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HomeMy WebLinkAbout1994-12-14; Municipal Water District; 1214.01; Consultant Recommendation for Water Rate StudyAB # 1214.1 MTG. DEPT. CMWD 12/14/94 RECOMMENDED ACTION: Staff requests that the Water Commissioners recommend to the Board of Directors approval of Montgomery-Watson as consultants to perform the Rate Study for the District's water and reclaimed water systems. TITLE: CITY ATTY CITY MGR. CONSULTANT RECOMMENDATION FOR WATER RATE STUDY ITEM EXPLANATION: Staff sent our Request For Proposals on September 23 for a Rate Study to be performed for the District. This Study is to assist the District in Analyzing its current water rate structure, recommending rate structure alternatives, and developing an implementation plan for those rates. (a copy of the RFP is attached) There were eight proposals submitted and the city and district staff narrowed the firms to four and interviewed each of the four on Monday, November 14. The RFP was sent out to ten firms. Staff has selected the firm of Montgomery-Watson to perform the Rate Study (a copy of their proposal is attached for your information) . It is expected that there will be a committee established by the Board that will be comprised of representatives from the individual customer classification, such as residential, industrial, commercial, agricultural, etc. This committee will also have one Commissioner as a representative and this selection will be made by the Commission subsequent to the Board's approval of how the committee will be established. FISCAL IMPACT: There has been $105,000 budgeted in this 1994-95 Fiscal Year for studies. Therefore there is sufficient monies available for this contract. The fee for this study is $75,000. For the Commissioner's information there will be a breakdown of tasks to be performed by the consultant and the fee for each task handed out at the meeting. EXHIBITS : 1. Request for Proposal 2. Montgomery Watson's Proposal REQUEST FOR PROPOSALS FOR WATER RATE CONSULTANT The Carlsbad Municipal Water District (District) invites your proposal to perform professional services in the capacity of water rate consultant to the District. The primary purpose of the retention of a consultant will be to assist the District in analyzing its current water rate structure, recommending rate structure alternatives, and developing an implementation plan for those rates. Other fees and revenue will need to be considered in the analysis and presented by the consultant. All questions regarding this proposal should be directed to Jeanne FIack, Carlsbad Municipal Water District at (61 9) 438-2722, extension 1 10. I. GENERAL INFORMATION A. The District The District's water service area encompasses approximately 20,000 acres, all within the City of Carlsbad, located along the northern San Diego County coastline. The District serves water to a population of 55,000 through 17,000 water connections. Some of Carlsbad's largest water customers include San Diego Gas & Electric, which operates a power plant in Carlsbad, Hughes Aircraft Corporation, and the La Costa Spa resort and golf course. Carisbad has recently been chosen as the U.S. site for a LEGO park. LEGO park will be located in the Carlsbad Ranch area, which will also incorporate two large hotel complexes, golf ranges and an industrial park. The largest potable water customer group is currently residential at 47% of total demand. Agricultural usage was a major water demand, but has dropped over the years to its current 10% of total demand. The remaining uses are for industrial processes, landscape irrigation and commercial customers. There are presently no local, developed sources of water within the District's service area, leaving Carlsbad completely reliant on water supplied by the San Diego County Water Authority. The treated water system is supplied through transmission mains connected to San Diego County Water Authority pipelines. The District's policy is to maintain a ten-day water supply. To accomplish this, the District operates Maerkle Dam with a storage capacity of 196 million gallons and eleven reservoirs with a collective capacity of 45.5 million gallons. Together, the result is a thirteen-day storage capacity at average daily demands. A state-of-the-art telemetry system monitors and operates the entire water network. The District has a Reclaimed Water Master Plan that is being implemented in five phases over the next twenty years. Phase I was recently completed in 1994 with a delivery capacity of 3,080 acre feet per year. The ultimate system plans for deliveries of 11,480 acre feet per year. The District currently delivers reclaimed water to five major customers, with an annual delivery of approximately 1,200 acre feet. In addition to potable and reclaimed water services, the District provides sewer services to approximately 90% of its water service area. The District's current water rate is $1.70 per unit (100 cubic feet), with a consenration rate of $1.51 for single-family residential customers whose usage is seven units or less per month (approximately 5,000 customers). The monthly delivery charge for a 5/8" meter is $8.50, with higher fees for correspondingly larger meters. Reclaimed water rates are the same as potable at $1.70 per unit. Water rates for San Diego County agencies will continue to rise due to planned increases from both the Metropolitan Water District and the San Diego County Water Authority. These two agencies have adopted billion dollar capital improvement programs designed to increase water reliability and supply to Southern California. As a member agency of the Metropolitan Water District, the San Diego County Water Authority will be the recipient of a number of rate increases to fund MWD's capital projects. . MWD has adopted a revised revenue structure that incorporates the following types of charges: 1) a Readiness to Serve charge based on a rolling average of water sales, 2) a New Demand charge based upon increased demands over a rolling average of water use initially set during fiscal year 1990-91 , 3) a Treated Water Peaking charge, 4) a Connection Maintenance charge, and 5) water rates as currently constituted. All of these charges will be passed on to the Water Authority which will, in turn, pass them on to its member agencies, of which Carlsbad is one. In light of the economic downturn that San Diego County has experienced over the past several years, it will be difficult and painful to increase water rates to accommodate MWD's increased rates. It will also be next to impossible to increase rates to fund rising costs for operations and maintenance or for any of the District's own projects. These issues must be considered when adopting any rate plan. B. Organization The District was organized in 1954 and operated as an independent special district until January 1990 when it became a subsidiary district of the City of Carlsbad. At this point, the District became a retail water purveyor. The District is governed by a five-member Board of Directors, who also sewe as the City Council for the City of Carlsbad. . The District currently has 53 full-time positions providing the following services: potable water, wastewater collection and reclaimed water. The budget for fiscal year 1994-95 shows operating expenses for these three enterprise funds at $18,151,100. The total capital improvement program budget to buildout is $63.9 million for potable and reclaimed water