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13-1001_RAFTELIS FINANCIAL CONSULTANT, INC._D12_Agenda Report10/1/2013 D12 1:7b+ ��'9CIFl�Rr�o. City of San Juan Capistrano Agen e ort TO: Karen P. Brust, City N?4 r• FROM: Keith Van Der Maaten, Public Works and Utilities Direct r Prepared by: Justin Kirk, Senior Management Analyst DATE: October 1, 2013 SUBJECT: Consideration of Award of Personal Services Agreement for Water and Sewer Rate Study (Raftelis Financial Consultant, Inc.) RECOMMENDATION: By motion, award a Personal Services Agreement to Raftelis Financial Consultant, Inc. for a water and sewer rate study in the amount not to exceed $100,000. EXECUTIVE SUMMARY: The City of San Juan Capistrano (City) through its Utilities Department operates and maintains a water system that provides service to approximately 11,200 connections serving approximately 38,000 customers in our community and a small portion of Dana Point. Periodic analysis of the costs to treat, purchase, and distribute water and the costs to collect, treat and dispose of waste water, is required to ensure that the City's water and sewer rates adequately recover the City's costs in providing those services and comply with California law. The City solicited Request for Proposals from thirteen (13) qualified firms on August 16, 2013 (Attachments 1 & 2). On September 6, 2013, the City received bids, and has tabulated the results below: CONSULTANT BID AMOUNT Carollo Engineers $129,919 Raftelis Financial Consultant, Inc. $88,103 HF&H Consultants, LLC $75,185 Staff has reviewed the bids in accordance with applicable Municipal Code sections, compiled the results, and contacted the relevant references. Based upon this review, staff recommends the awarding of a Personal Services Agreement to Raftelis Financial Consultant, Inc. for the performance of a water and sewer rate study in the amount of $88,103. Due to the potential need for additional public meetings, staff has the proposed agreement to not exceed $100,000. City Council Agenda Report October 1, 2013 Page 2 of 3 DISCUSSION/ANALYSIS: The last cost -of -service rate study was completed in 2009-2010. In February 2010, the City Council approved a series of five water and sewer rate adjustments over four years. The last of these approved rate adjustments was implemented in July 2013. The City Council at its July 16, 2013, regular meeting voted to not increase the Sewer Rates for Fiscal Year 2013-2014. To ensure the rates are consistent with current costs, a rate study was planned to be prepared and adopted during Fiscal Year 2013-2014. Raftelis Financial Consultant, Inc. estimates that the rate study will take approximately six (6) to seven (7) months, but has committed to completing it as quickly as possible. Staff will work with the consultant to expedite the rate study and complete the rate study as quickly as possible. The rate study will be conducted with the following goals: • Continued operation of the water and sewer systems. • Plan for repair and replacement of capital assets. • Re-establish emergency reserves. • Update cost of service information. • Adjust for increased costs from Metropolitan Water District and San Diego Gas and Electric (SDG&E). • Develop a water supply funding strategy and related projects, including recycled water and groundwater supplies. Raftelis Financial Consultant, Inc. has worked on over 75 water and waste water rate and/or financial studies in the past five (5) years in the State of California (Attachment 4), including the following Orange County agencies: • City of Anaheim • City of Brea • East Orange County Water District • EI Toro Water District • City of Huntington Beach • Mesa Consolidated Water District • Municipal Water District of Orange County • City of Newport Beach • City of San Clemente • South Coast Water District • City of Torrance FISCAL IMPACT: The Adopted Fiscal Year 2013-2014 Budget includes a total of $120,000 ($80,000 in the Water Enterprise Fund and $40,000 in the Sewer Enterprise Fund) for the purposes of a water and sewer rate study. The proposal received from Raftelis Financial Consultant, Inc. is in the amount of $88,103; however, due to potential additional public meetings, the total amount of the proposed Personal Services Agreement was adjusted to not City Council Agenda Report October 1, 2013 Page 3 of 3 exceed $100,000, therefore providing additional funds in the event there are additional meetings needed. ENVIRONMENTAL IMPACT: Not applicable. PRIOR CITY COUNCIL REVIEW: On May 7, 2013, City Council reviewed an agenda report and received a presentation on "Consideration of Goals for the Water and Sewer Rate Study which will be Completed in Fiscal Year 2013-2014", and provided direction to staff for the goals of such a study. COMMISSION/COMMITTEE/BOARD REVIEW AND RECOMMENDATIONS: Goals for the Water and Sewer Rate Study were reviewed by the Utilities Commission at its March 19, 2013, regular meeting. The Commission recommended approval of the stated goals, and added several aspects which they asked to be considered by the consultant and staff. This information was conveyed to City Council at the May 7, 2013 meeting listed above. The award of the Personal Service Agreement will be considered Commission at its regular meeting of October 1, 2013. Staff supplemental agenda report updating the City Council o Commission's action. NOTIFICATION: Carollo Engineers Raftelis Financial Consultants, Inc. HF&H Consultants, LLC ATTACHMENT(S): at the Utilities will prepare a n the Utilities Attachment 1 — Request for Proposals Attachment 2 — Consulting Firms List Attachment 3 — Personal Services Agreement with Raftelis Financial Consultant, Inc. Attachment 4 — List of California Agencies CITY OF SAN JUAN CAPISTRANO REQUEST FOR PROPOSALS FOR PROFESSIONAL CONSULTING SERVICES TO PROVIDE WATER AND SEWER UTILITIES RATE STUDY SUBMIT PROPOSALS BY SEPTEMBER 6, 2013 TO: Francie Kennedy, Water Conservation Coordinator Utilities Department City of San Juan Capistrano 32400 Paseo Adelanto San Juan Capistrano, California 92675 INTRODUCTION and BACKGROUND San Juan Capistrano is a small service area of approximately 38,000 residents located in South Orange County, California north of San Diego and south of Los Angeles. The City of San Juan Capistrano provides water and sewer services to an area of approximately 14.4 square miles (9,200 acres) mostly within its corporate boundaries, and including a small portion of Dana Point. The existing service area population is projected to increase to about 41,000 persons by ultimate build out in the year 2020. The majority of the service area consists of residential (43 percent) and open space (48 percent) land use. Strip commercial development makes up about 4 percent of the total service area. Other land uses include agriculture (4 percent) and public/institutional (1 percent). Water Operations In Fiscal Year 2012-13, the City delivered 8,031 acre-feet of metered water to 11,217 customer accounts. The City constructed the San Juan Groundwater Recovery Project (GWRP) in 2004. The GWRP is a reverse osmosis filtration/treatment facility that produces up to 4,800 acre-feet of potable water per year. This represents up to about 60 percent of the City's annual potable water requirement as well as a significant portion of its emergency water supply needs. Until construction of the GWRP, approximately 92 percent of the City's potable water supply was purchased from the Metropolitan Water District of Southern California (MWD). The remaining 8 percent was derived from local groundwater sources. Construction of the GWRP has significantly changed these percentages. City of San Juan Capistrano — Rate Study RFP Page 1 of 27 Attachment 1 The City's water -budget -based rate structure (i.e., allocation -based) has been in place since 1991-92, and in its current form consists of a fixed base tier for residential customers, with an additional budget -based three tiered increasing block rate structure for all residential customers and dedicated landscape and agricultural meters/accounts. The allocation for residential accounts includes an indoor component plus an outdoor component. The outdoor allocation changes each month depending upon daily weather conditions during the monthly billing period. It is based on irrigable area, 70% of ETo (reference evapotranspiration), a monthly crop coefficient for turf grass, and effective rainfall. Single-family residences are divided into two groups. Lots under 7,000 square feet are given a standardized allocation for 3,636 square feet of irrigable area, while those over 7,000 square feet receive an individualized water budget based on their lot size. The table below shows the current (2013-14) block rate structure for single-family residential accounts. Water use up to the budget/allocation is charged at the Base and Tier 1 rate. Use over 100% and up to 200% of the budget is billed at the tier 2 rate. Use greater than 200% of the budget is charged at the tier 3 rate. The complete water rate schedule with all customer classifications and their rates can be viewed at: http://www.san*uancapistrano.ora/Index.asi2x?paae=894. Single -Family Water Rates by Tier Cost per CCF of water Base Rate: First 6 CCF used $ 3.18 per CCF Tier I: Use up to 100% of the allocation $ 4.24 per CCF Tier II: Use up to 200% of the allocation $ 6.37 per CCF Tier III: Use greater than 200% of the allocation $11.67 per CCF To the right is a pie chart showing water sources for FY 12-13: The chart below illustrates FY 12-13 water use by customer sector: 3.58% 0.69% ■ Groundwater Recovery plant ■ Metropolitan Import a Nm -potable wells ■ Recycled City of San Juan Capistrano — Rate Study RFP Page 2 of 27 In 1989, as a potable water conservation effort, the City initiated a program to use lower quality groundwater for designated non-domestic use. The City installed a separate non-domestic water system to utilize this groundwater supply for landscape irrigation of golf courses, parks, recreation areas, greenbelts, schoolyards, highway medians, and industrial uses. The supplemental use of recycled water will allow the City to meet the future total water demand of the service area. The City has been working with neighboring Moulton Niguel Water District and Santa Margarita Water District to purchase recycled water from their treatment plants, until such time as the City chooses to expand its own treatment facilities at the Jay B. Latham Regional Treatment Plant. Legal Background At the time of this writing, San Juan Capistrano's existing water rates are being challenged in Superior Court (Case #30-2012-00594579). The outcome of this case is still unknown. The City will communicate updates, as they are known, to all potential respondents to this RFP. The outcome of this case will be incorporated in the Rate Study and proposed rate structure. Sewer Operations The City operates and maintains a sanitary sewer collection and conveyance system that includes approximately 122 miles of sewer lines in sizes up to 27 inches in diameter including two lift stations. Wastewater collected in the City's collection system is conveyed to the South Orange County Wastewater Authority's (SOCWA) Jay B. Latham Regional Treatment Plant (Treatment Plant). SOCWA also operates the San Juan Creek Ocean Outfall (Ocean Outfall), which discharges secondary -treated wastewater from the Jay B. Latham plant, along with the brine from the Groundwater Recovery Plant, into the Pacific Ocean for disposal. The City is one of five member agencies that own capacity in the Ocean Outfall. In January 2004, the City completed the Sanitary Sewer System Master Plan and Rehabilitation Program Report (Master Plan). The Master Plan provided a rehabilitation program for the City's sanitary sewer system infrastructure, portions of which date back to the 1920s. This program was combined with the City's existing rehabilitation program and in conjunction with the City's on-going sewer cleaning and videotaping, helps fulfill State and Federal requirements to properly operate and maintain the collection system and ensure hydraulic capacities to prevent system overflows. Additionally, the Master Plan included the projected operational and capital costs associated with the treatment and outfall through SOCWA. The plan was updated in 2007 to reflect new programs/projects as well as updated costs and project timing, and is currently under review by staff to identify priority projects and ongoing maintenance strategies to be considered in this rate study. City of San Juan Capistrano — Rate Study RFP Page 3 of 27 II. RATE STUDY OBJECTIVES AND CONSIDERATIONS The primary objective of this Study is to present a strategy for meeting the water and sewer utilities' financial obligations over a ten-year planning period. As such, the Consultant shall consider as a guide the following objectives and assumptions when developing the study: 1. The City requires this rate study to be accomplished as expeditiously as possible. The Consultant is requested to provide a full schedule of completion of all tasks. 2. The rate structure that the Consultant proposes for domestic and recycled water sales, and for sewer, and the supporting study, shall satisfy the requirements of all applicable law, including Proposition 218 (Prop 218). 3. Analyze the City's sewer, water, and recycled water master plans to develop rates and rate structures that reflect the cost of service, and will enable the City to cover capital replacement, depreciation of assets, ongoing capital improvement, treatment, operations and maintenance costs for the treatment, collection and distribution systems, as well as maintain the required debt service coverage and appropriate operating and capital reserves. 4. Forecast future revenue requirements for a ten-year study period incorporating fiscal policies, capital -related costs, ongoing operating and maintenance expenses, and other cash obligations of the water and sewer utilities; determine annual revenue adjustments necessary to fund revenue requirements. 5. Update, as appropriate, operating and capital reserve, debt management, and other appropriate fiscal policies to ensure sound financial operations of the water and sewer utilities, to maintain alignment with industry standards and to meet or exceed the minimums established by municipal bonding and rating entities. 6. Examine the calculations and assumptions in the existing water rate structure, including the basic allocation's division into two segments (Base and Tier 1) to provide affordable water for basic service needs, and/or make recommendations on a strategy that achieves a similar goal, such as the potential return to a single -tier allocation for prudent use. 7. Incorporate the increasing use of imported recycled water, with associated costs, into the rate structure. Analyze the City's Recycled Water Master Plan to refine the rate structure that will enable the City to cover operating and maintenance costs for the recycled water distribution system and City of San Juan Capistrano — Rate Study RFP Page 4 of 27 capital investment costs. Include potential SRF funds; loans and grants as alternative analyses. 8. Ensure the rate structure's effective delivery of a year-round conservation message, which defines prudent use through the water allocation or budget formula (or communicates a message through an alternate means), and encourages more efficient landscape practices. 9. It is recognized that during a prolonged and severe regional drought crisis, the City will need to reduce water consumption through conservation. Water budget based inclining block water rates, coupled with a robust public awareness campaign, is an effective method of achieving this with both landscape and residential customers. The structure of the inclining block rates incorporated in this study, or a preferred alternative identified by the study, will be such that it will provide a mechanism to support conservation. 10. Devise a methodology to set budget -based allocations for commercial customers. Recommend additional customer classifications if necessary. Identify what sort of customer data City staff would need to accomplish this. 11. For the sewer system, explore funding mechanisms for conversion of septic systems to sewer, such as establishment of an assessment district. 12. Identify a mechanism for automatic pass-through of rate increases from all imported water and energy suppliers, including Metropolitan Water District of Southern California (MWD), Moulton Niguel Water District, Santa Margarita Water District and San Diego Gas & Electric (SDG&E). 13. Identify a wholesale rate for the City to sell locally produced water, when available, to other water agencies. This rate shall cover all of the City's costs to produce and deliver the water. 