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7A service on these bonds requires a predictable revenue source, the bonds are being Page 2 repaid through water rates. This arrangement, by itself, does not fairly distribute the benefits of the project. The Recycled Water Project frees up potable water supply to increase supply reliability for existing customers and accommodate new developments, which otherwise could not be approved, while water rates are paid entirely by the existing customer base. The proposed Water Capacity Charge is independent of any existing wa#er facility and connection fees. The purpose of the charge is to support increase in water supply reliability by funding continuous water conservation related efforts, and/or by funding further expansion of the recycled water infrastructure, and/or by retiring existing water bonds used for the phase one construction of the recycled water infrastructure. Currently, the debt service for the water bonds are fully loaded into water rates. By assuring future water supply reliability, water is available for current customers as well as future developments, whereas before, the water supply was no# able to accommodate future developments. Therefore, the new charge shall apply to new developments based on the projected new water demand of the development, or the additional projected demand for existing connections that request larger water meters. The charge calculation is based on a development's projected water demand as derived from Attachment Q of the City's Engineering Standard. The projected water demand is then multiplied by a fee factor derived by the cost of construction of phase one of the recycled water infrastructure as documented in the 2007 Water Financing Plan, seventy two million and four hundred thousand dollars, divided by the maximum recycled water production capability of the treatment plant, seven thousand acre feet per year [$72.4M ~- 7,000 AF/yr = $10,343/(AF/yr)]. Since acre feet per year is an unfamiliar unit of measurement and one that is larger than most prospective new development, the ordinance expresses the cost in a more comprehensible unit: gallons per day. The equivalent charge is $11.58 per gallon per day. Attachment Q is part of the City's Engineering Standard for calculating water demand projections. The fast update was approved by Council on December 4, 2006. Since then, additional updates to the water demand projection criteria were incorporated into Attachment Q based on sources such as the 2000 census data, the 2001 California Building Code, and recent empirical studies of projected water demand by the San Francisco Public Utilities, Commission that incorporate water efficient plumbing fixtures and appliances. ALTERNATIVES One alternative is that the City Council could choose not to approve the establishment of the Water Capacity Charge. This is not an ideal alternative since new developments will not pay their fair share, but still benefit by the increased water supply assurance. Another alternative is that the City Council could direct staff to find other means of allocating the cost to increase water supply assurance between current customers and future developers. FISCAL IMPACT The proposed Water Capacity Charge is anticipated to generate revenues to offset cost of providing increased water supply reliability. The amount of revenue depends on the scale and rate of new developments, and is currently unknown.