and $82.4 million for wastewater services. II. CONSULTANT FWSPONSIBILITIES The consultant will be expected to analyze current District practices with regard to the following rate issues and then make recommendations on possible modifications and their implementation. A. Potable Water Rates Analyses to be included: + Per unit (commodity) charge and delivery (monthly fixed) charge - allocation of costs between each of these charges. + Delivery charge for multi-family dwelling units which are served with a master meter. + Existing water use patterns and revenues from various sources. + Drought penalty rate (Inclining block water rate structure or other mechanism) + Lifeline water rates (do we want it; how to pay for it; what criteria to use) A Water Rate Model on floppy disk for use in Lotus 1-2-3 for DOS, version 2.4 is requested, as well as a brief manual explaining its use. B. Reclaimed Water Rates Issues to be addressed: + Optimum rate for reclaimed water for both commodity and monthly fixed rates, taking into account MWD's agricultural discount. + Whether water and/or sewer customers should pay a fee to the reclaimed water fund as a contribution for the benefits of having reclaimed water. + Long-term effects on the potable water revenue system as more reclaimed customers are added. C. Connection Fees Also known as Major Facilities Fees, these are currently being charged according to the number of Equivalent Dwelling Units per development or structure. Issues to be addressed: + Sufficiency of the Major Facilities Fees to cover the costs of the future water delivery needs, which correspond to the CIP. + Analysis of various methods of charging connection fees with a recommendation of optimum method. + Whether new building connecting to existing water and sewer systems should pay a connection fee. D. Financing Options There are two large projects scheduled for the immediate future which need to be financed. One project is the covering and lining of an open potable water reservoir. The other project is acquisition of property for and construction of an advanced wastewater treatment plant as part of Phase I1 of the Reclaimed Water Master Plan. The cost of these projects will be between $10 and $30 million. The District is asking for recommendations on financing alternatives. With regard to financing, the following issues are also to be addressed: + How to integrate capital planning with rate analysis (25 year plan?) + How to collect funds to develop alternative water resources, such as desalination projects, aquifer storage and recovery, etc. A sensitivity analysis of the various fees is requested that illustrates the effects of different methods of implementation; Le., how much revenue will be generated for capital projects, operating expenses, etc., given differing levels of rate increases and timing of implementation. This could be incorporated into the Water Rate Model. The District is asking for some discussion on how to incorporate flexibility into the rates to account for irregular growth, the City of Carlsbad's Growth Management Plan, drought impacts, and changes in various state and federal regulations. The consultant will be expected to make no more than two presentations each to the Water Commission (an advisory commission to the Board) and the Board of Directors. Regular status reports of the progress of the study are required. These updates can be made either via meetings or written reports to District management staff. Twenty-five (25) copies of the final recommendations in a bound format will be submitted to the District at the conclusion of the project. Prior to the final product, a draft will be provided to the District for review and comments. The District's goal with regard to this project is to establish a comprehensive water rate structure that will accommodate system revenue requirements and support day-to-day operations with minimal impacts on customers that can be implemented at the beginning of fiscal year 1995-96 and provide guidance for the following five years. III. PROPOSAL FORMAT A. Proposal Preparation No proposal should exceed twenty (20) pages, exclusive of appendices. Elaborate brochures and binding are not necessary or desired. October 21,1994 3 3 f 3 1 1 - 1 1 I i 1 Ms. Jeanne Flack Administrative Manager Carlsbad Municipal Water District 5950 El Camino Real Carlsbad, CA 92008 Subject: Proposal for Water Rate Consultant Dear Ms. Flack: Montgomery Watson is pleased to present this proposal for a Water Rate Consultant to the Carlsbad Municipal Water District (District). Our knowledge of the District's customers, the District's concerns regarding the water and reclaimed water rate structures and our experience in assisting several agencies in the San Diego area will allow us to develop innovative and forward thinking solutions that are politically acceptable and implementable in a timely manner. The District may wish to consider this project as an opportunity to benefit from the experiences of other California agencies which made modifications in response to the drought. Other southern California public agencies have successfully implemented alternative rate structures which have enhanced their financial stability while at the same time induced good water management practices, protected base revenues from adverse drought impact, and improved fairness within and across customer classes. In an effort to gain a better understanding of the District's needs, Montgomery Watson has reviewed the water utility's rates and finances. This extra level of effort at the proposal stage allows us an opportunity to adequately address your needs in a timely and cost efficient manner. We have identified several key issues that need to be addressed. Some of these are listed below. Delivery charges for larger meters do not appear to be in proportion to the higher demands that they place on the system. Delivery charges for multi-family users appear to be higher than the demands they would place on the water system. Commodity charges appear to be higher than delivery charges and need to be reviewed to ensure costs are being fairly allocated. JU1 North Lake Avenue Suite 600 pasaceria, Cat,iarqia ?lqQl Tei 818 7969141 Fax 818 568 6101 IJ T II 7 I 7 I J c, J 7 d . W Ms. Jeanne Hack Carlsbad MWD -2- October 21,1994 Connection fees based on EDUs tend to be unfair in some cases because EDUs may be defined based on wastewater generation and not related to water demands. This could be corrected by developing a connection fee based on meter size or redefining EDUs for the water system. To address these issues, we have assembled a team specifically structured to address your needs. The advantages offered by this team are: . Well-Qualified Project Team. The proposed Project Manager, Mr. Sudhir Pardiwala, is a professional engineer with a business administration degree in finance. Mr. Pardiwala has over 17 years engineering and financial experience and is a full time financial consultant. Mr. Pardiwala has assisted several agencies in Southern California in developing water and reclamation revenue programs. He helped develop and implement the City's wastewater program a few years ago. To assist with capital financing and with the implementation plan, we have Mr. Jim Laughlin, until recently, General Manager of Elsinore Valley Municipal Water District. Mr. Laughlin has over 40 years of experience in management of water utilities. Mr. John T. Morris will be a special