14. Establish water and sewer impact fees for development. III. RATE STUDY SCOPE The City understands that there are viable firms that may specialize, and in fact excel, in only one of the utility operational areas described in this RFP. In these cases, firms are encouraged to submit the proposal in accordance with their area of specialization. The City reserves the right to award all or any portion of rate study scope to one or more vendors based on their experience and area of expertise. City of San Juan Capistrano — Rate Study RFP Page 5 of 27 Task 1 — Protect Orientation Workshop Consultant shall conduct a project orientation workshop with City staff. During this workshop the Consultant will confirm the study objectives and gain a common understanding of the project team's expectations. Items to be discussed shall include at a minimum: • Implications of Proposition 218 and legal rulings • Clarify roles, communication procedures, the project schedule, and due dates for deliverables • Detail information that will be needed to complete the study • Review existing City policies as they relate to Utilities Department operations such as debt service coverage ratios, reserve requirements, etc., including reviewing comments and direction already received from Utilities Commission and City Council members • Develop criteria for financial plan forecast assumptions • Review water, sewer, and recycled water master plans • Communicating the value of water supply and reliability Meetings: (1) Meet with City staff for project orientation Task 2 — 10 Year Financial Plan Consultant shall develop financial planning models for the water (including recycled water) and sewer operations for the ten-year study period. The financial plan analysis shall consider the following elements: Capital Improvements Program Funding. Consultant will review the CIP to identify non -rate sources of funds applicable to the CIP that will result in the lowest impact on utility rates. With assistance from staff, Consultant will identify those projects related to growth, and projects that are part of the utility's improvement and replacement program, including depreciation. • Examine projected rate increases for San Diego Gas & Electric (SDG&E) and all imported water suppliers including the Metropolitan Water District of Southern California (MWD). Evaluate allocation and demand projections for San Juan Capistrano. Consultant shall develop different scenarios about both the demand for imported water and City operational practices in order to assess the ten-year financial plan relative to these factors. A mechanism for automatic pass-through of rate increases from City of San Juan Capistrano — Rate Study RFP Page 6 of 27 imported water suppliers and SDG&E will be included as part of the rate study. • Revenue Analysis. Using the current and future projected demands and allocations for and of water, Consultant shall calculate revenue at current fixed (service) and variable (commodity) rates for the 10 -year study period. Address revenue from both fixed charges and variable charges, and indicate their respective contributions to revenue stability. • Ensure that this revenue meets the conditions of: o The City's bond covenants; and of o The California Urban Water Conservation Council's Best Management Practices (BMPs) regarding rates, or is at least as effective as the defined conditions (these BMPs are available at: http://www.cuwcc.orci/mou/exhibit-1-bmp-definitions-schedules- requirements.aspx; see BMP 1.4 concerning rates); and of o Industry standards for rate -making, including the most recent AWWA publications on the subject. • Revenue Requirements. Consultant shall project operating expenses based on the water and sewer program budgets, based on the amended FY 13-14 budget and most recent projections, and a review of historical cost trends in sufficient detail to: o Recognize types of expenses incurred by the system; o Project expenses for a ten-year study period; o Recognize changes in certain costs consistent with changes in projected utility operations. o Design a rate structure with revenue stability when conservation is achieved, both during short-term droughts, and permanently in accordance with SBx7-7. • Bond Compliance Analysis. An analysis will be conducted to demonstrate that the covenants and financial requirements associated with any existing or proposed bond obligations and other debt instruments, as well as the City's debt management policy, are complied with over the forecast period. • Reserve Requirements. Consultant shall analyze reserve including: o Operational and Maintenance as to satisfy yearly cash flow requirement. City of San Juan Capistrano — Rate Study RFP Page 7 of 27 o CIP Reserves as required to fund annual contribution for future refurbishment programs. o Rate Stabilization Fund as required to hedge against volatility of revenue due to seismic and weather conditions, such as drought or periods of abnormal rainfall and extraordinary costs such as when a major source of supply has service disrupted, and alternate sources are used. o Emergency reserves. Based on the above information, the Consultant shall develop a ten-year revenue program that will maintain the water and wastewater systems and take into account foreseeable risk, such as weather. Deliverables: (1) Financial planning model with 10 -year revenue program Meetings: (1) Meet with City staff to review financial planning model Task 3 — Cost -of -Service Analysis The Consultant shall conduct the cost -of -service analysis to ensure each customer class pays its fair share of the cost within the City's existing water - budget -based inclining block rate framework, or alternate rate structure achieving the same goals. In this analysis the consultant shall identify major and minor costs and assign cost drivers to each item in the ten year financial plan. Once the Consultant has assigned cost drivers to each line item in the financial plan, the Consultant shall allocate these cost drivers to each customer class usage characteristics. The final goal of the analysis to be performed under this task will be to target revenue for each customer class that meets the requirement of Proposition 218 and is the basis for developing fair and equitable rates. Tiers and pricing must be fully explained, and clearly related to cost of service for each customer classification, in the final document. A similar analysis is to be performed for the recycled water and sewer systems and their associated drivers. Task 4 Rate Design Once the target revenues are estimated, the Consultant shall develop rate structures that meet this revenue requirement. The following criteria and assumptions must be among those considered and evaluated. While developing the rate models, the Consultant is expected to bring expertise in rate design and City of San Juan Capistrano — Rate Study RFP Page 8 of 27 an experienced perspective to the process, including any aspects deemed important which are not specifically listed below. • Maintaining the general framework of the existing water -budget -based rate structure, or proposing an effective alternative. Include a discussion of water -budgets compared to uniform rates and inclining block rates. • Include explicit cost -of -service data and explanations to support the tiered (or proposed alternative) pricing, including the City's several water supply sources and the associated incremental cost differences of local groundwater, water produced from the GWRP, imported potable, and imported recycled water supplies. • Achieve cost recovery in the service charge plus the customers' total allocation sales (Tier 1, or Base and Tier 1 if the allocation is divided thus), reflecting the SB x7-7 requirement for a 20% reduction in sales by 2020. Determine the levels of costs covered by fixed and variable charges. • Industry standards, best practices, and recent legal determinations and recommendations concerning water rates and conservation measures, including SB x7-7. • Existing and potential water rate customer classifications, with the current water budget calculations, and any proposed refinements. • Conservation programs and the development of future water supplies. • Linkage between urban runoff and excessive water usage due to overwatering, and creating a potential funding mechanism for runoff reduction to achieve compliance with state and federal mandates. Task 5 — Sensitivity Analysis / Rate Workshop(s) Once the rate models have been developed the consultant shall conduct a sensitivity analysis within the models. This step will examine different scenarios that may occur within the next ten years. The Consultant shall then conduct a workshop with senior staff members to identify which rate scenario is financially sustainable, legally justifiable and politically acceptable for the community of San Juan Capistrano. During the workshop(s), water conservation based rates, sewer, and recycled rate structures, the legal options associated with Proposition 218, and the drought pricing program shall be examined. Deliverables: (1) Cost of service analysis (2) Proposed rate design and any alternatives developed City of San Juan Capistrano — Rate Study RFP Page 9 of 27 (3) Sensitivity analysis as described above Meetings: (1) Meet with City staff to review cost -of service analysis and rate design, as well as the scenarios described above (2) Present this information to a joint meeting of the Utilities Commission and City Council (3) Additional meetings with staff or elected officials may be requested at this stage. Task 6 — Prepare Draft Reports The Consultant shall prepare a draft report that includes the preferred rate model and integrates the findings from the previous tasks. The report shall also include a comparison of south Orange County water service providers' current and proposed potable water rates (including revenue derived from property taxes and any Mello -Roos fees), as compared to the City's current and proposed rates. This will update the comparison done by City staff, which was last updated in January 2013, and result in a template to use in the future. The rate model and all calculations informing the study shall be included as a PDF, legible for each page in the model spreadsheet, with each sheet clearly titled and annotated to describe the function of each page in the model, and referenced as an attachment, as the basis for rate calculations. The report will also include a summary for each customer classification of the rate structure, allocations, and costs proportionally included at each tier, to be used in the future as informational handouts for the public. The Consultant shall provide twelve (12) copies of the draft report for review and comment. After meeting with staff, the Consultant shall present the draft report to the Utilities Commission and to the City Council. Deliverables: (1) Draft Rate Study Report (12 copies) (2) Summary of each customer classification (3) Rate Model, and PDF of each page of model (4) Rates comparison for south Orange County water agencies (5) Template for ongoing normalized rates comparison among south Orange County water agencies, as described above. Meetings: (1) Meet with City Staff to review these five deliverables (2) Minimum of one joint special meeting with Utilities Commission and City Council, to present the draft report (3) Possible additional meeting(s) if requested City of San Juan Capistrano — Rate Study RFP Page 10 of 27 Task 7 — Review, Revise & Present Final Report Once the draft report is accepted by the City Council, the Consultant will present the final report, including the recommended rate structure, at (1) Public Information Workshop, (1) Utilities Commission meeting, and at (1) City Council meeting. The Utilities Commission and City Council presentation is expected to be at a single joint meeting. The Consultant shall provide the City with twelve (12) bound copies and one (1) unbound reproducible copy of the final report. The Report and model shall also be provided on a CD-ROM using MS Word, Adobe Acrobat, and MS Excel format. Deliverables: (1) Final Rate Study Report (12 bound copies and 1 unbound, plus CD-ROM) (2) Final summary of each customer classification (3) Final Rate Model, and PDF of each page of model (4) Recommended Rate Structure Meetings: (1) Public Information Workshop (2) Minimum of one joint special meeting with Utilities Commission and City Council, to present the final report and recommended rate structure (3) Possible additional meeting if requested Task 8 — Prop 218 process The Consultant will prepare the Prop 218 notification materials for City attorney review and approval. After final approval by City Council, the Prop 218 notices are to be mailed at the appropriate time in the process by the Consultant to all parcels (mailing addresses) in the service area, and also as a special mailer to all account holders. Deliverables: (1) Draft the Prop 218 notification materials (2) After approval, mail the Prop 218 notice to two mailing lists Meetings: (1) Attendance and possible presentation at the first formal public hearing, if requested by staff and/or elected officials City of San Juan Capistrano — Rate Study RFP Page 11 of 27 Task 9 — Model Delivery and Training The Consultant shall create a model compatible with the City computer software. The model design shall consider incorporating user friendly functional updates for conducting analysis of potential scenarios, including adjustment of water tiers or blocks and unit rates, and recycled water and sewer rates, while maintaining revenue levels and updating customer, O&M and CIP costs inputs for calculating future rate adjustments and revenue requirements. The Consultant shall also include 8 hours of training of staff for use of this model. Deliverables: (1) Rates model as described above Meetings: (1) Training session for City staff on use of the model (8 hours) Task Summary Below is a summary of tasks, deliverables, and a minimum number of meetings. Please review the details of each task described more fully in the text above. City of San Juan Capistrano — Rate Study RFP Page 12 of 27 Meetings with Task Deliverables Meetings Public, Utilities with Staff Commission, City Council 1 — Project One Orientation Workshop 2 — 10 Year Financial Financial planning model with One Plan 10 -year revenue program 3 — Cost of service (Deliverable with task 5) Analysis 4 — Rate Design (Deliverable with task 5) 5 — Sensitivity 1) Cost of Service Analysis One • One joint meeting Analysis & Rate 2) Proposed Rate Design of Commission Workshops 3) Sensitivity Analysis and Council 1) Draft Rate Study Report • One joint meeting 6 — Prepare Draft 2) Summary of each of Commission Reports customer classification One and Council 3 Rate Model continued City of San Juan Capistrano — Rate Study RFP Page 12 of 27 IV. INFORMATION TO BE SUPPLIED BY THE CITY The City will be responsible to provide the following information: 1) Water meter size by customer class (i.e. single-family residential, multi- family, commercial, etc.). Water Service revenues, by month, customer class, and divided between meter fees and water commodity sales. Recycled water and sewer revenues will also be provided. 2) Utility enterprise funds financial records for past 5 years. 3) Capital Improvement Program projected expenditures for the next 10 years. 4) Explanation of current rate structure and its evolution since 1991-92. 5) Utility master plans. 6) A copy of the previous two rate studies. V. PRE -PROPOSAL MEETING The City will conduct one meeting to provide detailed information regarding the overall intent and objectives that are to be accomplished as part of this project. This workshop will provide members of the consultant's proposed project team City of San Juan Capistrano — Rate Study RFP Page 13 of 27 4) Rates comparison 5) Template for ongoing normalized rates comparison 1) Final Rate Study Report • One Public 2) Summary of each Information 7 — Review, Revise, customer classification Workshop, and Present Final Report 3) Final Rate Model • One joint meeting 4) Recommended Rate of Commission Structure and Council 1) Draft Prop 218 • Attend first Public 8 — Prop 218 Process notification hearing if 2) Mail to two mailing lists requested 9 — Model Delivery Rates Model One training and Training session (8 hours IV. INFORMATION TO BE SUPPLIED BY THE CITY The City will be responsible to provide the following information: 1) Water meter size by customer class (i.e. single-family residential, multi- family, commercial, etc.). Water Service revenues, by month, customer class, and divided between meter fees and water commodity sales. Recycled water and sewer revenues will also be provided. 2) Utility enterprise funds financial records for past 5 years. 3) Capital Improvement Program projected expenditures for the next 10 years. 4) Explanation of current rate structure and its evolution since 1991-92. 5) Utility master plans. 6) A copy of the previous two rate studies. V. PRE -PROPOSAL MEETING The City will conduct one meeting to provide detailed information regarding the overall intent and objectives that are to be accomplished as part of this project. This workshop will provide members of the consultant's proposed project team City of San Juan Capistrano — Rate Study RFP Page 13 of 27 with additional information that may be helpful in better understanding the goals and objectives of the Project. The meeting will be held on Wednesday, August 28, 2013 at 10:00 AM., in City Council Chambers located at 32400 Paseo Adelanto, San Juan Capistrano. VI. PROJECT MILESTONE SCHEDULE The following dates reflect the anticipated schedule for soliciting proposals, selecting the consultant and awarding the contract. Consultant Selection Milestones: Date: Pre -Proposal Meeting — in the San Juan Capistrano City Council Chamber August 28, 2013, 10:00 AM Proposal Due Date September 6, 2013, 4:00 PM Oral Interview (optional) September 12, 2013, time TBD City Council Award of Contract October 1, 2013 Consultant Notice To Proceed October 2, 2013 Kickoff meeting with City Staff October 7, 2013, 1:00 PM Completing the work requested in this RFP is to be accomplished as expeditiously as possible, and the City requests that the Consultant include with the proposal, a timeline for completion and a schedule showing how these dates are planned to be met. It is the City's intent to use the schedule submitted by the consultant to administer the consultant's contract. VII. PROPOSAL REQUIREMENTS General The Consultant is requested to submit the proposal using a letter type format (may be stapled or bound). The Consultant is requested not to use custom color graphics and/or custom color proposal covers in preparation of this proposal. The minimum font size shall be 11 point. The proposal should include the following: a) Transmittal. b) Index/Table of Contents. City of San Juan Capistrano — Rate Study RFP Page 14 of 27 c) Brief introduction presenting your understanding of the project and general methodology to be used. d) The City requires this rate study to be accomplished as expeditiously as possible. Identify and describe the ability of the Project Manager to begin work immediately after the award of contract, to give this project priority, and complete it in a timely manner. e) Approach to the project including description of specific work tasks and activities, and concepts for conducting the work. f) Team organization, including an organization diagram. g) Descriptions of at least three similar projects by the project manager and key staff to be used on this assignment. Include three examples of agencies for which the same project manager who will be assigned to this rate study developed and implemented or refined water -budget -based rate structures. Describe each work product in one paragraph, and provide contact information for someone who worked with you at that agency. h) Description of background and experience with Prop 218. i) Project Schedule (see Section VI). j) Fee Proposal, with details of hourly rates, fees for attending (and for presentations at) meetings and workshops, and for all other tasks associated with this study. k) Brief resumes of key staff. 