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HomeMy WebLinkAbout22 - Approval of 2019 Water Rate Study and Setting of Public Hearing for Water RatesCITY OF NEWPORT BEACH City Council Staff Report TO: FROM: PREPARED BY: PHONE: TITLE: ABSTRACT: September 24, 2019 Agenda Item No. 22 HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL Mark Vukojevic, Utilities Director - 949-644-3011, mvukojevic@newportbeachca.gov Joshua Rosenbaum, Senior Management Analyst, jrosenbaum@newportbeachca.gov 949-644-3011 Approval of 2019 Water Rate Study and Setting of Public Hearing for Water Rates Following the support of the Finance Committee, City Council conducted a study session on August 13, 2019 regarding the 2019 Water Rate Study. The completed Study analyzes the cost of services, the reserve policy, and recommends increases to the water rates. Water rates have not increased since 2014 and increases are needed to fund the increased costs to purchase and pump water, to operate the system and the increased Capital Improvement Program to rehabilitate and maintain our water infrastructure for the long term. City Council is asked to approve the Study and set a Public Hearing for November 19, 2019, and authorize noticing to Newport Beach property owners and water customers in compliance with State Law. RECOMMENDATION: a) Determine this action is exempt from the California Environmental Quality Act (CEQA) pursuant to Sections 15060(c)(2) and 15060(c)(3) of the CEQA Guidelines because this action will not result in a physical change to the environment, directly or indirectly; b) Approve the 2019 Water Rate Study; c) Direct staff to send a notice of proposed water rates to property owners and customers in compliance with Proposition 218 State Law; and d) Set the date of November 19, 2019 for the tabulation of protests and conduct a public hearing of proposed rates pending the results of the protest. FUNDING REQUIREMENTS: The current adopted budget includes sufficient funding for completion of this study and the public noticing. The cost of the study is approximately $150,000 and the cost of the public noticing (Proposition 218 mailed notice) is estimated at $15,000. As currently budgeted, the Water Enterprise Fund is now operating at a structural deficit, drawing down on net working capital reserves. 22-1 Approval of 2019 Water Rate Study and Setting of Public Hearing for Water Rates September 24, 2019 Page 2 If water rate increases are approved, rates would be adjusted and generally increase 7.4% each year for 5 years, starting in January of 2020. The rate increases will fund the necessary Capital Improvement Program, the increased cost of purchasing and pumping water and stabilize the Water Enterprise Fund. DISCUSSION: Executive Summary: • The Water Enterprise Fund is now operating at a structural deficit, drawing down on net working capital reserves in order to fund the current Water System Capital Improvement Program. • Water Rates have not increased since 2014. • Increased replacement and rehabilitation of the water system pipes, wells and components (the Capital Improvement Program) are needed as recommended by the Water Master Plan (a 40% increase, averaging $7.2 -million per year). • The cost of pumping groundwater has increased by 73% and the cost of purchasing imported water has increased by 18% since 2014. Operational costs for materials, supplies, labor, and electricity have also increased since 2014. • A comprehensive Water Rate Study has been completed and the Finance Committee has reviewed the information. • Water rate increases are recommended to properly sustain the water system; 7.4% increases each year for 5 years. • The average rate increase for the first year is approximately $3.38/month or $40.56/year per household. Water System Background: The Utilities Department provides safe and reliable water for drinking, irrigation, and fire protection to Newport Beach residents, businesses and visitors. These essential services are accomplished through a strategic combination of dedicated in-house licensed staff operators (on-call 24 hours a day) and highly qualified contractors. Behind the scenes, the Department is responsible for all water purchases/production, treatment, disinfection, water quality testing, regulatory compliance, field customer service, and emergency response. The water system is supported by the Public Works Department for the Capital Improvement Program projects and the Finance Department for utility billing and customer service. The system includes approximately 300 miles of water pipelines, 200 million gallons of water storage, 26,000 service connections (water meters), 17 water booster pumps, 42 pressure reducing stations, 2,700 fire hydrants, 8,100 water valves, 12 interconnects and 4 groundwater wells. All revenue and expenditures related to water service provided by the City of Newport Beach is contained in the Water Enterprise Fund. The Enterprise Funds are separate from the General Fund or any other fund the City uses to operate the City. Funding for maintenance and replacement activities is collected from rate payers through the Municipal Services bill. 22-2 Approval of 2019 Water Rate Study and Setting of Public Hearing for Water Rates September 24, 2019 Page 3 There are four main expenditure categories of the water enterprise that are important to providing water service. Each of the four components also lists the percentage of the total annual water system expenditures (up to 98%): • The Cost to Purchase and Pump Water (35%) includes the direct cost for the rights to pump groundwater and to buy imported surface water. Approximately 75% of Newport's water is pumped from groundwater and 25% is purchased from Metropolitan Water District primarily coming from the Colorado River and Lake Oroville. • Operations (30%) includes day to day operations and maintenance and is comprised of salaries, contract maintenance, repair materials, permits, outside agency fees, electricity, and professional services. • Replacement (21%) includes the annual capital replacement or rehabilitation of aging infrastructure and recommended improvements per the recently completed 2019 Water Master Plan. The Master Plan estimates approximately $7.2 million in total annual capital improvements, a 40% increase from the previous 2009 Water Master Plan. • Customer Service, Billing, and Administration (12%) includes the meter reading, invoicing, customer service, administration, and internal service charges. In addition, a major component of the fund are the reserves: • Reserves are established by City Council Policy F-2 where the minimum level is set annually at a dollar amount equal to fifty percent of the operations budget. The reserves provide rate stabilization, funding for needed capital improvements, and funding for a catastrophic failure of the infrastructure. Changes are recommended to the Reserve Policy and are discussed in the recommendation of the Study. Rate Study Background: Over the last 9 months, City Council has been presented with a variety of information regarding the water system including presentations from staff and from the Orange County Water District (groundwater basin), Capital Improvement Projects, and the 2019 Water Master Plan. On March 12, 2019, City Council approved an agreement to retain the consulting services of Raftelis Financial Consultants Inc., to prepare the 2019 Water Rate Study. On May 16, 2019, and June 27, 2019, the Finance Committee delved into the water rate study financial analysis of the Water Enterprise Fund, including the reserve policy and preparing for future drought concerns. Also discussed were typical steps and decision points for evaluating water rates, the different types of water rate structures, and rate options concerning fixed and variable revenues. On August 13, 2019, City Council held a study session to review the water rate study. 22-3 Approval of 2019 Water Rate Study and Setting of Public Hearing for Water Rates September 24, 2019 Page 4 Results and Recommendations of the Studv: Reserve Policy for the Water Enterprise Fund: The previous 2009 Water Rate Study and City Council Policy F-2 established a dollar amount equal to fifty percent of the operations budget plus a capital contingency as the minimum reserve level for the fund. The Study and the Finance Committee reviewed this and recommended the following: • O&M Reserve — for Operating Cash Flow > 33% of operating expenses (or 4 months of expenses) • Capital Reserve — for Capital Working Capital > 75% of 5 -year average CIP • Rate Stabilization Reserve — for unexpected water demand reduction or unexpected water supply cost increases, emergencies, and non -budgeted CIP capital projects, causing net revenue loss for the Water Fund > Recommended Rate Stabilization Reserve Target Balance: $2.7M The Water Rate Study has been constructed with this proposed reserve policy. The Policy takes into account the different types of risk the water utility faces, including future cyclical drought conditions. The new Reserve Policy total amount is similar to the existing policy. However, it better articulates the types of reserve uses. As currently planned, the budget anticipates drawing down on net working capital reserves over the next three years along with the proposed rate increases to stay above the minimum reserve level. Financials, Rate Structure and Rate Increase: Water users are billed for two components; the size of their meter, known as the fixed charge (or standby/ready to serve charge) and the commodity or water usage charge. The rate study looked at each of these charges, their proportionality and recommended structured rate levels consistent with industry standard, in order to fairly and equitably recover the cost of providing water to our customers. The Finance Committee recommended that most of the rate increase in the first year be adjusted in the fixed meter charges as opposed to the commodity charge. This better matches actual fixed expenditures, better stabilizes the Water Enterprise Fund and still maintains affordability and water conservation goals. Water rates as shown in the table below and in the report, are proposed to be adjusted proportionally and increased 7.4% each year for the next 5 -years. The average residential customer, who uses approximately 10 billing units, is expected to see a $3.38 per month increase during the first year on their water bill. Then, a 7.4% increase each year for the next four years. If rates had been adjusted over the last 5 years to match inflationary water costs, the annual percentage increase would have been much lower. (A billing unit is 1-HCF or 100 -cubic feet or 748 gallons). 22-4 Approval of 2019 Water Rate Study and Setting of Public Hearing for Water Rates September 24, 2019 Page 5 Proposed 5 -year (Potable) Water Rates: Water Services 5/8 $17.27 $20.35 $21.86 $23.48 $25.22 $27.09 3/4 $17.27 $20.35 $21.86 $23.48 $25.22 $27.09 1 $28.79 $31.54 $33.88 $36.39 $39.09 $41.99 11/2 $57.58 $59.47 $63.88 $68.61 $73.69 $79.15 2 $92.12 $93.00 $99.89 $107.29 $115.23 $123.76 3 $172.73 $246.68 $264.94 $284.55 $305.61 $328.23 4 $287.88 $422.71 $454.00 $487.60 $523.69 $562.45 6 $575.76 $897.73 $964.17 $1,035.52 $1,112.15 $1,194.45 8 $921.22 $1,568.33 $1,684.39 $1,809.04 $1,942.91 $2,086.69 10 $1,655.90 $2,350.70 $2,524.66 $2,711.49 $2,912.15 $3,127.65 12 $2,663.48 $2,965.44 $3,184.89 $3,420.58 $3,673.71 $3,945.57 Per Dwelling $1.00 N/A N/A N/A N/A N/A Unit Charge Usage Charges Potable Water $3.08 $3.11 $3.35 $3.60 $3.87 $4.16 Sample Customer Bills Impacts Monthly WaterBills. 5/8 -inch meter $200 $180 $160 $140 $120 $100 $80 $■■ $o 10 HCF 20 HCF 30 HCF 40 HCF 50 HCF ■ Current Bills $48.07 $78.87 $109.67 $140.47 $171.27 ■ Proposed Bills $51.45 $82.55 $113.65 $144.75 $175.85 Impact $ $3.38 $3.68 $3.98 $4.28 $4.58 Impact % 7.0% 4.7% 3.6% 3.0% 2.7% 22-5 Approval of 2019 Water Rate Study and Setting of Public Hearing for Water Rates September 24, 2019 Page 6 Fire Service Water Rates: The City's water system also has approximately 460 Fire Service customer connections. These are typically the large red above ground pipes and valves seen in front of businesses or in parking lots. This pressurized water is supplied on a standby basis to provide additional fire -fighting water if needed by the property. The Fire Service Water rates recovers the proportional cost to provide fire protection capacity, metering and billing. As seen in the table below, especially for the larger meter sizes, rates have been increased and adjusted to be compliant with industry "Proportionality" standards, ensuring compliance with Proposition 218. Simply put, the larger the pipe connection, the larger the burden on the system to meet peak demands. Proportionality is further explained in Section 6 of the Water Rate Study. Most fire services do not use water regularly. However, if water is used through the fire service, the standard commodity potable water rate is used. Fire Service Water Rates are shown below: Proposed 5 -year Fire Protection Service Water Rates: Adjustments ., Current Rates i i Proposed i Proposed Proposed i Proposed FY 2024 Proposed Fire Protection Services 5/8 $3.13 $10.41 $11.19 $12.02 $12.91 $13.87 1 $5.00 $10.59 $11.38 $12.23 $13.14 $14.12 11/2 $7.50 $11.07 $11.89 $12.77 $13.72 $14.74 2 $10.00 $11.87 $12.75 $13.70 $14.72 $15.81 21/2 $12.50 $13.09 $14.06 $15.11 $16.23 $17.44 3 $15.00 $14.76 $15.86 $17.04 $18.31 $19.67 4 $20.00 $19.78 $21.25 $22.83 $24.52 $26.34 6 $30.00 $37.72 $40.52 $43.52 $46.75 $50.21 8 $40.00 $68.70 $73.79 $79.26 $85.13 $91.43 10 $50.00 $115.28 $123.82 $132.99 $142.84 $153.42 12 $60.00 $179.85 $193.16 $207.46 $222.82 $239.31 Recycled Water System Rates: The City provides recycled (non -potable) water to irrigate parks, certain landscaping, center medians, and golf courses, encompassing 2-3% of the City's total water use. The City purchases recycled water from the Orange County Water District (OCWD) through the project known as Green Acres Project. The recycled water rates recover the direct costs to purchase the recycled water, and the proportional costs regarding capacity, metering, and billing. Proportionality standards also apply to these recycled meters and in this case, the fixed rates are adjusted and reduced. Certain users also have exclusive pump stations to increase the flow and pressure of the water to meet watering needs. Those users are charged the direct charges associated with the pump stations. In general, recycled water remains less expensive than potable water. Recycled Water Rates are shown below: 22-6 Approval of 2019 Water Rate Study and Setting of Public Hearing for Water Rates September 24, 2019 Page 7 Proposed 5 -year Recycled Water Rates: Adjustments RW Services FY 019 Current Rates 026 Proposed FY 2021 Proposed FY 2022 Proposed FY 2023 Proposed FY 2024 Proposed Meter Size 5/8 $20.47 $10.34 $11.11 $11.94 $12.83 $13.78 3/4 $20.47 $10.34 $11.11 $11.94 $12.83 $13.78 1 $34.13 $14.85 $15.95 $17.14 $18.41 $19.78 1 1/2 $68.25 $26.10 $28.04 $30.12 $32.35 $34.75 2 $109.19 $39.61 $42.55 $45.70 $49.09 $52.73 3 $204.75 $101.54 $109.06 $117.14 $125.81 $135.12 4 $341.24 $172.47 $185.24 $198.95 $213.68 $229.50 6 $682.48 $363.88 $390.81 $419.73 $450.80 $484.16 8 $1,091.97 $634.09 $681.02 $731.42 $785.55 $843.69 RW Usage _Charge Pump Station Charge $1.92 $0.39 $2.05 $0.53 $2.12 $0.57 $2.13 $0.62 $2.21 $0.67 $2.29 $0.72 Next Steas and Proaosition 218 Reauirements: Upon incorporation of the City Council's recommendations and direction to send Proposition 218 notices, pursuant to California Constitution Article XIII D, Section 6, staff will prepare and send notices to all property owners (and as a courtesy to all customers, i.e. tenants) that receive water service from the City. There will be a 45 -day public notice period at which time, property owners and customers may send written protests for consideration by the City Council. Protests from property owners will be tallied at the public hearing tentatively set for November 19, 2019. Notwithstanding a majority protest, City Council can consider verbal testimony from anyone and written protests from non - property owners and decide to approve the rates. At the November 19, 2019 City Council meeting, staff will present an ordinance change removing the existing rates from the Municipal Code and propose a resolution amending the Master Fee schedule to include the new rates. If the rates are approved, and the ordinance and amended fee schedule adopted, the proposed water rates would become effective on January 1, 2020 and for every year thereafter with the final water adjustment occurring January 1, 2024. 22-7 Approval of 2019 Water Rate Study and Setting of Public Hearing for Water Rates September 24, 2019 Page 8 ENVIRONMENTAL REVIEW: Staff recommends the City Council find this action is not subject to the California Environmental Quality Act (CEQA) pursuant to Sections 15060(c)(2) (the activity will not result in a direct or reasonably foreseeable indirect physical change in the environment) and 15060(c)(3) (the activity is not a project as defined in Section 15378) of the CEQA Guidelines, California Code of Regulations, Title 14, Chapter 3, because it has no potential for resulting in physical change to the environment, directly or indirectly. NOTICING: The agenda item has been noticed according to the Brown Act (72 hours in advance of the meeting at which the City Council considers the item). ATTACHMENT: Attachment A — 2019 Water Rate Study 22-8 ATTACHMENT A CITY OF NEWPORT BEACH Water Rate Study Final Draft Report / September 9, 2019 R RAFTELIS September 9, 2019 Mr. Mark Vukojevic Utilities Director City of Newport Beach 100 Civic Center Drive Newport Beach, CA 92660 Subject: Water Rate Study Report Dear Mr. Vukojevic, Raftelis is pleased to provide this Water Rate Study Report for the City of Newport Beach to develop water and recycled water rates in compliance with Proposition 218. In particular, this Report contains the following: » Legal framework surrounding Proposition 218, particularly with respect to water rates. » Development of a 10 -year financial plan for Water Enterprise Fund to ensure financial sufficiency for operating and capital obligations. » Revision of the current financial policy and recommendations for policy revisions. » Cost of service analysis and development of water and recycled water rates that meet the Proposition 218 requirements. The Report summarizes the key findings and results related to the revision of the water rate structure, development of water and recycled water rates, and customer impact analyses for proposed rates. It has been a pleasure working with you, and we thank you and the City staff for the support provided during the course of this study. Sincerely, RAFTELIS FINANCIAL CONSULTANTS, INC. 445 S. Figueroa Street, Suite 1925 Los Angeles, CA 90071 213 262 9300 www.raftelis.com 216738.1 22-11 Sanjay Gaur Khanh Phan Vice President Senior Consultant 445 S. Figueroa Street, Suite 1925 Los Angeles, CA 90071 213 262 9300 www.raftelis.com 216738.1 22-11 TABLE OF CONTENTS 1. EXECUTIVE SUMMARY................................................................1 1.1 INTRODUCTION.......................................................................................... 1 1.2 RESERVE POLICY...................................................................................... 1 1.3 WATER FINANCIAL PLAN......................................................................... 2 1.4 PROPOSED WATER AND RECYCLED WATER RATES ........................... 3 1.5 CUSTOMER IMPACT.................................................................................. 5 2. INTRODUCTION............................................................................7 2.1 BACKGROUND...........................................................................................7 2.2 KEY INFORMATION USED IN THE STUDY ............................................... 8 3. LEGAL FRAMEWORK AND RATE SETTING METHODOLOGY.9 3.1 CALIFORNIA CONSTITUTION - ARTICLE XIII D, SECTION 6 (PROPOSITION 218)................................................................................... 9 3.2 COST -BASED RATE -SETTING METHODOLOGY., .................................... 9 3.3 DISCLAIMERS ................................. ERROR! BOOKMARK NOT DEFINED. 4. RESERVE POLICY......................................................................11 4.1 RESERVE POLICY OVERVIEW....... 1% .................................................... 11 4.2 CURRENT RESERVE POLICY.......R........................................................ 11 4.3 RECOMMENDED REVISION FOR WATER RESERVE POLICY .............. 12 4.3.1 O&M Reserve..................................................................................................................12 4.3.2 Rate Stabilization Reserve............................................................................................12 4.3.3 Capital Reserve..............................................................................................................13 4.3.4 Recommended Total Reserve Targets.........................................................................13 5. FINANCIAL PLAN........................................................................14 5.1 FINANCIAL PLAN ASSUMPTIONS.......................................................... 14 5.2 REVENUES UNDER CURRENT RATES .................................................. 15 5.3 OTHER REVENUES.................................................................................. 17 5.4 OPERATIONS AND MAINTENANCE (O&M) EXPENSES ........................ 18 5.4.1 Purchased Water Supply Costs....................................................................................18 City of Newport Beach Water Rate Study Report 22.12 5.4.2 Projected O&M Expenses..............................................................................................20 5.5 CAPITAL IMPROVEMENT PLAN (CIP) FUNDING ................................... 