CC - Agendas - City Council - REGULAR - 8/14/2018

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9.H.a City of Prescott, Arizona Water and Wastewater Rate Study We will also examine the impact of changes in O&M expenses, miscellaneous revenues and well as reductions in rate revenue due to anticipated conservation. The outcome of this task will be the projected annual rate revenue adjustments for a required scenario and/or path forward which may be necessary to meet the City's objectives and incorporated in subsequent tasks. TASK 3 Water Utility Cost of Service and Rate Design Analysis We will start with the industry -accepted cost -of -service principles and customize our analysis to account for the specific requirements of this study. The cost -of -service analysis will provide the City with a defensible justification explaining the reason why the costs are assigned in the manner they are as well as evaluating specific rates, surcharges as well as the fixed and volume related costs for recovery through recurring rates and fees. We will develop a single test -year revenue requirement as the basis for our cost -of -service analysis. The test -year will be selected during Task 1 and may be FY 2018-19 or a future year to provide for a phase -in period for alternative rate structure which may be designed to recover customer class cost -of -service amounts more gradually. The revenue requirement is the amount of revenue required from rates to meet annual expenditures such as operating, capital, debt service, changes in reserves and is net of other operating and non -operating revenue. The water cost -of -service analysis is a multi -step process based on the industry standard methodologies completed during the 2014 study and published by the American Water Works Association (AWWA's) Manual M1, Principles of Water Rates, Fees, and Charges. The multi -step process includes: • Allocate the detailed revenue requirements to the appropriate functional cost categories • Allocate functional cost categories to service components using the base -extra capacity method • Develop test -year demand characteristics for each customer class and the overall water system • Calculate the unit cost -of -service components for the system • Allocate the unit costs to each customer class • Compare class cost -of -service to the revenue under existing rates for the test -year The class cost -of -service comparison will show the percentage change in the classes based on the cost -of -service analysis. Costs the water utility incurs are influenced by both average and peak customer requirements as well as costs independent of the amount of water demanded and the cost -of -service analysis assign cost recovery responsibilities in proportion to the service demands placed on the water system. As a separate analysis, Raftelis will evaluate the existing multiplier applied to customers located outside the City, both those located within the County and those located within Chino Valley using a utility -based approach typically used for outside City customers. As part of the 2014 study, the multiplier for customers located outside the City and within the County was increased from 1.39 to 1.40 while the multiplier for customers outside the City within Chino Valley was maintained at 1.30 due to the contract requirements. The outcomes of this analysis will be incorporated in potentially modifying the multiplier for outside City customers and incorporated within the overall water rate analysis to be completed. Attachment: Raftelis Scope of Work -Prescott DIF and Rate Study (2124 : Rate & Fee Study Contract with Raftelis) RAFTELIS Water and Wastewater Utility Rate Study - Attachment Page 4 Packet Pg. 253