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City of Morgan Hill Comprehensive Water Report
Page D9
In addition, Council adopted a financial policy that requires the Water Operation Fund to
maintain a reasonable level of reserves equivalent to 25% of operational revenues
necessary for the financial stability of the water system as well as for emergency operation
and capital needs. Additionally, the covenants of the water debt service require that the
annual net operating revenues (total revenues less operating expenses) must be sufficient
to pay its debt service 1.25 times over.
Rate Assumptions
In the 2011 water rate study, BWA factored in the above Council's policy regarding reserve
and the debt coverage ratio. Also factored into the rate development are the following
assumptions in regards to projected water consumption, water operation revenues and
expenditures.
The assumption was that water use per capita would remain at the calendar year 2010
levels and conservation measures would reduce per capita water use by 20% of 2010 level
by 2020. Water sales would decrease 0.5% annually beginning in FY 2013-14. On the
expense side, the annual cost escalators were built in the projected years, including 3%
inflationary increases for salaries, benefits, supplies and services, contract services, and
administration; 3.5% increase for groundwater production charge; 4% increase for
electricity costs, and 5% increase for capital replacement.
$200 $215 $230
$255
$275 $275 $275 $285 $295 $305 $319
$356*
$-
$50
$100
$150
$200
$250
$300
$350
$400
Groundwater Production Charges
Charges per Acre Feet (AF)
Groundwater Production Charge
* Rate currently being
considered by District Board