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2016 Water Budget AllocationCost of Service StudyFinal Report / April 3, 2017

CITY OF CHINO

150 N. Santa Anita AvenueSuite 470

Arcadia, CA 91006

Phone 626.583.1894Fax 626.583.1411

www.raftelis.com

April 3, 2017Mr. Rob BurnsDirector of FinanceCity of Chino13220 Central AvenueChino, CA 91710Subject: 2016 Water Budget Allocation Cost of Service Study ReportDear Mr. Burns:Raftelis Financial Consultants, Inc. (RFC) is pleased to present this report on the water budget allocation costof service study (Study) to the City of Chino (City). The Study involved a comprehensive review of the City’sfinancial plan and water rate structure. We are confident that the results, based on a cost of serviceprinciples, result in fair and equitable water rates for the City’s customers and meet the requirements ofProposition 218.The report includes an Executive Summary followed by the financial plan and a detailed rate derivation forthe water utility.It was a pleasure working with you and we wish to express our thanks for your and other staff membersupport during the study. If you have any questions, please call me at (626) 583-1894.Sincerely,RAFTELIS FINANCIAL CONSULTANTS, INC.

Sudhir D. Pardiwala, PE Hannah PhanExecutive Vice President Manager

City of Chino Water Budget Allocation Cost of Service Study Report

TABLE OF CONTENTS

1. EXECUTIVE SUMMARY ................................................................ 11.1 INTRODUCTION.......................................................................................... 11.2 SYSTEM BACKGROUND ........................................................................... 11.3 FINANCIAL PLAN ....................................................................................... 11.4 COST OF SERVICE ANALYSIS AND RATE DESIGN................................ 31.5 PROPOSED WATER RATES...................................................................... 42. INTRODUCTION ............................................................................ 62.1 STUDY BACKGROUND.............................................................................. 62.2 ACKNOWLEDGEMENTS............................................................................ 62.3 ORGANIZATION OF THE REPORT............................................................ 62.4 SYSTEM BACKGROUND ........................................................................... 73. FINANCIAL PLAN..........................................................................83.1 ACCOUNT AND USAGE ASSUMPTIONS.................................................. 83.2 INFLATIONARY ASSUMPTIONS ............................................................. 103.3 OPERATIONS & MAINTENANCE EXPENSES......................................... 123.4 CAPITAL IMPROVEMENT PLAN ............................................................. 143.5 DEBT SERVICE......................................................................................... 153.6 PROPOSED FINANCIAL PLAN AND REVENUE ADJUSTMENTS.......... 164. COST OF SERVICE ANALYSIS .................................................. 224.1 ALLOCATION OF FUNCTIONALIZED EXPENSES TO COST

COMPONENTS ......................................................................................... 234.2 REVENUE REQUIREMENT DETERMINATION ........................................ 274.3 UNIT COST COMPONENT DERIVATION................................................. 294.4 DISTRIBUTION OF COST COMPONENTS TO CUSTOMER CLASSES.. 315. RATE DESIGN ............................................................................. 335.1 EXISTING RATE STRUCTURE AND RATES ........................................... 335.2 PROPOSED RATE STRUCTURE AND RATES........................................ 34


5.2.1 Monthly Readiness-to-Serve (RTS) Charge .................................................................345.2.2 Proposed Commodity Rates .........................................................................................355.2.3 Proposed Water Rate Schedule....................................................................................42

6. BILL IMPACTS............................................................................. 45


LIST OF TABLESTable 1-1: FYs 2018-2022 Proposed Revenue Adjustments ............................................................... 2Table 1-2: FYs 2018-2022 Proposed Monthly Fixed Rates Schedule ................................................. 4Table 1-3: FYs 2018-2022 Proposed Commodity Rates Schedule...................................................... 5Table 3-1: Accounts by Class ............................................................................................................... 8Table 3-2: Usage by Class (hcf) ............................................................................................................ 8Table 3-3: Customer Account and Usage Assumptions ..................................................................... 9Table 3-4: Projected Accounts by Meter Size ...................................................................................... 9Table 3-5: Projected Water Usage by Class (hcf) .............................................................................. 10Table 3-6: Financial Plan Assumptions.............................................................................................. 11Table 3-7: Projected Water O&M Expenses ....................................................................................... 12Table 3-8: Projected Water Supply Expenses – FYs 2018-2026........................................................ 13Table 3-9: Detailed Capital Improvement Plan (Inflated) ................................................................... 14Table 3-10: Debt Service Payments .................................................................................................... 15Table 3-11: FYs 2018-2022 Proposed Revenue Adjustments ........................................................... 16Table 3-12: Ten Year Water Cash Flow............................................................................................... 17Table 4-1: System-Wide Peaking Factors and Allocation to Cost Components.............................. 24Table 4-2: Allocation of Functionalized O&M Expenses to Cost Causation Components.............. 25Table 4-3: Allocation of Functionalized Capital Expenses to Cost Causation Components .......... 26Table 4-4: Revenue Requirement Determination ............................................................................... 29Table 4-5: Derivation of Service Units ................................................................................................ 30Table 4-6: Derivation of Cost Causation Unit Costs.......................................................................... 31Table 4-7: Allocation of Cost to Customer Class............................................................................... 32Table 5-1: Existing Rate Structure and Rates .................................................................................... 33Table 5-2: Derivation of the Regular Meter Monthly RTS Charge ..................................................... 34Table 5-3: Derivation of the Private Fire Service Charge .................................................................. 35Table 5-4: Proposed Water Rate Structures....................................................................................... 35Table 5-5: Potable Water Supply Cost per HCF and Supply Allocation by Usage Type ................. 39Table 5-6: Supply Unit Cost Calculation............................................................................................. 40Table 5-7: Peaking Factor Calculations.............................................................................................. 41Table 5-8: Peaking Unit Cost Calculation........................................................................................... 41Table 5-9: Commodity Rate Calculations ........................................................................................... 42Table 5-10: FYs 2018-2022 Proposed Monthly Fixed Rates Schedule.............................................. 43Table 5-11: FYs 2018-2022 Proposed Commodity Rates Schedule.................................................. 44Table 6-1: Single Family, ¾” Meter, 4 People, Landscape Area 2,581 sq.ft., Actual ET .................. 45Table 6-2: Single Family, 1” meter, 10 People, Landscape Area 12,931 sq.ft., Actual ET............... 45Table 6-3: Commercial, 3” Meter......................................................................................................... 45


LIST OF FIGURESFigure 1-1:Current Financial Plan......................................................................................................... 2Figure 1-2: Proposed Financial Plan .................................................................................................... 3Figure 3-1: Proposed Revenue Adjustments and Debt Coverage Ratio .......................................... 19Figure 3-2: Proposed Financial Plan .................................................................................................. 20Figure 3-3: Projected CIP and Funding Sources ............................................................................... 20Figure 3-4: Total Fund Balance........................................................................................................... 21


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Water Budget Allocation Cost of Service Study Report | 1

1. EXECUTIVE SUMMARY1.1 INTRODUCTIONIn 2016, City of Chino (City) engaged Raftelis Financial Consultants, Inc. (RFC) to conduct a water budgetallocation cost of service rate study (Study) for the water utility to meet regulatory requirements and ensurethat there is a recovery of costs proportionate to the service provided to its customers. This Reportdocuments the resultant findings, analyses, and proposed changes.The major objectives of the study include the following:

1. Ensure Revenue Sufficiency to meet the operation and maintenance (O&M) and capital needs of theCity’s water utility.2. Plan for Rate and Revenue Stability to prevent rate spikes and provide for adequate operating andcapital reserves and the overall financial health of the water utility under varying conditions.3. Ensure that rates are Fair and Equitable and are based on Cost of Service guidelines used in the industry.4. Design water budget allocation rates for the different customer classes.This executive summary provides an overview of the study and includes findings and recommendations forwater and recycled water rates.

1.2 SYSTEM BACKGROUNDThe water utility provides service to over 19,600 customer accounts in a service area of over 30 squaremiles. The City owns and operates 265 miles of transmission and distribution pipelines, four reservoirs, andthree pump stations. The City is a member of several Joint Power Authorities (JPA) which own and operatevarious facilities that either fully or partially benefit the City’s water system. Water is procured from threesources: (1) groundwater; (2) purchased treated water from the Water Facilities Authority (WFA); and (3)purchased water under a take-or-pay contract from the Chino Basin Desalter Authority (CDA). The City alsopurchases recycled water from the Inland Empire Utilities Agency (IEUA) for sale and for recharge purposes.On January 17, 2014, Governor Jerry Brown issued a drought state of emergency declaration in response torecord-low water levels in California’s rivers and reservoirs as well as an abnormally low snowpack. On April1, 2015, Governor Brown issued an Executive Order calling for statewide mandatory water reductions of upto 25 percent. On May 9, 2016, the Governor issued his latest order, Executive Order B-37-16. This orderdefined long-term water conservation measures, including having each agency examine and report its ownwater use targets, placing water conservation management more directly in the hands of the individualagency. In response to these orders and the need for conservation and efficient use of water, the City wantsto implement a water budget allocation rate structure for its customers.1.3 FINANCIAL PLANTo develop the Financial Plan, RFC projected annual expenses and revenues, modeled reserve balances,capital expenditures and calculated debt service coverage ratios to estimate the amount of additional raterevenue needed per year. This section discusses inflationary assumptions, O&M expenses, the CapitalImprovement Plan (CIP), reserve funding, projected revenue under existing rates and the revenue

2 | City of Chino

adjustments needed to ensure the fiscal sustainability and solvency of the City during the study period, FYs2017-2026. Under the current conditions, without revenue adjustments, the revenue generated by rates isunable to meet the utility’s expenses.Figure 1-1:Current Financial Plan

The proposed revenue adjustments help ensure adequate revenue to fund operating expenses, capitalexpenditures and compliance with bond covenants. The Financial Plan model assumes the revenueadjustment occurs on July of each year. It should be noted that there is no revenue adjustment planned forFY 2018, however, there will be a change in rate structure for residential and landscape customers whichmay impact some customers. The proposed revenue adjustments would enable the City to execute the CIPand exceed its debt service coverage requirement of 125 percent over the ten-year study period. Table 1-1shows the proposed revenue adjustments for the next five years, while Figure 1-2 illustrates theimplementation of this plan, resulting in coverage of the utility’s expenses.Table 1-1: FYs 2018-2022 Proposed Revenue Adjustments

FY 2018 FY 2019 FY 2020 FY 2021 FY 2022Revenue Adjustments 0.0% 3.0% 3.0% 3.0% 3.0%


Figure 1-2: Proposed Financial Plan

1.4 COST OF SERVICE ANALYSIS AND RATE DESIGNTo calculate fair and equitable rates so that users pay in proportion to the cost of providing service, RFCperformed a cost allocation of the total revenue requirements consistent with industry standards. The costof service allocation is based on the Base-Extra Capacity Method described in the American Water WorksAssociation (AWWA) Manual M1. Under this method, costs are apportioned amongst various costparameters to determine the costs to provide service under average conditions, meet peaking requirements,provide meter capacity and provide customer service. Costs to serve different customer classes aredetermined; rates are then designed to recover the costs equitably consistent with Proposition 218requirements.The City has decided to implement water budget rates. The American Water Works Association Journaldefines a water budget as “the quantity of water required for an efficient level of water use by that customer”(Source: American Water Works Association Journal, May 2008, Volume 100, Number 5). It is worth noting thatwater budget rate structures are customized for each customer, which will result in different tier breaks fordifferent customers. Based on the usage analysis of the City’s customers and discussion with City staff, RFCproposes the following rate structure for residential customers:

Tier 1 is defined by the allotment for indoor use Tier 2 is defined by the allotment for efficient outdoor use Any use beyond Tier 2 is considered inefficient and falls into Tier 3Since landscape customers do not have an allotment for indoor use, their Tier 1 is the same as the residentialTier 2, defined by the allotment for efficient outdoor use. Any use beyond Tier 1 is considered inefficient andfalls into Tier 2. Thus, landscape customers only have a two-tier water budget rate structure.