1) Alternative recommendations, especially relating to rate structure and rate design. Detailed Project Approach / Scope of Services Describe your technical approach for completing the scope of services. Identify and detail specific tasks as necessary to complete the work. Proposers are encouraged to amplify the scope of services, to identify any supplemental tasks necessary, and to recommend any alternatives which may enhance the project or reduce costs. It should also include a discussion of constraints, problems, and issues that should be anticipated during the contract, and suggestions for approaches to resolve them. Project Team Include the project team organization chart in your firm's proposal and identify the team members that will be responsible for project management. Identify the key project tasks and the associated personnel responsible for those tasks. A resume for each team member shall be included in the proposal appendix. Each resume should include description of projects in related areas, especially detailing experience with budget -based or allocation -based rates. The geographic location of the firm's major support offices and the location of City of San Juan Capistrano — Rate Study RFP Page 15 of 27 key personnel throughout the duration of this rate study process shall be identified. All proposed subconsultants and their staff members shall be identified including their relevant experience. Related Experience The information requested in this section should describe the qualifications of the firm, key staff and sub -consultants in performing projects within the past five years that are similar in scope and size to demonstrate competence to perform these services. The projects listed should be those for which key staff and the project manager named for this project were responsible for performing services. Information shall include: a) Names of key staff that participated on named projects and their specific responsibilities. b) The client's name, contact person, addresses, and telephone numbers. c) A brief description of type and extent of services provided. d) Specifically identify three projects for which the same project manager who will be assigned to this rate study developed and implemented or refined water -budget -based rate structures. Describe each work product in one paragraph, and provide contact information for someone who worked with the project manager at that agency. e) Completion dates (estimated, if not yet completed). Fee Proposal A Fee Proposal shall be included as part of the Proposal. The information and detail included in the fee proposal shall conform to the provisions of Section VIII, Fee Proposal Requirements, of this RFP. Statement of Offer & Signature The Proposal shall be signed by an individual authorized to bind the consultant and shall contain a statement that the proposal is valid for a 90 - calendar day period. VIII. FEE PROPOSAL REQUIREMENTS In preparing the fee proposal for this project, the consultant shall take into consideration the following: a. Compensation for services provided shall be an hourly rate plus reimbursable with an upper limit. NOTE: General office equipment and supplies, including but not limited to, telephones, computers, printers, Xerox machines, etc., are not considered reimbursable expenses. The Consultant shall include such City of San Juan Capistrano — Rate Study RFP Page 16 of 27 overhead expenses in the hourly rate for each position classification and no additional compensation will be made for such overhead expenses. b. A work plan, together with a breakdown of labor hours by employee billing classification, together with the cost of non -labor and subconsultant services shall be included with the fee proposal. The labor breakdown shall be compiled by project tasks and be based on a listing of work tasks that correlates with the Consultant's defined scope of work for the project proposal. This information will be used by City staff to evaluate the reasonableness of the fee proposal and may be used in negotiating the final fee amounts for the contract agreement. c. The Consultant's standard billing rates for all classifications of staff likely to be involved in the project shall be included with the fee proposal along with the mark-up rate for any non -labor expenses and sub -consultants. d. The Consultant's standard billing rates for presentations at meetings and workshops. IX. DUE DATE AND NUMBER OF COPIES OF PROPOSALS Six (6) copies of the proposal are due at the City of San Juan Capistrano, Utilities Department, 32400 Paseo Adelanto, San Juan Capistrano, California 92675, by no later then 4 p.m. on September 6, 2013. Address your proposals to the attention of Francie Kennedy, Water Conservation Coordinator, Utilities Department. X. LATE PROPOSALS It is proposer's sole responsibility to ensure that its proposal is received at the City Utilities Department prior to the scheduled closing time for receipt of proposals. Proposals received after the closing time specified in the RFP will not be considered and will be returned. XI. SELECTION PROCESS A selection committee composed of City staff will review the proposals and consider the following factors to select the most qualified firm: 1. Completeness of proposal. 2. Firm's experience and resources relating to the project work plan including innovative approaches. 3. Professional qualifications of key personnel and offices from which they work. City of San Juan Capistrano — Rate Study RFP Page 17 of 27 4. Project manager and the team's technical expertise and experience with projects of similar scope. 5. Ability to commence work immediately and complete the RFP expeditiously. 6. Control of cost, schedule and quality on previous projects, as directly related to similar projects by contacted references. 7. Cost of services provided, based on the overall cost of the Project services and the billing rates (hourly) for the balance of the Project. 8. References. After evaluation of the proposal and interview, the City selection committee will select the most qualified consultant to negotiate an agreement to provide the consulting services through the completion of the Project. The City reserves the right to reject any or all proposals, to waive any informality or irregularity in any proposal received, and to be the sole judge of the merits of the respective proposals received. XII. INTERVIEW Proposals will be evaluated and ranked based on the criteria described in Section XI of this RFP. The highest ranked teams may be requested to participate in an interview with the City's selection committee to further present their teams' qualifications. The interview process will be informal consisting of a questions and answers format. The Consultant teams will not be allowed to perform a presentation as part of the interview process. Interviews will be conducted on September 12, 2013 (if required). XIII. AGREEMENT / INSURANCE REQUIREMENTS The consultant selected for the study shall execute an agreement similar to the sample City of San Juan Capistrano Professional Services Agreement (included as Attachment A). If any exceptions are taken to any of the terms in the agreement, the proposing firm should notify the City as soon as possible, or at a minimum in the proposal. Proposals that are submitted by consultants unwilling to execute the City of San Juan Capistrano agreement will be rejected. In addition to Worker's Compensation, General Liability, and Automobile Liability Insurance, the selected consultant must provide Professional Liability Insurance coverage (Errors and Omissions) in accordance with the City of San Juan Capistrano Professional Services Agreement. City of San Juan Capistrano — Rate Study RFP Page 18 of 27 XIV. CITY'S RIGHTS The City may investigate the qualifications of any proposer under consideration, require confirmation of information furnished by a proposer, and require additional evidence of qualifications to perform the services described in this RFP. The CITY reserves the right to: 1. Reject any or all of the proposals. 2. Issue subsequent Requests for Proposals. 3. Cancel the entire Request for Proposal. 4. Remedy technical errors in the Request for Proposal process. 5. Appoint evaluation committees to review proposals. 6. Seek the assistance of outside technical experts in proposal evaluation. 7. Approve or disapprove the use of particular subcontractors. 8. Establish a short list of proposers eligible for discussions after review of written proposals. 9. Negotiate with any, all, or none of the proposers. 10. Solicit best and final offers from all or some of the proposers. 11. Award a contract to one or more proposers. 12. Accept other than the lowest priced offer. 13. Waive informalities and irregularities in proposals. This RFP does not commit the City to enter into a contract, nor does it obligate the City to pay for any costs incurred in preparation and submission of proposals or in anticipation of a contract. XV. PUBLIC RECORDS ACT Responses to this RFP become the exclusive property of the City and subject to the California Public Records Act. Those elements in each proposal which are trade secrets as that term is defined in Civil Code section 3426.1(d) or otherwise exempt by law from disclosure and which are prominently marked as "TRADE SECRET", "CONFIDENTIAL", or "PROPRIETARY" may not be subject to disclosure. The City shall not in any way be liable or responsible for the disclosure of any such records including, without limitation, those so marked if disclosure is deemed to be required by law or by an order of the Court. Proposers which indiscriminately identify all or most of their proposal as exempt from disclosure without justification may be deemed non-responsive. In the event the City is required to defend an action on a Public Records Act request for any of the contents of a proposal marked "confidential", "proprietary", City of San Juan Capistrano — Rate Study RFP Page 19 of 27 or "trade secret", the proposer agrees, upon submission of its proposal for City's consideration, to defend and indemnify the City from all costs and expenses, including attorneys' fees, in any action or liability arising under the Public Records Act. XVI. QUESTIONS Questions regarding this RFP can be sent to Francie Kennedy, Water Conservation Coordinator via e-mail to: fkennedy@sanjuancapistrano.org. Questions concerning information already contained in the RFP will be answered in writing; questions requiring clarification or additional information will be addressed in an addendum to this RFP. All return correspondences with proposers, including questions and answers, will be communicated to all other proposers. City of San Juan Capistrano — Rate Study RFP Page 20 of 27 ATTACHMENT A - PERSONAL SERVICES AGREEMENT PERSONAL SERVICES AGREEMENT THIS AGREEMENT is made, entered into, and shall become effective this day of , 2013, by and between the City of San Juan Capistrano (hereinafter referred to as the "City") and (hereinafter referred to as the "Consultant"). RECITALS: WHEREAS, City desires to retain the services of Consultant regarding the City's proposal to perform a water and sewer rate study; and WHEREAS, Consultant is qualified by virtue of experience, training, education and expertise to accomplish such services. NOW, THEREFORE, City and Consultant mutually agree as follows: Section 1. Scope of Work. The scope of work to be performed by the Consultant shall consist of those tasks as set forth in Exhibit "A," attached and incorporated herein by reference. To the extent that there are any conflicts between the provisions described in Exhibit "A" and those provisions contained within this Agreement, the provisions in this Agreement shall control. Section 2. Term. This Agreement shall commence on the effective date and shall terminate, and all services required hereunder shall be completed, no later than Section 3. Compensation. 3.1 Amount. Total compensation for the services hereunder shall not exceed $ [either, total contract amount, or amount per month or per fiscal year; also specify whether the total compensation includes expenses, etc.], [as set forth in Exhibit "B," attached and incorporated herein by reference [if Consultant provides a cost proposal or rate schedule]]. 3.2 Method of Payment. Subject to Section 3.1, Consultant shall submit monthly invoices based on total services which have been satisfactorily completed for such monthly period. The 21 City will pay monthly progress payments based on approved invoices in accordance with this Section. 3.3 Records of Expenses. Consultant shall keep complete and accurate records of all costs and expenses incidental to services covered by this Agreement. These records will be made available at reasonable times to the City. Invoices shall be addressed as provided for in Section 16 below. Section 4. Independent Contractor. It is agreed that Consultant shall act and be an independent contractor and not an agent or employee of the City, and shall obtain no rights to any benefits which accrue to Agency's employees. Section 5. Limitations Upon Subcontracting and Assignment. The experience, knowledge, capability and reputation of Consultant, its principals and employees were a substantial inducement for the City to enter into this Agreement. Consultant shall not contract with any other entity to perform the services required without written approval of the City. This Agreement may not be assigned, voluntarily or by operation of law, without the prior written approval of the City. If Consultant is permitted to subcontract any part of this Agreement by City, Consultant shall be responsible to the City for the acts and omissions of its subcontractor as it is for persons directly employed. Nothing contained in this Agreement shall create any contractual relationships between any subcontractor and City. All persons engaged in the work will be considered employees of Consultant. City will deal directly with and will make all payments to Consultant. Section 6. Changes to Scope of Work. For extra work not part of this Agreement, a written authorization from City is required prior to Consultant undertaking any extra work. In the event of a change in the Scope of Work provided for in the contract documents as requested by the City, the Parties hereto shall execute an addendum to this Agreement setting forth with particularity all terms of the new agreement, including but not limited to any additional Consultant's fees. Section 7. Familiarity with Work and/or Construction Site. By executing this Agreement, Consultant warrants that: (1) it has investigated the work to be performed; (2) if applicable, it has investigated the work site(s), and is aware of all conditions there; and (3) it understands the facilities, difficulties and restrictions of the work to be performed under this Agreement. Should Consultant 22 discover any latent or unknown conditions materially differing from those inherent in the work or as represented by City, it shall immediately inform the City of this and shall not proceed with further work under this Agreement until written instructions are received from the City. Section 8. Time of Essence. Time is of the essence in the performance of this Agreement. Section 9. Compliance with Law. Consultant shall comply with all applicable laws, ordinances, codes and regulations of federal, state and local government. Section 10. Conflicts of Interest. Consultant covenants that it presently has no interest and shall not acquire any interest, direct or indirect, which would conflict in any manner or degree with the performance of the services contemplated by this Agreement. No person having such interest shall be employed by or associated with Consultant. Section 11. Copies of Work Product. At the completion of the work, Consultant shall have delivered to City at least one (1) copy of any final reports and/or notes or drawings containing Consultant's findings, conclusions, and recommendations with any supporting documentation. All reports submitted to the City shall be in reproducible format, or in the format otherwise approved by the City in writing. Section 12. Ownership of Documents. All reports, information, data and exhibits prepared or assembled by Consultant in connection with the performance of its services pursuant to this Agreement are confidential to the extent permitted by law, and Consultant agrees that they shall not be made available to any individual or organization without prior written consent of the City. All such reports, information, data, and exhibits shall be the property of the City and shall be delivered to the City upon demand without additional costs or expense to the City. The City acknowledges such documents are instruments of Consultant's professional services. Section 13. Indemnity. To the fullest extent permitted by law, Consultant agrees to protect, defend, and hold harmless the City and its elective and appointive boards, officers, agents, and employees from any and all claims, liabilities, expenses, or damages of any nature, 23 including attorneys' fees, for injury or death of any person, or damages of any nature, including interference with use of property, arising out of, or in any way connected with the negligence, recklessness and/or intentional wrongful conduct of Consultant, Consultant's agents, officers, employees, subcontractors, or independent contractors hired by Consultant in the performance of the Agreement. The only exception to Consultant's responsibility to protect, defend, and hold harmless the City, is due to the negligence, recklessness and/or wrongful conduct of the City, or any of its elective or appointive boards, officers, agents, or employees. This hold harmless agreement shall apply to all liability regardless of whether any insurance policies are applicable. The policy limits do not act as a limitation upon the amount of indemnification to be provided by Consultant. Section 14. Insurance. On or before beginning any of the services or work called for by any term of this Agreement, Consultant, at its own cost and expense, shall carry, maintain for the duration of the agreement, and provide proof thereof that is acceptable to the City, the insurance specified below with insurers and under forms of insurance satisfactory in all respects to the City. Consultant shall not allow any subcontractor to commence work on any subcontract until all insurance required of the Consultant has also been obtained for the subcontractor. Insurance required herein shall be provided by Insurers in good standing with the State of California and having a minimum Best's Guide Rating of A - Class VII or better. 14.1 Comprehensive General Liability. Throughout the term of this Agreement, Consultant shall maintain in full force and effect Comprehensive General Liability coverage in an amount not less than one million dollars per occurrence ($1,000,000.00), combined single limit coverage for risks associated with the work contemplated by this agreement. If a Commercial General Liability Insurance form or other form with a general aggregate limit is used, either the general aggregate limit shall apply separately to the work to be performed under this agreement or the general aggregate limit shall be at least twice the required occurrence limit. 