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MEMORANDUM <br />Page 4 <br />B &V 175203 <br />B &V File A4 <br />12 June 2015 <br />implementation of water conservation programs for the customer class the surcharge was <br />collected from, or used to mitigate future rate adjustments. <br />2. The additional cost of purchased water that may result due to non - compliance with the <br />cutbacks. <br />Any surcharges must comply with Proposition 218 requirements. <br />Proposed Drought- Driven Revenue Adjustments <br />In developing the proposed drought rate options for the City, Black & Veatch assumes that the City <br />will be required to reduce its groundwater supply by 12 percent and that the Orange County Water <br />District (OCWD) will limit the City's ability to draw from groundwater resources. The City plans to <br />limit groundwater pumping to 70 percent of total consumption and supplement the remaining <br />water via purchases from MWD. Applying the targeted reductions outline in Table 1, the City needs <br />to adjust its rates in order to recover the lost revenue due to the water use curtailment. Table 2 <br />illustrates the revenue requirements for the Water Utility as a result of drought. Note that the City <br />already has a 2.8 percent revenue increase planned for fiscal year (FY) 16. The impact of the <br />mandated reductions is an additional increase of 4.2 percent, which allows the City to recover <br />sufficient revenue to meet operational requirements. <br />Proposed Drought Rates <br />There are several different options available to apply the drought surcharge to the existing rate <br />structure. <br />1. The City could apply the increase to the commodity charge in an equally manner to all <br />customers (excluding recycled water customers). This means that all commodity rates <br />would increase 4.2 percent above the proposed July 2015 rates. For example, on July 1" <br />2015, the Tier 1 rate will be $2.79 /hcf. Applying the 4.2 percent surcharge, this rate <br />becomes $2.91 /hcf. <br />2. Alternatively, the City could apply the surcharge to only the portion of water that excess the <br />net reduction targets outlined in Table 1. Under this option, the surcharge is as follows: <br />a. Revenue shortfall due to mandatory reductions= $5,943,600 (From Table 3. <br />Drought Line 5 — Current Plan Line 5 — Drought Line 3) <br />b. Required volume reduction = 1,946,264 hcf (From Table 2) <br />c. Surcharge for non - compliance = $5,943,600/1,946,264 hcf = $3.07 /hcf <br />3. Should the City wish to recover the revenue shortfall as a fixed charge, then one option <br />would be to simply charge the fee as a per bill cost. <br />a. Revenue shortfall = $5,943,600 <br />b. Total bills issued in FY 15/16 = 267,762 <br />c. Charge per bill = $5,943,600/267,762 = $22.31/bill <br />75E -7 <br />