consultant on reclaimed water issues. He was Chief Engineer at Irvine Ranch Water District, one of the first agencies to market reclaimed water in southern California. He has over 30 years of experience and is currently a Director of MWD. To ensure a quality product, an Technical Review Committee oversees the project and offers insight on practical matters. The members of the Technical Review Committee are all highly experienced in financial and engineering matters. Proven Technical Expertise: Montgomery Watson has completed over 150 revenue programs for cities such as Oceanside, Del Mar, Chula Vista, Poway and Banning and special districts such as Sweetwater Authority, Elsinore Valley Municipal Water District, Rancho California Water District and Ramona Municipal Water District. We have developed reclamation revenue programs for Burbank, Orange County Water District, Irvine Ranch Water District and are currently assisting the cities of Pasadena and Oxnard. Knowledge of Local Conditions: Our team is locally based with a thorough knowledge of local issues. We have assisted numerous agencies in Southern California for many years and will develop solutions that are tried, tested and successfully implemented. We successfully helped implement the City of Carlsbad's last wastewater rate restructuring including a large rate increase and a financing plan We are currently assisting MWD with a plan of incentives for developing local alternate sources of water. c :J 1 I 1 i 7 I ? i d Ms. Jeanne Flak Carlsbad MWD -3- October 21,1994 Rate Model: Montgomery Watson has developed user friendly computer rate models that may be used by the District to analyze and determine rates in the future. We will provide a computer rate model in EXCEL 4 for an IBM-PC, the format preferred by the District. Service: Montgomery Watson has a reputation for providing top quality service. You can be assured that our professionals will produce results on time and within budget. Our service will continue even after the study is completed in the form of assistance with implementation and updates. We appreciate the opportunity to submit this proposal and look forward to working with the District on this interesting project. If you have any questions or need any additional information, please contact Mr. Sudhir Pardiwala at (818) 568-6144. Sincerely, Lee Aldridge Vice President w r . I 3 -. Table of Contents Section 1 Section 2 Section 3 Section 4 Section 5 Introduction Method of Approach and Schedule Related Experience and References Project Team Fees Appendix A - Biodata Montgomery Watson considers the data and informa- tion contained in this proposal and subsidiary docu- ments to be proprietary. This proposal and any other information contained or referenced herein, or submit- ted or shown at the interview, shall not be disclosed outside of the Carlsbad Municipal Water District of- fices and shall not be duplicated, used, or disclosed in whole or in part for any purpose other than the evalu- ation of this proposal and use during the overall selec- tion process or resultant contract or agreement. MONTGOMERY WATSON Section I - Introduction During the last few years the reality of the water situation in Southern California has had a sub- stantial impact on utilities and their customers. Water shortages and the accompanying rate in- creases have forced utilities into considering in- novative strategies. MWD has also been im- pactedbythesechangesandhasproposedchanges in the rate structure by increasing fixed charges. These changes in turn will have sigdicant im- pact on the member agencies that purchase water from MWD and especially on agenaes such as the District that continue to grow and are largely dependent on MWD for their water supplies. It is in the District’s interest to ensure that the impacts of these changes are reviewed so that the District is in a stronger position to aggressively face these new challenges to manage the finanaal elements of its enterprises. PROJECT UNDERSTANDING The issues that need to be addressed include the following. Analysis of the water rate structure to meet District’s policies and meet standards of fair- ness and equity among different classes of customers. Review of drought penalty rates for “abusive” use and lifeline rates for low use. Analysis of the fixed delivery charge for different meter sizes and for multi-family dwellings to determine the validity and the equitability of the existing rates. The existing fixed delivery charges do not appear to be fairly allocated among different meter sizes. Review impact of changesproposedby MWD on rate structure. Analysis of reclaimed water use, its impacts on the potable water system, justification for reclaimed water expansion in view of change in MWD’s rate structure and incentives. 0 Capital improvement program (CIP) financ- ing. This includes replacement programs to ensure that the water utility facilities are well maintained to provide excellent quality ser- vice. The master plan projects should be adequately financed and within the means of the customers. Investigate feasibility of low cost sources of funding potable and redaimed water projects. Review method and amount of connection fees for potable and reclaimed water that is simple to implement and allows growth to pay its fair share proportional to benefits re- ceived from existing and new facilities. The existing EDU based method needs to be re- vised. Lastly and perhaps most importantly, develop an integrated approach that can be effectively implemented with the acceptance of the rev- enue program by the public and the District Board. OBJECTIVE The objective of the work plan is to develop a revenue program is acceptable to the public, the Water Commission and the Board of the District. Rates shouldbe adequate to recover the expenses of the enterprise, costs should be equitably allo- cated so that rates and charges are fair and in proportion to the service received and in con- formance with District policies. The revenue program should integrate least cost financing of capital improvements. PROPOSAL STRUCTURE This Montgomery Watson proposal is presented in five sections. The Methodology, Tasks and Schedule for completion are outlined inSection 2. The Capabilities and Related Experiences are pre- sented in Section 3 and Project Team in Section 4. The Fees are presented in Section 5. MONTGOMERY WATSON 1-1 r- -1 1 1 1 1 3 -! 7 3 1 7 1 1 1 !I 7 1 I - ! - - Section 2 = Method of Approach and Schedule Based on many years of experience, Montgomery Watson’s project approach is well organized and will lead efficiently and quickly to the desired results. Our approach is reflective of the data available, of past experience, of management and timing requirements. The underlying basis of our approach is that the revenue plan developed should be acceptable to the District and its cus- tomers. It is therefore very important to keep the District staff and Water Commission apprised of the status of the study and seek direction to ensure final acceptance. This may require that some recommended changes be adopted incre- mentally as implemented on the wastewater side at the City. The following tasks outline Montgomery Watson’s strategy to assist the District in success- fully implementing a revenue program SCOPE OF WORK The project is identified by the tasks shown be- low: 1. Meetings 2. Data Compilation and Analysis 3. Data Projection 4. Policy Considerations 5. 