14.2 Comprehensive Automobile Liability. Throughout the term of this Agreement, Consultant shall maintain in full force and effect Comprehensive Automobile Liability coverage, including owned, hired and non -owned vehicles in an amount not less than one million dollars per occurrence ($1,000,000.00). 14.3 Workers' Compensation. If Consultant intends to employ employees to perform services under this 24 Agreement, Consultant shall obtain and maintain, during the term of this Agreement, Workers' Compensation Employer's Liability Insurance in the statutory amount as required by state law. 14.4 Proof of Insurance Requirements/Endorsement. Prior to beginning any work under this Agreement, Consultant shall submit the insurance certificates, including the deductible or self -retention amount, and an additional insured endorsement naming City, its officers, employees, agents, and volunteers as additional insured as respects each of the following: Liability arising out of activities performed by or on behalf of Consultant, including the insured's general supervision of Consultant; products and completed operations of Consultant; premises owned, occupied or used by Consultant; or automobiles owned, leased, hired, or borrowed by Consultant. The coverage shall contain no special limitations on the scope of protection afforded City, its officers, employees, agents, or volunteers. 14.5 Errors and Omissions Coverage [FOR PROFESSIONS/WORK EXCLUDED FROM GENERAL LIABILITY] Throughout the term of this Agreement, Consultant shall maintain Errors and Omissions Coverage (professional liability coverage) in an amount of not less than One Million Dollars ($1,000,000). Prior to beginning any work under this Agreement, Consultant shall submit an insurance certificate to the City's General Counsel for certification that the insurance requirements of this Agreement have been satisfied. 14.6 Notice of Cancellation/Termination of Insurance. The above policy/policies shall not terminate, nor shall they be cancelled, nor the coverages reduced, until after thirty (30) days' written notice is given to City, except that ten (10) days' notice shall be given if there is a cancellation due to failure to pay a premium. 14.7 Terms of Compensation. Consultant shall not receive any compensation until all insurance provisions have been satisfied. 14.8 Notice to Proceed. Consultant shall not proceed with any work under this Agreement until the City has issued a written "Notice to Proceed" verifying that Consultant has complied with all insurance requirements of this Agreement. Section 15. Termination. City shall have the right to terminate this Agreement without cause by giving 25 thirty (30) days' advance written notice of termination to Consultant. In addition, this Agreement may be terminated by any party for cause by providing ten (10) days' notice to the other party of a material breach of contract. If the other party does not cure the breach of contract, then the agreement may be terminated subsequent to the ten (10) day cure period. Section 16. Notice. All notices shall be personally delivered or mailed to the below listed addresses, or to such other addresses as may be designated by written notice. These addresses shall be used for delivery of service of process: To City: City of San Juan Capistrano 32400 Paseo Adelanto San Juan Capistrano, CA 92675 Attn : To Consultant: Section 17. Attorneys' Fees. If any action at law or in equity is necessary to enforce or interpret the terms of this Agreement, the prevailing party shall be entitled to reasonable attorneys' fees, costs and necessary disbursements in addition to any other relief to which he may be entitled. Section 18. Dispute Resolution. In the event of a dispute arising between the parties regarding performance or interpretation of this Agreement, the dispute shall be resolved by binding arbitration under the auspices of the Judicial Arbitration and Mediation Service ("JAMS"). Section 19. Entire Agreement. This Agreement constitutes the entire understanding and agreement between the parties and supersedes all previous negotiations between them pertaining to the subject matter thereof. [SIGNATURE PAGE FOLLOWS] 26 IN WITNESS WHEREOF, the parties hereto have executed this Agreement. ATTEST: Maria Morris, City Clerk APPROVED AS TO FORM: Hans Van Ligten, City Attorney CITY OF SAN JUAN CAPISTRANO John Taylor, Mayor CONSULTANT IN 27 City of San Juan Capistrano 2013-14 Water and Sewer Rate Study Consultants List 1 A&N Technical Services 2 Bartle Wells Associates 3 Bureau Veritas 4 Black & Veatch 5 Carollo Engineers, Inc. 6 CDM Smith 7 FCS Group 8 Hilton Farnkopf & Hobson, LLC 9 Kennedy Jenks Consultants 10 NBS 11 Raftelis Financial 12 Arcadis 13 Robert D. Niehaus, Inc. Attachment 2 PERSONAL SERVICES AGREEMENT THIS AGREEMENT is made, entered into, and shall become effective this day of , 2013, by and between the City of San Juan Capistrano (hereinafter referred to as the "City") and Raftelis Financial Consultant, Inc. (hereinafter referred to as the "Consultant"). RECITALS: WHEREAS, City desires to retain the services of Consultant regarding the City's proposal to perform a water and sewer rate study; and WHEREAS, Consultant is qualified by virtue of experience, training, education and expertise to accomplish such services. NOW, THEREFORE, City and Consultant mutually agree as follows: Section 1. Scope of Work. The scope of work to be performed by the Consultant shall consist of those tasks as set forth in Exhibit' A," attached and incorporated herein by reference. To the extent that there are any conflicts between the provisions described in Exhibit "A" and those provisions contained within this Agreement, the provisions in this Agreement shall control. Section 2. Term. This Agreement shall commence on the effective date and shall terminate, and all services required hereunder shall be completed, no later than June 30, 2014. Section 3. Compensation. 3.1 Amount. Total compensation for the services hereunder shall not exceed $100,000 in total contract amount and shall include compensation includes expenses as set forth in Exhibit "B," attached and incorporated herein by reference. 3.2 Method of Payment. Subject to Section 3.1, Consultant shall submit monthly invoices based on total services which have been satisfactorily completed for such monthly period. The City will pay monthly progress payments based on approved invoices in accordance with this Section. Attachment 3 3.3 Records of Expenses. Consultant shall keep complete and accurate records of all costs and expenses incidental to services covered by this Agreement. These records will be made available at reasonable times to the City. Invoices shall be addressed as provided for in Section 16 below. Section 4. Independent Contractor. It is agreed that Consultant shall act and be an independent contractor and not an agent or employee of the City, and shall obtain no rights to any benefits which accrue to Agency's employees. Section 5. Limitations Upon Subcontracting and Assignment. The experience, knowledge, capability and reputation of Consultant, its principals and employees were a substantial inducement for the City to enter into this Agreement. Consultant shall not contract with any other entity to perform the services required without written approval of the City. This Agreement may not be assigned, voluntarily or by operation of law, without the prior written approval of the City. If Consultant is permitted to subcontract any part of this Agreement by City, Consultant shall be responsible to the City for the acts and omissions of its subcontractor as it is for persons directly employed. Nothing contained in this Agreement shall create any contractual relationships between any subcontractor and City. All persons engaged in the work will be considered employees of Consultant. City will deal directly with and will make all payments to Consultant. Section 6. Changes to Scope of Work. For extra work not part of this Agreement, a written authorization from City is required prior to Consultant undertaking any extra work. In the event of a change in the Scope of Work provided for in the contract documents as requested by the City, the Parties hereto shall execute an addendum to this Agreement setting forth with particularity all terms of the new agreement, including but not limited to any additional Consultant's fees. Section 7. Familiarity with Work and/or Construction Site. By executing this Agreement, Consultant warrants that: (1) it has investigated the work to be performed; (2) if applicable, it has investigated the work site(s), and is aware of all conditions there; and (3) it understands the facilities, difficulties and restrictions of the work to be performed under this Agreement. Should Consultant discover any latent or unknown conditions materially differing from those inherent in the work or as represented by City, it shall immediately inform the City of this and shall not proceed with further work under this Agreement until written instructions are received from the City. 2 Section 8. Time of Essence. Time is of the essence in the performance of this Agreement. Section 9. Compliance with Law. Consultant shall comply with all applicable laws, ordinances, codes and regulations of federal, state and local government. Section 10. Conflicts of Interest. Consultant covenants that it presently has no interest and shall not acquire any interest, direct or indirect, which would conflict in any manner or degree with the performance of the services contemplated by this Agreement. No person having such interest shall be employed by or associated with Consultant. Section 11. Copies of Work Product. At the completion of the work, Consultant shall have delivered to City at least one (1) copy of any final reports and/or notes or drawings containing Consultant's findings, conclusions, and recommendations with any supporting documentation. All reports submitted to the City shall be in reproducible format, or in the format otherwise approved by the City in writing. Section 12. Ownership of Documents. All reports, information, data and exhibits prepared or assembled by Consultant in connection with the performance of its services pursuant to this Agreement are confidential to the extent permitted by law, and Consultant agrees that they shall not be made available to any individual or organization without prior written consent of the City. All such reports, information, data, and exhibits shall be the property of the City and shall be delivered to the City upon demand without additional costs or expense to the City. The City acknowledges such documents are instruments of Consultant's professional services. Section 13. Indemnity. To the fullest extent permitted by law, Consultant agrees to protect, defend, and hold harmless the City and its elective and appointive boards, officers, agents, and employees from any and all claims, liabilities, expenses, or damages of any nature, including attorneys' fees, for injury or death of any person, or damages of any nature, including interference with use of property, arising out of, or in any way connected with the negligence, recklessness and/or intentional wrongful conduct of Consultant, Consultant's agents, officers, employees, subcontractors, or independent contractors hired by Consultant in the performance of the Agreement. The only exception to Consultant's responsibility to protect, defend, and hold harmless the City, is due to the negligence, recklessness and/or wrongful conduct of the City, or any of its elective or appointive 3 boards, officers, agents, or employees. This hold harmless agreement shall apply to all liability regardless of whether any insurance policies are applicable. The policy limits do not act as a limitation upon the amount of indemnification to be provided by Consultant. Section 14. Insurance. On or before beginning any of the services or work called for by any term of this Agreement, Consultant, at its own cost and expense, shall carry, maintain for the duration of the agreement, and provide proof thereof that is acceptable to the City, the insurance specified below with insurers and under forms of insurance satisfactory in all respects to the City. Consultant shall not allow any subcontractor to commence work on any subcontract until all insurance required of the Consultant has also been obtained for the subcontractor. Insurance required herein shall be provided by Insurers in good standing with the State of California and having a minimum Best's Guide Rating of A- Class VII or better. 14.1 Comprehensive General Liability. Throughout the term of this Agreement, Consultant shall maintain in full force and effect Comprehensive General Liability coverage in an amount not less than one million dollars per occurrence ($1,000,000.00), combined single limit coverage for risks associated with the work contemplated by this agreement. If a Commercial General Liability Insurance form or other form with a general aggregate limit is used, either the general aggregate limit shall apply separately to the work to be performed under this agreement or the general aggregate limit shall be at least twice the required occurrence limit. 14.2 Comprehensive Automobile Liability. Throughout the term of this Agreement, Consultant shall maintain in full force and effect Comprehensive Automobile Liability coverage, including owned, hired and non - owned vehicles in an amount not less than one million dollars per occurrence ($1,000,000.00). 14.3 Workers' Compensation. If Consultant intends to employ employees to perform services under this Agreement, Consultant shall obtain and maintain, during the term of this Agreement, Workers' Compensation Employer's Liability Insurance in the statutory amount as required by state law. 14.4 Proof of Insurance Requirements/Endorsement. Prior to beginning any work under this Agreement, Consultant shall submit 4 the insurance certificates, including the deductible or self -retention amount, and an additional insured endorsement naming City, its officers, employees, agents, and volunteers as additional insured as respects each of the following: Liability arising out of activities performed by or on behalf of Consultant, including the insured's general supervision of Consultant; products and completed operations of Consultant; premises owned, occupied or used by Consultant; or automobiles owned, leased, hired, or borrowed by Consultant. The coverage shall contain no special limitations on the scope of protection afforded City, its officers, employees, agents, or volunteers. 14.5 Errors and Omissions Coverage [FOR PROFESSIONS/WORK EXCLUDED FROM GENERAL LIABILITY] Throughout the term of this Agreement, Consultant shall maintain Errors and Omissions Coverage (professional liability coverage) in an amount of not less than One Million Dollars ($1,000,000). Prior to beginning any work under this Agreement, Consultant shall submit an insurance certificate to the City's General Counsel for certification that the insurance requirements of this Agreement have been satisfied. 14.6 Notice of Cancellation/Termination of Insurance. The above policy/policies shall not terminate, nor shall they be cancelled, nor the coverages reduced, until after thirty (30) days' written notice is given to City, except that ten (10) days' notice shall be given if there is a cancellation due to failure to pay a premium. 14.7 Terms of Compensation. Consultant shall not receive any compensation until all insurance provisions have been satisfied. 14.8 Notice to Proceed. Consultant shall not proceed with any work under this Agreement until the City has issued a written "Notice to Proceed" verifying that Consultant has complied with all insurance requirements of this Agreement. Section 15. Termination. City shall have the right to terminate this Agreement without cause by giving thirty (30) days' advance written notice of termination to Consultant. In addition, this Agreement may be terminated by any party for cause by providing ten (10) days' notice to the other party of a material breach of contract. If the other party does not cure the breach of contract, then the agreement may be terminated subsequent to the ten (10) day cure period. 5 Section 16. Notice. All notices shall be personally delivered or mailed to the below listed addresses, or to such other addresses as may be designated by written notice. These addresses shall be used for delivery of service of process: To City: City of San Juan Capistrano 32400 Paseo Adelanto San Juan Capistrano, CA 92675 Attn: Keith Van Der Maaten, Public Works and Utilities Director To Consultant: Raftelis Financial Consultant, Inc. 201 S. Lake Avenue Suite 301 Pasadena, CA 91101 Attn: Sanjay Gaur Section 17. Attorneys' Fees. If any action at law or in equity is necessary to enforce or interpret the terms of this Agreement, the prevailing party shall be entitled to reasonable attorneys' fees, costs and necessary disbursements in addition to any other relief to which he may be entitled. Section 18. Dispute Resolution. In the event of a dispute arising between the parties regarding performance or interpretation of this Agreement, the dispute shall be resolved by binding arbitration under the auspices of the Judicial Arbitration and Mediation Service ("JAMS"). Section 19. Entire Agreement. This Agreement constitutes the entire understanding and agreement between the parties and supersedes all previous negotiations between them pertaining to the subject matter thereof. Section 20. Counterparts and Facsimile signatures. This Agreement may be executed by the Parties in counterparts, which counterparts shall be construed together and have the same effect as if all the Parties had executed the same instrument. Counterpart signatures may be transmitted by facsimile, email, or other electronic means and have the same force and effect as if they were original signatures. [SIGNATURE PAGE FOLLOWS] N IN WITNESS WHEREOF, the parties hereto have executed this Agreement. ATTEST: Maria Morris, City Clerk APPROVED AS TO FORM: Hans Van Ligten, City Attorney CITY OF SAN JUAN CAPISTRANO John Taylor, Mayor CONSULTANT KA PROJECT APPROACH AND SCOPE OF SERVICES PROJECT APPROACH In today's environment of economic recovery, a consist- ently -arising challenge is meeting an agency's financial needs in a manner that duly considers the concerns of ratepayers who themselves are financially burdened. RFC has delivered creative solutions addressing an extensive range of such situations, built on the firm's ex- perience with serving clients nationwide. Implementation of defensible solutions begins with communication. The project objectives detailed above are developed with the end goal of public understanding and enabling the elected officials to make informed decisions about key financial drivers. As an example, the Financial Plan Model is developed not only for the utility's contin- ued use as a financial analysis tool, it is designed to be an easy -to -update and easy -to -understand presentation tool that provides full documentation to how the rates were derived through a "cost build up" approach. In addition, this project also includes a significant stakeholder that is the Capistrano Taxpayer Association (CTA). Educating the CTA on the rate structure and providing an under- standing of the rationale behind the proposed structure should be addressed as part of this study. As this project may be subject to significant scrutiny and may be time intensive as well, addressing the CTA upfront would be considered a prudent financial and political decision. RFC's Project Approach is based on years of experience that will serve to meet the City's goals and objectives effi- ciently. Our approach consists of the following elements: 11 STRONG AND TRANSPARENT COMMUNICATION WITH CITY STAFF The proposed project approach entails several different RAFIELIS FINANC!A1 CONSULTANTS, INC. yet interrelated work efforts that will require effective co- ordination between City staff and the RFC Project Team. Our management approach stresses communication, teamwork, objectivity, transparency and accountability for meeting project objectives. We believe in a "no -sur- prise" approach so that the client is aware of the status of the project at all times. Our approach includes regular communication and detailed documentation to ensure transparency and thoroughness of the project. RFC will work with City staff on an ongoing basis via sched- uled in-person meetings and web conferences in order to transfer information and to ensure that staff retains ownership over the final work product. For web meet- ings, RFC uses GoToMeeting®, which allows clients to see in real-time the results of various analyses on their computer screens, thus providing an efficient and effec- tive method of communication. 