21 5.6 STATUS QUO FINANCIAL PLAN............................................................. 21 5.7 PROPOSED FINANCIAL PLAN................................................................ 24 6. COST OF SERVICE ANALYSIS .................................................. 27 6.1 PROPORTIONALITY.................................................................................27 6.2 WATER COST OF SERVICE ANALYSIS .................................................. 28 6.2.1 Step 1 — Determine Revenue Requirements................................................................28 6.2.2 Step 2 — Functionalize Costs and Allocate Functionalized Costs to Cost Causation Categories......................................................................................................................29 6.2.3 Step 3 — Allocate Revenue Requirements to Cost Causation Categories.................34 6.2.4 Step 4 — Calculate Unit Cost of Service.......................................................................36 7. WATER RATES DEVELOPMENT...............................................43 7.1 PROPOSED MONTHLY FIXED SERVICE CHARGES .............................. 43 7.2 PROPOSED WATER USAGE CHARGES ................................................. 47 7.3 PROPOSED RECYCLED WATER RATES ............................................... 48 7.4 5 -YEAR PROPOSED RATFS.................................................................... 50 8. CUSTOMER IMPACT ANALYSIS...............................................53 9. APPENDIX....................................................................................54 City of Newport Beach Water Rate Study Report 22.13 LIST OF TABLES Table 1-1: Projected Reserve Minimum Reserve Targets for Water Fund ......................................... 2 Table 1-2: Proposed Water Revenue Adjustments.............................................................................. 2 Table 1-3: Proposed 5 -year Water Rates.............................................................................................. 4 Table 1-4: Proposed 5 -year Recycled Water Rates............................................................................. 5 Table 4-1: Rate Stabilization Reserve Target Estimate..................................................................... 13 Table 4-2: Water Fund Projected Minimum Reserve Targets............................................................ 13 Table 5-1: Inflationary Assumptions................................................................................................... 14 Table 5-2: Current Water Monthly Fixed Charges and Number of Water Meters ............................. 15 Table 5-3: Current Water Usage and Projected Water Sales............................................................. 16 Table 5-4: Current Fire Protection Monthly Fixed Charges and Number of Meters ........................ 16 Table 5-5: Current RW Rates Revenues............................................................................................. 16 Table 5-6: Revenues from Current Rates Summary.......................................................................... 17 Table 5-7: Projected Revenues for Water Fund (no Revenue Adjustments) ................................... 18 Table 5-8: Projected Water Sales and Water Purchases by Water Supply Sources ........................ 18 Table 5-9: Projected Water Supply Costs........................................................................................... 19 Table 5-10: Projected RW Supply Costs, pass-through from OCWD............................................... 20 Table 5-11: Projected Water O&M Expenses..................................................................................... 20 Table 5-12: Status Quo Water Financial Plan..................................................................................... 23 Table 5-13: Proposed Water Revenue Adjustments.......................................................................... 24 Table 5-14: Proposed Water Financial Plan....................................................................................... 26 Table 6-1: Revenue Requirement from Current Water and RW Rates for FY 2019 .......................... 29 Table 6-2: FY 2019 Functionalized O&M Costs.................................................................................. 30 Table 6-3: FY 2019 Functionalized Water Assets............................................................................... 30 Table 6-4: Water System Peaking Factors......................................................................................... 32 Table 6-5: Allocation of Extra Capacity Functional Costs to Cost Causation Categories .............. 32 Table 6-6: Allocation of Water Cost Functions to Cost Causation Categories ................................ 33 Table 6-7: Results of O&M Cost Allocations...................................................................................... 34 Table 6-8: Results of Asset Value Cost Allocations.......................................................................... 34 Table 6-9: Revenue Requirement from Current Water and RW Rates for FY 2019 .......................... 35 Table 6-10: Net Revenues from Current Rates Allocated to Cost Causation Categories ............... 35 Table 6-11: General Cost Reallocation............................................................................................... 36 Table 6-12: Reallocated FY 2019 Revenue Requirements from Current Rates ................................ 36 Table 6-13: Water System Average and Peak Demand..................................................................... 37 Table 6-14: Meter Ratios and Equivalent Meter Units (EMUs).......................................................... 38 Table 6-15: Fire Protection Capacity Demand.................................................................................... 39 Table 6-16: Public and Private Fire Demand Units............................................................................ 40 Table 6-17: Public and Private Fire Capacity Costs........................................................................... 40 Table 6-18: Reallocated FY 2019 Revenue Requirements from Current Rates ................................ 41 Table 6-19: FY 2019 Revenues Requirement Allocated to Rate Components ................................. 42 Table 7-1: Development of Unit Monthly Fixed Service Charge ....................................................... 43 Table 7-2: Development of Unit Fireline Stand-by Charge................................................................ 44 City of Newport Beach Water Rate Study Report 22.14 Table 7-3: FY 2019 Revised Monthly Fixed Service Charges (FSC) ................................................. 45 Table 7-4: FY 2020 Proposed Monthly Fixed Service Charges (FSC) ............................................... 46 Table 7-5: Water Usage Component Descriptions............................................................................. 47 Table 7-6: FY 2019 Water Usage Charge Calculations...................................................................... 47 Table 7-7: FY 2020 Proposed Water Usage Charges......................................................................... 47 Table 7-8: FY 2019 Revised Monthly Fixed Service Charges (FSC) ................................................. 48 Table 7-9: FY 2020 Proposed Monthly Fixed Service Charges (FSC) ............................................... 48 Table 7-10: RW Usage Component Descriptions............................................................................... 49 Table 7-11: FY 2019 RW Usage Charge Calculations........................................................................ 49 Table 7-12: FY 2020 Proposed RW Usage Charges........................................................................... 49 Table 7-13: 5 -Year Proposed Water Monthly Fixed Service Charges ............................................... 50 Table 7-14: 5 -Year Proposed Private Fire Protection Monthly Service Charges ............................. 51 Table 7-15: 5 -Year Proposed Water Usage Charges.......................................................................... 51 Table 7-16: 5 -Year Proposed RW Rates.............................................................................................. 52 LIST OF FIGURES Figure 1-1: Water Financial Plan........................................................................................................... 3 Figure 1-2: Projected Water Fund Ending Balances............................................................................ 3 Figure 1-3: Typical Residential Customer Bill Impacts....................................................................... 5 Figure 5-1: Estimated Annual CIP Funding........................................................................................ 21 Figure 5-2: Status Quo Water Financial Plan..................................................................................... 22 Figure 5-3: Projected Water Fund Ending Balance without Revenue Adjustments ........................ 22 Figure5-4: Water Financial Plan......................................................................................................... 25 Figure 5-5: Projected Water Fund Ending Balances.......................................................................... 25 Figure 6-1: Cost of Service Process ............................. n .................................................................... 28 Figure 8-1: Typical Residential Customer Bill Impacts..................................................................... 53 LIST OF APPENDICES Appendix 1- 0&M Inputs, Forecast and Functionalization and 0&M Cost Allocations Appendix 2 - Asset List and Functionalization and Capital Cost Allocations Appendix 3 - Revenue Requirements Allocations City of Newport Beach Water Rate Study Report 22.15 This page intentionally left blank to facilitate two-sided printing. City of Newport Beach Water Rate Study Report 22-16 Glossary Terms Descriptions AF Acre foot / Acre feet AWWA American Water Works Association COS Cost of Service EFU Equivalent Fire Unit EMU Equivalent Meter Unit FY Fiscal Year (Jul 1- June 30) GPCD Gallons per capita per day GPM Gallons per minute HCF Hundred Cubic Feet = 100 cubic feet = 748 gallons M1 Manual "Principles of Water Rates, Fees, and Charges: Manual of Water Supply Practices M1", 61h edition published by AWWA MD Max Day Peaking Factor MFR MGD Multi -Family Residential Million Gallons per Day MH Max Hour Peaking Factor MWD Metropolitan Water District of Southern California MWDOC Municipal Water District of Orange County OCWD Orange County Water District O&M Operations and Maintenance Raftelis Raftelis Financial Consultants, Inc. RW Recycled Water Single Family Residential SFR City of Newport Beach Water Rate Study Report 22.17 1. EXECUTIVE SUMMARY 1.1 INTRODUCTION The City of Newport Beach Utilities Department in (City) currently serves a population of over 86,000 within a service area of approximately fifty square miles. The Water Division is divided into four sections: Water Maintenance and Repair, Water Production, Water Quality, and Water System Services. The Division is responsible for providing a safe and reliable source of water to approximately 26,200 active connections and delivering approximately 13,500 acre feet (AF) of water per year on average. The current water rates were developed in the "Water Utility Financial Plan" completed in August 2009. The water rates consist of monthly fixed service charges varied by meter size and a uniform commodity rate. The City last adopted a 5 -year water rate increase in December of 2009 and the last water rate increase was in January of 2014. Government Code 54999.7(c) requires that water agencies must conduct a cost of service study a minimum of every 10 years. In early 2019, the City engaged Raftelis to conduct a Water Rate Study for its water and recycled water services. The major objectives of the Study include: » Development of a 10 -year financial plan for Water Enterprise Fund to ensure financial sufficiency for operating and capital obligations. » Revision of the current financial policy and recommendations for policy revisions. » Cost of service analysis and development of water and recycled water rates that meet Proposition 218 requirements. » Development of a 5 -year water and recycled water rates schedule » Sensitivity and impact analysis on the proposed rates » Development of an administrative record that demonstrates the nexus between the City's water costs and rates to meet the requirements of Proposition 218. This Water Rate Report (Report) summarizes the key findings and results related to the development of the long-term financial plan for Water Enterprise Fund, development of water and recycled water rates and customer impact analyses for proposed rates. 1.2 RESERVE POLICY A reserve policy is a written document that establishes reserve goals/targets. It provides guidelines for sound financial management with an overall long-range perspective to maintain financial solvency and mitigate financial risks associated with revenue instability, volatile capital costs and emergencies. Adopting and adhering to a sustainable reserve policy enhances financial management transparency and helps achieve or maintain a certain credit rating for future debt issues. Reserves can mitigate unanticipated reductions in revenues, offset fluctuations in costs of providing services, and fiscal City of Newport Beach - Water Rate Study Report Page I 1 22-18 emergencies such as revenue shortfalls, asset failure, and natural disaster. Capital reserves set funds aside for replacement of capital assets as they age and for new capital projects. Working very closely with City Staff, the Finance Committee, and City Council, along with our understanding of the City's financial infrastructure and financial risk portfolio, Raftelis recommends the minimum reserve targets for Water shown in Table 1-1. The shown dollars are for illustrative purpose only and are subject to change with the actual adopted operating budget and estimated 5 -year average CIP. For details about each reserve component, please refer to Section 4.3. Table 1-1: Projected Reserve Minimum Reserve Targets for Water Fund Operations & Maintenance Capital 33% of annual eratina expenses 75% of 5 -year average CIP $8,326,572 $5,708,400 $8,903,507 $5,400,000 $9,043,914 $5,400,000 $9,427,501 $5,400,000 Rate $2,700,000 $2,700,000 $2,700,000 $2,786,914 $2,876,809 Stabilization Total Target $16,734,972 $17,003,507 $17,230,828 $17,704,310 Reserve 1.3 WATER FINANCIAL PLAN One of the Study's major objectives is to develop a long-term financial plan ensuring financial sufficiency for the Water Fund's projected operating and capital obligations. Raftelis developed a 10 - year Financial Plan Model incorporating the known and forecasted cost increases for operating and capital expenditures. The results were presented and discussed with the Finance Committee and City Council. Utilizing the recently approved Federal WaterSMART Water and Energy Efficiency Grant in the amount of $1.5 million for Advance Metering Infrastructure (AMI) along with other forecasts, the proposed revenue adjustments for the Water Fund are shown in Table 1-2 below. Table 1-2: Proposed Water Revenue Adjustments FY 2020 - FY 2024 7.4% per year FY 2025 - FY 2029 2.5% per year Under the proposed revenue adjustments, the Water Financial Plan is summarized in the figures below. In Figure 1-1, the dashed red line is the projected revenues from current rates without any adjustment, green line represents the projected revenues with the proposed revenue adjustments shown in Table 1-2. The stacked bars represent the expenditures, such as potable water supply (light blue), recycled water (purple), other 0&M expenses (green), and PAYGO CIP (teal). The red bars below the axis in FY 2020 to FY 2023 and FY 2028 to FY 2029 signify that the collected revenues are insufficient for operating and capital costs in those years and require drawing on the current Water Fund balances. City of Newport Beach - Water Rate Study Report Page 12 22-19 The current water revenues (red line) are insufficient to recover operating and capital costs in all years, thus revenue adjustments are warranted. Figure 1-2 shows the forecasted Water Fund ending balances (teal bars) after incorporating the proposed revenue adjustments, current revenues and expenses (shown in Figure 1-1) and the estimated Water Fund beginning balance as of July 1, 2019. The red line is the recommended minimum target balance. $50 N C O $40 $30 $20 $10 $0 =JE Figure 1-1: Water Financial Plan Water Financial Plan FY 2020 FY 2021 FY 2022 FY 2023 FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 FY 2029 � Potable WS Cast � RW Supply Costs � Other Operating Expenses o Debt Service � PAYGO Cl P � Reserve Funding ----- Current Revenues Proposed Revenues $30 N C O $25 $20 $15 $10 $5 $0 i Figure 1-2: Projected Water Fund Ending Balances Projected Ending Balances FY 2020 FY 2021 FY 2022 FY 2023 FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 FY 2029 � Ending Balances Min Target Balances 1.4 PROPOSED WATER AND RECYCLED WATER RATES Raftelis performed a cost of service analysis using revenue requirements in FY 2019 in order to calculate fair and equitable rates where users pay proportionally to their cost of providing service. The calculated rates are then increased by the proposed revenue adjustments to determine the proposed City of Newport Beach - Water Rate Study Report Page 13 22-20 water rates for FY 2020 to FY 2024. A detailed cost of service analysis is included in Sections 6 and 7 of the Report. Table 1-3 and Table 1-4 summarize the proposed Water and RW rates for the next 5 years. Note that the calculated numbers are rounded to the nearest cent. Table 1-3: Proposed 5 -year Water Rates Water Services FY 2019 RatesCurrent FY 2020 Proposed FY2021 Proposed FY 2022i2024 Proposed Proposed Proposed 5/8 $17.27 $20.35 $21.86 $23.48 $25.22 $27.09 3/4 $17.27 $20.35 $21.86 $23.48 $25.22 $27.09 1 $28.79 $31.54 $33.88 $36.39 $39.09 $41.99 11/2 $57.58 $59.47 $63.88 $68.61 $73.69 $79.15 2 $92.12 $93.00 $99.89 $107.29 $115.23 $123.76 3 $172.73 $246.68 $264.94 $284.55 $305.61 $328.23 4 $287.88 $422.71 $454.00 $487.60 $523.69 $562.45 6 $575.76 $897.73 $964.17 $1,035.52 $1,112.15 $1,194.45 8 $921.22 $1,568.33 $1,684.39 $1,809.04 $1,942.91 $2,086.69 10 $1,655.90 $2,350.70 $2,524.66 $2,711.49 $2,912.15 $3,127.65 12 $2,663.48 $2,965.44 $3,184.89 $3,420.58 $3,673.71 $3,945.57 Per Dwelling Unit Charge Residential $1.00 N/A N/A N/A N/A N/A Fire Protection Services 5/8 $3.13 $10.41 $11.19 $12.02 $12.91 $13.87 1 $5.00 $10.59 $11.38 $12.23 $13.14 $14.12 11/2 $7.50 $11.07 $11.89 $12.77 $13.72 $14.74 2 $10.00 $11.87 $12.75 $13.70 $14.72 $15.81 21/2 $12.50 $13.09 $14.06 $15.11 $16.23 $17.44 3 $15.00 $14.76 $15.86 $17.04 $18.31 $19.67 4 $20.00 $19.78 $21.25 $22.83 $24.52 $26.34 6 $30.00 $37.72 $40.52 $43.52 $46.75 $50.21 8 \ $40.00 M $68.70 $73.79 $79.26 $85.13 $91.43 10 $50.00 $115.28 $123.82 $132.99 $142.84 $153.42 12 $60.00 $179.85 $193.16 $207.46 $222.82 $239.31 Usage Charges $3.08 $3.11 $3.35 $3.60 $3.87 City of Newport Beach - Water Rate Study Report Page 14 22-21 Table 1-4: Proposed 5 -year Recycled Water Rates RW Services Meter Size FY 2019 Current Rates FY2020 Proposed FY2021 Proposed FY2022 Proposed FY2023 Proposed FY2024 Proposed 5/8 $20.47 $10.34 $11.11 $11.94 $12.83 $13.78 3/4 $20.47 $10.34 $11.11 $11.94 $12.83 $13.78 1 $34.13 $14.85 $15.95 $17.14 $18.41 $19.78 11/2 $68.25 $26.10 $28.04 $30.12 $32.35 $34.75 2 $109.19 $39.61 $42.55 $45.70 $49.09 $52.73 3 $204.75 $101.54 $109.06 $117.14 $125.81 $135.12 4 $341.24 $172.47 $185.24 $198.95 $213.68 $229.50 6 $682.48 $363.88 $390.81 $419.73 $450.80 $484.16 8 $1,091.97 $634.09 $681.02 $731.42 $785.55 $843.69 IL RW Usage Charge $1.92 $2.05 $2.12 $2.13 $2.21 $2.29 Pump Station Charge $0.39 $0.53 $0.57 $0.62 $0.67 $0.72 1.5 CUSTOMER IMPACT Before implementing any rate structure recommendations, it is important to understand how the proposed rate structure will impact the City's customers. Customer impact analysis is a powerful tool which can be used to assist elected officials in making informed decisions. Figure 1-3 shows under the proposed rates, a typical residential customer with 5/8 -inch meters will see approximately a $3.38 to $4.58 increase in their monthly water bill with usage ranging from 10 to 50 hundred cubic feet (hcf). Figure 1-3: Typical Residential Customer Bill Impacts Sample Customer Bills Impacts Monthly Water Bills. 5/8 -inch meter $200 $180 $160 $140 $120 $100 $80 $60 $20 �. 