2016 Rate Study Preliminary Findings May 4, 2016 Presented by: - - PowerPoint PPT Presentation

May 4, 2016

2016 Rate Study Preliminary Findings

Presented by:

Tom Gould HDR Engineering, Inc.

Tamalpais Community Services District

Overview of the Presentation

• Review the discussion from the prior Board meeting
• Review the analysis conducted and key policy

direction needed from the Board

– Revenue requirements (size and timing of rate adjustments) – Review the water usage data analysis – Overview of the cost analysis – Review the rate structure options

• Currently developed as revenue neutral
• Prop. 218 Notice and Public Hearing Date

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Revenue Requirement

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Overview of the Revenue Requirement Analysis

• Objective: To compare the District’s sources of

revenues to its expenses (O&M and capital)

– Establishes the balance or deficiency of funds for a specific time period (e.g. FY 2016/17) – O&M includes local collection costs and the cost of treatment from SASM and SMCSD – Capital costs includes debt service (P+I) and any capital improvement projects funded from rates

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Revenue Requirement – Key Assumptions

• Started with the District’s FY 2016/17 budget

– Revenues shown are at current rate levels (before any consideration of rate adjustments) – Projected expenses over the 5-year review period (FY 2016/17 – FY 2020/21)

• Adjusted O&M expenses beyond 2016/17 by assumed

annual escalation factors

• Debt service taken from debt schedules
• Included $300,000 for capital (renewal/replacement)
• A major O&M expense for the District is related to

wastewater treatment

– Sausalito-Marin City Sanitary District (SMCSD) – Sewerage Agency of Southern Marin (SASM)

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Wastewater Treatment - SMCSD

• Sausalito-Marin City Sanitary District (SMCSD)

– 2014/15 - $1.1 million (43%) of $2.5 million budget – SMCSD undertaking a $27 million treatment plant upgrade

• Designed to provide

health, safety and environmental benefits

• Increase capacity,

modernize treatment processes and treatment of storm-related flows to protect the Bay

• Significant impact upon treatment rates/costs to the

District (more than doubling of SMCSD treatment costs)

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Wastewater Treatment - SASM

• Sewerage Agency of Southern Marin (SASM)

– Minor portion of the treatment costs for the District (≅ $50,000 in FY 2015/16) – SASM is also undergoing major treatment plant upgrades and improvements – Significant impact to the rates from SASM (roughly doubling of the treatment rate), but minimal financial impact to the District (additional $50k in expenses)

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Projection of Costs of Wastewater Treatment ($000)

• SMCSD
• SASM

Budget 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21 Annual Payments By Expense Categories Operations $958 $937 $1,033 $1,084 $1,139 $1,196 $1,255 $1,318 Annual Loan Repayment - SRF Loan 446 196 196 196 196 741 741 741 Annual Deferral Payments 94 157 291 409 486 694 820 TCSD Share of Annual Expenses $1,404 $1,226 $1,385 $1,571 $1,743 $2,422 $2,691 $2,879 Annual Reserve Payment $0 $0 $0 $504 $527 $577 $551 $690 Total Annual Payment With Reserves $1,404 $1,226 $1,385 $2,075 $2,270 $3,000 $3,242 $3,569 $/EDU at 2,580 EDUs $544 $475 $537 $804 $880 $1,163 $1,256 $1,383 % Change From Prior Year 50% 9% 32% 8% 10%

Source: SMCSD Wastewater Facilities Financing Plan Update 2016 - Draft 3/30/16

Actual Projected Budget 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21 SASM Proposed Annual Adjustments 28.0% 28.0% 8.0% 8.0% 6.0% SASM Treatment Costs ($000) $55 $50 $64 Total Projected SASM Expenses ($000) $81 $104 $112 $121 $129 Actual Projected

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Summary of the Revenue Requirement ($000)

Budget 2016/17 2017/18 2018/19 2019/20 2020/21 Revenue Rate Revenue $2,733 $2,747 $2,760 $2,774 $2,788 Miscellaneous Revenue 30 31 32 33 33

• ------------- -------------- -------------- -------------- --------------

Total Revenue $2,763 $2,777 $2,792 $2,807 $2,821 Expenses All Other O&M Expenses $1,512 $1,582 $1,669 $1,680 $1,858 SMCSD Treatment & Capital 1,571 1,743 2,422 2,691 2,879 Rate Funded Capital 300 300 300 300 300 Debt Service 445 445 445 445 445 Change in Working Capital (109) 188 38 26 (56)