2) CONSISTENT AND COMPETENT PROJECT MANAGEMENT The project will require effective coordination between City staff, the consultant team, and elected officials (City Council and Utilities Commission). An integral feature of RFC projects is consistent and competent project management which is critical to the timely and success- ful completion of the project. Our management approach stresses communication, teamwork, adequate resource assignment, objectivity, and accountability for meeting project objectives and includes the following: Assignment of key project team members including: • A strong and knowledgeable Project Manager, Mr. Sanjay Gaur, who will be responsible for facilitating a close working relationship between the City and RFC staff and who is accountable to the City for meeting CITY OF SAN .JUAN CAPISI RANO - 05 - Exhibit A the schedule, budget, and technical requirements of the project. Mr. Gaut has more than 16 years of consulting experience serving the public sector and is a nationally recognized water budget expert in the water industry. His experience spans the West Coast, with the majority of projects in California. Recent budget -based rate studies include engagements with El Toro Water District, Rancho California Water District, Western Municipal Water District, and the Cities of Huntington Beach and San Clemente. Mr. Gaut is active in a number of utility -related associa- tions. He is a member of the American Water Works Association's (AWWA) Rates and Charges Com- mittee. He is also a frequent speaker at National and California conferences, including AWWA, Utility Management Conference, Association of California Water Agencies and California Society of Municipal Finance Officers. A nationally -recognized and highly experienced Project Director/Technical Reviewer, Sudhir Pardi- wala, who will provide overall guidance and monitor progress and quality of the services provided. With more than 35 years of experience in financial stud- ies and engineering, he has conducted numerous water, storm water, reclaimed water, wastewater, and solid waste rate studies involving conservation, drought management, risk analysis, as well as system development fee studies. He authored the chapter on reclaimed water rates in the Manual of Practice, Financing and Charges for Wastewater Systems, published by the Water Environment Federation (WEF) and presented papers at various conferences. He was vice-chairman of the CA -NV AWWA Busi- ness Management Division and Chairman of the Financial Management Committee. As added value to the City to expedite the comple- tion of this study, Habib Isaac, who has more than ten years of related experience, will serve as Task Leader to ensure consistent workflow with project deliverables and to manage senior consultants at RFC. With a background in Applied Mathematics, Mr. Isaac has developed numerous financial plan and utility rate models and is well -versed in the cost of service and benefit principles of Proposition 218 and has formed numerous assessments districts, including the Cove Assessment District in Cathedral City that converted over 300 parcels from septic to mainline sewer through successful Proposition 218 balloting. • Highly qualified staff with many years of combined ex- perience. • Sufficient support resources to ensure timely comple- tion. • Ample resources to quickly and effectively respond to the City's requirements. Client involvement and control by: • Adoption of procedures for regular and open commu- nication between the RFC project team members and City staff; • Regular progress reports and the project manager's use of RFC's internal project accounting and management system. These reports will also identify potential prob- lems, challenges, and solutions; • Coordination of project activities between RFC and City staff and review of any feedback on project deliverables. RFC will conduct interim meetings to discuss project progress and present preliminary results through a combination of in-person meetings and web conference meetings via GoToMeeting®; and • Assistance in developing and presenting project recommendations. 31 IDENTIFICATION OF OPERATIONAL AND CAPITAL IMPROVEMENT INITIATIVES AND FINANCING OPTIONS The first step in conducting a long-term financial plan study is to review and become familiar with all aspects of the Utility's operations including business process, poli- cies and procedures, operational and maintenance (O&M) practices, capital improvement program (CIP) planning, organizational structure, financial planning and manage- ment, and the use of technology. We will assist the City in achieving a suitable balance among the financing options when developing the pro- posed financial plans which will accomplish the following: Ensure financial sufficiency to meet operating and capital costs as well as prudent balances for Enterprise Funds; Meet the City's service policies and objectives; and Maintain detailed financial plans to ensure that the City's utilities are operating in a self-sufficient manner and meeting debt covenant requirements. - 06 - Cil Y OF SAN .JUAN CAFISTRANC� RAF?LLIS FINANCIAL CONSUL_ANTS, INC. 41 QUALITY ASSURANCENUALITY CONTROL RFC follows strict Quality Assurance/Quality Control (QA/QC) guidelines to ensure the quality of the work effort and the final product. Typically, senior members of our consulting practice will engage the Project Team on specific issues critical to the project. The QA/QC mem- bers also review the work effort for consistency, accuracy, andvalidity and to ensure nothing is missing from the administrative record. In addition, project budget and progress are reviewed weekly by the Project Manager to track progress, time, and expenses through RFC's project management system. Regular progress reviews are also conducted to ensure progress and to address critical is- sues before they become problems or bottlenecks. 51 DEVELOPMENT OF FINANCIAL PLANNING AND RATE MODELS RFC has developed some of the most sophisticated yet user-friendly computer financial and rate models avail- able. 'Me model is one of the most advanced strategic planning tools available today. It is Excel -based and is easy to learn and use. "These models are tools that allow us to examine different policy options and their financial/ customer impacts with great ease. In a workshop envi- ronment with stakeholders and decision -makers, with results summarized in both easy -to -understand graphical and numerical formats, this tool allows us to quickly re- view impacts of changes from different parameters. This helps determine which policy option is feasible and helps the working group to reach consensus quickly. This will promote project efficiency and ease of understanding for staff and decision -makers. Based on input from the City, RFC will design the model to specifically meet the unique needs of the City. We will provide training and consultation to City staff on running the model, and if needed, assist in updates to reflect future operational and capital changes. COST -BASED RATE SETTING METHODOLOGY If rates are perceived to be fair and equitable, users are more likely to support changes in rates and rates structure. In addition, Proposition 218 (California Con- stitution Article 13D) imposes that: 1. A property -related charge (such as water and wastewater rates) imposed by a public agency on a parcel shall not exceed the funds required to provide the property related service. This is one of the most critical components for the new rate study as the court has determined that the adminis- trative record was not sufficient to show a nexus between the rates derived and the cost incurred. Besides allocat- ing costs to distinct customer classes based on demand, it is of equal importance to build up the costs for each defined tier to show a clear connection to the higher cost of water within the higher tiers. 2. Revenues derived by the charge shall not be used for any other purpose other than that for which the charge was imposed. The City is abiding by this as reflected by the utility's re- serve policies and the fact that rate revenue for capital improvements were used to fund capital on a Pay -As - You -Go basis even though it was anticipated that the City was to use debt financing. 3. The amount of the charge imposed upon any parcel shall not exceed the proportional cost of service attributable to the parcel. Proportionality must be shown within the tiered rate structure and cannot be set based on an arbitrary price differential. The price differential must have a basis, and our inclusion of this component will ensure that the City has a thorough administrative record supporting the rates. 4. No charge may be imposed for a service unless that service is actually used or immediately avail- able to the owner of property. 'The City's cost allocation for recycled water will need to be revisited and a new approach may need to be con- sidered and vetted through with City staff and elected officials to ensure compliance and a sound benefit nexus to show that costs are not solely applied to residential customers to reduce the rate for recycled water. 5. A written notice of the proposed charge shall be mailed to the record owner of each parcel at least 45 days prior to the public hearing, when the agen- cy considers all written protests against the charge. RFC has facilitated numerous Proposition 218 mailing for utility rates and we will work closely with the City Attorney to develop Notice material that includes all the RAF1111'; FINANCIAL CONSULTANTS, INC. CI1 Y OF SAN JUAN CAPISTRANO - 07 - substantive Proposition 218 requirements. As stated in the Manual M1, the AWWA Rates and Charges Subcommittee also believes that "the costs of water rates and charges should be recovered from classes of customers in proportion to the cost of serving those customers." To develop utility rates that comply with Proposition 218 and industry standards while meeting other emerging goals and objectives of the utility, there are four major steps: 1. FINANCIAL PLAN DEVELOPMENT (or determi- nation of revenue requirements as referred by the Manual M1). The rate -making process starts with the de- termination of future revenue requirements to sufficiently fund the utility's operation and maintenance (O&M), capital replacement and 'refurbishment (R&R), capital im- provement and perpetuation of the system and to ensure preservation of the utility's financial integrity. The basic revenue requirements of a utility include O&M expenses, debt service payments, contributions to specified reserves and the cost of capital expenditures that are not debt fi- nanced. Major capital projects are typically financed with a combination of long-term debt, equity (or cash from reserves), potential SRF funds, loans and grants. Debt financing enhances equity in cost recovery as the existing users do not have to pay 100 percent of the initial cost of facilities that will be used for many years. However, debt financing is more expensive in the long run. Two key aspects of the financial plan consist of the determination of the appropriate coverage ratio of debt financed capital projects and the required revenue adjustments to ensure financial sufficiency for its operational and capital needs while meeting other emerging goals of the utility, such as water conservation. For most utilities, the total revenue requirements are met through revenues from rates. Non- operating revenues, if any, provide offsets to total revenue requirements. A customized, easy-to-use financial plan- ning Model with Dashboard functionality with graphical and numerical outputs will be developed to allow quick review of various scenarios so that impacts can be visually analyzed and informed decisions may be made. 2. COST OF SERVICE ANALYSIS. The annual costs of providing water services, determined in the financial plan development, should be allocated among the custom- ers commensurate with their service requirements. In this step, costs are identified and allocated to functional cost components and distributed to respective customer classes according to the industry standards provided in the Manual M1 published by AWWA. California Government Code Section 54999 mandates agencies to conduct a thorough cost of service analysis every ten years in determining the utility rates. Due to the City's recent legal challenges, a thorough cost of service analy- sis for water services is recommended to ensure rate equity and regulatory compliance. 3. RATE DESIGN. Rates do more than simply recov- ering costs. Properly designed rates should support and optimize a blend of various utility objectives, such as conservation, affordability for essential needs, and rev- enue stability; and should work as a public information tool in communicating these objectives to customers. In this step, RFC will work within the legal framework and industry standards to design appropriate rates to resolve the City's current issues and achieve the City's objectives. A customized rate model will be developed to assess the customer impacts of different rate alternatives to facilitate informed decision making. The results are sum- marized in both easy -to -understand graphical format and technical tabular format to ease communications with elected officials about the financial consequences of their decisions. 4. RATE ADOPTION. In the last step of the rate -making process and in compliance with the Proposition 218 re- quirements, the results of the analyses are documented in a Study Report to help educate the public about the proposed changes, the rationale and justifications behind the changes and their anticipated financial impacts in laymen terms. 45 days after sending out the public no- tices, RFC will present at the public hearing to assist the City's adoption of the new utility rates. The RFC team is highly qualified in the development of rates and charges for utility agencies. Our expertise enables us to develop defensible rate structures, either in traditional forms or, when appropriate, innovative forms to address specific needs and circumstances. RFC's thor- ough cost of service studies result in charges that are developed based on sound rate -making principles that can be supported before regulatory agencies, commis- sions, elected officials, customer groups, or courts of law. - 08 - C!?Y OF SAN JUAN CAPISI RANO RAF T ELIS FINANCIAL. CONSULiAN T S, INC. PROJECT TASKS The utility industry consistently seeks RFC as advisor to lead the national discourse concerning rate structures. RFC's value -add to the rate design process is based not only on the level of technical expertise that results from deep experience, but the ability to glean the best ideas and strategies through the collaborative process. In evaluating and updating the City's utility rates and rate structure, RFC will use industry -accepted practices to ensure a robust and defensible rate structure. That said, every agency exhibits different characteristics and faces different issues. RFC's industry -driving technical exper- tise and deep experience — particularly with respect to water budget rate structures — will provide the founda- tion for a collaborative process that will tackle the City's needs and concerns. Earlier this year, for example, the American Water Works Association AWWA requested that Mr. Gaur lead a rate principles and rate design workshop at the Utility Management Conference. Mr. Gaur led the interaction -based strategic full-day workshop with presenters and participants representing agencies from across the country and oversees, of varying sizes, each with their unique challenges. The following sections outline the tasks we believe will be involved to complete a comprehensive rate study that accomplishes all of the City's goals. While tasks are listed consecutively, elements of tasks may be done con- currently with other tasks. TASK 1: PROJECT ORIENTATION, ADMINISTRATION AND DATA COLLECTION The objective of this task is to provide a solid foundation for the project and ensures that project participants are in mutual agreement as to the project's approach, work plan, schedule, and the City's priorities. As part of the meeting, RFC will discuss: 1) the method- ology for the existing rate structure; 2) the implications of Proposition 218 and other legal rulings as they relate to the City; and 3) communicating the value of water supply and reliability to the City's customers. In addition, forecast assumptions, master plans, and the City's poli- cies will be reviewed. A detailed data request list will be submitted to the City prior to the meeting so that all appropriate data in the required format can be forwarded to RFC. Upon receiv- ing the items requested in the data request, the Project Team will conduct a thorough review of the informa- tion provided by the City. It is important for the Project Team to get an understanding of the nature of both the revenue streams and the revenue requirements over the study period, especially for non-recurring expenditures or volatile revenue requirements. In addition, RFC will review the City's current structure of financial funds and reserves and develop recommendations for appropriate reserve levels that are consistent with industry standards as well as the City's risk management practices to main- tain or enhance financial solvency. This task also includes ongoing project management. Management responsibilities include general admin- istrative duties such as client correspondence, billing, project documentation, and administration of the study control plan. Meetings: One (1) Project Orientation Workshop Deliverables: Data Request List, Orientation Workshop Discussion Package, and Workshop Minutes TASK 2A: 10 -YEAR FINANCIAL PLAN The objective of this task is to project the City's revenue needs for the study period. This major task requires an assessment of revenues based on the existing rate and fee schedules, an estimation of future revenue requirements, the City's ability to meet projected revenue requirements, and the determination of the level of revenue adjust- ments and additional financing requirements. RFC will develop forecasts of revenue requirements for Water, Recycled Water and Wastewater Enterprises over the ten-year planning horizon. This will include an estimate of revenues based on current rates, usage characteristics, and other non-operating revenues. Rev- enue requirements will be projected based on historical results, the current budget, capital improvement plans (CIP), existing debt service and other bond compli- ance requirements, pass-throughs from imported water sources —Metropolitan Water District of Southern Cali- fornia — and other obligations and current economic trends. The financial plan will account not only for the RAF1 [_PS FINANCIAL CONSULIANTS. iNC. CI -1 Y OF SAN .JUAN CAPISTRAND - 09 - next ten years, but will also extend out through the City's capital improvement plan. 