10 HCF 20 HCF 30 HCF 40 HCF 50 HCF ■Current Bills $48.07 $78.87 $109.67 $140.47 $171.27 ■ Proposed Bills $51.45 $82.55 $113.65 $144.75 $175.85 Impact $ $3.38 $3.68 $3.98 $4.28 $4.58 Impact % 7.0% 4.7% 3.6% 3.0% 2.7% City of Newport Beach - Water Rate Study Report Page 15 22-22 In summary, the rates calculated in this study for water and recycled water follow industry standard principles of equitable cost -of -service allocations and are thus compliant with Proposition 218. The remainder of this report details the background information utilized by Raftelis in carrying out this study, along with a thorough explanation of the cost -of -service analyses and rate calculations for the City's water and recycled water rates. City of Newport Beach - Water Rate Study Report Page 16 22-23 2. INTRODUCTION 2.1 BACKGROUND The City of Newport Beach Utilities Department (City) currently serves a population of over 86,000 within a service area of approximately fifty square miles. It is located on the Pacific Coast of California, in Orange County, and surrounded by Huntington Beach and Costa Mesa to the north, Laguna Beach to the South, and Irvine to the east. The City currently has over 26,200 active connections and delivers approximately 13,500 acre feet (AF) of water per year on average. The City owns and operates three reservoirs: Big Canyon Reservoir (600 AF), Spyglass Hill Reservoir (4.5 AF), and 16th Street Reservoir (9.2 AF). The Water Division is divided into four sections: Water Maintenance and Repair, Water Production, Water Quality, and Water System Services. Together, the Division is responsible for providing safe and reliable water. Water Maintenance & Repair is responsible for the maintenance and operation of the City's water mains and valves that are located underground. Water Production operates, maintains, and disinfects the City of Newport Beach's water supply. » Water Quality manages the water quality testing and state reporting » Water System Services assists City of Newport Beach customers with any questions regarding water quality, water pressure, consumption usage, any concern with water meters, leak detection, utilities inspections and underground utility locating. Approximately 75 percent of the City's potable water demand is supplied by Orange County Water District (OCWD) and 25 percent from Municipal Water District of Orange County (MWDOC). The City provides non -potable (recycled) water to seven customers for the purposes of irrigating parks, schools, center medians and golf courses. Recycled water is purchased from OCWD through the Green Acres Project. The current charge for recycled water includes fixed fees and a commodity rate. The current water rates were developed in the "Water Utility Financial Plan" completed in August 2009. The water rates consist of monthly fixed service charges varied by meter size and a uniform commodity. The City last adopted a 5 -year water rate increase in December of 2009 and the last water rate increase was in January of 2014. Government Code 54999.7(c) requires that water agencies must conduct a cost of service study a minimum of every 10 years. In early 2019, the City engaged Raftelis to conduct a Water Rate Study for its water and recycled water services. The major objectives of the Study include: Development of a 10 -year financial plan for Water Enterprise Fund to ensure financial sufficiency for operating and capital obligations. » Revision of the current financial policy and recommendations for policy revisions. » Cost of service analysis and development of water and recycled water rates that meet Proposition 218 requirements. City of Newport Beach - Water Rate Study Report Page 17 22-24 » Development of a 5 -year water and recycled water rates schedule » Sensitivity and impact analysis on the proposed rates » Development of an administrative record that demonstrates the nexus between the City's water costs and rates to meet the requirements of Proposition 218. This Water Rate Report (Report) summarizes the key findings and results related to the development of the long-term financial plan for the Water Enterprise Fund, development of water and recycled water rates and customer impact analyses for proposed rates. 2.2 KEY INFORMATION USED IN THE STUDY The Study utilized the following, but not limited to, key information provided by the City: 1. FY 2018 consumption data (July 1, 2017 to June 2018) for all water and recycled water accounts served within the City service area provided on April 25, 2019. 2. FY 2019 and FY 2020 operating budgets for the Water Fund provided on May 14, 2019 3. Estimated average CIP needs for the next 10 years provided in May 2019 4. Updated water asset list provided on August 8, 2019 5. 2019 Water Master Plan retrieved from the City website 6. Current reserve policy provided on March 11, 2019 7. Beginning Water Fund Balances as of July 1, 2018 (FY 2019) and July 1, 2019 (FY 2020) provided on May 20, 2019 City of Newport Beach - Water Rate Study Report Page 18 22-25 3. LEGAL FRAMEWORK AND RATE SETTING METHODOLOGY 3.1 CALIFORNIA CONSTITUTION - ARTICLE XIII D, SECTION 6 (PROPOSITION 218) Proposition 218, reflected in the California Constitution as Article XIII D, was enacted in 1996 to ensure that rates and fees are reasonable and proportional to the cost of providing service. The principal requirements for fairness of the fees, as they relate to public water service, are as follows: A property -related charge (such as water and recycled water rates) imposed by a public agency on a parcel shall not exceed the costs required to provide the property related service. Revenues derived by the charge shall not be used for any purpose other than that for which the charge was imposed. The amount of the charge imposed upon any parcel shall not exceed the proportional cost of service attributable to the parcel. 4. No charge may be imposed for a service unless that service is actually used or immediately available to the owner of property. S. No fee or charge maybe imposed for general governmental services including, but not limited to, police, fire, ambulance or library services, where the service is available to the public at large in substantially the same manner as it is to property owners. 6. A written notice of the proposed charge shall be mailed to the record owner of each parcel at least 45 days prior to the public hearing, when the agency considers all written protests against the charge. As stated in AWWA's Principles of Water Rates, Fees, and Charges: Manual of Water Supply Practices M1, 6th edition (M1 Manual), "water rates and charges should be recovered from classes of customers in proportion to the cost of serving those customers." Proposition 218 requires that water rates cannot be "arbitrary and capricious," meaning that the rate -setting methodology must be sound and that there must be a nexus between the costs and the rates charged. This study follows industry standard rate setting methodologies set forth by the M1 Manual, adhering to Proposition 218 requirements by developing rates that do not exceed the proportionate cost of providing water services. 3.2 COST -BASED RATE -SETTING METHODOLOGY As stated in the M1 Manual, "the costs of water rates and charges should be recovered from classes of customers in proportion to the cost of serving those customers." To develop utility rates that comply with Proposition 218 and industry standards while meeting other goals and objectives of the utility, Raftelis carries out a detailed analysis in four major steps, as discussed below. Calculate Revenue Requirement The rate -making process starts by determining the test year (rate setting year) revenue requirement, which for this study is FY 2019. The revenue requirement should sufficiently fund the utility's 0&M, debt service, capital expenses, and target reserve balances based on a long-term financial plan. City of Newport Beach - Water Rate Study Report Page 19 22-26 Cost of Service Analysis (COS) The annual cost of providing water service is distributed among customer classes commensurate with their service requirements. A COS analysis involves the following tasks: Functionalize costs. Examples of functions are supply, treatment, transmission, distribution, storage, meter servicing, and customer billing and collection. Allocate functionalized costs to cost causation components. Cost causation components include base, maximum day, maximum hour', conservation, public fire protection, meter service, and customer servicing and billing costs. Distribute cost causation components, using unit costs, to rate components and customers in proportion to their demands on the water system capacity. This is described in the M1 Manual published by AWWA. A COS analysis considers both the average quantity of water consumed (base costs) and the peak rate at which it is consumed (peaking or capacity costs as identified by maximum day and maximum hour demands).' Peaking costs are costs that are incurred during peak times of consumption. There are additional costs associated with designing, constructing, operating and maintaining facilities to meet peak demands. These peak demand costs need to be allocated to those imposing such costs on the utility. In other words, not all customer classes share the same responsibility for peaking related costs. Rate Design and Calculations Rates do more than simply recover costs. Within the legal framework and industry standards, properly designed rates should support and optimize a blend of various utility objectives, such as promoting water conservation, affordability for essential needs, and revenue stability among other objectives. Rates may also act as a public information tool in communicating these objectives to customers. Rate Adoption Rate adoption is the last step of the rate -making process to comply with Proposition 218. Raftelis documents the rate study results in this report to serve as the utility's administrative record and a public education tool about the proposed changes, the rationale and justifications behind the changes, and their anticipated financial impacts. ' Maximum day and maximum hour costs are collectively referred to as peaking costs or capacity costs. 2 System capacity is the system's ability to supply water to all delivery points at the time when demanded. Coincident peaking factors are calculated for each customer class at the time of greatest system demand. The time of greatest demand is known as peak demand. Both the operating costs and capital asset related costs incurred to accommodate the peak flows are generally allocated to each customer class based upon the class's relative demands during the peak month, day, and hour event. City of Newport Beach - Water Rate Study Report Page 110 22-27 4. RESERVE POLICY 4.1 RESERVE POLICY OVERVIEW A reserve policy is a written document that establishes reserve goals/targets. It provides guidelines for sound financial management with an overall long-range perspective to maintain financial solvency and mitigate financial risks associated with revenue instability, volatile capital costs and emergencies. Adopting and adhering to a sustainable reserve policy enhances financial management transparency and helps achieve or maintain a certain credit rating for future debt issues. Reserves can offset unanticipated reductions in revenues, offset fluctuations in costs of providing services, and fiscal emergencies such as revenue shortfalls, asset failure, and natural disaster. Capital reserves set funds aside for replacement of capital assets as they age and for new capital projects. The appropriate amount of reserves and reserve types are determined by a variety of factors, such as the size of the operating budget, the amount of debt, the type of rate structure, frequency of customer billing, and risk of natural disaster. However, reserves tend to fall into the following categories: operations & maintenance (0&M), rate stabilization (for revenue loss), and capital replacement funding. 4.2 CURRENT RESERVE POLICY The City's current reserve policy (City Council Policy F-2) was last revised and approved on September 25, 2018. The Water Enterprise Fund requires a Stabilization and Contingency Reserve equal to 50 percent of the annual operating budget. This Reserve supports seasonal variations in cash flows and, in more extreme conditions, to maintain operations for a reasonable period of time so the City may reorganize in an orderly manner or effectuate a rate increase to offset sustained cost increases. The intent of the Reserve is to provide funds to offset cost increases that are projected to be short-lived, thereby partially eliminating the volatility in annual rate adjustments. It is not intended to offset ongoing, long-term pricing structure changes. City Council must approve the use of these funds, based on City Manager recommendation. Funds collected in excess of the Stabilization Reserve target would be available to offset future rate adjustments, while extended reserve shortfalls would be recovered from future rate increases. Should catastrophic losses to the infrastructure system occur, the Stabilization and Contingency Reserve may be called upon to avoid disruption to water distribution. The Infrastructure Replacement Funding Policy is intended to be a temporary repository for cash flows associated with the funding of infrastructure replacement projects provided by the Water Master Plan. The contribution rate is intended to level -amortize the cost of infrastructure replacement projects over a long period. The annual funding rate of the Water Master Plan is targeted at an amount that, when combined with prior or future year contributions, is sufficient to provide for the eventual replacement of assets as scheduled in the plan. This contribution policy is based on the funding requirements of the most current Water Master Plan. There are no minimum or maximum balances contemplated by this funding policy. However, the contributions level should be reviewed periodically or as major updates to the Water Master Plan occur. Annual funding is contingent on many factors and may ultimately involve a combined strategy of cash funding and debt issuance with the intent to normalize the burden on Water customer rates. City of Newport Beach - Water Rate Study Report Page 111 22-28 4.3 RECOMMENDED REVISION FOR WATER RESERVE POLICY To enhance financial management transparency and financial risk management, Raftelis recommends the Water Fund to maintain the following reserves: 1. Operating & Maintenance (0&M) Reserve 2. Rate Stabilization Reserve 3. Capital Reserve 4.3.1 O&M Reserve The purpose of an 0&M reserve is to provide working capital to support the operation, maintenance, and administration of the utility. From a risk management perspective, the 0&M reserve supports the City's cash flow needs during normal operations and ensures that operations can continue should there be significant events that impact cash flows. As it is unlikely for a utility to perfectly predict the revenues and revenue requirements for each billing period, a reserve set aside to hedge the risk of monthly negative cash positions is prudent in financial planning. Another factor to consider when creating a cash flow reserve is the frequency of billing. A utility that bills once a month would require lower minimum reserves than a utility that bills twice a year. Raftelis recommends that the City maintain at a minimum 120 days cash on hand (33 percent of annual operating budget) to ensure adequate working capital for operating expenses. The City bills bi- monthly, thus 120 days are the minimum to provide sufficient working capital to account for when expenses occur and revenues are collected. Additionally, this accounts for revenues varying seasonally while expenses remain relatively static. 4.3.2 Rate Stabilization Reserve While it is not typical for utilities to have substantial rate increases in a short period of time, factors such as declining water sales and an unexpected increase in short-term 0&M expenses may result in large rate increases. The intent of the reserve is to provide funds to offset a net loss in revenues that is projected to be short-lived, thereby partially eliminating the volatility in annual rate adjustments. It is not intended to offset ongoing, long-term pricing structure changes. Table 4-1 summarizes the calculation to estimate the minimum Rate Stabilization reserve target. In the most recent drought in 2016, the City was mandated to reduce annual water usage by 30 percent. The Rate Stabilization reserve is intended to mitigate the impact of a similar event. Using the current FY 2019 values, the cost of a 30% reduction is $2.7M. Raftelis recommends increasing this reserve target by the projected non -water supply cost increase of approximately 3.2% per year. City of Newport Beach - Water Rate Study Report Page 112 22-29 Table 4-1: Rate Stabilization Reserve Target Estimate 4.3.3 Capital Reserve Adequate and timely capital replacement planning is a critical task to ensure reliability and sustainability of the water system. Capital reserves are used to provide funding for capital expenditures due to the capital -intensive nature of the water system. The estimated 5 -year average CIP based on the 2019 Master Plan is $7.2M. Working closely with City Staff and City Council, Raftelis recommends the Capital Reserve to be at least maintained at 75 percent of the 5 -year average CIP. 4.3.4 Recommended Total Reserve Targets Combining the three reserve components for the Water Fund described in Sections 4.3.1, 4.3.2 and 4.3.3 above and the projected C&M expenses (see Section 5.4), Table 4-2 summarizes the Water Fund minimum reserve target by the component for FY 2019 to FY 2022 Operations & Maintenance Capital Rate Stabilization Total Target Reserve Table 4-2: Water Fund Projected Minimum Reserve Targets 33% of annual operating expenses 75% of 5 -year averaL-e CIP $2,700,000 _N $8,326,572 $5,708,400 $8,903,507 $5,400,000 $9,043,914 $5,400,000 $9,427,501 $5,400,000 ` $2,700,000 $2,700,000 $2,786,914 $2,876,809 $16,734,972 $17,003,507 $17,230,828 $17,704,310 City of Newport Beach - Water Rate Study Report Page 113 22-30 FY 2019 Notes 1 Current Water Rates $3.08 per HCF 2 Current purchased water unit cost $1.54 per HCF 3 Net revenue loss $1.54 per HCF [1] - [2] 4 Current water sales 5,905,925 HCF 5 % Usage Reduction to Mitigate 30% 6 Rate Stabilization Reserve Minimum Target $2.7M [3] x [4] x [5] 4.3.3 Capital Reserve Adequate and timely capital replacement planning is a critical task to ensure reliability and sustainability of the water system. Capital reserves are used to provide funding for capital expenditures due to the capital -intensive nature of the water system. The estimated 5 -year average CIP based on the 2019 Master Plan is $7.2M. Working closely with City Staff and City Council, Raftelis recommends the Capital Reserve to be at least maintained at 75 percent of the 5 -year average CIP. 4.3.4 Recommended Total Reserve Targets Combining the three reserve components for the Water Fund described in Sections 4.3.1, 4.3.2 and 4.3.3 above and the projected C&M expenses (see Section 5.4), Table 4-2 summarizes the Water Fund minimum reserve target by the component for FY 2019 to FY 2022 Operations & Maintenance Capital Rate Stabilization Total Target Reserve Table 4-2: Water Fund Projected Minimum Reserve Targets 33% of annual operating expenses 75% of 5 -year averaL-e CIP $2,700,000 _N $8,326,572 $5,708,400 $8,903,507 $5,400,000 $9,043,914 $5,400,000 $9,427,501 $5,400,000 ` $2,700,000 $2,700,000 $2,786,914 $2,876,809 $16,734,972 $17,003,507 $17,230,828 $17,704,310 City of Newport Beach - Water Rate Study Report Page 113 22-30 5. FINANCIAL PLAN The Financial Plan provides ten-year financial projections for the Water Enterprise Fund based on projected revenues, operations & maintenance (0&M) expenses, capital improvement plan (CIP) funding, and debt service payments. The primary results of the Financial Plan include a cashflow summary and the rate revenue requirement, the latter being the key factor driving rate development. The following subsections describe the functionality of various Financial Plan components. The ten-year Financial Plan timeframe spans from fiscal year (FY) 2020 through FY 2029. 