75A - PH - WATER AND SEWER RATES

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PUBLIC HEARING –Resolution Adjusting City Water and Sewer Rates November 19, 2019 Page 3 utility recovers approximately 17% of revenues through the fixed base charge while the sewer utility collects approximately 13% through fixed charges. These rates were found to not be aligned with the utilities’ actual fixed costs, which were closer to 40% for the water utility and nearly 100% for the sewer utility. The proposed water rates are structured to directly align the water utility’s variable costs (i.e., water purchases and electricity) with the water usage rates (“Water Usage Charge”). By extension, the water utility’s fixed costs (i.e., salaries, capital spending, maintenance, and overhead) will be aligned with the fixed water charges (“Water Utility Charge”). Sewer rates (“Sewer Utility Charge”) are proposed to be fixed for all customers based on the size of their meter and the type of customer, since some customers (e.g., commercial accounts) return a larger percentage of their water to the sewer than others (e.g., single-family residences) which have higher irrigation needs. The Fats Oils andGrease (FOG) Charge for food service accounts will increase by 68% in order to better reflect the cost of the FOG Control Program. Establishment of ReserveTargets As the study identifies, the policy target for reserves is an important component when developing a multi-year financial plan,as utilities rely on the reserves for financial stability. Additionally, credit rating agencies evaluate utilities in part on their adherence to formally adopted reserve targets. The study expands on current reserve targets in place since 2014 and recommends the following reserve policies: 1)Operating and Maintenance Reserve with a target minimum balance equal to 90-days of annual operating expenses, 2)Emergency Reserve of $4 million for both water and sewer enterprises, 3)Repair, Renewal and Replacement (3R) Capital Reserve equal to 50% of the average annual capital spending over each enterprise’s 10-year capital spending projections. Typical Bill Impact The financial impact of the proposed revenue adjustments and rate structure changes on the typical customerwascarefullyevaluated. The overall increase in the combined typical bill of a single- family residential customer will be $4.92per month(based on the average 1,257 cubic feet of water used per monthby typical single-family residences). When compared to neighboring cities, the typical Santa Anacustomer will continue to pay a similar amount, on average, for water and sewer servicesas compared to itsneighboring cities such as Garden Grove, Brea, Fullerton and Orange. Public Hearing Notification As required by the provisions of Proposition 218, notices of a public hearing for adjusting water and sewer rates were mailed to all property owners within the City of Santa Ana water service area on or before October 5, 2019(Exhibits 3 and4).