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Water Utility Regulation Straw Proposal

October 13, 2015

Straw Proposal• Topics

– Goals and Objectives

– Service Charge

– Quantity Rates

– Tiered Residential Rate Structure

– Non-Residential Rate Structure

– Public Purpose Balancing Account

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Goals and Objectives

• Simplify and Rationalize Existing Rate Design

• Maintain Protections for Low-Income Customers

• Strengthen Conservation Incentives

• Align Utility Risk and Reward

• Eliminate Need for WRAM/MCBA

• Eliminate Need for Sales Forecasting and Sales Adjustment

Mechanisms in Setting Rates

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Service Charge

– Recovers 100% of fixed costs and return

– Low-income and conservation program costs removed from recovery in service charge (see Public Purpose Balancing Account)

– Existing equity premium reduced to account for lower utility risk and improved utility cash flow

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Quantity Rates

– Recover variable costs:• Purchased Water and Purchased Power (less fixed

components)

• Pump Tax

• Chemicals

– Variable costs subject to incremental cost balancing account treatment between GRCs

– Variable costs remain offsettable expenses

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Tiered Residential Rate Structure– Tier 1

• Average variable costs per ccf• Allotment of 2 ccf per month per capita (50 gallons per day per capita)

– Tier 2 • % of long-run marginal cost of water (e.g. desalination or recycled

water)• Applies to next 5 ccf per month per household over Tier 1 allotment

– Tier 3• 100% of long-run marginal cost of water• Applies to all consumption in excess of Tier 2 allotment

– All Tier 2 and Tier 3 revenue in excess of Tier 1 rates are booked to Public Purpose Balancing Account

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Non-Residential Rate Structure

– Quantity rate set equal to residential Tier 2 rates for all consumption• All revenues above residential Tier 1 rates booked to

public purpose balancing account

– Service charge recovers 100% of fixed costs and return

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Public Purpose Balancing Account• Tracks revenue in excess of Tier 1 variable costs

• Tracks low-income and conservation program costs

• Low-income Program•Low-income credits increase to offset increase in service charge

• Conservation Program

• Residential Ratepayer Reward•Monthly/Bi-monthly bill credit to all residential customers whose consumption is within Tier 1 level

Questions?

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