5.1 FINANCIAL PLAN ASSUMPTIONS Raftelis worked closely with City Staff to define the assumptions used to forecast revenues and expenses in the financial plan using combination of historical actuals, projections, and other historical cost inflation indices, such as the Consumer Price Index (CPI). Table 5-1 lists the annual inflation factors for each of the City's cost categories, including 0&M, capital, and water supply costs. City Staff estimated the fixed water supply cost escalation factors for Orange County Water District (OCWD) and Municipal Water District of Orange County (MWDOC). They additionally provided unit water supply costs from OCWD and MWDOC. Note that the City does not have any outstanding bonds and does not plan to issue any new debt during the study period. Table 5-1: Inflationary Assumptions [Escalation Factors Annual FY 2021 - FY 2029 General 3.0% Salary 3.0% Benefits 5.0% Chemicals 2.0% Utilities 5.0% Water Supply Fixed Cost (OCWD) 7.0% Water Supply Fixed Cost (MWDOC) 2.5% RW Cost 5.0% Non -Rate Revenues 2.0% Reserve Interest Rate 1.0% Capital 0.0% The City's water system is currently built out, so we do not assume any change in number of accounts over the study period. With input from City Staff, Raftelis assumed water sales would remain 13,558 AF for the entire Study period. City of Newport Beach - Water Rate Study Report Page 114 22-31 5.2 REVENUES UNDER CURRENT RATES The current water rates consist of monthly fixed service charges by meter size and a uniform commodity rate. Table 5-2 shows the current water monthly fixed charges and number of water meters. The City also currently charges multi -family residential customers $1.00 per dwelling unit each month. The total meters of each meter size are multiplied by the current rate for that meter. Likewise, the dwelling unit charges are multiplied by the total dwelling units. Table 5-3 calculates the total water usage revenue. As mentioned above, this usage will remain the same for the entire study period as the service area is built out and the City does not expect customer usage patterns to change significantly. This usage is multiplied by the water usage rate to arrive at total sales revenue. Table 5-4 summarizes the current fixed charges for fire protection meters and projected fire protection revenues. Recycled Water (RW) is currently assessed its own monthly fixed meter charge and uniform usage rate as shown in Table 5-5. Total revenues from current RW rates are also calculated using the number of RW meters, current fixed charges, the RW usage charge, RW pump station charges and projected corresponding RW Sales. RW usage rates will be 100 percent pass-through from OCWD. Table 5-2: Current Water Monthly Fixed Charges and Number of Water Meters Meter Size Current 5/8 Rates Current Water $17.27 Total MeterS3 16,545 3/4 $17.27 4 1 $28.79 7,585 11/2 $57.58 551 2 $92.12 1,430 3 $172.73 32 4 $287.88 51 6 $575.76 15 8 $921.22 8 10 $1,655.90 0 12 Total Water Meters Per Dwelling Unit Charge4 Residential $2,663.48 $1.00 1 26,222 11,861 Projected Revenues $8,620,463 3 Including City meters, City Sprinkler, Commercial, SFR, MFR, Sprinklers, Boat docks and Pools meters 4 The per dwelling unit charge applied to account with more than 1 dwelling unit served by the meter. City of Newport Beach - Water Rate Study Report Page 115 22-32 Table 5-3: Current Water Usage and Projected Water Sales Table 5-4: Current Fire Protection Monthly Fixed Charges and Number of Meters Meter Size Fire 5/8 Current Total Current Protection Meters 6 Fire Protection Charges $3.13 1 10 $5.00 11/2 0 $7.50 2 20 $10.00 2 1/2 2 $12.50 3 1 $15.00 4 181 $20.00 6 157 $30.00 8 83 k, $40.00 10 2 $50.00 12 0 $60.00 Total Fire Protection Meters 462 $144,705 Table 5-5: Current RW Rates Revenues Meter Size RW 5/8 Current Current Meters / Usage 0 RW Rates5 $20.47 3/4 0 $20.47 1 0 $34.13 11/2 0 $68.25 2 10 $109.19 3 3 $204.75 4 2 $341.24 6 1 $682.48 8 2 $1,091.97 Total RW Meters 18 $63,061 RW Usage 247,804 HCF $1.92 per HCF RW Usage Revenues $475,784 RW Pump Station Charge 208,262 HCF $0.39 per HCF RW Pump Station Rev $81,222 Total RW Revenues $620,066 s The revenues calculated took into account the prorates of the prior and the new rates were effective on February 2019 City of Newport Beach - Water Rate Study Report Page 116 22-33 Table 5-6 summarizes the revenues from current rates calculated in Table 5-2, Table 5-3, Table 5-4, and Table 5-5. It also compares the calculated revenues with budgeted revenues for FY 2019 and FY 2020. To match with official documents, the financial plan will use the revenues reported in the budget document for FY 2019 and FY 2020. Starting FY 2021 to FY 2029, the financial plan will use the calculated values. Starting FY 2021, RW usage revenues will match RW pass-through supply costs. Table 5-6: Revenues from Current Rates Summary Revenue from Calculated Current Rates Revenues FY FY 2020 - FY 2029 2019 Budget d• Water Revenues Water Services $8,620,463 $8,120,000 $8,240,000 Water Usage $18,065,274 $18,020,000 $19,157,197 Fire Protection $144,705 0,000 $125,000 Sale of RW RW Services $63,061 RW Pump Station $81,222 $142,624 $144,283 Charges _ RW Pass-through $475,784 $375,000 $425,000 Usage Total Revenues, excl. RW Pass- $26,974,725 $26,372,623 $27,666,480 through Usage 5.3 OTHER REVENUES Table 5-7 summarizes the revenues from current rates, RW pass-through revenues, and other revenues. The recently approved Federal WaterSMART Water and Energy Efficiency Grant of $1.5 million for Advance Metering Infrastructure (AMI) is included in the other operating revenues, assumed to be received in FY 2021 as a one-time grant. The other operating revenues includes Laguna Beach County Water District reimbursement, meter turn on charges, connection charges, water use construction, and delinquency penalty along with other miscellaneous revenues. The non-operating revenues include investment income (i.e. interest incomes) and other miscellaneous non-operating revenues such as sale of scrap materials. City of Newport Beach - Water Rate Study Report Page 117 22-34 Table 5-7: Projected Revenues for Water Fund (no Revenue Adjustments) REVENUES FY • FY 2020 FY 2021 FY 2022 FY 2023 FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 FY 2029 Revenues from Current Rates $26,372,623 $27,666,480 $26,974,725 $26,974,725 $26,974,725 $26,974,725 $26,974,725 $26,974,725 $26,974,725 $26,974,725 $26,974,725 Sale of Water Reclaimed $375,000 $425,000 $524,399 $526,740 $546,640 $567,709 $589,949 $619,447 $650,419 $682,940 $717,087 Other Operating Revenues $402,653 $427,653 $1,927,653 $427,653 $427,653 $427,653 $427,653 $427,653 $427,653 $427,653 $427,653 Non -Operating Revenues 75% 75% 7W 75% 75% 75% 75% 75% 75% 75% 75% 75% Investment Income $253,369 $284,380 $232,865 $169,889 $87,164 $0 $0 $0 $0 $0 $0 Other Non -Operating Revenues $22,000 $10,000 $10,000 $10,000 $10,000 $10,000 $10,000 $10,000 $10,000 $10,000 $10,000 TOTAL REVENUES $27,425,645 $28,813,513 $29,669,642 $28,109,007 $28,046,181 $27,980,087 $28,002,327 $28,031,824 $28,062,797 $28,095,318 $28,129,465 5.4 OPERATIONS AND MAINTENANCE (O&M) EXPENSES 5.4.1 Purchased Water Supply Costs Approximately 75 percent of the City's potable water demand is supplied by OCWD and 25 percent from MWDOC. Based on 2018 water consumption, 54.6 percent of water is consumed between July to December and 45.4 percent between January to June. Table 5-8 shows the water supply sources used to meet the projected water sales and assumed 8.75% water loss (estimated by City Staff). Table 5-9 details the projected fixed water supply costs and unit water supply costs from OCWD and MWDOC, as estimated and provided by City Staff. For the purpose of the financial plan, the water supply costs for FY 2019 and FY 2020 are using the budgeted values. The financial plan will use the calculated water supply costs starting FY 2 02 1. Table 5-8: Projected Water Sales and Water Purchases by Water Supply Sources City of Newport Beach - Water Rate Study Report Page 118 22-35 FY • FY 2020 FY 2021 FY 2022 FY 2023 FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 FY 2029 Water Sales 13,558 AF 13,558 AF 13,558 AF 13,558 AF 13,558 AF 13,558 AF 13,558 AF 13,558 AF 13,558 AF 13,558 AF 13,558 AF Water Loss 8.75% 8.75% 8.75% 8.75% 8.75% 8.75% 8.75% 8.75% 8.75% 8.75% 8.75% Water Demand 14,858 AF 14,858 AF 14,858 AF 14,858 AF 14,858 AF 14,858 AF 14,858 AF 14,858 AF 14,858 AF 14,858 AF 14,858 AF Basin Pumping % 75% 75% 7W 75% 75% 75% 75% 75% 75% 75% 75% 75% OCWD 11,144 AF 11,144 AF 11,144 AF 11,144 AF 11,144 AF 11,144 AF 11,144 AF 11,144 AF 11,144 AF 11,144 AF 11,144 AF MWDOC 3,715 AF 3,715 AF 3,715 AF 3,715 AF 3,715 AF 3,715 AF 3,715 AF 3,715 AF 3,715 AF 3,715 AF 3,715 AF Jul -Dec 2,028 AF 2,028 AF 2,028 AF 2,028 AF 2,028 AF 2,028 AF 2,028 AF 2,028 AF 2,028 AF 2,028 AF 2,028 AF Jan -Jun 1,687AF 1,687AF 1,687AF 1,687AF 1,687AF 1,687AF 1,687AF 1,687AF 1,687AF 1,687AF 1,687AF City of Newport Beach - Water Rate Study Report Page 118 22-35 Table 5-9: Projected Water Supply (WS) Costs OCWD Fixed Cost FY 019 $1,190,004 FY 2020 $1,273,304 FY 2021 $1,362,436 FY 2022 $1,457,806 FY 2023 $1,559,852 FY 2024 $1,669,042 FY 2025 $1,785,875 FY 2026 $1,910,886 FY 2027 $2,044,648 FY 2028 $2,187,774 FY 2029 $2,340,918 OCWD Unit Rate ($/AF) $462 $487 $525 $551 $579 $608 $638 $670 $704 $739 $776 OCWD Purchase (AF) 11,144 AF 11,144 AF 11,144 AF 11,144 AF 11,144 AF 11,144 AF 11,144 AF 11,144 AF 11,144 AF 11,144 AF 11,144 AF OCWD Variable Cost $5,148,378 $5,426,970 $5,850,429 $6,142,951 $6,450,098 $6,772,603, $7,111,233 $7,466,795 $7,840,135 $8,232,142 $8,643,749 OCWD Water Cost $6,338,382 $6,700,274 $7,212,865 $7,600,757 $8,009,951 $8,441,645 $8,897,109 $9,377,681 $9,884,783 $10,419,915 $10,984,667 Budgeted OCWD Cost $6,400,000 $7,100,000 MWDOC Fixed Cost $615,730 $631,123 $646,901 $663,074 $679,651 $696,642 $714,058 $731,909 $750,207 $768,962 $788,186 MWDOC Unit Rate Jul -Dec $1,015 $1,051 $1,087 $1,175 $1,234 $1,295 $1,360 $1,428 $1,500 $1,575 $1,653 Jan -Jun $1,051 $1,087 $1,175 $Ia34 $1,295 $1,360 $1,428 $1,500 $1,575 $1,653 $1,736 MWDOC Purchase (AF) Jul -Dec 2, 028 AF 2, 028 AF 2, 028 AF 2, 028 AF 2, 028 AF 2, 028 AF I 2, 028 AF 2, 028 AF 2, 028 AF 2, 028 AF 2, 028 AF Jan -Jun 1,687AF 1,687AF 1,687AF 1,687AF 1,687AF 1,687AF 1,687AF 1,687AF 1,687AF 1,687AF 1,687AF MWDOC Variable Cost $3,830,997 $3,964,721 $4,186,068 $4,463,508 $4,686,683 $4,921,018 $5,167,068 $5,425,422 $5,696,6931 $5,981,528 $6,280,604 MWDOC Water Cost $4,446,727 $4,595,844 $4,832,969 $5,126,582 $5,366,334 $5,617,660 $5,881,126 $6,157,331 $6,446,9001 $6,750,490 $7,068,790 Budgeted MWDOC Cost $4,900,000 $5,000,000 Fixed WS Cost $1,805,7341 $1,904,427 $2,009,337 $2,120,880 $2,239,503 $2,365,684 $2,499,933 $2,642,796 $2,794,856 $2,956,736 $3,129,104 Variable WS Cost $8,979,3751 $9,391,691 $10,036,497 $10,606,459 $11,136,782 $11,693,621 $12,278,302 $12,892,2171 $13,536,828 $14,213,6691 $14,924,353 Potable Water Supply $10,785,109 $11,296,118 $12,045,834 $12,727,339 $13,376,285 $14,059,305 $14,778,235 $15,535,0131 $16,331,683 $17,170,4051 $18,053,457 The City provides recycled water to seven customers for the purposes of irrigating parks, schools, center medians and golf courses. Recycled water is purchased from OCWD through the Green Acres Project. The RW supply costs, as projected by City Staff and shown in Table 5-10, are 100% pass-through from OCWD (provided by OCWD on April 16, 2019 up to FY 2025, and forecast by 5% inflationary factors) and collected via the RW water supply usage charges. City of Newport Beach - Water Rate Study Report Page 119 22-36 Table 5-10: Projected RW Supply Costs, pass-through from OCWD RW Sales 569 AF 569 AF 569 AF 1 569 AF 569 AF 569 AF 1 569 AF 569 AF 569 AF 1 569 AF 569 AF RW Loss 2.80% 2.80% 2.80%1 2.80% 2.80% 2.80%1 2.80% 2.80% 2.80% 2.80% 2.80% RW Purchase 585 AF 585 AF 585 AF 585 AF 585 AF 585 AF 585 AF 585 AF 585 AF 585 AF 585 AF RW Supply Unit Costs $838/AF $867/AF $896/AF $900/AF $934/AF $970/AF $1,008/AF $1,058/AF $1,111/AF $1,167/AF $1,225/AF RW Supply Costs $490,454 $507,427 $524,399 $526,740 $546,640 $567,709 $589,949 $619,447 $650,419 $682,940 $717,087 RW Unit Rate ($/HCFT $1.98 $2.051$2.121$2.13 $3,608,578 $3,747,267 $2.21 $2.29 $2.38 $2.50 $2.62 $2.76 $2.89 5.4.2 Projected O&M Expenses Table 5-11 restates the potable water supply costs (from Table 5-9, except water supply costs for FY 2019 and FY 2020 are based on approved budget) and RW supply costs (Table 5-10) and the budgeted and projected 0&M expenses using the inflation factors assumed in Table 5-1. In Table 5-9, FY 2019 and FY 2020 columns represent staffs cost estimate calculations for projected water supply costs, comparing groundwater vs. imported water costs. This differs from the FY 2019 and FY 2020 columns on Table 5-11 as they represent the final approved budget which includes additional budget capacity for additional water consumption. Please refer to Appendix 1 for details on 0&M expenses and escalation factors used for each line item. Table 5-11: Projected Water O&M Expenses Expenses Used For Cash Flows Potable WS Costs FY 2019 Est. Actual $11,300,000 FY 2020 Budget $12,100,000 FY 2021 Projected $12,045,834 FY 2022 Projected $12,727,339 FY 2023 Projected $13,376,285 FY 2024 Projected $14,059,305 FY 2025 Projected $14,778,235 FY 2026 Projected $15,535,013 FY 2027 Projected $16,331,683 FY 2028 Projected $17,170,4051 FY 2029 Projected $18,053,457 Fixed Potable WS Costs $1,805,734 $1,904,427 $2,009,337 $2,120,880 $2,239,503 $2,365,684 $2,499,933 $2,642,796 $2,794,856 $2,956,736 $3,129,104 Variable Potable WS Costs $9,494,266 $10,195,573 $10,036,497 $10,606,459 $11,136,782 $11,693,621 $12,278,302 $12,892,217 $13,536,828 $14,213,669 $14,924,353 RW Supply Costs $490,454 $507,427 $524,399 $526,740 $546,640 $567,709 $589,949 $619,447 $650,419 $682,940 $717,087 Salaries & Benefits $5,443,440 $5,596,886 $5,771,169 $5,951,182 $6,137,126 $6,329,2041 $6,527,631 $6,732,626 $6,944,418 $7,163,244 $7,389,349 Other Operating Expenses $3,313,775 $3,475,373 $3,608,578 $3,747,267 $3,891,683 $4,042,074 $4,198,703 $4,361,845 $4,531,787 $4,708,829 $4,893,284 Conservation Program $422,422 $420,6181 $433,237 $446,234 $459,621 $473,409 $487,612 $502,240 $517,307 $532,826 $548,811 Meter Related $1,009,927 $705,887 $727,064 $748,876 $771,342 $794,482 $818,316 $842,866 $868,152 $894,197 $921,022 Gen & Admin $2,888,304 $3,669,933 $3,776,193 $3,885,641 $3,998,372 $4,114,486 $4,234,082 $4,357,267 $4,484,147 $4,614,834 $4,749,441 Capital / Equip Expenses $14,154 $144,154 $148,479 $152,933 $157,521 $162,247 $167,114 $172,127 $177,291 $182,610 $188,088 AP & CC Adjustments in Sales of Potable Water Rev $349,560 $360,047 $370,848 $381,974 $393,433 $405,236 $417,393 $429,915 $442,812 $456,097 $469,779 TOTAL OPERATING EXPENSES $25,232,035 $26,980,324 $27,405,799 $28,568,185 $29,732,021 $30,948,151 $32,219,036 $33,553,346 $34,948,017 $36,405,982 $37,930,320 City of Newport Beach - Water Rate Study Report Page 120 22-37 5.5 CAPITAL IMPROVEMENT PLAN (CIP) FUNDING Provided by the City Staff, the average annual Master Plan CIP of $7.2M was utilized for the Financial Plan (Figure 5-1). No escalation factor was used for the projected annual CIP funding. Figure 5-1: Estimated Annual CIP Funding CIP and Funding Sources Leveled Est. $7.2M CIP y $8 $7.2 $7.2— $7.2 $7.2 $7.2 $7.2 $7.2 $7.2 — $7.2 — $7.2 o $7 $6 $5 $4 $3 $2 $1 $0 FY 2020 FY 2021 FY 2022 FY 2023 FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 FY 2029 L] Debt Funded CIP ■PAYG❑ CIP •Total CIP 5.6 STATUS QUO FINANCIAL PLAN Under the status -quo scenario, which does not include revenue adjustments, revenues generated from rates and other miscellaneous revenues (Table 5-7) are inadequate to sufficiently recover the expenses of the Water Fund (Table 5-11) and capital funding (Figure 5-1). In Figure 5-2, the line represents the projected revenues from current rates without any adjustment. The stacked bars represent the expenditures, such as potable water supply (light blue), recycled water (purple), other 0&M expenses (green), and PAYGO CIP (teal). The red bars below the axis signify that the collected revenues are insufficient for operating and capital costs in those years and require drawing on the current Water Fund balances. The current water revenues are insufficient to recover operating and capital costs in all years; thus certain revenue adjustments are warranted. Figure 5-3 shows the forecasted Water Fund ending balances (teal bars) after incorporating the current revenues and expenses (shown in Figure 5-2) and the estimated Water Fund beginning balance as of July 1, 2019. The red line in Figure 5-3 is the recommended minimum target balance. In addition, Water Fund is unable to meet its target balances starting FY 2022. Table 5-12 summarizes numerically the Water Financial Plan under Status Quo scenario. City of Newport Beach - Water Rate Study Report Page 121 22-38 $50 N C $40 $30 $20 $10 $0 -$10 -$20 X30 Figure 5-2: Status Quo Water Financial Plan Water Financial Plan FY 2020 FY 2021 FY 2022 FY 2023 FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 FY 2029 Potable WS Cast � RW Supply Costs � Other Operating Expenses o Debt Service � PAYGO Cl P � Reserve Funding ----- Current Revenues Proposed Revenues Figure 5-3: Projected Water Fund Ending Balance without Revenue Adjustments $40 N C $20 $0 -$20 -$40 -$60 -$80 -$100 Projected Ending Balances FY 2020 FY 2021 FY 2022 FY 2023 FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 FY 2029 � Ending Balances City of Newport Beach - Water Rate Study Report Min Target Balances Page 122 22-39 Table 5-12: Status Quo Water Financial Plan REVENUES $25,232,035 $26,980,324 $27,405,799 $28,568,185 $29,732,021 $30,948,151 $32,219,036 $33,553,346 $34,948,017 $36,405,982 $37,930,320 Revenues from Current Rates $26,372,623 $27,666,480 $26,974,725 $26,974,725 $26,974,725 $26,974,725 $26,974,725 $26,974,725 $26,974,725 $26,974,725 $26,974,725 Sale of Water Reclaimed $375,000 $425,000 $524,399 $526,740 $546,640 $567,709 $589,949 $619,447 $650,419 $682,940 $717,087 Other Operating Revenues $402,653 $427,653 $1,927,653 $427,653 $427,653 $427,653 $427,653 $427,653 $427,653 $427,653 $427,653 Non -Operating Revenues $5,443,440 $5,596,886 $5,771,169 $5,951,182 $6,137,126 $6,329,204 $6,527,631 $6,732,626 $6,944,418 $7,163,244 $7,389,349 Investment Income $253,369 $284,380 $232,865 $169,889 $87,164 $0 $0 $0 $0 $0 $0 Other Non -Operating Revenues $22,000 $10,000 $10,000 $10,000 $10,000 $10,000 $10,000 $10,000 $10,000 $10,000 $10,000 TOTAL REVENUES $27,425,645 $28,813,513 $29,669,642 $28,109,007 $28,046,181 $27,980,087 $28,002,327 $28,031,824 $28,062,797 $28,095,318 $28,129,465 OPERATING EXPENSES $25,232,035 $26,980,324 $27,405,799 $28,568,185 $29,732,021 $30,948,151 $32,219,036 $33,553,346 $34,948,017 $36,405,982 $37,930,320 Fixed Potable WS Costs $1,805,734 $1,904,427 $2,009,337 $2,120,880 $2,239,503 $2,365,684 $2,499,933 $2,642,796 $2,794,856 $2,956,736 $3,129,104 Variable Potable WS Costs $9,494,266 $10,195,573 $10,036,497 $10,606,459 $11,136,782 $11,693,621 $12,278,302 $12,892,217 $13,536,828 $14,213,669 $14,924,353 RW Supply Costs $490,454 $507,427 $524,399 $526,740 $546,640 $567,709 $589,949 $619,447 $650,419 $682,940 $717,087 Salaries & Benefits $5,443,440 $5,596,886 $5,771,169 $5,951,182 $6,137,126 $6,329,204 $6,527,631 $6,732,626 $6,944,418 $7,163,244 $7,389,349 Other Operating Expenses $3,313,775 $3,475,373 $3,608,578 $3,747,267 $3,891,683 $4,042,074 $4,198,703 $4,361,845 $4,531,787 $4,708,829 $4,893,284 Conservation Program $422,422 $420,618 $433,237 $446,234 $459,621 $473,409 $487,612 $502,240 $517,307 $532,826 $548,811 Meter Related $1,009,927 $705,887 $727,064 $748,876 $771,342 $794,482 $818,316 $842,866 $868,152 $894,197 $921,022 Gen & Admin $2,888,304 $3,669,933 $3,776,193 $3,885,641 $3,998,372 $4,114,486 $4,234,082 $4,357,267 $4,484,147 $4,614,834 $4,749,441 Capital / Equip Expenses $14,154 $144,154 $148,479 $152,933 $157,521 $162,247 $167,114 $172,127 $177,291 $182,610 $188,088 AP & CC Adjustments in Sales of Potable Water Rev $349,560 $360,047 $370,848 $381,974 $393,433 $405,236 $417,393 $429,915 $442,812 $456,097 $469,779 TOTAL OPERATING EXPENSES $25,232,035 $26,980,324 $27,405,799 $28,568,185 $29,732,021 $30,948,151 $32,219,036 $33,553,346 $34,948,017 $36,405,982 $37,930,320 NET REVENUES $2,193,610 $1,833,189 $2,263,843 -$459,179 -$1,685,840 -$2,968,065 -$4,216,709 -$5,521,521 -$6,885,221 -$8,310,664 -$9,800,855 CAPITAL EXPENDITURE Total CIP Expenditures $9,256,000 $7,200,000 $7,200,000 $7,200,000 $7,200,000 $7,200,000 $7,200,000 $7,200,000 $7,200,000 $7,200,000 $7,200,000 NET CASH CHANGES -$7,062,390 -$5,366,811 -$4,936,157 -$7,659,179 -$8,885,840 -$10,168,065 -$11,416,709 -$12,721,521 -$14,085,221 -$15,510,664 -$17,000,855 BEGINNING BALANCES $31,121,429 $25,754,618 $20,818,461 $13,159,283 $4,273,442 -$5,894,622 -$17,311,331 -$30,032,852 -$44,118,073 -$59,628,737 ENDING BALANCES $25,754,618 $20,818,461 $13,159,283 $4,273,442 -$5,894,622 -$17,311,331 -$30,032,852 -$44,118,073 -$59,628,737 -$76,629,592 Target Reserves O&M 33% of operating expenses Capital 75% of 5 -year average CIP Rate Stabilization $2,700,000 $17,003,507 $8,903,507 $5,400,000 $2,700,000 $17,230,828 $9,043,914 $5,400,000 $2,786,914 $17,704,311 $9,427,501 $5,400,000 $2,876,809 $18,181,362 $9,811,567 $5,400,000 $2,969,795 $18,678,874 $10,212,890 $5,400,000 $3,065,984 $19,197,774 $10,632,282 $5,400,000 $3,165,492 $19,741,047 $11,072,604 $5,400,000 $3,268,443 $20,307,807 $11,532,846 $5,400,000 $3,374,961 $20,899,153 $12,013,974 $5,400,000 $3,485,179 $21,516,238 $12,517,006 $5,400,000 $3,599,232 City of Newport Beach - Water Rate Study Report Page 123 22-40 5.7 PROPOSED FINANCIAL PLAN One of the Study's major objectives is to develop a long-term financial plan ensuring financial sufficiency for the Water Fund's projected operating and capital obligations. Raftelis developed a 10 - year Financial Plan Model incorporating the known and forecasted cost increases for operating and capital expenditures. The results were presented and discussed with the Finance Committee and City Council. The proposed revenue adjustments for the Water Fund are shown in Table 5-13 below. The adjustments account for the recent approval of the Federal WaterSMART Water and Energy Efficiency Grant in the amount of $1.5 million for Advance Metering Infrastructure (AMI) along with other forecasts. Table 5-13: Proposed Water Revenue Adjustments With the proposed revenue adjustments, the Water Financial Plan is summarized in the Figures below. In Figure 5-4, the dashed red line is the projected revenues from current rates without any adjustment, green line represents the projected revenues with the proposed revenue adjustments shown in Table 5-13. The stacked bars represent the expenditures, such as potable water supply (light blue), recycled water (purple), other 0&M expenses (green), and PAYGO CIP (teal). The red bars below the axis in FY 2020 to FY 2023 and FY 2028 to FY 2029 signify that the collected revenues are insufficient for operating and capital costs in those years and require drawing on the current Water Fund balances. The current water revenues (red line) are insufficient to recover operating and capital costs in all years, thus revenue adjustments are warranted. Figure 5-5 shows the forecasted Water Fund ending balances (teal bars) after incorporating the revenues with proposed revenue adjustments and projected expenses (shown in Figure 5-4) and the estimated Water Fund beginning balance as of July 1, 2019. City of Newport Beach - Water Rate Study Report Page 124 22-41 $40 $30 $20 $10 $0 -$10 Figure 5-4: Water Financial Plan Water Financial Plan FY 2020 FY 2021 FY 2022 FY 2023 FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 FY 2029 Potable WS Cost � RW Supply Costs � Other Operating Expenses o Debt Service � PAYGO Cl P � Reserve Funding ----- Current Revenues Proposed Revenues $30 N C O $25 $20 $15 EIEUI $5 $0 J Figure 5-5: Projected Water Fund Ending Balances Projected Ending Balances FY 2020 FY 2021 FY 2022 FY 2023 FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 FY 2029 � Ending Balances Min Target Balances Table 5-14 details numerically the proposed financial plan, incorporating all the projections on revenues generated from rates and other miscellaneous revenues (Table 5-7), proposed revenue adjustments (Table 5-13), expenses of the Water Fund (Table 5-11) and capital funding (Figure 5-1). In the first 4 years, the City will continue to draw on reserves to fund its increased capital funding. Starting FY 2024, the City will start to have positive cash flows to maintain its reserves slightly above the recommended minimum target balances. Raftelis