6. Reserves Review 7. Rate Calculations 8. Reports and Deliverables Capital Improvement Program Review and Financing Ordinance Preparation (Optional) Implementation Assistance (Optional) These tasks are described below. Task 1 - Meetings Ongoing communications are of prime impor- tance to successful completion of the Financial MONTGOMERY WATSON Plan. Since we prefer a nosurprises relationship with the District, we will promote frequent writ- ten and oral communications with staff. We will conduct regular meetings with the District to report progress and plans for future work and have more frequent telephonic and written com- munications to seekguidance and approval from the District prior to finalizing our recommenda- tions. We propose the following meetings: Task 1.1 - Kick-Off Meeting The kick-off meeting will be convened within a week of Notice to Proceed to discuss issues re- lated to the study. These include data require- ments, policy considerations, restraints on capital financing, rate structure, budget,and adjustments or refinements to schedule and scope. Task 1.2 - Mid-Course Meeting A midcourse meeting to discuss the course of the study and to seek direction will be held about six weeks into the study. Rates and rate structures will be reviewed. Impacts of reclaimed water use and connection fees will be discussed to allow staff members preview results and provide direc- tion. Task 1.3 - Draft Review Meeting A meeting will be held after a draft report submit- tal to review and address District staff and Com- mission members’ comments on the draft report. Task 1.4 - Workshop Meeting This meeting will be held, if required, to present the findings and recommendations of the study. Results of the various issues to be studied will be presented. Montgomery Watson will answer questions regarding any aspects of the study. 2-1 ‘I I- 1 1 1 1 1 1 3 3 1 1 3 1 1 1 i 1 Section 2 - Method of Approach and Schedule Task 1.5 - Public Hearings Montgomery Watson will make formal presenta- tions to the Board at two public hearings and will answer any questions that the Board or public may have about the study. Montgomery Watson will assist preparing the staff report to Board, if requested. Additional, optional meetings may be held to address public concern and provide information and educate customers that may be sigruficantly impacted by changes in rates and rate structure. Task 2 - Data Compilation And Analysis Water conservation is a major issue in California. For the proper study of this issue and the effects on the District’s revenue’base, data requirements of the District’s customers and their usage pat- terns will be important. Montgomery Watson will compile the following data for the study. The number of active and inactive meter service accounts, fire service and other accounts will be summarized by size and type of service. Water customers should also be characterized by classes such as residential, agricultural, commercial, and industrialcustomers. Forlifeline rates tobe imple- mented, the number of accounts qua- for lifeline rates and their meter sizes should be pro- vided. The last three to five years of potable water pur- chases, consumption, and unaccounted for water (as available) will be compiled. Water usage should be available by meters and by month so that summer and winter months consumption can be determined. Water usage for different customer classes will be analyzed to help deter- mine ideal rate structure. Similarly reclaimed water use will be compiled. Historical revenues and expenditures (last three years) and currently budgeted figures for the water and reclaimed water enterprise will be compiled. Depreciation schedules and list of assets, with their historic values, should be pro- vided. Revenue data may be characterized by customer class and other types of revenue such as MONTGOMERY WATSON taxes and miscellaneous revenues. Current re- serves will be compiled. Task 3 - Data Projection Five-year financial planning periods will be used to make projections. The computer rate model will be set up so that projections for additional years can be accomplished easily. Using growth figures received from District staff, the number and types of services, resulting po- table water and reclaimed water consumption over the planning period will be projected. Our experience in the past indicates that staff may wish to adjust the projections presented in the General Plan Element. The various revenue sources currently funding the District’s operations will be reviewed and projected. Each expenditure item will be reviewed and pro- jected separately. Costs of water purchase will be determined in concert with MWD indications, taking into consideration the new proposed rate structure although it is recognized that no com- mitment will be forthcoming from MWD on fu- ture water pricing. Changes, if any, in O&M costs due to changes in number of users or capacity will be considered.. Impacts arising out of the use of reclaimed water will be considered. Task 4 - Policy Considerations There are several key issues that need to be con- sidered in developing a revenue program. These will be discussed and presented to the District for consideration. It is important to realize that a comprehensive water resources plan can be used to justify changes in rate structures without nec- essarily calling it a water rate increase. Users who demand more from the system should be charged proportionately more. Task 4.1- Alternate Rate Structures Different rate structures will be reviewed to de- termine the most suitable one for the District. Changes in structure could have significant im- 2-2 Section 2 - Method of Approach and Schedule I- 3 1 pacts on different types of users as well as imple- mentation considerations for the District. 1 I) I :I t ! - t - The structures to be reviewed may include: Tiered rates. Many utilities are beginrung to implement inclining block rates. We how of other utilities that are following this approach and will draw on their experience if required. Drought penalty rates would be included to pe- ~lizR “abusive users”. Seasonal rates. Water use can be compiled by seasons. Costs of peaking can be tied into a seasonal rate structure. Lifeline rates are implemented by several utilities and reflect the concern of the community for the economically weaker sections of the community. A uniform policy may be considered for water, sewer and solid waste fees if lifeline fees are desired. The impacts of implementing these will be as- sessed in view of the experience of other agencies withspecialemphasis onthecirmmstancesexist- mg in the District. Benefits and likely drawbacks on the alternate rate structures will be presented at a meeting. These could include qualitative and quantitative impacts on different customerclasses, on overall water use in the District, and on rev- enue impacts on the water utility. Task 4.2 - Reclaimed Water Pricing Thisisasensitiveissuebecausetypicallyredaimed water is more costly at the present time than potable water. Customers are required to incur additional costs to use reclaimed water. The fairness of levying the same fees as for potable water will be examined. The issues involved in charging water and/or sewer users for customers to offset costs of reclaimed water will be dis- cussed and recommendations provided. MWD’s interruptible rates for agricultural users will be discussed with reference to pricing of reclaimed water. Task 4.3 - Connection Fees