4 | City of Chino

1.5 PROPOSED WATER RATESRFC recommends that the City implement the following rate schedule for the next five years, which includesthe revenue adjustments shown in Table 1-1. The rates will be effective starting July 1 of each year. Theproposed water budget rate structure includes three tiers for residential customers and two tiers forlandscape customers. Commercial customers will retain the uniform rate structure as it is very difficult todefine an equitable water budget allocation due to their heterogeneous water usage patterns.Table 1-2: FYs 2018-2022 Proposed Monthly Fixed Rates Schedule

Current FY 2018 FY 2019 FY 2020 FY 2021 FY 2022Monthly Readiness-to-Serve ChargeMeter Size5/8" & 3/4" $24.61 $24.62 $25.36 $26.13 $26.92 $27.731" $38.15 $37.77 $38.91 $40.08 $41.29 $42.531 1/2" $72.02 $70.65 $72.77 $74.96 $77.21 $79.532" $112.66 $110.10 $113.41 $116.82 $120.33 $123.943" $241.37 $235.03 $242.09 $249.36 $256.85 $264.564" $431.03 $419.13 $431.71 $444.67 $458.02 $471.776" $884.86 $859.67 $885.47 $912.04 $939.41 $967.608" $1,629.96 $1,582.95 $1,630.44 $1,679.36 $1,729.75 $1,781.6510" $2,578.28 $2,503.48 $2,578.59 $2,655.95 $2,735.63 $2,817.70Monthly Fire Service ChargeMeter Size2" $8.85 $9.39 $9.68 $9.98 $10.28 $10.593" $17.54 $17.95 $18.49 $19.05 $19.63 $20.224" $32.53 $32.72 $33.71 $34.73 $35.78 $36.866" $86.35 $85.73 $88.31 $90.96 $93.69 $96.518" $179.17 $177.15 $182.47 $187.95 $193.59 $199.4010" $318.78 $314.67 $324.12 $333.85 $343.87 $354.1912" $512.30 $505.26 $520.42 $536.04 $552.13 $568.70


Table 1-3: FYs 2018-2022 Proposed Commodity Rates Schedule

Current FY 2018 FY 2019 FY 2020 FY 2021 FY 2022Commodity Rate ($/hcf)All customers $2.78SFRTier 1 - Indoor $1.96 $2.02 $2.09 $2.16 $2.23Tier 2 - Outdoor $2.92 $3.01 $3.11 $3.21 $3.31Tier 3 - Inefficient $3.74 $3.86 $3.98 $4.10 $4.23MFRTier 1 - Indoor $1.96 $2.02 $2.09 $2.16 $2.23Tier 2 - Outdoor $2.92 $3.01 $3.11 $3.21 $3.31Tier 3 - Inefficient $3.74 $3.86 $3.98 $4.10 $4.23Commercial $2.73 $2.82 $2.91 $3.00 $3.09LandscapeTier 1 - Outdoor $2.92 $3.01 $3.11 $3.21 $3.31Tier 2 - Inefficient $3.74 $3.86 $3.98 $4.10 $4.23Recycled Water Rate ($/hcf)Non-Ag customers $1.12 $1.22 $1.26 $1.30 $1.34 $1.39

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2. INTRODUCTION

2.1 STUDY BACKGROUNDIn 2016, City of Chino (City) engaged Raftelis Financial Consultants, Inc. (RFC) to conduct a cost of servicerate study (Study) and design water budget allocation rates for the water utility to meet regulatoryrequirements and ensure that there is a recovery of costs proportionate to the service provided to itscustomers. This Report documents the resultant findings, analyses, and proposed changes.The major objectives of the study include the following:1. Ensure Revenue Sufficiency to meet the operation and maintenance (O&M) and capital needs of theCity’s water utility.2. Plan for Rate and Revenue Stability to prevent rate spikes and provide for adequate operating andcapital reserves and the overall financial health of the water utility under varying conditions.3. Ensure that rates are Fair and Equitable and are based on Cost of Service guidelines used in the industry.4. Design water budget allocation rates for the different customer classes.This Report provides an overview of the Study and includes findings and recommendations for water andrecycled water rates.

2.2 ACKNOWLEDGEMENTSThis Report was a team effort among the City’s Project Team and the RFC Team. RFC would like to thank theindividuals listed below who contributed their time, expertise, and support to make this project a success.Throughout the project the input and direction provided by the City’s Project Team was critical to addressingthe numerous issues and topics enumerated in this Report. Rob Burns – Director of Finance Olga Hart – Billing Manager

2.3 ORGANIZATION OF THE REPORTThis Report includes seven sections including the Executive Summary and this Introduction. A briefdescription of the remaining sections follows.1. Section 3 – Financial Plan describes the long-range financial plan for the water utility. It first examinesthe revenues of the water utility under current rates to establish status-quo revenues based on currentrates for the study period. It then projects operations and maintenance expenses (O&M), the capitalimprovement plan, and any current or proposed debt for the study period. Finally, it discusses theability of the utility to fund these expenses under current rates, and recommends the revenueadjustments necessary to sustain the utility through the study period.


2. Section 4 – Cost of Service Analysis provides an overview of the cost of service methodology andprocess in determining the proposed rates. This section also provides the details of how costs areallocated to specific cost causation components, which build the rates charged to different customerclasses.3. Section 5 – Rate Design examines the current rate structure and rates. It then provides the proposedrate structure and rates necessary to recover the necessary revenue for the water utility.4. Section 6 – Bill Impacts proves an estimation of the impacts of the proposed rates as compared to thecurrent rates for typical customers.2.4 SYSTEM BACKGROUNDThe water utility provides service to over 19,600 customer accounts in a service area of over 30 squaremiles. The City owns and operates 265 miles of transmission and distribution pipelines, four reservoirs, andthree pump stations. The City is a member of several Joint Power Authorities (JPA) which own and operatevarious facilities that either fully or partially benefit the City’s water system. Water is procured from threesources: (1) groundwater; (2) purchased treated water from the Water Facilities Authority (WFA); and (3)purchased water under a take-or-pay contract from the Chino Basin Desalter Authority (CDA). The City alsopurchases recycled water from the Inland Empire Utilities Agency (IEUA) for sale and for recharge purposes.On January 17, 2014, Governor Jerry Brown issued a drought state of emergency declaration in response torecord-low water levels in California’s rivers and reservoirs as well as an abnormally low snowpack. On April1, 2015, Governor Brown issued an Executive Order calling for statewide mandatory water reductions of upto 25 percent. On May 9, 2016, the Governor issued his latest order, Executive Order B-37-16. This orderdefined long-term water conservation measures, including having each agency examine and report its ownwater use targets, placing water conservation management more directly in the hands of the individualagency.

8 | City of Chino

3. FINANCIAL PLANTo develop the Financial Plan, RFC projected annual expenses and revenues, modeled reserve balances,capital expenditures and calculated debt service coverage ratios to estimate the amount of additional raterevenue needed per year. This section of the report presents the basic customer and usage data and adiscussion of inflationary assumptions, O&M expenses, the Capital Improvement Plan (CIP), reserve funding,projected revenue under existing rates and the revenue adjustments needed to ensure the fiscalsustainability and solvency of the City.3.1 ACCOUNT AND USAGE ASSUMPTIONSThe City provided customer data for FY 2016, which RFC used to determine customer base and demandcharacteristics and projections for the study. Table 3-1 and Table 3-2 show the number of accounts by metersize by customer class and the water usage by class, respectively, based on FY 2016 data.

Table 3-1: Accounts by ClassMeter Size Single Family Multi-Family Commercial Landscape Private Fire

5/8" & 3/4" 15,923 240 459 171 N/A1" 740 20 301 141 N/A

1 1/2" 6 68 352 249 N/A2" 4 66 494 295 163" 2 21 29 16 24" 1 13 13 3 636" 1 2 5 0 1568" 1 0 6 0 189

10" 0 4 0 0 10512” N/A N/A N/A N/A 18

Total 16,678 434 1,659 875 549

Table 3-2: Usage by Class (hcf)

Customer Class FY 2016Single Family 2,800,131Multi-Family 425,570Commercial 1,113,220Landscape 771,293Recycled Water - Non-Ag 616,645Recycled Water - Agricultural 1,839,387Total Usage 7,566,247Potable Usage 5,110,214Recycled Water Usage 2,456,033In order to project these characteristics for the rest of the study period, RFC worked with staff to developassumptions of customer growth and changes in demand. The growth rates below indicate how thesecustomer classes are projected to grow based on factors such as new home development or commercialgrowth. The demand factor estimates how demand from the customer base – regardless of its growth –changes, compared to the previous year. For example, in drought years, agencies expect to see a reduction in


water demand, while a return to normal conditions will often result in customers increasing their usage asrestrictions are relaxed. As drought conditions improve, the Study projects that water usage in FY 2017 willbe approximately 10% higher than FY 2016. Potable water usage in the later years will remain at FY 2017levels.Table 3-3: Customer Account and Usage Assumptions

FY 2017 FY 2018 FY 2019 FY 2020 FY 2021 FY 2022 FY 2023 FY 2024 FY 2025 FY 2026

Growth RatesSingle Family 2.5% 2.5% 2.5% 2.5% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0%Multi-Family 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%Commercial 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%Landscape 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%Recycled Water 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%DemandFactorSingle Family 110.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%Multi-Family 110.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%Commercial 110.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%Landscape 110.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%Recycled Water 110.0% 108.0% 88.0% 88.0% 93.75% 93.75% 93.75% 93.75% 93.75% 93.75%Table 3-4 shows the projected number of accounts by meter size for the Study period, based on the growthassumptions in Table 3-3, excluding private fire line meters. Private fire line meters are assumed to have nogrowth.

