Financial Planning Process

WATER SERVICES DEPARTMENT
THE FINANCIAL PLANNING PROCESS
Citizens Utility Advisory Commission Workshop December 17, 2020

Agenda
• Workshop objective
• Financial Planning background and objectives
• Steps to the financial planning process
2

Financial Planning Background and Objectives
• Background
• Financial planning objectives
Our Mission Statement: The Water Department provides customers with safe, 
reliable, high quality water, wastewater, and storm water services to ensure 
the health, vitality and sustainability of our community.
• Establish financial sustainability to meet long-term operating  expenses, debt 
service, and capital expenditures
• Maintain financial policies regarding fund balance levels and debt service 
coverage
• Optimize capital improvement to provide reliable and resilient infrastructure
3

Steps to the Financial Planning Process
4
Financial Plan
Cost-of-Service
Rate Schedule
1
What level of overall rate revenue is
needed to meet expenditures,  
reserves, and bond covenants?
Is each customer class paying 
their equitable share of costs?
2
How should cost recovery be 
allocated to service charge and 
volume rates?
3

Financial Plan
5
Financial Plan
1
What level of overall rate revenue is
needed to meet expenditures,  
reserves, and bond covenants?
The financial plan is a long-term forecast of cash flows that 
reflects key inputs from all primary City water utility 
functions

Financial Plan 
• Cash In-flows – Sources
– Beginning fund balance
– Rate revenue
– Other operating revenue
– Non-Operating income
6

Financial Plan - continued 
• Cash Out-flows – Uses
– Operating & Maintenance Expenses from
– Debt Service
– Capital Outlay
• Water Treatment
• Water Resources
• Utility Billing
• Personnel Services
• Water Quality
• Meter Maintenance
• Line Maintenance
• Plant Maintenance
7
• Water Distribution
• Wastewater Collection
• Storm water Manage
• Department Admin

Financial Plan Assumptions
•Financial Targets
–Fund Balance
–Days Cash on Hand
–Debt Service Coverage
•Forecast Assumptions
–Revenue growth and demand
–O&M Expense increases
–New debt terms
8

Capital Improvement Financing Strategy
•The financing strategy selected to pay for CIP expenditures is a 
key driver of water utility revenue increases  
•The financial plan must have capabilities to determine the 
optimal mix of CIP financing: 
–Cash generated from water user charges (“Pay-Go” financing)
–External debt financing (revenue bonds) 
–Development Impact Fees (customer account growth)
9

10
Cost of Service
Cost of Service
Is each customer class paying 
their equitable share of costs?
2
The cost of service is the defined allocation of costs 
(revenue requirement) first by service function and then by 
customer class based on the class characteristics

Cost of Service - Water
• Recognizes differing service function
– Total annual usage
– Peak usage demands 
– Size of meters
• Varies by customer class
– Single family residential
– Multifamily residential
– Commercial 
– Sprinkler
11

Cost of Service – Water 
Customer Demand Characteristic
0
400
800
1200
1600
Jan
Feb
Mar
Apr
May
Jun
Aug
Sept
Oct
Nov
Dec
Total Monthly Use
Single- Family
Multi-Family
Commercial
Sprinkler
12

13
Cost of Service – Water
# of accounts and usage per account characteristic
Customer Class
Number of 
Accounts
% of Total 
Accts
Annual Usage  
(MG)
% of Total 
Usage
Average 
(kgal/Acct)
Single Family
56,300 
90%
7,038
58%
125
Multi Family
1,714
3%
125
1%
73
Commercial
2,727
4%
3,271
27%
1,200
Sprinkler
1,573
3%
1,691
14%
1,075
Total
62,314
100%
12,126
100%
195

2017 Cost of Service Results - Water
Customer Class
Revenue
Under Current 
Rates
Indicated
COS 
Required $ 
Revenue Change
Required % 
Revenue Change
Single Family
$28,314,059 
$26,739,944 
($1,574,115)
-5.6%
Multi Family
3,035,737
2,864,524
(171,213)
-5.6%
Industrial
7,679,042
7,812,868
133,826
1.7%
Sprinkler
7,061,239
8,558,799
1,497,560
21.2%
Commercial
4,415,479
4,534,766
119,287
2.7%
Total
$50,505,555 
$50,510,901 
$5,346 
0.0%
14

