Document Modesto_doc_f42c873c93

CITY OF MODESTO WATER RATE STUDY DRAFT REPORT June 26, 2023 ---PAGE BREAK--- 2625 Alcatraz Ave, #602 Berkeley, CA 94705 Tel [PHONE REDACTED] www.bartlewells.com June 26, 2023 Utilities Department, City of Modesto 1010 Tenth Street, 4th Floor, Suite 4600 Modesto, CA 95354 Attention: William Wong, Director of Utilities Re: Water Rate Study Bartle Wells Associates is pleased to submit to the City of Modesto the attached Draft Water Rate Study. The study presents BWA’s analysis of the operating and non-operating expenses of the City’s water system and provides a five-year cash flow projection. The primary purpose of this study was to analyze the City’s water enterprise and make recommendations that would achieve financial sustainability. Another important purpose of this study was to review rates to ensure that they adhere to the State’s legal requirements. BWA finds that the rates and charges proposed in our report reflect the cost-of-service for each customer, follow generally accepted rate design criteria, and adhere to the substantive requirements of Proposition 218. BWA believes the proposed rates are fair and reasonable to the City’s customers. Please contact us with any future questions about this study and the recommended water rates. Sincerely, Douglas Dove, PE, CIPMA Erik Helgeson, MBA Principal/ President Vice President ---PAGE BREAK--- Contents 1 Executive summary 1 1.1 Introduction 1 1.2 Rate Study Objectives 1 1.3 Cash Flow Projection Scenarios 2 1.4 Water Rate Recommendations per Scenario 2 2 Background, Objectives, and Legal Requirements 5 2.1 Rate Study Objectives 5 2.2 Rate-Study Process 6 2.3 Constitutional Requirements for Rates 6 2.3.1 Article 13D, Section 6 6 2.3.2 Article 10, Section 2 7 2.4 Statute of Limitations 7 3 Projected Water Demand and Customer Characteristics 8 3.1 Projected Water Demand 8 3.2 Water Services and Equivalent Capacity 8 4 Water Financial Plan 10 4.1 Water Financial Overview 10 4.2 Key Drivers of Rate Increases 10 4.3 Financial Plan Assumptions 11 4.4 Cash Flow Projections 11 4.5 Cash Flow Projection Scenarios 12 4.6 Cash Flow Projection for Scenario 1 - Low Capital, No Debt 12 4.7 Cash Flow Projection for Scenario 2 - Full Capital with New Debt 15 4.8 Cash Flow Projection for Scenario 3 - Full Capital, No Debt 18 4.9 Scenario Projected Cashflow Comparison 21 5 Cost-of-Service Rate Derivation 22 5.1 Functional Allocation 23 5.2 Rate Derivation 25 5.3 Proposed Water Rates 27 6 Regional Residential Bill Comparison 30 ---PAGE BREAK--- 7 Drought Rates 31 8 Conclusion and 33 8.1 Conclusion 33 8.2 Recommendations 33 Appendix A - Scenario 1 Water Rate Study Tables Appendix B - Scenario 2 Water Rate Study Tables Appendix C - Scenario 3 Water Rate Study Tables ---PAGE BREAK--- LIST OF TABLES Table 1 – Proposed Scenario 1 Water Rates 2 Table 2 – Proposed Scenario 2 Water Rates 3 Table 3 – Proposed Scenario 3 Water Rates 4 Table 4 – Historic and Projected Potable Supply and Metered Demand 8 Table 5 – Water Services and Meter Equivalent 9 Table 6 – Scenario 1 Cash Flow Projection Summary 12 Table 7 – Scenario 1 Detailed Cash Flow 14 Table 8 – Scenario 2 Cash Flow Projection Summary 15 Table 9 – Scenario 2 Detailed Cash Flow 17 Table 10 – Scenario 3 Cash Flow Projection Summary 18 Table 11 – Scenario 3 Detailed Cash Flow Projections 20 Table 12 – Scenario Projected Cashflow Comparison 21 Table 13 – Scenario 1 Functional Allocation 24 Table 14 – Scenario 2 Functional Allocation 24 Table 15 – Scenario 3 Functional Allocation 24 Table 16 – Scenario 1 Rate Derivation 25 Table 17 – Scenario 2 Rate Derivation 26 Table 18 – Scenario 3 Rate Derivation 26 Table 19 – Proposed Scenario 1 Water Rates 27 Table 20 – Proposed Scenario 2 Water Rates 28 Table 21 – Proposed Scenario 3 Water Rates 29 Table 22 – Proposed Scenario 1 Drought Rates 31 Table 23 – Proposed Scenario 2 Drought Rates 32 Table 24 – Proposed Scenario 3 Drought Rates 32 LIST OF FIGURES Figure 1 – Cost-of-Service Rate Study Process 6 Figure 2 – Scenario 1 Projected Cashflow Graph 13 Figure 3 – Scenario 2 Projected Cashflow Graph 16 Figure 4 – Scenario 3 Projected Cashflow Graph 19 Figure 5 – Residential Bill Comparison 30 ---PAGE BREAK--- BARTLE WELLS ASSOCIATES 1 City of Modesto – Water Rate Study 2023 1 EXECUTIVE SUMMARY 1.1 Introduction The City of Modesto provides water service to over 74,000 accounts throughout the City of Modesto, Salida, Empire, Grayson, Del Rio, and portions of Ceres (Walnut Manor) and Turlock. The City of Modesto’s water sources are groundwater and treated surface water purchased from the Modesto Irrigation District. The revenues from the City’s water utility are primarily derived from charges for services. The City must establish rates and charges adequate to fund the cost of providing water services, which includes costs for operations and maintenance, as well as capital improvements needed to keep the City’s utility infrastructure in a safe and reliable operating condition. The City has provided proactive financial stewardship by raising rates to keep revenues in line with the costs of providing water service. Those rate increases have enabled the City to maintain its financial health. The City’s water utility is a financially self-supporting enterprise, where revenues are derived primarily from water service charges. As such, the City’s water rates must be set at adequate levels to fund the costs of providing service and: • Fund ongoing operating and maintenance expenses • Address regulatory requirements • Fund the capital improvement projects, related debt service, and associated increased operating costs • Provide funding for water system maintenance and upgrades The prior water rate increases strengthened the financial condition of the water enterprise. However, current rates are not adequate to fund the needed improvements and meet regulatory water quality and supply requirements. 1.2 Rate Study Objectives The City has historically adopted rate increases in order to keep revenues in line with the escalating costs of providing service. Therefore, in 2020, the City retained BWA to develop a cost-of-service based water rate study. Key goals and objectives of this study include developing water rates that: • Recover the costs of providing service, including operating, capital, and debt funding needs; • Are proportionate, fair, and equitable to all customers; • Are easy to understand and implement; • Comply with the substantive requirements of the California Constitution, Article 13D, Section 6 (which was adopted by the voters as Proposition 218 in 1996) and the general mandate of Article 10, Section 2 that prohibits the wasteful use of water; • Support the long-term operational and financial stability of the City. ---PAGE BREAK--- BARTLE WELLS ASSOCIATES 2 City of Modesto – Water Rate Study 2023 BWA worked closely with City staff to incorporate information and input, evaluate alternatives, and develop recommendations. This report summarizes key findings and recommendations for water rates over the next five years. 1.3 Cash Flow Projection Scenarios This report explores the financial plan and rates for three different capital scenarios which are as follows: • Scenario 1 - Low Capital, No Debt. This scenario projects inflation adjusted capital spending to total $138 million over the next five years, of which all will be cash funded; resulting in an average cash expense of $27.6 million per year. • Scenario 2 - Full Capital with Debt. This scenario projects inflation adjusted capital spending to total $185 million over the next five years, of which $145 million will be cash funded; resulting in an average cash expense of $29 million per year. The remaining $40 million is projected to be debt financed. • Scenario 3 - Full Capital, No Debt. This scenario projects inflation adjusted capital spending to total $185 million over the next five years, of which all will be cash funded; resulting in an average cash expense of $37 million per year. 1.4 Water Rate Recommendations per Scenario The following tables show the recommended water rates for each scenario. Table 1 – Proposed Scenario 1 Water Rates Current and Proposed Water Rates Current Proposed Oct 1, 2023 Proposed Oct 1, 2024 Proposed Oct 1, 2025 Proposed Oct 1, 2026 Proposed Oct 1, 2027 Volumetric Rates n/a n/a n/a n/a n/a n/a Non-Drought ($/CCF) $2.02 $2.11 $2.20 $2.30 $2.40 $2.51 Drought ($/CCF) n/a $2.45 $2.56 $2.68 $2.80 $2.93 Fixed Charge n/a n/a n/a n/a n/a n/a Meter Size n/a n/a n/a n/a n/a n/a 5/8" $25.44 $26.48 $27.67 $28.92 $30.22 $31.58 3/4" $25.44 $26.48 $27.67 $28.92 $30.22 $31.58 1" $36.83 $38.56 $40.30 $42.11 $44.00 $45.98 1.5" $65.32 $68.74 $71.83 $75.06 $78.44 $81.97 2" $99.50 $104.96 $109.68 $114.62 $119.78 $125.17 3" $207.73 $219.66 $229.54 $239.87 $250.66 $261.94 4" $367.24 $388.68 $406.17 $424.45 $443.55 $463.51 6" $748.90 $793.14 $828.83 $866.13 $905.11 $945.84 8" $1,375.53 $1,457.17 $1,522.74 $1,591.26 $1,662.87 $1,737.70 10" $2,173.05 $2,302.31 $2,405.91 $2,514.18 $2,627.32 $2,745.55 12" $2,856.63 $3,026.71 $3,162.91 $3,305.24 $3,453.98 $3,609.41 ---PAGE BREAK--- BARTLE WELLS ASSOCIATES 3 City of Modesto – Water Rate Study 2023 Table 2 – Proposed Scenario 2 Water Rates Current and Proposed Water Rates Current Proposed Oct 1, 2023 Proposed Oct 1, 2024 Proposed Oct 1, 2025 Proposed Oct 1, 2026 Proposed Oct 1, 2027 Volumetric Rates n/a n/a n/a n/a n/a n/a Non-Drought ($/CCF) $2.02 $2.11 $2.20 $2.30 $2.40 $2.51 Drought ($/CCF) n/a $2.45 $2.56 $2.68 $2.80 $2.93 Fixed Charge n/a n/a n/a n/a n/a n/a Meter Size n/a n/a n/a n/a n/a n/a 5/8" $25.44 $26.43 $27.62 $28.86 $30.16 $31.52 3/4" $25.44 $26.43 $27.62 $28.86 $30.16 $31.52 1" $36.83 $38.55 $40.28 $42.09 $43.98 $45.96 1.5" $65.32 $68.85 $71.95 $75.19 $78.57 $82.11 2" $99.50 $105.21 $109.94 $114.89 $120.06 $125.46 3" $207.73 $220.35 $230.27 $240.63 $251.46 $262.78 4" $367.24 $390.03 $407.58 $425.92 $445.09 $465.12 6" $748.90 $796.05 $831.87 $869.30 $908.42 $949.30 8" $1,375.53 $1,462.65 $1,528.47 $1,597.25 $1,669.13 $1,744.24 10" $2,173.05 $2,311.05 $2,415.05 $2,523.73 $2,637.30 $2,755.98 12" $2,856.63 $3,038.25 $3,174.97 $3,317.84 $3,467.14 $3,623.16 ---PAGE BREAK--- BARTLE WELLS ASSOCIATES 4 City of Modesto – Water Rate Study 2023 Table 3 – Proposed Scenario 3 Water Rates Current and Proposed Water Rates Current Proposed Oct 1, 2023 Proposed Oct 1, 2024 Proposed Oct 1, 2025 Proposed Oct 1, 2026 Proposed Oct 1, 2027 Volumetric Rates n/a n/a n/a n/a n/a n/a Non-Drought ($/CCF) $2.02 $2.14 $2.28 $2.43 $2.59 $2.76 Drought ($/CCF) n/a $2.49 $2.65 $2.82 $3.00 $3.20 Fixed Charge n/a n/a n/a n/a n/a n/a Meter Size n/a n/a n/a n/a n/a n/a 5/8" $25.44 $26.76 $28.50 $30.35 $32.32 $34.42 3/4" $25.44 $26.76 $28.50 $30.35 $32.32 $34.42 1" $36.83 $39.40 $41.96 $44.69 $47.59 $50.68 1.5" $65.32 $70.98 $75.59 $80.50 $85.73 $91.30 2" $99.50 $108.88 $115.96 $123.50 $131.53 $140.08 3" $207.73 $228.90 $243.78 $259.63 $276.51 $294.48 4" $367.24 $405.76 $432.13 $460.22 $490.13 $521.99 6" $748.90 $828.98 $882.86 $940.25 $1,001.37 $1,066.46 8" $1,375.53 $1,523.81 $1,622.86 $1,728.35 $1,840.69 $1,960.33 10" $2,173.05 $2,408.15 $2,564.68 $2,731.38 $2,908.92 $3,098.00 12" $2,856.63 $3,166.15 $3,371.95 $3,591.13 $3,824.55 $4,073.15 ---PAGE BREAK--- BARTLE WELLS ASSOCIATES 5 City of Modesto – Water Rate Study 2023 2 BACKGROUND, OBJECTIVES, AND LEGAL REQUIREMENTS The City of Modesto provides water service to over 74,000 accounts throughout the City of Modesto, Salida, Empire, Grayson, Del Rio, and portions of Ceres (Walnut Manor) and Turlock. The City sold the water system serving Hickman and Waterford to the City of Waterford in 2015. The City of Modesto’s water sources are groundwater and treated surface water purchased from the Modesto Irrigation District. The revenues from the City’s water utility are primarily derived from charges for services. The City must establish rates and charges adequate to fund the cost of providing water services, including costs for operations and capital improvements needed to keep the City’s utility infrastructure in a safe and reliable operating condition. The City has provided proactive financial stewardship by raising rates to keep revenues in line with the costs of providing water service. Those rate increases have enabled the City to maintain its financial health. The City’s water utility is a financially self-supporting enterprise. Revenues are derived primarily from water service charges. As such, the City’s water rates must be set at adequate levels to fund the costs of providing service and: • Fund ongoing operating and maintenance expenses • Address regulatory requirements • Fund the capital improvement projects, related debt service and associated increased operating costs • Provide funding for water system maintenance and upgrades The prior water rate increases strengthened the financial condition of the water enterprise. However, current rates are not adequate to fund the needed improvements and meet regulatory water quality and supply requirements. 2.1 Rate Study Objectives In 2020, the City retained BWA to develop a cost-of-service based water rate study. The City has historically adopted rate increases in order to keep revenues in line with the escalating costs of providing service. Key goals and objectives of this study include developing water rates that: • Recover the costs of providing service, including operating, capital, and debt funding needs; • Are proportionate, fair and equitable to all customers; • Are easy to understand and implement; • Comply with the substantive requirements of the California Constitution, Article 13D, Section 6 (which was adopted by the voters as Proposition 218 in 1996) and the general mandate of Article 10, Section 2 that prohibits the wasteful use of water; • Support the long-term operational and financial stability of the City both in normal and drought conditions. ---PAGE BREAK--- BARTLE WELLS ASSOCIATES 6 City of Modesto – Water Rate Study 2023 2.2 Rate-Study Process The general process used for this cost-of-service rate study is summarized in the following diagram. Figure 1 – Cost-of-Service Rate Study Process Key elements of the study include: 1) Project Initiation and Data Collection – Review financial policies; collect financial and other relevant data; and review rate structures; 2) Demand Analysis – Analyze past water demands and customer characteristics to forecast future demands; 3) Long Range Financial Plans – Develop financial projections to evaluate annual revenue requirements from rates and the overall level of rate increases needed to fund the costs of providing service and support long- term financial stability; 4) Cost Allocation – Group the City’s costs in terms of the function they serve as a basis to proportionally allocate the revenue requirement from rates; 5) Cost-of-Service Rate Design – Develop rates that proportionately recover costs; and 6) Prop 218 Process – Ensure compliance with the substantive and procedural requirements of Proposition 218. 