recommends the City review its financial plan annually and conduct comprehensive rate study every 5 years to update with more relevant data. City of Newport Beach - Water Rate Study Report Page 125 22-42 Table 5-14: Proposed Water Financial Plan REVENUES $375,000 $425,000 $524,399 $526,740 $546,640 $567,709 $589,949 $619,447 $650,419 $682,940 $717,087 Other Operating Revenues Revenues from Current Rates $26,372,623 $27,666,480 $26,974,725 $26,974,725 $26,974,725 $26,974,725 $26,974,725 $26,974,725 $26,974,725 $26,974,725 $26,974,725 Proposed Revenues Adjustments $0 $1,023,660 $3,068,051 $5,291,217 $7,678,896 $10,243,264 $12,053,020 $13,028,714 $14,028,800 $15,053,888 $16,104,603 FY % Effective Month Billing Months at Naw Rates $237,911 $221,046 $217,142 $222,900 $229,882 $233,452 $233,220 $228,764 Other Non -Operating Revenues FY 2020 7.4% Jan 6 $1,023,660 $1,996,130 $1,996,130 $1,996,130 $1,996,130 $1,996,130 $1,996,130 $1,996,130 $1,996,130 $1,996,130 FY 2021 7.4% Jan 6 $1,071,922 $2,143,843 $2,143,843 $2,143,843 $2,143,843 $2,143,843 $2,143,843 $2,143,843 $2,143,843 FY 2022 7.4% Jan 6 $1,151,244 $2,302,488 $2,302,488 $2,302,488 $2,302,488 $2,302,488 $2,302,488 $2,302,488 FY 2023 7.4% Jan 6 $1,236,436 $2,472,872 $2,472,872 $2,472,872 $2,472,872 $2,472,872 $2,472,872 FY 2024 7.4% Jan 6 $2,794,856 $2,956,736 $3,129,104 $1,327,932 $2,655,864 $2,655,864 $2,655,864 $2,655,864 $2,655,864 FY 2025 2.5% Jan 6 $14,213,669 $14,924,353 RW Supply Costs $490,454 $481,824 $963,648 $963,648 $963,648 $963,648 FY 2026 2.5% Jan 6 $717,087 Salaries & Benefits $5,443,440 $5,596,886 $5,771,169 $493,870 $987,739 $987,739 $987,739 FY 2027 2.5% Jan 6 Other Operating Expenses $3,313,775 $3,475,373 $3,608,578 $3,747,267 $3,891,683 $506,216 $1,012,433 $1,012,433 FY 2028 2.5% Jan 6 $422,422 $420,618 $433,237 $446,234 $459,621 $473,409 $487,612 $518,872 $1,037,744 FY 2029 2.5% Jan 6 $705,887 $727,064 $748,876 $771,342 $794,482 $818,316 $842,866 $868,152 $531,844 Total Revenues from Rates & Adjustments $26,372,623 $28,690,140 $30,042,776 $32,265,941 $34,653,621 $37,217,989 $39,027,745 $40,003,439 $41,003,525 $42,028,613 $43,079,328 Sale of Water Reclaimed $375,000 $425,000 $524,399 $526,740 $546,640 $567,709 $589,949 $619,447 $650,419 $682,940 $717,087 Other Operating Revenues $402,653 $427,653 $1,927,653 $427,653 $427,653 $427,653 $427,653 $427,653 $427,653 $427,653 $427,653 Non -Operating Revenues $17,003,507 $17,230,828 $17,704,311 $18,181,362 $18,678,874 $19,197,774 $19,741,047 $20,307,807 $20,899,153 $21,516,238 O&M 33% of operating expenses Investment Income $253,369 $289,524 $258,622 $237,911 $221,046 $217,142 $222,900 $229,882 $233,452 $233,220 $228,764 Other Non -Operating Revenues $22,000 $10,000 $10,000 $10,000 $10,000 $10,000 $10,000 $10,000 $10,000 $10,000 $10,000 TOTAL REVENUES $27,425,645 $29,842,317 $32,763,451 $33,468,246 $35,858,960 $38,440,494 $40,278,248 $41,290,420 $42,325,049 $43,382,425 $44,462,833 OPERATING EXPENSES Fined Potable WS Costs $1,805,734 $1,904,427 $2,009,337 $2,120,880 $2,239,503 $2,365,684 $2,499,933 $2,642,796 $2,794,856 $2,956,736 $3,129,104 Variable Potable WS Costs $9,494,266 $10,195,573 $10,036,497 $10,606,459 $11,136,782 $11,693,621 $12,278,302 $12,892,217 $13,536,828 $14,213,669 $14,924,353 RW Supply Costs $490,454 $507,427 $524,399 $526,740 $546,640 $567,709 $589,949 $619,447 $650,419 $682,940 $717,087 Salaries & Benefits $5,443,440 $5,596,886 $5,771,169 $5,951,182 $6,137,126 $6,329,204 $6,527,631 $6,732,626 $6,944,418 $7,163,244 $7,389,349 Other Operating Expenses $3,313,775 $3,475,373 $3,608,578 $3,747,267 $3,891,683 $4,042,074 $4,198,703 $4,361,845 $4,531,787 $4,708,829 $4,893,284 Conservation Program $422,422 $420,618 $433,237 $446,234 $459,621 $473,409 $487,612 $502,240 $517,307 $532,826 $548,811 Meter Related $1,009,927 $705,887 $727,064 $748,876 $771,342 $794,482 $818,316 $842,866 $868,152 $894,197 $921,022 Gen &Admin $2,888,304 $3,669,933 $3,776,193 $3,885,641 $3,998,372 $4,114,486 $4,234,082 $4,357,267 $4,484,147 $4,614,834 $4,749,441 Capital / Equip Expenses $14,154 $144,154 $148,479 $152,933 $157,521 $162,247 $167,114 $172,127 $177,291 $182,610 $188,088 AP & CC Adjustments in Sales of Potable Water Rev $349,560 $360,047 $370,848 $381,974 $393,433 $405,236 $417,393 $429,915 $442,812 $456,097 $469,779 TOTAL OPERATING EXPENSES $25,232,035 $26,980,324 $27,405,799 $28,568,185 $29,732,021 $30,948,151 $32,219,036 $33,553,346 $34,948,017 $36,405,982 $37,930,320 NET REVENUES $2,193,610 $2,861,992 $5,357,652 $4,900,060 $6,126,938 $7,492,342 $8,059,212 $7,737,074 $7,377,032 $6,976,444 $6,532,512 CAPITAL EXPENDITURE Total CIP Expenditures $9,256,000 $7,200,000 $7,200,000 $7,200,000 $7,200,000 $7,200,000 $7,200,000 $7,200,000 $7,200,000 $7,200,000 $7,200,000 NET CASH CHANGES -$7,062,390 -$4,338,008 -$1,842,348 42,299,940 -$1,073,062 $292,342 $859,212 $537,074 $177,032 -$223,556 -$667,488 BEGINNING BALANCES $33,924,564 $31,121,429 $26,783,421 $24,941,073 $22,641,134 $21,568,072 $21,860,414 $22,719,626 $23,256,700 $23,433,732 $23,210,176 ENDING BALANCES $26,862,174 $26,783,421 $24,941,073 $22,641,134 $21,568,072 $21,860,414 $22,719,626 $23,256,700 $23,433,732 $23,210,176 $22,542,688 Target Reserves $16,734,972 $17,003,507 $17,230,828 $17,704,311 $18,181,362 $18,678,874 $19,197,774 $19,741,047 $20,307,807 $20,899,153 $21,516,238 O&M 33% of operating expenses $8,326,572 $8,903,507 $9,043,914 $9,427,501 $9,811,567 $10,212,890 $10,632,282 $11,072,604 $11,532,846 $12,013,974 $12,517,006 Capital 75% of 5 -year average CIP $5,708,400 $5,400,000 $5,400,000 $5,400,000 $5,400,000 $5,400,000 $5,400,000 $5,400,000 $5,400,000 $5,400,000 $5,400,000 Rev Loss $2,700,000 $2,700,000 $2,700,000 $2,786,914 $2,876,809 $2,969,795 $3,065,984 $3,165,492 $3,268,443 $3,374,961 $3,485,179 $3,599,232 City of Newport Beach - Water Rate Study Report Page 126 22-43 6. COST OF SERVICE ANALYSIS This Rate Study conforms to the principles set forth in the enabling statutes and the rates abide by the cost - of -service provisions of Proposition 218. 6.1 PROPORTIONALITY Demonstrating proportionality when calculating rates is a critical component of ensuring compliance with Proposition 218. For costs that are recovered through the agency's proposed fixed meter charge, the Study spreads the costs either over all accounts or by meter size, depending on the type of expense. As such, customer classes and usage are not considered nor necessary for calculating each customer's fixed charge. Conversely, costs that are determined as variable are allocated among customer classes based on their demand on the system. As stated in the Manual M1, the AWWA Rates and Charges Subcommittee agree with Proposition 218 that "the costs of water rates and charges should be recovered from classes of customers in proportion to the cost of serving those customers." The agency's revenue requirements are, by definition, the cost of providing service. This cost is then used as the basis to develop unit costs for the water components and to allocate costs to the various customer classes in proportion to the water services rendered. Individual customer demands vary depending on the meter sizes. For example, customers with larger meters impose higher demand and peaking demand on the water system capacity. The concept of proportionality requires that cost allocations consider both the average quantity of water consumed (base) and the peak rate at which it is consumed (peaking). A water system is designed to meet peak demands. The additional costs associated with designing, constructing and maintaining facilities to meet these peak demands must be allocated to those customers whose usage requires facilities to upsize in response to peak demand. In allocating the costs of service, the industry standard as promulgated by AWWA's M1 Manual is to group customers with similar system needs and demands. Generally speaking, customers place the following demands on the water system and water supplies: The system capacity' (for treatment, storage, and distribution) that must be maintained to provide reliable service to all customers at all times The number of customers requiring customer services such as bill processing, customer service support, and other administrative services Joint costs are proportionately shared among all customers in the system based on their service requirements; some specific costs, such as pumping charges, are borne by a subgroup of customers based on the characteristics of that group alone (i.e. elevation zone). 6 System capacity is the system's ability to supply water to all delivery points at the time when demanded. The time of greatest demand is known as peak demand. City of Newport Beach - Water Rate Study Report Page 127 22-44 6.2 WATER COST OF SERVICE ANALYSIS A cost of service analysis distributes a utility's revenue requirements (costs) to each customer class. Figure 6-1 provides a general overview of a cost -of -service analysis. Each step shown below will be described in greater detail in the subsections below. Step 1: Determine Revenue Requirements Figure 6-1: Cost of Service Process Step 2: Functionalize 0&M and Capital Costs and Allocate Functionalized Costs to Cost Causation Categories 6.2.1 Step 1— Determine Revenue Requirements Step 3: Allocate Revenue Requirements to Cost Causation Categories Step 4: Calculate Unit Cost of Service In this Study, water rates are calculated for FY 2019 (known as the Test Year), by calculating water purchase costs and by using the City's FY 2019 budget. Test Year revenue requirements are used in the cost allocation process. According to Government Code 54999.7(c), the City should review the cost of service analysis at least once every five to ten years to ensure that the rates are consistent with the costs of providing service. The revenue requirement determination is based upon the Department's need to generate annual revenues that meet C&M expenses, debt service needs, reserve funding to achieve target levels, and capital investment. Revenues from sources other than water rates and charges (e.g. revenues from miscellaneous services and one-time sources such as grants) partially offset these costs, which reduces the revenue requirement for the rates. The net revenue required from rates for FY 2019 is calculated below in Table 6-1. City of Newport Beach - Water Rate Study Report Page 128 22-45 Table 6-1: Revenue Requirement from Current Water and RW Rates for FY 2019 Revenue Requirements Current Rates FY 2019 Notes O&M Expenses $25,232,035 Table 5-11 Debt Service $0 No debt Rate Funded CIP $9,256,000 Table 5-14 Reserve Funding -$7,062,390 Table 5-14 Total Revenue Requirements $27,425,645 Less Revenue Offset AIL Other Operating Revenues -$402,653 Table 5-7 or 5-14 Non -Operating Revenues -$275,369 Table 5-7 or 5-14 Total Revenue Offset -$678,022 Revenue Requirements @ $26,747,623 Incl. Water & RW Current Rates rates 6.2.2 Step 2 — Functionalize Costs and Allocate Functionalized Costs to Cost Causation Categories To derive the cost to serve each customer class, costs first need to be functionalized. This step involves the arrangement of overall costs into various functions. The water utility costs are categorized into the following functions: » Water supply - direct water supply costs to produce potable water before distributing to customers, including fixed and variable costs of purchasing water from OCWD and MWDOC » RW supply - purchased RW costs from OCWD to be pass-through to the RW customers » RW Pump Station - costs to operate, maintain and replace the pump stations for RW services » Treatment - costs associated with treating water to potable water standards, excluding power and chemical costs » Transmission - costs associated with transporting water from the point of treatment through a major trunk to locations within the distribution systems Distribution - costs associated with the smaller local service distribution mains transporting water to specific locations within the service area » Storage - costs associated with water storage within the distribution or transmission systems » Pumping - cost associated with pumping water from the treatment facilities to the transmission and distribution systems » Fire protection - costs associated with installing and maintaining fire hydrants » Meter service - costs associated with providing customer water meters and associated with testing and replacements » General & Administrative - represents all other costs that do not serve a specific function » Billing and customer service - billing costs including meter reading, billing and collection costs associated with preparing a water customer bill and processing funds received from water users. Customer service costs include costs associated with administering customer accounts such as processing complaints, responding to customer inquiries, performing rereads, etc. City of Newport Beach - Water Rate Study Report Page 129 22-46 Conservation - costs associated with conservation programs and services offered to the City customers Raftelis reviewed and functionalized the Water Fund's 0&M expenses and asset list. Table 6-2 summarizes the functionalized 0&M costs for the Water Fund for test year FY 2019. Table 6-3 shows the fixed asset values of the Water Fund using replacement costs. To reduce rate variability from year to year, allocation of fixed assets to cost causation components is used to approximately tie the capital -related costs to Division functions. Replacement costs, escalated from original costs to current dollars using Engineering News Record - Construction Cost Index (ENR CCI) of Los Angeles, consider changes in the value of money over time, and thus provide more consistent allocation of costs. See Appendices 1 and 2 for details. Table 6-2: FY 2019 Functionalized O&M Costs Water Service Functions FY 2019 Water Supply $11,300,000 RW Supply $490,454 RW Pump Station $10,360 Treatment $323,053 Transmission $135,883 Distribution $207,736 Pumping $90,000 Storage $105,977 Meter Services $1,009,927 Billing $349,560 G&A $10,713,571 Conservation $422,422 Fire Protection $73,092 Total $25,232,035 Table 6-3: FY 2019 Functionalized Water Assets Water Service Functions FY 2019 Water Supply $6,944,773 RW Pump Station $1,809,997 Transmission $103,069,098 Distribution $103,069,098 Pumping $8,970,117 Storage $508,974,120 Meter Services $18,535,480 G&A $26,102,423 Fire Protection Total $8,293,937 $785,769,042 City of Newport Beach - Water Rate Study Report Page 130 22-47 Raftelis used the Base -Extra Capacity method, as described in the AWWA M1 Manual, which consists of a number of cost causation components. Functionalization of costs allows for better allocation of costs to the cost causation components, which include: » Water Supply Costs are direct costs incurred to purchase water from OCWD and MWDOC » RW Supply Costs are directly pass-through purchased RW costs from OCWD » RW Pump Station Costs are costs to operate, maintain and replace the pump stations for RW services Base Fixed Costs are the operating and capital costs of the water system associated with serving customers at a constant, or average, rate of use. Extra Capacity Costs or peaking costs represent the costs incurred to meet customer peak demands for water in excess of average day usage. Total extra capacity costs are subdivided into costs associated with maximum day and maximum hour demands. The maximum day demand is the maximum amount of water used in a single day in a year. The maximum hour (Max Hour) demand is the maximum usage in an hour on the maximum usage day (Max Day). Various facilities are designed to meet customer peaking needs. For example, transmission lines or reservoirs (storage) are designed to meet Max Day requirements. Both have to be designed larger than they would be if the same amount of water were being used at a constant rate throughout the year. The cost associated with constructing a larger line or reservoir is based on system wide peaking factors. For example, if the Max Day factor is 2.0, then certain system facilities have to be designed at least twice as large as required to meet average daily demand. In this case, half of the cost would be allocated to Base (or average day demand) and the other half allocated to Max Day. The calculation of the Max Hour and Max Day demands is explained below. » Billing & Customer Service Costs include such costs as meter reading, billing, collecting, and customer accounting. » Meter Services Costs or meter service costs include maintenance and capital costs associated with servicing meters. These costs are assigned based on meter size or equivalent meter capacity. » General & Administrative Costs represent all other costs that do not serve a specific function » Fire Protection includes proportional costs to provide fire protection capacity » Conservation includes costs associated with conservation programs and service offered for City customers Peaking costs are further divided into maximum day and maximum hour demand. The maximum day demand is the maximum amount of water used in a single day in a year. The maximum hour demand is the maximum usage in an hour on the maximum usage day. Different facilities, such as distribution and storage facilities, and the 0&M costs associated with those facilities are designed to meet the peaking demands of customers. Therefore, extra capacity costs include the 0&M and capital costs associated with meeting peak customer demand. This method is consistent with the AWWA M1 Manual and is widely used in the water industry to perform COS analyses. After functionalizing expenses, the next step is to allocate the functionalized expenses to cost causation components. To do so, we must identify system -wide peaking factors. The system -wide peaking factors are used to derive the cost component allocation bases (i.e., percentages). Functionalized expenses are then allocated to the cost causation components using these allocation bases. To understand the interpretation of the percentages, we must first establish the base use as the average daily demand during the year. City of Newport Beach - Water Rate Study Report Page 131 22-48 The base demand is assigned a value of 1.0. The Max Day and Max Hour values shown in Table 6-4 are extracted from the 2019 Water Master Plan (page ES -3). Table 6-4: Water System Peaking Factors To determine the relative proportion of costs to assign to Supply, Base Delivery, Maximum Day, and Maximum Hour, allocations are calculated based on these factors. Cost components that are solely related to providing average day demand (ADD), are allocated entirely to Base Delivery. Cost components that are designed to meet Max Day peaks, such as reservoirs and transmission facilities, are allocated to both Base Delivery and Max Day factors. The Max Day factor of the City's system is 1.85, which means that Max Day demand is expected to be 185 percent of the average day capacity. Calculating the Max Day allocation of functional costs to the cost causation components results in the following: Base Fixed 1 Base Fixed Allocation = — � 54% Max Day 1.85 Max Day Allocation = 1 — Base/Max Day � 46% Facilities designed for Max Hour peaks, such as distribution system facilities, are allocated similarly. The Max Hour factor is 2.60, so Max Hour facilities are designed to provide 260 percent of the average day capacity. The allocation of Max Hour facilities is shown below: Base_ _ 1 Base Fixed Alloction = 38% Max Hour 2.60 � Max Day Allocation = Max Day — Base 1.85 — 1.00 Max Hour 2.60 Max Hour Allocation = 1 — 38% — 33% - 29% 33% The results of the allocation are presented below in Table 6-5. These percentages are then applied to the operating and capital improvement expenses to allocate costs amongst Base, Max Day, and Max Hour cost components. Table 6-5: Allocation of Extra Capacity Functional Costs to Cost Causation Categories City of Newport Beach - Water Rate Study Report Page 132 22-49 Water system infrastructure is designed to meet peak demand plus fire protection. A fire protection requirement is needed in the design of distribution and pumping system, thus, a portion of the distribution and pumping system costs are allocated to direct fire protection and the remaining costs are proportionally allocated to base fixed, max day and max hour costs using the max hour ratios shown in Table 6-5. In a typical water system with similar service size with the City, approximately 10% of the water system capacity is reserved for fire protection demand. Therefore, 10% of the distribution and pumping functional costs will be allocated to fire protection cost categories. RW Supply and RW Pump Station are 100% allocated to the corresponding cost categories. Table 6-6: Allocation of Water Cost Functions to Cost Causation Categories Water Water Base Max Max Meter Billing Gen & Conser Direct Fire Service Supply Day Hour Services & CS Admin vation Protection Functions Water Supply 100% Treatment 54% 46% Transmission 54% 46% Distribution 35% 29% 26% 10% Pumping 35% 29% 26% 10% Storage 54% 46% Meter 100% Services Customer 100% Service Billing 100% G&A 100% Conservation 100% Fire 100% Protection Using the allocation factors from Table 6-6 and functional costs from Table 6-2, Table 6-7 summarizes the allocation of FY 2019 0&M expenses to cost causation categories and allocation percentage for operating related costs. Similarly, Table 6-8 summarizes the allocation of Water Fund fixed asset values (by replacement costs as of May 1, 2019) to cost categories and allocation percentage for capital related costs. See Appendices 1 and 2 for details. City of Newport Beach - Water Rate Study Report Page 133 22-50 Table 6-7: Results of O&M Cost Allocations O: Water Supply $11,300,000 % %Supply 44.8% : RW Supply RW Supply $490,454 1.9% 0.2% RW Pump Station $10,360 0.0% 0.1% Base Fixed $408,421 1.6% 3.0% Max Day $347,158 1.4% 2.6% Max Hour $77,297 0.3% 0.6% Meter Services $1,009,927 4.0% 