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<br />
<br />Water Rate Cost-of-Service Study
<br />Section 5. Rate Design
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<br />HF&H Consultants, LLC | July 8, 2025 | Page 43 of 53
<br />level of water usage, or other natural disaster or event that results in a water shortage and
<br />an unforeseen drop in water demand that requires reductions in water use.
<br />With the transition from a tiered to a uniform rate structure, the City no longer needs to apply
<br />separate Drought Rates across different tiers and customer classes. Instead, it is
<br />recommended that the City implement a simplified drought rate structure in which all
<br />customers are subject to the same drought surcharge based on the City’s current drought
<br />stage. This practice mirrors the recommendation that all City customers would pay an equal
<br />uniform Water Use Charge, regardless of customer class. Under this approach, Drought Rates
<br />will be tied directly to defined stages of water use reduction, ensuring consistency, equity,
<br />and ease of administration during times of a declared shortage.
<br />Analysis
<br />To develop drought rates, an analysis was conducted to evaluate the financial impact of
<br />reduced water consumption under various drought stages. The analysis began by applying
<br />the designated percentage reduction for each drought stage or shortage stage, as defined by
<br />the City’s WSCP, to the City’s total projected water consumption. This provided an estimate
<br />of reduced water usage under each stage. Figure 5-11 shows the steps used to calculate the
<br />drought rates that are discussed in the additional paragraphs below.
<br />Figure 5-11. Drought Rates Calculation
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<br />Next, cost savings (column f of Figure 5-11) were calculated by multiplying the reduction in
<br />water volume by the FY 2025-26 wholesale water purchase price charged by the San Francisco
<br />Public Utilities Commission (SFPUC), per item a in Figure 5-11. This step reflects the avoided
<br />cost of purchasing less water during drought conditions.
<br />Finally, the lost revenue (column g of Figure 5-11) was determined by calculating the
<br />difference in projected Water Use Charge revenue before and after the stage reduction, then
<br />adjusting that figure by subtracting the cost savings. The result represents the net revenue
<br />shortfall associated with each drought stage. Drought rate surcharges are then designed to
<br />recover this shortfall, ensuring that the utility remains financially stable while encouraging
<br />conservation during periods of supply shortage.
<br />The Drought Rates calculated are equal to the rates that would have been produced through
<br />the cost-of-service analysis, for a reduced volume of water. For each stage, the drought rates
<br />are calculated by lost revenue from water sales net of any savings from reductions in demand-
<br />related costs (e.g. water purchases). This analysis demonstrates that increases or decreases
<br />to water usage do not proportionately reduce costs, as a large portion of the Enterprise’s costs
<br />are fixed. The expenses that do vary according to usage have been accounted for in the
<br />calculation of the drought rates.
<br />Stage
<br />Demand
<br />Reduction Consumption
<br />Commodity
<br />Rate
<br />Commodity
<br />Charge Revenue Cost Savings Lost Revenue Drought Rates
<br />b c d e = cn x d f = (e0 - en) x a g = (e0 - en) + fn h = g ÷ c
<br />0 0% 3,611,875 $9.18 33,165,018 $0 $0 $0.00
<br />1 10% 3,250,688 $9.18 29,848,516 ($2,094,888)$1,221,614 $0.38
<br />2 20% 2,889,500 $9.18 26,532,014 ($4,189,775)$2,443,228 $0.85
<br />3 30% 2,528,313 $9.18 23,215,512 ($6,284,663)$3,664,842 $1.45
<br />4 40% 2,167,125 $9.18 19,899,011 ($8,379,551)$4,886,456 $2.25
<br />5 50% 1,805,938 $9.18 16,582,509 ($10,474,439)$6,108,070 $3.38
<br />6 60% 1,444,750 $9.18 13,266,007 ($12,569,326)$7,329,684 $5.07
<br />a = Cost of water ($5.80 per hcf)
<br />ATTY/RESO.0109/CC RESO WATER RATES - EXHIBIT A
<br />REV: 11-05-25 MI
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