San Diego, City of

California

The City of San Diego (City) engaged RFC to perform a water and wastewater cost of service and rate design study.  The study was conducted with extensive stakeholder group involvement.  The selected stakeholders represented a variety of commercial businesses and residential communities in the City.  Metropolitan Wastewater Department (Metro) provides wastewater services to the City and 14 other participating agencies that are part of a regional wastewater system.  The study included a comprehensive review of the City’s revenue requirements and allocation methodology, review of the City’s user classification, an analysis of cost-of-service and rate design for City users. The City uses the functional cost allocation methodology for charging the strength parameters of COD and SS.  RFC reviewed the classification methodology and the customer classification to ensure greater equity.  The rate structure was modified to provide a more equitable sharing of costs consistent with regulatory requirements.  Rate design included an evaluation of rate structure alternatives with emphasis on incorporating a uniform monthly base fee in conjunction with volume rates.  The study also included a review of the City’s capacity charges incorporating a hybrid method of buy-in and incremental costs associated with providing service to new customers.

The water rate study involved evaluation of billing data, extensive analysis of the capital improvement program, allocation of CIP capacity between expansion and replacement, and financial modeling to demonstrate City compliance with regulatory requirements.  Capacity charge calculations were incorporated into the rate model to determine the effects on the City and ensure adequate revenue collection.  Cost of service rates have been developed based on American Water Works Association methodologies using the base-extra capacity method, as well as transition rates, to provide smooth transition to cost-of-service rates. Rates for this engagement were implemented in July 2004 and updated in January 2007. RFC worked with the City’s attorneys to develop the Proposition 218 notice.

In 2012, RFC completed a recycled water cost of service rate study involving various scenarios of cost sharing between the wastewater and water utilities and recovery of sunk costs.  The planning period extends over 40 years to determine when the recycled water utility recovers the investments made by the water enterprise. 

Letter of Recommendation