• ------------- -------------- -------------- -------------- --------------

Total Expenses $3,719 $4,258 $4,875 $5,143 $5,426 Balance/Deficiency of Funds ($957) ($1,480) ($2,083) ($2,336) ($2,605) Proposed Rate Adjustment 35.0% 14.0% 14.0% 5.0% 5.0% Average Single Family Annual Bill ($/EDU) $1,111 Avg Annual Bill after Rate Ad. $1,500 $1,710 $1,949 $2,046 $2,148 Change $389 $210 $239 $97 $102 Projected

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Summary of the Revenue Requirement ($000)

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Revenue Requirement – Summary

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• Additional rate revenue is required to adequately

fund the District’s operation and capital needs

– Primarily driven by increased costs from SMCSD

• Projected deficiency in 2016/17 is 35% or about

$389/EDU

– Deficiency includes SMCSD debt reserve payment

• f $504,412 or $195/EDU
• Board Policy Decision: Determine the size and

timing of the proposed rate adjustments

Review of Customer Usage Data

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Review of Customer Usage Data

• Last year’s rate study analyzed customer usage

patterns

– What are the differences in contributed wastewater flows by customer class (living units)? – Formed the basis for flow (volume/variable) relationships – Selected the 6-year weighted average for volumes

• Single-Family flow

100%

• Duplex flow

68% of a SFR

• Multi-family flow (3+ units)

57% of a SFR

• HDR noted the challenges of working with the

water consumption data and the impact upon usage from the drought

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Review of the Data for the Current Year

• Analysis was performed on water usage data

provided by MMWD for Jan. 2015 – Feb. 2016

– Data was sorted by class (single-family, duplex, and multi-family) – Average use per unit figures were developed based

• n provided number of units

– Developed class averages and relationships to each class – HDR was concerned with the drought, mandated reductions and usage relationships

• Reasonable and reflective of “normal” use?

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Usage Data – Usage Profile

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1 2 3 4 5 6 7 8 9 10 10 + Total 73 131 239 262 277 234 208 145 111 62 310 50 100 150 200 250 300 350 # of Customers CCF / Mo.

Single Family - Customer Count by Block (CY 2015)

1 2 3 4 5 6 7 8 9 10 10 + Total 13 14 28 21 14 11 9 7 1 5 6 5 10 15 20 25 30 # of Customers CCF / Mo. / LU

Duplex - Customer Count by Block (CY 2015)

1 2 3 4 5 6 Total 2 12 11 8 3 2 2 4 6 8 10 12 14 # of Customers CCF / Mo. / LU

Multi-Family - Customer Count by Block (CY 2015)

Conclusions on the Usage Analysis

• Conclusion: Overall usage lower, but relationships

not dissimilar to six year averages

– Additionally, the use of a rolling six-year average would not lead to a significantly different conclusion

• Movement to a volumetric rate structure would

likely require the volumetric portion of the billing be based upon the most current data for each customer

– A multi-year average is not typically used for billing purposes when volumetric rates are used

• Board Policy Decision – Continue to utilize the

six-year average and existing relationships for establishing any revised rates

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Review of the Cost Analysis

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Overview of the Prior Cost Analysis

• Last year’s rate study reviewed the issue of

costing; fixed and variable costs

– Final approach used a very conservative definition

• f a “fixed” cost; salaries and benefits and debt

service – Result: 30% fixed and 70% variable – Rates were structured to reflect these cost differences

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Considering Alternative Costing Methods

• The majority of the District’s costs are fixed

– Wastewater treatment costs are not 100% variable

• SMCSD O&M is volume-related
• SMCSD capital and reserve payments are EDU-

related

• Developed costing analyses to compare different

methods

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Results from Different Costing Methods

FY 2017 Budget Fixed Costs Variable Costs Customer Capacity Usage Volume Parcels Equivalent Dwelling Personnel Salaries $294,701 $294,701 $0 $70,728 $223,973 $0 $0 $29,470 $265,231 Benefits 247,971 247,971 59,513 188,458 24,797 223,174

