HomeMy WebLinkAboutE-8.1. Authorization to Seek Bids for Water Cost of Service StudyCONSENT ITEM E-8
TO: HONORABLE CHAIRPERSON AND MEMBERS OF THE AZUSA UTILITY
BOARD
FROM: TIKAN SINGH, GENERAL MANAGER
DATE: JULY 25, 2022
SUBJECT: AUTHORIZATION FOR STAFF TO SEEK BIDS FOR WATER COST OF SERVICE
STUDY
BACKGROUND:
Azusa Light & Water’s (ALW) last Cost of Service Study (CoSS) was conducted in 2015, which
followed the previous CoSS in 2009. The 2015 CoSS resulted in a rate increase of 19.75% in Fiscal
Year 2016/17 (7.29% net after elimination of drought penalties) and 2.00% annually through FY
2020/21. No rate increase occurred through FY 2021/22. With drought conditions not improving, on-
going conservation efforts slowing water usage/consumption, and the recent Executive Order N-7-22
issued by Governor Newsom, ALW Staff recommends the Utility Board authorize a Request for
Proposals for a new Cost of Service Study.
RECOMMENDATION:
Staff recommends the Utility Board take the following action:
1) Authorize staff to seek bids for a cost of service study for the Water Utility.
ANALYSIS:
Governor Newsom’s Executive Order (ExO) N-7-22, issued March 28, 2022, called on urban water
suppliers to move to Level 2 of their Water Shortage Contingency Plans. This would have suppliers
prepare for a water shortage level of up to 20 percent. Governor Newsom’s ExO also encourages water
suppliers “to voluntarily activate more stringent local requirements based on a shortage level of up to
thirty percent (Level 3).” ALW has responded by activating 2-day watering restrictions, effective June 1,
2022.
The anticipated basic Scope of Services will include, but are not limited to, the following:
Approved
Utility Board
07/25/2022
Water Cost of Service Study RFP
July 25, 2022
Page 2
Draft Scope of Services
1. Develop a water rate structure that will allow the City to meet its financial obligations to
ensure the long term financial stability of the Water Fund.
2. Assess the current rate structure’s performance as a baseline for comparing
recommended changes.
3. Assess and develop recommended water rates for all types of property ownership to
include multi-family units, agricultural, and commercial uses.
4. Assess the sensitivity of the interaction between the water conservation elements of the
recommended tiered rate structures and their impacts on the ability to fund water
operations as well as their impact on the economic well-being of the community.
5. Assess current tier breakpoints in the current rate structure, and make recommendations
for modifying/adding thresholds to better reflect water supply conditions.
6. Analyze unbundling service (meter) sizes so that tier breakpoints can more accurately
reflect usage needs for individual service sizes.
7. Assess current meter service charges with respect to the water fund’s fixed cost.
8. Maintain current low-income discounts.
9. The recommended rate structure shall be based on cost of service and shall be sufficient
to meet the short and long-term revenue requirements of ALW’s Water Fund.
10. The study shall recommend rates that consider and make provision for the following
factors:
a. Current and future cost of providing water in accordance with established and
anticipated standards and regulations.
b. Projected demands, while considering goal of water conservation.
c. Age and condition of water system and the need to fund long-term capital
improvement/replacements for supply, treatment, and distribution infrastructure.
d. Funding requirements for all current long-term liabilities and debt obligations.
e. Impact of current and future environmental regulations.
f. Other impacts as identified.
11. The recommended rate structures shall provide direct identification of revenues
appropriated to major funded activities and infrastructure.
a. Operation & Maintenance (O & M) expenses
b. Capital expenses and capital financing
c. Bond coverage requirement.
d. Water purchase from outside sources, as needed
12. The benefits of any proposed modifications shall be weighed against the financial
impacts on ratepayers.
13. The recommended rates shall result in no decrease in stability of the revenue stream to
the Water Fund, as compared to the current rate structure.
14. Consideration should be given to funding past and future depreciation.
15. The recommended rate structure and report shall be easy for staff to administer and the
customer to understand.
16. ALW’s billing systems must be able to implement the proposed rate structure.
17. Analyze the current and historical revenue and billing data to estimate relative reliability
of rate forecasts for the base fiscal year through five subsequent fiscal years.
Water Cost of Service Study RFP
July 25, 2022
Page 3
18. The recommended rate structure shall comply with the provisions of Prop. 218. It shall
be demonstrated that the rates do not exceed the proportionate cost of serving each class
of customers. A sound rationale related to the cost of service is required.
FISCAL IMPACT:
There is no fiscal impact of issuing the RFP other than mailing costs. The cost to conduct the study will
be reported when the consulting contract is awarded.
Prepared by: Reviewed and Approved:
Anthony Hernandez Daniel Smith
Senior Administrative Technician Utilities Admin & Finance Manager
Reviewed and Approved:
Tikan Singh
General Manager
Reviewed and Approved:
Sergio Gonzalez
City Manager