2.3 Constitutional Requirements for Rates The water rates proposed in this report are designed to comply with two key articles of the California Constitution: Article 13D and Article 10, as explained below. 2.3.1 Article 13D, Section 6 Proposition 218 was adopted by California voters in 1996 and added Articles 13C and 13D to the California Constitution. Article 13D, Section 6 governs property-related charges, which the California Supreme Court has ruled, includes rates imposed for water delivered through pipes connected to property. Article 13D, Section 6 establishes both a) procedural requirements for imposing or increasing property-related charges, and b) Project Initiation and Data Collection Demand Analysis Long- Range Financial Plan Cost Allocation Rate Design Prop. 218 Process ---PAGE BREAK--- BARTLE WELLS ASSOCIATES 7 City of Modesto – Water Rate Study 2023 substantive requirements for those charges. Article 13D requires voter approval for new or increased property- related charges but exempts rates for water, wastewater, and garbage service from this voting requirement if rates are adopted by the appropriate procedure and meet the substantive requirements. This report recommends water rates designed to comply with the substantive requirements of Proposition 218. The substantive requirements of Article 13D, section 6 require property-related charges, such as the City’s water rates, to meet the following conditions: 1) Revenues derived from the fee or charge shall not exceed the costs required to provide the property- related service. 2) Revenues derived from the fee or charge shall not be used for any purpose other than that for which the fee or charge was imposed. 3) The amount of a fee or charge imposed upon any parcel or person as an incident of property ownership shall not exceed the proportional cost of the service attributable to the parcel. 4) No fee or charge may be imposed for a service unless that service is used by, or immediately available to the property in question. 5) No fee or charge may be imposed for general governmental services, such as police or fire services, where the service is available to the public at large in substantially the same manner as it is to property owners. 2.3.2 Article 10, Section 2 Article 10, Section 2 of the California Constitution states that: It is hereby declared that because of the conditions prevailing in this State the general welfare requires that the water resources of the State be put to beneficial use to the fullest extent of which they are capable, and that the waste or unreasonable use or unreasonable method of use of water be prevented, and that the conservation of such waters is to be exercised with a view to the reasonable and beneficial use thereof in the interest of the people and for the public welfare. 2.4 Statute of Limitations Pursuant to California Government Code 53759, there is a 120-day statute of limitations for challenging any new, increased, or extended fees. This statute of limitations applies to the water rates proposed in this rate study and is included in the Proposition 218 Notice. ---PAGE BREAK--- BARTLE WELLS ASSOCIATES 8 City of Modesto – Water Rate Study 2023 3 PROJECTED WATER DEMAND AND CUSTOMER CHARACTERISTICS 3.1 Projected Water Demand Projected FY 23/24 water demand is based on the average metered demand for the last five fully recorded years. Table 4 – Historic and Projected Potable Supply and Metered Demand Customer Data FY 17-18 FY 18-19 FY 19-20 FY 20-21 FY 21-22 FY 22-23 FY 23-24 n/a Actual Actual Actual Actual Actual Projected Projected System Totals n/a n/a n/a n/a n/a n/a n/a Total Accounts 73,469 73,629 73,833 74,137 74,413 74,560 74,707 Growth n/a 0.22% 0.28% 0.41% 0.37% 0.20% 0.20% Annual metered use (CCF) per meter 278 265 277 288 279 277 277 Annual production (CCF) per account 298 285 303 309 298 299 299 Billed, Metered Consumption (CCF) 18,639,728 18,222,157 19,509,688 20,697,851 20,568,355 20,562,541 20,693,839 Total Estimated Consumption (CCF) 20,710,040 19,789,661 20,643,245 21,464,258 20,796,593 20,676,660 20,693,839 Total Water Production (CCF) 21,919,447 20,965,305 22,397,473 22,916,498 22,203,522 22,277,633 22,328,428 Source: Actual water supply, water loss, and metered water sales provided by the City. 3.2 Water Services and Equivalent Capacity Each connection to the City’s water system is considered one service. Some of the City's fixed costs are reasonably recovered on a per-customer basis, while others should be recovered based on the capacity required to serve each customer. The size of a customer’s meter reflects the demand they require of the water system’s capacity. A significant percentage of the costs of any water system is related to its requirement to deliver water to any customer instantaneously at any time, up to the maximum safe flow capacity of a customer’s meter. Simply put, as the size of a customer’s water meter increases, the instantaneous demand it can place on the City’s water system increases. Fixed charges for each meter size are based on the capacity of a meter, relative to the capacity of smallest meter size a 3/4-inch meter), in the City’s system. In this study, the relative capacity of a meter size, referred to as a meter equivalent ratio (MEU), is calculated by dividing the capacity of a given meter size by the capacity of a 3/4” meter. The meter equivalent ratios used are proportional to the maximum safe flow of a 3/4" meter. The sum of all MEU’s reflects the total capacity of the City. ---PAGE BREAK--- BARTLE WELLS ASSOCIATES 9 City of Modesto – Water Rate Study 2023 The following table contains the counts of water services and calculations of meter equivalent units. Total meter equivalent units for each meter size are derived by multiplying the meter equivalent ratio by the number of services at each meter size. Table 5 – Water Services and Meter Equivalent Units Meter Size* Services Meter Equivalent Ratio** Meter Equivalent Units Annual Meter Equivalent Units 5/8" 87 1.0 87.0 1,044.0 3/4" 13,459 1.0 13,459.0 161,508.0 1" 57,153 1.7 95,255.0 1,143,060.0 1.5" 1,168 3.3 3,893.3 46,720.0 2" 2,176 5.3 11,605.3 139,264.0 3" 158 11.7 1,843.3 22,120.0 4" 289 21.0 6,069.0 72,828.0 6" 141 43.3 6,110.0 73,320.0 8" 64 80.0 5,120.0 61,440.0 10" 11 126.7 1,393.3 16,720.0 12" 1 166.7 166.7 2,000.0 Total 74,707.0 n/a 145,002.0 1,740,024.0 * Customer data as of June 2022 provided by staff Capacity factors based on AWWA operating capacity standards by meter size ---PAGE BREAK--- BARTLE WELLS ASSOCIATES 10 City of Modesto – Water Rate Study 2023 4 WATER FINANCIAL PLAN 4.1 Water Financial Overview BWA conducted an independent evaluation of water enterprise finances and concluded the previous rate increases have put the water enterprise in a sound financial position. Continual, gradual increases are projected to maintain its strong financial position where operating reserves exceed six months of operating costs and the debt service coverage ratio exceeds the target of 2.0. The City relies almost solely on revenues from water rates to fund the costs of providing service. As such, water rates must be set at levels adequate to fund the costs of operating and maintaining the water system, fund necessary capital improvements to keep the water system in good operating condition, and meet the City’s financial policies. 4.2 Key Drivers of Rate Increases The City is facing several manageable financial challenges that will drive the need for rate increases in upcoming years. Key drivers of future rate increases are summarized below. Capital Improvement Funding Needs The City takes a proactive approach to maintaining its water system, which requires ongoing repair and improvement projects. This report explores the financial plan and rates for three different capital scenarios which are described in Section 4.5. Ongoing Operating Cost Inflation The City faces annual cost inflation due to annual increases in a range of expenses including staffing, utilities, insurance, supplies, etc. On top of rate increases needed for capital improvements, annual rate increases are needed to keep revenues aligned with cost inflation and prevent rates from falling behind the cost of providing service. Water cost inflation has historically been higher than the Consumer Price Index (CPI) for consumer goods and services. Historically inflation has typically remained consistently around but recently inflation has reached forty-year highs with the CPI and ENR CCI exceeding 7% in 2022. It is not expected that inflation will remain at such high levels in the future and for the purposes of this rate study average annual inflation is projected to be in-line with the City’s budget inflationary projections. Water Reserve Funds Maintaining a prudent minimal level of fund reserves provides a financial cushion for dealing with unanticipated expenses, revenue shortfalls, and non-catastrophic emergency capital repairs. The City’s financial reserve policies include a minimum reserve target equal to 25% of its operating costs. BWA developed a financial plan designed to maintain prudent reserve levels that are in-line with water utility industry standards. Debt Service Coverage Most municipal debt requires that the issuer generate net operating revenues of 1.25 times the total annual debt service payment or greater. This is referred to as “debt service coverage”. To support a strong credit rating and ---PAGE BREAK--- BARTLE WELLS ASSOCIATES 11 City of Modesto – Water Rate Study 2023 good financial health, the current City policy requires a debt coverage ratio of 1.5 times the annual payment or greater, and the City’s financial advisors recommend a debt coverage ratio of 2.0. 4.3 Financial Plan Assumptions The financial projections incorporate the latest information available and a number of reasonable and conservative assumptions for planning purposes. Key assumptions include: Revenue Assumptions • Water rate revenues are based on estimated revenues for the current fiscal year. • Rates proposed to be adopted in August 2023 will be effective on October 1, 2023, with rate adjustments planned to become effective on October 1 of each of the subsequent four years. • Water sales revenues are based on the projected volume of water sales and projected water rates. • The City is anticipating minimal growth. To be conservative and ensure revenues will be sufficient, BWA assumed 0.2% annual growth based on the lowest annual growth over the past five years. • Interest earnings are projected based on the annual beginning fund balance multiplied by the projected interest rate. The interest rate projections are based on recent and anticipated interest rates. • Discretionary “non-rate” revenues which support rate assistance programs, such as the low-income and medical disability waiver programs, were not included in projected revenues. Expense Assumptions • Operating and maintenance costs are primarily based on the 2022/23 budget. • Operating costs are projected to escalate at 5% per year to account for cost inflation. • Debt service projections are based on outstanding debt schedules and projected issuances of new debt. • Capital improvement costs are based on the most recent engineering cost estimates. Capital costs include a 5% annual construction cost inflation factor for the next five years. 4.4 Cash Flow Projections Long-term cash-flow projections were developed based on assumptions and key drivers of future rate increases described above. The projections were used to determine the water utility’s annual revenue requirements and project required water rate revenue increases. The long-term cash-flow projections incorporate the latest information available from the City’s budget, annual reports, capital spending projections, and metered water demand data, as well as a number of reasonable assumptions developed with input from the City. The overall rate revenue increases shown for each of the following scenarios are designed to fund the City’s cost of providing service, maintain roughly balanced budgets, maintain healthy debt service coverage, and maintain prudent reserves. The projections indicate the need for increases for water rate revenues for each of the next five fiscal years. Actual impacts to customers’ water bills will vary based on meter size and water use, due to the outcome of the updated cost-of-service analysis. ---PAGE BREAK--- BARTLE WELLS ASSOCIATES 12 City of Modesto – Water Rate Study 2023 4.5 Cash Flow Projection Scenarios This report explores the financial plan and rates for three different capital scenarios which are as follows: • Scenario 1 - Low Capital, No Debt. This scenario projects inflation adjusted capital spending to total $138 million over the next five years, of which all will be cash funded; resulting in an average cash expense of $27.6 million per year. • Scenario 2 - Full Capital with Debt. This scenario projects inflation adjusted capital spending to total $185 million over the next five years, of which $145 million will be cash funded; resulting in an average cash expense of $29 million per year. The remaining $40 million is projected to be debt financed. • Scenario 3 - Full Capital, No Debt. This scenario projects inflation adjusted capital spending to total $185 million over the next five years, of which all will be cash funded; resulting in an average cash expense of $37 million per year. 4.6 Cash Flow Projection for Scenario 1 - Low Capital, No Debt In future years, the City can re-evaluate its finances and revenue requirements and adjust rates as needed based on updated projections. However, while the City always has the flexibility to implement rate adjustments that are lower than adopted pursuant to Proposition 218, future rates cannot exceed adopted increases without going through the Proposition 218 process again. Rates adopted pursuant to Proposition 218 are essentially future rate caps. A summary of the key elements of the long-term cash-flow projections for this scenario is displayed in the following table. Table 6 – Scenario 1 Cash Flow Projection Summary Scenario 1 - Low Capital, No Debt FY 23-24 FY 24-25 FY 25-26 FY 26-27 FY 27-28 Debt Funded Capital $0 $0 $0 $0 $0 Cash Funded Capital $25,625,000 $23,489,550 $26,719,088 $29,617,836 $32,593,800 Total Capital $25,625,000 $23,489,550 $26,719,088 $29,617,836 $32,593,800 Ending Reserves $102,018,732 $97,794,035 $91,442,474 $83,322,765 $73,390,177 Rate Revenue Increase 4.5% 4.5% 4.5% 4.5% 4.5% ---PAGE BREAK--- BARTLE WELLS ASSOCIATES 13 City of Modesto – Water Rate