• Total Personnel Costs

$542,672 $542,672 $0 $130,241 $412,431 $0 $0 $54,267 $488,405 Treatment SMCSD Sewage Treatment $1,084,482 $0 $1,084,482 $271,121 $0 $813,362 $1,084,482 $0 $0 SMCSD Capital Improvements 486,602 486,602 486,602 486,602 SMCSD Reserve Payment 504,412 504,412 504,412 504,412 SASM Treatment 63,500 63,500 15,875 47,625 63,500

• ------------- --------------
• ------------- -------------- --------------
• ------------- -------------- --------------

Total Treatment Costs $2,138,996 $0 $2,138,996 $286,996 $991,014 $860,987 $1,084,482 $0 $1,054,514 Other O&M $401,165 $0 $401,165 $21,295 $376,120 $3,750 $243,000 $100,865 $57,300 Debt Service $445,243 $445,243 $0 $0 $445,243 $0 $0 $0 $445,243 Rate Funded Capital $300,000 $0 $300,000 $0 $300,000 $0 $129,181 $15,096 $155,722

• ------------- --------------
• ------------- -------------- --------------
• ------------- -------------- --------------

Total Expenses $3,828,076 $987,915 $2,840,161 $438,532 $2,524,808 $864,737 $1,456,663 $170,229 $2,201,184 % of Total 25.8% 74.2% 11.5% 66.0% 22.6% 38.1% 4.4% 57.5% Alternate Methodology Fixed / Variable Reed Methodology

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Conclusions From Costing Analysis

• Many costs are “common and joint” costs and not easily

classified as fixed, variable, customer, volume, parcel or EDU-related

– The Board’s policy direction was to move more in the direction of a rate which is reflective of volumetric use – The fixed/variable method best reflects that policy direction or philosophy

• The Reed methodology leans more towards capacity which

is charged on a flat EDU basis

• The alternate methodology is similar to Reed’s approach
• Conclusion: Utilize the updated fixed/variable and

consider rate structures which better reflect the Board’s desire for rates which better reflect volume contributions

Rate Design Options

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Rate Design Options - Overview

• Current rate structure is on EDU basis

– Single Family = 1 EDU - $1,111/EDU – Duplex = 77% of 1 EDU per unit – Multi-Family = 70% of 1 EDU per unit – Non-Residential = 100% of 1 EDU

• Board directed staff and HDR to review alternative

rate structures

– While the last rate study better aligned the relationships of the overall classes, it treated all customers within a group the same (e.g. high use single-family pays the same annual rate as a low-use single-family customer)

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Rate Design Options

1. Status Quo 2. Tiered Rate Structure

a) 3 Tiers (30% fixed / 70% variable) b) 3 Tiers (20% fixed / 80% variable)

3. Tiered Rate Structure

a) 4 Tiers (30% fixed / 70% variable) b) 4 Tiers (20% fixed / 80% variable)

4. Fixed / Volumetric

a) 30% fixed / 70% volumetric (no cap on volume) b) 30% fixed / 70% volumetric (48 CCF cap on volume)

5. 100% Volume

a) No cap on volume billing b) 60 CCF cap on volume billing

All Rate Options Are Currently Designed As Revenue Neutral - $1,111/EDU

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• 1. Status Quo
• District could maintain the existing rate

structure and update to reflect the Board’s proposed overall revenue adjustment (e.g. 35% for FY 2016/17)

– Charged on an flat $/EDU basis by class of service

• 30% fixed
• 70% variable

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Status Quo - Rate Design $ / EDU Single Family $1,111 Duplex 862 Multi-Family 778 Non-Residential 1,111

• 2. Tiered Rate Structure
• Tiered rate structure leverages off of the existing

approach but creates a low, medium and high use category for each class of service

1 2 3 4 5 6 7 8 9 10 10 + Total 73 131 239 262 277 234 208 145 111 62 310 50 100 150 200 250 300 350 # of Customers CCF / Mo.