'Ibis will ensure that future capital needs are accounted for through a slow, measured buildup of cash reserves as opposed to requiring drastic spike in rates in one particular year. Rates, debt, grants, government subsidies, or infrastructure bank loans will be provided as options for capital cost financing. Project- ing revenue adjustments over a longer planning horizon can illustrate future rate impacts and potential chal- lenges to the City's financial situation and allow the City to make adjustments to expenses, reserve balances or capital projects scheduling to smooth rate impacts and to maintain financial stability. RFC will also ensure that the generated revenue meets the conditions of the California Urban Water Conservation Council's Best Management Practices regarding rates and other most up-to-date in- dustry standards. RFC will develop a ten-year cash flow analysis to de- termine revenue adjustments needed to meet projected revenue requirements for the planning period, while minimizing sharp rate fluctuations and debt coverage re- quirements. Revenue requirements will be calculated for each year in the forecast period and adjusted to provide for a smooth forecast of revenue adjustments. For exam- ple, changes in the timing of capital expenditures and the use of reserve funds to mitigate short-term rate impacts are two ways that revenue smoothing could be addressed. The objective is to minimize the magnitude of customer impacts while still achieving long-term revenue objectives. RFC understands the importance of developing a user- friendly, flexible Model that the City can use for future financial planning development. Following, are some of the features of our Financial Plan Model: • Provides flexibility to change various assumptions by year; • Flags errors and problematic results such as: failure to meet debt coverage, reserves below target levels, etc.; • Performs sensitivity analyses and runs various "what -if" scenarios so that impacts can be viewed in- stantaneously with built in -screen graphics; and • Accounts for and saves multiple scenarios for vari- ous levels of funding through our Scenario Manager. The Scenario Manager will provide the ability to run a comparative analysis between different scenarios to assist the City staff, the Utility Commission, and the City Council with clearly understanding the ad- vantages and disadvantages of each scenario each scenario can be accommodate slight adjustments to financial policies, reserve funding levels, debt cov- erage, rate impact, and, of course, extent of capital funding. Provides ease of input, report printing, up- dates, understanding and administration. The financial plans will be presented in an easy -to - understand format on an interactive `Dashboard' which shows the impacts of various assumptions so that deci- sions regarding revenue adjustments, capital financing through pay -go or debt and reserve balances can all be made quickly and efficiently. A snapshot of the Dash- board is shown on the following page. RFC builds each client's Model from the ground up, carefully tailored to individual needs and preferences. Several features of the shown Model Dashboard in addi- tion to the basic capabilities described above include the ability to show or indicate: 1. Different funding sources of CIP 2. Toggle switches for: a. Pass-throughs (SDG&E, MWD) b. Water demand growth rate c. Percent of R&R funding 3. Variable number of years displayed for financial plan 4. Variable funds displayed 5. Variable reserves displayed 6. Spin buttons (dynamic selection options) for scenario analyses As part of this task, RFC will work with City staff to de- termine the features that will be included in the Model. Upon completion of the Financial Plan Model, RFC will hold a webinar with City staff to review the Model and the assumptions for appropriateness, and finalize the financial plans for Water, Recycled Water and Wastewa- ter Enterprises to be used for the Rate Design Model. Meetings: One (1) meeting with City staff to review as- sumption and other inputs Deliverables: Financial Plan component of the Model in MS Excel° 2007 (deliverable in conjunction with Task 5) TASK 26: REVIEW AND CALCULATE CONNECTION FEES RFC will review and evaluate the current water and wastewater development impact fees regarding the cal - to CEI Y OF SAN JUAN CLPI TRANCI RAF-, ELIC:: FINANCIAL CON ULIAN? , INC. culation methods to ensure compliance with regulatory and industry standards and to account for capital im- provements that benefit future customers versus existing customers. In addition, RFC will obtain and review the latest planning documents to assess the growth in new users and the related demands that will be placed on the utility systems. Based on the City's 2010 Urban Water Management Plan, the City is expected to reach full build -out in 2035 and will grow by approximately ten percent in population. This information will be useful for determining cash flows and impacts on existing custom- ers. Given the relatively limited amount of future growth, connection fees will be a small revenue component of the overall financial plan. RFC will compile the current assets by function such as land, collection, treatment, pumping, production, etc. to ensure that any existing facilities that are needed to serve new customers are accounted for in the development of impact fees and the financial plan developed in Task 2A. SAMPLE MODEL DASHBOARD Mlllkxu Chart 3- Total ReserveChart Sts 520 Sis $10 $5 } F rr 1012. rr 2015 FY 2014 Fr.201S NEW Endi.95.W es -+-'reel • A-tila La rates Chart 2 - operating Financial Plan � 535 Chart 1 -Revenue Adjusbnents & Coverage Chart s S5o 3.0% Sts 230% 25% 25% 2.3% 200% 10% 0.01 0.0'a Debtlssues 15% 150%I3% So So $o 5a _..._.-- --_.--------- 10 0% 10% t $1, 03% ' 1-0% Normal 30% 100.x: 0.0% FY 2013 FY 2014 FY 2015 OVA h—op"t4l Debt Se-v"ee W M, Lost —1YLWD0IM —Cu*art Rev—P*epoaNAn fl 2012 Fr 2015 FY 2014 K 2013 Castel as A; Drought Rev Aa, Regv„eacwt npe-110% • A*rt Wrcra�c TOL', 75 13C-01- 100.01, Mlllkxu Chart 3- Total ReserveChart Sts 520 Sis $10 $5 } F rr 1012. rr 2015 FY 2014 Fr.201S NEW Endi.95.W es -+-'reel • A-tila La rates Chart 2 - operating Financial Plan � 535 LON 1 1 ► s S5o _ Sts 2.596 0045 0.041 510 a04 0.01 0.0'a Debtlssues 54000,000 4 1 ► Sls ? So So $o 5a 56 to $20— SO $o $1, Demand Factor 1-0% Normal 100.x: FY 2012 FY 2013 FY 2014 FY 2015 ata• Res F t ding h—op"t4l Debt Se-v"ee W M, Lost —1YLWD0IM —Cu*art Rev—P*epoaNAn Chart 4 - CIP and Funding Sources Sracaed CP. 04rred CIP s10 � S9 Ss 57 $6 55 $4 55 52 51 $O "am rr 2013 Fr 211114 H 3915 a PR60 ■De bt Fw d. -g L___.__ _ . SelectdPdptions I Deferred CTP I Pas s-th ru Wit*r Costs? Annex? Selort Water Sales Scenario I Normal SelectNoofYr Displ; tj 0 Zero Selected Variable SW.ctDisplayedP..r (s) Total Rev Adj LON 1 1 ► 1.Str5 2-5% 2.596 0045 0.041 0.0'0 a04 0.01 0.0'a Debtlssues 54000,000 4 1 ► So So $o 5a 56 5o SO $o $1, Demand Factor 1-0% Normal 100.x: 100, OF, 100.CY•5 103.0x, 1OC.O9 SOC.Oss 100.095 100.On 13C.09: s I ► I Drought 55.3~ H. 04-1 550'D TOL', 75 13C-01- 100.01, 100.075 100.31 13L'-LKi Est water Sales IAF) 18,043 AF 20,700AF 4C79 ALF 19,158AF 19,87 AF 19,316AF 19,395 AF 19,474AF 19,553 AF 19,632 AF 19,632 AF OCWD%- Annew 42.1"=' 50.3 52 5:5 740+: 73 Otlo 710"+- 73 0~, 73.3 5 ?3 '• 30 OCWD%-No Annex 4£-1;. 50.3+0 52.5^ 54.PKi 54,116 54.0=0 54.096 54.090 540-^:. 54.0* Est Water Sales) AF) to Normal 18,043 AF 19,000AF 1%079AF 19,158AF 4237 AF 19,316AF 19,39SAF 19,474 AF 19, 553 AF 19,62 AF 19,632 AF Drought 18,043 AF 19,00DAF 18,175AF 17,290AF 14493 AF 16,563 AF 16,E29AF 16,697 AF 16,765 AF 16, 833 AF 16,833 AF TrartsterstoReservet $10o,0DD Capital 51 occ, ar S L OCC, 000 $1,000, OCG $1. mc. 000 $1, ooc 001 S 1, CG0 O0C S 1, 00:t 30C S 1.00C,aXr $1,aX.000 Emergency -5£, Ox $£,OX -$1c, Doc -510, 00C $lc.D06 515,000 s2CJ oco -S2000C -,LL,.:Ac �.O, Doc. COP SO 5, $^� Sc 51, 5:: 5C Smp, Beret it Liability 551,301 SS1.OS 551, 000 551.0X1 551, ox 551, 0cc 591,ox 551. C06 551. XC 551, 006 RAF 11 1 1`1 FINANCIA1 CONSULTANTS, INC. CI'Y OF `AN _JUAN CAPISTRANO - i 1 - The City will provide depreciation schedules and a list of assets with their historical values and dates of construc- tion/installation as part of the data request. There are several methodologies for calculating capital fa- cilities fees. The various approaches have largely evolved on the basis of changing public policy, legal requirements, and the unique and special circumstances of every local agency. However, there are two general approaches that are widely accepted and appropriate for water and waste- water capacity facilities fees. Buy -in Approach The "buy -in" approach rests on the premise that new cus- tomers are entitled to service at the same price as existing customers. However, existing customers have already developed the facilities that will serve new customers, in- cluding the costs associated with financing those services. Under this approach, new customers only pay an amount equal to the net investment already made by existing us- ers, based on replacement cost less depreciation. This net equity investment is then divided by the current demand of the system number of customers (or customer equiva- lents) to determine the fee of the new user. Incremental -Cost Approach When new users connect to a water or wastewater system, they use either surplus capacity from the existing system, which must then be replaced, or they require new capac- ity that must be added to the system to accommodate their needs. Under the incremental -cost approach, new custom- ers pay for additional capacity requirements, irrespective of the value of past investments made by existing customers. Based on our analysis of the City's assets, RFC will evaluate the City's utility connection fees based on the buy -in and incremental methodologies or a combina- tion of both methodologies that are most applicable to the City. The calculation of the fees will depend on fixed assets, planned capital improvements, capital financing assumptions, system capacities, and the level of service or demand required to serve new customers. Proposed development impact fees will meet applicable regulatory requirements (Government Code 66000) in developing rates and impact fees. TASK 3: COST OF SERVICE ANALYSIS The City has expressed interest in reviewing its current tiered rate structure, developing a rate structure which continues to promote water conservation, and evaluating its current recycled rate structure to ensure that produc- tion costs are fully recovered by the appropriate customers. As a result, RFC will conduct a cost of service analysis that re-evaluates the cost distribution between different customer classes. Based on the cost of service analysis, RFC will review and provide appropriate rate structures for water, recycled water and wastewater. RFC will also allocate cost of service to current customer classifications. The cost of service analysis portion of the Study is often viewed as a compliance measure for regulations such as Proposition 218; another perspective is the defensibility the analysis provides the City in terms of the selected rate structure and rate levels. This level of confidence provides additional support for the City's pursuing the rates and rate structure that are best for the City and its customers. RFC will pay very close attention to the recent court's opinion regarding rate proportionality and cost allocations for recycled water. RFC specializes in the financial and rate development of water and wastewater utilities. Thus, there is no sepa- ration within the firm between a financial knowledge base and an engineering one. Instead, analyses for the City will be subject to technical review from personnel who have decades of experience on both the financial and engineering sides, and continue to be recognized as industry leaders. Based on this, RFC is confident of its determination of the cost allocation factors that steer the cost of service process. RFC will develop cost -based rates based on the City's imported water consumption, peaking, and usage char- acteristics. The cost of service analysis will be conducted according to the following process: Step 1 - Review Customer Class Usage Patterns and Determine Customer Classifications RFC will review and analyze historical water con- sumption, revenue records, and billing summaries to determine water usage and peaking characteristics by customer class or subclass. We will then estimate the rel- ative responsibility of each customer class for each of the functional cost elements. This allocation will be based on billing summary data, other locally available data which may be applicable, and RFC's experience with other util- ities exhibiting similar usage characteristics and patterns. It will provide the basis for equitable cost allocations to ii Y (_. - S. -PN JUAN CAPIS 'Fid?NG' �;�'F7 EI. IS FINANCIAL CONS(1l'AN 15, INC. each customer class or subclass. Step 2 — Allocate Costs to Functional Cost Categories RFC will f inctionalize the costs into main functions such as supply, transmission & distribution, storage, etc. The costs will then be allocated to cost centers such as commodity, maximum hour, maximum day, customer ac- counts, meter capacity, etc. to determine the unit cost for each cost center. Step 3 — Allocate Functional Costs to Customer Classes Next, the costs associated with the functional com- ponents will be allocated to the various customer classifications on the basis of the relative responsibility of each classification for service provided. Costs will be allocated based on the determination of units of service for each customer classification and the application of unit costs of service to the respective units. Throughout the cost allocation process, RFC will com- ply with the City's policy considerations, procedures, and guidelines applicable to charges for water service and ensure that proposed rates are in compliance with Proposition 218. Meetings: One (1) conference call with City staff to review cost allocation inputs Deliverables: Cost of Service analysis component of the Model (deliverable in conjunction with Task S) TASK 4: RATE DESIGN & SENSITIVITY ANALYSIS RFC has been instrumental in the evolution of water budget rate structures in California and is very famil- iar with the requirements of Gr SB x7-7 as they pertain to water sales reduction tar- gets and the guidelines for developing rate structures such as for landscape are or water budget allotments. Rates will be calculated in the Model and will be developed to reflect the po- tential financial impacts on customers from the alterna- tive rate structure(s) that will have been evaluated. RFC will utilize the appropriate water consumption data and allocation factors that the City has for developing water budget allocations. The Model will include a series of tables and figures that show projected rate impacts on different types of customers at different levels of usage or generation. Because the Dashboard functionality of the Model inherently serves as a sensitivity -analysis tool (See Step 1, below, for more detail), the Model can serve on an on-going basis to evaluate how adjustments to the rate structure will impact targeted customer groups and/ or levels of usage to ensure that conservation and other pricing objectives are being addressed effectively. The Rate Model will be developed according to the following process: Step 1 — Calculate Water Rates The Model will be developed with the flexibility to change tier widths based on customer class. To help communicate with customers about the drivers be- hind rate increases and the rationale behind why rates between tiers are different, the water rates will have several cost components for each tier including water supply costs, the City's system costs (delivery costs), conservation costs and other revenues to offset water sys- tem costs. An example of this type of structuring is the FY 2010 water rates for El Toro Water District, shown below. Water supply rates in tiers 1 (indoor allocation) and 2 (outdoor allocation) are associated with low water supply costs, and tiers 3 (50 percent of total allocation) and 4 are based on the cost expanding the supplemental water supply and conservation programs. El Toro Wa- ter District has only a limited supply of water available, which is dedicated to efficient indoor