Study 2023 The following figure visually depicts the cash-flow projections with the proposed rate increases for the next five years. Projected expenses are summarized into key categories. The figure also shows the projected fund reserves at the end of each fiscal year. Figure 2 – Scenario 1 Projected Cashflow Graph $0.0 $20.0 $40.0 $60.0 $80.0 $100.0 $120.0 $140.0 FY 22-23 FY 23-24 FY 24-25 FY 25-26 FY 26-27 FY 27-28 Rate Funded Capital Debt Service O&M Revenue Reserves City of Modesto Projected Water Revenues & Expenses Millions) Scenario 1 - Low Capital, No Debt ---PAGE BREAK--- BARTLE WELLS ASSOCIATES 14 City of Modesto – Water Rate Study 2023 Detailed, long-term, cash-flow projections for this scenario are shown in the following table. Table 7 – Scenario 1 Detailed Cash Flow Projections Projected Cashflow FY 23-24 FY 24-25 FY 25-26 FY 26-27 FY 27-28 Rate Revenue Increase 4.5% 4.5% 4.5% 4.5% 4.5% Beginning Reserves $110,862,007 $102,018,732 $97,794,035 $91,442,474 $83,322,765 Revenues n/a n/a n/a n/a n/a Rate Revenue $79,021,999 $82,743,145 $86,639,520 $90,719,375 $94,991,350 Rate Increase Revenue 3,555,990 3,723,442 3,898,778 4,082,372 4,274,611 Timing Adjustment* -592,665 0 0 0 0 Other Revenue 4,650,665 4,559,418 4,543,198 4,518,473 4,486,676 Interest on Reserves $443,448 $408,075 $391,176 $365,770 $333,291 Total Revenue $87,079,437 $91,434,079 $95,472,672 $99,685,989 $104,085,928 Expenses n/a n/a n/a n/a n/a Operating Expenses $58,312,292 $59,483,407 $62,419,327 $65,502,043 $68,738,895 Existing Debt Service 11,985,419 12,685,819 12,685,819 12,685,820 12,685,821 New Debt Service 0 0 0 0 0 Rate Funded Capital $25,625,000 $23,489,550 $26,719,088 $29,617,836 $32,593,800 Total Expenses $95,922,711 $95,658,776 $101,824,234 $107,805,699 $114,018,516 Net Revenues -$8,843,274 -$4,224,697 -$6,351,561 -$8,119,709 -$9,932,588 Ending Reserves $102,018,732 $97,794,035 $91,442,474 $83,322,765 $73,390,177 Debt Coverage (Target 2.0) 2.40 2.52 2.61 2.69 2.79 *Reflects October rate implementation Capital Funding FY 23-24 FY 24-25 FY 25-26 FY 26-27 FY 27-28 Capital Revenues n/a n/a n/a n/a n/a Use of Debt Proceeds $0 $0 $0 $0 $0 Rate Funded Capital $25,625,000 $23,489,550 $26,719,088 $29,617,836 $32,593,800 Total Capital Revenue $25,625,000 $23,489,550 $26,719,088 $29,617,836 $32,593,800 Total Capital Expenditures $25,625,000 $23,489,550 $26,719,088 $29,617,836 $32,593,800 ---PAGE BREAK--- BARTLE WELLS ASSOCIATES 15 City of Modesto – Water Rate Study 2023 4.7 Cash Flow Projection for Scenario 2 - Full Capital with New Debt In future years, the City can re-evaluate its finances and revenue requirements and adjust rates as needed based on updated projections. However, while the City always has the flexibility to implement rate adjustments that are lower than adopted pursuant to Proposition 218, future rates cannot exceed adopted increases without going through the Proposition 218 process again. Rates adopted pursuant to Proposition 218 are essentially future rate caps. A summary of the key elements of the long-term cash-flow projections for this scenario is displayed in the following table. This scenario utilizes debt in FY 26-27 and FY 27-28 to stabilize reserves, which allows more capital to be funded in this scenario than Scenario 1 with the same rate increases. This scenario demonstrates that 4.5% increases are sufficient under low and full capital scenarios. The impact of utilizing debt is potentially needing average annual rate increases in years FY 28-29 through FY 32-33 of 6.4% rather than the projected average annual rate increases in Scenario 1 of 5.5%. It is important to keep in mind projections more than five years out are conservative and do not include grants and capital construction slowdowns. Table 8 – Scenario 2 Cash Flow Projection Summary Scenario 2 - Full Capital with New Debt FY 23-24 FY 24-25 FY 25-26 FY 26-27 FY 27-28 Debt Funded Capital $0 $0 $0 $20,000,000 $20,000,000 Cash Funded Capital $25,625,000 $37,591,025 $37,937,002 $19,547,379 $24,194,205 Total Capital $25,625,000 $37,591,025 $37,937,002 $39,547,379 $44,194,205 Ending Reserves $102,018,732 $83,692,561 $66,010,273 $67,757,563 $63,478,048 Rate Revenue Increase 4.5% 4.5% 4.5% 4.5% 4.5% ---PAGE BREAK--- BARTLE WELLS ASSOCIATES 16 City of Modesto – Water Rate Study 2023 The following figure visually depicts the cash-flow projections with the proposed rate increases for the next five years. Projected expenses are summarized into key categories. The figure also shows the projected fund reserves at the end of each fiscal year. Figure 3 – Scenario 2 Projected Cashflow Graph $0.0 $20.0 $40.0 $60.0 $80.0 $100.0 $120.0 $140.0 FY 22-23 FY 23-24 FY 24-25 FY 25-26 FY 26-27 FY 27-28 Rate Funded Capital Debt Service O&M Revenue Reserves City of Modesto Projected Water Revenues & Expenses Millions) Scenario 2 - Full Capital with New Debt ---PAGE BREAK--- BARTLE WELLS ASSOCIATES 17 City of Modesto – Water Rate Study 2023 Detailed, long-term, cash-flow projections for this scenario are shown in the following table. Table 9 – Scenario 2 Detailed Cash Flow Projections Projected Cashflow FY 23-24 FY 24-25 FY 25-26 FY 26-27 FY 27-28 Rate Revenue Increase 4.5% 4.5% 4.5% 4.5% 4.5% Beginning Reserves $110,862,007 $102,018,732 $83,692,561 $66,010,273 $67,757,563 Revenues n/a n/a n/a n/a n/a Rate Revenue $79,021,999 $82,743,145 $86,639,520 $90,719,375 $94,991,350 Rate Increase Revenue 3,555,990 3,723,442 3,898,778 4,082,372 4,274,611 Timing Adjustment* -592,665 0 0 0 0 Other Revenue 4,650,665 4,559,418 4,486,792 4,416,744 4,424,415 Interest on Reserves $443,448 $408,075 $334,770 $264,041 $271,030 Total Revenue $87,079,437 $91,434,079 $95,359,861 $99,482,532 $103,961,406 Expenses n/a n/a n/a n/a n/a Operating Expenses $58,312,292 $59,483,407 $62,419,327 $65,502,043 $68,738,895 Existing Debt Service 11,985,419 12,685,819 12,685,819 12,685,820 12,685,821 New Debt Service 0 0 0 0 2,622,000 Rate Funded Capital $25,625,000 $37,591,025 $37,937,002 $19,547,379 $24,194,205 Total Expenses $95,922,711 $109,760,251 $113,042,148 $97,735,242 $108,240,921 Net Revenues -$8,843,274 -$18,326,172 -$17,682,287 $1,747,289 -$4,279,515 Ending Reserves $102,018,732 $83,692,561 $66,010,273 $67,757,563 $63,478,048 Debt Coverage (Target 2.0) 2.40 2.52 2.60 2.68 2.30 *Reflects October rate implementation Capital Funding FY 23-24 FY 24-25 FY 25-26 FY 26-27 FY 27-28 Capital Revenues n/a n/a n/a n/a n/a Use of Debt Proceeds $0 $0 $0 $20,000,000 $20,000,000 Rate Funded Capital $25,625,000 $37,591,025 $37,937,002 $19,547,379 $24,194,205 Total Capital Revenue $25,625,000 $37,591,025 $37,937,002 $39,547,379 $44,194,205 Total Capital Expenditures $25,625,000 $37,591,025 $37,937,002 $39,547,379 $44,194,205 ---PAGE BREAK--- BARTLE WELLS ASSOCIATES 18 City of Modesto – Water Rate Study 2023 4.8 Cash Flow Projection for Scenario 3 - Full Capital, No Debt In future years, the City can re-evaluate its finances and revenue requirements and adjust rates as needed based on updated projections. However, while the City always has the flexibility to implement rate adjustments that are lower than adopted pursuant to Proposition 218, future rates cannot exceed adopted increases without going through the Proposition 218 process again. Rates adopted pursuant to Proposition 218 are essentially future rate caps. A summary of the key elements of the long-term cash-flow projections for this scenario is displayed in the following table. Table 10 – Scenario 3 Cash Flow Projection Summary Scenario 3 - Full Capital, No Debt FY 23-24 FY 24-25 FY 25-26 FY 26-27 FY 27-28 Debt Funded Capital $0 $0 $0 $0 $0 Cash Funded Capital $25,625,000 $37,591,025 $37,937,002 $39,547,379 $44,194,205 Total Capital $25,625,000 $37,591,025 $37,937,002 $39,547,379 $44,194,205 Ending Reserves $103,335,766 $88,361,528 $76,015,089 $65,310,989 $53,503,665 Rate Revenue Increase 6.5% 6.5% 6.5% 6.5% 6.5% ---PAGE BREAK--- BARTLE WELLS ASSOCIATES 19 City of Modesto – Water Rate Study 2023 The following figure visually depicts the cash-flow projections with the proposed rate increases for the next five years. Projected expenses are summarized into key categories. The figure also shows the projected fund reserves at the end of each fiscal year. Figure 4 – Scenario 3 Projected Cashflow Graph $0.0 $20.0 $40.0 $60.0 $80.0 $100.0 $120.0 $140.0 FY 22-23 FY 23-24 FY 24-25 FY 25-26 FY 26-27 FY 27-28 Rate Funded Capital Debt Service City of Modesto Projected Water Revenues & Expenses Millions) ---PAGE BREAK--- BARTLE WELLS ASSOCIATES 20 City of Modesto – Water Rate Study 2023 Detailed, long-term, cash-flow projections for this scenario are shown in the following table. Table 11 – Scenario 3 Detailed Cash Flow Projections Projected Cashflow FY 23-24 FY 24-25 FY 25-26 FY 26-27 FY 27-28 Rate Revenue Increase 6.5% 6.5% 6.5% 6.5% 6.5% Beginning Reserves $110,862,007 $103,335,766 $88,361,528 $76,015,089 $65,310,989 Revenues n/a n/a n/a n/a n/a Rate Revenue $79,021,999 $84,326,746 $89,987,600 $96,028,468 $102,474,859 Rate Increase Revenue 5,136,430 5,481,238 5,849,194 6,241,850 6,660,866 Timing Adjustment* -856,072 0 0 0 0 Other Revenue 4,650,665 4,564,686 4,505,468 4,456,763 4,414,629 Interest on Reserves $443,448 $413,343 $353,446 $304,060 $261,244 Total Revenue $88,396,470 $94,786,013 $100,695,709 $107,031,142 $113,811,598 Expenses n/a n/a n/a n/a n/a Operating Expenses $58,312,292 $59,483,407 $62,419,327 $65,502,043 $68,738,895 Existing Debt Service 11,985,419 12,685,819 12,685,819 12,685,820 12,685,821 New Debt Service 0 0 0 0 0 Rate Funded Capital $25,625,000 $37,591,025 $37,937,002 $39,547,379 $44,194,205 Total Expenses $95,922,711 $109,760,251 $113,042,148 $117,735,242 $125,618,921 Net Revenues -$7,526,241 -$14,974,238 -$12,346,439 -$10,704,100 -$11,807,324 Ending Reserves $103,335,766 $88,361,528 $76,015,089 $65,310,989 $53,503,665 Debt Coverage (Target 2.0) 2.51 2.78 3.02 3.27 3.55 *Reflects October rate implementation Capital Funding FY 23-24 FY 24-25 FY 25-26 FY 26-27 FY 27-28 Capital Revenues n/a n/a n/a n/a n/a Use of Debt Proceeds $0 $0 $0 $0 $0 Rate Funded Capital $25,625,000 $37,591,025 $37,937,002 $39,547,379 $44,194,205 Total Capital Revenue $25,625,000 $37,591,025 $37,937,002 $39,547,379 $44,194,205 Total Capital Expenditures $25,625,000 $37,591,025 $37,937,002 $39,547,379 $44,194,205 ---PAGE BREAK--- BARTLE WELLS ASSOCIATES 21 City of Modesto – Water Rate Study 2023 4.9 Scenario Projected Cashflow Comparison With lower capital spending, Scenario 1 preserves $73 million of reserves while cash funding all expenses with 4.5% annual rate revenue increases. Scenario 1 leaves the City in a position where average annual rate revenue increases of 5.5% are conservatively projected for the following rate study (FY 28-29 through FY 32-33). In Scenario 2, the full capital spending is augmented with a debt issuance of $40 million. This allows the City to preserve $63 million of reserves with 4.5% annual rate revenue increases. Scenario 2 leaves the City in a position where average annual rate revenue increases of 6.4% are conservatively projected for the following rate study (FY 28-29 through FY 32-33). In Scenario 3, the full capital spending is cash funded. This allows the City to preserve $54 million of reserves with 6.5% annual rate revenue increases. Scenario 3 leaves the City in a position where average annual rate revenue increases of 4.1% are conservatively projected for the following rate study (FY 28-29 through FY 32-33). It is important to keep in mind projections more than five years out are conservative and do not include grants and capital construction slowdowns. The following table shows key financial information for all scenarios. Table 12 – Scenario Projected Cashflow Comparison Scenario 1 - Low Capital, No Debt FY 23-24 FY 24-25 FY 25-26 FY 26-27 FY 27-28 Debt Funded Capital $0 $0 $0 $0 $0 Cash Funded Capital $25,625,000 $23,489,550 $26,719,088 $29,617,836 $32,593,800 Total Capital $25,625,000 $23,489,550 $26,719,088 $29,617,836 $32,593,800 Ending Reserves $102,018,732 $97,794,035 $91,442,474 $83,322,765 $73,390,177 Rate Revenue Increase 4.5% 4.5% 4.5% 4.5% 4.5% Scenario 2 – Full Capital with New Debt FY 23-24 FY 24-25 FY 25-26 FY 26-27 FY 27-28 Debt Funded Capital $0 $0 $0 $20,000,000 $20,000,000 Cash Funded Capital $25,625,000 $37,591,025 $37,937,002 $19,547,379 $24,194,205 Total Capital $25,625,000 $37,591,025 $37,937,002 $39,547,379 $44,194,205 Ending Reserves $102,018,732 $83,692,561 $66,010,273 $67,757,563 $63,478,048 Rate Revenue Increase 4.5% 4.5% 4.5% 4.5% 4.5% Scenario 3 - Full Capital, No Debt FY 23-24 FY 24-25 FY 25-26 FY 26-27 FY 27-28 Debt Funded Capital $0 $0 $0 $0 $0 Cash Funded Capital $25,625,000 $37,591,025 $37,937,002 $39,547,379 $44,194,205 Total Capital $25,625,000 $37,591,025 $37,937,002 $39,547,379 $44,194,205 Ending Reserves $103,335,766 $88,361,528 $76,015,089 $65,310,989 $53,503,665 Rate Revenue Increase 6.5% 6.5% 6.5% 6.5% 6.5% ---PAGE BREAK--- BARTLE WELLS ASSOCIATES 22 City of Modesto – Water Rate Study 2023 5 COST-OF-SERVICE RATE DERIVATION Article XIII D, Section 6 of the California Constitution (which was adopted by the voters in 1996 as a part of Proposition 218) requires that the City adopt only rates that meet a number of substantive requirements. Specifically: Revenues derived from the water rates cannot exceed the funds required to provide water service. Revenues derived from the water rates cannot be used for any purpose other than providing water service. The amount of the water rates imposed upon any parcel or person as an incident of property ownership cannot exceed the proportional cost of the service attributable to the parcel. Water rates may not be imposed unless the water service is used by, or immediately available to, the owner of the property in question. In Modesto, each water customer is charged both a fixed rate and a volumetric rate based on the quantity of water delivered by the City to the customer. This reflects that some system costs are based entirely on the actual quantity of water consumed, (ii) other system costs are fixed from the point of view of the City, but are a result of design decisions that were made to accommodate all users, including high-demand users, and (iii) some costs, particularly the cost of administering the water system, would be largely the same regardless of the volume of water use. Water utilities have employed a wide range of approaches or perspectives for allocating and recovering their costs for providing service, often through a combination of fixed and variable charges. The percentage of revenues derived from the fixed and variable charges should be proportional to each system’s expenditures and must not exceed the cost of providing service. Many of the City’s costs are fixed costs that do not vary by the level