Table 3-4: Projected Accounts by Meter SizeMeter Size FY 2017 FY 2018 FY 2019 FY 2020 FY 2021 FY 2022 FY 2023 FY 2024 FY 2025 FY 2026

5/8" &3/4" 17,164 17,545 17,935 18,334 18,498 18,664 18,831 19,000 19,170 19,343

1" 1,219 1,237 1,255 1,273 1,281 1,289 1,296 1,304 1,312 1,3201 1/2" 675 675 675 676 676 676 676 676 676 676

2" 859 865 865 865 865 866 866 866 866 8663" 68 68 68 68 68 68 68 68 68 684" 30 32 32 32 32 32 32 32 32 326" 8 8 8 8 8 8 8 8 8 88" 7 7 7 7 7 7 7 7 7 7

10" 4 5 5 5 5 5 5 5 5 5Total 20,035 20,442 20,851 21,269 21,441 21,614 21,789 21,966 22,145 22,325Table 3-5 shows the projected water usage by class for the Study period. The projections are based on FY2016 water usage data in Table 3-2 and the water usage assumptions in Table 3-3.

10 | City of Chino

Table 3-5: Projected Water Usage by Class (hcf)

Customer Class FY 2017 FY 2018 FY 2019 FY 2020 FY 2021Single Family 3,152,012 3,225,676 3,301,182 3,378,576 3,410,307Multi-Family 468,127 468,127 468,127 468,127 468,127Commercial 1,224,542 1,224,542 1,224,542 1,224,542 1,224,542Landscape 848,422 848,422 848,422 848,422 848,422Recycled Water - Non-Ag 678,310 732,575 644,666 567,306 531,849Recycled Water - Agricultural 2,023,326 2,185,192 1,922,969 1,692,213 1,586,449Total Usage 8,394,739 8,684,534 8,409,908 8,179,186 8,069,697

Potable Usage 5,693,103 5,766,768 5,842,274 5,919,667 5,951,399

Recycled Water Usage 2,701,636 2,917,767 2,567,635 2,259,518 2,118,299

Customer Class FY 2022 FY 2023 FY 2024 FY 2025 FY 2026Single Family 3,442,356 3,474,725 3,507,418 3,540,438 3,573,788Multi-Family 468,127 468,127 468,127 468,127 468,127Commercial 1,224,542 1,224,542 1,224,542 1,224,542 1,224,542Landscape 848,422 848,422 848,422 848,422 848,422Recycled Water - Non-Ag 498,609 467,446 438,230 410,841 385,163Recycled Water - Agricultural 1,487,296 1,394,340 1,307,194 1,225,494 1,148,901Total Usage 7,969,352 7,877,603 7,793,934 7,717,865 7,648,944

Potable Usage 5,983,448 6,015,817 6,048,510 6,081,529 6,114,879

Recycled Water Usage 1,985,905 1,861,786 1,745,424 1,636,335 1,534,064

3.2 INFLATIONARY ASSUMPTIONSThis section describes the assumptions used in projecting operating and capital expenses as well as reservecoverage requirements that determine the overall revenue adjustments required to ensure the financialstability of the City. Revenue adjustments represent the average increase in rate revenues for the City; ratechanges for individual classes will depend on the cost of service analysis.To ensure that future costs are reasonably projected, it is necessary to make informed assumptions aboutinflationary factors as well as water costs and use for the duration of the study period, FYs 2017-2026. Table3-6 shows the water purchases and other inflationary assumptions incorporated in the ten-year FinancialPlan. O&M projections are based on the City’s FY 2017 budget using an inflationary factor of three percentper year starting in FY 2017 to project all O&M expenditures, except benefits and power. Benefits areprojected to increase at five percent per year and utilities (mostly power) expenses are projected to increaseat four percent per year during the study period. Interest earned on reserves is based on the low interestrates of the past several years.


Table 3-6: Financial Plan AssumptionsFY 2018- FY 2026General 3.0%Salaries 3.0%Benefits 5.0%Purchased Water 3.0%Power 4.0%Capital 4.0%Miscellaneous Revenue 1.0%Reserve Interest Rate 2.0%

12 | City of Chino

3.3 OPERATIONS & MAINTENANCE EXPENSESThe City’s FY 2017 O&M budget and projected O&M expenses are shown in Table 3-7. Rates were calculated for FY 2018 (this is known as thetest year). The O&M budget incorporates the inflationary factors shown in Table 3-6. O&M expenses include the cost of purchased water,operating and maintaining groundwater wells, treatment, storage, and distribution facilities, as well as the costs of providing technical servicessuch as engineering services and other administrative costs of the water system such as meter reading and billing. The Water Billing categoryincludes both a Meter Replacement function, which includes costs related to replacing customer meters and meter maintenance, and a CustomerRelated function, which includes billing, meter reading, and customer service costs.Table 3-7: Projected Water O&M Expenses

FY 2017 FY 2018 FY 2019 FY 2020 FY 2021 FY 2022 FY 2023 FY 2024 FY 2025 FY 2026Water Billing $2,869,130 $2,957,476 $3,052,533 $2,189,803 $2,262,480 $2,337,686 $2,415,515 $2,496,064 $2,579,434 $2,665,729Water Services $9,430,287 $9,177,081 $9,435,477 $9,708,404 $10,011,175 $10,325,210 $10,650,913 $10,988,704 $11,339,021 $11,702,320Purchased Water $12,000,000 $11,986,116 $11,916,808 $11,893,505 $12,067,995 $12,258,057 $12,463,827 $12,685,467 $12,923,163 $13,177,123Water Capital Program $1,264,538 $951,950 $871,883 $950,353 $1,056,862 $1,073,760 $1,114,388 $1,156,593 $1,200,437 $1,245,986Total O&M Expenses $25,563,955 $25,072,622 $25,276,701 $24,742,064 $25,398,512 $25,994,712 $26,644,643 $27,326,828 $28,042,056 $28,791,159


Table 3-8 provides the water supply projections and expenses by source. The City provides three potable water supply sources: 1. Groundwater;2. Desalinated water from the CDA; and 3. Purchased water from the WFA. The City also purchases recycled water for both direct use andrecharge purposes. Table 3-8 provides a calculation of the water supply projections and expenses.Table 3-8: Projected Water Supply Expenses – FYs 2018-2026

FY 2018 FY 2019 FY 2020 FY 2021 FY 2022 FY 2023 FY 2024 FY 2025 FY 2026

SUPPLY (AF)Groundwater 5,746 5,889 6,035 6,035 6,035 6,035 6,035 6,035 6,035Desalter 5,000 5,000 5,000 5,000 5,000 5,000 5,000 5,000 5,000Water FacilitiesAuthority (WFA) 2,796 2,830 2,866 2,866 2,866 2,866 2,866 2,866 2,866Total PotableSupply 13,542 13,719 13,901 13,901 13,901 13,901 13,901 13,901 13,901

Potable Sales (AF) 13,239 13,412 13,590 13,590 13,590 13,590 13,590 13,590 13,590Estimated WaterLoss -2.2% -2.2% -2.2% -2.2% -2.2% -2.2% -2.2% -2.2% -2.2%Recycled WaterDirect Use 7,603 6,691 5,888 5,520 5,175 4,851 4,548 4,264 3,998Recharge 1,571 1,618 1,667 1,717 1,768 1,821 1,876 1,932 1,990Total Recycled Water 9,174 8,309 7,555 7,237 6,943 6,673 6,424 6,196 5,988

SUPPLY COSTS ($)

Watermaster Cost $447,684 $461,114 $474,948 $489,196 $503,872 $518,988 $534,558 $550,595 $567,113DesalterFixed Project Cost $1,439,113 $1,482,286 $1,526,755 $1,572,558 $1,619,734 $1,668,326 $1,718,376 $1,769,927 $1,823,025Fixed O&M Cost $1,331,383 $1,371,325 $1,412,464 $1,454,838 $1,498,483 $1,543,438 $1,589,741 $1,637,433 $1,686,556Variable Cost, $/AF $353 $364 $374 $386 $397 $409 $421 $434 $447Total Desalter Cost $4,535,353 $4,671,413 $4,811,556 $4,955,902 $5,104,579 $5,257,717 $5,415,448 $5,577,912 $5,745,249

14 | City of Chino

Water FacilitiesAuthority (WFA)Water DeliveryCharge, $/AF $673 $694 $714 $736 $758 $781 $804 $828 $853Capacity Charge $182,928 $188,416 $194,069 $199,891 $205,887 $212,064 $218,426 $224,979 $231,728Non-TreatmentCharge $531,419 $547,361 $563,782 $580,696 $598,117 $616,060 $634,542 $653,578 $673,185Total WFA Cost $2,596,834 $2,698,781 $2,805,128 $2,889,282 $2,975,960 $3,065,239 $3,157,196 $3,251,912 $3,349,469

Recycled Water, $/AFUse $470 $480 $490 $500 $511 $521 $532 $543 $555Recharge $530 $540 $550 $560 $571 $581 $592 $603 $614Total Recycled WaterCost $4,406,245 $4,085,499 $3,801,873 $3,722,896 $3,651,453 $3,587,424 $3,530,704 $3,481,202 $3,438,844

Total Water SupplyCosts $11,986,116 $11,916,808 $11,893,505 $12,067,995 $12,258,057 $12,463,827 $12,685,467 $12,923,163 $13,177,123

3.4 CAPITAL IMPROVEMENT PLANTable 3-9 shows the City’s ten-year CIP along with the anticipated funding sources at the bottom of the table. The projects are sorted by theirpriority. For example, Group 1 has a higher priority that Group 2 and Group 3 has a higher priority than Group 4, etc.Table 3-9: Detailed Capital Improvement Plan (Inflated)

FY 2017 FY 2018 FY 2019 FY 2020 FY 2021 FY 2022 FY 2023 FY 2024 FY 2025 FY 2026

Group 1 $1,145,950 $0 $0 $0 $0 $0 $0 $0 $0 $0Group 2 $1,184,300 $0 $0 $0 $0 $0 $0 $0 $0 $0Group 3 $0 $2,970,007 $0 $0 $0 $0 $0 $0 $0 $0Group 4 $0 $0 $2,478,216 $0 $0 $0 $0 $0 $0 $0Group 5 $0 $0 $0 $2,269,892 $0 $0 $0 $0 $0 $0Group 5.5 $0 $0 $0 $548,371 $0 $0 $0 $0 $0 $0Group 6 $0 $0 $0 $0 $3,303,213 $0 $0 $0 $0 $0Group NA $0 $0 $0 $0 $0 $3,313,744 $3,446,294 $3,584,145 $3,727,511 $3,876,612TOTAL $2,330,250 $2,970,007 $2,478,216 $2,818,263 $3,303,213 $3,313,744 $3,446,294 $3,584,145 $3,727,511 $3,876,612


