Tucson Water DRAFT 4-Year Rate Recommendations1

CWAC Finance Subcommittee Meeting

February 1, 2018
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4-Year Rate Design Process
FY’s 2019 to 2022
• Rate Design includes:
– Options for both Traditional and Smoothing rate setting
• Smoothing of rates was M&C preferred method during last rate
setting (for 2017 and 2018 rates)
– Smoothing of rates – using assumed floor that follows
revenue increases in the Financial Plan (6.8%) for all
potable rate classes
– Adds New Option – based on the Smoothing option -
Increasing revenues from Reclaim rate by 5.7%
• Staff’s recommendation is the Smoothing with
Reclaim Revenue Increase option for the 4 Year rates
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Cost of Service Study

• The Cost of Service Study includes updates for the
following:
– Operating Costs (O&M Budget)
– Capital Costs – Existing Assets & Future CIP Budget
– Customer Data – Number of Accounts & Usage (2017)
– Existing Revenues from Current Rates for 2018
– Peaking factors – Max Day, Max Month
– Historical Usage – 5 year average
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Cost of Service - Traditional Rate Model
Adjusted Cost of Less Revenue Revenue Adj. Cost of Revenue
Allocated Cost of Service/Revenue Under Existing Service Rates Minus Increase %
Customer Class Service Target ($1,000) Rates ($1,000) Existing ($1,000) Required

Potable Drinking:

Residential $114,115 $120,991 ($111,414) $9,577 8.6%

Multifamily $29,061 $30,412 ($28,935) $1,478 5.1%

Commercial $41,423 $43,586 ($41,804) $1,783 4.3%

Industrial $2,613 $2,722 ($2,518) $203 8.1%

Construction Water $1,629 $1,741 ($1,615) $125 7.8%

Fire Sprinkler Service $2,502 $2,965 ($2,606) $359 13.8%

Hydrants (Public Fire
Protection) $6,763 - - -

Schools Peak Costs $336 - - -

Reclaimed $13,006 $9,031 ($9,019) $12 0.1%

Total $211,448 $211,448 ($197,912) $13,536 6.8%

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8.6% Overall Rate Impacts – Traditional Model
Single Family Residential FY’s 2019 to FY2022
Change from Prior Change from Prior FY Projected monthly
Ccf/mo. FY
FY (%) ($) cost ($)
FY19 17.3 2.34 15.87
0 Ccf FY20 11.8 1.88 17.75
(fixed rates) FY21 9.4 1.67 19.42
FY22 8.9 1.73 21.16
FY19 13.3 2.76 23.55
FY20 9.6 2.25 25.80
3
FY21 8.3 2.15 27.95
FY22 7.7 2.16 30.11
FY19 10.9 3.32 33.79
FY20 8.1 2.75 36.54
7
FY21 7.6 2.78 39.32
FY22 6.9 2.73 42.05
FY19 10.3 3.98 42.47
FY20 7.6 3.21 45.68
9
FY21 7.2 3.28 48.97
FY22 6.6 3.23 52.20
FY19 9.5 5.96 65.51
FY20 6.7 4.61 73.12
15
FY21 6.6 4.79 77.91
FY22 6.1 4.73 82.64
 Cost of Service - Smoothing Option
6

Adjusted Cost of Less Revenue Revenue Adj. Cost of Revenue

Allocated Cost of Service/Revenue Under Existing Service Rates Minus Increase %
Customer Class Service Target ($1,000) Rates ($1,000) Existing ($1,000) Required

Potable Drinking:

