25B - AGMT WATER AND SEWER COSTS STUDY

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D. Understanding of Need This section presents our understanding of the requested study, an outline of our anticipated approach including tasks that will be completed, and suggestions for value -add services that our team can provide. Projecf Understanding The City of Santa Ana was incorporated in 1886 and has a population of approximately 334,000. The City's Water and Sewer Enterprises are operated through the Department of Public Works. The Water Enterprise serves potable and reclaimed water to residential, commercial, industrial, institutional and irrigation customers. The majority of the City's water supply comes from local groundwater (as managed by OCWD) while about 30 — 35% is imported water that Is purchased from the Metropolitan Water District of Southern California (MWD). The City purchases (then sells) recycled water from OCWD, whose costs are billed both annually and regularly. The Sewer Enterprise collects and transports all sanitary flow to the Orange County Sanitation District (OCSD), which bills customers separately for treatment services on the property tax roll. The last Water, Sewer and Recycled water rate study was completed in 2014 and included a comprehensive analysis of the systems' rehabilitation and replacement needs. The current study (to be completed by September 2018) will independently review the cost -of -service basis of the current rates and implement a new 5 -year rate schedule by July 2019. This current cost -of -service review will focus on the balance of fixed versus variable revenue and compliance with applicable (and evolving) law. Similar to other utilities in Orange County, as well as the rest of the State, the water demand in Santa Ana has declined for a myriad of reasons. Regardless of the cause of those declines, Stantec understands that the City desires a financial plan and rate structure that protects the City from the revenue swings that can accompany changes in water demand. The City's current water rates collect less than 20% of revenue through a fixed source, which is relatively low compared to the rest of the industry. As part of this study, and at no additional cost, Stantec will examine the benefits of adopting drought rates as a hedge against unknown future water demands (see Task II.c). Stantec will recommend any adjustments that are necessary to financially and legally protect the City and its ratepayers. The rate plan will equitably provide for all utility costs while minimizing financial Impacts to customers. As a nationally -recognized water and wastewater engineering firm, Stantec is uniquely positioned to help the City to frame the value of proposed water system improvements and replacements and how those costs will benefit customers. As part of this study, Stantec will evaluate existing O&M costs and project future costs based on current levels as well as any changes in service levels. We will work with City staff to determine if existing O&M costs are aligned with the levels of service to customers. Again, Stantec is uniquely positioned to evaluate the City's service levels and costs through our proprietary benchmarking database (see Task Il.e). This study will also take a close look at the City's water rate structure within the context of California law, especially In light of the San Juan Capistrano court case which has "raised the bar" on the level of CityofSanleAna. Cardomla I Weler end Sewer Enterprba Castor Service Study 25B-25 Slan&C 6