The Idyllwild Water District directors held a special meeting last week to hear an initial report from its rate consultant, NBS of Temecula.
Before describing the proposals for rate levels and structures, Greg Henry of NBS explained that the analysis started with IWD’s draft budget for fiscal year 2018-19. From that point, it relied on IWD’s projected future budgets as the basis for how much revenue would be necessary over the five-year period. NBS applied a variety of inflationary multipliers to the different expense categories, such as salaries, construction or fees, over this period.
The rate proposals would provide the revenue necessary to support these tentative future budget levels and ensure that the reserve levels were not drained because of future capital projects, Henry stated.
“Revenue needs to fund capital, and capital projects are needed to maintain the system,” he said.
He started with a presentation of the sewer program, whose revenue will increase to about $750,000 in five years.
“There hasn’t been an increase in sewer rates since 2013,” said Financial Officer Hosny Shouman.
The standard measure of sewer service is the equivalent dwelling unit. Industry professionals define EDU as the measure of volume or expected flow of sewage equivalent that a single-family residence would normally generate. So, one EDU is assigned to a normal, single-family residence. A larger residence, with more bathrooms, could be assigned an EDU greater than one.
Currently, IWD charges its residential sewer customers $38.25 per one EDU. NBS estimates this will have to increase to $40 next fiscal year (2018-19) or about 4.6 percent. The annual increase from 2019-20 through 2022-23 is 2.5 percent, resulting in a $44.15 charge for one EDU.
When Tom Paulek, an Idyllwild resident, asked if this was sufficient funding for IWD to improve its current sewage treatment to a tertiary level, Henry replied, “If the District goes to tertiary, that would increase rates substantially more.”
General Manager Jack Hoagland added that there are no current plans to improve its treatment facility to that level.
Devising a new water-rate schedule is more complicated. NBS had to first calculate what IWD’s fixed and variable costs were to provide water to its customers. Fixed costs are considered the expenses to keep the district open and ensure water can be delivered to customers — staff, fees, pipes and wells. Variable costs are incurred when customers open the tap and consume water.
NBS estimated that IWD’s fixed expenses are about 87 percent of its total annual budget and variable expenses are about 13 percent.
Relying on water-usage charges makes districts very dependent on revenue that is very variable. Encouraging conservation will reduce usage and, consequently, revenue, although there is no change in the fixed expenses.
Henry observed that the IWD capital-improvement program was already reducing the reserve totals.
NBS recommended three proposals, which differed only in how much revenue was collected from a fixed charge or from usage. Each of these would enable reserves to be maintained. And each is consistent with the 2014 state Superior Court case limiting the use of tiered-rate structures.
The first proposed rate schedule would raise the base monthly rate for customers with a 5/8-inch meter from $29.70 to $30.76; however, this new base would not include any water.
Currently, IWD includes the first 300 cubic feet of water (a cubic foot is the equivalent of 7.48 gallons) in the base. If the customer uses more than 300 cubic feet, the rate becomes 6.33 cents per cubic foot until the customer has used 600 cubic feet. More than 600 cubic feet currently costs 10 cents per cubic foot.
The first proposed rate schedule would charge 1.92 cents per cubic foot from one to 450 cubic feet. The second tier would be 451 cubic feet to 900 and cost 11.54 cents per cubic foot.
Commercial users would also see an increase in their base levels but would pay a single uniform fee of 6.82 cents for each cubic foot of water consumed. There would be no tiers for commercial customers.
The other two rate schedules increased the amount of revenue from the base charge and relied less on the usage fee.
NBS estimated that for customers who consume less than 300 cubic feet, the monthly bill would increase from the current $29.70 to $36.53 in the first proposal (the greatest weight on usage) to $41.79 for the third option, where fixed revenue is 65 percent of the total revenue collected.
For a customer at or less than the proposed tier of 450 cubic feet, the current bill would be about $39.20. The estimated monthly increase under the first option is 22 cents and $5.48 under the third option.
Commercial customers would see higher percentage increases, but the greatest increase would be when the fixed revenue was only 55 percent of the total.