Residential $114,115 $119,536 ($111,414) $8,122 7.3%

Multifamily $29,061 $30,892 ($28,935) $1,957 6.8%

Commercial $41,423 $44,651 ($41,804) $2,848 6.8%

Industrial $2,613 $2,720 ($2,518) $202 8.0%

Construction Water $1,629 $1,750 ($1,615) $135 8.4%

Fire Sprinkler Service $2,502 $2,867 ($2,606) $261 10.0%

Hydrants (Public Fire
Protection) $6,763 - - -

Schools Peak Costs $336 - - -

Reclaimed $13,006 $9,031 ($9,019) $12 0.1%

Total $211,448 $211,448 ($197,912) $13,536 6.8%

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7.3% Overall Rate Impacts – Smoothing Option
Single Family Residential FY’s 2019 to FY2022
Change from Prior Change from Prior FY Projected monthly
Ccf/mo. FY
FY (%) ($) cost ($)
FY19 10.8 1.47 15.00
0 Ccf FY20 8.9 1.33 16.33
(fixed rates) FY21 8.9 1.45 17.78
FY22 8.8 1.57 19.35
FY19 9.4 1.95 22.74
FY20 8.4 1.90 24.64
3
FY21 8.8 2.17 26.81
FY22 8.0 2.14 28.95
FY19 8.5 2.59 33.06
FY20 8.1 2.67 35.73
7
FY21 8.8 3.13 38.85
FY22 7.5 2.90 41.75
FY19 8.2 3.15 41.64
FY20 7.8 3.23 44.87
9
FY21 8.1 3.62 48.49
FY22 7.1 3.42 51.91
FY19 7.7 4.83 67.38
FY20 7.3 4.92 72.29
15
FY21 7.1 5.12 77.41
FY22 6.4 4.98 82.39
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Cost of Service - Smoothing w/Reclaim Increase
Adjusted Cost of Less Revenue Revenue Adj. Cost of Revenue
Allocated Cost of Service/Revenue Under Existing Service Rates Minus Increase %
Customer Class Service Target ($1,000) Rates ($1,000) Existing ($1,000) Required

Potable Drinking:

Residential $114,115 $119,044 ($111,414) $7,630 6.9%

Multifamily $29,061 $30,906 ($28,935) $1,971 6.8%

Commercial $41,423 $44,643 ($41,804) $2,840 6.8%

Industrial $2,613 $2,713 ($2,518) $195 7.7%

Construction Water $1,629 $1,746 ($1,615) $131 8.1%

Fire Sprinkler Service $2,502 $2,865 ($2,606) $259 9.9%

Hydrants (Public Fire
Protection) $6,763 - - -

Schools Peak Costs $336 - - -

Reclaimed $13,006 $9,530 ($9,019) $511 5.7%

Total $211,448 $211,448 ($197,912) $13,536 6.8%

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6.9% Overall Rates – Smoothing Opt. w/Reclaim
Single Family Residential – FY’s 2019-FY2022
Change from Prior Change from Prior FY Projected monthly
Ccf/mo. FY
FY (%) ($) cost ($)
FY19 10.8 1.47 15.00
0 Ccf FY20 8.9 1.33 16.33
(fixed rates) FY21 8.9 1.45 17.78
FY22 8.8 1.57 19.35
FY19 9.1 1.89 22.68
FY20 8.7 1.96 24.64
3
FY21 8.7 2.14 26.78
FY22 8.0 2.14 28.92
FY19 8.0 2.45 32.92
FY20 8.5 2.81 35.73
7
FY21 8.6 3.06 38.78
FY22 7.5 2.90 41.68
FY19 7.6 2.93 41.42
FY20 8.1 3.35 44.77
9
FY21 8.1 3.61 48.38
FY22 7.1 3.42 51.80
FY19 7.0 4.37 66.92
FY20 7.4 4.97 71.89
15
FY21 7.4 5.29 77.18
FY22 6.5 4.98 82.16
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Average Residential Impacts
Comparing Current Rates to Proposed FY 2019
SMOOTHING CCF’s FY 2018 FY 2019 Change Percent
Winter
7 $30.47 $33.06 $2.59 8.5%
Average
Annual
8 $34.48 $37.35 $2.87 8.3%
Average
Summer
9 $38.49 $41.64 $3.15 8.2%
Average

