65B - PROPOSED WATER AND SEWER RATE ADJ

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a i °_ i P2,11 i City of Santa Ana, CA Black & Veatch recommends that the Water Enterprise initiate a program that will help establish recommended reserve balances for both its operational and capital needs over the planning period, as well as a $1 million emergency fund. Given the current level of R &R activity, establishing an emergency fund to address unexpected main breaks would be prudent. For the analyses conducted herein, forecasted operations and maintenance (0 &M) expenses are based on an inflation rate of 2 percent for personnel, 4 percent for benefits, 3 percent for maintenance, 2 percent for general and administrative (G &A), and 5 percent for utilities. • Status Quo Scenario. Under the Status Quo Scenario, implementing no revenue increases over the planning period results in the Water Enterprise running an annual deficit starting in FY 15/16. By the end of the planning period, the annual deficit position grows to ($9.8 million) and the ending fund balance is ($9.1 million). • Scenario 1. The implementation of annual revenue increases allows the Water Enterprise to maintain a positive balance in the Operating Fund while still executing the proposed CIP. The City last raised rates for the Water Enterprise in 2011. Since that time, the cost of purchased water has increased almost 25 percent. The Water Enterprise has been able to absorb these increases by deferring CIP activities; however, this is no longer a viable or sustainable option. Table ES 3 summarizes the proposed revenue adjustments for the proposed scenario examined. All increases are effective July 1 of the fiscal year, except for FY 14/15, which has a March 1, 2015 effective date. Table ES -4: Proposed Revenue Adjustments FY 14/15 March 1 2.8% FY 15/16 July 1 2.8% FY 16/17 July 1 2.8% FY 17/18 July 1 2.8% FY 18/19 July 1 2.8% The above revenue adjustments assume that purchased water costs will remain at current levels. Black & Veatch recommends that the City handle pricing increases from Metropolitan Water District of Southern California (MWD) and the Orange County Water District (OCWD) and /or changes in the basin pumping percentage via a pass- through charge. Water Utility Cost of Service Allocations 8 • The revenue requirements for a selected Test Year (TY) are allocated to customer classes utilizing a cost causative approach endorsed by the American Water Works Association (AW WA). • Customers are classified to reflect groups of customers with similar service requirements who can be served at similar cost. Each class represents a particular type of service requirement. 65B -20 NOVEMBER 2014