Chapter 5.20
RATE CALCULATION METHODOLOGY
Sections:
5.20.050 Other Service Classes.
5.20.060 Credits and adjustments.
5.20.010 Introduction.
Section 7.5 of The Cascade Water Alliance Joint Municipal Utility Services Agreement (“Cascade Agreement”) provides that the Board shall set Rates and Charges according to a Rate Calculation Methodology adopted by the Board of Directors. Rates and Charges must be the same for all Members receiving the same class of service. This Rate Calculation Methodology shall provide for the definition of customer classes for calculation of Demand Shares and for a uniform pricing structure with a commodity charge and fixed charges allocated by Demand Share. [Res 2020-13 § 1; Res. 2012-13 § 1; Res. 2006-01 § 1].
5.20.020 General provisions.
A. This Rate Calculation Methodology provides for a uniform pricing structure applicable to all Members for a given class of service. The general objectives of the rate methodology include:
1. For each rate class, a single rate structure applicable to all Members.
2. Clear delineation of rate classes and differences in service by class.
3. Recovery of fixed costs in proportion to Member installed customer base (CERUs) and system demand.
4. Recovery of variable costs in proportion to system usage (volume).
5. Recognition of the advantages and disadvantages of Member usage patterns.
The terms capitalized in this methodology, if included in the Cascade Agreement, have the meanings defined in that agreement.
B. This Rate Calculation Methodology is premised on the following:
1. With the regional surface water supply systems serving as the backbone of the Supply System, peak season, rather than peak day, capacity and demand dominate Supply System constraints.
2. Members with higher peak season peaking factors (ratio of average daily peak season demand to average annual demand) impose greater capacity-related costs on the system.
3. While transmission costs are dominated by shorter duration peak events, such as peak day, the peak season capacity benchmark is adequate for recovery of related costs.
4. Erratic or excessive peaking patterns imposed by individual Members shall be managed through separate fees or penalties.
5. While Members typically receive water through the terms for Full Supply Commitment under the Cascade Agreement, separate classes of service, with distinct charges, may be useful to address unique service agreements or circumstances, provided that such service and terms are offered to all Members in a uniform manner.
C. The rate methodology for service under the Full Supply Commitment, defined as the Full Supply Service class, shall apply to any and all sales of water to Members except those sales of water specifically identified for delivery under agreement for delivery under another class of service provided in CWAC 5.20.050. Supplies provided under an Interruptible Supply Commitment are also subject to this rate methodology.
It includes three basic components:
1. Annual Dues. A rate component will be imposed based on total Member connections as measured in Cascade Equivalent Residential Units (CERUs) to recover Cascade’s administrative costs including but not limited to: management and administrative personnel costs, office rent, financial, legal and other general costs. The charge will be based on the administrative budget as defined and adopted by the Board and as defined and limited by the Cascade Agreement. The charge will be imposed as a charge per CERU for each member agency based on the established customer base for that agency. The CERU basis for a rate period will be the year-end total in the most recently completed fiscal year when rates are adopted.
2. Conservation Charge. A rate component will be imposed based on total Member connections as measured in Cascade Equivalent Residential Units (CERUs) to recover Cascade’s conservation costs including but not limited to: program management, educational and outreach programs, conservation investments, and other conservation costs. The charge will be based on the conservation budget as defined and adopted by the Board and as defined by the Cascade Agreement. The charge will be imposed as a charge per CERU for each Member agency based on the established customer base for that agency. The CERU basis for a rate period will be the year-end total in the most recently completed fiscal year when rates are adopted.
3. Demand Share Charge. A rate component will be imposed based on total Member Demand Shares, defined below and in the Cascade Agreement, to recover capacity-related costs including but not limited to: debt service; direct capital funding; additions to capital reserves; and O&M costs. Included in this charge are portions of wholesale payments to Seattle and/or others. O&M Costs recovered through the annual dues or conservation charge would be excluded from the Demand Share Charge. The charge will be imposed as described in subsequent sections below.