Connection fees should be based on the total capital costs of facilities from which a user re- ceives benefit. This may include existing as well as future facilities. The fairness of charging users for connecting to existing water and sewer sys- tems willbe discussed. Issues related to charging connection fees for reclaimed water and potable water will be presented. There are several methods for computingconnec- tion fees. The buy-in method, the ITLarguliil cost method, and the specific recovery methods will be reviewed and the optional method($ suitable to the District will be recommended based on District needs and conditions. Task 5 - Capital improvement Program Review and Financing We will review the annual historic CIP program and the CIP recommendations of the potable and reclaimed water master plans. These will be integrated into a financial plan to develop recom- mendations for an adequate level of annual capi- tal improvements that can be funded by the Dis- trict. This dindude a review of funding mecha- nisms and the best method of funding different types of capital improvements, including low interest loans and grants. Facilities needed to meet greater demand, such as alternate water resources, may be funded by several sources in- cluding penalty rates and connection fees, on a pay-as-you-go and pay-as-you-use basis. Other alternatives may include standby charge on un- developed property, assessments, etc. Task 6 - Reserves Management Reserves management is an important element in the practice of sound financial management. It is especially important given the water supply situ- ation in Southern California, and when external funding is sought. Montgomery Watson will re- view the District’s reserve funds and set up a plan to establish and maintain these funds in conform- ance with utility practices, keeping in view the Cities unique circumstances and risk manage- MONTGOMERY WATSON 2 -3 '1 1 1 1 I 1 1 J 1 1' ; 1 I I 1 I I -I 1 1 1 7 Section 2 - Method of Approach and Schedule ment practices. This will conform with the waste- water funds we helped establish during the last wastewater rate study from previous page. Mont- gomery Watson will review depreciation to en- sure that it is reasonable for theDistictbyreview- ing the assets. Task 7 - Rate Calculations It is important to note that public acceptance is a critical component of our rate program. Mont- gomery Watson will make presentations to the Water Commission and to the public. Special attention will be focused on groups or classes of customers that are most si@cantly impacted. This approach helped us implement a large waste- water rate increase in the City a few years ago. The approach should be to develop an integrated and comprehensive water resources management plan which charges users in a fair manner de- pending on the demands they place on the water system. Task 7.1 - Rate Structure Design The existing rate structure will be reviewed for equity and fairness, perceived and real, within user categoriesandbetweenuser categories. Rev- enues and expenses will be allocated to custom- ers, capacity and commodity cost centers to deter- mine revenue requirements. Attentionwill focus on the allocation between fixed meter charges and commodity rates in the new rates to ensure faimess, equity and acceptance. Uniform rates will be provided. Options could include increas- ing tiered rate structures. Lifeline rates for low income users will be provided. When considering MwD's proposed rate struc- ture and incentive programs, it needs tobeunder- stood that each element and program is in some degree of flux. Incentive programs offered by MWD are currently being reviewed by Mont- gomery Watson and are likely to change signifi- cantly and there is ongoing discussion as to whether a portion of the Readiness-to-Serve (RTS) charge may be collected through property tax bills at the member agency's discretion. How- ever, MWD's rate structure is changing to include MONTGOMERY WATSON fixedcostssuchas RTScharges and New Demand Charges. If RTS charges that are currently billed to property owners directly on the tax roll, are collected from the utility in the future, there will be an increase in revenue requirements through rates. Demand charges for exceeding three or four year rolling averages are significant. Both these charges as well as Peaking charges and Connection Maintenance charges that are also scheduled to be implemented by MWD will be considered in the analysis. The impact of increasing reclaimed water use on the potable water system will be analyzed. The rate of growth in the District's customer and use base will be important in this regard. A compre- hensive program combining water and reclaimed water ratesand connection fees willbe developed that is fair and acceptable. Task 7.2 - Reclaimed Water Rates Based on the review of policy in Task 4.2, Mont- gomery Watson will recommend reclaimed wa- ter rates to be implemented. Impacts of MWD's discounts for interruptible water will be consid- eredkeepinginview thefactthatreclaimedwater would be a more reliable water supply and not subject to the same cutbacks that MWD would impose on agricultural deliveries. Task 7.3 - Compute Connection Charges The District's connection fees will be reviewed and computed based on existing facilities and new expansion related facilities planned in the based on meter sizes so that they can be easily master plans. Connection fees will be compute implemented. In view of the fact that MWD is in the coming years, it may be a good idea to explore the potentiaI for levying connection fees for water supply capacity on new customers in the future so that existing customers are not re- quired to pay for growth. This would be in addition to charges imposed by CWA. Com- Duted connection fees will be in comdiance with # @P planning to impose significant demand charges d/$% Section 2 - Method of Amroach and Schedule Task 7 4 - Recommend Rates and Financial Plan Based on the calculations and District poliaes, a set of rates and plans to meet District's goals will be prepared. Effects of the new rates on selected users will be demonstrated. Task 7.5 - Review and Recommend Miscella- neous Fees and Charges (optional) Miscellaneous fees will be reviewed and new fees will be proposed, if required, to ensure users pay in accordance with costs of service. For example, backflow charges for commercialcustomerscould be considered if it does not exist now, and fire service rates and installation fees could be re- viewed based on costs of providing service. Task 8 - Reports and Deliverables The report for the midcourse meeting will be a compendium of tables, without text, showing the effects of various alternatives on rates. Tencopies will be provided. 