65B - PROPOSED WATER AND SEWER RATE ADJ

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City of Santa Ana, CA I WATER RATE STUDY PROPOSED RATE ADJUSTMENTS The initial consideration in the derivation of water rate schedules for utility service is the establishment of equitable charges to the customers commensurate with the cost of providing that service. While the cost of service allocations to customer classes should not be construed as literal or exact determinations, they offer a guide to the necessity for, and the extent of, rate adjustments. Practical considerations sometimes modify rate adjustments by taking into account additional factors such as the extent of change from previous rate levels, existing contracts, and past local policies and practices. Existing Rates A summary of existing water rates was presented earlier in Table 3. The existing rates consist of a basic service charge, which varies by meter size, and a separate commodity charge applicable to each hundred cubic feet of billed water sales. The commodity charge uses a tier structure. Proposed Rates The costs of service analysis described in preceding sections of this report provide a basis for the design of rates. At the request of the City, Black & Veatch has examined alternative rate schedules based on the proposed CIP. The purpose of alternatives were to determine the impact on rates should the City adopt the CIP plan. In addition, the City asked Black & Veatch to examine the level of cost recovery through the basic service charge. Under the current rate schedule, the City recovers approximately 8 percent of its revenues through the basic service charge. According to Best Management Practice (BMP) 11 as set forth by the California Urban Water Conservation Council (CUWCC), utilities should strive to have no more than 30 percent of its user charge revenues from the meter charge. Using this guideline, the City requested Black & Veatch to propose a set of rate schedules that would gradually increase the fixed component recovery over a 5- year period. Black & Veatch conducted its COS analysis and determined that the level of costs recovered through the basic service charge is closer to 16 percent. To minimize ratepayer impacts, the proposed rate schedules illustrated on Tables 22 and 23 use a phased approach to reach the COS levels by FY 18/19. Meter and fire protection charge rates presented in Tables 22 and 23 are rounded to the nearest 5 cents. Design of Service Charge The service charge and the fire protection charge, reflects the estimated cost of service rate in FY 18/19. It includes the allocated cost of billing, meter service, and some elements of water supply (fixed costs charged by MWDOC). Because the City does not charge fire departments for public fire hydrant service, the industry standard for recovering this cost is via the meters and services component of the water user charge. Black & Veatch has reflected the cost of public fire protection in the proposed meter charges. The service charges for FY 14/15 through FY 17/18 reflect a gradual shift towards the FY 18/19 total fixed revenue recovery rate about 16 percent. BLACK & VEATCH I Water Rate Study 53 65B -65