1. 1 RATE SETTING WORKSHOP February 23, 2015

2. 2 RATE CHANGES In accordance with Section 7.270 of the Charter Plan of the District, any proposed rate change must: 1.Be consistent with constitutional, statutory or common law as amended from time to time; 2.Enhance the District’s ability to provide sewer and drainage systems and facilities, or related services; 3.Be consistent with and not in violation of any covenant or provision relating to any outstanding bonds or indebtedness of the District; 4.Not impair the ability of the District to comply with applicable Federal or State laws or regulations as amended from time to time; and 5.Impose a fair and reasonable burden on all classes of ratepayers.

3. 3 RATE SETTING PROCESS Step 1 – Identify Financial & Pricing Objectives Step 2 Identify Revenue Requirements & Demand Projections Step 3 – Allocate Costs Step 4 – Design Rate Structure Step 5 – Assess Effectiveness of Addressing Pricing Objectives

4. 4 IDENTIFY PRICING OBJECTIVES

5. 5 RATE SETTING PROCESS Step 1 – Identify Financial & Pricing Objectives Step 2 Identify Revenue Requirements & Demand Projections Step 3 – Allocate Costs Step 4 – Design Rate Structure Step 5 – Assess Effectiveness of Addressing Pricing Objectives

6. 6 REVENUE REQUIREMENTS

7. 7 RATE DESIGN Step 1 – Identify Financial & Pricing Objectives Step 2 Identify Revenue Requirements & Demand Projections Step 3 – Allocate Costs Step 4 – Design Rate Structure Step 5 – Assess Effectiveness of Addressing Pricing Objectives

8. 8 ALLOCATE COSTS »Cost of service concept »Allocate costs to functional and cost components »Classes of customers »Units of service

9. 9 INFLOW & INFILTRATION »Flow that enters sanitary sewer system as a result of high groundwater or precipitation (infiltration) or manholes, roof drains, etc. (inflow) »Not a consequence of directly measured service demands »Contributing factors include groundwater levels, age of pipe, and soil conditions.

10. 10 Allocate to Cost Components Volume Industrial Monitoring Customer Service BODCapacity Develop Unit Costs Compliance Charge Customer Charge Service Costs Customer Classes Industrial Multi- Family Single Family Commercial Variable Costs Net Wastewater Revenue Requirements Categorize by Functions Collection Treatment Disposal Commercial Compliance Billing & Customer Service Support & Administration TSS ALLOCATE COSTS Billing Charge

11. 11 RATE DESIGN Step 1 – Identify Financial & Pricing Objectives Step 2 Identify Revenue Requirements & Demand Projections Step 3 – Allocate Costs Step 4 – Design Rate Structure Step 5 – Assess Effectiveness of Addressing Pricing Objectives

12. 12 RATE DESIGN Process aligns rates and charges with pricing objectives

13. 13 DESIGNING THE RATE STRUCTURE »Fixed charges vs. variable charges »Basis of billing »Current rate structure

14. 14 PRIMARY CHARGE TYPES Fixed Charges Invariant with customer water usage Cost of service fixed charges reflect customer related costs Fixed charges may include readiness-to- serve component Variable Charges Vary with amount of water used Recover utility costs that vary with customer usage patterns

15. 15 BASIS OF BILLING »Metered and Unmetered Residential Customers »Average Winter Quarter for Residential Customers »Commercial customer loading – Monitored strength

16. 16 CUSTOMER USAGE Wastewater Flow Average Flows Peak Flows (Capacity) Wastewater Strengths Biochemical Oxygen Demand Total Suspended Solids Customers Billing & Collection System Availability Compliance Charge Variable Charges Fixed Charges

17. 17 CURRENT RATE STRUCTURE (FY 2015 / Effective July 1, 2014)

18. 18 RATE DESIGN » Critical Issues −Understanding of pricing objectives −Data needs −Awareness of rate design implications −Understanding impact on District’s customer base

19. 19 QUESTIONS & ANSWERS OTHER DISCUSSION