customer classes in proportion to the demands they place on the system, recognizing the impact of each customer class on the costs to run system facilities »Cost of Service is the fundamental methodology used to establish utility rates in the United States Revenue Requirement Cost of Service by Customer Class Functionalized Revenue Requirement Supply, Treatment, Distribution Cost Components Base, Extra Capacity, Customer, Conservation F unctionalize A llocate D istribute to Customers

17. 17 W ATER C OST OF S ERVICE - A LLOCATION TO C OST C OMPONENTS SUPPLY BASE/ DELIVERY COSTS EXTRA CAPACITY (Peaking Costs) METER MAINTENANCE CUSTOMER SERVICE CONSERVATION Volumetric Rate ($/hcf)Fixed Charge by Meter Size

18. 18 D ISTRIBUTE C OST C OMPONENTS TO C USTOMER C LASSES CUSTOMER CLASSES (Cost to Serve Each Class) (Single Family, Multi-family, Commercial etc.) SUPPLY Use or Accounts DELIVERY COSTS Use: Same for All Classes EXTRA CAPACITY (PEAKING) Peaking Factors or Meter Cap Ratios METER MAINTENANCE Meter Size CUSTOMER SERVICE # of Cust Bills CONSERVATION Distributed to High Vol Users Develop Units Rates for each Cost Component (Bucket) which are used to Distribute Costs to Each Class

19. 19 C OST OF S ERVICE

20. 20 L IFELINE R ATE D ERIVATION We are maintaining the lifeline rate through a transfer from the general fund which offsets cost for lifeline users Transfer amount ($11,000) maintains the current 20% discount from the (non-discounted) Residential Tier 1 rate

21. 21 Water Rates

22. 22 S ERVICE C HARGE D ERIVATION

23. 23 C ONSUMPTION R ATE TOTAL VOLUMETRIC RATE FOR EACH TIER ($ /HCF) EXTRA CAPACITY (Peaking Costs) Peaking rate ($ /HCF) CONSERVATION Conservation program rate ($ /HCF) DELIVERY Delivery rate ($ /HCF) SUPPLY Water supply rate ($ /HCF)

24. 24 F IVE Y EAR R ATES

25. 25 Customer Impacts

26. 26 SFR C USTOMER I MPACTS A DOPTED 2017 VERSUS P ROPOSED 2017 The average customer uses 13 ccf

27. 27 SFR I MPACTS A DOPTED 2017 VERSUS P ROPOSED 2017

28. 28 M OBILE, MFR, C OMMERCIAL AND I NDUSTRIAL I MPACTS A DOPTED 2017 VERSUS P ROPOSED 2017

29. 29 C OMMERCIAL I RRIGATION, G OVERNMENT AND S CHOOL I MPACTS A DOPTED 2017 VERSUS P ROPOSED 2017

30. 30 Drought Rates

31. 31 D ROUGHT R ATE R EVENUE R ECOVERY Stage 1 through 3 −Drought rates are enacted to cover the costs of McConnell water purchases Stage 4 −Drought rates recover McConnell water purchases and lost sales revenue due to decreased customer water use (below 1,810 AF)

32. 32 D ROUGHT R ATES

33. 33 N EXT S TEPS Provide Direction/Acceptance of rate study To proceed with Prop 218 notice Two public outreach events at John Beaudet Community Center −June 29 th - 6 to 7:30 pm −July 20 th - 6 to 7:30 pm Schedule Public Hearing on August 2nd 3/8/16Cost of Service and Rates

34. 34 BACK UP SLIDES

35. 35 P ROPOSITION 218 R EQUIREMENTS 1.An agency cannot collect revenue beyond what is necessary to provide service. 2.Revenues derived by the charge shall not be used for any other purpose other than that for which the charge was imposed. 3.The amount of the fee may not exceed the proportional cost of service for the parcel. 4.No charge may be imposed for a service unless that service is actually used or immediately available to the owner of property. 5.A written notice of the proposed charge shall be mailed to the record owner of each parcel at least 45 days prior to the public hearing, when the agency considers all written protests against the charge.

36. 36 P RIVATE F IRE C HARGES

37. 37 R ESIDENTIAL AND L IFELINE P ERCENTAGE I MPACTS A DOPTED 2017 VERSUS P ROPOSED 2017

38. 38 M OBILE, MFR AND C OMMERCIAL /I NDUSTRIAL P ERCENTAGE I MPACTS A DOPTED 2017 VERSUS P ROPOSED 2017 3/8/16

39. 39 C OMM I RRIGATION, G OV AND S CHOOL P ERCENTAGE I MPACTS A DOPTED 2017 VERSUS P ROPOSED 2017

40. 40 S ERVICE C HARGE

41. 41 P EAKING R ATE D ERIVATION

42. 42 C ONSERVATION R ATE D ERIVATION

43. 43 P RIVATE F IRE P ROTECTION C HARGES