Utility Committee Agenda and Packet 2019 03 15

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This situation of higher rates is consistent with all reclaim systems and was highlighted in the 2014 Utility Rate Study performed by Raftelis Financial Consultant (Raftelis). An excerpt from the Rate Study - Executive Summary on the reclaim rate is attached for reference. As a result of the incompatibility between reclaim and potable rates, Utilities typically default to setting reclaim rates by policy instead of using a cost of service approach. Market Conditions: With the establishment of a reclaim system and the inability to utilize a true cost service approach, the City, with the guidance of Raftelis, developed a market based policy for the reclaim rate. As outlined in the 2014 Rate Study, A weighted average of 75% of the potable rate was ultimately selected as the reclaim rate policy. This rate was stated to provide a customer currently using reclaim water with a significant discount compared to potable water rates. Analyzing this rate in more detail, the 2014 determination seems to be derived on what the market could sustain and overlooked the primary function of risk mitigation for the entire system. Marginal Costs: Based on direction from the January 15, 2019 Utility Committee, two revised options of the reclaim rate have been developed. Both versions considered only the marginal costs for operating the reclaim system. These costs can be more accurately defined as the reclaim system portion of chemical and energy costs accounted for in the wastewater treatment operating and maintenance budget. Other costs associated with personnel, capital replacement and indirect cost were removed from this analysis and considered indivisible from other City operations. The first option was based on the existing per unit rate concept. As standard with rate development, total costs are divided by total deliveries to develop a cost per delivery. In this case, total reclaim marginal costs for 2018 were divided by the average 10-year annual deliveries to determine a future rate that could be charged per thousand gallons of reclaim water delivered. Details of the calculation are shown in the following table. MARGINAL COST - OPTION 1 2018 Reclaim Energy Cost $31,700 2018 Reclaim Chemical Cost $5,600 2018 Reclaim Marginal Costs $37,300 Annual Reclaim Deliveries (10-year Avg) 44 million gallons Per Unit Rate $0.85 / 1,000 gallons The second option, considered a flat rate, is based on executing a single lump sum payment. A similar 10-year average of annual deliveries between the various reclaim use locations was also calculated. These location percentages were then applied to the 2018 total marginal costs to determine a future annual cost by location. The calculations of this rate concept are presented below. 10