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�oc•s � CITY COUNCIL UTILITIES COMMITTEE GUIDING PRINCIPLES WATER ENTERPRISE FUND June1998 Compliance with City Cou�cil Policy: Choices and decisions by the Committee and ultimately the Council should be guided by the seven Guidina PrinciDi@g for the Water Enterprise Fund, approved and adopted in 1993 by the City Council at the recommendation of the Water & Sewer Policy Committee: I. REVENUES AND EXPENDITURES IN BALANCE Philosophy: The Water Fund is an enterprise fund which should be self-sustaining and pay for all on-going operations and maintenance costs. Prudent management practices indicate that revenues and expenditures should be in balance each fiscal year, with an ending fund balance of zero. II. BASIC SERVICE CHARGE EQUAL TO FIXED COSTS Philosophy: This foced portion of a customer's water bill covers the total fixed costs of operating and maintaining the Redwood City water system IE; salaries, benefits, equipment, supplies and services, which are within the direct control of the City Council. 111. EQUITABLE DlSTRIBUTION OF COSTS ACROSS ENTIRE WATER SYSTEM Philosophy.� The 1993 Joint Recommendation from the Water 8 Sewer Policy Committee and staff to the City Council focused on resolving equity issues in both how the City had been charging for water services and in ensuring that no one customer group was subsidizing another by virtue of rate differentials. IV. WATER CONSERVATION RATE STRUCTURE Philosophy.• The City's Urban Water Management Plan (UWMP), adopted by the City Council in 1992 and the basis for the City's being a party to the State Memorandum Of Understanding for water conservation (AB 325) mandates the City to use water conservation rates as a means to promote and achieve water conservation goals. Under a water consenration rate structure, rates increase as a water customer's use increases (the more water that is used, the more per unit the user pays). Water conservation rates provide a strong incentive to save water, since each additional increment of water used becomes more expensive. Furthermore, � the water used above the lifeline allotrnent is charged at the rate for the highest amount used during each billing period. V. ON-GOING CAPITAL IMPROVEMENT PROGRAM Philosophy: A prudent Capital Improvement Program (CIP) provides for. 1) The systematic replacement of the distribution system (pipes, pumps and reservoi�s) and support facilities within an acceptable life cycle and before normal wear and tear renders system components inoperable. 2) A long-range strategic plan to ensure that all health and safety standards and regulatory requirements are met on a continuous basis. 3) A degree of financial flexibility, to respond to federal, state and regional regulations which Page 1 of 2