3.5 DEBT SERVICETable 3-10 shows the debt service payments for the next 10 years. The City currently has one outstanding certificate of participation (COP) anda loan from the General Fund. The 10-year loan bears an interest rate of three percent. Debt service payments range for the planning periodrange from $0.20 million to $0.81 million.Table 3-10: Debt Service Payments

FY 2017 FY 2018 FY 2019 FY 2020 FY 2021 FY 2022 FY 2023 FY 2024 FY 2025 FY 20262003 Refunding COPSPrincipal $365,000 $380,000 $0 $0 $0 $0 $0 $0 $0 $0Interest $41,668 $24,578 $0 $0 $0 $0 $0 $0 $0 $0Total Debt Service $406,668 $404,578 $0 $0 $0 $0 $0 $0 $0 $0

General Fund LoanPrincipal $309,565 $318,922 $328,561 $338,492 $348,723 $359,263 $370,122 $381,309 $392,834 $200,847Interest $98,155 $88,798 $79,159 $69,228 $58,997 $48,457 $37,598 $26,411 $14,886 $3,013Total Debt Service $407,720 $407,720 $407,720 $407,720 $407,720 $407,720 $407,720 $407,720 $407,720 $203,860Total Debt Service $814,388 $812,298 $407,720 $407,720 $407,720 $407,720 $407,720 $407,720 $407,720 $203,860

16 | City of Chino

3.6 PROPOSED FINANCIAL PLAN AND REVENUE ADJUSTMENTSThe proposed revenue adjustments help ensure adequate revenue to fund operating expenses, capitalexpenditures and compliance with bond covenants. The Financial Plan model assumes the revenueadjustment occurs on July of each year. The proposed revenue adjustments would enable the City to executethe CIP shown in Table 3-9 and exceed its debt service coverage requirement of 125 percent over the ten-year study period. Table 3-11 shows the proposed revenue adjustments for the next five years. Since theCity is changing its rates structure to a water budget structure in FY 2018, it has decided not to do a revenueadjustment so that customers can realize only the impact of the new water rate structure.Table 3-11: FYs 2018-2022 Proposed Revenue Adjustments

FY 2018 FY 2019 FY 2020 FY 2021 FY 2022Revenue Adjustments 0.0% 3.0% 3.0% 3.0% 3.0%Table 3-12 shows the cash flow detail over the next ten years.


Table 3-12: Ten Year Water Cash FlowFY 2017 FY 2018 FY 2019 FY 2020 FY 2021 FY 2022 FY 2023 FY 2024 FY 2025 FY 2026

Rate RevenueRevenue at CurrentRates $25,536,881 $25,973,567 $26,209,785 $26,466,185 $26,567,121 $26,671,946 $26,780,518 $26,892,706 $27,008,388 $27,127,452Additional RateRevenue $0 $0 $786,294 $1,611,791 $2,463,489 $3,347,564 $4,265,442 $5,218,591 $6,208,523 $7,236,792Total Rate Revenue $25,536,881 $25,973,567 $26,996,078 $28,077,975 $29,030,610 $30,019,510 $31,045,960 $32,111,297 $33,216,911 $34,364,244

Other RevenueWater HydrantMeter Rental $1,000 $1,010 $1,020 $1,030 $1,041 $1,051 $1,062 $1,072 $1,083 $1,094Water MeterInstallation $275,000 $277,750 $280,528 $283,333 $150,000 $151,500 $153,015 $154,545 $156,091 $157,652Water Turn-On Fee $52,520 $53,045 $53,576 $54,111 $54,653 $55,199 $55,751 $56,309 $56,872 $57,440WaterReinstatement Fee $90,900 $91,809 $92,727 $93,654 $94,591 $95,537 $96,492 $97,457 $98,432 $99,416Return CheckCharge $4,040 $4,080 $4,121 $4,162 $4,204 $4,246 $4,289 $4,331 $4,375 $4,418Recapture of BadDebt $0 $0 $0 $0 $0 $0 $0 $0 $0 $0Water Sales - OtherAgencies $5,100,000 $0 $0 $0 $0 $0 $0 $0 $0 $0Fire Hydrant FlowTest $9,000 $9,090 $9,181 $9,273 $9,365 $9,459 $9,554 $9,649 $9,746 $9,843Interest/FiscalAgent $2,000 $2,020 $2,040 $2,061 $2,081 $2,102 $2,123 $2,144 $2,166 $2,187Gain/Loss InventoryAd $0 $0 $0 $0 $0 $0 $0 $0 $0 $0Property/StreetDamage $13,000 $13,130 $13,261 $13,394 $13,528 $13,663 $13,800 $13,938 $14,077 $14,218Reimbursement&Contributions $0 $0 $0 $0 $0 $0 $0 $0 $0 $0Other $820,324 $466,848 $444,789 $452,293 $469,555 $487,813 $512,764 $543,174 $579,183 $622,980Total Revenue $32,119,665 $26,892,349 $27,897,322 $28,991,287 $29,829,628 $30,840,080 $31,894,809 $32,993,917 $34,138,934 $35,333,492

O&M ExpensesWater Billing $2,869,130 $2,957,476 $3,052,533 $2,189,803 $2,262,480 $2,337,686 $2,415,515 $2,496,064 $2,579,434 $2,665,729

18 | City of Chino

Water Services $9,430,287 $9,177,081 $9,509,929 $9,856,295 $10,202,213 $10,561,393 $10,934,408 $11,321,858 $11,724,372 $12,142,612Purchased Water $12,000,000 $11,986,116 $11,916,808 $11,893,505 $12,067,995 $12,258,057 $12,463,827 $12,685,467 $12,923,163 $13,177,123Water CapitalProgram $1,264,538 $951,950 $871,883 $950,353 $1,056,862 $1,073,760 $1,114,388 $1,156,593 $1,200,437 $1,245,986Total O&MExpenses $25,563,955 $25,072,622 $25,276,701 $24,742,064 $25,398,512 $25,994,712 $26,644,643 $27,326,828 $28,042,056 $28,791,159

Existing DebtService $814,388 $812,298 $407,720 $407,720 $407,720 $407,720 $407,720 $407,720 $407,720 $203,860

Proposed DebtService $0 $0 $0 $0 $0 $0 $0 $0 $0 $0

Rate Funded CapitalProjects $2,330,250 $2,970,007 $2,478,216 $2,818,263 $3,303,213 $3,313,744 $3,446,294 $3,584,145 $3,727,511 $3,876,612

Total Expenses $28,708,592 $28,854,926 $28,162,637 $27,968,048 $29,109,445 $29,716,176 $30,498,657 $31,318,694 $32,177,287 $32,871,630

Net Cash Flow $3,411,073 ($1,962,577) ($265,315) $1,023,240 $720,183 $1,123,904 $1,396,152 $1,675,223 $1,961,647 $2,461,862Calculated DebtCoverage 1612% 450% #N/A #N/A #N/A #N/A #N/A #N/A #N/A #N/A

Required DebtCoverage 125% 125% 125% 125% 125% 125% 125% 125% 125% 125%


The following figures display the FY 2017 through FY 2026 Financial Plan in graphical format. Figure 3-1shows the modeled revenue adjustments (blue bars) for the next ten years. Figure 3-1 also graphs thecalculated and required debt coverage requirements as shown by the green and red lines respectively.Figure 3-1: Proposed Revenue Adjustments and Debt Coverage Ratio

Figure 3-2 graphically illustrates the proposed Financial Plan – it compares existing and proposed revenueswith projected expenses. The expenses including O&M, debt service, capital costs, and net income are shownby the stacked bars; and total revenues at existing and proposed rates are shown by the horizontal orangeand blue lines, respectively. Current revenue from existing rates, in orange, will not meet future totalexpenses and clearly shows the need for revenue adjustments. The red bar above the X-axis representsincome transferred to reserves and below the X-axis is transfer from reserves to meet expenses. The revenuedip in FY 2018 was due to a one-time water sale revenue to other agencies of $5.1 million in FY 2017, asshown in Table 3-12.

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Figure 3-2: Proposed Financial Plan

Figure 3-3 summarizes the projected CIP and its funding sources – debt and/or rate/reserve. As shown, theCity will fund all improvements through rates and/or reserves, as shown by the purple bars.Figure 3-3: Projected CIP and Funding Sources

Figure 3-4 displays the resulting fund balance for the water utility, based on the assumptions regardingwater usage growth and projected expenses. If water usage does not increase as projected, the fund balancewould decrease due to lower revenues. The red line represents the total target, which is composed ofoperating, capital, and rate stabilization reserves targets consistent with industry standards. The operatingreserve target is set at 25 percent of the operating expenses to provide working capital and unanticipatedoperating expenses; the capital reserve target is set at 100 percent of average annual capital expenditures toprovide funds for capital projects; and the rate stabilization target is set at 10 percent of total rate revenue tomitigate against rate spikes from unforeseen changes to expenses and revenues.


Figure 3-4: Total Fund Balance

22 | City of Chino

4. COST OF SERVICE ANALYSISThis section describes the cost of service methodology, the process of cost allocation and determination ofthe costs to serve different customer classes.As stated in the American Water Works Association (AWWA) M1 Manual, “the costs of water rates andcharges should be recovered from classes of customers in proportion to the cost of serving those customers.”To develop utility rates that comply with Proposition 218 and industry standards while meeting otheremerging goals and objectives of the utility, there are four major steps discussed below.Calculate Revenue RequirementThe rate-making process starts by determining the test year revenue requirement - which for this study is FY2018. The revenue requirement should sufficiently fund the utility’s O&M, debt service, capital expenses,and reserve funding.Cost of Service Analysis (COS)The annual cost of providing water service is distributed among customer classes commensurate with theirservice requirements. A COS analysis involves the following:1. Functionalizing costs: Examples of functions are supply, treatment, transmission, distribution,storage, meter servicing and customer billing and collection.2. Allocating functionalized costs to cost components: Cost components include base, maximumday, maximum hour1, meter service, customer servicing and conservation costs.3. Distributing the cost components: Distribute cost components, using unit costs, to customerclasses in proportion to their demands on the water system. This is described in the M1 Manualpublished by AWWA.A COS analysis considers both the average quantity of water consumed (base costs) and the peak rate atwhich it is consumed (peaking or capacity costs as identified by maximum day and maximum hourdemands).2 Peaking costs are costs that are incurred during peak times of consumption. The water systemis designed to handle peak demands. Additional costs are associated with designing, constructing, andoperating and maintaining facilities to meet peak demands. The peak demand costs need to be allocated tothose imposing such costs on the utility. In other words, not all customer classes share equal responsibilityfor peaking related costs.