Cost of Service - Wastewater
•Recognizes differing service characteristics
–Contributed Volume or Flow
–Strength
–Chemical Oxygen Demand (COD) 
–Suspended Solids (TSS)
•Varies by customer class
–Domestic (normal) strength
–Excessive strength 
15

2017 Cost of Service Results - Wastewater
Customer Class
Cost Of Service
Revenue under 
Existing Charges
Required 
Change in Revenue
Residential
$26,251,475
$26,529,348
($277,873)
Commercial
5,356,462
5,083,291 
273,171
Outside City Customers
144,063
139,361 
4,702
Total System
$31,752,000
$31,752,000
$0
16

17
Rate Schedule
Rate Schedule
How should cost recovery be 
allocated to service charge and 
volume rates?
3
Rate schedule design allows the utility to recover the 
revenue requirement from each customer class to 
achieve specific policy objectives

Critical Issues Considered
–Understanding of pricing objectives
–Awareness of rate design implications
–Billing system capabilities
–Data needs
–Understanding impact on City’s customer base
18

Identify Pricing Objectives
Equity Between Classes 
and Within a Class
Ease of Administration
Financial Sufficiency
Minimal Customer Impacts
Simple to Understand
Affordability to 
Disadvantaged Customers
Water Efficiency/ 
Conservation
Economic Development
Revenue Stability

Water Rate Structure Alternatives  
Less
More
EQUITABLE-CONSERVATION
Flat
Declining 
Block
Uniform
Seasonal
Inclining 
Block
Budget/
Individualized
Flat Rate
Declining Block
Uniform Rate
Seasonal
Inclining Block
Budget / 
Individualized
20

Water User Charges
•Rates based on meter size and water consumption
•Base rate to recover the cost of the meter maintenance, monthly 
reading, and billing & collection costs 
•Volume rate to recover operational and capital costs (salaries, 
chemicals, power, water resources, debt service, cash-funded capital 
projects, equipment maintenance, etc.)
21

Current Water Base Rate Schedules
Size
Rate
3/4”
$14.40
1”
$20.40
1-1/5”
$41.40
2”
$73.80
3”
$125.00
4”
$222.00

Current Water Volume Rate Schedules
• Volume/Usage Rate- $ per 
1,000 gallons
Residential/Single Family
• Commercial (Seasonal Rates)
Tier
Rate
Usage
1
$2.66
0-6
2
$3.33
7-15
3
$4.66
16-30
4
$6.64
> 30
Season
Rate
Winter
$3.59
Summer
$4.94
Season
Rate
Winter
$2.92
Summer
$3.65
• Residential / Multi Family
Tier
Rate
Usage
1
$2.61
0-6
2
$3.27
7-15
3
$4.57
16-30
4
$6.50
> 30
Sprinkler (Seasonal Rates)

Sewer Rate Structure
•Customer Classes
12 different Inside City Customer 
Classes
2 different Outside City Customer 
Classes 
Inside vs. Outside
–Outside rates 1.3x Inside Rates
(per City policy)
•Fixed Charges-Usage Rates
Monthly Base Charge $11.40 charge same for 
all meter sizes
Volume Rates

Uniform rate per 1,000 gallons based on:
–90% AWC* for Residential
–95% AWC* for Commercial

Rates differ by customer class & loading 
strengths
* Average Winter Consumption (AWC) = average winter water usage 
during the months of January, February and March

Current Wastewater Rate Schedule
25
Inside City volume charge per 1,000 gallons
Residential-Single and Multi-family
$4.37 
Commercial:
Group 2-Car Wash
$3.48 
Group 3-Office, Church, School, Govnmt
$3.90 
Group 4-Medical
$4.22 
Group 5-Retail, Conv Market, Warehouse
$3.98 
Group 6-Service Business
$4.28 
Group 7-Bar without food
$4.68 
Group 8-Hotel with food
$8.60 
Group 9-Auto repair, Full serv station
$4.39 
Group 10-Food Market, Mortuaries
$8.53 
Group 11-Restaurant, Food Manf, Shop Ctr
$8.68

Glendale Water and Sewer Bill 
26

How does Glendale compare to other cities
27

Questions
28
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