Figure 3 summarizes the costs components used in the EVWD study;
Figure 4 illustrates how such costs are incurred by each defined tier. The
larger checkmarks indicate where there’s a higher unit cost in the respective
tiers compared to the lower tiers for that particular category.
Figure 5 takes the unit prices for each cost component in Figure 4 and
shows its actual costs. In this figure, Tier 2 and 3 do not sum to total due to
the blended rate of two water supply sources within each tier.
Building upon the idea of avoidable costs, a majority of costs in Tier 3
are avoidable as usage declines. For example, if usage is reduced, EVWD
would not need to purchase imported water or recharge the groundwater
basin to the extent that would be necessary if that usage remained. In
addition, the conservation program budget could be reduced because it
was successful, and certain peak costs, such as energy, would be reduced
as water usage in the peak period is eliminated.
22 SOURCE winter 2016
This build-up cost approach is now an essential component in
demonstrating a sound rationale for setting water rates. This approach
isn’t only limited to tiered rates, but can also be used when implementing
a uniform commodity rate. The goal is twofold: 1) show your work to
support how rates were derived, and 2) educate customers on the types of
costs incurred by their water agency and how those costs are recovered and
why. If rates are challenged, the administrative report should be sufficient
to support the rates in question. With this in mind, administrative reports
are becoming more comprehensive and should be written not just for the
specific water agency, but also for a court’s potential review of the validity
of the agency’s rates. S
Sanjay Gaur, Vice President, Raftelis Financial Consultants, Inc., contributed
to this article.
To recover water supply costs using the following supply allocation:
1. Tier 1 is supplied by groundwater.
2. Tier 2 is supplied by groundwater and surface water.
3. Tier 3 demand is covered by a small amount of surface water
and a majority of imported water.
To ensure EVWD has a reliable source of water for future years.
Approximately 5,800 AF of untreated imported water is injected
directly into groundwater basin.
To recover those operating and capital costs of the water system
associated with delivering water to all customers at a constant
average rate of use.
To pay for conservation program to help reduce Tier 3 inefficient
usage, which reflects usage over each Account’s monthly water
To recover the water system costs associated with meeting peak
demand. Tier 2 is outdoor demand and Tier 3 is inefficient use.
Tier Ground Surface Imported GW Delivery Conservation Peaking
Water Water Water Recharge
Tier Ground Surface Imported GW Delivery Conservation Peaking RATE
Water Water Water Recharge
Tier 1 $0.49 $0.12 $0.55 $0.29 $1.45
Tier 2 $0.49 $0.70 $0.12 $0.55 $0.43 $0.41 $2.07
Tier 3 $0.70 $0.85 $0.12 $0.55 $0.75 $0.71 $2.89