Rate Setting Methodology

1
Rate Setting Methodology
2
Objectives

• Establish formal methodology for rate setting as
  required by statute
• Establish process for temporary subsidization

3
Fundamental Rate Equation

• RATE per Billable Unit Cost of Service
• Volume of Billable Units
• Three actions required to execute the equation
• Define the Billable Unit
• Estimate the Cost of Service
• Estimate the Volume of Billable Units

4
Three Methodologies for General Rate Setting

• Historical/Trend Forecast - Experience based
• Billable Unit - Cost per Unit
• Service - Cost of Service/Volume

5
Temporary Subsidization

• Parameters established by Guiding Principles for
  Rate Setting

• Documented Policy Objective
• Defined transition period
• Actively managed
• The rates must be realigned with the costs at the
  end of the transition period

6
Temporary Subsidization Cont.

• Approach for Addressing these Parameters
• Cost Recovery Objective
• Cost Analysis
• Customer Adoption Assumption

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Temporary Subsidization Cont.

• Setting the Rate
• The Cost Recovery Objective defines the cost and
  volume used to perform the rate calculation
• Monitoring Process
• Periodic reporting to the TSB during the
  transition period on
• Cost Variance
• Volume Variance
• Need for corrective action

8
Service Development Methodology
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Objectives

• Provide consistent process
• Increase stakeholder involvement
• Decrease time-to-market
• Provide a foundation for streamliningbudget/IT
  procurement authority

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Three Areas of Analysis

• Business
• Technology
• Financial

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Phased Approach
12
Business Plan for Review by TSB
13
Opportunities to Improve Governance

• Establish IT Procurement Authority by service
• Provide justification for increased budget
  flexibility for approved services
• Provide foundational business case that can be
  leveraged for DTS and customer FSRs and BCPs

14
Rate Package
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Objective

• Recover costs accurately
• Create uniformity across data centers
• Simplify rates
• 3 Steps
• First July 1, 2006 (Net 16.3 m reduction)
• This One (Net 26.7 m reduction)
• Third July 1, 2007

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This Rate Package

• 25 Reduction in Mainframe Rate
• 1,392/hr ? 1,044/hr
• Trend based
• Retroactive to July 1, 2006
• Network
• Simplified and Uniform
• Recover additional 3.4 million (Base 33
  million)
• Effective July 1, 2007
• Other miscellaneous rates

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Five Network Categories

• Client Site Equipment
• Lease (1)
• Support (2)
• Access Circuit (3)
• Backbone Support (4)
• Backbone Usage (5)

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Customer Impact

• Top 10 net decreases
• DSS-CWS 7.3 m
• DCSS 5.0 m
• DHS 4.3 m
• EDD 2.3 m
• BOE 1.9 m
• DMV 1.5 m
• CALSTRS 1.4 m
• DOR 0.8 m
• SCO 0.7 m
• DOF 0.6 m

• Top 10 net increases
• DFG 594 K
• DPR 336 K
• SOS 313 K
• ABC 301 K
• DSS SFIS 287 K
• DOI 195 K
• GO 188 K
• CDCR 154 K
• CDF 137 K
• CSU 114 K

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Next Steps

• Notify negatively impacted departments
• Work to reduce the impact
• DOF
• Technical solutions
• CALNET II
• Benchmarking