Chapter 5.20
RATE CALCULATION METHODOLOGY

Sections:

5.20.010    Introduction.

5.20.020    General provisions.

5.20.030    Demand Shares.

5.20.040    Demand Share Charge.

5.20.050    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. The Rate Calculation Methodology shall provide for the definition and calculation of Demand Shares and for a uniform pricing structure with a commodity charge and fixed charges allocated by Demand Share. [Res. 2012-13 § 1; Res. 2006-01 § 1].

5.20.020 General provisions.

A. The Rate Calculation Methodology provides for a uniform pricing structure applicable to all Members. The general objectives of the rate methodology include:

1. A single rate structure applicable to all Members.

2. Recovery of fixed costs in proportion to Member installed customer base (CERUs) and system demand.

3. Recovery of variable costs in proportion to system usage (volume).

4. 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. The 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.

C. The rate methodology 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. [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. 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 shares are being established. Demand Shares are expressed in millions of gallons per day (mgd).

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; or other factors as determined by the Board. [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.

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. 2012-13 § 4; Res. 2006-01 § 1 (3)].

5.20.050 Credits and adjustments.

Once Demand Shares are established, Demand Share payments may be offset by any credits established through membership offers or contractual terms, including remaining new water charge credits. Such credits would reduce the applicable recovery of Demand Share Charges from the Member, but would not alter voting rights. [Res. 2012-13 § 5; Res. 2006-01 § 1 (4)].