2012/03/14 Council Agenda Packet

3 associated annual costs treated as O&M costs. ❑ A Capital-Funding Impact Evaluation,in which the results of the capital financial planning analysis(Task 4)are integrated into the revenue requirement analysis of each utility(cash funding from rates,debt service,etc.). ❑ A Test of Sufficiency to evaluate the adequacy of current rates and revenues in meeting all financial obligations for each utility.Integrate fiscal policies,capital financing impacts and the operating forecast,and develop • •an operating cash flow for each utility over the planning horizon.Compare forecasted financial requirements against forecasted revenue under existing rates to determine annual and cumulative revenue adjustments needed for each utility to ensure financial sustainability over time. ❑ A Rate Strategy to promote a forward-looking perspective for adjusting utility rates to fully fund all utility obligations on an annual basis for each utility over the planning horizon.Develop rate revenue strategies that meet financial obligations over the planning horizon and provide smooth impact to utility customers,to the extent practical.The budget provides for up to two(2)revenue requirement scenarios for each utility. Task 6:Cost of Service Analysis The cost of service analysis provides a defensible basis for assigning"cost shares"and establishing"equity"for retail and wholesale customers based on their unique demands placed on the systems.Detailed customer billing analyses and cost allocations will be performed for the water and sewer utilities;this level of analysis will not be required for the stormwater utility.This task will include the following: ❑ A Customer Statistics Analysis to evaluate individual customer data including:number of accounts,meter size,dwelling units,and water usage patterns(annual use,winter period use,and summer use).Summarize customer statistics to determine if the current grouping of customers for each utility remains appropriate and for subsequent use in developing rate structures.Water usage for unmetered customers will be estimated utilizing total production records,metered usage and estimating techniques based on industry standards. ❑ A"Price-Out"of Rate Revenue by Customer Class under Existing Rates to validate the underlying customer data set for use in assessing cost of service shifts and designing rate structures.This is a critical process in a cost of service rate study to provide the baseline for analyzing the current distribution of costs by customer class in comparison to any indicated shifts in the distribution of costs resulting from the cost of service analysis.Apply prevailing rates to the customer statistics and calculate revenues by customer class.These calculated revenues are tested against actual reported revenues by customer class to determine if the underlying data set is valid.Depending on the initial outcome,this could include follow up with City staff to determine potential reasons for any significant discrepancies before moving forward with rate design. ❑ A Functional Allocation of System Assets and Expenses to provide the baseline for assigning costs to customer classes.Review historical asset records and classify plant investment by major categories.For water,major categories include supply/treatment,storage,transmission/distribution,meters&services,hydrants,customer,and general plant.For sewer,major categories include collection,conveyance,treatment,and general plant.Assign categorized plant investment to functional cost components using system design criteria.For water,functional service components include customer,base demand,peak demand,and fire protection.It is anticipated that the City's current approach of billing the General Fund for hydrant maintenance to address Lane vs.Seattle will be maintained for this study.For sewer,functional service components include customer,flow,and strength(BOD&TSS). ❑ A Distribution of Costs to Customer Classes using the results of the customer billing analysis and the functional cost allocation process.For each utility,allocate system costs to customer classes in proportion to use/demand.The water utility analysis will address the loss of the City's major industrial customer,addition of a new wholesale customer,and addition of a new customer class for groundwater irrigation.The sewer utility analysis will address cost assignment for a new wholesale customer.Derive class of service unit costs for use in designing rate structure components(further discussed in Task 7). Task 7:Rate Structure Design Review and analyze the current utility rate structures.Recommend rate structure modifications reflective of cost-of- service findings and policy objectives for rate stability,customer equity,efficiency of use,and administrative practicality,as well as transition from flat to metered rates.Evaluate and demonstrate the ability of the resulting rates to generate the projected and required revenues by testing rates against composite system customer demands. Identify revenues to be generated from the fixed and volume-based components of the rate structure to provide for revenue stability.Prepare sample water/sewer/stormwater bills under existing and proposed rates.Conduct a survey of sample bills for 5 to 10 neighboring jurisdiction's for the the single family residential class.Provide a comprehensive summary of historical rate structures/rates and projected rates over the study period for each utility. 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