65B - PROPOSED WATER AND SEWER RATE ADJ

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City of Santa Ana, CAI SEWER RATE STUDY revenue requirements range from $7,143,800 in FY 14/15 to $7,182,600 in FY 18/19. Subtracting total revenue requirements from total revenues results in the projected annual operating fund surpluses or deficits shown on Line 21. As of July 1, 2013, it was estimated that a beginning balance of $6.8 million was available for use in this fund. No additional monies were available for use in the capital funds. Cash financing of projects occurs through transfers from the operating fund as illustrated in Tables 11 and 12 on Line 18. The ending balance is shown on Line 23, while the minimum ending balance of 25 percent of operation and maintenance expense (90 days) is shown on Line 24. In addition to the minimum target of 25 percent of 0 &M expenses, Black & Veatch recommends that the City establish two additional reserve funds: an emergency fund and an R &R fund. Black & Veatch suggests that the initial funding level of the emergency reserve represent the approximate cost for repairing a major main break, which is about $1 million. Given the low level of main replacement, Black & Veatch believes that establishing an emergency reserve fund is a prudent measure and should be undertaken as soon as possible. Second, to help address future R &R needs, the City should start funding an R &R fund as soon as funds become available. The target level of funding for the R &R fund should be at least equal to one - year's depreciation expense or about $500,000. Applying a cumulative revenue adjustment of about 52 percent through to FY 18/19 should allow the Sewer Enterprise to achieve the desired target level of ending year -end balances and meet minimum working capital requirements. It should be recognized that the indicated percentage revenue increase discussed above are overall revenue increases. The results of the cost of service analysis presented later in this report may indicate that rate increases may vary from this average for the various customer classes with some classes receiving a greater than average increase, while others receive a less than average increase or perhaps a decrease. Test Year Revenue Requirements In analyzing the Sewer Enterprise's cost of service for allocation to customer classes, the annual revenue requirements for FY 14/15 is selected as the Test Year (TY) requirements to demonstrate the development of cost -of- service wastewater rates. BLACK & VEATCH I Sewer Rate Study 65B -198 39