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SOURCE - Winter 2016

Figure 4. 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 Descriptions Conclusion 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. Figure 3. Figure 5. COMMUNITY RATE COMPONENTS Water Supply Groundwater Recharge Delivery Conservation The Demand 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 budget. 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 1     Tier 2       Tier 3       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


SOURCE - Winter 2016
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