HomeMy WebLinkAbout22 - Approval of 2019 Water Rate Study and Setting of Public Hearing for Water RatesCITY OF
NEWPORT BEACH
City Council Staff Report
TO:
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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.
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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.
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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.
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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).
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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%
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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:
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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.
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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.
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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
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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
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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.
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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.
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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
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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.
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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
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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
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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.
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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
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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.
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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
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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
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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
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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
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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.
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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.
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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.
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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.
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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
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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.
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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%
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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
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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
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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