1 Collectively maximum day and maximum hour costs are known as peaking costs or capacity costs.2 System capacity is the system’s ability to supply water to all delivery points at the time when demanded. It ismeasured by each customer’s water demand at the time of greatest system demand. The time of greatest demand isknown as peak demand. Both the operating costs and the capital asset related costs incurred to accommodate the peakflows are generally allocated to each customer class based upon the class’s contribution to the peak event.


Rate Design and CalculationsRates do more than simply recover costs. Within the legal framework and industry standards, properlydesigned rates should support and optimize a blend of various utility objectives, such as conservation,affordability for essential needs and revenue stability. Rates may also act as a public information tool incommunicating these objectives to customers.Rate AdoptionRate adoption is the last step of the rate-making process to comply with Proposition 218. RFC documentedthe rate study results in this Study Report to help educate the public about the proposed changes, therationale and justifications behind the changes and their anticipated financial impacts in lay terms.4.1 ALLOCATION OF FUNCTIONALIZED EXPENSES TO COST

COMPONENTSAfter functionalizing expenses, the next step is to allocate the functionalized expenses to cost causationcomponents. To do so we must identify system wide peaking factors. The system-wide peaking factors areused to derive the cost component allocation bases (i.e., percentages) shown in Table 4-1. Functionalizedexpenses are then allocated to the cost components using these allocation bases. To understand theinterpretation of the percentages, we must first establish the base use as the average daily demand duringthe year.To determine the relative proportion of costs to assign to Base, Max Day and Max Hour, allocations arecalculated based on these factors. Cost components that are solely Base related to provide average daydemand (ADD), such as source of supply, are allocated 100 percent to Base. Cost components that aredesigned to meet Max Day peaks, such as reservoirs and transmission facilities, are allocated to Base andMax Day factors. Since facilities such as reservoirs and distribution systems are also designed to handle fireflow, an allocation is also provided for fire flow. The Max Day allocation for reservoirs which are designedfor max day plus fire is derived as follows:Base: 54% = (1.00/1.71)x100 – 5% (half the fire allocation)Max Day: 36% = (1.71-1.00)/1.71x100 – 5% (half the fire allocation)Fire: 10%Cost components such as those related to the distribution system that are designed for Max Hour peaks plusfire flow are allocated similarly. The allocation of Max Hour facilities is shown below:Base: 42% = (1.00/2.21)x100 – 3.33% (1/3 fire allocation)Max Day: 28% = (1.71-1.00)/2.21x100 – 3.33% (1/3 fire allocation)Max Hour: 20% = (2.21-1.71)/2.21x100 – 3.33% (1/3 fire allocation)Fire: 10%The 10 percent allocation to fire is based on Insurance Services Office (ISO) standards referenced in the M1Manual.

24 | City of Chino

Collectively the maximum day and hour cost components are known as peaking costs. These allocationbases are used to assign the functionalized costs to the cost components.Table 4-1: System-Wide Peaking Factors and Allocation to Cost Components

Citywide Base Max Day Max Hour FireBase 1.00 100% 0% 0% 0%

Max Day 1.70 59% 41% 0% 0%Max Day W/Fire 54% 36% 0% 10%

Max Hour 2.21 42% 28% 20% 10%Average 48% 32% 10% 10%Table 4-2 allocates the O&M and capital expenses to each cost component. The functional costs are allocatedaccording to industry standards based on the nature of the function of each cost item. For example: themeter replacement portion of the water billing costs are allocated to the meter cost component becausethose expenses are incurred to replace and maintain the meters, and the customer related portion of thewater billing costs are allocated to the customer cost component because those expenses are incurred toprovide billing and customer service costs. Water services costs are incurred to provide for treatment aswell as transmission and distribution costs and are allocated as the average of max day and max hour afteraccounting for costs related to meters. Water capital costs are allocated in the same proportion as the assetsallocation because those costs are related to replace and refurbish the assets.Table 4-2 shows the total resulting cost component allocation for O&M expenses. This resulting allocation isused to allocate the City’s operating revenue requirement to the cost components. Table 4-2 also shows thetotal resulting allocation for the City’s assets. The resulting total asset allocation is derived in a similarmanner as the O&M allocation - first, RFC functionalized the City’s assets, then allocated them to the costcausation components resulting in the asset total allocation shown at the bottom of the table.


Table 4-2: Allocation of Functionalized O&M Expenses to Cost Causation ComponentsO&M Allocation Base Max Day Max Hour Fire Recycled Meter Customer General TOTALWater Billing 58% 42% 100%Water Services 41% 32% 10% 10% 7% 100%Purchased Water 70% 30% 100%Water Capital Program 40% 32% 12% 7% 1% 6% 0% 2% 100%O&M Allocation Base Max Day Max Hour Fire Recycled Meter Customer General TOTALWater Billing $0 $0 $0 $0 $0 $1,707,191 $1,250,285 $0 $2,957,476Water Services $3,750,630 $2,960,405 $905,943 $917,708 $0 $642,396 $0 $0 $9,177,081Purchased Water $8,412,612 $0 $0 $0 $3,573,504 $0 $0 $0 $11,986,116Water Capital Program $380,094 $301,797 $118,488 $66,565 $9,010 $60,013 $1,078 $14,904 $951,950

Total O&M Expenses $12,543,336 $3,262,202 $1,024,431 $984,273 $3,582,514 $2,409,600 $1,251,363 $14,904 $25,072,622

% Allocation 50% 13% 4% 4% 14% 10% 5% 0% 100%

26 | City of Chino

Table 4-3: Allocation of Functionalized Capital Expenses to Cost Causation ComponentsCapital Allocation Base Max Day Max Hour Fire Recycled Meter Customer General TOTALLand 100% 100%Well 59% 41% 100%Building 59% 41% 0% 100%Reservoir 54% 36% 0% 10% 100%Distribution 32% 28% 20% 10% 10% 100%Transmission 59% 41% 100%ComputerEquipment 100% 100%CommunicationsEquipment 100% 100%Equipment 100% 100%CIP 100% 100%Hydrant 100% 100%Recycled Water 100% 100%Capital Allocation Base Max Day Max Hour Fire Recycled Meter Customer General TOTALLand $0 $0 $0 $0 $0 $0 $0 $294,551 $294,551Well $596,766 $417,736 $0 $0 $0 $0 $0 $0 $1,014,502Building $2,799,650 $1,959,755 $0 $0 $0 $0 $0 $0 $4,759,404Reservoir $439,386 $295,325 $0 $81,635 $0 $0 $0 $0 $816,346Distribution $8,476,296 $7,526,919 $5,243,607 $2,655,853 $0 $2,655,853 $0 $0 $26,558,527Transmission $4,508,725 $3,156,108 $0 $0 $0 $0 $0 $0 $7,664,833ComputerEquipment $0 $0 $0 $0 $0 $0 $0 $0 $0CommunicationsEquipment $0 $0 $0 $0 $0 $0 $47,702 $0 $47,702Equipment $0 $0 $0 $0 $0 $0 $0 $52,639 $52,639CIP $0 $0 $0 $0 $0 $0 $0 $312,363 $312,363Hydrant $0 $0 $0 $208,285 $0 $0 $0 $0 $208,285Recycled Water $0 $0 $0 $0 $398,735 $0 $0 $0 $398,735

Total Assets $16,820,822 $13,355,842 $5,243,607 $2,945,773 $398,735 $2,655,853 $47,702 $659,553 $42,127,886

% Allocation 40% 32% 12% 7% 1% 6% 0% 2% 100%


Revenue Requirement Determination

28 | City of Chino

Table 4-4 shows the revenue requirement derivation with the total revenue required from rates. Theoperating expenses from Table 3-7, the debt service from Table 3-10, the capital costs from Table 3-9 and therevenue offsets from Table 3-12 are combined with the drawdown of the reserves shown as adjustment tocash balance to determine the totals shown in the “Operating” and “Capital” columns.RFC calculated the revenue requirement using FY 2018 expenses, which include O&M expenses, capitalexpenses and existing and proposed debt service. To arrive at the rate revenue requirement, RFC subtractedrevenue offsets from other expenses and adjustments for annual cash balances. The adjustments, shown asnegative values (for example, the cash balance is projected to be negative for FY, therefore, appearingpositive in the table below) are subtracted to arrive at the total revenue requirement from rates. This totalrevenue requirement is the amount that fixed charge and commodity rates are designed to collect.


Table 4-4: Revenue Requirement Determination

FY 2018Operating Capital Total

Revenue RequirementsO&M Expenses $25,072,622 $25,072,622Existing Debt Service $812,298 $812,298Proposed Debt Service $0 $0Rate Funded Capital Projects $2,970,007 $2,970,007Total Revenue Requirements $25,072,622 $3,782,304 $28,854,926

Less: Revenue OffsetsWater Hydrant Meter Rental $1,010 $1,010Water Meter Installation $277,750 $277,750Water Turn-On Fee $53,045 $53,045Water Reinstatement Fee $91,809 $91,809Return Check Charge $4,080 $4,080Recapture of Bad Debt $0 $0Water Sales - Other Agencies $0 $0Fire Hydrant Flow Test $9,090 $9,090Interest/Fiscal Agent $2,020 $2,020Gain/Loss Inventory Ad $0 $0Property/Street Damage $13,130 $13,130Reimbursement& Contributions $0 $0Other $466,848 $466,848Total Revenue Offsets $451,935 $466,848 $918,782

Less: AdjustmentsAdjustment for Cash Balance $1,962,577 $1,962,577Total Adjustments $0 $1,962,577 $1,962,577

Revenue Requirement fromRates $24,620,687 $1,352,879 $25,973,567

4.2 UNIT COST COMPONENT DERIVATIONOur goal is to proportionately distribute the cost causation components to each user class. To do so we mustcalculate the cost causation component unit costs, by first assessing the total service units demanded by eachclass for each cost component. Table 4-5 shows this assessment, which is based on projected FY 2018 wateraccounts and use data from Table 3-4 and Table 3-5. Table 4-5 also includes the calculations derived fromthe assessed annual usage by class. RFC first derived the average daily use from the projected FY 2018 totaluse in each class. Next, Maximum Day and Maximum Hour total capacities were calculated by multiplyingthis average by the corresponding capacity factor (Table 4-1). Finally, RFC arrived at the extra capacity

30 | City of Chino

needed to accommodate maximum day and hour water demands by taking the total capacity and subtractingthe average daily use.Table 4-5: Derivation of Service Units

Maximum Day Requirements Maximum Hour Requirements

Component AnnualUse

AverageDaily Use

CapacityFactor

TotalCapacity

ExtraCapacity

CapacityFactor

TotalCapacity

ExtraCapacity

No. ofFire

Meters

No. ofMeters No. of Bills

Unit (hcf) (hcf/day) (hcf/day) (hcf/day) (hcf/day) (hcf/day) (Equiv.) (Equiv.) (No.)