of service provided, such as operational and staff costs, as well as costs for building and maintaining infrastructure. Some of these costs are related to the number of customers, but most of the fixed costs are related to the total capacity of the water system. Fixed costs related to system capacity can reasonably be apportioned by meter size or variable, usage-based rate recovery in recognition that both units of measure reasonably reflect customer usage driving the City to incur capacity-related costs. For example, a share of the fixed cost of salaries related to water production can reasonably be recovered from usage-based charges as these costs are incurred to provide water supply to meet customer demand or from a fixed charge based on a customer’s meter size which reflects the magnitude of water a customer can pull from the water system. Likewise, debt service payments may be fixed annual costs, but it is reasonable to recover some of these costs from usage-based rates as the costs are incurred to fund infrastructure that will improve the water delivery system. While there is no single correct approach, BWA believes that costs should be allocated within a reasonable range that reflects both a) underlying cost causation, to the extent such causation can reasonably be determined or estimated, and b) the policy preferences of the agency in cases where a range of reasonable approaches can be justified. ---PAGE BREAK--- BARTLE WELLS ASSOCIATES 23 City of Modesto – Water Rate Study 2023 5.1 Functional Allocation There must be a cost-based nexus between the revenue requirement from the cash flow and the proposed rates. The nexus is created by allocating the expenses and offsetting non-rate revenues to functional components and then dividing each functional component’s revenue requirements by the allocations units most reasonably related to each function. A functional component reflects a grouping of the utility’s expenses whose magnitude is driven by the quantity of a specific unit-of-measure. For example, costs allocated to the customer functional component are driven by the number of customers served by the water enterprise. The functional components used in this study are as follows: • Customer- Fixed costs are recovered per customer. Fixed costs or costs related to system capacity were allocated to this category. • Capacity- Fixed costs are recovered per customer. Fixed costs or costs related to system capacity were allocated to this category. • All Volume- Costs reasonably recovered volumetrically were allocated to this category. Volumetric costs are recovered per unit of volume (100 cubic feet (CCF)) based on all projected demand. Related expenses and non-rate revenues were grouped into the following allocation categories before being allocated to each functional category: • Administration- Expenses were allocated 30% to the customer and 70% to capacity functional components because some costs are driven by the number of customers, and some are driven by the overall capacity of the system. For example, a smaller system would require less staff, leading to reduced office supply costs. • Source of Supply- expenses were allocated 10% to Capacity and 90% to All Volume to reflect that these costs are incurred to meet the volumetric needs of the City. These costs include the costs associated with wells and groundwater supply. • Water Demand expenses consist of conservation, water quality and surface water costs. They are allocated 100% to All Volume to reflect that these costs are incurred to meet the volumetric needs of the City. • Customer Accounts costs are allocated 100% to the Customer functional component because they are fixed expenditures that relate to operational support activities, including billing, customer service, and meter reading support. These expenditures are common to all customers, regardless of the meter size serving a property or actual water use. • Water System expenses are related to maintaining and operating the water system. These costs are allocated 50% to Capacity and 50% to All Volume because these costs are related to the overall capacity of the system which is driven by the projected volume of water sold. • Debt Service is allocated 100% to Capacity because they are related to system capacity and are fixed annual expenses. • Capital expenses and non-rate revenues are allocated 50% to Capacity and 50% to All Volume because these costs are related to the overall capacity of the system which is driven by the projected volume of water sold. The following tables show a breakdown of the water utility’s expenses and offsetting revenues and how they are allocated by function. The proportional allocation is then applied to the rate revenue requirement so that the ---PAGE BREAK--- BARTLE WELLS ASSOCIATES 24 City of Modesto – Water Rate Study 2023 rates are proportional to the cost of service provided. To recover the allocated revenue requirements proportionally to the service provided, a unit cost must be derived. Critical to this step is using the unit which relates to the function. The allocation amounts are based on the last year of the proposed rates, FY 27-28, because it reflects the completed regionalization project in operation. The revenue requirements leading up to that year are increasing to fund the project. Table 13 – Scenario 1 Functional Allocation Functional Allocation Amount Offsetting Revenue Allocation Amount Customer Capacity All Volume Total Administration $7,550,855 $0 $7,550,855 30% 70% 0% 100% Source of Supply $9,839,635 $0 $9,839,635 0% 10% 90% 100% Water Demand $24,584,204 $0 $24,584,204 0% 0% 100% 100% Customer Accounts $6,831,266 $0 $6,831,266 100% 0% 0% 100% Water System $11,638,388 $0 $11,638,388 0% 50% 50% 100% Debt Service $12,545,740 $0 $12,545,740 0% 100% 0% 100% Capital $27,609,055 $330,328 $27,278,726 0% 50% 50% 100% Functional Allocation $ $100,599,144 $330,328 $100,268,815 $9,096,523 $38,273,859 $52,898,433 $100,268,815 Functional Allocation % n/a n/a n/a 9.07% 38.17% 52.76% 100% Revenue Requirement n/a n/a n/a $7,489,824 $31,520,018 $43,568,147 $82,577,989 Table 14 – Scenario 2 Functional Allocation Functional Allocation Amount Offsetting Revenue Allocation Amount Customer Capacity All Volume Total Administration $7,550,855 $52,060 $7,498,795 30% 70% 0% 100% Source of Supply $9,839,635 $0 $9,839,635 0% 10% 90% 100% Water Demand $24,584,204 $0 $24,584,204 0% 0% 100% 100% Customer Accounts $6,831,266 $0 $6,831,266 100% 0% 0% 100% Water System $11,638,388 $0 $11,638,388 0% 50% 50% 100% Debt Service $12,545,740 $0 $12,545,740 0% 100% 0% 100% Capital $28,978,922 $330,328 $28,648,594 0% 50% 50% 100% Functional Allocation $ $101,969,011 $382,388 $101,586,623 $9,080,905 $38,922,351 $53,583,367 $101,586,623 Functional Allocation % n/a n/a n/a 8.94% 38.31% 52.75% 100% Revenue Requirement n/a n/a n/a $7,382,472 $31,635,628 $43,559,889 $82,577,989 Table 15 – Scenario 3 Functional Allocation Functional Allocation Amount Offsetting Revenue Allocation Amount Customer Capacity All Volume Total Administration $7,550,855 $0 $7,550,855 30% 70% 0% 100% Source of Supply $9,839,635 $0 $9,839,635 0% 10% 90% 100% Water Demand $24,584,204 $0 $24,584,204 0% 0% 100% 100% Customer Accounts $6,831,266 $0 $6,831,266 100% 0% 0% 100% Water System $11,638,388 $0 $11,638,388 0% 50% 50% 100% Debt Service $12,545,740 $0 $12,545,740 0% 100% 0% 100% Capital $36,978,922 $330,328 $36,648,594 0% 50% 50% 100% Functional Allocation $ $109,969,011 $330,328 $109,638,683 $9,096,523 $42,958,793 $57,583,367 $109,638,683 Functional Allocation % n/a n/a n/a 8.30% 39.18% 52.52% 100% Revenue Requirement n/a n/a n/a $6,985,150 $32,973,272 $44,200,007 $84,158,429 ---PAGE BREAK--- BARTLE WELLS ASSOCIATES 25 City of Modesto – Water Rate Study 2023 5.2 Rate Derivation Fixed Service Charge This charge applies to all active services. It recovers the Customer functional component revenue requirement on a per service basis and the Capacity functional component revenue requirement on a per MEU basis. The Customer unit cost is the same for all meter sizes and the unit costs per MEU varies by meter size. MEU ratios are based on the AWWA meter equivalent ratio for each meter size as described in Section 3.2. Volumetric Service Charge This charge applies to every unit of water sold. It recovers the All Volume functional component revenue requirement on a unit (CCF) basis. The following tables show the rate derivation of the fixed and volumetric charges for each scenario. Table 16 – Scenario 1 Rate Derivation Allocation Units n/a Customer Capacity All Volume Unit of Measure n/a # EDU CCF Allocation Units n/a 894,714 1,740,024 20,693,839 Revenue Requirement n/a $7,489,824 $31,520,018 $43,568,147 Unit Cost ($/Unit) n/a $8.37 $18.11 $2.11 Fixed Charge Calculation Capacity Factor** Customer Component Capacity Component Fixed Charge 5/8" 1.00 $8.37 $18.11 $26.48 3/4" 1.00 $8.37 $18.11 $26.48 1" 1.67 $8.37 $30.18 $38.56 1.5" 3.33 $8.37 $60.37 $68.74 2" 5.33 $8.37 $96.59 $104.96 3" 11.67 $8.37 $211.28 $219.66 4" 21.00 $8.37 $380.31 $388.68 6" 43.33 $8.37 $784.77 $793.14 8" 80.00 $8.37 $1,448.80 $1,457.17 10" 126.67 $8.37 $2,293.93 $2,302.31 12" 166.67 $8.37 $3,018.33 $3,026.71 ---PAGE BREAK--- BARTLE WELLS ASSOCIATES 26 City of Modesto – Water Rate Study 2023 Table 17 – Scenario 2 Rate Derivation Allocation Units n/a Customer Capacity All Volume Unit of Measure n/a # EDU CCF Allocation Units n/a 894,714 1,740,024 20,693,839 Revenue Requirement n/a $7,382,472 $31,635,628 $43,559,889 Unit Cost ($/Unit) n/a $8.25 $18.18 $2.11 Fixed Charge Calculation Capacity Factor** Customer Component Capacity Component Fixed Charge 5/8" 1.00 $8.25 $18.18 $26.43 3/4" 1.00 $8.25 $18.18 $26.43 1" 1.67 $8.25 $30.30 $38.55 1.5" 3.33 $8.25 $60.60 $68.85 2" 5.33 $8.25 $96.96 $105.21 3" 11.67 $8.25 $212.10 $220.35 4" 21.00 $8.25 $381.78 $390.03 6" 43.33 $8.25 $787.80 $796.05 8" 80.00 $8.25 $1,454.40 $1,462.65 10" 126.67 $8.25 $2,302.80 $2,311.05 12" 166.67 $8.25 $3,030.00 $3,038.25 Table 18 – Scenario 3 Rate Derivation Allocation Units n/a Customer Capacity All Volume Unit of Measure n/a # EDU CCF Allocation Units n/a 894,714 1,740,024 20,693,839 Revenue Requirement n/a $6,985,150 $32,973,272 $44,200,007 Unit Cost ($/Unit) n/a $7.81 $18.95 $2.14 Fixed Charge Calculation Capacity Factor** Customer Component Capacity Component Fixed Charge 5/8" 1.00 $7.81 $18.95 $26.76 3/4" 1.00 $7.81 $18.95 $26.76 1" 1.67 $7.81 $31.58 $39.40 1.5" 3.33 $7.81 $63.17 $70.98 2" 5.33 $7.81 $101.07 $108.88 3" 11.67 $7.81 $221.08 $228.90 4" 21.00 $7.81 $397.95 $405.76 6" 43.33 $7.81 $821.17 $828.98 8" 80.00 $7.81 $1,516.00 $1,523.81 10" 126.67 $7.81 $2,400.33 $2,408.15 12" 166.67 $7.81 $3,158.33 $3,166.15 ---PAGE BREAK--- BARTLE WELLS ASSOCIATES 27 City of Modesto – Water Rate Study 2023 5.3 Proposed Water Rates The following tables show a 5-year schedule of proposed water rates for each scenario. Table 19 – Proposed Scenario 1 Water Rates Current and Proposed Water Rates Current Proposed Oct 1, 2023 Proposed Oct 1, 2024 Proposed Oct 1, 2025 Proposed Oct 1, 2026 Proposed Oct 1, 2027 Volumetric Rates n/a n/a n/a n/a n/a n/a Non-Drought ($/CCF) $2.02 $2.11 $2.20 $2.30 $2.40 $2.51 Drought ($/CCF) n/a $2.45 $2.56 $2.68 $2.80 $2.93 Fixed Charge n/a n/a n/a n/a n/a n/a Meter Size n/a n/a n/a n/a n/a n/a 5/8" $25.44 $26.48 $27.67 $28.92 $30.22 $31.58 3/4" $25.44 $26.48 $27.67 $28.92 $30.22 $31.58 1" $36.83 $38.56 $40.30 $42.11 $44.00 $45.98 1.5" $65.32 $68.74 $71.83 $75.06 $78.44 $81.97 2" $99.50 $104.96 $109.68 $114.62 $119.78 $125.17 3" $207.73 $219.66 $229.54 $239.87 $250.66 $261.94 4" $367.24 $388.68 $406.17 $424.45 $443.55 $463.51 6" $748.90 $793.14 $828.83 $866.13 $905.11 $945.84 8" $1,375.53 $1,457.17 $1,522.74 $1,591.26 $1,662.87 $1,737.70 10" $2,173.05 $2,302.31 $2,405.91 $2,514.18 $2,627.32 $2,745.55 12" $2,856.63 $3,026.71 $3,162.91 $3,305.24 $3,453.98 $3,609.41 ---PAGE BREAK--- BARTLE WELLS ASSOCIATES 28 City of Modesto – Water Rate Study 2023 Table 20 – Proposed Scenario 2 Water Rates Current and Proposed Water Rates Current Proposed Oct 1, 2023 Proposed Oct 1, 2024 Proposed Oct 1, 2025 Proposed Oct 1, 2026 Proposed Oct 1, 2027 Volumetric Rates n/a n/a n/a n/a n/a n/a Non-Drought ($/CCF) $2.02 $2.11 $2.20 $2.30 $2.40 $2.51 Drought ($/CCF) n/a $2.45 $2.56 $2.68 $2.80 $2.93 Fixed Charge n/a n/a n/a n/a n/a n/a Meter Size n/a n/a n/a n/a n/a n/a 5/8" $25.44 $26.43 $27.62 $28.86 $30.16 $31.52 3/4" $25.44 $26.43 $27.62 $28.86 $30.16 $31.52 1" $36.83 $38.55 $40.28 $42.09 $43.98 $45.96 1.5" $65.32 $68.85 $71.95 $75.19 $78.57 $82.11 2" $99.50 $105.21 $109.94 $114.89 $120.06 $125.46 3" $207.73 $220.35 $230.27 $240.63 $251.46 $262.78 4" $367.24 $390.03 $407.58 $425.92 $445.09 $465.12 6" $748.90 $796.05 $831.87 $869.30 $908.42 $949.30 8" $1,375.53 $1,462.65 $1,528.47 $1,597.25 $1,669.13 $1,744.24 10" $2,173.05 $2,311.05 $2,415.05 $2,523.73 $2,637.30 $2,755.98 12" $2,856.63 $3,038.25 $3,174.97 $3,317.84 $3,467.14 $3,623.16 ---PAGE BREAK--- BARTLE WELLS ASSOCIATES 29 City of Modesto – Water Rate Study 2023 Table 21 – Proposed Scenario 3 Water Rates Current and Proposed Water Rates Current Proposed Oct 1, 2023 Proposed Oct 1, 2024 Proposed Oct 1, 2025 Proposed Oct 1, 2026 Proposed Oct 1, 2027 Volumetric Rates n/a n/a n/a n/a n/a n/a Non-Drought ($/CCF) $2.02 $2.14 $2.28 $2.43 $2.59 $2.76 Drought ($/CCF) n/a $2.49 $2.65 $2.82 $3.00 $3.20 Fixed Charge n/a n/a n/a n/a n/a n/a Meter Size n/a n/a n/a n/a n/a n/a 5/8" $25.44 $26.76 $28.50 $30.35 $32.32 $34.42 3/4" $25.44 $26.76 $28.50 $30.35 $32.32 $34.42 1" $36.83 $39.40 $41.96 $44.69 $47.59 $50.68 1.5" $65.32 $70.98 $75.59 $80.50 $85.73 $91.30 2" $99.50 $108.88 $115.96 $123.50 $131.53 $140.08 3" $207.73 $228.90 $243.78 $259.63 $276.51 $294.48 4" $367.24 $405.76 $432.13 $460.22 $490.13 $521.99 6" $748.90 $828.98 $882.86 $940.25 $1,001.37 $1,066.46 8" $1,375.53 $1,523.81 $1,622.86 $1,728.35 $1,840.69 $1,960.33 10" $2,173.05 $2,408.15 $2,564.68 $2,731.38 $2,908.92 $3,098.00 12" $2,856.63 $3,166.15 $3,371.95 $3,591.13 $3,824.55 $4,073.15 ---PAGE BREAK--- BARTLE WELLS ASSOCIATES 30 City of Modesto – Water Rate Study 2023 6 REGIONAL RESIDENTIAL BILL COMPARISON Figure 5 provides a residential bill survey comparing the City of Modesto’s current and proposed water bills with the bills of other local agencies. The City of Modesto bills shown in Figure 5 are the non-drought water bills. Since each agency has an individualized conservation target, it is unknown how the City of Modesto typical water use would compare. Even with the proposed rate increases under each scenario, the City of Modesto’s typical bill would remain competitive. Figure 5 – Residential Bill Comparison ---PAGE BREAK--- BARTLE WELLS ASSOCIATES 31 City of Modesto – Water Rate Study 2023 7 DROUGHT RATES The City is proposing