Alameda County Water District

Fremont, California, United States

The Alameda County Water District (District) engaged Raftelis to conduct a water conservation rate study. They had recently seen a significant reduction in demand, which caused a decrease in revenue. The District was interested in developing a conservation rate structure that would assist them in meeting the regulatory requirements of SBx7-7, promote efficiency, and create revenue stability. The District’s existing rate structure consisted of a fixed service charge and uniform commodity rates for all customer classes. Raftelis examined and evaluated inclining tiered rate structures and water budget-based rate structures. Each potential rate structure had numerous variations associated with them. Factors examined included: historical vs. real-time weather factors for designing the tier widths for budget-based rates and inclining tiered rates; different methodologies for determining residential landscape areas which were used to determine outdoor water budgets; indoor and outdoor drought factors; and gallons per capita per day for each residential household member.

The District also commissioned Raftelis to develop a 25-year financial plan model to assess risks of water supply variance and capital spending plans and evaluate the associated potential financial impacts. Raftelis presented the model to the District Board to show the District’s financial health under various scenarios related to water supply, water sales, and expenditures. In the same year, the District retained Raftelis to conduct the financial impact analysis of the outcomes of the union negotiation. Raftelis worked closely with District staff to develop the Union Negotiation Module which was used to demonstrate the financial impacts of the negotiated labor and benefits contracts on the District.

Since these initial projects, the District has retained Raftelis annually for support on updating the financial plan and other financial and rate analyses. In 2014, the District engaged Raftelis to conduct a drought rate study to evaluate the financial impacts of the severe and ongoing drought and to develop a drought rate schedule to help mitigate the financial impacts. The Drought Study Report, which summarized the methodology and results of the Study, was submitted to the District and adopted by the District Board in April 2014.

The District also retained Raftelis to conduct a long-term financial plan and cost-of-service analysis to develop rates that: would maintain financial sufficiency; are consistent with the District’s policies; comply with general cost-of-service principles; and are in compliance with Proposition 218 requirements. During the course of the study, the financial plan model considered numerous drought scenarios and different financial outcomes. The scenarios covered included normal no-drought conditions, a mild drought ending in one year (2015 drought only), a medium drought ending after two years (medium), and a severe drought spanning three years (extended dry period). In addition, as part of the study, Raftelis evaluated and presented two bi-monthly fixed service charge options to the Board of Directors during the December 2014 Public Workshop.

The drought surcharge, which was developed in the drought rate study and adopted, will continue to mitigate the effects of reduced demand until the provisions of the Drought Surcharge Sunset criterion are met. As part of the study, Raftelis developed the 2015 Water Rate Study Report to be used as an administrative record. The Report highlighted the major issues and decisions made during the course of the study, provided an overview of operations, CIP, and the financial plan, and discussed and explained the cost-of-service analysis and methodology used to develop the final rates. The explanation of the methodology found within the Report demonstrates that the rates: are equitable, reflect the District’s policies and values, and are driven by the District’s revenue requirements. The Final Report was submitted to the District in March 2015 and rates were successfully adopted on May 1, 2015. The drought surcharge was rescinded effective July 1, 2016.

The District later retained Raftelis to provide analytical support to conduct annual financial plan and rate-setting updates. Raftelis assisted with the development of a multi-year financial plan, which included projected lower water consumption, new water-supply cost information, and assumptions of increased Capital Improvement Plan (CIP) spending. The analysis also evaluated various levels of advance funding of the District’s unfunded liabilities for CalPERS pension and other post-employment benefits (OPEB). As part of the study, Raftelis evaluated six rates scenarios for single-family residential between uniform and tiered rates and three different levels of advance funding for CalPERS and OPEB unfunded liabilities. Raftelis presented the results to the Board at numerous workshops and, after considering the various options, the Board selected and adopted the rates.

Raftelis also helped the Alameda County Water District (District) update its Facilities Connection Charges (FCC). Raftelis used a hybrid methodology for the updated FCC, the charges take into account both the value of the District’s current infrastructure and also the District’s proposed growth-related infrastructure. In order to calculate a charge to recover the costs associated with new connectors paying an equitable share of the system’s value, Raftelis used the replacement cost less depreciation of the District’s system value and divided by the number of currently connected equivalent meter units (EMU). These charges are also designed to fund the District’s future growth-related CIP. Raftelis calculated this portion of the charge by dividing the amount of growth-elated CIP spending by the projected number of connecting EMUs. The final charges were calculated by multiplying each portion of the FCC by the connector’s projected proportionate required capacity.

Cost Allocation Plan

Raftelis was hired by Alameda County Water District (District) to review and update its internal cost allocation plan. The primary purpose of this study was to ensure all departments/funds are paying their fair share of central service cost as well as develop an overhead rate that may be used for cost reimbursements. The District fiscal year budget was approximately $85M and the central services component made up approximately $16.5M, which included Administration, Finance, Human Resources, IT, and Fringe benefits. The District requested a new overhead rate that may be applied in addition to its staff salaries for reimbursement from grant funding. In addition, the District also wanted a fully burdened overhead rate to use for capital projects and outside service requests. Raftelis provided the District with a complete Cost Allocation Model that included toggles for compliance with Uniform Guidance Section 2 CFR Part 200.