CalculationA = Table3-5 B

=A/365C

= Table4-1

D= B*C E= D-B F= Table

4-1

G= B*F

H=G-D

I J K

Potable Water

Single Family 3,225,676 8,837 1.70 15,024 6,186 2.21 19,531 4,507 18,185 209,582

Multi-Family 468,127 1,283 1.70 2,180 898 2.21 2,834 654 2,132 5,244Commercial 1,224,542 3,355 1.70 5,703 2,348 2.21 7,414 1,711 8,293 19,980Landscape 848,422 2,324 1.70 3,952 1,627 2.21 5,137 1,185 875 10,500

Fire Meters 1,095 6,588

Recycled WaterRecycled Water –Non-Ag 732,575 2,007Recycled Water –Agricultural 2,185,192 5,987Total 8,684,534 11,060 8,058 1,095 29,485 251,894

Table 4-6 shows the cost causation component unit cost derivation. The operating and capital expensesrevenue requirements determined in


Table 4-4 are distributed across the cost causation components per the allocation percentages defined inTable 4-2, resulting in the distributions shown in Lines 1 and 2 of Table 4-6. Adding these provide the totalcost of service allocated to each cost causation component, shown in Line 3. Next, General andAdministrative costs, which cannot be tied to a specific function, are redistributed (Line 4). The portion ofthe General and Administrative costs assigned to each cost causation component mirrors the portion thatcost causation component represents of the total cost of service less the General and Administrativecomponent. As an example, the allocation of the General and Administrative cost to the Max Day componentis shown in the below equation:× − =$35,816× $3,632,305$25,973,567 − $35,816 = $5,016

Table 4-6: Derivation of Cost Causation Unit CostsLine

# Base Max Day Max Hour Fire Recycled Meter Customer General Total1 Operating Expenses $12,317,242 $3,203,401 $1,005,965 $966,531 $3,517,939 $2,366,167 $1,228,807 $14,635 $24,620,6872 Capital Expenses $540,178 $428,905 $168,391 $94,599 $12,805 $85,289 $1,532 $21,181 $1,352,879

3 Total Cost of Service $12,857,420 $3,632,305 $1,174,356 $1,061,131 $3,530,744 $2,451,456 $1,230,339 $35,816 $25,973,5674 Allocation of GeneralCost $17,754 $5,016 $1,622 $1,465 $4,875 $3,385 $1,699 ($35,816) $05 Allocation of PeakingCost to Meter ($3,419,082) ($1,105,419) $4,524,501 $0

6 Total Adjusted Costof Service $12,875,174 $218,239 $70,559 $1,062,596 $3,535,619 $6,979,342 $1,232,038 $0 $25,973,567

7 Unit of Service 5,766,768 11,060 8,058 1,095 2,917,767 29,485 251,8948 Unit hcf hcf/day hcf/day equivalentmeters hcf equivalentmeters bills9 Unit Cost $2.23 $19.73 $8.76 $80.83 $1.21 $19.73 $4.89

Lastly, to ensure the City has adequate revenues to recover more of its fixed costs and provide revenuestability, RFC reallocated most of the peaking related costs to the meter capacity component (Line 5). Thisreallocation allows the City to maintain a fixed revenue collection of approximately 36 percent. To derivethe unit cost of service, the total adjusted cost of service (Line 6) is divided by the units of service (Line 7 anddetermined in Table 4-5) to calculate the unit cost (Line 9).4.3 DISTRIBUTION OF COST COMPONENTS TO CUSTOMER

CLASSESThe final step in a cost of service analysis is to distribute the cost causation components to the user classes.RFC multiplied the unit costs derived in Table 4-6 and multiplied them by the total service units in each classper Table 4-5. The results of these calculations are shown below in Table 4-7. For example, the calculationfor the base allocation to single family customers is:( )× =

32 | City of Chino

$2.23×3,020,241 = $6,743,140Table 4-7 also provides the total cost to serve each customer class resulting from all the cost causationcomponent allocations. Finally, the table also indicates the total cost to serve all classes, matching therevenue requirement defined in Table 4-4.Table 4-7: Allocation of Cost to Customer Class

Variable Fixed

Base Max Day MaxHour Recycled Fire Meter Customer TotalSingle Family $7,201,806 $122,073 $39,467 $4,304,623 $1,025,086 $12,897,161Multi-Family $1,045,164 $17,716 $5,728 $504,661 $25,649 $1,598,917Commercial $2,733,975 $46,342 $14,983 $1,962,939 $97,724 $4,855,962Landscape $1,894,229 $32,108 $10,381 $207,119 $51,356 $2,195,194Agricultural Use $78,926 $1,338 $433 $80,696Recycled Water -Non-Ag $887,701 $887,701Recycled Water -Agricultural $2,647,918 $2,647,918Fire Meters $1,062,596 $32,223 $1,094,818

Total $12,875,174 $218,239 $70,559 $3,535,619 $1,062,596 $6,979,342 $1,232,038 $25,973,567The Base, Max Day, Max Hour, and Recycled cost causation components are collected through the commodity(variable) rates ($/HCF) for potable and recycled water, respectively. The Fire, Meter, and Customer costcausation components are collected through the City’s monthly meter service charges. The proposed fixedrevenue from rates is approximately 36 percent.


5. RATE DESIGN5.1 EXISTING RATE STRUCTURE AND RATESThe City’s existing rate structure consists of a fixed, monthly Readiness-to-Serve (RTS) Charge based on thesize of the meter serving the account, and a uniform commodity rate for all potable water customers. Insteadof the RTS charge, private fire meters pay the monthly private fire charge and no usage rate. Finally, recycledwater customers pay a different commodity rate, but still pay the RTS monthly fixed rate.

Table 5-1: Existing Rate Structure and Rates

FY 2018Meter Size5/8" & 3/4" $24.611" $38.151 1/2" $72.022" $112.663" $241.374" $431.036" $884.868" $1,629.9610" $2,578.28Monthly Fire Service ChargeMeter Size2" $8.853" $17.544" $32.536" $86.358" $179.1710" $318.7812" $512.30Commodity Rate ($/hcf)All customers $2.78Recycled Water Rate ($/hcf)Non-Ag customers $1.12

34 | City of Chino

5.2 PROPOSED RATE STRUCTURE AND RATESThe current rate structure consists of the fixed monthly RTS charge and a uniform rate for all customers.The proposed rate structure retains the RTS charge and a tiered water budget rate structure for residentialand landscape customers. The remaining customers will continue to be billed at a uniform rate.5.2.1 Monthly Readiness-to-Serve (RTS) ChargeRFC proposes to retain the monthly RTS charge that varies by meter size. The RTS charge is designed torecover a portion of the fixed costs the City incurs in maintaining the readiness to serve each customer,irrespective of whether the account uses water in the billing period. Table 5-2 shows the proposed RTScharges by meter size. The RTS charge is composed of the Meter and Customer cost component unit chargescalculated in Section 4, Table 4-6.The Meter component charge is based on equivalent meter units, as larger meters impose larger demands ofsystem capacity. This study utilizes equivalent meter ratios determined by the American Water WorksAssociation (AWWA). The ratios, shown below in Column B, identify the strengths of the other meters inrelation to the base meter. In this case, the base meter is a ¾” meter. For example, a 4” meter is theequivalent of twenty-one ¾” meters. To arrive at the meter charge for each meter size, the unit cost [A](from Table 4-6) is multiplied by the meter ratio [B]. The Customer component (from Table 4-6) is chargedby account as all accounts bear the burden of billing and customer service expenses equally. The total RTScharge combines these two components.

Table 5-2: Derivation of the Regular Meter Monthly RTS Charge

Meter Size

Meter UnitCost[A]

Meter Ratio[B]

Meter[C = A*B]

Customer[D]

ProposedCharges

[C+D]CurrentCharges Difference

5/8" &3/4" $19.73 1.00 $19.73 $4.89 $24.62 $24.61 0%

1" $19.73 1.67 $32.88 $4.89 $37.77 $38.15 -1%1 1/2" $19.73 3.33 $65.75 $4.89 $70.65 $72.02 -2%

2" $19.73 5.33 $105.20 $4.89 $110.10 $112.66 -2%3" $19.73 11.67 $230.13 $4.89 $235.03 $241.37 -3%4" $19.73 21.00 $414.24 $4.89 $419.13 $431.03 -3%6" $19.73 43.33 $854.78 $4.89 $859.67 $884.86 -3%8" $19.73 80.00 $1,578.05 $4.89 $1,582.95 $1,629.96 -3%

10" $19.73 126.67 $2,498.58 $4.89 $2,503.48 $2,578.28 -3%The charges for private fire service are similarly derived. However, the Fire Line Ratios are set to a basemeter of 6” and are based on the line diameter raised to the power 2.63.


Table 5-3: Derivation of the Private Fire Service Charge

Line Size

Line UnitCost[A]

Line Ratio[B]

LineCharge

[C = A*B]Customer

[D]

ProposedCharges

[C+D]CurrentCharges Difference

2" $80.83 0.06 $4.50 $4.89 $9.39 $8.85 6%3" $80.83 0.16 $13.06 $4.89 $17.95 $17.54 2%4" $80.83 0.34 $27.83 $4.89 $32.72 $32.53 1%6" $80.83 1.00 $80.83 $4.89 $85.73 $86.35 -1%8" $80.83 2.13 $172.25 $4.89 $177.15 $179.17 -1%

10" $80.83 3.83 $309.77 $4.89 $314.67 $318.78 -1%12" $80.83 6.19 $500.37 $4.89 $505.26 $512.30 -1%

5.2.2 Proposed Commodity Rates5.2.2.1 Proposed Commodity Rate Structure RevisionsThe City currently utilizes a uniform commodity rate for all customers and wanted to revise the ratestructure to better encourage water use efficiency and equitability to all customers, given their differences inwater usage. The City decided to use a water budget rate structure for residential and landscape customerclasses to best meet its needs. The updated rate structure for each class is listed below in Table 5-4.