7.5% Billing & CS $349,560 1.4% 2.6% Gen & Admin $10,713,571 42.5% 79.7% Conservation $422,422 1.7% 3.1% Direct Fire Protection $102,866 0.4% 0.8% Total $25,232,035 100% 100% Table 6-8: Results of Asset Value Cost Allocations for Capital Cost Allocations Asset Values Water Supply FY 2019 $6,944,773 Allocation % % 0.9% : RW Supply RW Pump Station $1,809,997 0.2% 0.2% Base Fixed $369,616,977 47.0% 47.5% Max Day $314,174,430 40.0% 40.3% Max Hour $29,087,104 3.7% 3.7% Meter Services $18,535,480 7 2.4% 2.4% Gen & Admin $26,102,423 3.3% 3.4% Direct Fire Protection $19,497,858 2.5% 2.5% Total $785,769,042 100% 100% to 6.2.3 Step 3 - Allocate Revenue Requirements to Cost Causation Categories Table 6-9 shows the calculation of the revenue requirement in Table 6-1 paired with the corresponding allocation percentages for each line. For example, 0&M Expenses will be divided across the cost causation categories according to the percentages listed in Table 6-7, Column B. City of Newport Beach - Water Rate Study Report Page 134 22-51 Table 6-9: Revenue Requirement from Current Water and RW Rates for FY 2019 1 RequirementsRevenue Current Rates 0&M Expenses FY . $25,232,035 Cost Causation Category Allocation 0&M from Table 6-7 Column B 2 Debt Service $0 Capital from Table 6-8 Column B 3 Rate Funded CIP $9,256,000 Capital from Table 6-8 Column B 4 Reserve Funding -$7,062,390 Capital from Table 6-8 Column C 5 Total Revenue Requirements $27,425,645 4.4% 6 Max Hour $151,654 0.6% 6 Less Revenue Offset $1,008,852 3.8% 7 Other Operating Revenues -$402,653 0&M from Table 6-7 Column C 8 Non -Operating Revenues -$275,369 0&M from Table 6-7 Column C 9 Total Revenue Offset -$678,022 1.5% 10 Direct Fire Protection $150,134 0.6% 11 Revenue Requirements @ Current Rates $26,747,623 100% Table 6-10 details the result of allocating the various revenue requirements to the aforementioned cost categories. For more detailed calculations, see Appendix 3. Table 6-10: Revenue Requirement Allocated to Cost Causation Categories 1 CategoriesCost Water Supply Allocation of Revenue $11,381,806 Allocation % 42.6% 2 RW Supply $490,454 1.8% 3 RW Pump Station $31,158 0.1% 4 Base Fixed $1,382,239 5.2% 5 Max Da $1,174,903 4.4% 6 Max Hour $151,654 0.6% 7 Meter Services $1,008,852 3.8% 8 Billing & CS $331,927 1.2% 9 Gen & Admin $10,243,382 38.3% 10 Conservation $401,114 1.5% 11 Direct Fire Protection $150,134 0.6% 12 Total $26,747,623 100% General costs are reallocated proportionally to all cost categories, excluding water supply, RW supply, and RW pump station. This reallocation is shown in Table 6-11. Each category's proportional share of the General and Administrative costs is calculated by dividing that category's total requirement in Column B by the total requirement of all cost categories except Water Supply, and RW Supply shown in Column B, Line 12. The majority of the Water Supply, and RW Supply are direct costs from wholesales, such as OCWD and MWDOC. General costs reflect more of the fixed system costs incurred by the City to provide the services. The resulting percent allocations are in Column C. City of Newport Beach - Water Rate Study Report Page 135 22-52 Table 6-11: General Cost Reallocation 1 Cost Categories Water Supply RevenueAllocation of $11,381,806 General .. N/A Cost Reallocation % Allocated 2 RW Supply $490,454 N/A 2 RW Supply 3 RW Pump Station $31,158 $31,158 0.7% $68,905 4 Base Fixed $1,382,239 $1,382,239 29.8% $3,056,747 5 Max Da $1,174,903 $1,174,903 25.4% $2,598,235 6 Max Hour $151,654 $151,654 3.3% $335,375 7 Meter Services $1,008,852 $1,008,852 21.8% $2,231,023 8 Billing & CS $331,927 $331,927 7.2% $734,040 9 Gen & Admin $10,243,382 N/A $401,114 $887,043 10 Conservation $401,114 $401,114 8.7% $887,043 11 12 Direct Fire Protection Total $150,134 $26,747,623 $150,134 $4,631,981 3.2% 100% $332,014 $10,243,382 The resulting reallocated revenue requirements are shown in Table 6-12, Column C. These allocations will be used to develop category unit costs of service in the Step 4. Table 6-12: Reallocated Revenue Requirements 6.2.4 Step 4 - Calculate Unit Cost of Service In Step 4, we then develop unit costs for each cost component. The unit costs are developed by dividing the total cost for each cost component by the total annual service units for each cost component. The unit costs for volume -related cost components are based on volumetric units of one hundred cubic feet (1 hcf = about 748 gallons). The extra capacity units are determined based on the respective capacity factor, as shown in Table 6-13. City of Newport Beach - Water Rate Study Report Page 136 22-53 Cost Categories RequirementRevenue (TableReallocation . Reallocated 1 Water Supply $11,381,806 $11,381,806 2 RW Supply $490,454 $490,454 3 RW Pump Station $31,158 $68,905 $100,063 4 Base Fixed $1,382,239 $3,056,747 $4,438,986 5 Max Da $1,174,903 $2,598,235 $3,773,138 6 Max Hour $151,654 $335,375 $487,029 7 Meter Services $1,008,852 $2,231,023 $3,239,874 8 Billing & CS $331,927 $734,040 $1,065,967 9 Gen & Admin $10,243,382 -$10,243,382 $0 10 Conservation $401,114 $887,043 $1,288,157 11 Direct Fire Protection $150,134 $332,014 $482,149 12 Total $26,747,623 $0 $26,747,623 6.2.4 Step 4 - Calculate Unit Cost of Service In Step 4, we then develop unit costs for each cost component. The unit costs are developed by dividing the total cost for each cost component by the total annual service units for each cost component. The unit costs for volume -related cost components are based on volumetric units of one hundred cubic feet (1 hcf = about 748 gallons). The extra capacity units are determined based on the respective capacity factor, as shown in Table 6-13. City of Newport Beach - Water Rate Study Report Page 136 22-53 Table 6-13: Water System Average and Peak Demand Potable Water Notes FY 2019 Annual Consumption 5,905,925 HCF Table 5-3 Average Daily Usage 16,180.6 HCF / day [1]/ 365 days Max Day Factor 1.85 Table 6-4 Max Day Total Daily Capacity 29,934.1 HCF / day [2] x [3] Extra Max Day Capacity 13,753.5 HCF / day [4] - [2] Max Hour Factor 2.60 Table 6-4 Max Hour Total Daily Capacity 42,069.6 HCF / day [2] x [6] Extra Max Hour Capacity 12,135.5 HCF / day [7] - [5] - [2] Table 6-14 illustrates the meter ratios using the meter hydraulic capacity as listed in Table B-1 of the AWWA M1 Manual. These ratios define higher meter sizes in terms of their equivalent capacity to 3/4" meters. For example, a 1" meter has the equivalent capacity of 1.67 3/4" meters (Column D, Line 3). Using these ratios allows costs to be distributed equitably across different meter sizes. To find the total equivalent meters served by the City, we multiply the total meters by meter size by their respective meter capacity ratios. The resulting total equivalent meters are shown in Column E. The total equivalent water meters are shown in Column E, Line 12 and the total equivalent recycled water meters are shown in Column E, Line 20. Their combined total equivalent meters are shown in Column E, Line 35. Total actual meters are shown in Column A, Line 35. The table also lists the total annual bills for all meters in each meter size (Column B), with total bills in Column B, Line 12. Total bills and equivalent meter units (EMUS) will serve as units for developing the per unit costs for each cost category. City of Newport Beach - Water Rate Study Report Page 137 22-54 Table 6-14: Meter Ratios and Equivalent Meter Units (EMUs) 7 AWWA M1 Manual, 61h edition, Table B-1 8 30 is the hydraulic capacity for 3/4 inch meters City of Newport Beach - Water Rate Study Report Page 138 22-55 FY Meter Size 2019 Water Meters Number of Meter Monthly Bills Hydraulic CapaCity7 Meter Capacity Ratios D 08 Equivalent Meter Units (EMU) E=AxD Water 1 5/89 16,545 198,540 20 1.00 16,545 2 3/4 4 48 30 1.00 4 3 1 7,585 91,020 50 1.67 12,642 4 11/2 551 6,612 100 3.33 1,837 5 2 1,430 17,160 160 5.33 7,627 6 3 32 384 435 14.50 464 7 4 51 612 750 25.00 1,275 8 6 15 180 1,600 53.33 800 9 8 8 96 2,800 93.33 747 10 10 0 0 4,200 140.00 0 11 12 1 12 5,300 7W76.67 177 12 Total Water 26,222 314,664 42,116 13 14 RW 15 2 10 120 160 5.33 53 16 3 3 36 435 14.50 44 17 4 2 24 750 25.00 50 18 6 1 12 1,600 53.33 53 19 8 2 23 2,800 93.33 187 20 Total RW 18 216 387 21 Water & RW 26,240 314,880 42,503 EMUs 22 23 Private Fire 24 5/8 7 25 1 10 120 26 1 100 27 2 20 240 28 212 2 24 29 3 1 12 30 4 181 2172 31 6 157 1884 32 8 83 996 33 10 2 24 34 Total PF 462 5,544 1.00 462 35 Total 26,702 320,424 42,965 EMUs 7 AWWA M1 Manual, 61h edition, Table B-1 8 30 is the hydraulic capacity for 3/4 inch meters City of Newport Beach - Water Rate Study Report Page 138 22-55 Each private fire service has a 5/8 -in submeter or its own meter equivalent to the fire service size to monitor and detect water flow that requires meter maintenance, thus private fire meters shall also share proportional meter maintenance cost. Water systems are designed, in the past, to meet fire protection needs - which can place a high demand on the water system over a short period of time. To estimate the costs associated with (and to provide capacity for) fire protection, Raftelis followed the methodology put forth in the AWWA M1 Manual. Raftelis assumed that fire protection requires flows of 4,000 gallons per minute for a minimum of 4 hours, as shown in Table 6-15. This is a typical and reasonable fire demand put forth by the Insurance Services Office. This translates to 960,000 gallons per day (1,283 hcf) for Max Day demand or 4,800,000 gallons (or 6,417 hcf) per day for Max Hour demand. 1 GPM 2 Duration 3 Max Day Demand 1 4 Max Hour Demand Table 6-15: Fire Protection Capacity Demand 4,000 gallons per min 4 hours 960,000 gallons / day 4,800,000 gallons / day AWWA MI Manual AWWA MI Manual 1,283 hcf 4000gpmx4hrsx60min/hr 6 417 hcf 4000gpm x 24hrs x 60min/hr - To allocate the extra capacity costs for fire protection between public and private fire, we first calculate the potential flow through each size fire connection (or fire demand units). Table 6-16 shows the public fire demand units (Line 3 in Column F) and private fire demand units (Column F, Line 16). The demand factor in Column D is the fire connection (pipeline) diameter raised to the power of 2.63, which is based on the Hazen -Williams equation for flow. The demand factor for public hydrants is a function of the quantity and diameter of the ports on public fire hydrants. The percentages in Table 6-16, Column G, are used to allocate the fire protection costs between private fire connections and the public (hydrants). 9 For the purpose of this Study and commonly known for the industry, 5/8 inch and 3/4 inch meters are treated equally as the standard meter size City of Newport Beach - Water Rate Study Report Page 139 22-56 Table 6-16: Public and Private Fire Demand Units Table 6-17 illustrates the calculation of the allocated public and private fire protection costs. Line One shows the total revenue requirement allocated to the Max Day and Max Hour cost categories in Table 6-12. These costs are then divided by the Max Day and Max Hour extra capacity demand in hcf/day for each respectively. This arrives at the unit cost of service for Max Day and Max Hour (Line 3). These unit costs are then multiplied by the Max Day and Max Hour fire capacity demands to allocate the share of each cost category's revenue requirement to fire capacity demand (Line 6). These are then divided across public and private fire protection according to the percentages derived in Table 6-17. The total private fire protection costs (Column D, Line 8) will be recovered via the stand-by charges from private fireline services. Table 6-17: Public and Private Fire Capacity Costs Connection Port # of Fire Demand # of Fire Demand % Size Size Ports Factors ' 1 Public Hydrants $3,773,138 $487,029 Table 6-12 2 6 -inch 6.00 2.50 2 133.58 2,636 352,105 Table 6-13, [51 & [81 3 Total Public $274.34 2,636 352,105 88.6% 4 per hcf per hcf 5 Private Fire 1,283 hcf 6,417 hcf Table 6-15 6 5/8 -inch 0.625 0.29 6 2 [11X[31 7 1 -inch 1.00 1.00 10 10 [A71x[61 8 1 Y2 -inch 1.50 2.90 0 0 [A81x161 9 2 -inch 2.00 6.19 20 124 10 2 Y2 -inch 2.50 11.13 2 22 11 3 -inch 3.00 17.98 1 18 12 4 -inch 4.00 38.32 181 6,936 13 6 -inch 6.00 111.31 157 17,476 14 8 -inch 8.00 1 237.21 83 19,688 15 10 -inch 10.00 426.58 2 853 16 Total Private 462 45,129 11.4% 17 Total 3,098 397,233 100% Table 6-17 illustrates the calculation of the allocated public and private fire protection costs. Line One shows the total revenue requirement allocated to the Max Day and Max Hour cost categories in Table 6-12. These costs are then divided by the Max Day and Max Hour extra capacity demand in hcf/day for each respectively. This arrives at the unit cost of service for Max Day and Max Hour (Line 3). These unit costs are then multiplied by the Max Day and Max Hour fire capacity demands to allocate the share of each cost category's revenue requirement to fire capacity demand (Line 6). These are then divided across public and private fire protection according to the percentages derived in Table 6-17. The total private fire protection costs (Column D, Line 8) will be recovered via the stand-by charges from private fireline services. Table 6-17: Public and Private Fire Capacity Costs City of Newport Beach - Water Rate Study Report Page 140 22-57 Fire Capacity % Fire Day Max Hour Total Notes Capacity 1 Allocated Costs $3,773,138 $487,029 Table 6-12 2 Extra Capacity Demand HCF/day 13,753.5 12,135.5 Table 6-13, [51 & [81 3 Unit Cost of Service $274.34 $40.13 [11/[21 4 per hcf per hcf 5 Fire Capacity Demand 1,283 hcf 6,417 hcf Table 6-15 6 Fire Capacity $352,094 $257,536 $609,630 [11X[31 7 Public Fire Protection 88.6% $312,093 $228,278 $540,371 [A71x[61 8 Private Fire Protection 11.4% $40,001 $29,258 $69,259 [A81x161 City of Newport Beach - Water Rate Study Report Page 140 22-57 Table 6-18 shows the revenue requirement allocations to the different cost categories, now incorporating the direct fire protection allocations calculated above (Row 8). Direct fire protection is also allocated to private fire protection proportionally based on the fire demand shown in Table 6-16. The shown numbers might not add up exactly due to rounding. Table 6-18: Reallocated FY 2019 Revenue Requirements According to the M1 Manual, the cost -of -service approach to setting water rates results in the proportionate distribution of costs to each customer or customer class based on the proportional costs that each class incurs. A dual set of fees—fixed and variable—is an extension of this cost causation theory. The components of water system costs for regular water services shown in Table 6-19 are recovered through a combination of the fixed service charge and usage charges. 10 Portion of direct fire protection cost serving private fire services (11.4%, from Table 6-16) City of Newport Beach - Water Rate Study Report Page 141 22-58 Private Fire Reallocated Net Cost Categories Revenue Requirement ReallocationRequirement (Table 1 Water Supply $11,381,806 $11,381,806 2 RW Supply $490,454 $490,454 3 RW Pump Station $100,063 NMI $100,063 4 Base Fixed $4,438,986 $4,438,986 5 Max Day $3,773,138 $40,0 $3,733,138 6 Max Hour $487,029 Ak,$29,258 $457,771 7 Meter Services $3,239,874 $3,239,874 8 Billing & CS $1,065,967 $1,065,967 9 Gen & Admin $0 $0 10 Conservation $1,288,157 $1,288,157 11 Direct Fire Protection $482,149 $54,77610 $427,373 12 Total $26,747,623 $124,034 $26,623,589 According to the M1 Manual, the cost -of -service approach to setting water rates results in the proportionate distribution of costs to each customer or customer class based on the proportional costs that each class incurs. A dual set of fees—fixed and variable—is an extension of this cost causation theory. The components of water system costs for regular water services shown in Table 6-19 are recovered through a combination of the fixed service charge and usage charges. 10 Portion of direct fire protection cost serving private fire services (11.4%, from Table 6-16) City of Newport Beach - Water Rate Study Report Page 141 22-58 Table 6-19: FY 2019 Revenues Requirement Allocated to Rate Components Table 6-19 shows the portion of each cost component collected from the fixed service charge and the usage charge. The entirety of water supply and conservation costs are recovered from water usage charges. To enhance revenue stability, Raftelis recommends that the City increase its fixed charges to 34 percent of rate revenues (the City currently collects 31 percent from fixed charges). To achieve that, a very small portion of base fixed costs (around 2%) is allocated to fixed service charge component and the remaining 98% will be collected through water usage charges. Meter services and billing and customer service will be collected in the corresponding components of fixed service charges. RW supply costs will be 100% passthrough to RW customers via RW supply rates. Costs associated with the RW pump station will be collected through usage pumped through the pump stations. City of Newport Beach - Water Rate Study Report Page 142 22-59 FY 2019 Fixed Water Usage RW Net Revenues Service Volumetric Cost tegories Cafrom Rates Charges Charges Water Supply $11,381,806 $11,381,806 RW Supply $490,454 $490,454 RW Pump Station $100,063 $100,063 Base Fixed $4,438,986 $88,780 $4,350,206 Max Day $3,733,138 $3,733,138 Max Hour $457,771 $457,771 Meter Services $3,239,874 $3,239,874 Billing & Customer Service $1,065,967 $1,065,967 Conservation $1,288,157 $1,288,157 Direct Fire Protection $427,373 $427,373 Total $26,623,589 $9,012,902 $17,020,170 $590,517 Table 6-19 shows the portion of each cost component collected from the fixed service charge and the usage charge. The entirety of water supply and conservation costs are recovered from water usage charges. To enhance revenue stability, Raftelis recommends that the City increase its fixed charges to 34 percent of rate revenues (the City currently collects 31 percent from fixed charges). To achieve that, a very small portion of base fixed costs (around 2%) is allocated to fixed service charge component and the remaining 98% will be collected through water usage charges. Meter services and billing and customer service will be collected in the corresponding components of fixed service charges. RW supply costs will be 100% passthrough to RW customers via RW supply rates. Costs associated with the RW pump station will be collected through usage pumped through the pump stations. City of Newport Beach - Water Rate Study Report Page 142 22-59 7. WATER RATES DEVELOPMENT 7.1 PROPOSED MONTHLY FIXED SERVICE CHARGES The monthly fixed service charge recognizes the fact that even when a customer does not use water, the City incurs fixed costs for the maintenance of the meters, the ability or readiness to serve each connection, and/or the billing and customer service provided to each connection. Table 7-1 shows the calculation of the cost component unit charges that form the components of the fixed service charge. Line 1 lists each component's allocated revenue requirement, derived in Table 6-19. Line 2 defines the units used to allocate these costs equitably across the City's customers. Billing & Customer Service costs are divided by the total meters served as all accounts are served equally by this component. Meter Service and Capacity costs are divided by EMUS because customers' demand on these components is proportional to their meter capacity. Capacity costs include the Max Day and Max Hour, Direct Fire Protection, and a portion of base fixed costs to be recovered by fixed service charges for water meters only (shown in Table 6-19). The calculated rates in Line 4 are rounded up to the nearest cent. Table 7-1: Development of Unit Monthly Fixed Service Charge The unit cost components derived in Table 7-1 are added together to form the Fixed Service Charge. As described above, all customers pay the same Billing and Customer Service cost (Column A). The Meter Service and Capacity unit costs are multiplied by the meter ratios (Columns B and C) to proportionally escalate these costs according to capacity in comparison to a 3/4 meter, as described earlier. The rate components in Columns C, D, and E are added together in Column F to form the revised Fixed Service Charges by Meter Size in Table 7-3. 11 Including Base Fixed, Max Day, Max Hour, Direct Fire Protection costs from Table 6-19, column B 12 Including Water, RW and Private Fire meters 13 Water and RW meters and 5/8 private submeters 14 Water meters only City of Newport Beach - Water Rate Study Report Page 143 22-60 Private Fire Service charges, shown in Table 7-2, are calculated using the revenue requirements from Table 6-18 and private fire demand units (FDUs) from Table 6-16. These costs are calculated as those in the above table by dividing the Peaking and Direct Fire total costs by the total Fire Demand Units (FDU), resulting in the unit cost of service shown in Line 4. 