LRPC

The Preliminary Rate Structure Design recommendation was presented to the Board for consideration at the Oct 5th BOD Meeting. The Board will now ensure the proper implementation process steps are taken prior to formal adoption at the Nov 9th BOD Meeting.

The BLSMWC proposed rate structure is in‐line with typical rate design objectives as referenced in the American Water Works Association Manual of Water Supply Practices titled “Developing Rates for Small Systems”. As presented to the shareholders several times over the past couple years, our Rate Structure Goals & Objectives have remained consistent, which are as follows:

• Select rate structure that yields revenue in a stable and predictable manner
• Fund all our costs, including adequate reserves
• Select rate structure that promotes efficient and wise use of our water
• Maintain simplicity, while promoting fairness and equity

The proposed overall rate structure recommends “cost based” rates to the extent practical, which means the rates are designed to meet the revenue requirements necessary to meet our full cost of providing water services today and into the future. The full cost includes all operation & maintenance, fire protection services, debt service payments, capital improvements, regulatory compliance costs and contributions to USDA restricted reserves as well as our internal financial reserve funds. The rate structure is designed to cover fixed costs from fixed charges (revenues) and variable costs from volumetric charges (meter revenues).

The recommended 2020 base rate structure is not changed, with the exception of now including the USDA loan repayment as part of the base rate. Like 2019 and previous years, it is a fixed base charge designed to cover the majority of fixed costs, and will continue to include a consumption allowance. The recommended base rate consumption allowance remains at 350 CF/month. The USDA loan repayment portion of the base rate was calculated to meet the total annual revenue requirement of $437,202. The Home/Lot base rate portion was calculated based on the revenue required to meet our annual operating & maintenance fixed costs.

The recommended 2020 metered (volumetric) rate structure, as mentioned above is also not changed from 2019 and previous years, with a consumption allowance of 350 CF/month. It is also recommended that the 2020 volumetric rate for metered usage above the monthly base allotment also remain unchanged at $1.60 per 100 CF. The revenue required from metered consumptive charges is calculated based on covering our estimated annual variable costs. Based on our usage studies over the past 3‐4 years, close to 80% of shareholder accounts are staying within the 350 CF/month allotment. Until the remaining ~500 meters are connected over the next year, it is recommended that the 350 CF/month allotment is a fair threshold. The metered rate structure will be reviewed on an annual basis to determine if any changes are recommended.

USDA Project Status

The LRPC also continues to provide financial and contract oversight of the USDA Project. The project is progressing well on all fronts with no current or future issues noted. As mentioned in prior months, the BLSMWC staff requested we consider the addition of new scope high priority items within the total USDA budget allocation. The highest priority Phase 1 task is the Blue Lake Springs Dr. Common Trench (A1a). Based on the engineering and construction quotes received being well within our USDA budget allocation, it was recommended to proceed forward with the change order for this task. This task is scheduled to be completed prior to year‐end. Change orders for the other remaining Phase 1 new scope tasks will be requested over the next few months and considered for approval on a case by case basis depending on overall project cost and schedule status at that time.

We are also performing very well on our USDA Interim Loan interest. Over the past 3 years, BLSMWC decided to fund the USDA engineering costs, along with meter, transmitter and PRV purchases from our operating budget in order to reduce USDA interim loan interest. By taking this approach, through Aug 2019 we have deferred over $2M and our loan amount is only $4.26M (approx. 35% of the total allocated budget). It is estimated that this will save us ~$50K in total interest at completion of the contract.