1 i Prior to the workshop, a draft report will be produced for critical review by staff and Mont- gomery Watson. Ten copies of the draft report will be provided. Following receipt of comments on the draft re- port, the final report will be produced. It will include complete textual information supporting the many tabulations and graphics; 25 copies will be provided. A computer diskette including the rate calcula- tion model on EXCEL 4 for an IBM-PC will be provided. Documentation explaining the model, the data requirements and methods to update the model will be provided. Models will include macros which will simplify the task of printing the tables and updating the calculations. All of these will be discussed and explained at an op- tional training session. Task 9 -Ordinance Preparation and Imple- mentation (Optional), Montgomery Watson will assist in drafting a user fee ordinance to take into consideration any new rate structure adopted by the District. Montgom- ery Watson can help the District with implemen- tation to assist staff and public answers to specific questions regarding the revenue program. Task 10 - Cost of Delivery Analysis (Op- tional) Typical delivery charges will be addressed in the cost allocations performed in Task 7-1. These allocations will provide delivery charges for dif- ferent meter sizes based on the demands the meter puts on the system. Multi-family units and irrigation meters would be covered under this methodology. If the District sis of demands from different customer classes, Montgomery Watson would investigate peaking factors specifically used in the master plan for different customer classes and based on our expe- rience to determine demands placed on different customers. A more detailed analysis (which we do not believe is necessary) would be actually measuring demands specifically for the different classes. If the District desires this latter option, it could be provided on a cost and materials basis. Task 11 - Public Involvement (Optional) Montgomery Watsonhas partiapatedmany times inpublicmeetmgsmakingpresentations, answer- ing questions in a manner that can be easily understood by the lay person, and listening to customer concerns. Our approach on this task, included inTasks 1-3and 14,wouldbe topresent the issues under a comprehensive water resources management plan and have users buy into this approach which allows revenues to be collected from "abusive" users without impacting water.- wise users of the District. MONTGOMERY WATSON 2-5 J Section 2 - Method of Approach and Schedule If the District decided to substantially change its water r,i te structure, Montgomery Watson would assist in targeting classes or groups of customers that wouldbe sigruficantly impacted and conduct meetings to inform and educate them of the pro- posed changes. Fees for this task would be on a per meeting basis, with costs ranging between $500 to$1,000permeeting,dependurgonwhether we would be required to prepare presentation materials, etc. SCHEDULE Montgomery Watson has an excellent record in meeting its schedule commitments. We expect that the study can be completed within 100 days. We will meet the following schedule: Notice to Proceed Week of Kick-Off Meeting Follow Up Meeting Mid-Course Meeting Draft Report Review Meeting Workshop Meeting Final Report Public Hearing January 1,1995 January 5,1995 January 24,1995 February 14,1995 March 9,1995 March 16,1995 March 31,1995 April 14,1995 open MONTGOMERY WATSON 26 3 I i i J 1 * i i - j 1 4 i ! A I 4 I I J i .I Section 3 - Related Experience and References Montgomery Watson provides a wide range of expertise in the environmental business. It has provided service for over 140 years. There are currently over 3,000 employees and 80 offices worldwide. Montgomery Watson’s single guid- ing prinaple is: To be the best operated environmen- tal setpiceS and technology firm in its sector qf busi- ness. This means that Montgomery Watson will deliver only products of proven high quality and consistently set new industry standards for ser- vice, maintaining continued client respect, confi- dence, and loyalty both before and after an as- signment. Montgomery Watson’s Financial and Manage- ment Consulting Practice consists of profession- als with both engineering and business adminis- tration backgrounds. They have performed simi- lar studies to that proposed herein on time and within budget. Montgomery Watson has pre- pared numerous financial and rate studies in- volving water and wastewater systems and fi- nancing alternatives for capital improvement programs (CIP). Our staff provides many years of experience in financial and planning analysis and rate investigations. Montgomery Watson has completed well over 150 analytical and statis- tical finanaal studies of water and wastewater systems. The following pages list and describe projects undertaken by Montgomery Watson’s Financial and Management Division and references, which Montgomery Watson invites the District to con- tact. RELATED EXPERIENCE Sweetwater Authority, California Water Rate Study and Financial Plan (1 994) Montgomery Watson was retained to prepare a revenue program and a financial plan so that the Authority could finance a large capital improve- ment program and design a fair and equitable system of rates. Water rates were to be designed to aid in conservation programs. Montgomery MONTGOMERY WATSON Watson reviewed the master plans and recom- mended a financing plan to carry out the projects design and construction. Capital projects were rescheduled so that rates would be implemented in an orderly manner without causing a hardship to users. Montgomery Watson analyzed the wa- ter use and revenues from different classes of customers and in different blocks to assist in the development of a water rate structure. The Au- thority implemented an incremental blodc rate structure with multiple blocks to aid in conserva- tion. Incentives were provided to the small single family residential users to aid in conservation. The computer rate model was designed to com- pute rates in cases of drought resulting in lo%, 30% and 50% cutbacks in water use. Alternate fees to recover costs related to providing services were proposed and accepted. Montgomery Watson provided the computer rate model, a manual explaining the model and train- ing to use the model. Mr. Pardiwala was the project manager. City of Oceanside, California Water and Wastewater Rate Study and Financial Plan (1990-92) Montgomery Watson was retained by the City to prepare a revenue program and a financial plan so that the City could apply for low interest loans from the State Revolving Fund to partially fi- nance a large capital improvement program and design a fair and equitable system of rates. Water rates were to be designed to aid in conservation programs. Montgomery Watson reviewed the master plans of the City and recommended a financing plan to carry out the projects designand construction. Midway through the study, the Metropolitan Water District of Southern California’s (MWD)mandatory conservationpro- grams required implementation. Montgomery Watson reviewed different rate structures and designed an incremental blodc rate structure to aid in conservation and to recover rebates and penalties imposed by MWD. Montgomery Wat- son provided rates for different scenarios de- pending upon the Incremental Interruptible Con- 3- 1 J Section 3 - Related Experience and References i J 7 servationPlanphaseMWDwould declare. Mont- gomery Watson also reviewed other charges and assisted staff in presentations to City Council. On the wastewater side, the City was planning reclamation facilities and upgrade and expansion of the treatment facilities. They needed an ap- proved revenue program for submittal to the State Water Resources Control Board (SWRCB). Montgomery Watson prepared a revenue plan that was approved by SWRCB. Montgomery Watson reviewed the management of operational, replacement and expansion reserves and made recommendations to meet EPAand developer fee (California AB 1600) requirements. Montgomery Watsondeveloped reclaimed water rates for the City and assisted with applications for low interest loans to the