Metropolitan Water District of Southern California
RFC has provided consulting services to Metropolitan Water District of Southern California (MWD) since 1998. In 2010, we completed an “Independent Review of FY 2010/11 Cost of Service and Rate Setting Process”. This engagement includes confirming the following items:
- Cost of service is consistent with California law, specifically government code section 54999.7 and with MWD Act and Administrative Code.
- Cost of service is consistent with water industry best practices, and complies with the American Water Works Association’s (AWWA) Manual M-1, Principles of Water Rates, Fees, and Charges.
- The 2010 proposed rates (including wheeling rates) are consistent with Board policies and, more specifically, with the 2001 Rate Structure Framework.
- The 2010 cost of service model is accurate and consistent with the 2001 cost of service model.
In addition, as a part of the independent review process, RFC identified the potential opportunities to improve MWD’s cost of service, rate structure and methodology.
In 2007, RFC was engaged to evaluate financial and pricing issues for the Long Term Financial Planning Committee of the member agencies. Specifically evaluated was the manner in which overhead was allocated to various MWD functions, as well as the feasibility of a peaking surcharge to be assessed to member agencies.
In 1998, RFC was engaged to assist MWD in developing a cost of service process (including wheeling rates) that could serve as a basis from which alternative rate structures could be developed and evaluated. Objectives of the project were as follows:
- Provide an opportunity for member agencies to provide input and move towards a consensus on cost of service principles and methodology
- Develop a financial model to be used for financial planning, evaluating alternative cost of service approaches, and analyzing cost of service and rate setting results
- Provide third parties with an increased measure of confidence in MWD’s financial management and pricing procedures. These third parties include bond rating agencies, insurers, legislators, regulatory agencies, and political leaders
- Develop an improved mechanism for allocating costs to system functions and user classes so that more efficient use of water resources may be encouraged
- Improve the accuracy with which revenue requirements are identified, allocated to service parameters, and recovered through rates and charges
In addition to achieving the above objectives, RFC produced a comprehensive report documenting the project’s background, conceptual approach, and cost of service processes. Although the cost of service phase provided detailed information on the costs of providing different types of service (including wholesale) , it stopped short of developing actual rates or rate structures. Instead, the project’s output was used by MWD as a foundation from which to examine the feasibility of different rate structure alternatives. After completing the cost of service work, RFC assisted MWD in reviewing and refining alternative rate structures developed by MWD and their Board. Through this process, MWD was able to use the project’s financial planning tools to develop, refine, and adopt a new rate structure consistent with their strategic plan policies and principles.