D. In addition to these three charges, Cascade retains the right to recover costs or enforce contractual provisions through additional charges or surcharges on a case-by-case basis to constrain excessive peak usage, reflect nonpayment or deferred payment of other dues or charges, address termination payment requirements, or otherwise address unique circumstances. Cascade may also establish unique charges or provisions for separate and distinct classes of service to Members under CWAC 5.20.050. [Res 2020-13 § 1; Res. 2012-13 § 2; Res. 2006-01 § 1 (1)].
5.20.030 Demand Shares.
A. Fundamental to the Rate Calculation Methodology is the use of Demand Shares, rather than volume of water purchased, as a primary basis for allocation and recovery of costs. Demand Shares are defined in a manner that recognizes the critical nature of peak season demands in determining system resource needs, and a recovery of costs proportionate with relative shares of those demands. At the same time, Members able to make off-peak use of the system are also allocated a share of fixed system costs, although a proportionately lower share, via the Demand Share mechanism.
Demand Shares are determined based primarily on historical usage patterns, using a three-year rolling average, and then adjusted as described below. The purposes of using a three-year historical period are to: attenuate the effects of year-to-year variations caused by external factors, such as weather; improve the predictability of charges for Members by providing a known basis for charges; avoid issues of after-the-fact reconciliation; and avoid inconsistency with the RCFC cost recovery mechanism.
B. Except as provided in subsection (C) of this section, Demand Shares are defined as the greater of:
1. Average daily demand from Cascade during the peak season, which is defined as June through September.
2. Average daily demand from Cascade for the entire calendar year.
A three-year rolling average is used as the demand share basis, relying on the three most recently completed calendar years for which data is available at the time of rate adoption. Due to timing and availability, this will normally exclude the year immediately prior to the rate period for which Demand Share are being established. Demand Shares are expressed in millions of gallons per day (mgd).
C. In the event that average daily demand exceeds peak season demand for the resulting three-year average, the average daily demand will be recalculated using the three year period commencing June 1 of the year preceding the three most recently completed calendar years and ending on May 31 of the most recently completed calendar year. If this calculation results in a lower average daily demand, that lower value will be used as annual average demand to determine the Member’s Demand Share.
D. The Board may assign a Demand Share or minimum Demand Share by resolution to reflect circumstances such as: new membership; substantial increases in demands; additions or loss of Independent Supply; minimum shares to offset Cascade capital outlays; supply via rate classes other than Full Supply Service class or other factors as determined by the Board. [Res. 2021-02 § 1; Res. 2020-13 § 1; Res. 2012-13 § 3; Res. 2006-01 § 1 (2)].
5.20.040 Demand Share Charge.
The Demand Share Charge recovers fixed capacity-related costs from Members in proportion to applicable Demand Shares. In practice, the demand share charge recovers those costs assigned to rates not recovered through other applicable member charges.
The cost basis for the Demand Share Charge will include capital and operating cost components including but not limited to:
A. Annual cash operating and maintenance expenses, excluding administrative costs assigned to the annual dues and conservation costs assigned to the conservation charge.
B. Wholesale payments.
C. Debt service payments less planned use of RCFCs for that purpose.
D. Debt-related costs, such as additions to bond reserves or revenues generated to meet coverage requirements.
E. Budgeted rate funding for capital purposes and the Water Supply Development Fund.
F. Additions to operating and capital reserves to be funded from current rate revenues.
G. Budgeted net payments or receipts related to member adjustments such as new water reconciliation.
H. Credited against the total cost to be recovered through the Demand Share Charge are 1) any non-rate revenues allocated to the Demand Share charge such as interest earnings, miscellaneous revenues or charges, 2) use of reserves; and 3) wholesale rate revenues derived from non-members.
The Demand Share basis is the total of Demand Shares for all Members of Cascade.
The Demand Share Charge is the total of the costs and credits listed above divided by the Demand Share basis defined above. [Res. 2021-10 § 3; Res. 2020-13 § 1; Res. 2012-13 § 4; Res. 2006-01 § 1 (3)].