state for desalination of groundwater. Montgomery Watson provided thecomputer rate model, a manual explaining the model and train- ing to use the model. Mr. Pardiwala was the project manager. Ramona Municipal Water District Water Rate and Administrative Study (1 991) Ramona MWD provides water, sewer, fire, medi- cal, and recreational services to the Ramona area inSanDiegoCounty. The areaischaracterizedby low density population hilly regions and high elevation. All the water is purchased from San Diego County Water Authority. Rates are much higher than the general San Diego area. Mont- gomery was selected to do a rate study and evalu- ate organizational staffingand management struc- ture for efficiency in operations as well as man- agement information systems. In addition the drought conditions required mandatory cutbacks in an area where agricultural irrigation is still important. Montgomery completed the rate study and modified the rate structure to encourage conservation. Recommendations to increase effi- ciency and reorganize managemenfstructure were made. Rationale for the higher rates was pro- vided to ensure the community that rates were reasonable. Mr. Pardiwala was the project man- ager. City of Burbank, California Water and Wastewater Reclaimed Water Rate Study and Financial Plan (1 987-1 993) The City of Burbank had been using system de- velopment charges to fund operations and run- ning a defiat in their budget. The State Water Resources Control Board required the City to meet EPA's revenue program guidelines and rec- ommended Montgomery Watson to develop the City's wastewater revenue program. Montgomery Watson successfully performed a user charge study that included an analysis of the City's wastewater rate structure. This included a detailed study of historical water consumption data and infiltration and inflow data. Analysis showed that revenues collected fromhigh strength users was totally inadequate. Rates were struc- tured to take into account the wastewater flow and the strength of the City's large commercial and industrial accounts. In addition because of large capital expenditures at Hyperion treatment facilities, Montgomery Watson designed a life- line rate for the City's senior atizens so that they would not be unduly burdened by high sewer rates. A program of charges for inspections of industrial waste discharge permitees was devel- oped to reflect cost of service. In addition, a system of reserves was designed to prevent com- mingling of funds from system development charges, from restricted bond accounts and from operations. Montgomery Watson made presen- tations to the City Council and at public hearings to ensure smooth passage of the rate increases. The revenue program was approved by the SWRCB. Montgomery Watson also drafted an ordinance to reflect the recommended changes. One of the features of this ordinance provided staff the flexibility to implement rate increases necessitated by inflation without approaching Council for approval. As part of this study, Montgomery Watson provided a rate model on Lotus Symphony to the City. This model is being used to determine rates for subsequent years. MONTGOMERY WATSON 3-2 Section 3 - Related Experience and References 3 City of Oceanside 1992 Water and Wastewater Rate Study Mr. Barry Martin ht. Water Utilities Dir. (619) 9661873 Sweetwater Authority 1994 Water Rate Study Financial Plan Mr. Dick Reynolds General Manager Ci of San Fernando 1984-94 Water and Wastewater Rate Studies Mr. Mike Drake Director of Public Works (818) 898-1222 1619) 420-1413 As a follow up to the user charge study, Mont- gomery Watson was retained to perform a study on the system development charges. The City’s facilitiesneeded tobeexpanded tomeet increased demand. Montgomery Watson evaluated the costs of increase in treatment capacity and recom- mended system development charges for the resi- dential and various commercial and industrial users. ! City of Banning 1994 Water and Wastewater Rate Study Mr. Paul Toor Public Works Director (909) 922-1230 City of Redlands 1994 Outside City Water and Wastewater Rates Mr. Gary Phelps Utilities Director City of Burbank 1993 Redaimed Water Revenue Plan Mr. Leighton Fong Supervising Civil Engineer (815) 953-9617 (909) 798-7698 Following the above work, Montgomery Watson provided a financial analysis study to be included in the City’s Official Statement for a proposed bond sale to finance construction of the City’s plant expansion. This included an analysis of bond sizing, estimating reserves, bond issue costs, coverage requirements and methods of increas- ing rating and reducing interest costs. Montgomery Watson also performed an engi- neering feasibility study and evaluated the eco- nomics of water conservation by using reclaimed water to irrigate the City’s parks, golf courses, and for freeway landscaping and industrial uses such as plating. On the water side, the City of Burbank had just completed a master plan and wanted a thorough investigation of the water rate structure and rev- enue plan. The City wanted to implement a water conserving rate structure, and introduce other service charges in accordance with a cost of ser- vice analysis. Montgomery Watson modified their rate structure basing demand on water con- sumption during the peak summer months. The rate structure included a separate component on cost of water and power so that those costs could be passed on directly to the customers if they changed. The capital costs were incorporated in the service charges. Funding of capital improve- ments on a pay-as-you-go basis as well as through issue of debt was evaluated and rates were pre- pared under each scenario. Montgomery Watson developed charges for new connections, zonal elevation charges, fire service charges, backflow connections administrative chargesand other ad- ministrative fees. In addition, Montgomery Wat- son evaluated impact of drought conditions sce- narios on rates and revenues with water con- sumption decreasing by varying amounts. Mont- gomery Watsonevaluated impacts of new charges md modifications in rate structure of existing mes and made recommendations to ease imple- nentation. Montgomery Watson also rewrote he rules and regulations governing the water lepartment. ?allowing the above work, Montgomery Watson xovided a finanrial analysis study to be included n the City’s Offiaal Statement for a proposed mnd sale to finance construction of the City’s >lant expansion. This included an analysis of Iond sizing, estimating reserves, bond issue costs, :overage requirements and methods of increas- ng rating and reducing interest costs. wlontgomery Watson also performed an engi- leering feasibility study and evaluated the eco- iomics of water conservation by using reclaimed vater to irrigate the Cit-fs parks, golf courses, Lnd for freeway landscaping and industrial uses iuch as plating. Montgomery Watson assisted he City with applications for a low interest loan mder the Water Reclamation Loan Program. konomic analyses and rates to serve users were bo computed. ill of these projects were completed on schedule vithin budget to the satisfaction of the client with vlr. Pardiwala was the project manager/projed ngineer for the various projects. VIONTGOMERY WATSON REFERENCES MONTGOMERY WATSON 3-3 -I Section 4 - Project Team Montgomery Watson has assembled a team spe- cifically structured to meet the District’s needs. Our team provides the highest level of profes- sionals