Table 5-4: Proposed Water Rate StructuresCustomer Class Current Rate Structure Proposed Rate StructureSingle Family Residential Uniform 3-Tier Water BudgetMulti-Family Residential Uniform 3-Tier Water BudgetCommercial Uniform UniformLandscape Uniform 2-Tier Water BudgetRecycled Water –Non-Agricultural Uniform Uniform

5.2.2.2 Water Budget Tier DefinitionsThe City has decided to implement water budget rates. The American Water Works Association Journaldefines a water budget as “the quantity of water required for an efficient level of water use by that customer”(Source: American Water Works Association Journal, May 2008, Volume 100, Number 5). It is worth noting thatwater budget rate structures are customized for each customer, which will result in different tier breaks fordifferent customers. Based on the usage analysis of the City’s customers and discussion with City staff, RFCproposes the following rate structure for residential customers:

Tier 1 is defined by the allotment for indoor use Tier 2 is defined by the allotment for efficient outdoor use Any use beyond Tier 2 is considered inefficient and falls into Tier 3Since landscape customers do not have an allotment for indoor use, their Tier 1 for landscape is the same asthe residential Tier 2, defined by the allotment for efficient outdoor use. Any landscape use beyond Tier 1 isconsidered inefficient and falls into Tier 2. Thus, landscape customers only have a two-tier water budget ratestructure.

36 | City of Chino

5.2.2.3 Water Budget Development Methodology

5.2.2.3.1 Single and Multi-Family Customers Indoor Water BudgetThe indoor water budget (IWB) is determined by a customer’s household size and a standard consumptionper person. The proposed IWB formula is as follows:= × ℎ × × ×748 /ℎ +Where:

GPCD – Gallons per capita per day. The standard consumption per person per day will be set at 55gallons for both residential classes. The Water Conservation Act of 2010 (SBx7-7) sets the efficientlevel of indoor residential water use at 55 gallons per person per day. Household Size – Number of residents per dwelling unit. The default values for household size will beset at 4 people per household for Single Family and 3 people per household for Multi-Family residentialunits. However, customers will need to contact the City and/or fill-out an adjustment form to petitionfor a variance to the actual household size served by the meter. Dwelling Units – The number of dwelling units served by the meter. For example, a single-familyresidence is one dwelling unit. Multi-family units will have more than one dwelling unit per account. Days of Service – The number of days of service varies with each billing cycle for each customer. Theactual number of days of service will be applied to calculate the indoor water budget for each billingcycle. DFindoor – Indoor drought factor. This part of the budget equation will be used in extreme watershortage conditions only if needed, because of local supply conditions, or if required by regional and/orState agencies. A lower percentage of the typical or usual indoor water budget could be allocatedduring extreme water shortages, supply shortage or emergency conditions. Changing the droughtfactor will be subject to City Council approval. The indoor drought factor will be set at 100 percent,representing a 100 percent water budget allotment, in times where no water shortage exists in theCity’s service area. Vindoor – Indoor variance. A water allotment can be adjusted to fit the unique circumstances of anycustomer. If the City chooses to allow a variance program, customers need to contact the City and/orfill-out an adjustment form and return to the City with supporting documentation. Examples ofvariances include medical needs, day care, etc. The City will approve variances on a case by case basis. 748 is the conversion unit from gallons to a billing unit of one hundred cubic feet (hcf).For illustrative purposes, the following indoor water budget calculations for two different customers areprovided. Note that the water budgets are rounded up to the nearest hcf.

Customer #1: Household Size = 4 persons, 1 Dwelling Unit, Days of Service in January bill = 30 days= 55 ×1 ×4 ×30 ×100%748 ℎ = 9 ℎCustomer #2: Household Size = 6 persons, 1 Dwelling Unit, Days of Service in January bill = 28 days= 55 ×1 ×6 ×28 ×100%748 ℎ = 13 ℎ


5.2.2.3.2 Residential and Landscape Outdoor Water BudgetThe outdoor water budget (OWB) is determined by three main variables: irrigated landscape area, weatherdata, and an evapotranspiration (ET) Adjustment Factor. The irrigated landscape area is measured as thesquare footage of irrigated landscape surface on a customer’s property. The weather data is based on thereference evapotranspiration (ET0), which is the amount of water loss to the atmosphere over a given periodat given specific atmospheric conditions. ET0 is the amount of water (in inches of water) needed for ahypothetical reference crop to maintain its health and appearance. The ET Adjustment Factor (ETAF) is acoefficient that adjusts ET0 values based on plant factor and irrigation system efficiency.The formula to calculate an outdoor water budget is as follows:= × ×1200 × +

Landscape Area – also referred to as Irrigated Landscape Area (in square feet, sq. ft.), is the measuredirrigable landscape area served by a specific water meter. ET0 is measured in inches of water during the billing period based on daily weather data from theclosest weather station to the City’s service area: California Irrigation Management InformationSystem (CIMIS) Station 78 at Pomona. ETAF is a State-legislated efficiency standard in the form of a coefficient that adjusts the outdoorwater budget value based on the crop types and irrigation efficiency:

o ETAF = 80% for residential accounts3o ETAF = 100% for landscape accounts

DFoutdoor – Outdoor drought factor. This part of the budget equation will be used in extreme watershortage conditions only if needed because of local supply conditions or if required by regional andState agencies. A lower percentage of the typical or usual outdoor water budget could be allocatedduring extreme drought, supply shortage or emergency conditions. Changing the drought factor willbe subject to the approval of City Council. The outdoor drought factor will be set at 100 percent,representing a 100 percent water budget allotment, in times where no water shortage exists in theCity’s service area. Voutdoor – Outdoor variance. A water budget may be adjusted to fit the circumstances of any customer.If the City chooses to allow variance program, customers need to contact the City and/or fill-out anadjustment form and return to the City with the necessary documentation. 1,200 is the factor used to convert to billing units in hundred cubic feet (hcf).For illustrative purposes, the following outdoor water budget calculations for two different customers areshown. Note that the water budgets are rounded up to the nearest hcf. Customer #1 –Single Family: Landscape Area = 8,000 sq ft, ET0 for 30-day January bill = 2.28 inches,ETAF = 0.80, no variance:

3 Consistent with Updated Model Water Efficient Landscape Ordinance (aka AB 1881) or California Code of RegulationTitle 23 Chapter 2.7

38 | City of Chino

= , × . ×., ×100% = 13 ℎ (rounded up from 12.16 hcf) Customer #2 – Single Family: Landscape Area = 4,000 sq ft, ET0 for 28-day January bill = 2.05 inches,ETAF for January = 0.80, Variance = 1 hcf per billing cycle for approved special needs:

= , × . ×., x 100%+ 1 hcf = 7 ℎ (rounded up from 6.47 hcf)5.2.2.4 Commodity Cost ComponentsThe water budget commodity rate structure will include several components including supply cost, andpeaking. Additionally, recycled water production helps offset the need to produce more potable water and isincluded in the commodity rates for all customers. Each of these cost components is further described below.5.2.2.4.1 Supply Cost ComponentThe first step in calculating the supply cost component by class is to derive the supply unit cost by watersupply type. The City procures potable water from three sources: (1) groundwater; (2) purchased treatedwater from WFA; and (3) purchased desalinated water under a take-or-pay contract from the CDA.Line 1 of Table 5-5 below lists the available potable water from each of the sources, net of water loss, takenfrom Table 3-8. Line 2 shows the total cost for each supply source. The total supply costs correspond withthe cost allocation to purchased water costs, shown in Table 4-2. The same table shows potable waterallocated 70 percent of water costs, with recycled water accounting for 30 percent of the water costs, whichis calculated from Table 3-8. Table 3-8 shows that $3,573,504 is direct recycled water cost (7,603 AF x$470/AF), which is allocated to the Recycled Water customers. Thus, potable water costs total $8,412,612(total supply cost of $11,986,116 - $3,573,504). The cost for recycled water recharge is distributedproportionally to all water supply sources. Groundwater costs include charges from the Watermaster of$447,684 in FY 2018 (shown in Table 3-8), which represents approximately 5.9 percent of the total potablewater supply costs (shown in Table 3-8), ($447,684 / $7,579,870). Thus, the total adjusted groundwatersupply cost is 5.9 percent of the allocated water purchased cost of $8,412,612, or $496,868. The totalDesalter cost in FY 2018 is $4,535,353 (shown in Table 3-8), which represents approximately 59.8 percent ofthe total potable water supply cost ($4,535,353 / $7,579,870). The total adjusted Desalter cost is 59.8percent of the allocated water purchased cost of $8,412,612, or $5,033,617. The costs for WFA supply arecalculated in a similar manner. The unit cost for each water supply source, shown in Line 3, is calculated bydividing Line 2 by Line 1.


Table 5-5: Potable Water Supply Cost per HCF and Supply Allocation by Usage TypeLine

#Groundwater

[A]Desalter

[B]WFA[C] TOTAL1 Available Supply, net of loss,hcf 2,446,908 2,129,256 1,190,604 5,766,7682 Supply Cost $496,868 $5,033,617 $2,882,128 $8,412,6123 Supply Unit Cost ($/hcf) $0.20 $2.36 $2.42 $1.46

Customer ClassUsage

[D] Groundwater Desalter WFA TOTAL4 SFR/MFR/Landscape (WB) 4,542,226 1,927,320 1,677,120 937,786 4,542,2265 Commercial 1,224,542 519,588 452,136 252,818 1,224,5426 TOTAL 5,766,768 2,446,908 2,129,256 1,190,604 5,766,768Next, each customer class’ total usage is allocated to the different supplies. The residential classes arecombined with the Landscape class into one customer class since they will have water budgets ratestructure. Column D lists the total usage by customer class. The usage in Column D is then distributed acrossthe water supplies. This is done by taking the total available supply from a source and multiplying it by thecustomer class’ proportion of usage over the total usage. This is exemplified in the equation below for thewater budget usage class’ (SFR/MFR/Landscape) supply coming from groundwater.2,446,908 ( , 1)×4,542,226( , 4)5,766,768( , 8) = 1,927,320 ( , 4)

Next, we calculate the indoor and outdoor water usage for residential and landscape customers based on ourdefinitions of each and the number of customers and their landscape characteristics. Usage in excess of theindoor and outdoor use is defined as inefficient. In light of the City’s objectives to provide essential (indoor)use at an affordable rate, we assign 75 percent of the groundwater supply to Tier 1. The balance of the waterrequired in Tier 1 comes from the Desalter, which is a take-or-pay contract. This provides a balance of costsin Tier 1 – it gets low cost supply and a more expensive take-or-pay supply. Note that all residentialcustomers must go through Tier 1 and therefore all of them receive benefit from Tier 1 affordable rates.Outdoor use is then supplied from the remaining groundwater and the balance from the Desalter. Inefficientuse receives leftover Desalter water and WFA water. It should be noted that it is because of the outdoorirrigation and inefficient usage that the City needs to purchase Desalter and WFA water and therefore thecosts associated with those supplies is passed on to that usage. These allocations are shown in Table 5-6below. The water supply allocation provides a rationale for differentiating the water costs for each tier.However, the entire class pays the same average supply cost of $1.46 per hcf so that there is no cross-classsubsidy.Commercial customers, who are on a uniform rate structure, use a blend of the water supply sources. Thus,the supply unit cost for commercial customers is $1.46 per hcf.Finally, the Unit Costs are calculated by taking each usage types usage by water supply and multiplying thatusage by the water supply’s unit cost (Table 5-5, Line 3). Then, these total costs by water supply for each

40 | City of Chino

usage type are added together and divided by the total usage by type for the Supply unit cost by usage type.The calculation for water budget customers’ indoor use is shown below.1,445,490×$0.20 + 446,559×$2.36 + 0×$2.421,892,048 = $0.71The results of these calculations are shown in the “Unit Cost” column of Table 5-6.