Single Family - Customer Count by Block (CY 2015)

Low Use High Use Medium Use

1 2 3 4 5 6 7 8 9 10 10 + Total 13 14 28 21 14 11 9 7 1 5 6 5 10 15 20 25 30 # of Customers CCF / Mo. / LU

Duplex - Customer Count by Block (CY 2015)

Low Use Medium Use High Use

1 2 3 4 5 6 Total 2 12 11 8 3 2 2 4 6 8 10 12 14 # of Customers CCF / Mo. / LU

Multi-Family - Customer Count by Block (CY 2015)

Low Use Medium Use High Use

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• 2. Tiered Rate Structure (continued)
• 2a – Three tiers; 30% fixed / 70% variable
• 2b – Three tiers; 20% fixed / 70% variable

Option 2a 30% Fixed Option 2b 20% Fixed Single Family 0 - 2 $511 $427 3 - 8 $1,111 $1,121 9 + $1,501 $1,571 Duplex 0 - 2 $511 $427 3 - 6 $718 $667 7 + $1,163 $1,181 Multi-Family 0 - 2 $511 $427 3 - 5 $689 $633 6 + $1,044 $1,044 Non-Residential $1,111 $1,121 $ / EDU

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• 2. 3-Block Tiered Rates Bill Comparison

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• 3. Tiered Rates (4-Block)
• Similar to Option 2a and 2b, but added one more

tier

1 2 3 4 5 6 7 8 9 10 10 + Total 73 131 239 262 277 234 208 145 111 62 310 50 100 150 200 250 300 350 # of Customers CCF / Mo.

Single Family - Customer Count by Block (CY 2015)

Low Use

• Mod. High Use

Moderate Use

1 2 3 4 5 6 7 8 9 10 10 + Total 13 14 28 21 14 11 9 7 1 5 6 5 10 15 20 25 30 # of Customers CCF / Mo. / LU

Duplex - Customer Count by Block (CY 2015)

Low Use

• Mod. Use

High Use

1 2 3 4 5 6 Total 2 12 11 8 3 2 2 4 6 8 10 12 14 # of Customers CCF / Mo. / LU

Multi-Family - Customer Count by Block (CY 2015)

Low Use Moderate Use

• Mod. High Use

High Use

• Mod. High Use

Note: High use is over 7 CCF

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• 3. 4-Block Tiered Rates (continued)
• 3a – Four tiers; 30% fixed / 70% variable
• 3b – Four tiers; 20% fixed

/ 80% variable

Option 3a 30% Fixed Option 3b 20% Fixed Single Family 0 - 2 $511 $427 3 - 7 $1,111 $1,121 8 - 10 $1,281 $1,318 11 + $1,548 $1,729 Duplex 0 - 2 $511 $427 3 - 5 $689 $633 5 - 8 $926 $907 9 + $1,400 $1,455 Multi-Family 0 - 2 $511 $427 3 - 4 $689 $633 5 - 7 $926 $907 7 + $1,163 $1,181 Non-Residenti $1,111 $1,121 $ / EDU

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• 3. 4-Block Tiered Rate Bill Comparisons

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• 4. Fixed / Volumetric
• Fixed portion of rate is a fixed charge per EDU
• Volumetric is based upon 4-month winter use

– With and without a volumetric cap

Option 4a Option 4b No Cap With Cap Fixed Charge $/EDU $333 $333 Variable Charge ($/CCF) CCF x 4 Months $29.64 $39.77

Single Family Cap = 12 CCF/Mo. or 48 CCF - 4 Mo. Duplex Cap = 9 CCF/Mo./L.U. or 36 CCF/L.U. - 4 Mo. Multi-Family Cap = 8 CCF/Mo./L.U. or 32 CCF/L.U. - 4 Mo.

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• 4. Fixed / Variable Bill Comparisons

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• 5. 100% Volumetric Rate
• Similar to Option 4, but a pure 100% volumetric rate
• Volumetric is based upon 4-month winter use

– With and without a volumetric cap

Option 5a Option 5b No Cap With Cap Variable Charge ($/CCF) CCF x 4 Months $43.47 $51.94

Single Family Cap = 15 CCF/Mo. or 60 CCF - 4 Mo. Duplex Cap = 12 CCF/Mo./L.U. or 48 CCF/L.U. - 4 Mo. Multi-Family Cap = 10 CCF/Mo./L.U. or 40 CCF/L.U. - 4 Mo.

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• 5. 100% Volumetric Bill Comparisons

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Summary

• Discussion and policy input will be needed to

finalize the revenue requirement

– Rate adjustment is necessary to adequately fund the sewer utility

• Increase cost of treatment

– Need direction on the size and timing of overall rate adjustments

• Need Board direction on the selection of a rate

structure

• If possible, set a date and time for the public

hearing (45 days after mailing of Prop. 218 notices)

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