Water and Wastewater Rates Public Hearing July 15, 2015 The Reed Group, Inc. 1

 Prepare 5-year financial plan models  Assess current financial situation and ongoing revenue needs  Perform cost of service analyses to support rate recommendations  Develop recommendations for updating water and wastewater rates  Analyze financial impact of water shortages and recommended financial strategy 2

 Subject to Proposition 218 process ◦ New water, wastewater, and recycled water rates ◦ New temporary water shortage rate surcharges, to be implemented in the future under specified water shortage conditions ◦ New automatic water usage rate adjustment procedure to reflect changes in SCWA costs ◦ District Secretary received three (3) written protests to the proposed rates  Items not subject to Proposition 218 process ◦ New wholesale recycled water rate ◦ Policy to establish water and wastewater Rate Stabilization Funds 3

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 Estimated FY financial deficit in operating fund is $163,000 and could grow to about $750,000 without a rate adjustment  Meeting debt service coverage obligation is a concern  SCWA increased rate for water from Santa Rosa Aqueduct by 4.15% and from Russian River Well Field by 6.0% ◦ Future increases anticipated at 5% per year  Last general water rate increase occurred in Sept ◦ SCWA pass-through adjustments each July since then 5

 Estimated FY financial deficit in operating fund is $1.12 million and could grow to about $2.6 million without a rate adjustment  Meeting debt service coverage obligation is a significant concern  Other significant obligations include Geysers pipeline payments and biosolids removal  Last rate increase occurred in July

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 Water and wastewater rates should: ◦ Generate sufficient revenues to meet financial obligations ◦ Reflect the cost of providing service to customers ◦ Encourage water conservation and efficient water use ◦ Be easily explained and simple to administer ◦ Be defensible 8

 Continue with same basic water rate structure ◦ 4-tier water usage rates for residential ◦ Uniform rate for commercial ◦ Seasonal rates for irrigation ◦ Separate water usage rates in Airport area ◦ Monthly service charges  Slightly increase emphasis on fixed service charges relative to usage charges ◦ Pumping charges in higher elevation zones ◦ Private fire service changes for fire service connections 9

 Continue with same basic wastewater rate structure ◦ Residential usage charges based on winter water use ◦ Non-residential usage charges based on monthly water use, and strength categories ◦ Monthly service charges  Slightly increase emphasis on fixed service charges relative to usage charges ◦ Lift station fees in areas requiring pumping 10

 Urban customers ◦ Usage rate and monthly service charges set at 80% of potable water rates  Agricultural customers ◦ Vineyard usage rate and monthly service charges set at 25% of potable water rates ◦ Pasture and other agricultural usage rate and monthly service charges set at 12.5% of potable water rates 11

* Assumes 7,000 gallons/month water use, 4,500 gallons per month winter water use (for water reclamation billing), and ¾” water meter. 12

$92 $97$98 $109 $116 $127 $159 $99 13

 Recommend renewing pass-through mechanism for another 5 years  Adjusts water usage rates to reflect changes in wholesale (SCWA) water costs ◦ Santa Rosa Aqueduct rate ◦ Russian River Diversion sub-charges  Adjustments occur each July, following SCWA rate action ◦ 30-day notice provided to customers 14

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NormalStage 1Stage 2Stage 3Stage 4Stage 5 Use Reduction Goal None10%20%30%40%50% Water Shortage Charge (2) 10%20%30%40% Excess Use Penalty (3) 25%50% (1)Water shortage surcharges do not affect the monthly service charges or pumping charges, thereby mitigating the overall bill impact. (2)All water usage rates would be increased by the percentages shown in each stage. (3)Penalty would apply only to the fourth tier water usage rate, in the most severe stages. 17

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 Water and wastewater rate increases are needed to meet current financial obligations ◦ Debt service coverage obligation is the primary driver  Temporary water shortage rates will help protect the water utility during future water shortage conditions  Annual rate adjustments, including SCWA automatic adjustments, will keep rates in line with revenue needs 20

 Water utility responsible for urban recycled water service delivery ◦ Buys water from water reclamation utility ◦ Distributes and sells water to urban users ◦ Revenue accrues to water utility  Water reclamation utility responsible for recycled water production ◦ Distributes water to agricultural users ◦ Sells water to water utility (wholesale) ◦ Revenues offset water reclamation costs  Wholesale recycled water rate ◦ Set at 50% of rate for water from SR Aqueduct 21

 Debt Service Coverage - Utilities must maintain gross revenue sufficient to cover operation and maintenance costs, plus 120% of annual debt service costs  Rate Stabilization Funds - Authorized but never established, can be used to help meet this requirement ◦ Money coming out of the RSF counts as revenue for DS coverage calculation ◦ Money going into the RSF is deducted from revenue for DS coverage calculation 22