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2019 Water, Recycled Water, and Sewer Rate Study <br />1. Introduction <br />iv. Recommend specific rate structures that equitably recover the cost of service from each <br />customer class, while minimizing the financial impact to ratepayers and comporting with industry <br />practices and legal requirements. <br />This report has been organized into the revenue sufficiency analysis (financial plan), cost of service/rate <br />design, and rate recommendations. <br />1.3 STUDY DRIVERS <br />The following describes the drivers that initiated the need for this Study, and a general description of the <br />recommended solutions that were used to address those challenges. <br />Driver: The rate schedules adopted by the 2014 rate study had a planning period that ended during this <br />current fiscal year (2018/2019). <br />Solution: Update the Water & Sewer Enterprise financial plans and rates to meet the revenue <br />needs for the next five years. <br />Driver: The City has recently updated its Water and Sewer Master Plans which provide guidance for <br />capital spending over the next planning period. <br />Solution: Adopt a capital spending plan from the respective Master Plans that provides the <br />enterprises with the needed level of service and maintains the utilities' assets in good working <br />condition, and benefit rate payers by making timely re -investments in critical infrastructure. <br />Driver: The legal environment in California over the past 5 years (namely Proposition 218) has <br />significantly increased the burden of proof required of public utilities to demonstrate that the rates being <br />charged for utility service are proportionate to the cost of providing the utility services. <br />Solution: Conduct a full cost -of -service allocation analysis and make rate structure <br />modification to ensure inter- and intra-class equity in rates charged to water, recycled water, <br />and sewer customers. <br />1.4 STUDY METHODOLOGY <br />This Study applied methodologies that are aligned with industry standard practices for rate setting as <br />promulgated by the American Water Works Association (AWWA), Water Environment Federation (WEF), <br />and all applicable law, including California Constitution Article XIII D, Section 6(b), commonly known as <br />Proposition 218. <br />The Study began with development of a multi -year financial management plan that determined the level <br />of annual rate revenue required to cover projected annual operating expenses, debt service (including <br />coverage targets), and capital cost requirements, while maintaining adequate reserves. This portion of <br />the Study was conducted using the revenue sufficiency and financial planning module of Stantec's <br />City of Santa Ana Stantec 15 <br />