Operating and CIP Budget Fiscal Year 2015-16

Groundwater Production Charges Charges per Acre Feet (AF)

$100 $150 $200 $250 $300 $350 $400

$356*

$275 $275 $275 $285 $295 $305 $319

$255

$200 $215 $230

$- $50

* Rate currently being considered by District Board

Groundwater Production Charge

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.

City of Morgan Hill Comprehensive Water Report

Page D9