72 1 3 4 Table 7-2: Development of Unit Fireline Stand-by Charge frivate Fire Service Charges feaking —Ak- 1"Irect Fire Revenue Requirements (Table 6-18) $69,258 $54,776 Units of Service (Table 6-16, [1716]) 45,129 FDUs 45,129 FDUs Annual Fire Units ([2] x 12]) 541,544 FUs 541,544 FUs Unit Cost of Service ([11 / [31) $0.128 $0.101 As shown in Table 7-3, Billing and Customer Service is charged equally to potable water customers. In addition, these customers pay the Peaking and Direct Fire costs in proportion to their meter size. These components in Columns C, D, and E are added together to form the revised Private Fire Monthly Fixed Service Charges in Column F in Table 7-3. City of Newport Beach - Water Rate Study Report Page 144 22-61 Table 7-3: FY 2019 Revised Monthly Fixed Service Charges (FSC) Table 7-4 compares the current FY 2019 fixed charges for fire and potable water customers with the FY 2019 charges revised based on the new cost of service analysis (Column B) and the proposed FY 2020 rates. The proposed FY 2020 charges escalate the FY 2019 revised charges by 7.40 percent. Column D shows the dollar impact of the proposed FY 2020 charges over the current FY 2019 charges. Note that the City currently charges $1.00 per unit for each residential customer with more than 1 dwelling unit. It also charges $0.50 per non-residential unit. Since there are minimal non- residential units and Raftelis recommends no longer assessing these charges on residential and non - is Fire Demand Ratios are different than Meter Capacity Ratios. The Fire Demand Ratios are calculated using the industry standards based on the formulas shown in Table 6-16 City of Newport Beach - Water Rate Study Report Page 145 22-62 FY 2019 Meter Billing & Meter FY 2019 No. of Meters Ratios CS Service Capacity .. • FSC Water 5/8 16,545 1.00 $3.33 $6.29 $9.32 $18.94 3/4 4 1.00 $3.33 $6.29 $9.32 $18.94 1 7,585 1.67 $3.33 $10.49 $15.54 $29.36 11/2 551 3.33 $3.33 $20.97 $31.07 $55.37 2 1,430 5.33 $3.33 $33.55 $49.71 $86.59 3 32 14.50 $3.33 $91.21 $135.14 $229.68 4 51 25.00 $3.33 $157.25 $233.00 $393.58 6 15 53.33 $3.33 $335.47 $497.07 $835.87 8 8 93.33 $3.33 $587.07 $869.87 $1,460.27 10 0 140.00 $3.33 $880.60 $1,304.80 $2,188.73 12 1 176.67 $3.33 $1,111.24 $1,646.54 $2,761.11 PrivateFY 2019 o o Fire & Meter Peaking Direct FY 2019 Meters Ratio15 CS Service ;. ;0 ;0 5/8 6 0.29 $3.33 $6.29 $0.04 $0.03 $9.69 1 10 1.00 $3.33 $6.29 $0.13 $0.11 $9.86 11/2 0 2.90 $3.33 $6.29 $0.38 $0.30 $10.30 2 20 6.19 $3.33 $6.29 $0.80 $0.63 $11.05 21/2 2 11.13 $3.33 $6.29 $1.43 $1.13 $12.18 3 1 17.98 $3.33 $6.29 $2.30 $1.82 $13.74 4 181 38.32 $3.33 $6.29 $4.91 $3.88 $18.41 6 157 111.31 $3.33 $6.29 $14.24 $11.26 $35.12 8 83 237.21 $3.33 $6.29 $30.34 $24.00 $63.96 10 2 426.58 $3.33 $6.29 $54.56 $43.15 $107.33 12 0 M9 689.04 $3.33 $6.29 $88.13 $69.70 $167.45 Table 7-4 compares the current FY 2019 fixed charges for fire and potable water customers with the FY 2019 charges revised based on the new cost of service analysis (Column B) and the proposed FY 2020 rates. The proposed FY 2020 charges escalate the FY 2019 revised charges by 7.40 percent. Column D shows the dollar impact of the proposed FY 2020 charges over the current FY 2019 charges. Note that the City currently charges $1.00 per unit for each residential customer with more than 1 dwelling unit. It also charges $0.50 per non-residential unit. Since there are minimal non- residential units and Raftelis recommends no longer assessing these charges on residential and non - is Fire Demand Ratios are different than Meter Capacity Ratios. The Fire Demand Ratios are calculated using the industry standards based on the formulas shown in Table 6-16 City of Newport Beach - Water Rate Study Report Page 145 22-62 residential units, we are not including the minimal revenues generated by the non-residential units in this Study. Table 7-4: FY 2020 Proposed Monthly Fixed Service Charges (FSC) Water Proposed Rev Adjustments Water FY 2019 Current FY 2019 Revised FY 2020 Proposed 7.40% $ impacts 5/8 $17.27 $18.94 $20.35 $3.08 3/4 1 $17.27 $28.79 $18.94 $29.36 $20.35 $31.54 $3.08 $2.75 11/2 $57.58 $55.37 $59.47 $1.89 2 $92.12 $86.59 $93.00 $0.88 3 $172.73 $229.68 $246.68 $73.95 4 $287.88 $393.58 $422.71 $134.83 6 $575.76 $835.87 $897.73 $321.97 8 $921.22 $1,460.27 $1,568.33 $647.11 10 $1,655.90 $2,188.73 $2,350.70 $694.80 12 $2,663.48 $2,761.11 $2,965.44 $301.96 Per Dwelling Unit Charge Residential $1.00 N/A N/A -$1.00 Fire 5/8 FY 2019 Current $3.13 FY 2019 RevisedPrivate $9.69 FY 2020 opo $10.41 impacts $7.28 1 $5.00 $9.86 $10.59 $5.59 11/2 $7.50 $10.30 $11.07 $3.57 2 $10.00 $11.05 $11.87 $1.87 21/2 $12.50 $12.18 $13.09 $0.59 3 $15.00 $13.74 $14.76 -$0.24 4 $20.00 $18.41 $19.78 -$0.22 6 $30.00 $35.12 $37.72 $7.72 8 $40.00 $63.96 $68.70 $28.70 10 $50.00 $107.33 $115.28 $65.28 12 $60.00 $167.45 $179.85 $119.85 City of Newport Beach - Water Rate Study Report Page 146 22-63 7.2 PROPOSED WATER USAGE CHARGES Water usage charges are comprised of those related to usage demand on the system such as water supply costs, water service costs, including remaining base fixed costs, and conservation program costs, as detailed numerically in Table 6-19. The components of the water usage charge are defined in Table 7-5. Table 7-5: Water Usage Component Descriptions Rate Component Description Water Supply Recovers water purchase costs (Table 6-19, [C11) Recovers remaining water system costs associated with delivering Water Service water, such as remaining base fixed costs (Table 6-19 [C4]) and conservation costs (Table 6-19 [C9]) Table 7-6 shows the water usage charge calculations using the allocated FY 2019 revenue requirements from Table 6-19 and FY 2019 water sales from Table 6-13. The calculated rate is rounded up to the nearest cent. The water usage charge will be assessed to all potable water usage including City parks and non -parks. Table 7-6: FY 2019 Water Usage Charge Calculations Line FY 2019 Water Notes No. Usage Charge 1 Allocated Rev Requirements $17,020,170 Table 6-19 2 Units of Service 5,905,925 HCF Table 6-13 3 Adjusted Unit Cost of Service $2.89 [1]/[2], rounded up The recommended revised charges are uniform across all customer classes (Column B). As with the Monthly Fixed Service Charges, the revised charges are escalated by 7.40 percent to arrive at the proposed FY 2020 charges. Column D again provides the impacts of the proposed FY 2020 charges over the current FY 2019 charges. Table 7-7: FY 2020 Proposed Water Usage Charges Potable Water City of Newport Beach - Water Rate Study Report Page 147 22-64 7.3 PROPOSED RECYCLED WATER RATES The Monthly Fixed Service Charges for the Recycled Water utility are calculated similarly to the potable water charges. Table 7-8 shows the Billing & Customer Service and Meter Service components. These customers pay the same Billing & Customer Service component as the potable water customers as the type of water service does not affect these costs. Column D multiplies the Meter Service component by the meter ratio for each meter size in comparison to a 3/4" meter, resulting in the revised FY 2019 Recycled Water Monthly Fixed Service Charges by meter size (Column E). Table 7-8: FY 2019 Revised Monthly Fixed Service Charges (FSC) for RW Services RW 2019 No. Meter Billing & CS Meter FY 2019 of Meters Ratios opo $ Impacts Service RevisedFY FSC 7.40% 5/8 0 1.00 $3.33 $6.29 $9.62 3/4 0 1.00 $3.33 $6.29 $9.62 1 0 1.67 $3.33 $10.49 $13.82 1 Y2 0 3.33 $3.33 $20.97 $24.30 2 10 5.33 $3.33 $33.55 $36.88 3 3 14.50 $3.33 $91.21 $94.54 4 2 25.00 $3.33 $157.25 $160.58 6 1 53.33 $3.33 $335.47 $338.80 8 2 93.33 $3.33 $587.07 $590.40 Table 7-9 compares the current and revised FY 2019 RW charges along with the proposed FY 2020 RW charges and the dollar impact of the FY 2020 charges over the current FY 2019 charges. Table 7-9: FY 2020 Proposed Monthly Fixed Service Charges (FSC) for RW Services City of Newport Beach - Water Rate Study Report Page 148 22-65 FY 2019 FY 20192020 RW RevisedCurrent opo $ Impacts Proposed Rev Adjustments 7.40% 5/8 $20.47 $9.62 $10.34 -$10.13 3/4 $20.47 $9.62 $10.34 -$10.13 1 $34.13 $13.82 $14.85 -$19.28 1 Y2 $68.25 $24.30 $26.10 -$42.15 2 $109.19 $36.88 $39.61 -$69.58 3 $204.75 $94.54 $101.54 -$103.21 4 $341.24 $160.58 $172.47 -$168.77 6 $682.48 $338.80 $363.88 -$318.60 8 $1,091.97 $590.40 $634.09 -$457.88 City of Newport Beach - Water Rate Study Report Page 148 22-65 RW usage charges are comprised of RW supply costs and RW pump station costs, as detailed numerically in Table 6-19. These components are defined in Table 7-10. Table 7-10: RW Usage Component Descriptions RW Supply Recovers RW purchase costs, 100% pass-through from OCWD RW Pump Station Recovers costs associated with operating, maintaining and L_ replacing the pump stations to service certain RW meters Table 7-11 provides the calculation of the recycled water usage charges. The water units used for the Recycled Water usage charge represent the total recycled water demanded by customers. The units of service for the RW Pump Station costs reflect only the recycled water that passes through the pump station to higher elevation customers. Table 7-11: FY 2019 RW Usage Charge Calculations 1 Allocated Rev Requirements $490,45416 $100,063 Table 6-19 2 Units of Service 247,804 HCF 208,262 HCF Table 5-5, [B11] & (B131 3 Adjusted Unit Cost of Service $1.98 $0.49 [1]/(2], rounded up L 10 Table 7-12 compares the current usage charge to that based on the updated cost of service conducted in this study and the FY 2020 charges, which increase the revised FY 2019 charges by 7.40 percent. Table 7-12: FY 2020 Proposed RW Usage Charges 16 Also from Table 5-14, RW supply costs 17 Increased by the proposed revenue adjustment 7.4% for FY 2020 from the FY 2019 Revised rates City of Newport Beach - Water Rate Study Report Page 149 22-66 7.4 5 -YEAR PROPOSED RATES Based on the projections of the financial plan and defined in Table 5-13, we propose that the charges increase by 7.4 percent annually through FY 2024 so that the City can meet its 0&M and capital costs while maintaining adequate reserves. The revised FY 2019 rates and charges described in the previous section are escalated according to this rate adjustment and shown in Table 7-13, Table 7-14, Table 7-15, and Table 7-16 for Water, Private Fire Protection and RW services, respectively. Note that the City currently charges $1.00 per unit for each residential customer with more than 1 dwelling unit. It also charges $0.50 per non-residential unit. Since there are minimal non-residential units and Raftelis recommends no longer assessing these charges on residential and non-residential units. Table 7-13: 5 -Year Proposed Water Monthly Fixed Service Charges Monthly Fixed Service Charges Proposed Revenue Adjustments (Table 5-13) Water Services FY 2019 Current FY 2020 7.4% Proposed FY 2021 7.4% Proposed FY 2022 7.4% Proposed FY 2023 7.4% Proposed FY 2024 7.4% Proposed 5/8 $17.27 $20.35 $21.86 $23.48 $25.22 $27.09 3/4 $17.27 $20.35 $21.86 $23.48 $25.22 $27.09 1 $28.79 $31.54 $33.88 $36.39 $39.09 $41.99 11/2 $57.58 $59.47 $63.88 $68.61 $73.69 $79.15 2 $92.12 $93.00 $99.89 $107.29 $115.23 $123.76 3 $172.73 $246.68 $264.94 $284.55 $305.61 $328.23 4 $287.88 $422.71 $454.00 $487.60 $523.69 $562.45 6 $575.76 $897.73 $964.17 $1,035.52 $1,112.15 $1,194.45 8 $921.22 $1,568.33 $1,684.39 $1,809.04 $1,942.91 $2,086.69 10 $1,655.90 $2,350.70 $2,524.66 $2,711.49 $2,912.15 $3,127.65 12 Per Dwelling Unit Charge $2,663.48 $2,965.44 $3,184.89 $3,420.58 $3,673.71 $3,945.57 Residential $1.00 N/A N/A N/A N/A N/A Non-Residentia $0.50 N/A N/A N/A N/A N/A City of Newport Beach - Water Rate Study Report Page 150 22-67 Table 7-14: 5 -Year Proposed Private Fire Protection Monthly Service Charges Adjustments _LTable 5-13) Private Fire FY 2019 Current FY 2020 Proposed FY 2021 Proposed FY 2022 Proposed FY 2023 Proposed FY 2024 Proposed 5/8 $3.13 $10.41 $11.19 $12.02 $12.91 $13.87 1 $5.00 $10.59 $11.38 $12.23 $13.14 $14.12 1 Y2 $7.50 $11.07 $11.89 $12.77 $13.72 $14.74 2 $10.00 $11.87 $12.75 $13.70 $14.72 $15.81 2 Y2 $12.50 $13.09 $14.06 $15.11 $16.23 $17.44 3 $15.00 $14.76 $15.86 $17.04 $18.31 $19.67 4 $20.00 $19.78 $21.25 $22.83 $24.52 $26.34 6 $30.00 $37.72 $40.52 $43.52 $46.75 $50.21 8 $40.00 $68.70 $73.79 $79.26 $85.13 $91.43 10 $50.00 $115.28 $123.82 $132.99 $142.84 $153.42 12 $60.00 $179.85 $193.16 $207.46 $222.82 $239.31 Table 7-15: 5 -Year Proposed Water Usage Charges City of Newport Beach - Water Rate Study Report Page 151 22-68 Table 7-16: 5 -Year Proposed RW Rates RW Services FY 2019 FY 2020 FY 2021 FY 2022 FY 2023 FY 2024 Adjustments (Table 5-13) Current Proposed Proposed Proposed Proposed Proposed RW Monthly Fixed Service Charges 5/8 $20.47 $10.34 $11.11 $11.94 $12.83 $13.78 3/4 $20.47 $10.34 $11.11 $11.94 $12.83 $13.78 1 $34.13 $14.85 $15.95 $17.14 $18.41 $19.78 11/2 $68.25 $26.10 $28.04 $30.12 $32.35 $34.75 2 $109.19 $39.61 $42.55 $45.70 $49.09 $52.73 3 $204.75 $101.54 $109.06 $117.14 $125.81 $135.12 4 $341.24 $172.47 $185.24 $198.95 $213.68 $229.50 6 $682.48 $363.88 $390.81 $419.73 $450.80 $484.16 8 $1,091.97 $634.09 $681.02 $731.42 $785.55 $843.69 Volumetric Charge ($/HCF) RW Usage Charge $1.92 $2.05 $2.12 $2.13 $2.21 $2.29 (100% Pass-through from OCWD) RW Pump Station C ge $0.39 $0.53 $0.57 $0.62 $0.67 $0.72 City of Newport Beach - Water Rate Study Report Page 152 22-69 8. CUSTOMER IMPACT ANALYSIS Before implementing any rate structure recommendations, it is important to understand how the proposed rate structure will impact the City's customers. Customer impact analysis is a powerful tool which can be used to assist elected officials in making informed decisions. Figure 8-1 shows that, under the proposed rates, a typical residential customer with 5/8 -inch meters will see an approximate increase of $3.38 to $4.58 in their monthly water bills with usage ranging from 10 hcf to 50 hcf. Figure 8-1: Typical Residential Customer Bill Imp..,.. Sample Customer Bills Impacts Monthly WaterBills. 5/8 -inch meter $zoo $180 $160 S140 $120 5100 $80 S60 S 20 S0 • • 10 HCF 20 HCF 30 HCF 40 HCF 50 HCF ■ Current Bills $48.07 $78.87 $109.67 $140.47 $171.27 ■ Proposed Bills $51.45 $82.55 $113.65 $144.75 $175.85 Impact S $3.38 $3.68 $3.98 $4.28 $4.58 Impact % 7.0% 4.7% 3.6% 3.0% 2.7% City of Newport Beach - Water Rate Study Report Page 153 22-70 22-71 Appendix I - O&M Inputs, Forecast and Functionalization and O&M Cost Allocations Source: FY 2019 and FY 2020 operating budgets for Water Fund provided on May 14, 2019 ORJ Description calaterl by FY 2017 FY 2018 FY 2019 FY 2020 FY 2021 FY 2022 F SALARIES 711001 Salaries & Benefits SALARIES MISCELLANEOUS Salary $2,641,547 $2,671,979 $2,906,645 $2,977,804 $3,052,249 $3,128,555 $3,206,769 $3,286,939 $3,369,112 $3,453,340 $3,539,673 $3,628,165 $3,718,869 G&A 711003 Salaries & Benefits SALARIES PART TIME Salary $66,758 $39,748 $44,536 $102,930 $105,503 $108,141 $110,844 $113,615 $116,456 $119,367 $122,351 $125,410 $128,545 G&A 711004 Salaries & Benefits SALARIES SEASONAL Salary $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 G&A 712003 Salaries & Benefits NIGHT DIFFERENTIAL MISC Salary $0 $36 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 G&A 712004 Salaries & Benefits CERTIFICATION PAY Salary $22,979 $22,798 $18,481 $23,995 $24,595 $25,210 $25,840 $26,486 $27,148 $27,827 $28,523 $29,236 $29,966 G&A 712006 Salaries & Benefits BILINGUAL PAY Salary $2,731 $4,190 $1,800 $1,800 $1,845 $1,891 $1,938 $1,987 $2,037 $2,087 $2,140 $2,193 $2,248 G&A 713001 Salaries & Benefits OVERTIME MISC & 1/2 TIME Salary $61,660 $79,870 $60,000 $63,209 $64,789 $66,409 $68,069 $69,771 $71,515 $73,303 $75,136 $77,014 $78,939 G&A 713007 Salaries & Benefits DUTY PAY Salary $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 G&A 713008 Salaries & Benefits CALL BACK PAY Salary $75,569 $56,852 $50,000 $51,500 $52,788 $54,107 $55,460 $56,846 $58,268 $59,724 $61,217 $62,748 $64,316 G&A 713009 Salaries & Benefits STAND BY PAY Salary $78,091 $79,313 $82,500 $84,975 $87,099 $89,277 $91,509 $93,797 $96,141 $98,545 $101,009 $103,534 $106,122 G&A 714001 Salaries & Benefits LUMP SUM PAYMENT Salary $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 G&A 714006 Salaries & Benefits PAID COMP/SPILLOVER PAY Salary $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 G&A 721001 Salaries & Benefits CAFETERIA ALLOWANCE FULLTIME Benefits $631,508 $648,533 $752,490 $741,139 $770,785 $801,616 $833,681 $867,028 $901,709 $937,73 $975,288 $1,014,300 $1,054,872 G&A 721002 Salaries & Benefits CAFETERIA ALLOWANCE PART TIME Benefits $2,158 $5,712 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 G&A 722001 Salaries & Benefits PENSION MEMBER CONTRIB MISC Benefits $262,599 $266,169 $303,322 $295,970 $307,809 $320,122$332,926 $346,244 $360,093 $374,497 $389,477 $405,056 $421,258 G&A 723002 Salaries & Benefits PENSION NORMAL COST MISC Benefits $156,153 $159,562 $184,642 $218,845 $227,598 $236,702 $246,170 $256,017 $266,258 $276,908 $287,984 $299,504 $311,484 G&A 723004 Salaries & Benefits RETIREMENT PART TIME/TEMP Benefits $1,230 $93 $0 $3,860 $4,014 $4,175 $4,342 $4,515 $4,696 $4,884 $5,079 $5,282 $5,494 G&A 724001 Salaries & Benefits EE CONTRIBUTION MISC Benefits -$321,968 -$346,462 -$386,636 -$388,305 -$403,837 -$419,991 -$436,791 -$454,262 -$472,433 $491,330 -$510,983 -$531,422 -$552,679 G&A 725001 Salaries & Benefits PENSION UAL COST MISC Benefits $503,978 $612,859 $656,825 $658,779 $685,130 $712,535 $741,037 $770,678 $801,505 $833,566 $866,908 $901,585 $937,648 G&A 725003 Salaries & Benefits DISCRETIONARY UAL MISC Benefits $225,359 $252,308 $229,172 $211,989 $220,469 $229,287 $238,459 $247,997 $257,917 $268,234 $278,963 $290,122 $301,726 G&A 726002 Salaries & Benefits ANNUAL OPEB PREMIUM Benefits $150,535 $151,174 $150,865 $153,840 $159,994 $166,393 $173,049 $179,971 $187,170 $194,657 $202,443 $210,541 $218,962 G&A 727001 Salaries & Benefits CAR ALLOWANCE Benefits $3,059 $0 $4,800 $4,800 $4,992 $5,192 $5,399 $5,615 $5,840 $6,074 $6,316 $6,569 $6,832 G&A 727003 Salaries & Benefits CELL PHONE STIPEND Benefits $18,789 $17,428 $19,680 $18,720 $19,469 $20,248 $21,057 $21,900 $22,776 $23,687 $24,634 $25,620 $26,644 G&A 727004 Salaries & Benefits RHS $2.50 CONTRIBUTION Benefits $43,520 $44,056 $48,208 $52,700 $54,808 $57,000 $59,280 $61,651 $64,117 $66,682 $69,349 $72,123 $75,008 G&A 727005 Salaries & Benefits HYBRID CONTRIB DEPT DIRECTOR Benefits $1,068 $553 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 G&A 727007 Salaries & Benefits PAYMENT > ARC Benefits $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 G&A 727012 Salaries & Benefits LIFE INSURANCE Benefits $3,178 $3,342 $3,465 $3,493 $3,632 $3,778 $3,929 $4,086 $4,249 $4,419 $4,596 $4,780 $4,971 G&A 727013 Salaries & Benefits EMP ASSISTANCE PROGRAM Benefits $706 $661 $685 $690 $718 $747 $776 $808 $840 $873 $908 $945 $982 G&A 727014 Salaries & Benefits OTHER BENEFITS Benefits $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 G&A 727015 Salaries & Benefits UNEMPLOYMENT EXPENSE Benefits $0 $1,650 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 G&A 727016 Salaries & Benefits MEDICARE FRINGES Benefits $42,278 $43,990 $54,821 $55,902 $58,138 $60,464 $62,882 $65,398 $68,013 $70,734 $73,563 $76,506 $79,566 G&A 727019 Salaries & Benefits SURVIVOR BENEFIT Benefits $0 $4,424 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 G&A 727020 Salaries & Benefits DEFERRED COMP CITY CONTRIB Benefits $0 $0 $0 $4,201 $4,369 $4,543 $4,725 $4,914 $5,111 $5,315 $5,528 $5,749 $5,979 G&A 728001 Salaries & Benefits WORKERS' COMP ISF MISC Benefits $58,056 $58,056 $155,407 $149,901 $155,897 $162,133 $168,618 $175,363 $182,377 $189,673 $197,259 $205,150 $213,356 G&A 728003 Salaries & Benefits COMPENSATED ABSENCES Benefits $91,849 $98,641 $101,732 $104,151 $108,317 $112,649 $117,155 $121,842 $126,715 $131,784 $137,055 $142,537 $148,239 G&A 729001 Salaries & Benefits PAYROLL ACCRUAL EXPENSE Benefits $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 G&A 729015 Salaries & Benefits CONTRA PENSION EXP (GASB 68) Benefits -$219,333 -$124,010 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 G&A 729016 Salaries & Benefits CONTRA OPEB FRCP (GASB 75) Benefits $0 -$120,716 $0 $0 $01!2$0 $0 $0 $0 $0 $0 $0 G&A SUBTOTAL SALARIES $4,604,056 $4,732,810 $5,443,440 $5,596,886 $5,771,169 $5,951,182 $6,137,126 $6,329,204 $6,527,631 $6,732,626 $6,944,4181 $7,163,244 $7,389,349 City of Newport Beach - Water Rate Study Report Page 155 22-72 OPERATING 811004 Other Operating Exp RENTAL/PROP & EQUIP NOC General $1,028 $0 $4,000 $4,000 $4,120 $4,244 $4,371 $4,502 $4,637 $4,776 $4,919 $5,067 $5,219 G&A 811008 Other Operating Exp SERVICES PROF & TECH NOC General $102,438 $215,483 $197,063 $150,343 $154,853 $159,499 $164,284 $169,212 $174,289 $179,517 $184,903 $190,450 $196,164 G&A 811027 Other Operating Exp SERVICES CITY PRINT CONTRACT General $0 $0 $0 $20,470 $21,084 $21,717 $22,368 $23,039 $23,730 $24,442 $25,176 $25,931 $26,709 G&A 811040 Other Operating Exp MUNICIPAL SVCS STATEMENT EXP General $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 G&A 811045 Conservation Progra WATER CONSERVATION SUPPORT General $106,808 $0 $218,247 $218,247 $224,794 $231,538 $238,484 $245,639 $253,008 $260,5981 $268,416 $276,469 $284,763 Conservation 811049 Meter Related METER READING SERVICES General $293,838 $288,914 $310,787 $311,575 $320,922 $330,550 $340,466 $350,680 $361,201 $372,037 $383,198 $394,694 $406,535 Meter Service 811056 Other Operating Exp SAFETY TRAINING PROGRAM General $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 G&A 811057 Other Operating Exp SCADA TRAINING General $0 $0 $0 $150,000 $154,500 $159,135 $163,909 $168,826 $173,891 $179,108 $184,481 $190,016 $195,716 G&A 811058 Other Operating Exp HAZARDOUS MATERIALS REMOVAL General $0 $0 $0 $20,000 $20,600 $21,218 $21,855 $22,510 $23,185 $23,881 $24,597 $25,335 $26,095 Treatment 831001 Other Operating Exp TELECOMM DATALINES General $11,751 $18,924 $15,100 $15,100 $15,553 $16,020 $16,500 $16,995 $17,505 $18,030 $18,571 $19,128 $19,702 G&A 831002 Other Operating Exp UTILITIES TELEPHONE General $20,789 $27,119 $19,000 $24,000 $24,720 $25,462 $26,225 $27,012 $27,823 $28,657 $29,517 $30,402 $31,315 G&A 831003 Other Operating Exp UTILITIES NATURAL GAS Utilities $1,708 $1,565 $2,000 $2,000 $2,100 $2,205 $2,315 $2,431 $2,553 $2,680 $2,814 $2,955 $3,103 G&A 831004 Other Operating Exp UTILITIES ELECTRICITY Utilities $1,213,906 $1,107,230 $1,490,000 $1,490,000 $1,564,500 $1,642,7251 $1,724,861 $1,811,1041 $1,901,6601 $1,996,743 $2,096,580 $2,201,4091 $2,311,479 G&A 831005 Other Operating Exp UTILITIES WATER Utilities $4,170 $6,905 $14,935 $25,170 $26,429 $27,750 $29,137 $30,594 $32,124 $33,730 $35,417 $37,188 $39,047 G&A 831006 Other Operating Exp UTILITIES ELECTRIC VEHICLE PRO General $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 G&A 841007 Other Operating Exp SUPPLIES OFFICE NOC General $4,974 $3,912 $6,225 $5,500 $5,665 $5,835 $6,010 $6,190 $6,3761 $6,567 $6,764 $6,9671$7,176 G&A 841014 Other Operating E)pSUPPLIES JANITORIAL NOC General $10,230 $15,856 $9,000 $9,000 $9,270 $9,548 $9,835 $10,130 $10,433 $10,746 $11,069 $11,401 $11,743 G&A 841015 Other Operating Exp SPECIAL DEPT SUPPLIES NOC General $101,721 $34,652 $75,000 $75,000 $77,250 $79,568 $81,955 $84,413 $86,946 $89,554 $92,241 $95,008 $97,858 G&A 841018 Other Operating Exp TREATMENT CHEMICALS Chemicals $107,022 $94,603 $184,286 $140,000 $142,800 $145,656 $148,569 $151,541 $154,571 $157,663 $160,816 $164,032 $167,313 Treatment 841043 Other Operating Exp CONCRETE MATERIALS General $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 G&A 841044 Other Operating Ery TOOLS INSTRUMENTS ETC General $7,091 $16,001 $22,500 $22,500 $23,175 $23,870 $24,586 $25,324 $26,084 $26,866 $27,672 $28,502 $29,357 G&A 841046 Other Operating Exp SPECIAL DEPT EXPENSE NOC General $52 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 G&A 841057 Potable WSCosts IMPORTED WATER EXP Calculated $3,895,530 $4,588,695 $4,900,000 $5,000,000 $4,832,969 $5,126,582 $5,366,334 $5,617,660 $5,881,126 $6,157,331 $6,446,900 $6,750,490 $7,068,790 Water Supply 841058 Potable WS Costs GROUNDWATER EXP Calculated $4,916,003 $5,903,530 $6,400,000 $7,100,000 $7,212,865 $7,600,757 $8,009,951 $8,441,645 $8,897,109 $9,377,681 $9,884,783 $10,419,915 $10,984,667 Water Supply 841059 RW Supply Costs RECLAIMED WATER EXPENSE OCWD Calculated $241,898 $431,915 $396,300 $471,300 $524,399 $526,740 $546,640 $567,709 $589,949 $619,447 $650,419 $682,940 $717,087 RW Supply 841060 Other Operating Exp OTHER AGENCY FEES General $222,209 $168,024 $225,000 $225,000 $231,750 $238,703 $245,864 $253,239 $260,837 $268,662 $276,722 $285,023 $293,574 G&A 841062 Other Operating Exp STATION OPERATIONS General $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 G&A 841063 Conservation Progra WATER CNSRV ACTNITIES General $107,481 $115,909 $204,175 $202,371 $208,442 $214,695 $221,136 $227,770 $234,603 $241,642 $248,891 $256,358 $264,048 Conservation 841073 Other Operating Exp YARD & PROJECT MATERIALS General $18,701 $17,950 $25,500 $25,500 $26,265 $27,053 $27,865 $28,700 $29,5611 $30,448 $31,362 $32,303 $33,272 G&A 851001 Other Operating Exp GENERATOR MAINTENANCE & REPAIR General $15,374 $12,754 $13,500 $13,542 $13,948 $14,367 $14,798 $15,242 $15,699 $16,170 $16,655 $17,155 $17,669 G&A 851002 Other Operating Exp VALVE MAINT PROGRAM General $71,423 $86,589 $90,000 $90,000 $92,700 $95,481 $98,345 $101,296 $104,335 $107,465 $110,689 $114,009 $117,430 Pumping 851003 Other Operating Exp AIR VAC MAINT PROGRAM General $20,825 $14,729 $0 $20,000 $20,600 $21,218 $21,855 $22,510 $23,185 $23,881 $24,597 $25,335 $26,095 Pumping 851004 Meter Related WATER SERVICE M&R General $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Meter Service 851005 Meter Related METER VAULT REPLACEMENT General $0 $0 $6,000 $6,000 $6,180 $6,365 $6,556 $6,753 $6,956 $7,164 $7,379 $7,601 $7,829 Meter Service 851007 Other Operating Ery AUTOMOTIVE FUEL/WASH General $54,990 $54,636 $60,000 $60,000 $61,800 $63,654 $65,564 $67,531 $69,556 $71,643 $73,792 $76,006 $78,286 G&A 851010 Other Operating Exp MAINT & REPAIR EQUIP General $5,811 $707 $10,000 $10,000 $10,300 $10,609 $10,927 $11,255 $11,593 $11,941 $12,299 $12,668 $13,048 G&A 851013 Other Operating Exp PRINTER MAINT/SUPPLIES General $4,176 $2,813 $5,000 $5,000 $5,150 $5,305 $5,464 $5,628 $5,796 $5,970 $6,149 $6,334 $6,524 G&A 851016 Other Operating Exp MAINTENANCE & REPAIR BLDG General $10,795 $5,425 $44,812 $44,812 $46,156 $47,541 $48,967 $50,436 $51,949 $53,508 $55,113 $56,767 $58,469 G&A 851033 Other Operating Exp WELLS & PUMP STA MAINT General $71,101 $84,516 $105,977 $85,000 $87,550 $90,177 $92,882 $95,668 $98,538 $101,494 $104,539 $107,675 $110,906 Storage 851034 Other Operating Exp REGULATING STA MAINT General $64,821 $53,933 $55,000 $55,000 $56,650 $58,350 $60,100 $61,903 $63,760 $65,673 $67,643 $69,672 $71,763 G&A 851037 Other Operating Exp MAINTENANCE & REPAIR NOC General $148,367 $150,991 $178,500 $175,611 $180,879 $186,306 $191,895 $197,652 $203,581 $209,689 $215,979 $222,459 $229,133 Distribution 851048 Other Operating Exp BACKFLOW MAINT & REPAIR General $15,405 $3,636 $29,236 $25,000 $25,750 $26,523 $27,318 $28,138 $28,982 $29,851 $30,747 $31,669 $32,619 Distribution City of Newport Beach - Water Rate Study Report Page 156 22-73 OPERATING 851049 Other Operating Exp MAINTENANCE SCADA General $49,115 $46,905 $47,250 $47,237 $48,654$50,114 $51,6171 $53,166 $54,761 $56,403 $58,096 $59,838 $61,634 G&A 851050 Other Operating Exp SEWER MANHOLE LINING PRGM General $0 $0 $0 $0 $0 $0 $0 $0r $0 $0 $0 $0 $0 G&A 851055 Meter Related WATER METER REPL PROGRAM General $339,828 $3,863 $501,618 $218,312 $224,861 $231,607 $238,555 $245,71253,083 $260,676 $268,496 $276,5511 $284,848 Meter Service 851056 Other Operating Exp FIRE HYDRANT REPL PROGRAM General $68,809 $64,369 $73,092 $70,000 $72,100 $74,263 $76,491 $78,78681,149 $83,584 $86,091 $88,674 $91,334 Fire Protectioi 851057 Other Operating Exp CATHODIC PROTECTION PRGM General $0 $15,000 $23,000 $23,000 $23,690 $24,401 $25,133 $25,88726,663 $27,463 $28,287 $29,136 $30,010 G&A 851058 Meter Related METER & VALVE CVR PRGM General $46,636 $56,800 $106,522 $100,000 $103,000 $106,090 $109,273 $112,55115,927 $119,4051 $122,9871 $126,6771 $130,477 Meter Service 851059 Meter Related METER READING EQUIPT IMPR General $3,598 $90 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Meter Service 851060 Other Operating Exp WATER QLTY MONITOR PRGM General $56,355 $50,904 $75,000 $75,000 $77,250 $79,568 $81,955 $84,413 $86,946 $89,554 $92,241 $95,008 $97,858 Treatment 851061 Other Operating Exp BIG CNYN RSVR MONITOR PRG General $0 $147 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Storage 851062 Other Operating Exp UTILRIES FAC MAIN PROGM General $139,065 $106,140 $135,883 $138,439 $142,592 $146,870 $151,276 $155,814 $160,489 $165,304 $170,263 $175,370 $180,632 Transmission 851063 Other Operating Exp WATER TREATMENT PROGRAM General $50,561 $54,037 $63,767 $60,000 $61,800 $63,654 $65,564 $67,531 $69,556 $71,643 $73,792 $76,006 $78,286 Treatment 851064 Meter Related COMMERCIAL METER REPL PRG General $68,861 $50,145 $85,000 $70,000 $72,100 $74,263 $76,491 $78,786 $81,149 $83,584 $86,091 $88,674 $91,334 Meter Service 851065 Other Operating Exp NWP COAST REIMBURSEMENT General $114 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 G&A 851067 Other Operating Exp RECYCLE PUMP STATION MAINT General $44,302 $54,070 $10,360 $10,360 $10,671 $10,991 $11,320 $11,660 $12,010 $12,370 $12,741 $13,124 $13,517 RW Pump Ste 851072 Other Operating Exp SEWER FEES:FIXED+USE General $0 $280 $3,789 $3,789 $3,903 $4,020 $4,140 $4,265 $4,392 $4,524 $4,660 $4,800 $4,944 G&A 851073 Other Operating Exp PUMP & MOTOR REPAIR General $0 $0 $0 $60,000 $61,800 $63,654 $65,564 $67,531 $69,556 $71,643 $73,792 $76,006 $78,286 Pumping 861001 Gen & Admin TRAVEL & MEETINGS NOC General $4,258 $290 $4,000 $4,000 $4,120 $4,244 $4,371 $4,502 $4,637 $4,776 $4,919 $5,067 $5,219 G&A 861003 Gen & Admin TRAINING General $6,989 $11,541 $22,374 $30,000 $30,900 $31,827 $32,782 $33,765 $34,778 $35,822 $36,896 $38,003 $39,143 G&A 871001 Gen & Admin CERT & MEMBERSHIP General $2,142 $2,492 $3,500 $3,500 $3,605 $3,713 $3,825 $3,939 $4,057 $4,179 $4,305 $4,434 $4,567 G&A 871002 Gen & Admin ADVERT & PUB RELATIONS General $0 $0 $10,000 $10,000 $10,300 $10,609 $10,927 $11,255 $11,593 $11,941 $12,299 $12,668 $13,048 G&A 871003 Gen & Admin POSTAGE FREIGHT EXPERSS NOC General $63,950 $77,892 $81,882 $81,882 $84,338 $86,8691 $89,4751 $92,159 $94,924 $97,771 $100,705 $103,726 $106,837 G&A 871004 Gen & Admin PUBLICATIONS & DUES NOC General $200 $200 $5,000 $5,000 $5,150 $5,305 $5,464 $5,628 $5,796 $5,970 $6,149 $6,334 $6,524 G&A 871006 Gen & Admin UNIFORM EXPENSE General $12,704 $8,213 $15,000 $15,000 $15,450 $15,914 $16,391 $16,883 $17,389 $17,911 $18,448 $19,002 $19,572 G&A 871017 Gen & Admin SOFTWARE LICENSE RENEWAL General $27,463 $20,346 $38,530 $37,000 $38,110 $39,253 $40,431 $41,644 $42,893 $44,180 $45,505 $46,870 $48,277 G&A 871018 Gen & Admin HARDWARE/MONITOR/PRINTER General $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 G&A 871020 Gen & Admin PC REPLACEMENT General $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 G&A 871022 Gen & Admin SERVICE CHARGE ADMINISTRATIVE General $1,487,341 $1,487,341 $1,464,671 $2,240,057 $2,307,258 $2,376,476 $2,447,770 $2,521,203 $2,596,839 $2,674,745 $2,754,987 $2,837,637 $2,922,766 G&A 881001 Gen & Admin EQUIP MAINT ISF Capital $264,636 $260,570 $247,579 $225,278 $232,036 $238,997 $246,167 $253,552 $261,159 $268,994 $277,064 $285,375 $293,937 G&A 881003 Gen & Admin VEHICLE REPLACE ISF Capital $220,308 $228,346 $218,170 $218,170 $224,715 $231,457 $238,400 $245,552 $252,919 $260,506 $268,322 $276,371 $284,662 G&A 881004 Gen & Admin R ISF OPERATING CHARGE Capital $155,847 $118,356 $162,632 $189,770 $195,463 $201,327 $207,367 1 $219,995 $226,595 $233,393 $240,395 $247,607 G&A 881005 Gen & Admin R ISF REPLACEMENT CHARGE Capital $34,335 $52,815 $31,937 $41,168 $42,403 $43,675 $44,985 $46,335 $47,725 $49,157 $50,631 $52,150 $53,715 G&A 891001 Gen & Admin GENERAL INSURANCE General $211,768 $211,768 $583,029 $441,183 $454,418 $468,051 $482,093 $496,555 $511,452 $526,796 $542,599 $558,8771 $575,644 G&A 891012 Gen & Admin SETTLEMENTS Non -Inflated $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 G&A 891021 Gen & Admin OUTSIDE COUNSEL: SPEC LR Non -Inflated $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 G&A 891048 Gen & Admin UNINSURED CLAIMS CHARGE Non -Inflated $0 $0 $0 $127,925 $127,925 $127,925 $127,925 $127,925 $127,925 $127,925 $127,925 $127,925 $127,925 G&A SUBTOTAL OPERATING $15,231,621 $16,510,835 $19,330,728 $20,843,110 $21,115,304 $22,082,097 $23,043,942 $24,051,465 $25,106,898 $26,218,678 $27,383,496 $28,604,031 $29,883,103 City of Newport Beach - Water Rate Study Report Page 157 22-74 FY 2018 FY 2019 FY 2020 ual Est. Actual Budget CAPITAL 911001 Capital / Equip Expei OFFICE EQUIPMENT Capital $4,877 $516 $5,000 $5,000 $5,150 $5,305 $5,464 $5,628 $5,796 $5,970 $6,149 $6,334 $6,524 G&A 911014 Capital / Equip 6ryei WATER CONSERVATION EQUIP Capital $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 G&A 911024 Capital /Equip E�ei EQUIPMENT N.O.C. Capital $20,131 $6,945 $4,154 $134,154 $138,179 $142,324 $146,594 $150,992 $155,521 $160,187 $164,992 $169,942 $175,041 G&A 911039 Capital / Equip Expe OFFICE FURNITURE/FO(TURES Capital $900 $4,758 $5,000 $5,000 $5,150 $5,305 $5,464 $5,628 $5,716 $5,970 $6,149 $6,3341 $6,524 G&A 911042 Capital / Equip Expe CAP AQUISTN EXP REVERSAL Non -Inflated $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 G&A 991001 Capital / Equip Expe TRANSFER OUT Non -Inflated $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 G&A 992702 Capital / Equip Expe INTRAFUND XFER TO WATER CAPITA Non -Inflated $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 G&A SUBTOTAL CAPITAL $25,908 $12,219 $14,154 $144,154 $148,479 $152,933 $157,521 $162,247 $167,114 $172,127 $177,291 $182,610 $188,088 AP & CC Adjustmen AP & CC Adjustments in Sales of Potable Water Rev General $280,700 $304,005 $349,560 $360,047$370,848 $381,974 $393,433 $405,236 $417,393 $429,915 $442,812 $456,097 $469,779 Billing TOTAL OPERATING EXPENSES $20,142.285 $21.559.869 $25.137,881 $26,944.198 $27.405.799 $28.568,185 $29,732.021 $30.948.151 $32.219,036 $33,553,346 $34.948.017 $36.405,982 $37,930,320 City of Newport Beach - Water Rate Study Report Page 157 22-74 Fixed Potable WS Costs $1,805,734 $1,805,734 $0 $0 $0 $2,367,674 $0 $73,092 $0 $0 $0 $422,422 Variable Potable WS Costs $9,494,266 $9,494,266 $0 _ $0 $0 $0 $2,888,304 $0 $0 $0 $0 $14,154 RW Supply Costs $490,454 $0 $349,560 $490,454 $0 $0 $0 $349,560 $10,713,571 $422,422 $73,092 35% Salaries & Benefits $5,443,440 $0 $0 $0 $0 $0 $0 $0 $0 $0 Other Operating Expenses $3,313,775 $0 $0 $10,360 $323,053 $135,883 $207,736 $90,000 $105,977 $0 Conservation Program $422,422 $0 $0 $0 $0 $0 $0 $0 $0 $0 Meter Related $1,009,927 $0 $0 $0 $0 $0 $0 $0 $0 $1,009,927 Gen & Admin $2,888,304 $0 $0 $0 $0 $0 $0 $0 $0 $0 Capital / Equip Expenses $14,154 $0 $0 $0 $0 $0 $0 $0 $0 $0 AP & CC Adjustments in Sales of Potable Water Rev $349,560 $0 $0 $0 $0 $0 $0 $0 $0 $0 Total $25,232,035 $11,300,000 $490,454 $10,360 $323,053 $135,883 $207,736 $90,000 $105,977 $1,009,927 Water Supply RW Supply RW Pump Station Treatment Transmission Distribution Pumping Storage _ Meter Services Customer Service Billing G&A Conservation Fire Protection Total O&M w/o WS, RW Supply $11,300,0001 100% 100% $0 $0 $5,443,440 $0 $0 $0 $0 $2,367,674 $0 $73,092 $0 $0 $0 $422,422 $0 $0 $0 $0 $0 _ $0 $0 $0 $2,888,304 $0 $0 $0 $0 $14,154 $0 _ $0 $0 $349,560 $0 $0 $0 $0 $349,560 $10,713,571 $422,422 $73,092 $10,360 100% $323,053 54% 46% $135,883 54% 46% $207,736 35% 29% 26% 10% $90,000 35% 29% 26% 10% $105,977 54% 46% $1,009,927 100% $0 1 00 % $349,560 100% $10,713,571 100% $422,422 100% $73,092 100% $25,232,035 $11,300,000 $490,454 $10,360 $408,421 $347,158 $77,297 $1,009,927 $349,560 $10,713,571 $422,422 $102,866 TRUE 44.8% 1.9% 0.0% 1.6% 1.4% 0.3% 4.0% 1.4% 42.5% 1.7% 0.4% 0.1% 3.0% 2.6% 0.6% 7.5% 2.6% 79.7% 3.1% 0.8% City of Newport Beach - Water Rate Study Report Page 158 22-75 Appendix 2 - Asset List and Functionalization and Capital Cost Allocations Asset List provided by Joshua Rosenbaum 5/1/19 and revised by City Staff in August 2019 Asset Description Status Tag # Class Location Description Date Cost Est Acquired ENR Current,ENRCodc Acquired Acquired Us.f. I Depreciation Acquired Year CCI cc OC RC OCILD RCLD Type. 00003004 SAW A 94-05466 41UTILITIES, WATER MAINTENA 07/01/93 $15,000 7 $15,000 1993 1 230 11,062 $15,000 $31,848 $0 $0 Gen &Admin 00003006 COU NTY RADIO TOWER A 09- 41 UTI LITI ES, WATER MAI NTENA 06/30/09 $88,459 15 $88,459 2009 _ 8,570 11,062 $88,459 $114,181 $0 $0 Gen &Admin 00003007 HAMMER HEAD PORTABUST w/FUSION A 13-00836 41 UTI LITI ES, WASTEWATER 08/10/12 $31,293 7 $31,293 2012 9,308 11,062 $31,293 $_37,190 $0 $0 Gen & Admin _ 00003501 Water Reducers A 00003501 72 UTI LITI ES, ADMINISTRATION 01/01/65 $82,094 75 $82,094 1965 971 11,062 $82,094 $935,246 $0 $0 Water Meters 00003502 Water Meters A _ 00003502 12 UTI LITI ES, ADMINISTRATION 01/01/65 $1,544,913 75 $1,544,913 1965 971 11,062 $1,544,913 $17,600,234 $0 $0 Water Meters 00003503 Water Lines A 00003503 72 1 UTILITIES, ADMINISTRATION 06/30/89 $85,114,170 75 $73,988,538 1989 4,615_ 11,062 $85,114,1701 $204,0_15,807 $11,125,6321 $26,667,766 Water Lines(T&D) 00003504 Fire Hydrants A 00003504 72 UTILITIES,ADMINISTRATION 01/01/65 $728,025 75 $556,615 1965 _971 11,062 $728,025 $8,293,937 $171,410 $1,952,768 Fire Hydrants 00003505 Reservoir -Big Canyon A 00003505 12 UTILITIES, ADMINISTRATION 06/30/59 $35,673,596 75 $35,649,466 1959 797 11,062 $_35,673,596 $495,133,399 $24,130 $334,914 Reservoir 00003506 Reservoir - Spyglass A 00003506 72 UTILITIES, ADMINISTRATION 06/30/72 $418,244 75 $418,244 1972 1,753 11,062 _$418,244 $2,639,256 $0 $0 Reservoir 00003507 Reservoir -16th Street A 00003507 72 UTILITIES, ADMINISTRATION 06/30/96 $3,800,000 75 $3,800,000 1996 5,620 11,062 $3,800,000 $7,479,644 $0 $0 Reservoir 00003508 Reservoir- Capitalized Interest A 00003508 72 UTILITIES, ADMINISTRATION 06/30/95 $1,034,462 75 $1,034,462 1995 5,471 11,062 $1,034,462 $2,091,614 $0 $0 Reservoir 00003509 Pumps -16th Street A 00003509 72 UTILITIES, ADMINISTRATION 06/30/96 $834,401 75 $480,000 1996 5,620 11,062 $834,401 $1,642,374 $354,401 $697,5771 Pumps 00003510 Pumps Zones A 00003510 72 UTILITIES, ADMINISTRATION 06/30/73 $377,739 75 $377,739 1973 1,895 11,062 $377,739 $2,205,039 $0 $0 Pumps 00003511 Pumps-Zone4 A 00003511 72 UTILITIES, ADMINISTRATION 06/30/71 $282,709 75 $282,709 1971 1,581 11,062 $282,709 $1,978,069 $0 $0 Pumps 00003512 Pumps - Zone 3 A 00003512 72 UTILITIES, ADMINISTRATION 06/30/71 $376,945 75 $376,945 1971 1,581 11,062 $376,945 $2,637,423 _ $0 $0 Pumps 00003513 Pumps- Zone 5(auxiliary) A 00003513 72 UTILITIES, ADMINISTRATION 06/30/77 $118,114 75 $118,114 1977 2,576 11,062 $118,114 $507,212 $0 $0 Pumps 00003514 Pumps - NB Reclaimed A 00003514 72 UTILITIES, ADMINISTRATION 06/30/99 $426,000 75 $426,000 1999 6,059 11,062 $426,000 $777,754 $0 $0 RW Pumps 00003515 Pumps- Big Canyon Reclaimed A 00003515 72 UTILITIES, ADMINISTRATION 06/30/99 $243,000 75 $61,560 1999 6,059 11,062 $243,000 $443,648 $181,440 $331,258 RW Pumps 00003516 Wells -Fountain Valley A 00003516 72 UTILITIES, ADMINISTRATION 06/30/96 $1,766,9901 751 $1,717,857 1996 5,620 11,062 $1,766,990 $3,478,015 $49,133 $96,710 Wells 00003517 Wells - Fountain Valley A 00003517 72 UTILITIES, ADMINISTRATION 06/30/96 $1,761,271 75 $1,747,256 1996 5,620 11,062 $1,761,271 $3,466,75814,015 $27,586 Wells 00003518 Land A 00003518 19 UTILITIES, ADMINISTRATION 01/01/65 $2,219,450 999 $2,219,450 1965 971 11,062 $2,219,450 $25,284,816 $o $0 Land 00003519 Warehouse A 00003519 29 UTILITIES, ADMINISTRATION 06/30/87 $205,793 40 $205,793 1987 4,406 _ 11,062 $205,793 $516,678 $0 $0 Warehouse 00003520 Eastbluff/Bonita Creek Recycled Water- A 00003520 29 UTILITIES, ADMINISTRATION 06/30/11 $482,603 50 $482,603 2011 9,070 11,062 $482,603 $588,595 $0 $0 RW Pumps 10000194 SERVER A 15-00483 45 PW, GEN SVC, ADMINISTRATIO 05/22/15 $11,279 3 $11,279 2015 10,035 11,062 $11,279 $12,434 $0 $0 Gen &Admin 10000195 SERVER A 15-00482 45 PW, GEN SVC, ADMINISTRATIO 05/22/15 $11,279 3 $11,279 2015 10,035 11,062 $11,279 $12,434 $0 $0 Gen &Admin 10001237 CITY RADIO TOWER A 10001237 46 MUNICIPAL OPERATIONS NOC 1 01/31/17 $68,743 50 $68,743 2017 10,737 11,062 $68,743 $70,824 $0 $0 Gen &Admin 10001238 CITY RADIO TOWER A 10001238 46 MUNICIPAL OPERATIONS NOC 01/31/17 $21,371 50 $21,371 2017 10,737 11,062 $21,371 $22,018 $0 $0 Gen &Admin 10001253 WIP- LI DO VILLAGE WATER MAI N REPLCI A 10001253 87 PUBLIC WORKS DPT BAY D, 2N C 06/30/17 $2,060,033 999 $267,397 2017 10,737 11,062 $2,060,033 $2,122,388 $1,792,636 $1,846,897 Water Lines(T&D) 10001779 WIP- BIG CANYON RESERVOIR METER VP A 10001779 87 PUBLIC WORKS DPT BAY D, 2N C 06/30/18 $1,630,208 999 $1,630,208 2018 11,062 11,062 $1,630,208 $1,630,208 $0 $0 Reservoir Water Meters $1,627,0071 $18,535,4801 $0 $0 $18,535,480 Fire Hydrants $728,025 $8,293,937 $171,410 $8,293,937 Water Lines(T&D) $87,174,2031 $206,138,1951 $12,918,268 _$1,952,768 $28,514,664 $206,138,195 Reservoir $42,556,510 $508,974,120 $24,130 $334,914 $508,974,120 Pumps $1,989,908 $8,970,117 $354,401 $697,577 $8,970,117 Wells $3,528,261 $6,944,773 $63,148 $124,296 $6,944,773 100% Land $2,219,450 $25,284,816 $0 $0 $25,284,816 Warehouse $205,793 $516,678 $0 $0 $516,678 RW $0 $0 $0 $0 $0 100% RW Pumps $1,151,603 $1,809,997 $181,440 $331,258 $1,809,997 100% Gen &Admin $247,426 $300,930 $0 $0 $300,930 Total Water Asset Value $141,428,186 $785,769,042 $13,712,797 $31,955,476 $785,769,042 $6,944,773 $0 $1,809,997 City of Newport Beach - Water Rate Study Report 100% _ 50% 50% 100% 100% $0 $103,069,098 $103,069,098 $8,970,117 $508,974,120 $18,535,480 100% 100% 100% 100% $0 $26,102,423 $0 $8,293,937 Page 159 22-76 Asset Functions RC Water Supply RW Supply RW Pump Base Fixed Max Day Meter Gen & Admin Conservation Direct Fire Water Supply $6,944,773 100% 0% Station 0% 0% 0%, 0% 0% 0% 0% 0% Protection 0% RW Supply $0 0% 100% 0% 0% 0% 0% 0% 0% 0% 0% 0% RW Pump Station $1,809,997 0% 0% 100% 0% 0% 0% 0% 0% 0% 0% 0% Treatment $0 0% 0% 0% 54% 46% 0% 0% 0% 0% 0% 0% Transmission $103,069,098 0% 0% 0% 54% 46% 0% 0% 0% 0% 0% 0% Distribution $103,069,098 0% 0% 0% 35% 29% 26% 0% 0% 0% 0% 10% Pumping $8,970,117 0% 0% 0% 35% 29% 26% 0% 0% 0% 0% 10% Storage $508,974,120 0% 0% 0% 54% 46% 0% 0% 0% 0% 0% 0% Meter Services $18,535,480 0% 0% 0% 0% 0% 0% 100% 0% 0% 0% 0% Customer Service $0 0% 0% 0% 0% 0% 0% 0% 100% 0% 0% 0% Billing $0 0% 0% 0% 0% 0% 0% 0% 100% 0% 0% 0% G&A $26,102,423 0% 0% 0% 0% 0% 0% 0% 0% 100% 0% 0% Conservation $0 0% 0% 0% 0% 0% 0% 0% 0% 0% 100% 0% Fire Protection $8,293,937 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 100% Total $785,769,042 $6,944,773 $0 $1,809,997 $369,616,977 $314,174,430 $29,087,104 $18,535,480 $0 $26,102,423 $0 $19,497,858 TRUE 1% 0% 0.23% 47% 40% 4% 2% 0% 3% 0% 2% City of Newport Beach - Water Rate Study Report Page 160 22-77 Appendix 3 - Revenue Requirements Allocations Revenue Requirements@ Current Rates FY 2019 Water Supply RW Supply RW Pump Base Fixed Max Day Max Hour Meters Billing&CS Gen&Admin Conservation Direct Fire O&M Expenses $25,232,035 $11,300,000 $490,454 $10,360 $408,421 $347,158 $77,297 Service $1,009,927 $349,560 $10,713,571 $422,422 ProtectionStation $102,866 Debt Service $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Rate Funded CIP $9,256,000 $81,806 $0 $21,320.94 $4,353,919 $3,700,831 $342,633 $218,339 $0 $307,475 $0 $229,676 Reserve Funding -$7,062,390 $0 $0 $0 -$3,35_9,500 -$2,855,575 -$264,377 -$168,472 $0 -$237,249 $0 -$177,219 Total Revenue Requirements $27,425,645 $11,381,806 $490,454 $31,681 $1,402,840 $1,192,414 $155,553 $1,059,795 $349,560 $10,783,797 $422,422 $155,323 Less Revenue Offset Pass-through Variable Water Cost Revenues $0 $0 Other Operating Revenues -$402,653 $0 $0 -$310 -$12,235 -$10,399 -$2,315 -$30,253 -$10,471 $320,933 -$12,654 -$3,081 Non -Operating Revenues -$275,369 $0 $0 -$212 -$8,367 -$7,112 -$1,584 -$20,690 -$7,161 -$219,482 -$8,654 -$2,107 Total Revenue Offset -$678,022 $0 $0 -$523 -$20,602 -$17,511 -$3,899 .$50,943 -$17,633 -$540,415 -$21,308 45,189 Revenue Requirements @ Current Rates $26,747,623 $11,381,806 $490,454 $31,158 $1,382,239 $1,174,903 $151,654 $1,008,852 $331,927 $10,243,382 $401,114 $150,134 Gen & Admin Allocation Factors 1% 30% 25% 3% 22% 7% 9% 3 Allocated Gen & Admin Costs $68,905 $3,056,747 $2,598,235 $335,375 $2,231,023 $734,040 -$10,243,3821 $887,043 $332,014 Adjusted Rev Req $26,747,623 $11,381,806 $490,454 $100,063 $4,438,986 $3,773,138 $487,029 $3,239,874 $1,065,967 $0 $1,288,157 $482,149 City of Newport Beach - Water Rate Study Report Page 161 22-78