Table 5-6: Supply Unit Cost Calculation

Line# Usage Type Usage (hcf) Groundwater Desalter WFA TOTAL Unit Cost1 SFR/MFR/Landscape 4,542,226 1,927,320 1,677,120 937,786 4,542,2262 Indoor 1,892,049 1,445,490 446,559 0 1,892,049 $0.713 Outdoor 1,356,609 481,830 874,779 0 1,356,609 $1.604 Inefficient 1,293,568 0 355,782 937,786 1,293,568 $2.415 Commercial 1,224,542 519,588 452,136 252,818 1,224,542 $1.466 TOTAL 5,766,768 2,446,908 2,129,256 1,190,604 5,766,768 $1.46

5.2.2.4.2 Base Delivery Cost ComponentThe Base Delivery cost component is the remaining costs associated with the Base component identified inTable 4-6 after the water supply costs, discussed above, are removed. This is the remaining expenseassociated with delivering water under average conditions to all customers and therefore, is allocatedequally to all customers. The Total Base Cost, shown in Table 4-6, is $12,875,174. The Total Supply Cost,shown in Table 5-5, is $8,412,612. Thus, the Base Delivery cost is $4,462,562.The calculation of the Base Delivery rate is:− =$12,875,174 − $8,412,6125,766,768 = $0.77

5.2.2.4.3 Peaking Cost ComponentPeaking costs are the expenses associated with the system meeting the peak hourly and daily demands ofcustomers. The first step in assigning this cost is developing the peaking factors for each tier/class. Thecalculation of these peaking factors is shown in Table 5-7. Since peak day and peak hour usage data is notavailable, we use max month data as a proxy to determine the peaking factor for each customer class. Again,it is the relative peaking factors that are important, as costs are assigned based on the relative use of eachtier/class. The peaking factors are calculated by taking the max month usage in each tier/class and dividing itby the average monthly usage in each tier/class. This resulting peaking factor serves a basis for allocatingpeaking costs amongst the different tiers/class.


Table 5-7: Peaking Factor Calculations4

Customer ClassMax Month

[A]

AverageMonth

[B]

PeakingFactor[A/B]

SFR/MFR/LandscapeIndoor 158,093 148,942 1.06Outdoor 195,605 111,615 1.75Inefficient 196,710 106,527 1.85Commercial 130,650 103,489 1.26Next, the total peaking costs of $288,798 (Max Day and Max Hour, shown in Table 4-6) are allocated to thedifferent tiers/class based on the ratio of each class’ extra capacity allocation over the total extra capacity ofthe system. Finally, each total peaking cost is divided by the average annual usage of each customer class toarrive at the peaking unit cost (Table 5-8, Column G).

Table 5-8: Peaking Unit Cost CalculationAverage

Annual Use(hcf)[A]

AverageDaily Use(hcf/day)

[B = A/365]

PeakingFactor

[C]

TotalCapacity

(hcf/day)[D = B*C]

ExtraCapacity

(hcf/day)[E = D-B]

Peaking Cost[F]

Peaking UnitCost ($/hcf)

[G=F/E]SFR/MFR/LandscapeIndoor 1,892,049 5,184 1.06 5,502 318 $13,145 $0.01Outdoor 1,356,609 3,717 1.75 6,514 2,797 $115,437 $0.09Inefficient 1,293,568 3,544 1.85 6,544 3,000 $123,834 $0.10Commercial 1,224,542 3,355 1.26 4,236 881 36,382 $0.03Total 5,766,768 15,799 22,796 6,997 $288,798 $0.05

5.2.2.4.4 Recycled Water ComponentFinally, all potable water customers benefit from the City’s purchase of lower cost recycled water foragricultural use in exchange for their groundwater rights. The City supplies recycled water to thesecustomers so that they do not pump groundwater. Therefore, a portion of recycled water costs are paid forby all potable water customers equally, since all potable water customers benefit from this arrangement. Therecycled water component for potable water customers is calculated by taking the total Recycled Waterrevenue requirement allocated to agricultural recycled water customers (from Table 4-7) and dividing it bythe total potable water usage. The calculation of this component is:$2,647,9185,766,768 = $0.46

4 Actual water usage data for FY 2015 was used in this analysis.

42 | City of Chino

5.2.2.5 Recycled Water RateFinally, non-agricultural recycled water customers pay a uniform usage rate that is calculated by dividing therevenue requirement (from Table 4-7) by the total usage by these customers. The rates are rounded up tothe nearest penny. $887,701732,575 = $1.225.2.2.6 Proposed Commodity RatesThe total proposed potable water commodity rates are calculated by adding together each of the abovedescribed calculations – the Supply cost from Table 5-6, the Base Delivery cost from section 5.2.2.4.2, thePeaking cost from Table 5-8, and the Recycled Water component from section 5.2.2.4.4. These rates, alongwith the recycled water rates, are shown in Table 5-9. The rates are rounded up to the nearest penny.

Table 5-9: Commodity Rate Calculations

Customer Class SupplyCost

BaseDelivery

Cost

PeakingCost

RWComponent

ProposedRate

CurrentRate

SFRTier 1 - Indoor $0.71 $0.77 $0.01 $0.46 $1.96 $2.78Tier 2 - Outdoor $1.60 $0.77 $0.09 $0.46 $2.92 $2.78Tier 3 - Inefficient $2.41 $0.77 $0.10 $0.46 $3.74 $2.78MFRTier 1 - Indoor $0.71 $0.77 $0.01 $0.46 $1.96 $2.78Tier 2 - Outdoor $1.60 $0.77 $0.09 $0.46 $2.92 $2.78Tier 3 - Inefficient $2.41 $0.77 $0.10 $0.46 $3.74 $2.78Commercial $1.46 $0.77 $0.03 $0.46 $2.73 $2.78LandscapeTier 1 - Outdoor $1.60 $0.77 $0.09 $0.46 $2.92 $2.78Tier 2 - Inefficient $2.41 $0.77 $0.10 $0.46 $3.74 $2.78Recycled Water - Non-Ag $1.22 $1.12

5.2.3 Proposed Water Rate ScheduleThe combined fixed and variable water rate schedule for the study period is shown in Table 5-10. Each rateincreases during the study period by the Revenue Adjustments identified in Table 3-11. The rates will beeffective July 1 of each year.


Table 5-10: FYs 2018-2022 Proposed Monthly Fixed Rates Schedule

Current FY 2018 FY 2019 FY 2020 FY 2021 FY 2022Monthly Readiness-to-ServeCharge5/8" & 3/4" $24.61 $24.62 $25.36 $26.13 $26.92 $27.731" $38.15 $37.77 $38.91 $40.08 $41.29 $42.531 1/2" $72.02 $70.65 $72.77 $74.96 $77.21 $79.532" $112.66 $110.10 $113.41 $116.82 $120.33 $123.943" $241.37 $235.03 $242.09 $249.36 $256.85 $264.564" $431.03 $419.13 $431.71 $444.67 $458.02 $471.776" $884.86 $859.67 $885.47 $912.04 $939.41 $967.608" $1,629.96 $1,582.95 $1,630.44 $1,679.36 $1,729.75 $1,781.6510" $2,578.28 $2,503.48 $2,578.59 $2,655.95 $2,735.63 $2,817.70Monthly Fire Service Charge2" $8.85 $9.39 $9.68 $9.98 $10.28 $10.593" $17.54 $17.95 $18.49 $19.05 $19.63 $20.224" $32.53 $32.72 $33.71 $34.73 $35.78 $36.866" $86.35 $85.73 $88.31 $90.96 $93.69 $96.518" $179.17 $177.15 $182.47 $187.95 $193.59 $199.4010" $318.78 $314.67 $324.12 $333.85 $343.87 $354.1912" $512.30 $505.26 $520.42 $536.04 $552.13 $568.70

44 | City of Chino

Table 5-11: FYs 2018-2022 Proposed Commodity Rates Schedule

Current FY 2018 FY 2019 FY 2020 FY 2021 FY 2022Commodity Rate ($/hcf)All customers $2.78SFRTier 1 - Indoor $1.96 $2.02 $2.09 $2.16 $2.23Tier 2 - Outdoor $2.92 $3.01 $3.11 $3.21 $3.31Tier 3 - Inefficient $3.74 $3.86 $3.98 $4.10 $4.23MFRTier 1 - Indoor $1.96 $2.02 $2.09 $2.16 $2.23Tier 2 - Outdoor $2.92 $3.01 $3.11 $3.21 $3.31Tier 3 - Inefficient $3.74 $3.86 $3.98 $4.10 $4.23Commercial $2.73 $2.82 $2.91 $3.00 $3.09LandscapeTier 1 - Outdoor $2.92 $3.01 $3.11 $3.21 $3.31Tier 2 - Inefficient $3.74 $3.86 $3.98 $4.10 $4.23Recycled Water Rate ($/hcf)Non-Ag customers $1.12 $1.22 $1.26 $1.30 $1.34 $1.39


6. BILL IMPACTSThe tables below illustrate the impacts of different customers under the proposed water budget ratestructure. The total bills include the fixed meter charge. Due to the individualized nature of a water budgetrate structure, individual customers will see different bill impacts based on the number of people perhousehold and the irrigated landscape area.

Table 6-1: Single Family, ¾” Meter, 4 People, Landscape Area 2,581 sq.ft., Actual ET

Usage Type Meter SizeDec 15Usage Dec 15 Bill

May 16Usage May 16 Bill

Aug 16Usage Aug 16 Bill

Current Bill 5/8" & 3/4" 6 $41.29 9 $49.63 9 $49.63ProposedBill 5/8" & 3/4" 6 $36.38 9 $42.26 9 $42.26Difference ($4.91) ($7.37) ($7.37)

Table 6-2: Single Family, 1” meter, 10 People, Landscape Area 12,931 sq.ft., Actual ET




Current Bill 1" 38 $143.79 64 $216.07 108 $338.39ProposedBill 1" 38 $126.79 64 $206.81 108 $359.89Difference ($17.00) ($9.26) $21.50

Table 6-3: Commercial, 3” Meter




Current Bill 3" 8,261 $23,206.95 11,003 $30,829.71 11,015 $30,863.07ProposedBill 3" 8,261 $22,787.56 11,003 $30,273.22 11,015 $30,305.98Difference ($419.39) ($556.49) ($557.09)

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