Idyllwild Water District directors met with the consultant conducting the district’s rate study at a special meeting Feb. 14.

Kim Boehler, associate director at NBS, described the proposed plan and steps they will take in order to present a draft report in the spring or early summer.

The three major steps will be a financial plan, an analysis of the cost of service and a proposed rate structure.

The financial plan will look at IWD’s expenses, and assess which are fixed and which are variable. NBS will collect data on annual revenue from all sources. Finally, they will evaluate reserves and future capital needs.

The cost analysis will identify IWD customer classes, such as residential, commercial and institutional. There may be others, she opined.

But the charges for a service cannot exceed the actual costs and one customer class may not subsidize another, Boehler told the board. When they evaluate the actual costs, NBS calculates the fixed and variable costs separately for each class, she added.

The fixed costs will be based on a customer’s capacity to consume water. For example, peak use and meter size are part of this calculation. Also, fixed costs should be allocated equally within the different classes, she said.

Variable costs will be based almost exclusively on water consumption.

The final step, which is the purpose of the study, will be a proposed rate structure. NBS will offer a proposal that matches variable costs with variable revenue, and fixed costs and revenue.

Boehler told the board that NBS often finds that their clients’ revenue is too dependent on consumption, while much of the costs are fixed. The danger of this configuration, which encourages water conservation and less usage, is that revenue can fall faster than costs. Consequently, their recommendations tend to “match costs with revenue for greater stability.”

During the discussion of possible rate structures, Boehler addressed the common concerns among water districts in the aftermath of the San Juan Capistrano court case regarding tiered water rates.

The state Appeals Court’s opinion, which the state Supreme Court upheld, did not throw out tiered rates. But the court affirmed that Proposition 218 requires that these rates must be based on the actual costs, not a pre-determined scale.

“They cannot be based on negating wasteful water use,” Boehler said. But conservation rates never keep up with the expenses in each step or tier, she opined, in response to a question from the board.

The more revenue depends upon fixed rates rather than actual consumption, the more likely the rate structure favors high-volume users, who tend to be higher income, according to NBS studies.

In response to a question from Tom Paulek, an IWD customer, she said the study would look at and examine whether discharges from the Idyllwild Brewpub impose extra costs on the sewer district’s operations.

As they progress, work will be shared with General Manager Jack Hoagland and the board, Boehler promised.

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