to authorize a drought rate that could be implemented to support financial stability and help ensure adequate funding for water utility operations during periods of water shortages and reduced water sales. As proposed, these rates would be temporary, billed based on metered water use, that would replace the City’s regular water rates during water shortage emergencies. The drought rates are designed to enable the City to recover its costs of service and remain financially stable during periods of water shortages and reduced water sales. Financial impacts during water shortages and periods of reduced water sales can include: • A loss of volumetric water rate revenues due to a reduction in the volume of water sales. • Reduced variable expenses due to reduced volumes of water production and supply, such as reduced costs for water treatment and pumping. • Additional costs for achieving water demand cutback targets, such as costs for an enhanced conservation program and water demand mitigation efforts. • Additional costs for supplemental sources of water supply when normal-year supply is curtailed during a drought. • Potential costs of compliance for drought-related regulations and potential cost of fines or penalties for non-compliance with State water reduction mandates during periods of severe drought. The surcharges account for a) lost revenues due to reduced water sales, less b) estimated reduced variable expenses due to reduced water supply, divided by c) the volume of projected water sales with reduced demand. Table 22 – Proposed Scenario 1 Drought Rates Row Drought Rate Calculation Units Amount A Projected volume CCF 20,693,839 B Drought reduction % 15% C Drought volume (A x CCF 17,589,763 D Volume reduction (A x B) CCF 3,104,076 E Variable Cost $/CCF $0.14 F Variable cost reduction (D x E) $ $434,571 G Projected revenue requirement $ $43,568,147 H Drought revenue requirement (G - F) $ $43,133,576 I Drought rate (H / C) $/CCF $2.45 ---PAGE BREAK--- BARTLE WELLS ASSOCIATES 32 City of Modesto – Water Rate Study 2023 Table 23 – Proposed Scenario 2 Drought Rates Row Drought Rate Calculation Units Amount A Projected volume CCF 20,693,839 B Drought reduction % 15% C Drought volume (A x CCF 17,589,763 D Volume reduction (A x B) CCF 3,104,076 E Variable Cost $/CCF $0.13 F Variable cost reduction (D x E) $ $403,530 G Projected revenue requirement $ $43,559,889 H Drought revenue requirement (G - F) $ $43,156,359 I Drought rate (H / C) $/CCF $2.45 Table 24 – Proposed Scenario 3 Drought Rates Row Drought Rate Calculation Units Amount A Projected volume CCF 20,693,839 B Drought reduction % 15% C Drought volume (A x CCF 17,589,763 D Volume reduction (A x B) CCF 3,104,076 E Variable Cost $/CCF $0.14 F Variable cost reduction (D x E) $ $434,571 G Projected revenue requirement $ $44,200,007 H Drought revenue requirement (G - F) $ $43,765,436 I Drought rate (H / C) $/CCF $2.49 ---PAGE BREAK--- BARTLE WELLS ASSOCIATES 33 City of Modesto – Water Rate Study 2023 8 CONCLUSION AND RECOMMENDATIONS This water rate study report presents a comprehensive review of the City of Modesto’s water revenue requirements and rate structures. The City will need regular annual rate increases to keep up with cost inflation and be able to complete necessary capital projects while maintaining prudent reserves. 8.1 Conclusion The City practices sound financial planning which has provided for the financial health of the water enterprise. Historically, the City has increased rate revenue to keep up with inflationary cost increases and fund system upgrades and maintenance. The adoption of these rates reflect the City’s commitment to stewarding financially sound utilities and providing reliable, high quality water service that will benefit the community many years into the future. 8.2 Recommendations BWA recommends that the City adopt the rates shown in this report. Rates were developed as part of a collaborative process. At minimum, BWA recommends that the City review and update its water rate study every five years and/or concurrent with Master Plan Updates. Proposition 218 allows public agencies to adopt rates over a five-year planning period. Any further rate increases must be proposed as part of a new Proposition 218 process. ---PAGE BREAK--- APPENDIX A Scenario 1 Water Rate Study Tables ---PAGE BREAK--- City of Modesto Draft Water Rate Study Tables Scenario 1 - Low Capital, No Debt Draft June 22, 2023 BARTLE WELLS ASSOCIATES Independent Public Finance Advisors ---PAGE BREAK--- Table A City of Modesto Water Rate Study Rate Sheet Scenario 1 - Low Capital, No Debt Current and Proposed Water Rates Current Proposed Oct 1, 2023 Proposed Oct 1, 2024 Proposed Oct 1, 2025 Proposed Oct 1, 2026 Proposed Oct 1, 2027 Volumetric Rates n/a n/a n/a n/a n/a n/a Non-Drought ($/CCF) $2.02 $2.11 $2.20 $2.30 $2.40 $2.51 Drought ($/CCF) n/a $2.45 $2.56 $2.68 $2.80 $2.93 Fixed Charge n/a n/a n/a n/a n/a n/a Meter Size n/a n/a n/a n/a n/a n/a 5/8" $25.44 $26.48 $27.67 $28.92 $30.22 $31.58 3/4" $25.44 $26.48 $27.67 $28.92 $30.22 $31.58 1" $36.83 $38.56 $40.30 $42.11 $44.00 $45.98 1.5" $65.32 $68.74 $71.83 $75.06 $78.44 $81.97 2" $99.50 $104.96 $109.68 $114.62 $119.78 $125.17 3" $207.73 $219.66 $229.54 $239.87 $250.66 $261.94 4" $367.24 $388.68 $406.17 $424.45 $443.55 $463.51 6" $748.90 $793.14 $828.83 $866.13 $905.11 $945.84 8" $1,375.53 $1,457.17 $1,522.74 $1,591.26 $1,662.87 $1,737.70 10" $2,173.05 $2,302.31 $2,405.91 $2,514.18 $2,627.32 $2,745.55 12" $2,856.63 $3,026.71 $3,162.91 $3,305.24 $3,453.98 $3,609.41 ---PAGE BREAK--- Table 1 Draft City of Modesto Water Rate Study Projected Operating Expenses Scenario 1 - Low Capital, No Debt Expenses1 Allocation Inflation FY 22-23 FY 23-24 FY 24-25 FY 25-26 FY 26-27 FY 27-28 FY 28-29 FY 29-30 FY 30-31 FY 31-32 FY 32-33 n/a n/a n/a Budgeted Projected Projected Projected Projected Projected Projected Projected Projected Projected Projected General Inflation Factor n/a General n/a 5.0% 5.0% 5.0% 5.0% 5.0% 4.5% 4.5% 4.5% 4.5% 4.5% 12460 FIN Cashiering Customer Accounts General $845,352 $835,287 $877,051 $920,904 $966,949 $1,015,297 $1,060,985 $1,108,729 $1,158,622 $1,210,760 $1,265,244 12470 FIN Utilities & Collections Customer Accounts General 2,499,546 $2,411,368 $2,531,936 $2,658,533 $2,791,460 $2,931,033 $3,062,929 $3,200,761 $3,344,795 $3,495,311 $3,652,600 12475 FIN Utility Assistance Programs Administration General 1,119,827 $2,286,900 $2,401,245 $2,521,307 $2,647,373 $2,779,741 $2,904,830 $3,035,547 $3,172,147 $3,314,893 $3,464,063 41010 UPP Administration Administration General 1,167,848 $1,154,259 $1,211,972 $1,272,571 $1,336,199 $1,403,009 $1,466,144 $1,532,121 $1,601,066 $1,673,114 $1,748,405 41410 UPP Water General Administration General 410,902 $425,795 $447,085 $469,439 $492,911 $517,556 $540,847 $565,185 $590,618 $617,196 $644,970 41420 UPP Water Billing & Collections Customer Accounts General 176,311 $223,954 $235,152 $246,909 $259,255 $272,217 $284,467 $297,268 $310,645 $324,624 $339,233 42024 UTL Water Engineering Design Capital General 1,122,154 $1,119,841 $1,175,833 $1,234,625 $1,296,356 $1,361,174 $1,422,427 $1,486,436 $1,553,325 $1,623,225 $1,696,270 43010 UPP Ground Water Management Plan Source of Supply General $115,141 $61,438 $64,510 $67,735 $71,122 $74,678 $78,039 $81,551 $85,220 $89,055 $93,063 43020 UPP Water System Analysis Water System General 220,977 $191,680 $201,264 $211,327 $221,894 $232,988 $243,473 $254,429 $265,878 $277,843 $290,346 43030 UPP Urban Water Management Plan Water Demand General 46,705 $32,502 $34,127 $35,833 $37,625 $39,506 $41,284 $43,142 $45,083 $47,112 $49,232 43040 UPP Water Quality Study Water Demand General 86,457 $81,917 $86,013 $90,313 $94,829 $99,571 $104,051 $108,734 $113,627 $118,740 $124,083 43060 UPP Capital Planning Capital General 801,938 $800,160 $840,168 $882,176 $926,285 $972,599 $1,016,366 $1,062,103 $1,109,898 $1,159,843 $1,212,036 43070 UPP Water Rate Analysis Administration General 122,251 $4,905 $5,150 $5,408 $5,678 $5,962 $6,230 $6,511 $6,804 $7,110 $7,430 43080 UPP Sphere of Influence Administration General 35,962 $34,933 $36,680 $38,514 $40,439 $42,461 $44,372 $46,369 $48,455 $50,636 $52,914 45010 UPP Water Services Administration Administration General 2,192,418 $2,233,552 $2,345,230 $2,462,491 $2,585,616 $2,714,896 $2,837,067 $2,964,735 $3,098,148 $3,237,564 $3,383,255 45020 UPP Systems Maintenance Water System General 3,120,442 $3,445,734 $3,618,021 $3,798,922 $3,988,868 $4,188,311 $4,376,785 $4,573,741 $4,779,559 $4,994,639 $5,219,398 45040 UPP Construction Water System General 6,233,954 $6,893,861 $7,238,554 $7,600,482 $7,980,506 $8,379,531 $8,756,610 $9,150,657 $9,562,437 $9,992,747 $10,442,420 45050 UPP Wells & Tanks Source of Supply General 8,654,114 $8,842,192 $9,284,302 $9,748,517 $10,235,943 $10,747,740 $11,231,388 $11,736,800 $12,264,956 $12,816,879 $13,393,639 45055 UPP Water Quality Water Demand General 2,908,597 $3,081,081 $3,235,135 $3,396,892 $3,566,736 $3,745,073 $3,913,602 $4,089,714 $4,273,751 $4,466,069 $4,667,043 45060 UPP Service & Meters Customer Accounts General 2,489,378 $2,710,826 $2,846,367 $2,988,686 $3,138,120 $3,295,026 $3,443,302 $3,598,251 $3,760,172 $3,929,380 $4,106,202 45065 UPP Water Conservation Water Demand General 1,580,898 $1,914,878 $2,010,622 $2,111,153 $2,216,711 $2,327,546 $2,432,286 $2,541,739 $2,656,117 $2,775,642 $2,900,546 45070 UPP MID Surface Water T & DA Water Demand General 17,120,214 $17,135,229 $17,991,990 $18,891,590 $19,836,169 $20,827,978 $21,765,237 $22,744,673 $23,768,183 $24,837,751 $25,955,450 Non-capital projects (FY23/24 is Billing Software) Administration General 684,000 $1,625,000 $0 $0 $0 $0 $0 $0 $0 $0 $0 UTL - Water - Grant Research & Writing - 101452 Capital General 150,000 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 UTL - Groundwater Well Strategy Plan - 101456 Capital General 126,125 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Transfer Into Fund 4140 - Match Funding Administration General 46,723 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Storm Drain Annual Transfer-out (rockwell rej) Administration General 700,000 $700,000 $700,000 $700,000 $700,000 $700,000 $700,000 $731,500 $764,418 $798,816 $834,763 JPA Building svs Annual Transfer-out Administration General 65,000 $65,000 $65,000 $65,000 $65,000 $65,000 $65,000 $67,925 $70,982 $74,176 $77,514 Total Operating Expenses n/a n/a $54,714,074 $58,312,292 $59,483,407 $62,419,327 $65,502,043 $68,738,895 $71,797,721 $75,028,618 $78,404,906 $81,933,127 $85,620,117 1 Based on City's FY 22-23 budget n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a ---PAGE BREAK--- Table 2 Draft City of Modesto Water Rate Study Projected Revenues Scenario 1 - Low Capital, No Debt Revenue Allocation Escalation FY 22-23 FY 23-24 FY 24-25 FY 25-26 FY 26-27 FY 27-28 FY 28-29 FY 29-30 FY 30-31 FY 31-32 FY 32-33 n/a n/a n/a Budgeted Projected Projected Projected Projected Projected Projected Projected Projected Projected Projected Revenue Escalation n/a Growth n/a 0.2% 0.2% 0.2% 0.2% 0.2% 0.2% 0.2% 0.2% 0.2% 0.2% Revenue Escalation n/a None n/a 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% Revenue Escalation n/a Interest n/a 0.4% 0.4% 0.4% 0.4% 0.4% 0.4% 0.4% 0.4% 0.4% 0.4% Rate Revenue n/a Growth $79,318,075 $79,021,999 $82,743,145 $86,639,520 $90,719,375 $94,991,350 $99,464,493 $105,144,910 $111,149,736 $117,497,497 $124,207,779 Revenue from Rate Increase1,2 n/a N/a $2,963,325 $3,723,442 $3,898,778 $4,082,372 $4,274,611 $5,470,547 $5,782,970 $6,113,235 $6,462,362 $6,831,428 Other Revenue n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a Refunds, Damages, and Cost Recovery/Other As All Other Growth $10,000 $10,020 $10,040 $10,060 $10,080 $10,100 $10,121 $10,141 $10,161 $10,181 $10,202 Water Fund Development Fees Capital Growth $1,220,500 $329,010 $329,668 $330,327 $330,988 $331,650 $332,313 $332,978 $333,643 $334,311 $334,979 Rental Income As All Other None $42,000 $42,000 $42,000 $42,000 $42,000 $42,000 $42,000 $42,000 $42,000 $42,000 $42,000 Service Credits As All Other None $3,062,214 $3,062,214 $3,062,214 $3,062,214 $3,062,214 $3,062,214 $3,062,214 $3,062,214 $3,062,214 $3,062,214 $3,062,214 Utility Assistance Fee As All Other None $200,902 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Repayment of Carpenter Road Landfill mitigation loan - Advance 16A/B/C As All Other None $707,421 $707,421 $707,421 $707,421 $707,421 $707,421 $707,421 $707,421 $707,421 $707,421 $707,421 Interest As All Other None $500,000 $500,000 $408,075 $391,176 $365,770 $333,291 $293,561 $259,614 $226,879 $218,425 $217,761 Total Other Revenue $5,743,037 $4,650,665 $4,559,418 $4,543,198 $4,518,473 $4,486,676 $4,447,629 $4,414,367 $4,382,319 $4,374,552 $4,374,577 Total Revenue n/a n/a $85,061,112 $86,635,989 $91,026,004 $95,081,496 $99,320,219 $103,752,637 $109,382,669 $115,342,247 $121,645,290 $128,334,412 $135,413,784 1Additional revenue based on recommended increase 2Adjusted if rates adopted in the middle of fiscal year ---PAGE BREAK--- Table 3 Draft City of Modesto Water Rate Study Capital Improvement Costs Scenario 1 - Low Capital, No Debt Capital Improvement Plan (CIP) FY 22-23 FY 23-24 FY 24-25 FY 25-26 FY 26-27 FY 27-28 FY 28-29 FY 29-30 FY 30-31 FY 31-32 FY 32-33 n/a Projected Projected Projected Projected Projected Projected Projected Projected Projected Projected Projected CIP (Current Dollars) Total CIP (Current Dollars) $29,321,500 $25,625,000 $22,371,000 $24,235,000 $25,585,000 $26,815,000 $26,515,000 $27,175,000 $23,715,000 $23,525,000 $23,480,000 Total CIP (Inflated Dollars) $29,321,500 $25,625,000 $23,489,550 $26,719,088 $29,617,836 $32,593,800 $33,679,460 $36,071,095 $32,894,947 $34,099,812 $35,566,141 Annual Inflation Rate n/a n/a 5.0% 5.0% 5.0% 5.0% 4.5% 4.5% 4.5% 4.5% 4.5% ---PAGE BREAK--- $25.6 $23.5 $26.7 $29.6 $32.6 $33.7 $36.1 $32.9 $34.1 $35.6 $0.0 $5.0 $10.0 $15.0 $20.0 $25.0 $30.0 $35.0 $40.0 FY 23-24 FY 24-25 FY 25-26 FY 26-27 FY 27-28 FY 28-29 FY 29-30 FY 30-31 FY 31-32 FY 32-33 City of Modesto Water Capital Improvements millions) Scenario 1 - Low Capital, No Debt Source: City of Modesto 2023 CIP plus annual construction cost inflation. Future includes annual construction cost inflation. ---PAGE BREAK--- Table 4 Draft City of Modesto Water Rate Study Debt Scenario 1 - Low Capital, No Debt Debt FY 22-23 FY 23-24 FY 24-25 FY 25-26 FY 26-27 FY 27-28 FY 28-29 FY 29-30 FY 30-31 FY 31-32 FY 32-33 n/a Budgeted Projected Projected Projected Projected Projected Projected Projected Projected Projected Projected Existing Debt n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a 55140-54104 MID T & DA - 1998D (2013G) $5,155,541 $4,367,900 $0 $0 $0 $0 $0 $0 $0 $0 $0 55140-54103 MID T & DA - 2007F $4,257,700 $4,032,800 $8,409,205 $8,409,205 $8,409,206 $8,409,207 $8,409,208 $8,409,209 $8,409,210 $8,409,211 $8,409,212 4130 2008 Water Rev Lease Bond $2,164,623 $3,546,482 $4,240,014 $4,240,014 $4,240,014 $4,240,014 $4,240,014 $4,240,014 $4,240,014 $4,240,014 $4,240,014 55060 CA DWR (Del Este) $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 4140-12183 ARRA funding CDPH $46,723 $38,237 $36,600 $36,600 $36,600 $36,600 $36,600 $36,600 $36,600 $36,600 $36,600 Total Current Debt Service $11,624,587 $11,985,419 $12,685,819 $12,685,819 $12,685,820 $12,685,821 $12,685,822 $12,685,823 $12,685,824 $12,685,825 $12,685,826 ---PAGE BREAK--- Table 5 City of Modesto Water Rate Study Cash Flow Projections Scenario 1 - Low Capital, No Debt Projected Cashflow FY 23-24 FY 24-25 FY 25-26 FY 26-27 FY 27-28 FY 28-29 FY 29-30 FY 30-31 FY 31-32 FY 32-33 Rate Revenue Increase 4.5% 4.5% 4.5% 4.5% 4.5% 5.5% 5.5% 5.5% 5.5% 5.5% Beginning Reserves $110,862,007 $102,018,732 $97,794,035 $91,442,474 $83,322,765 $73,390,177 $64,903,403 $56,719,728 $54,606,219 $54,440,290 Revenues n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a Rate Revenue $79,021,999 $82,743,145 $86,639,520 $90,719,375 $94,991,350 $99,464,493 $105,144,910 $111,149,736 $117,497,497 $124,207,779 Rate Increase Revenue 3,555,990 3,723,442 3,898,778 4,082,372 4,274,611 5,470,547 5,782,970 6,113,235 6,462,362 6,831,428 Timing Adjustment* -592,665 0 0 0 0 0 0 0 0 0 Other Revenue 4,650,665 4,559,418 4,543,198 4,518,473 4,486,676 4,447,629 4,414,367 4,382,319 4,374,552 4,374,577 Interest on Reserves $443,448 $408,075 $391,176 $365,770 $333,291 $293,561 $259,614 $226,879 $218,425 $217,761 Total Revenue $87,079,437 $91,434,079 $95,472,672 $99,685,989 $104,085,928 $109,676,230 $115,601,861 $121,872,169 $128,552,836 $135,631,546 Expenses n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a Operating Expenses $58,312,292 $59,483,407 $62,419,327 $65,502,043 $68,738,895 $71,797,721 $75,028,618 $78,404,906 $81,933,127 $85,620,117 Existing Debt Service 11,985,419 12,685,819 12,685,819 12,685,820 12,685,821 12,685,822 12,685,823 12,685,824 12,685,825 12,685,826 New Debt Service 0 0 0 0 0 0 0 0 0 0 Rate Funded Capital $25,625,000 $23,489,550 $26,719,088 $29,617,836 $32,593,800 $33,679,460 $36,071,095 $32,894,947 $34,099,812 $35,566,141 Total Expenses $95,922,711 $95,658,776 $101,824,234 $107,805,699 $114,018,516 $118,163,003 $123,785,536 $123,985,678 $128,718,765 $133,872,084 Net Revenues -$8,843,274 -$4,224,697 -$6,351,561 -$8,119,709 -$9,932,588 -$8,486,773 -$8,183,676 -$2,113,509 -$165,928 $1,759,462 Ending Reserves $102,018,732 $97,794,035 $91,442,474 $83,322,765 $73,390,177 $64,903,403 $56,719,728 $54,606,219 $54,440,290 $56,199,752 Debt Coverage (Target 2.0) 2.40 2.52 2.61 2.69 2.79 2.99 3.20 3.43 3.67 3.94 *Reflects October rate implementation n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a Capital Funding FY 23-24 FY 24-25 FY 25-26 FY 26-27 FY 27-28 FY 28-29 FY 29-30 FY 30-31 FY 31-32 FY 32-33 Capital Revenues n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a Use of Debt Proceeds $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Rate Funded Capital $25,625,000 $23,489,550 $26,719,088 $29,617,836 $32,593,800 $33,679,460 $36,071,095 $32,894,947 $34,099,812 $35,566,141 Total Capital Revenue $25,625,000 $23,489,550 $26,719,088 $29,617,836 $32,593,800 $33,679,460 $36,071,095 $32,894,947 $34,099,812 $35,566,141 Total Capital Expenditures $25,625,000 $23,489,550 $26,719,088 $29,617,836 $32,593,800 $33,679,460 $36,071,095 $32,894,947 $34,099,812 $35,566,141 ---PAGE BREAK--- $0.0 $20.0 $40.0 $60.0 $80.0 $100.0 $120.0 $140.0 $160.0 $180.0 $200.0 FY 22-23 FY 23-24 FY 24-25 FY 25-26 FY 26-27 FY 27-28 FY 28-29 FY 29-30 FY 30-31 FY 31-32 FY 32-33 Rate Funded Capital Debt Service O&M Revenue Reserves City of Modesto Projected Water Revenues & Expenses Millions) Scenario 1 - Low Capital, No Debt ---PAGE BREAK--- Table 6 Draft City of Modesto Water Rate Study Customer Data Scenario 1 - Low Capital, No Debt Customer Data FY 17-18 FY 18-19 FY 19-20 FY 20-21 FY 21-22 FY 22-23 FY 23-24 n/a Actual Actual Actual Actual Actual Projected Projected System Totals n/a n/a n/a n/a n/a n/a n/a Total Accounts 73,469 73,629 73,833 74,137 74,413 74,560 74,707 Growth n/a 0.22% 0.28% 0.41% 0.37% 0.20% 0.20% Annual metered use (CCF) per meter 278 265 277 288 279 277 277 Annual production (CCF) per account 298 285 303 309 298 299 299 Billed, Metered Consumption (CCF) 18,639,728 18,222,157 19,509,688 20,697,851 20,568,355 20,562,541 20,693,839 Total Estimated Consumption (CCF) 20,710,040 19,789,661 20,643,245 21,464,258 20,796,593 20,676,660 20,693,839 Total Water Production (CCF) 21,919,447 20,965,305 22,397,473 22,916,498 22,203,522 22,277,633 22,328,428 ---PAGE BREAK--- Table 7 Draft City of Modesto Water Rate Study Meter Equivalent Units Scenario 1 - Low Capital, No Debt Meter Size* Services Meter Equivalent Ratio** Meter Equivalent Units Annual Meter Equivalent Units 5/8" 87 1.0 87.0 1,044.0 3/4" 13,459 1.0 13,459.0 161,508.0 1" 57,153 1.7 95,255.0 1,143,060.0 1.5" 1,168 3.3 3,893.3 46,720.0 2" 2,176 5.3 11,605.3 139,264.0 3" 158 11.7 1,843.3 22,120.0 4" 289 21.0 6,069.0 72,828.0 6" 141 43.3 6,110.0 73,320.0 8" 64 80.0 5,120.0 61,440.0 10" 11 126.7 1,393.3 16,720.0 12" 1 166.7 166.7 2,000.0 Total 74,707.0 n/a 145,002.0 1,740,024.0 * Customer data as of June 2022 provided by staff Capacity factors based on AWWA operating capacity standards by meter size ---PAGE BREAK--- Table 8 Draft City of Modesto Water Rate Study Functional Allocation Scenario 1 - Low Capital, No Debt Functional Allocation Amount Offsetting Revenue Allocation Amount Customer Capacity All Volume Total Administration $7,550,855 $0 $7,550,855 30% 70% 0% 100% Source of Supply $9,839,635 $0 $9,839,635 0% 10% 90% 100% Water Demand $24,584,204 $0 $24,584,204 0% 0% 100% 100% Customer Accounts $6,831,266 $0 $6,831,266 100% 0% 0% 100% Water System $11,638,388 $0 $11,638,388 0% 50% 50% 100% Debt Service $12,545,740 $0 $12,545,740 0% 100% 0% 100% Capital $27,609,055 $330,328 $27,278,726 0% 50% 50% 100% Functional Allocation $ $100,599,144 $330,328 $100,268,815 $9,096,523 $38,273,859 $52,898,433 $100,268,815 Functional Allocation % n/a n/a n/a 9.07% 38.17% 52.76% 100% Revenue Requirement n/a n/a n/a $7,489,824 $31,520,018 $43,568,147 $82,577,989 ---PAGE BREAK--- Table 9 Draft City of Modesto Water Rate Study Rate Derivation Scenario 1 - Low Capital, No Debt Allocation Units n/a Customer Capacity All Volume Unit of Measure n/a # EDU CCF Allocation Units n/a 894,714 1,740,024 20,693,839 Revenue Requirement n/a $7,489,824 $31,520,018 $43,568,147 Unit Cost ($/Unit) n/a $8.37 $18.11 $2.11 Fixed Charge Calculation Capacity Factor** Customer Component Capacity Component Fixed Charge 5/8" 1.00 $8.37 $18.11 $26.48 3/4" 1.00 $8.37 $18.11 $26.48 1" 1.67 $8.37 $30.18 $38.56 1.5" 3.33 $8.37 $60.37 $68.74 2" 5.33 $8.37 $96.59 $104.96 3" 11.67 $8.37 $211.28 $219.66 4" 21.00 $8.37 $380.31 $388.68 6" 43.33 $8.37 $784.77 $793.14 8" 80.00 $8.37 $1,448.80 $1,457.17 10" 126.67 $8.37 $2,293.93 $2,302.31 12" 166.67 $8.37 $3,018.33 $3,026.71 ---PAGE BREAK--- Table 10 City of Modesto Water Rate Study Drought Rate Derivation Scenario 1 - Low Capital, No Debt Row Drought Rate Calculation Units A Projected volume CCF B Drought reduction % C Drought volume (A x CCF D Volume reduction (A x B) CCF E Variable Cost $/CCF F Variable cost reduction (D x E) $ G Projected revenue requirement $ H Drought revenue requirement (G - F) $ I Drought rate (H / C) $/CCF ---PAGE BREAK--- APPENDIX B Scenario 2 Water Rate Study Tables ---PAGE BREAK--- City of Modesto Draft Water Rate Study Tables Scenario 3 - Full Capital, No Debt Draft June 22, 2023 BARTLE WELLS ASSOCIATES Independent Public Finance Advisors ---PAGE BREAK--- Table A City of Modesto Water Rate Study Rate Sheet Scenario 3 - Full Capital, No Debt Current and Proposed Water Rates Current Proposed Oct 1, 2023 Proposed Oct 1, 2024 Proposed Oct 1, 2025 Proposed Oct 1, 2026 Proposed Oct 1, 2027 Volumetric Rates n/a n/a n/a n/a n/a n/a Non-Drought ($/CCF) $2.02 $2.14 $2.28 $2.43 $2.59 $2.76 Drought ($/CCF) n/a $2.49 $2.65 $2.82 $3.00 $3.20 Fixed Charge n/a n/a n/a n/a n/a n/a Meter Size n/a n/a n/a n/a n/a n/a 5/8" $25.44 $26.76 $28.50 $30.35 $32.32 $34.42 3/4" $25.44 $26.76 $28.50 $30.35 $32.32 $34.42 1" $36.83 $39.40 $41.96 $44.69 $47.59 $50.68 1.5" $65.32 $70.98 $75.59 $80.50 $85.73 $91.30 2" $99.50 $108.88 $115.96 $123.50 $131.53 $140.08 3" $207.73 $228.90 $243.78 $259.63 $276.51 $294.48 4" $367.24 $405.76 $432.13 $460.22 $490.13 $521.99 6" $748.90 $828.98 $882.86 $940.25 $1,001.37 $1,066.46 8" $1,375.53 $1,523.81 $1,622.86 $1,728.35 $1,840.69 $1,960.33 10" $2,173.05 $2,408.15 $2,564.68 $2,731.38 $2,908.92 $3,098.00 12" $2,856.63 $3,166.15 $3,371.95 $3,591.13 $3,824.55 $4,073.15 ---PAGE BREAK--- Table 1 Draft City of Modesto Water Rate Study Projected Operating Expenses Scenario 3 - Full Capital, No Debt Expenses1 Allocation Inflation FY 22-23 FY 23-24 FY 24-25 FY 25-26 FY 26-27 FY 27-28 FY 28-29 FY 29-30 FY 30-31 FY 31-32 FY 32-33 n/a n/a n/a Budgeted Projected Projected Projected Projected Projected Projected Projected Projected Projected Projected General Inflation Factor n/a General n/a 5.0% 5.0% 5.0% 5.0% 5.0% 4.5% 4.5% 4.5% 4.5% 4.5% 12460 FIN Cashiering Customer Accounts General $845,352 $835,287 $877,051 $920,904 $966,949 $1,015,297 $1,060,985 $1,108,729 $1,158,622 $1,210,760 $1,265,244 12470 FIN Utilities & Collections Customer Accounts General 2,499,546 $2,411,368 $2,531,936 $2,658,533 $2,791,460 $2,931,033 $3,062,929 $3,200,761 $3,344,795 $3,495,311 $3,652,600 12475 FIN Utility Assistance Programs Administration General 1,119,827 $2,286,900 $2,401,245 $2,521,307 $2,647,373 $2,779,741 $2,904,830 $3,035,547 $3,172,147 $3,314,893 $3,464,063 41010 UPP Administration Administration General 1,167,848 $1,154,259 $1,211,972 $1,272,571 $1,336,199 $1,403,009 $1,466,144 $1,532,121 $1,601,066 $1,673,114 $1,748,405 41410 UPP Water General Administration General 410,902 $425,795 $447,085 $469,439 $492,911 $517,556 $540,847 $565,185 $590,618 $617,196 $644,970 41420 UPP Water Billing & Collections Customer Accounts General 176,311 $223,954 $235,152 $246,909 $259,255 $272,217 $284,467 $297,268 $310,645 $324,624 $339,233 42024 UTL Water Engineering Design Capital General 1,122,154 $1,119,841 $1,175,833 $1,234,625 $1,296,356 $1,361,174 $1,422,427 $1,486,436 $1,553,325 $1,623,225 $1,696,270 43010 UPP Ground Water Management Plan Source of Supply General $115,141 $61,438 $64,510 $67,735 $71,122 $74,678 $78,039 $81,551 $85,220 $89,055 $93,063 43020 UPP Water System Analysis Water System General 220,977 $191,680 $201,264 $211,327 $221,894 $232,988 $243,473 $254,429 $265,878 $277,843 $290,346 43030 UPP Urban Water Management Plan Water Demand General 46,705 $32,502 $34,127 $35,833 $37,625 $39,506 $41,284 $43,142 $45,083 $47,112 $49,232 43040 UPP Water Quality Study Water Demand General 86,457 $81,917 $86,013 $90,313 $94,829 $99,571 $104,051 $108,734 $113,627 $118,740 $124,083 43060 UPP Capital Planning Capital General 801,938 $800,160 $840,168 $882,176 $926,285 $972,599 $1,016,366 $1,062,103 $1,109,898 $1,159,843 $1,212,036 43070 UPP Water Rate Analysis Administration General 122,251 $4,905 $5,150 $5,408 $5,678 $5,962 $6,230 $6,511 $6,804 $7,110 $7,430 43080 UPP Sphere of Influence Administration General 35,962 $34,933 $36,680 $38,514 $40,439 $42,461 $44,372 $46,369 $48,455 $50,636 $52,914 45010 UPP Water Services Administration Administration General 2,192,418 $2,233,552 $2,345,230 $2,462,491 $2,585,616 $2,714,896 $2,837,067 $2,964,735 $3,098,148 $3,237,564 $3,383,255 45020 UPP Systems Maintenance Water System General 3,120,442 $3,445,734 $3,618,021 $3,798,922 $3,988,868 $4,188,311 $4,376,785 $4,573,741 $4,779,559 $4,994,639 $5,219,398 45040 UPP Construction Water System General 6,233,954 $6,893,861 $7,238,554 $7,600,482 $7,980,506 $8,379,531 $8,756,610 $9,150,657 $9,562,437 $9,992,747 $10,442,420 45050 UPP Wells & Tanks Source of Supply General 8,654,114 $8,842,192 $9,284,302 $9,748,517 $10,235,943 $10,747,740 $11,231,388 $11,736,800 $12,264,956 $12,816,879 $13,393,639 45055 UPP Water Quality Water Demand General 2,908,597 $3,081,081 $3,235,135 $3,396,892 $3,566,736 $3,745,073 $3,913,602 $4,089,714 $4,273,751 $4,466,069 $4,667,043 45060 UPP Service & Meters Customer Accounts General 2,489,378 $2,710,826 $2,846,367 $2,988,686 $3,138,120 $3,295,026 $3,443,302 $3,598,251 $3,760,172 $3,929,380 $4,106,202 45065 UPP Water Conservation Water Demand General 1,580,898 $1,914,878 $2,010,622 $2,111,153 $2,216,711 $2,327,546 $2,432,286 $2,541,739 $2,656,117 $2,775,642 $2,900,546 45070 UPP MID Surface Water T & DA Water Demand General 17,120,214 $17,135,229 $17,991,990 $18,891,590 $19,836,169 $20,827,978 $21,765,237 $22,744,673 $23,768,183 $24,837,751 $25,955,450 Non-capital projects (FY23/24 is Billing Software) Administration General 684,000 $1,625,000 $0 $0 $0 $0 $0 $0 $0 $0 $0 UTL - Water - Grant Research & Writing - 101452 Capital General 150,000 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 UTL - Groundwater Well Strategy Plan - 101456 Capital General 126,125 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Transfer Into Fund 4140 - Match Funding Administration General 46,723 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Storm Drain Annual Transfer-out (rockwell rej) Administration General 700,000 $700,000 $700,000 $700,000 $700,000 $700,000 $700,000 $731,500 $764,418 $798,816 $834,763 JPA Building svs Annual Transfer-out Administration General 65,000 $65,000 $65,000 $65,000 $65,000 $65,000 $65,000 $67,925 $70,982 $74,176 $77,514 Total Operating Expenses n/a n/a $54,714,074 $58,312,292 $59,483,407 $62,419,327 $65,502,043 $68,738,895 $71,797,721 $75,028,618 $78,404,906 $81,933,127 $85,620,117 1 Based on City's FY 22-23 budget n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a ---PAGE BREAK--- Table 2 Draft City of Modesto Water Rate Study Projected Revenues Scenario 3 - Full Capital, No Debt Revenue Allocation Escalation FY 22-23 FY 23-24 FY 24-25 FY 25-26 FY 26-27 FY 27-28 FY 28-29 FY 29-30 FY 30-31 FY 31-32 FY 32-33 n/a n/a n/a Budgeted Projected Projected Projected Projected Projected Projected Projected Projected Projected Projected Revenue Escalation n/a Growth n/a 0.2% 0.2% 0.2% 0.2% 0.2% 0.2% 0.2% 0.2% 0.2% 0.2% Revenue Escalation n/a None n/a 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% Revenue Escalation n/a Interest n/a 0.4% 0.4% 0.4% 0.4% 0.4% 0.4% 0.4% 0.4% 0.4% 0.4% Rate Revenue n/a Growth $79,318,075 $79,021,999 $84,326,746 $89,987,600 $96,028,468 $102,474,859 $109,353,996 $116,694,930 $121,605,453 $126,722,610 $130,785,337 Revenue from Rate Increase1,2 n/a N/a $4,280,358 $5,481,238 $5,849,194 $6,241,850 $6,660,866 $7,108,010 $4,667,797 $4,864,218 $3,801,678 $3,923,560 Other Revenue