with extensive experience in their special- ties to provide the Districtwithaproductthatwill be implementable. The team provides excellent management, review, and analytid abilitiescom- bined with proven experience. All projects are carried out utilizing a team approach with coor- dination between the client and the team main- tained at all times. Other team members include Jim Laughlin, until recently, General Manager of Elsinore Valley MWD, and John Moms, ex-Chief Engineer for Irvine Ranch Water District. The presence of these team members will ensure the District a quality product. For eachof its projects, it is Montgomery Watson’s policy to form an Technical Review Committee. This committee will consist of individuals who have substantial background in the engineering and financial and management aspects of water and wastewater facilities. The Technical Review Committee is the District’s insurance of technical excellence. . The organization of our proposed project team is shown graphically on the following page. A concise summary of qualifications of the key project team members is presented in the follow- ing paragraphs. Detailed education and experi- ence biographies for the principal project team members follow in the appendix. PROJECT TEAM The project team will consist of Principal-in-Charge (PIC) Mr. Ajit S. Bhamrah As PIC, Mr. Bhamrah wiU be responsible for ensuring that the District’s expectations are met on all aspects of the project. He will ensure that resources required for a timely completion of the highest quality product will be available to the Project Manager. Mr. Bhamrah has over 20 years of experience in the environmental engineering field and is a registered engineer with a masters degree in engineering and business administra- tion. Project Manager Mr. Sudhir D. Pardiwala Mr. Pardiwala is the Head of the Montgomery Watson Southwest Group Financial and Manage- ment Consulting Division. He has served as Project Manager or Project Engineer on many water and wastewater, reclaimed water rate stud- ies, and administrative studies including the Cit- ies of Carlsbad, Oceanside, San Fernando, Del Mar, Burbank, Pomona and Ramona Municipal Water District and Dana Point Sanitary District. He has several years of experience in project economic and financial analysis with Montgom- ery Watson and other engineering firms. He is a registered engineer witha masters degree inengi- neering and business administration. Mr. Pardiwala‘smajor responsibility as the Project Manager will be to provide the overall supervi- sion and administration of the project, directing the project approach, reviewing the quality of the finished project, monitoring progress, meeting deadlines, and assuring the cost control of the total effort. Mr. Pardiwala will also be directly responsible for the revenue program. Technical Support The following team members will provide their technical expertise in their areas of specialty to support Mr. Pardiwala. Capital Financing Mr. Jim Laughlin Mr. Laughlinuntil recently wasGeneral Manager at Elsinore Valley Municipal Water District. He has over 40 years of experience in the water busi- ness and has successfully obtained low interest loans and grants from Farmers Home Adminis- tration, Bureau of Reclamation and State Revolv- MONTGOMERY WATSON 4-1 1 I 1 Section 4 - Project Team ing Fund. He is on a select committee to design the new program to fund capital water projects to be developed by the Bureau. Mr. Laughlrn will assist the District with his expertise in capital firaancing. Reclaimed Water Issues Mr. John Moms Mr. Moms has over 30 years of experience in the water industry. He is currently a Director of MWD and was Director and member of the Tech- nical Advisory Committee of the South Orange County Reclamation Authority. He was Chief Engineer at Irvine Ranch Water District (IRWD), one of the first utilities in Southern California to implement water conservation through the use of reclaimed water. He has been involved with developing policy on reclaimed water and po- table water pricing and design of penalty rates for “abusive” users. Prior to his employment with IRWD, he spent 15 years in consulting, which included many California water, reclaimed water and wastewater projects including rate analyses and revenue programs. Financial Analysis Mr. Michael Blum Mr. Blum is a Senior Economist with experience in planning, economic analysis, negotiations, and environmental engineering. He is versatile in computer modeling and environmental finance. He has assisted several clients with billing calcu- lation methods, demand forecasting, revenue planning and rate setting. He has a degree in engineering and business administration. He will assist in the financial analyses on this project. He has an engineering and advanced business degree. Technical Review Committee (TRC) For each of its projects, it is Montgomery Watson’s policy to formanTRC. This committee consists of individuals who have substantial background in the engineering, management and financial as- pects of water and wastewater facilities. The TRC is the District’s insurance of technical excellence. TRC Member Mr. Bill Butler Mr. Butler, a Vice President with Montgomery Watson, has over 20 years of management expe- rience as both a management consultant and a public official for one of the largest regional waste- water management utilities in the United States. He has been responsible for project management, construction program management and financ- ing for major EPA grant-funded wastewater sys- tem expansion and improvement programs. Mr. Butler has extensive experience in rate studies, cost allocation studies, personnel management, project scoping, planning, budgeting, financial planning, A/E contractor and equipment vendor negotiations and contract management. He has also successfully supported major wastewater agenaes in EPA grant application submissions, program reviews and grant audit reviews and appeals in several states and EPA Regions. He has personally directed major project financing for the local share portions of EPA grant projects, including a $117 million financing for a major regional wastewater utility in California. TRC Member MI. Dale Burgoyne Mr. Burgoyne, a pMcipal engineer, has a unique combination of experience in civil engineering and financial consulting for muniapal utilities and local governments. He has performed rate and financial studies and valuation studies, for a number of agencies. He has extensive experience preparing contracts for utility service. Mr. Burgoyne also has experience in flood control and drainage studies and designs. His education includes a broadly based study of water resources engineering and planning along with finance and business. TRC Member Mr. Jack Weber Mr. Weber is a Principal Economist has over 22 years of experience in rate and structure develop- ment, economic analysis and financial planning. He was manager of budgets and planning at East MONTGOMERY WATSON B 4-2 - Section 4 - Project Team 1 Bay Municipal Utility District and was respon- sible for setting and implementing water and wastewater rates. His experience there includes over six years of conservation related rates and charges. He has assisted many utilities with water and wastewater rates analysis and has de- veloped rate models that are approved by AWWA for utilities throughout the U.S. He is an expert on water demand forecasting analyses. MONTGOMERY WATSON 4-3