and outdoor water aphical interface showing impacts on ustomers to optimize water structure. . Offset using Income from Site Lease based on District's policy RAFT[ I Ic FINANCIAL CONSULTANTS, INC. C1_1 Y OF SAN .JUAN CA.PISTRAN0 - 13 Current Proposed Rates Tiers Rates water Conserva- Supply Delivery tion offset* PP Y Total I. :• I. :. -- L1 1. I. :1 WEE.". . Offset using Income from Site Lease based on District's policy RAFT[ I Ic FINANCIAL CONSULTANTS, INC. C1_1 Y OF SAN .JUAN CA.PISTRAN0 - 13 use. If a customer wants to utilize water above an efficient level, the District will need to secure water from other sources, which include expanding their source of supple- mental water supply. The conservation program is funded through the consumption in the higher tiers as these are the customers that directly benefit from such programs. This build-up cost approach for deriving the rate for each tier develops the rationale for the tiered rates and meets the requirements of Proposition 218. The Model will determine the rates required for each tier to collect the required revenues. The Model will also have the built-in capability to conduct various scenario analyses to address different conservation issues such as drought, loss of water supply etc., and to calculate water rates under each scenario. The Dashboard, which displays key variables and results in real-time on screen, will fa- cilitate discussion to reach a consensus quickly. This has proven to be particularly useful when making presenta- tions to utilities commissions, city councils, and various stakeholder groups, allowing them instantly to appreciate the impacts of their decisions fully. Step 2 - Perform Impact Analysis for Customers RFC will also determine the potential financial impact on customers that may result from the proposed rate structure. The Model will include a series of tables and figures that show projected rate impacts on different types of customers at various levels of usage. The sample customer impact illustration displayed on the following page shows that 64% (48 + 16) of the customers will see no more than a $2 increase in their bill. Meetings: Up to two (2) webinars with City staff, as necessary Deliverables: Rate design and sensitivity analyses compo- nents of Model (deliverable in conjunction with Task 5) TASK 5: RATE WORKSHOPS Task 5.1: Rate Design Workshop with City Staff Following the completion of the Study (inclusive of built-in sensitivity analyses) - Financial Plan, rate design, cost of service analysis - RFC will conduct a workshop with City staff to examine different viable rate scenarios to consider for adoption. The goal of this workshop is to identify the water rates that will be presented at the rate workshop with the Utilities Commission and City Council. RFC will present the interim proposed rates and discuss the benefits and challenges associated with each proposed rate alternative as demonstrated through Graphical interface showing impacts on customers to optimize water budget rate structure. -1 14 - C11Y OF SAN JUAN CAPISTRANO R1,F-! HS, FINANCIAL CONSAJI1AN' INC. The overall financial impacts on customers are a tool for stakeholders to make informed decisions regarding different policy options and variables. %"' eBs CUSTOMER IMPACTS SFR � MFR a IRR 59 Sk 65, Bti :SO 53 55 $10 $15 525 550 1550 S ckwp In Wk the Model. Changes and suggestions from staff will be incorporated into the analyses prior to presenting the re- sults at the joint meeting with the Utilities Commission and City Council. Task 5.2: Rate Design Workshop with Utilities Commission and City Council Upon incorporating comments from the workshop with City staff into the Study, Mr. Gaur will present the re- sults of the Study with the City's governing bodies. As mentioned previously, Mr. Gaur is consistently called upon by industry associations such as AWWA and ACWA to explain to elected officials the complex issues associated with alternative rate structures and has exten- sive experience presenting to utilities' governing bodies. "the presentation will highlight the collaborative process used to identify and prioritize the important issues fac- ing the City. The proposed rates and miscellaneous fees will be presented along with other recommendations resulting from the Study. Meetings: One (1) meeting with City staff to review rate design and cost of service analysis, one (1) joint meeting with Utilities Commission and City Council Deliverables: Presentation materials TASK 6: PREPARATION OF RATE STUDY DRAFT REPORT "the process for developing the financial plan and proposed rate structures along with preliminary rate recommendations will be described in a draft report of findings and recommendations. This draft report will be submitted after the City Council Workshop to incor- porate their input into the final result. As a means to ensure that the study includes a thorough administrative record, the Final Report will include an exhibit listing all rate design assumptions and methodologies used to de- velop the financial plan and rates. Comments from the City staff will be incorporated into the Final Report and the Model will be refined to reflect appropriate issues or concerns raised. The report will be submitted to the City and will include appropriate supporting data from the Model to address the requirements of Proposition 218. Also included for update to the City's last rate com- parison study will be a survey of south Orange County water service providers of up to five (5) comparable utili- ties. RFC has extensive experience in conducting rate surveys, as we have partnered with the American Water Works Association (AWWA) to conduct a nationwide biennial survey of water and wastewater rates and with CA -NV AWWA to survey water utilities in California and Nevada. This provides RFC with extensive survey experience, a national database, and numerous contacts throughout the industry that will be extremely useful in collecting financial and rate information for the rate and cost of service comparison. Comparing rates and costs with other comparable agencies and industry bench- marks can provide insights into a utility's pricing policies related to service. As part of our comparison survey, we will also determine whether the other agencies uti- lize property tax or other dedicated revenue streams for capital improvements, such as, Mello -Roos Districts. Care should be taken, however, in drawing conclusions from such a comparison as some factors including geo- graphic location, demand, customer constituency, level of treatment, level of grant funding, age of system, level of FAFTFLIS FINANCIAL CONSULTANTS, INC:. CITY OF SAN JUAN CAP151RANO - 15 - general fund subsidization, and rate -setting methodology Optional Task: Mailers to two (2) mailing lists, presenta- can affect the cost of providing services. tion materials for the Public Meeting Meetings: One (1) meeting with City staff and (1) joint spe- cial meeting with Utilities Commission and City Council Deliverables: Draft Rate Study Report (inclusive of four re- port components) TASK 7: PREPARE RATE STUDY FINAL REPORT Following review of the Draft Report with City staff, City Council, and the Utilities Commission, comments will be incorporated into the Final Report and the Model will be refined to reflect appropriate issues or concerns raised. Meetings: One (1) Public Information Workshop and (1) joint special meeting with Utilities Commission and City Council Deliverables: Final Rate Study Report (inclusive of all Study components) TASK 8: PROPOSITION 218 ASSISTANCE Based on our experience with Proposition 218 since its passage in 1996, RFC will draft the required Proposition 218 notices. The notices will explain: 1) the purpose of the rates; 2) how the rates are structured; 3) the time and place of the public hearing; and 4) details regarding what constitutes the existence of a majority protest as it relates to the implementation of new/increased utility rates. RFC will provide guidance to the City for the develop- ment of the Proposition 218 notice and sign an affidavit of mailing. RFC recognizes the meeting of Proposition 218 requirements as a legal issue and will work with the City attorney, as we have with numerous agencies, to ensure compliant notification materials. Following ap- proval and as an optional task, RFC could mail the notice to property owners as well as customers that are not the property owner. RFC will attend and make a presentation at one (1) pub- lic hearing with the City Council on the adoption of the new rate structures. Meetings: One (1) Public Hearing Meeting Deliverables: Proposition 218 notification materials for approval TASK 9: MODEL DELIVERY AND TRAINING As part of this task, RFC will provide one train- ing session to staff in the use of the Model. However, throughout the course of this engagement, RFC will utilize each in-person meeting to educate and train City staff on each component of the model, which will allow the final day of training devoted primarily to more spe- cific questions regarding the Model. The training session will include working through realistic sample scenarios to fully prepare the staff to independently use and update the model for future analyses. As described and shown in Task 2, the Model's Dashboard is very easy to under- stand and to tailor to various scenarios. Staff's update of inputs such as O&M and CIP to the City's computer software system will be present minimal administrative burden on staff. RFC will continue to provide assistance beyond this training to City staff to answer questions and clarifications on model updates. Meetings: Trainingsession Deliverables: Model, training materials - It -- CITY OF SAN JUAN CAPISTRANO RAFTELIS FINANCIAL CONSULTANS, INC. PROJECT SCHEDULE RFC will complete the scope of work outlined in this proposal as shown in the schedule below. This schedule assumes that we receive the notice to proceed by October 2, 2013. It will be necessary to receive the requested data in a timely manner and be able to schedule meetings as necessary. Project Orientation, Administration and Data 1 Collection Deliverable(o) Kick aff meeting package and data request list 10 -Year Financial Plan IsM 2 Deliverable(s); 10 -year Financial Plan Model n MS Excel'"' 2007, presentation materials for Financial Plan Workshop with Staff 3 Cost of Service Analysis il Deliverablefs): Cost of Service Analyses for Water. RW and WW Hate Oestgn 8 Sensitivity 4 Anatv�i� Deliverable(s): Rate Design Model in MS ExcelTM 2007, Proposed Water, RW, WW and Wholesale rates, and Sensitivity Analyses Sensnivily Analysis and Rate 5 Workshops Deliverablefs): Presentation materials for the Workshops Preparation of Draft Reporl w Deliverable(s): Draft Rate Study Report, Summary of each customer classification, Draft Rale Model, Rales comparison for South Orange County water agencies and presentation materials for meetings with Staff and Preparation of Final Report Deliverable(sl: Final Rate Study Report, Final summary of each customer classification, Final Rate Model, and presentation materials for meeougsNmrkshops with Staff, public and elected officials B Proposition 218 Assistance IF,- T '• Deliverable(s): Draft Proposition 218 notification materials and presentation materials lot the public hearing 9 Model Delivery and Training Deliverablels): Final Rate Model it MS Excel- 2007 and training materials for the training session with Staff 10 Project Orientabn Workshop with City Staff j. Public Hearing 1 Project Meetings with City Staff Proposition 218 Notice Workshops I Meetings with Elected J %16 Officials (Utilities Commission and City Delivery of Draft/Final Reports Council) RAFTLLIS FINANCIAL CONSULTANTS, INC. CITY OF SAN JUAN CAPISTRANO - i7 - ALTERNATIVE R E C 0 M M E N D A T 1 0 N S In developing alternative recommendations related to rate structure and design, RFC will begin the discussion with a review of the evolution of rate structures and the benefits and challenges associated with each structure, including uni- form rate, seasonal rates, inclining tiered rates, and water budget rate structures. The goal of this discussion is for the City to share with RFC its understanding of available rate structures and for RFC to provide the City an overview of all applicable alternatives according to the City's priorities and currently observed best management practices. Once rate structure alternatives and the City's preliminary preferences have been discussed, RFC will present an overview of pricing objectives. Examples of pricing objectives include: need for an effective drought management tool; financial sufficiency and stability; rate stability; reduction in peak demand; minimization of customer impacts; and affordability for essential use, among others. Sample Pricing Objectives Scorecard This exercise will es row and =M�Www the selection of alterna- tive rate strthat have and designs that have the best potential to serve I Financial sufficiency A A- A - the City's interests and o a 2 Revenue stability A- B+ A needs. The steps in- �' E 3 Equity B. B A volved in considering selected alternatives are 4 Cost of Service Based A A A outlined throughout our v oAllocations proposed Project Tasks, > E 5 DefensibilityG A- A - and the ultimate selec- '-' 6 Rate Stability C A- A - tion of an alternative Conservation/Demand rate structure and design m y Management C A_ A will fully consider the o Minimization of satisfaction of regulatory 8 Customer Impacts A B A - guidelines and impacts 9 Ease of Implementation A B+ C on customers. 10 Simple to Understand and A B+ B- Update B Affordability to .a E 11 Disadvantaged Customers C B B .. 12 Economic Development B B B - 18 - CITY OF SAN JUAN CAPISTRANO RAFTELIS FINANCIAL CONSULTANTS, INC. FEE PROPOSAL RFC will complete the scope of work detailed in our Scope of Service in a timely and efficient manner. the table below details the estimated hours for each consultant and administrative support related to each task of the scope of work, and an additional table detailing the pricing for the optional task. Reimbursable expenses are billed at actual cost. Additional meetings will be billed on a time and materials basis, and estimated cost per meeting is shown below. Expenses include costs associated with travel and a $10 per hour technology charge covering computers, networks, telephones, postage, etc. Task Task Descriptions No of Meetings Hours Requirements Total Fees & Expenses Total Fees & Expenses SP SG FC Admin Total 1 Project Orientation, Administration and Data Collection 1 $4,068 10 12 1 23 $5,138 2 10 -Year Financial Plan 1 2 12 50 HOURLY RATES 64 $13,479 3 Cost of Service Analysis 2 12 30 $1,920 $1,560 $0 $3,740 44 $9,251 4 Rate Design & Sensitivity Analysis 2 12 60 $328 74 $15,101 5 Sensitivity Analysis and Rate Workshops 2 2 24 30 56 $12,786 6 Preparation of Draft Report 7 Preparation of Final Report 2 2 2 20 30 30 24 1 1 53 57 $11,896 $13,126 2 8 Proposition 218 Assistance 1 1 8 4 2 15 $3,428 9 Model Delivery and Training 1 10 6 16 $3,898 TOTAL ESTIMATED MEETINGS/ HOURS 30 13 138 246 5 402 HOURLY RATES $260 $240 $195 $70 PROFESSIONAL FEES $3,380 $33,120 $47,970 $350 $84,820 SP = Sudhir Pardiwala SG = Sanjay Gaur FC = Financial Consultant(s) Total Fees $84,820 Total Expenses $3,283 TOTAL FEES & EXPENSES ESTIMATED ,$`88,103 OPTIONAL TASK Task Optional Task Descriptions No of Meetings Hours Requirements Total Fees & Expenses SP SG FC Admin Total Additional Public Meetings, including preparation time 1 1 8 8 17 $4,068 (per meeting) TOTAL ESTIMATED MEETINGS/ HOURS 1 1 8 8 0 17 HOURLY RATES $260 j $240 $195 $70 PROFESSIONAL FEES $260 $1,920 $1,560 $0 $3,740 SP = Sudhir Pardiwala SG = Sanjay Gaur FC = Financial Consultant(s) Total fees $3,740 Total Expenses $328 TOTAL FEES & EXPENSES ESTIMATED $4,068 RAFTELIS FINANCIAL CONSULTANTS, INC. CITY OF SAN JUAN CAPISTRANO - 37 - Exhibit B CALIFORNIA EXPERIENCE IN THE PAST 5 YEARS 'he following tables list the California utilities that RFC has assisted over the past five years on financial/rate consulting projects. Alameda County Water District w ✓ ✓ ✓ Anaheim, City of w ✓ ✓ ✓ Arcadia, City of w ✓ ✓ ✓ Atwater, City of w, ww ✓ ✓ ✓ ✓ Banning, City of w, ww ✓ ✓ ✓ ✓ ✓ ✓ Beaumont Cherry Valley Water District w ✓ ✓ ✓ ✓ ✓ ✓ Beverly Hills, City of w, ww ✓ ✓ ✓ Borrego Water District w, ww ✓ Brea, City of w ✓ ✓ ✓ Carpinteria Sanitary District ww ✓ ✓ ✓ ✓ Casitas Municipal Water District w ✓ ✓ ✓ Castroville Water District w, ww ✓ ✓ ✓ Chowchilla, City of w, ww ✓ ✓ ✓ Corona, City of w, ww ✓ ✓ ✓ East Orange County Water District w ✓ El Toro Water District w, ww ✓ ✓ ✓ ✓ ✓ ✓ Encinitas, City of w ✓ ✓ ✓ Escondido, City of w ✓ ✓ ✓ ✓ ✓ Glendora, City of ww ✓ Goleta West Sanitary District ww ✓ ✓ ✓ ✓ ✓ Holtville, City of ww ✓ ✓ ✓ Huntington Beach, City of w ✓ Indio Water Authority solid ✓ Jurupa Community Services District w, ww ✓ ✓ ✓ ✓ La Canada Irrigation District w ✓ ✓ ✓ ✓ La Habra Heights County Water District w ✓ Las Virgenes Municipal Water District ✓ ✓ ✓ ✓ ✓ Los Angeles DWP w ✓ Madera, City of ww ✓ ✓ ✓ Mesa Consolidated Water District w ✓ Metropolitan Wastewater Joint Powers ww ✓ Authority Metropolitan Water District w ✓ Municipal Water District of Orange ✓ County w Napa Sanitation District ww ✓ - 28 - CITY OF SAN JUAN CAPISTRANO RAFTELIS FINANCIAL CONSULTANTS, INC. Attachment 4 Newhall County Water District w ✓ Newport Beach, City of w ✓ Olivenhain Municipal Water District w ✓ Ontario, City of w' WW' solid ✓ ✓ ✓ Palmdale Water District w ✓ ✓ ✓ ✓ Poway, City of ww ✓ Ramona Municipal Water District ww ✓ ✓ ✓ Rancho California Water District w ✓ ✓ ✓ ✓ Redlands, City of w, ww ✓ ✓ ✓ Riverside, City of w, ww ✓ ✓ ✓ Sacramento, City of ww ✓ ✓ ✓ Sacramento Regional County ww ✓ Sanitation District Salton Community Services District ww ✓ ✓ ✓ San Bernardino County w, ww ✓ ✓ ✓ San Clemente, City of w, ww ✓ ✓ ✓ ✓ San Diego, City of w'wW' ✓ ✓ ✓ ✓ trans. San Diego County Water Authority wheel- I/ v, San Dieguito Water District w ✓ ✓ ✓ San Francisco Public Utilities ✓ ✓ ✓ Commission w, ww Santa Barbara, City of ww ✓ Santa Clara Valley Water District w ✓ ✓ ✓ Santa Fe Irrigation District w ✓ ✓ ✓ Santa Monica, City of ww ✓ ✓ ✓ South Coast Water District w ✓ South Pasadena, City of w, ww ✓ ✓ ✓ ✓ Torrance, City of w ✓ ✓ ✓ Triunfo Sanitation District w, ww ✓ ✓ ✓ Ventura, City of w, ww ✓ ✓ ✓ Ventura Regional Sanitation District w, ww ✓ ✓ ✓ Western Municipal Water District w, ww ✓ ✓ ✓ ✓ Yorba Linda Water District w, ww ✓ ✓ ✓ ✓ RAFTLLIS FINANCIAL CONSULTANIS. INC. CITY OF SAN JUAN CAPISTRANO - 29 - On the following pages, we have provided detailed descriptions of several projects that we have worked on in the past five years that are similar in scope and/or size to the City's project. We also selected these