TRADITIONAL CCF’s FY 2018 FY 2019 Change Percent

Winter
7 $30.47 $33.79 $3.32 10.9%
Average
Annual
8 $34.48 $38.13 $3.65 10.6%
Average
Summer
9 $38.49 $42.47 $3.98 10.3%
Average
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Average Residential Impacts – w/Reclaimed
Comparing Current Rates to Proposed FY 2019
SMOOTHING CCF’s FY 2018 FY 2019 Change Percent
Winter
7 $30.47 $33.06 $2.59 8.5%
Average
Annual
8 $34.48 $37.35 $2.87 8.3%
Average
Summer
9 $38.49 $41.64 $3.15 8.2%
Average

w/RECLAIM CCF’s FY 2018 FY 2019 Change Percent

Winter
7 $30.47 $32.92 $2.45 8.0%
Average
Annual
8 $34.48 $37.17 $2.69 7.8%
Average
Summer
9 $38.49 $41.42 $2.93 7.6%
Average
 Review of Prior Mayor Council Concerns 12

- with Actions Taken since 2016-

• Improve Communications -
– Monolingual Spanish outreach – Added Spanish Bill Option
– Share success
• Three years of water stored in Avra Valley – Now close to 4 years
• Improve low income programs -
– Access to water conservation tools – Added Stormwater Programs
– Access to low income program bill subsidy – Adding new option to
address regressive rates – covers fixed rate plus 2 Ccf’s of water
• Revenue Stability -
– Declining revenue in potable and reclaimed sales – Addressing with 1%
Fixed Rate Increase over 4 year plan
– Aging infrastructure – Addressing through Contingency Funding
– Strong conservation signal – Maintained - Tier pricing remains in-tact
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Limited Income – New Option

• Current Option – Assistance covers 50% of Water Bill
– Includes Fixed portion of bill & Volumetric charges – average assistance is
approx. $20/month
• New Option – Goal - Address regressive rates
• Assistance covers Base Rate (fixed portion of bill) plus
2 Ccf’s of Water
– Example: Base Fee of $15.00 + ($1.87 Ccf x 2) = $18.74 in monthly
assistance
– Assistance Amount – Recalculates annually per Rate changes
• Both Base & Volumetric portions of assistance amount
• FY 2019 - Limited Income budget increased to $1.25 M
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Limited Income – Status Update

FY 2018
FY 2015 FY 2016 FY 2017
(last 12 mos)

Average Assistance $17.15 $18.70 $20.19 $21.61

Percentage Increase n/a 9.1% 8.0% 7.1%

Number of Participants (June) 4,062 4,137 4,137 4,559

(Dec 2017)

Avg. Monthly Assistance

$67,928 $75,053 $84,665 $91,896
Provided

Annual Assistance Provided $815,141 $900,640 $1,015,989 $1,200,000

(projected)
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Limited Income – New Option
4 Year – Estimated Assistance Amounts
Base Rate Ccf’s Rate Number Ccf’s Total
Assistance (Tier 1) of Ccf’s Assistance Assistance

FY 2019 $15.00 $1.87 2 $3.74 $18.74

FY 2020 $16.33 $2.07 2 $4.14 $20.47

FY 2021 $17.78 $2.24 2 $4.48 $22.26

FY 2022 $19.35 $2.40 2 $4.80 $24.15

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Water - Affordability
• City of Tucson Water Department
– Proposed Rate Increase
• 1.17% of City of Tucson Median Household Income (MHI)
• 0.95% Tucson Metropolitan Area
• Fitch (Bond Rating Agency)
– 1% MHI
• American Water Works Association
– 1.5% to 2.5% Median Household Income
 Next Steps
Finance Subcommittee reviews COS Model
and Revenue Recommendations
December

CWAC reviews COS Model & Revenue Rec.

Finance Subcommittee reviews Rate Model
January

CWAC reviews Rate Modeling and

February Proposed Rate Increases

Mayor & Council review proposed rates

March and considers adopting Financial Plan and
Notice of Intent for increasing rates

April & Town Halls – Rate discussions (Dates TBD)

May Mayor & Council - Public hearings on rates
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Questions or Comments?