Community Advisory Meeting Water Rate Study Habib Isaac – Principal Greg Tobler – Task Manager August 7, 2012

1. Community Advisory Meeting Water Rate StudyHabib Isaac – Principal Greg Tobler – Task Manager August 7, 2012

2. Project Initiation - Water Rate Study • District made decision to conduct a Water Rate Analysis in 2012 • Agencies commonly updates financial plan every five years • Last study completed in 2007 • Ensure new objectives / state mandates are incorporated • Determine if existing rates compliment new financial plan and objectives • Opportunity to review and update rate structure • District went through a competitive bid process and selected Willdan • Willdan assisted District with 5yr/10yr financial plan as part of District’s FY 2012-13 budgetary process • Account for District’s operation and maintenance costs • Incorporate new reserves policies and capital improvement plan • Ensure sufficient coverage on debt in compliance with bond covenants

3. Financial Plan • Financial thresholds established • Multiple scenarios created to reach five year goal • Met with District Board & Finance Committee • Developed multiple viable revenue requirement scenarios • Results illustrated within Willdan’s model (GUIDE) • Had informative and meaningful policy discussion • Debt Management • Reserve policies • Timing of revenue adjustments – Implementation • Goal - Minimize revenue adjustments, while ensuring healthy utility • Next Step - Rate Design • Engage in discussions with Community Advisory Committee • Final selection of 5yr plan will consider customer impact

4. Holistic Approach to Rate Design Update Board – Select Financial Plan Engage CAC Developed Scenarios CAC Feedback

5. Rate Design – How is revenue recovered • 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 demand • Variable characteristics include: total water consumed 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

6. Fixed / Variable Revenue Split • What % of District revenue should come from each component? • Current split is ~65% fixed / 35% variable • 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 redistribute cost as follows: • Fixed / Variable: 60% / 40% 50% / 50% 40% / 60% • As 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 • One way to assist District in meeting the State’s Goal of (20 x 2020)

7. Existing Rate Structure • 2007 Water Rate Analysis • One rate structure applied to all accounts • Last 5 years of revenue adjustments: 32%, 20%, 15%, 3%, 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 – 65% of revenue • Variable charge (two tiered structure) – 35% of revenue • Tier 1 – 30 HCF = $1.46 • Tier 2 – >30 HCF = $1.80

8. Rate Design • Use model to develop sound financial plan and rate structure that minimizes rates to greatest degree possible, while: • Providing adequate and stable revenues in short and long-term • Providing adequate revenue for payment of debt and financing of capital projects from rate revenue (PAYGO) • District debt is ~25% of budget (Avg = $3.8M) • Illustrate affect from debt restructuring • Providing funding for appropriate reserves • Ensuring rates are compliant with Prop. 218, AWWA guidelines, and best management practices • Rates are based upon cost of providing service • Achieve equity across/within customer classes • Account for loss in consumption from potential conservation • Obtaining feedback from CAC

9. Balancing Competing Objectives

10. Comprehensive Modeling Dashboard GUIDE

11. Revenue Adjustments and Financials Programmed scenarios for quick comparisons Visualize impacts on revenue & rates immediately Variable Assumptions and Inputs Financial Thresholds

12. Next Steps • Review fixed versus variable split • Rate structure • Establish customer classes • Update residential tiering analysis • Review revenue requirement scenarios • Impact on rates • Engage CAC throughout process • Update Board and select financial plan / rates