65B - PROPOSED WATER AND SEWER RATE ADJ

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City of Santa Ana, CA I WATER RATE STUDY As part of the scope of work conducted for this study, Black & Veatch assisted the City in developing an appropriate Refurbishment and Replacement (R &R) level of funding for the Water Enterprise. The following sections outline the approach undertaken for this effort and the basis for the suggested levels and timing of R &R activities. CAPITAL ASSET VALUATION AND REFURBISHMENT AND REPLACEMENT NEEDS EVALUATION METHODOLOGY The purpose of identifying future Refurbishment and Replacement (R &R) needs and costs is to estimate the required level of capital funding needed to maintain the Water utility infrastructure systems in sound operable condition and to meet the level of service expectations of the City over the next several years (defined as "modeling period" within this analysis). Black & Veatch used a 30 years modeling period for the analysis conducted herein. Methodology In this section, Black & Veatch outlines the approach that was used projecting future capital asset R &R schedules; estimated costs for the Water infrastructure managed by the City; and value of installed City assets. Utility Historical Asset Performance Black & Veatch conducted an R &R needs evaluation using an industry- accepted approach to project the R &R activities over a 30 -year period to support the development of a reserve funding strategy and financial recommendations. By projecting the expected useful life and intervals between major refurbishment of assets from their original installation year, then aggregating all R &R activities for each year, Black & Veatch developed an estimate of capital expenditure needs and then used these estimates as input to the development of appropriate funding strategies. A methodical and consistent approach to evaluating R &R activities involves using an asset class library, as described below to manage the inputs of projected R &R by each class and associated estimated costs. The graphic to the right illustrates Black & Veatch's approach. 4 Class Based Useful Life Adjust for Utility Use /Duty • Adjust for Age • Calculate Remaining Useful Life Condition & Performance Adjustment • Adjust Remaining Useful Life r Target Replacement Year • Risk Based Lowest • Remaining Useful Life Medium /Long-Tern Needs Refurbishment & Replacement Schedule • Implementation Scheduled • Budget Development of Asset Class Library Black & Veatch undertook a review of each asset inventory for the City's water assets. Based on this review, Black & Veatch developed a draft asset class listing for input into the Asset Class Library described below. "Asset Classes" are logical units of assets. in the context of R &R modeling, asset classes are those assets having a similar function, cost structure, and useful lives and refurbishment intervals. The Asset Class Library provides the listing of asset classes and the various components that define the R &R schedule for the particular asset including; useful lives, refurbishment program definitions and intervals and replacement schedules and estimated costs. Black & Veatch developed a draft Asset Class Library based on our knowledge of similar systems and specific asset types. The draft Asset Class Library BLACK & VEATCH I Appendix A: Refurbishment & Repia ' F,,' 63 65B -75