projects because many of our proposed Project Team members worked in similar roles on them. Our Project Manager, Sanjay Gaur, served as Project Manager on many of these projects. We have included references for each of these clients and urge you to contact them to better understand our capabilities and the quality of service that we provide. We have also included recommendation letters from several of our clients as further evidence of our focus on client satisfaction. KEY STAFF * S. Gaur - PM S. Pardiwala - PD K. Phan - SC H. Phan - SC B. Lim - SC CLIENT CONTACT Kenneth Dills Public Works Department, Utilities Division 19001 Huntington Street Huntington Beach, CA 92648 P: 714.375.5055 E: kdills@surfcity- hb.org COMPLETION DATE 2013 * PM = Project Manager; PD = Project Director; SC = Staff Consultant CITY OF HUNTINGTON BEACH (CA) SCOPE OF WORK In 2010, City of Huntington Beach (City) engaged RFC to conduct a water budget rate study and design a water budget rate structure for its 48,000 residential and irrigation accounts. Budgets were based on household size for indoor allocations and weather and irrigation area for outdoor allocations. The formula for developing allocation budgets considers irrigation efficiency and type of landscape. The whole concept is to encourage efficient use of water and to provide users adequate water but penalize wasteful practices. RFC continued the water budget process in 2011 by developing a water budget rate model that allowed the City to quickly view the impacts of alternate rates and budgets. The water budget rate structure was designed to ensure revenue stability, financial suf- ficiency and conservation program funding for the City. This tool was invaluable when presenting results in graphical format to the City Council so that they could see the impacts of different water budgets and different rate alternatives on their customers in- stantaneously. In addition, RFC has additionally been requested to prepare the billing system framework required to accommodate a water budget rate structure. As part of this engagement, RFC conducted market research to identify potential vendors that had successfully implemented a water budget rate structure and provided the City with a list of vendors and their associated contact information. RFC contacted these vendors to educate them on the City's needs associated with the water budget rate structure and determined a ballpark cost figure. RFC followed up in 2012 with development of a Fi- nancial Plan Model to evaluate financing options for the capital improvement projects (CIP) included in its recently updated Water Master Plan, to assess the resulting finan- cial impacts and to perform sensitivity analyses for different CIP scenarios. - 30 -- CITY OF SAN JOAN CAPISTRANO RAFTELIS FINANCIAL CONSULTANTS, INC. KEY STAFF S. Gaur - PM S. Pardiwala - PD / PM K. Phan - SC H. Phan - SC B. Lim - SC CLIENT CONTACT Michael Grandy Assistant GM/CFO 24251 Los Alisos Boulevard Lake Forest, CA 92630 P: 949.837.7050 E: mgrandy@etwd.com COMPLETION DATE 2013 "The EI Toro Water District and I have been working Sudhir Pardiwala and his team at RFC for many years. We have come to rely on their expertise in a number Of very important aspects of our business. RFC guided Staff and Board through the conversion from a uniform commodity rate to a water budget based tiered conser- vation rate structure. Their in-depth understanding and straight forward communi- cation style took a complex and complicated topic and broke it down into under- standable components. Three years into the program, we have maintained a reduction in consumption meeting our 20% by 2020 goal without financial implications of the reduced sales. " - Michael Grandy, Assistant GM/CFO EI Toro Water District EL TORO WATER DISTRICT (CA) SCOPE OF WORK RFC has been assisting El Toro Water District (District) with its rates for several years. In 2006, the District had not updated its water and wastewater rates and rate structure in over ten years and was operating at a deficit. RFC prepared a finan- cial plan over a 12 -year period considering operating and capital expenses and debt and reserve requirements. A cost of service analysis was also conducted to review fairness of rates and rate structures. Multiple scenarios were developed to review impacts and suggested a phased approach to implementing cost of service rates. Al- ternate innovative sources of revenues were considered to minimize rate impacts. RFC also reviewed the reclaimed water rates and surveyed surrounding agencies to compare rates, sources of revenue, unit cost of providing service based on total sales, etc. to determine the competitive effectiveness of the District's operations. The adopted rates, resulting from the Cost of Service Study in 2006, unbundled rate components to convey the true cost costs of various service components and to continue equitably passing on the cost of water, wastewater and supplemental water supply services to users. RFC continued the effort in 2009 by designing a water budget rate structure for its residential and irrigation accounts to be implement- ed in July 2010 to promote water -use efficiency. As a result, RFC has designed a water budget rate structure which ensures revenue stability, financial sufficiency, and provides the appropriate price signal on different supply costs and conserva- tion program funding for the District. As part of the Study, RFC interfaced with Continental Utility Solutions, Inc. (CUSI), the District's billing consultant, and provided specifications to ensure that the budget rate structure could be smoothly implemented. Next, RFC developed a water budget rate model that allows the Dis- trict to quickly view the impacts of alternate rates and budgets, to aid policy makers in making well-informed decisions in a timely manner. This tool proved invaluable when presenting the results in a graphical format to the District Board of Direc- tors because it enabled them to easily see the impacts of different water budgets on their customers in real-time. As a result, the Board adopted the water budget rate structure in June 2010. To minimize rate shocks to upper -tier users, RFC developed a 3-phase implementation plan slowly phasing in Tier 3 and 4 rates. The rate unbundling and phase-in implementation plan were found beneficial and use- ful for the District during public outreach and rate implementation. The findings and recommendations resulting from the Study were summarized and documented in the Study Report. To address customer concerns, RFC also assisted the District in developing variance programs to accommodate customers' with unique user char- acteristics. RFC developed a web -based calculator so that customers could review impacts. To address the Proposition 218 requirements, RFC assisted the District with preparing the Proposition 218 notice sent out to property owners at least 45 days before the public hearing, detailing the rationale behind the changes in water rates and explaining the rate design and justifications of proposed rates. In 2012, RFC was retained by the District to conduct the cost of service update study to update its water and wastewater rates, which went into effect on July 1st 2012 and the supplemental water supply financial plan study to evaluate the impacts of the supplemental water supply expansion on the Water and Wastewater Enterprises. R/`•.FTFt- IS FINANCIAL CONSULTANTS. INC. CITY OF SAN _MAN CAPISTRANO - 31 - KEY STAFF S. Gaur - PM S. Pardiwala - PD K. Phan - SC H. Phan - SC CLIENT CONTACT Tom Rendina Municipal Services Manager 100 Avendia Presidio San Clemente, CA 92672 P: 949.361.8312 E: rendinat@san- clemente.org COMPLETION DATE 2013 CITY OF SAN CLEMENTE (CA) SCOPE OF WORK In 2011, the City engaged RFC to conduct a Recycled Water, Sewer and Water Rate Study (Study) to address the steady declines in water demand that led to revenue shortfalls and a combined deficit of $1.7 million and to establish equitable rates in com- pliance with Proposition 218. 'Ihe Study included the development of financial plans for the Water and Sewer Enterprise Funds (to ensure financial sufficiency in order to meet operation and maintenance (O&M) costs, to ensure sufficient depreciation funding for capital replacement and refurbishment (R&R) needs, and to improve the financial health of the enterprises), the development of fair and equitable water and sewer rates and the review of current rate structure for recycled water (RW) and the modeling of impacts resulting from recycled water system expansion. In addition, RFC evaluated the benefits and costs of implementing a full water budget rate structure. RFC assisted the City in merging the County parcel data with the water consumption by addresses for single family residential accounts. Based on this information, RFC developed a water budget model that was able to examine different estimates on weather factors (seasonal or historical daily) and landscape estimates (percentage of lot size, grouping of lots sizes by bins and lot size minus footprint). The analysis concluded that due to recent water conservation efforts and the unique characteristics of the City, potential outdoor wa- ter savings provided by water budget rates for residential customers were minimal and not substantial enough to offset the increased costs of implementation and administer- ing such a rate structure that the City would incur. The usage analysis also suggested changes to the season and tier definitions for the current water rate structures. RFC also developed a web -based bill calculator for the City residential customers as a public outreach tool for the recommended changes to the water and sewer rates. The bill calcu- lator was posted on the City's website for residential customers to easily assess the actual impacts on their monthly bills. RFC followed up in 2013 with a rate update study to up- date the City's water and wastewater rates and the recycled water rate study to calculate equitable recycled water rates for both contractual and non -contract customers effective after the completion of the recycled water plant expansion. - 32 CITY OF SAN JUAN CAPISTRA.NC? RAFTELIS FINANCIAL CONSULTANTS. INC. KEY STAFF S. Gaur - PM S. Pardiwala - PD K. Phan - SC H. Phan - SC CLIENT CONTACT Jeff Armstrong Chief Financial Officer 42135 Winchester Road, P.O. Box 9017 Temecula, CA 92589-9017 P: 951.296.6928 E: armstrongj@ranchowater. com COMPLETION DATE 2012 I am writing to thank RFC, and particularly Sanjay Gaur and Khanh Phan for the high quality, professional consult- ing services provided in the recent engagements —Water Budget Rate and Water De- mand Offset Fee Studies. Even though the schedules for both studies were unusually tight, the work products were well-writted and presented. Their creative solutions to the complex problems surrounding water budget rate structures were of tremendous help in implementing water budget rates at the District. They were very responsive, reliable, and knowledgable. " - JeffArmstrong, CFO Rancho California Water District RANCHO CALIFORNIA WATER DISTRICT (CA) SCOPE OF WORK In 2009, Rancho California Water District (District) engaged RFC in a wa- ter budget rate study to design a water budget rate structure for its 35,000 residential and irrigation accounts in both Rancho and Santa Rosa Divisions. RFC assisted the District in evaluating different methodologies to allocate its water sources, mainly imported water and groundwater, to different customer classes. RFC also performed numerous analyses on the usage and landscape area relationships to create a rational landscape area cap for residential ac- counts. RFC consulted the District in developing the variance programs to accommodate customers' inquiries about their water budgets. In addition, RFC thoroughly analyzed the associated impacts of the proposed water budget rate on the District's finances and its customers so the policy makers could make informed decisions. RFC developed a water budget rate model that allowed the District to quickly view the impacts of alternate rates and budgets. The water budget rate structure was designed to ensure revenue stability, financial sufficiency and conservation program funding for the District. This tool was invaluable when presenting results in graphical format to the District Board of Directors so that they could see the impacts of different water budgets, dif- ferent water source allocation methodologies and different landscape area caps on their customers in real-time. To continue the effort, in 2009, RFC was en- gaged for a New Water Demand Offset Fee Study. The New Water Demand Offset Program is a form of funding of conservation measures that will help to create sustainable, zero water footprint development. New developments will pay fees called New Water Demand Offset Fees to create potable water savings in the existing system to support water demand generated by new de- velopments. Water savings can be achieved by converting irrigation accounts to recycled water or installing high efficiency retrofits to replace inefficient fixtures for existing accounts in the District. Implementation of the New Wa- ter Demand Offset Program is a key component to support sustainable new development without generating additional net demand on the existing sys- tem. RFC researched water savings and costs for each conservation program/ fixture at various agencies, calculated the estimated water demand of new ac- count using water budget and built a model to calculate the individualized water demand offset fees based on the characteristics of the new development, such as lot size and landscape area. The Study was completed and the results were presented to the Board in the same month. The District's current water capital facilities financing program estimates $323 million to be spent by the end of 2030. Due to the significant amount of capital spending expected, in November 2011, the District commissioned RFC to evaluate its existing ca- pacity fee methodology and update the fee to ensure that new customers pay an equitable share when joining the District's system. The results were sum- marized in the Water Capacity Fee Study Report and presented to the Board in March 2012. RAFTCi_IS FINANCIAL CONSULTANTS. INC. CITY OF SAN JUAN CAPISTRANO - 33 - KEY STAFF WESTERN MUNICIPAL S. Gaur - PM S. Pardiwala - PD WATER DISTRICT (C A) K. Phan - SC H. Phan - SC SCOPE OF WORK B. Lim - SC Western Municipal Water District (District) serves roughly 24,000 retail and 8 wholesale customers in western Riverside County with approximately 125,000 acre ft. of water per year CLIENT from the Colorado River, State Water Project, and groundwater. RFC has assisted the Dis- CONTACT trict with several projects including the development of a water budget rate structure for its Rod LeMond, retail customers, the development of a long-term financial plan for each cost center within CPA Assistant the District, a review and analysis of the annual water rate update, a water budget web calcu- GM/CFO lator to be used as a public outreach tool, and development of connection fees for the retail 14205 Meridian water, wastewater, and recycled water services within the District. The main objective of the Parkway water budget rate study was to identify and thoroughly examine three potential water budget Riverside, CA rate structures for each of the two identified cost centers (Murrieta and Riverside). RFC 92518 developed a water budget rate model in Microsoft Excel' so each of the two costs centers P: 951.571.7203 have the ability to change the key factors for all water allocations, to provide revenue and E: rlemond@ impact analysis, and to generate sample customer monthly bills under existing and proposed wmwd.com rates. To assist the District during the water budget rate implementation, RFC developed a web -based bill calculator as a public outreach tool to allow customers to review their alloca- COMPLETION tions compared with their actual usage and their bill impacts. The water budget rate structure DATE was successfully adopted. In 2010, RFC also assisted the District in its annual water rate 2012 update study to ensure revenue sufficiency to recover the increasing costs of imported water and to enhance revenue stability by designing a rate structure that will reduce the District's dependency on property tax to fund its operations. In order to better financially manage all 14 enterprises, the District needed a comprehensive, yet user-friendly financial plan model which could be used to facilitate com-munications between staff and the District's Board of Directors about the financial implications of different financial policies and capital projects. The Model assists coordination and decision making between the engineering and finance staff to prioritize capital projects and to define a capital financing plan to achieve a sustain- able and achievable solution. Recently, the District engaged RFC to develop a customized 30 -year Financial Plan Model (Model) with the ability to conduct scenario analysis. The interactive dashboard of the Model displays the Long -Term Financial Plan of the 14 enter- prises in graphical format. A CIP manager was developed to save a customized CIP scenario to be used for financial implication evaluations. The built-in scenario manager enables the Model users to save, load, and compare the results of different assumptions, inputs, and CIP scenarios. Customized financial reports in preset printed format can be generated at indi- vidual enterprise level and at aggregate level for the whole District. The District continued to retain RFC to make necessary modifications and to add more features, including the rate calculation module for Riverside Treated service area, to the Model in order to address newly arisen issues and concerns. Finally, in 2012, the District engaged RFC to develop the con- nection fees for its retail water, wastewater, and recycled water services. The District updated its Master Plans for Retail Water in Riverside service area, Riverside Recycled Water and for Wastewater in 2009, but has not incorporated them into the current connection fees. In addition, the District currently does not assess connection fees for recycled water and desired to develop one to recover the capital cost to support the associated growth. RFC devel- oped the connection fees Model to evaluate different policy options related to allocations of tertiary recycled water treatment values to potable, wastewater, and recycled water and to calculate the connection fees for retail water, wastewater, and recycled water based on the framework established after working closely with District staff. - 34 - Cil Y OF SAN JUAN CAPISTRANO RAFTELIS FINANCIAL CONSUL?ANTS, INC.