5.20.050 Other Service Classes.
A. Section 3.3 of the Cascade Agreement provides that, a purpose of Cascade is to share costs commensurate with benefits received. Section 7.5 contemplates that charges must be uniform for all Members receiving the same class of service and provides that the Board can establish specific Demand Shares to reflect unique circumstances.
Water provided to the Full Supply Service class is characterized as a permanent supply commit-
ment that is uniformly available and provided to all Members on financial terms specified in this Rate Calculation Methodology and the Cascade Agreement.
Additional classes of service can provide opportunities to meet Cascade Members’ needs through alternate service class structures with varying terms for the supply, its duration, its character, and its cost.
B. Temporary Water Service
1. Creation and Purpose. Recognizing that the water supply available from and paid for by Cascade currently exceeds its Members’ demands, and is projected to remain in excess for an extended period of time, Cascade has determined that sale of surplus water supply on a temporary basis (“Temporary Water”) can be beneficial to Cascade and its Members. A Temporary Water Service class is created that is distinct from the Full Supply class. Its purpose is to utilize Cascade’s available water supply capacity for its Members’ benefit, provide an added source of revenue to Cascade, and to help Member’s manage their supply portfolios in an efficient and effective manner.
2. Defining the Temporary Water Sales Class. Temporary Water Service shall be made available to all Members via separate agreement provided that such service must be incremental to the Full Supply and cannot substitute for Full Supply water demands. Cascade will enter into an agreement with each Member seeking to utilize this class of service that establishes the service in terms of quantity provided and limits thereon, the term of the sale agreement, standards establishing that such sale does not displace Full Supply water sales and providing a means to monitor and confirm this outcome, conditions for reduction or revocation of the sale if Full Supply demands would otherwise be adversely affected, and terms for charges consistent with the methodology established in this section. In no case shall an agreement provide a quantity and term for the sale of Temporary Water that results in a projected shortfall of Cascade supply. Financial provisions shall remain consistent among all such agreements based on the methodology in subsection (B)(3) of this section.
3. Temporary Water Sales Rate Methodology. The sale of Temporary Water will be charged using a modified demand share approach. The quantity of the Temporary Water sold will be used to calculate a demand share for each year of such sale and for subsequent years affected by the sale under the 3-year rolling average methodology. The demand share associated with the sale of Temporary Water, as calculated under CWAC 5.20.030(B), shall be adjusted to reflect a reduction in charge using one of these two options as elected by the Member:
a. A reduction of 40% will be applied to the resulting demand share in each year of the contract term and subsequent years with residual demand shares from this sale. For contracts with terms of 8 or more years, the charge will be phased in using reductions of 80% in the first full or partial year, 60% in the second full year, and 40% in each year thereafter.
b. A reduction of 50% will be applied to the resulting demand share in each year of the contract term and residual demand shares applicable subsequent to the supply term. For contracts with terms of 8 or more years, the charge will be phased in using reductions of 90% in the first full or partial year, 80% in the second full year, 70% in the third full year, 60% in the fourth full year and 50% in each year thereafter. In addition, the Member will pay $1,000 for each new CERU connected to their retail system during the supply term, in addition to the adopted and applicable Cascade RCFC.
Cascade will bill for the Temporary Water sold in the same manner as Full Supply water sales and will separately delineate each charge. If elected, Cascade will bill for the charge on new connections in conjunction with its RCFC billing. Resulting revenues will be general revenues of Cascade, except that the charge for new connections will be treated in the same manner as Cascade’s RCFC revenues and subject to the same policies and procedures. [Res 2020-13 § 1].
5.20.060 Credits and adjustments.
Once Demand Shares are established, Demand Share payments may be offset by any credits established through membership offers or contractual terms. Such credits would reduce the applicable recovery of Demand Share Charges from the Member, but would not alter voting rights. [Res. 2022-06 § 3; Res. 2020-13 § 1; Res. 2012-13 § 5; Res. 2006-01 § 1 (4). Formerly 5.20.050].