1 Water Utility Regulation Straw Proposal October 13, 2015

Straw Proposal Topics –Goals and Objectives –Service Charge –Quantity Rates –Tiered Residential Rate Structure –Non-Residential Rate Structure –Public Purpose Balancing Account 2

Goals and Objectives Simplify and Rationalize Existing Rate Design Maintain Protections for Low-Income Customers Strengthen Conservation Incentives Align Utility Risk and Reward Eliminate Need for WRAM/MCBA Eliminate Need for Sales Forecasting and Sales Adjustment Mechanisms in Setting Rates 3

Service Charge –Recovers 100% of fixed costs and return –Low-income and conservation program costs removed from recovery in service charge (see Public Purpose Balancing Account) –Existing equity premium reduced to account for lower utility risk and improved utility cash flow 4

Quantity Rates –Recover variable costs: Purchased Water and Purchased Power (less fixed components) Pump Tax Chemicals –Variable costs subject to incremental cost balancing account treatment between GRCs –Variable costs remain offsettable expenses 5

Tiered Residential Rate Structure –Tier 1 Average variable costs per ccf Allotment of 2 ccf per month per capita (50 gallons per day per capita) –Tier 2 % of long-run marginal cost of water (e.g. desalination or recycled water) Applies to next 5 ccf per month per household over Tier 1 allotment –Tier 3 100% of long-run marginal cost of water Applies to all consumption in excess of Tier 2 allotment –All Tier 2 and Tier 3 revenue in excess of Tier 1 rates are booked to Public Purpose Balancing Account 6

Non-Residential Rate Structure –Quantity rate set equal to residential Tier 2 rates for all consumption All revenues above residential Tier 1 rates booked to public purpose balancing account –Service charge recovers 100% of fixed costs and return 7

8 Public Purpose Balancing Account Tracks revenue in excess of Tier 1 variable costs Tracks low-income and conservation program costs Low-income Program Low-income credits increase to offset increase in service charge Conservation Program Residential Ratepayer Reward Monthly/Bi-monthly bill credit to all residential customers whose consumption is within Tier 1 level

Questions? 9