n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a Refunds, Damages, and Cost Recovery/Other As All Other Growth $10,000 $10,020 $10,040 $10,060 $10,080 $10,100 $10,121 $10,141 $10,161 $10,181 $10,202 Water Fund Development Fees Capital Growth $1,220,500 $329,010 $329,668 $330,327 $330,988 $331,650 $332,313 $332,978 $333,643 $334,311 $334,979 Rental Income As All Other None $42,000 $42,000 $42,000 $42,000 $42,000 $42,000 $42,000 $42,000 $42,000 $42,000 $42,000 Service Credits As All Other None $3,062,214 $3,062,214 $3,062,214 $3,062,214 $3,062,214 $3,062,214 $3,062,214 $3,062,214 $3,062,214 $3,062,214 $3,062,214 Utility Assistance Fee As All Other None $200,902 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Repayment of Carpenter Road Landfill mitigation loan - Advance 16A/B/C As All Other None $707,421 $707,421 $707,421 $707,421 $707,421 $707,421 $707,421 $707,421 $707,421 $707,421 $707,421 Interest As All Other None $500,000 $500,000 $413,343 $353,446 $304,060 $261,244 $214,015 $171,795 $199,297 $233,186 $249,877 Total Other Revenue $5,743,037 $4,650,665 $4,564,686 $4,505,468 $4,456,763 $4,414,629 $4,368,083 $4,326,548 $4,354,737 $4,389,313 $4,406,693 Total Revenue n/a n/a $85,061,112 $87,953,022 $94,372,670 $100,342,263 $106,727,082 $113,550,354 $120,830,089 $125,689,275 $130,824,408 $134,913,602 $139,115,590 1Additional revenue based on recommended increase 2Adjusted if rates adopted in the middle of fiscal year ---PAGE BREAK--- Table 3 Draft City of Modesto Water Rate Study Capital Improvement Costs Scenario 3 - Full Capital, No Debt Capital Improvement Plan (CIP) FY 22-23 FY 23-24 FY 24-25 FY 25-26 FY 26-27 FY 27-28 FY 28-29 FY 29-30 FY 30-31 FY 31-32 FY 32-33 n/a Projected Projected Projected Projected Projected Projected Projected Projected Projected Projected Projected CIP (Current Dollars) Total CIP (Current Dollars) $29,321,500 $25,625,000 $35,800,976 $34,409,979 $34,162,513 $36,358,682 $37,092,938 $23,558,714 $22,681,004 $25,081,003 $25,138,184 Total CIP (Inflated Dollars) $29,321,500 $25,625,000 $37,591,025 $37,937,002 $39,547,379 $44,194,205 $47,115,599 $31,270,970 $31,460,697 $36,355,260 $38,077,861 Annual Inflation Rate n/a n/a 5.0% 5.0% 5.0% 5.0% 4.5% 4.5% 4.5% 4.5% 4.5% ---PAGE BREAK--- $25.6 $37.6 $37.9 $39.5 $44.2 $47.1 $31.3 $31.5 $36.4 $38.1 $0.0 $5.0 $10.0 $15.0 $20.0 $25.0 $30.0 $35.0 $40.0 $45.0 $50.0 FY 23-24 FY 24-25 FY 25-26 FY 26-27 FY 27-28 FY 28-29 FY 29-30 FY 30-31 FY 31-32 FY 32-33 City of Modesto Water Capital Improvements millions) Scenario 3 - Full Capital, No Debt Source: City of Modesto 2023 CIP plus annual construction cost inflation. Future includes annual construction cost inflation. ---PAGE BREAK--- Table 4 Draft City of Modesto Water Rate Study Debt Scenario 3 - Full Capital, No Debt Debt FY 22-23 FY 23-24 FY 24-25 FY 25-26 FY 26-27 FY 27-28 FY 28-29 FY 29-30 FY 30-31 FY 31-32 FY 32-33 n/a Budgeted Projected Projected Projected Projected Projected Projected Projected Projected Projected Projected Existing Debt n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a 55140-54104 MID T & DA - 1998D (2013G) $5,155,541 $4,367,900 $0 $0 $0 $0 $0 $0 $0 $0 $0 55140-54103 MID T & DA - 2007F $4,257,700 $4,032,800 $8,409,205 $8,409,205 $8,409,206 $8,409,207 $8,409,208 $8,409,209 $8,409,210 $8,409,211 $8,409,212 4130 2008 Water Rev Lease Bond $2,164,623 $3,546,482 $4,240,014 $4,240,014 $4,240,014 $4,240,014 $4,240,014 $4,240,014 $4,240,014 $4,240,014 $4,240,014 55060 CA DWR (Del Este) $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 4140-12183 ARRA funding CDPH $46,723 $38,237 $36,600 $36,600 $36,600 $36,600 $36,600 $36,600 $36,600 $36,600 $36,600 Total Current Debt Service $11,624,587 $11,985,419 $12,685,819 $12,685,819 $12,685,820 $12,685,821 $12,685,822 $12,685,823 $12,685,824 $12,685,825 $12,685,826 ---PAGE BREAK--- Table 5 City of Modesto Water Rate Study Cash Flow Projections Scenario 3 - Full Capital, No Debt Projected Cashflow FY 23-24 FY 24-25 FY 25-26 FY 26-27 FY 27-28 FY 28-29 FY 29-30 FY 30-31 FY 31-32 FY 32-33 Rate Revenue Increase 6.5% 6.5% 6.5% 6.5% 6.5% 6.5% 4.0% 4.0% 3.0% 3.0% Beginning Reserves $110,862,007 $103,335,766 $88,361,528 $76,015,089 $65,310,989 $53,503,665 $42,948,626 $49,824,285 $58,296,562 $62,469,138 Revenues n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a Rate Revenue $79,021,999 $84,326,746 $89,987,600 $96,028,468 $102,474,859 $109,353,996 $116,694,930 $121,605,453 $126,722,610 $130,785,337 Rate Increase Revenue 5,136,430 5,481,238 5,849,194 6,241,850 6,660,866 7,108,010 4,667,797 4,864,218 3,801,678 3,923,560 Timing Adjustment* -856,072 0 0 0 0 0 0 0 0 0 Other Revenue 4,650,665 4,564,686 4,505,468 4,456,763 4,414,629 4,368,083 4,326,548 4,354,737 4,389,313 4,406,693 Interest on Reserves $443,448 $413,343 $353,446 $304,060 $261,244 $214,015 $171,795 $199,297 $233,186 $249,877 Total Revenue $88,396,470 $94,786,013 $100,695,709 $107,031,142 $113,811,598 $121,044,104 $125,861,070 $131,023,705 $135,146,788 $139,365,466 Expenses n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a Operating Expenses $58,312,292 $59,483,407 $62,419,327 $65,502,043 $68,738,895 $71,797,721 $75,028,618 $78,404,906 $81,933,127 $85,620,117 Existing Debt Service 11,985,419 12,685,819 12,685,819 12,685,820 12,685,821 12,685,822 12,685,823 12,685,824 12,685,825 12,685,826 New Debt Service 0 0 0 0 0 0 0 0 0 0 Rate Funded Capital $25,625,000 $37,591,025 $37,937,002 $39,547,379 $44,194,205 $47,115,599 $31,270,970 $31,460,697 $36,355,260 $38,077,861 Total Expenses $95,922,711 $109,760,251 $113,042,148 $117,735,242 $125,618,921 $131,599,142 $118,985,411 $122,551,427 $130,974,212 $136,383,805 Net Revenues -$7,526,241 -$14,974,238 -$12,346,439 -$10,704,100 -$11,807,324 -$10,555,039 $6,875,658 $8,472,277 $4,172,576 $2,981,662 Ending Reserves $103,335,766 $88,361,528 $76,015,089 $65,310,989 $53,503,665 $42,948,626 $49,824,285 $58,296,562 $62,469,138 $65,450,800 Debt Coverage (Target 2.0) 2.51 2.78 3.02 3.27 3.55 3.88 4.01 4.15 4.19 4.24 *Reflects October rate implementation n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a Capital Funding FY 23-24 FY 24-25 FY 25-26 FY 26-27 FY 27-28 FY 28-29 FY 29-30 FY 30-31 FY 31-32 FY 32-33 Capital Revenues n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a Use of Debt Proceeds $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Rate Funded Capital $25,625,000 $37,591,025 $37,937,002 $39,547,379 $44,194,205 $47,115,599 $31,270,970 $31,460,697 $36,355,260 $38,077,861 Total Capital Revenue $25,625,000 $37,591,025 $37,937,002 $39,547,379 $44,194,205 $47,115,599 $31,270,970 $31,460,697 $36,355,260 $38,077,861 Total Capital Expenditures $25,625,000 $37,591,025 $37,937,002 $39,547,379 $44,194,205 $47,115,599 $31,270,970 $31,460,697 $36,355,260 $38,077,861 ---PAGE BREAK--- $0.0 $20.0 $40.0 $60.0 $80.0 $100.0 $120.0 $140.0 $160.0 $180.0 $200.0 FY 22-23 FY 23-24 FY 24-25 FY 25-26 FY 26-27 FY 27-28 FY 28-29 FY 29-30 FY 30-31 FY 31-32 FY 32-33 Rate Funded Capital Debt Service O&M Revenue Reserves City of Modesto Projected Water Revenues & Expenses Millions) Scenario 3 - Full Capital, No Debt ---PAGE BREAK--- Table 6 Draft City of Modesto Water Rate Study Customer Data Scenario 3 - Full Capital, No Debt Customer Data FY 17-18 FY 18-19 FY 19-20 FY 20-21 FY 21-22 FY 22-23 FY 23-24 n/a Actual Actual Actual Actual Actual Projected Projected System Totals n/a n/a n/a n/a n/a n/a n/a Total Accounts 73,469 73,629 73,833 74,137 74,413 74,560 74,707 Growth n/a 0.22% 0.28% 0.41% 0.37% 0.20% 0.20% Annual metered use (CCF) per meter 278 265 277 288 279 277 277 Annual production (CCF) per account 298 285 303 309 298 299 299 Billed, Metered Consumption (CCF) 18,639,728 18,222,157 19,509,688 20,697,851 20,568,355 20,562,541 20,693,839 Total Estimated Consumption (CCF) 20,710,040 19,789,661 20,643,245 21,464,258 20,796,593 20,676,660 20,693,839 Total Water Production (CCF) 21,919,447 20,965,305 22,397,473 22,916,498 22,203,522 22,277,633 22,328,428 ---PAGE BREAK--- Table 7 Draft City of Modesto Water Rate Study Meter Equivalent Units Scenario 3 - Full Capital, No Debt Meter Size* Services Meter Equivalent Ratio** Meter Equivalent Units Annual Meter Equivalent Units 5/8" 87 1.0 87.0 1,044.0 3/4" 13,459 1.0 13,459.0 161,508.0 1" 57,153 1.7 95,255.0 1,143,060.0 1.5" 1,168 3.3 3,893.3 46,720.0 2" 2,176 5.3 11,605.3 139,264.0 3" 158 11.7 1,843.3 22,120.0 4" 289 21.0 6,069.0 72,828.0 6" 141 43.3 6,110.0 73,320.0 8" 64 80.0 5,120.0 61,440.0 10" 11 126.7 1,393.3 16,720.0 12" 1 166.7 166.7 2,000.0 Total 74,707.0 n/a 145,002.0 1,740,024.0 * Customer data as of June 2022 provided by staff Capacity factors based on AWWA operating capacity standards by meter size ---PAGE BREAK--- Table 8 Draft City of Modesto Water Rate Study Functional Allocation Scenario 3 - Full Capital, No Debt Functional Allocation Amount Offsetting Revenue Allocation Amount Customer Capacity All Volume Total Administration $7,550,855 $0 $7,550,855 30% 70% 0% 100% Source of Supply $9,839,635 $0 $9,839,635 0% 10% 90% 100% Water Demand $24,584,204 $0 $24,584,204 0% 0% 100% 100% Customer Accounts $6,831,266 $0 $6,831,266 100% 0% 0% 100% Water System $11,638,388 $0 $11,638,388 0% 50% 50% 100% Debt Service $12,545,740 $0 $12,545,740 0% 100% 0% 100% Capital $36,978,922 $330,328 $36,648,594 0% 50% 50% 100% Functional Allocation $ $109,969,011 $330,328 $109,638,683 $9,096,523 $42,958,793 $57,583,367 $109,638,683 Functional Allocation % n/a n/a n/a 8.30% 39.18% 52.52% 100% Revenue Requirement n/a n/a n/a $6,985,150 $32,973,272 $44,200,007 $84,158,429 ---PAGE BREAK--- Table 9 Draft City of Modesto Water Rate Study Rate Derivation Scenario 3 - Full Capital, No Debt Allocation Units n/a Customer Capacity All Volume Unit of Measure n/a # EDU CCF Allocation Units n/a 894,714 1,740,024 20,693,839 Revenue Requirement n/a $6,985,150 $32,973,272 $44,200,007 Unit Cost ($/Unit) n/a $7.81 $18.95 $2.14 Fixed Charge Calculation Capacity Factor** Customer Component Capacity Component Fixed Charge 5/8" 1.00 $7.81 $18.95 $26.76 3/4" 1.00 $7.81 $18.95 $26.76 1" 1.67 $7.81 $31.58 $39.40 1.5" 3.33 $7.81 $63.17 $70.98 2" 5.33 $7.81 $101.07 $108.88 3" 11.67 $7.81 $221.08 $228.90 4" 21.00 $7.81 $397.95 $405.76 6" 43.33 $7.81 $821.17 $828.98 8" 80.00 $7.81 $1,516.00 $1,523.81 10" 126.67 $7.81 $2,400.33 $2,408.15 12" 166.67 $7.81 $3,158.33 $3,166.15 ---PAGE BREAK--- Table 10 City of Modesto Water Rate Study Drought Rate Derivation Scenario 3 - Full Capital, No Debt Row Drought Rate Calculation Units A Projected volume CCF B Drought reduction % C Drought volume (A x CCF D Volume reduction (A x B) CCF E Variable Cost $/CCF F Variable cost reduction (D x E) $ G Projected revenue requirement $ H Drought revenue requirement (G - F) $ I Drought rate (H / C) $/CCF ---PAGE BREAK--- APPENDIX C Scenario 3 Water Rate Study Tables ---PAGE BREAK--- City of Modesto Draft Water Rate Study Tables Scenario 2 - Full Capital with New Debt Draft June 22, 2023 BARTLE WELLS ASSOCIATES Independent Public Finance Advisors ---PAGE BREAK--- Table A City of Modesto Water Rate Study Rate Sheet Scenario 2 - Full Capital with New Debt Current and Proposed Water Rates Current Proposed Oct 1, 2023 Proposed Oct 1, 2024 Proposed Oct 1, 2025 Proposed Oct 1, 2026 Proposed Oct 1, 2027 Volumetric Rates n/a n/a n/a n/a n/a n/a Non-Drought ($/CCF) $2.02 $2.11 $2.20 $2.30 $2.40 $2.51 Drought ($/CCF) n/a $2.45 $2.56 $2.68 $2.80 $2.93 Fixed Charge n/a n/a n/a n/a n/a n/a Meter Size n/a n/a n/a n/a n/a n/a 5/8" $25.44 $26.43 $27.62 $28.86 $30.16 $31.52 3/4" $25.44 $26.43 $27.62 $28.86 $30.16 $31.52 1" $36.83 $38.55 $40.28 $42.09 $43.98 $45.96 1.5" $65.32 $68.85 $71.95 $75.19 $78.57 $82.11 2" $99.50 $105.21 $109.94 $114.89 $120.06 $125.46 3" $207.73 $220.35 $230.27 $240.63 $251.46 $262.78 4" $367.24 $390.03 $407.58 $425.92 $445.09 $465.12 6" $748.90 $796.05 $831.87 $869.30 $908.42 $949.30 8" $1,375.53 $1,462.65 $1,528.47 $1,597.25 $1,669.13 $1,744.24 10" $2,173.05 $2,311.05 $2,415.05 $2,523.73 $2,637.30 $2,755.98 12" $2,856.63 $3,038.25 $3,174.97 $3,317.84 $3,467.14 $3,623.16 ---PAGE BREAK--- Table 1 Draft City of Modesto Water Rate Study Projected Operating Expenses Scenario 2 - Full Capital with New Debt Expenses1 Allocation Inflation FY 22-23 FY 23-24 FY 24-25 FY 25-26 FY 26-27 FY 27-28 FY 28-29 FY 29-30 FY 30-31 FY 31-32 FY 32-33 n/a n/a n/a Budgeted Projected Projected Projected Projected Projected Projected Projected Projected Projected Projected General Inflation Factor n/a General n/a 5.0% 5.0% 5.0% 5.0% 5.0% 4.5% 4.5% 4.5% 4.5% 4.5% 12460 FIN Cashiering Customer Accounts General $845,352 $835,287 $877,051 $920,904 $966,949 $1,015,297 $1,060,985 $1,108,729 $1,158,622 $1,210,760 $1,265,244 12470 FIN Utilities & Collections Customer Accounts General 2,499,546 $2,411,368 $2,531,936 $2,658,533 $2,791,460 $2,931,033 $3,062,929 $3,200,761 $3,344,795 $3,495,311 $3,652,600 12475 FIN Utility Assistance Programs Administration General 1,119,827 $2,286,900 $2,401,245 $2,521,307 $2,647,373 $2,779,741 $2,904,830 $3,035,547 $3,172,147 $3,314,893 $3,464,063 41010 UPP Administration Administration General 1,167,848 $1,154,259 $1,211,972 $1,272,571 $1,336,199 $1,403,009 $1,466,144 $1,532,121 $1,601,066 $1,673,114 $1,748,405 41410 UPP Water General Administration General 410,902 $425,795 $447,085 $469,439 $492,911 $517,556 $540,847 $565,185 $590,618 $617,196 $644,970 41420 UPP Water Billing & Collections Customer Accounts General 176,311 $223,954 $235,152 $246,909 $259,255 $272,217 $284,467 $297,268 $310,645 $324,624 $339,233 42024 UTL Water Engineering Design Capital General 1,122,154 $1,119,841 $1,175,833 $1,234,625 $1,296,356 $1,361,174 $1,422,427 $1,486,436 $1,553,325 $1,623,225 $1,696,270 43010 UPP Ground Water Management Plan Source of Supply General $115,141 $61,438 $64,510 $67,735 $71,122 $74,678 $78,039 $81,551 $85,220 $89,055 $93,063 43020 UPP Water System Analysis Water System General 220,977 $191,680 $201,264 $211,327 $221,894 $232,988 $243,473 $254,429 $265,878 $277,843 $290,346 43030 UPP Urban Water Management Plan Water Demand General 46,705 $32,502 $34,127 $35,833 $37,625 $39,506 $41,284 $43,142 $45,083 $47,112 $49,232 43040 UPP Water Quality Study Water Demand General 86,457 $81,917 $86,013 $90,313 $94,829 $99,571 $104,051 $108,734 $113,627 $118,740 $124,083 43060 UPP Capital Planning Capital General 801,938 $800,160 $840,168 $882,176 $926,285 $972,599 $1,016,366 $1,062,103 $1,109,898 $1,159,843 $1,212,036 43070 UPP Water Rate Analysis Administration General 122,251 $4,905 $5,150 $5,408 $5,678 $5,962 $6,230 $6,511 $6,804 $7,110 $7,430 43080 UPP Sphere of Influence Administration General 35,962 $34,933 $36,680 $38,514 $40,439 $42,461 $44,372 $46,369 $48,455 $50,636 $52,914 45010 UPP Water Services Administration Administration General 2,192,418 $2,233,552 $2,345,230 $2,462,491 $2,585,616 $2,714,896 $2,837,067 $2,964,735 $3,098,148 $3,237,564 $3,383,255 45020 UPP Systems Maintenance Water System General 3,120,442 $3,445,734 $3,618,021 $3,798,922 $3,988,868 $4,188,311 $4,376,785 $4,573,741 $4,779,559 $4,994,639 $5,219,398 45040 UPP Construction Water System General 6,233,954 $6,893,861 $7,238,554 $7,600,482 $7,980,506 $8,379,531 $8,756,610 $9,150,657 $9,562,437 $9,992,747 $10,442,420 45050 UPP Wells & Tanks Source of Supply General 8,654,114 $8,842,192 $9,284,302 $9,748,517 $10,235,943 $10,747,740 $11,231,388 $11,736,800 $12,264,956 $12,816,879 $13,393,639 45055 UPP Water Quality Water Demand General 2,908,597 $3,081,081 $3,235,135 $3,396,892 $3,566,736 $3,745,073 $3,913,602 $4,089,714 $4,273,751 $4,466,069 $4,667,043 45060 UPP Service & Meters Customer Accounts General 2,489,378 $2,710,826 $2,846,367 $2,988,686 $3,138,120 $3,295,026 $3,443,302 $3,598,251 $3,760,172 $3,929,380 $4,106,202 45065 UPP Water Conservation Water Demand General 1,580,898 $1,914,878 $2,010,622 $2,111,153 $2,216,711 $2,327,546 $2,432,286 $2,541,739 $2,656,117 $2,775,642 $2,900,546 45070 UPP MID Surface Water T & DA Water Demand General 17,120,214 $17,135,229 $17,991,990 $18,891,590 $19,836,169 $20,827,978 $21,765,237 $22,744,673 $23,768,183 $24,837,751 $25,955,450 Non-capital projects (FY23/24 is Billing Software) Administration General 684,000 $1,625,000 $0 $0 $0 $0 $0 $0 $0 $0 $0 UTL - Water - Grant Research & Writing - 101452 Capital General 150,000 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 UTL - Groundwater Well Strategy Plan - 101456 Capital General 126,125 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Transfer Into Fund 4140 - Match Funding Administration General 46,723 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Storm Drain Annual Transfer-out (rockwell rej) Administration General 700,000 $700,000 $700,000 $700,000 $700,000 $700,000 $700,000 $731,500 $764,418 $798,816 $834,763 JPA Building svs Annual Transfer-out Administration General 65,000 $65,000 $65,000 $65,000 $65,000 $65,000 $65,000 $67,925 $70,982 $74,176 $77,514 Total Operating Expenses n/a n/a $54,714,074 $58,312,292 $59,483,407 $62,419,327 $65,502,043 $68,738,895 $71,797,721 $75,028,618 $78,404,906 $81,933,127 $85,620,117 1 Based on City's FY 22-23 budget n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a ---PAGE BREAK--- Table 2 Draft City of Modesto Water Rate Study Projected Revenues Scenario 2 - Full Capital with New Debt Revenue Allocation Escalation FY 22-23 FY 23-24 FY 24-25 FY 25-26 FY 26-27 FY 27-28 FY 28-29 FY 29-30 FY 30-31 FY 31-32 FY 32-33 n/a n/a n/a Budgeted Projected Projected Projected Projected Projected Projected Projected Projected Projected Projected Revenue Escalation n/a Growth n/a 0.2% 0.2% 0.2% 0.2% 0.2% 0.2% 0.2% 0.2% 0.2% 0.2% Revenue Escalation n/a None n/a 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% Revenue Escalation n/a Interest n/a 0.4% 0.4% 0.4% 0.4% 0.4% 0.4% 0.4% 0.4% 0.4% 0.4% Rate Revenue n/a Growth $79,318,075 $79,021,999 $82,743,145 $86,639,520 $90,719,375 $94,991,350 $99,464,493 $106,639,861 $114,332,861 $122,580,833 $130,195,555 Revenue from Rate Increase1,2 n/a N/a $2,963,325 $3,723,442 $3,898,778 $4,082,372 $4,274,611 $6,962,514 $7,464,790 $8,003,300 $7,354,850 $6,509,778 Other Revenue n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a Refunds, Damages, and Cost Recovery/Other Administration Growth $10,000 $10,020 $10,040 $10,060 $10,080 $10,100 $10,121 $10,141 $10,161 $10,181 $10,202 Water Fund Development Fees Capital Growth $1,220,500 $329,010 $329,668 $330,327 $330,988 $331,650 $332,313 $332,978 $333,643 $334,311 $334,979 Rental Income Administration None $42,000 $42,000 $42,000 $42,000 $42,000 $42,000 $42,000 $42,000 $42,000 $42,000 $42,000 Service Credits As All Other None $3,062,214 $3,062,214 $3,062,214 $3,062,214 $3,062,214 $3,062,214 $3,062,214 $3,062,214 $3,062,214 $3,062,214 $3,062,214 Utility Assistance Fee As All Other None $200,902 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Repayment of Carpenter Road Landfill mitigation loan - Advance 16A/B/C As All Other None $707,421 $707,421 $707,421 $707,421 $707,421 $707,421 $707,421 $707,421 $707,421 $707,421 $707,421 Interest As All Other None $500,000 $500,000 $408,075 $334,770 $264,041 $271,030 $253,912 $241,383 $243,338 $243,974 $241,324 Total Other Revenue $5,743,037 $4,650,665 $4,559,418 $4,486,792 $4,416,744 $4,424,415 $4,407,981 $4,396,137 $4,398,778 $4,400,101 $4,398,140 Total Revenue n/a n/a $85,061,112 $86,635,989 $91,026,004 $95,025,090 $99,218,491 $103,690,376 $110,834,988 $118,500,788 $126,734,939 $134,335,784 $141,103,473 1Additional revenue based on recommended increase 2Adjusted if rates adopted in the middle of fiscal year ---PAGE BREAK--- Table 3 Draft City of Modesto Water Rate Study Capital Improvement Costs Scenario 2 - Full Capital with New Debt Capital Improvement Plan (CIP) FY 22-23 FY 23-24 FY 24-25 FY 25-26 FY 26-27 FY 27-28 FY 28-29 FY 29-30 FY 30-31 FY 31-32 FY 32-33 n/a Projected Projected Projected Projected Projected Projected Projected Projected Projected Projected Projected Total CIP (Current Dollars) $29,321,500 $25,625,000 $35,800,976 $34,409,979 $34,162,513 $36,358,682 $37,092,938 $23,558,714 $22,681,004 $25,081,003 $25,138,184 Total CIP (Inflated Dollars) $29,321,500 $25,625,000 $37,591,025 $37,937,002 $39,547,379 $44,194,205 $47,115,599 $31,270,970 $31,460,697 $36,355,260 $38,077,861 Annual Inflation Rate n/a n/a 5.0% 5.0% 5.0% 5.0% 4.5% 4.5% 4.5% 4.5% 4.5% ---PAGE BREAK--- $25.6 $37.6 $37.9 $39.5 $44.2 $47.1 $31.3 $31.5 $36.4 $38.1 $0.0 $5.0 $10.0 $15.0 $20.0 $25.0 $30.0 $35.0 $40.0 $45.0 $50.0 FY 23-24 FY 24-25 FY 25-26 FY 26-27 FY 27-28 FY 28-29 FY 29-30 FY 30-31 FY 31-32 FY 32-33 City of Modesto Water Capital Improvements millions) Scenario 2 - Full Capital with New Debt Source: City of Modesto 2023 CIP plus annual construction cost inflation. Future includes annual construction cost inflation. ---PAGE BREAK--- Table 4 Draft City of Modesto Water Rate Study Debt Scenario 2 - Full Capital with New Debt Debt FY 22-23 FY 23-24 FY 24-25 FY 25-26 FY 26-27 FY 27-28 FY 28-29 FY 29-30 FY 30-31 FY 31-32 FY 32-33 n/a Budgeted Projected Projected Projected Projected Projected Projected Projected Projected Projected Projected Existing Debt n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a 55140-54104 MID T & DA - 1998D (2013G) $5,155,541 $4,367,900 $0 $0 $0 $0 $0 $0 $0 $0 $0 55140-54103 MID T & DA - 2007F $4,257,700 $4,032,800 $8,409,205 $8,409,205 $8,409,206 $8,409,207 $8,409,208 $8,409,209 $8,409,210 $8,409,211 $8,409,212 4130 2008 Water Rev Lease Bond $2,164,623 $3,546,482 $4,240,014 $4,240,014 $4,240,014 $4,240,014 $4,240,014 $4,240,014 $4,240,014 $4,240,014 $4,240,014 55060 CA DWR (Del Este) $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 4140-12183 ARRA funding CDPH $46,723 $38,237 $36,600 $36,600 $36,600 $36,600 $36,600 $36,600 $36,600 $36,600 $36,600 Total Current Debt Service $11,624,587 $11,985,419 $12,685,819 $12,685,819 $12,685,820 $12,685,821 $12,685,822 $12,685,823 $12,685,824 $12,685,825 $12,685,826 Proposed Borrowing n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a Net Proceeds Needed $0 $0 $0 $0 $0 $40,000,000 $0 $25,000,000 $0 $0 $0 Repayment Term (yrs) 0 0 0 0 0 30 0 30 0 0 0 Interest Rate 0.0% 0.0% 0.0% 0.0% 0.0% 5.0% 0.0% 5.0% 0.0% 0.0% 0.0% Month of Issue 0 0 0 0 0 1 0 1 0 0 0 Issuance Cost $0 $0 $0 $0 $0 $300,000 $0 $300,000 $0 $0 $0 Total Debt Issue Size $0 $0 $0 $0 $0 $40,300,000 $0 $25,300,000 $0 $0 $0 Prorated Debt Service - Current Yr. Only $0 $0 $0 $0 $0 $2,622,000 $0 $1,646,000 $0 $0 $0 Annual Debt Service Payment (rounded) $0 $0 $0 $0 $0 $2,622,000 $0 $1,646,000 $0 $0 $0 Total Proposed Annual Water Debt Service $0 $0 $0 $0 $0 $2,622,000 $2,622,000 $4,268,000 $4,268,000 $4,268,000 $4,268,000 ---PAGE BREAK--- Table 5 City of Modesto Water Rate Study Cash Flow Projections Scenario 2 - Full Capital with New Debt Projected Cashflow FY 23-24 FY 24-25 FY 25-26 FY 26-27 FY 27-28 FY 28-29 FY 29-30 FY 30-31 FY 31-32 FY 32-33 Rate Revenue Increase 4.5% 4.5% 4.5% 4.5% 4.5% 7.0% 7.0% 7.0% 6.0% 5.0% Beginning Reserves $110,862,007 $102,018,732 $83,692,561 $66,010,273 $67,757,563 $63,478,048 $60,345,805 $60,834,565 $60,993,415 $60,330,961 Revenues n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a Rate Revenue $79,021,999 $82,743,145 $86,639,520 $90,719,375 $94,991,350 $99,464,493 $106,639,861 $114,332,861 $122,580,833 $130,195,555 Rate Increase Revenue 3,555,990 3,723,442 3,898,778 4,082,372 4,274,611 6,962,514 7,464,790 8,003,300 7,354,850 6,509,778 Timing Adjustment* -592,665 0 0 0 0 0 0 0 0 0 Other Revenue 4,650,665 4,559,418 4,486,792 4,416,744 4,424,415 4,407,981 4,396,137 4,398,778 4,400,101 4,398,140 Interest on Reserves $443,448 $408,075 $334,770 $264,041 $271,030 $253,912 $241,383 $243,338 $243,974 $241,324 Total Revenue $87,079,437 $91,434,079 $95,359,861 $99,482,532 $103,961,406 $111,088,900 $118,742,171 $126,978,277 $134,579,758 $141,344,796 Expenses n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a Operating Expenses $58,312,292 $59,483,407 $62,419,327 $65,502,043 $68,738,895 $71,797,721 $75,028,618 $78,404,906 $81,933,127 $85,620,117 Existing Debt Service 11,985,419 12,685,819 12,685,819 12,685,820 12,685,821 12,685,822 12,685,823 12,685,824 12,685,825 12,685,826 New Debt Service 0 0 0 0 2,622,000 2,622,000 4,268,000 4,268,000 4,268,000 4,268,000 Rate Funded Capital $25,625,000 $37,591,025 $37,937,002 $19,547,379 $24,194,205 $27,115,599 $26,270,970 $31,460,697 $36,355,260 $38,077,861 Total Expenses $95,922,711 $109,760,251 $113,042,148 $97,735,242 $108,240,921 $114,221,142 $118,253,411 $126,819,427 $135,242,212 $140,651,805 Net Revenues -$8,843,274 -$18,326,172 -$17,682,287 $1,747,289 -$4,279,515 -$3,132,242 $488,760 $158,850 -$662,454 $692,992 Ending Reserves $102,018,732 $83,692,561 $66,010,273 $67,757,563 $63,478,048 $60,345,805 $60,834,565 $60,993,415 $60,330,961 $61,023,953 Debt Coverage (Target 2.0) 2.40 2.52 2.60 2.68 2.30 2.57 2.58 2.87 3.11 3.29 *Reflects October rate implementation n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a Capital Funding FY 23-24 FY 24-25 FY 25-26 FY 26-27 FY 27-28 FY 28-29 FY 29-30 FY 30-31 FY 31-32 FY 32-33 Capital Revenues n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a Use of Debt Proceeds $0 $0 $0 $20,000,000 $20,000,000 $20,000,000 $5,000,000 $0 $0 $0 Rate Funded Capital $25,625,000 $37,591,025 $37,937,002 $19,547,379 $24,194,205 $27,115,599 $26,270,970 $31,460,697 $36,355,260 $38,077,861 Total Capital Revenue $25,625,000 $37,591,025 $37,937,002 $39,547,379 $44,194,205 $47,115,599 $31,270,970 $31,460,697 $36,355,260 $38,077,861 Total Capital Expenditures $25,625,000 $37,591,025 $37,937,002 $39,547,379 $44,194,205 $47,115,599 $31,270,970 $31,460,697 $36,355,260 $38,077,861 ---PAGE BREAK--- $0.0 $20.0 $40.0 $60.0 $80.0 $100.0 $120.0 $140.0 $160.0 $180.0 $200.0 FY 22-23 FY 23-24 FY 24-25 FY 25-26 FY 26-27 FY 27-28 FY 28-29 FY 29-30 FY 30-31 FY 31-32 FY 32-33 Rate Funded Capital Debt Service O&M Revenue Reserves City of Modesto Projected Water Revenues & Expenses Millions) Scenario 2 - Full Capital with New Debt ---PAGE BREAK--- Table 6 Draft City of Modesto Water Rate Study Customer Data Scenario 2 - Full Capital with New Debt Customer Data FY 17-18 FY 18-19 FY 19-20 FY 20-21 FY 21-22 FY 22-23 FY 23-24 n/a Actual Actual Actual Actual Actual Projected Projected System Totals n/a n/a n/a n/a n/a n/a n/a Total Accounts 73,469 73,629 73,833 74,137 74,413 74,560 74,707 Growth n/a 0.22% 0.28% 0.41% 0.37% 0.20% 0.20% Annual metered use (CCF) per meter 278 265 277 288 279 277 277 Annual production (CCF) per account 298 285 303 309 298 299 299 Billed, Metered Consumption (CCF) 18,639,728 18,222,157 19,509,688 20,697,851 20,568,355 20,562,541 20,693,839 Total Estimated Consumption (CCF) 20,710,040 19,789,661 20,643,245 21,464,258 20,796,593 20,676,660 20,693,839 Total Water Production (CCF) 21,919,447 20,965,305 22,397,473 22,916,498 22,203,522 22,277,633 22,328,428 ---PAGE BREAK--- Table 7 Draft City of Modesto Water Rate Study Meter Equivalent Units Scenario 2 - Full Capital with New Debt Meter Size* Services Meter Equivalent Ratio** Meter Equivalent Units Annual Meter Equivalent Units 5/8" 87 1.0 87.0 1,044.0 3/4" 13,459 1.0 13,459.0 161,508.0 1" 57,153 1.7 95,255.0 1,143,060.0 1.5" 1,168 3.3 3,893.3 46,720.0 2" 2,176 5.3 11,605.3 139,264.0 3" 158 11.7 1,843.3 22,120.0 4" 289 21.0 6,069.0 72,828.0 6" 141 43.3 6,110.0 73,320.0 8" 64 80.0 5,120.0 61,440.0 10" 11 126.7 1,393.3 16,720.0 12" 1 166.7 166.7 2,000.0 Total 74,707.0 n/a 145,002.0 1,740,024.0 * Customer data as of June 2022 provided by staff Capacity factors based on AWWA operating capacity standards by meter size ---PAGE BREAK--- Table 8 Draft City of Modesto Water Rate Study Functional Allocation Scenario 2 - Full Capital with New Debt Functional Allocation Amount Offsetting Revenue Allocation Amount Customer Capacity All Volume Total Administration $7,550,855 $52,060 $7,498,795 30% 70% 0% 100% Source of Supply $9,839,635 $0 $9,839,635 0% 10% 90% 100% Water Demand $24,584,204 $0 $24,584,204 0% 0% 100% 100% Customer Accounts $6,831,266 $0 $6,831,266 100% 0% 0% 100% Water System $11,638,388 $0 $11,638,388 0% 50% 50% 100% Debt Service $12,545,740 $0 $12,545,740 0% 100% 0% 100% Capital $28,978,922 $330,328 $28,648,594 0% 50% 50% 100% Functional Allocation $ $101,969,011 $382,388 $101,586,623 $9,080,905 $38,922,351 $53,583,367 $101,586,623 Functional Allocation % n/a n/a n/a 8.94% 38.31% 52.75% 100% Revenue Requirement n/a n/a n/a $7,382,472 $31,635,628 $43,559,889 $82,577,989 ---PAGE BREAK--- Table 9 Draft City of Modesto Water Rate Study Rate Derivation Scenario 2 - Full Capital with New Debt Allocation Units n/a Customer Capacity All Volume Unit of Measure n/a # EDU CCF Allocation Units n/a 894,714 1,740,024 20,693,839 Revenue Requirement n/a $7,382,472 $31,635,628 $43,559,889 Unit Cost ($/Unit) n/a $8.25 $18.18 $2.11 Fixed Charge Calculation Capacity Factor** Customer Component Capacity Component Fixed Charge 5/8" 1.00 $8.25 $18.18 $26.43 3/4" 1.00 $8.25 $18.18 $26.43 1" 1.67 $8.25 $30.30 $38.55 1.5" 3.33 $8.25 $60.60 $68.85 2" 5.33 $8.25 $96.96 $105.21 3" 11.67 $8.25 $212.10 $220.35 4" 21.00 $8.25 $381.78 $390.03 6" 43.33 $8.25 $787.80 $796.05 8" 80.00 $8.25 $1,454.40 $1,462.65 10" 126.67 $8.25 $2,302.80 $2,311.05 12" 166.67 $8.25 $3,030.00 $3,038.25 ---PAGE BREAK--- Table 10 City of Modesto Water Rate Study Drought Rate Derivation Scenario 2 - Full Capital with New Debt Row Drought Rate Calculation Units A Projected volume CCF B Drought reduction % C Drought volume (A x CCF D Volume reduction (A x B) CCF E Variable Cost $/CCF F Variable cost reduction (D x E) $ G Projected revenue requirement $ H Drought revenue requirement (G - F) $ I Drought rate (H / C) $/CCF