Council Meeting: May 14, 1996 Santa Monica, California
TO: Mayor and City Council
FROM: City Staff
SUBJECT: Recommendation to Adopt Water and Wastewater Rates, and
a Water Surcharge
INTRODUCTION
This report recommends that the City Council adopt water and
wastewater rates as developed in a study performed for the City.
The study was initiated as a periodic review and analysis of the
costs to provide water and wastewater service. Additionally, the
City Council directed staff to evaluate lifeline rates. An
information item along with a copy of the draft report was
transmitted to Council on April 15, 1996.
The study was conducted prior to the identification of
contaminants at the Charnock Well Field. To address that
situation, this report also recommends a water surcharge be
implemented as an interim measure to fund the purchase of water
due to the shut down of the contaminated water wells at the
City's primary water well field.
Wastewater and water rates, and the water surcharge are
recommended to become effective July 1, 1996.
BACKGROUND
Current Fees for Water and Wastewater Service
The City's current rates for water service, last revised in April
1991, consist of service (fixed) and commodity (variable)
charges. The service charge is bi-monthly and based on the water
meter size and the customer's classification of service (single-family, multi-family, or non-residential). The service charge is
billed to the customer regardless of how much water is used and
pays for certain fixed operating costs of the enterprise. The
commodity charge is two-tiered, and pays for costs related to
water production and other fixed and variable costs not covered
by the service charge. Each tier has a different rate and break
point based on the customer's classification of service. For all
customers, the first tier is billed at $0.50/hundred cubic feet
(HCF) of water and the second tier at $0.97/hundred cubic feet.
Wastewater rates, adopted in December 1991, are similar in
structure to the water rates. A bi-monthly service charge is
based on meter size and classification of service (single-family,
multi-family, non-residential, and industrial user). The
commodity charge is billed at a rate of $1.13/hundred cubic feet
of water used times a discharge factor to take into account water
not discharged to the sewer such as for landscaping. Industrial
customers, those businesses which are governed by the Industrial
Waste Ordinance such as car repair, restaurants, photo finishers,
and certain manufacturing processes, are charged $.84/hundred
cubic feet of water used times a discharge factor and strength
charges of $.15/pound of suspended solids and $.38/pound of
Biochemical Oxygen Demand.
DISCUSSION
In September, 1995, a study was commissioned from David M.
Griffiths and Associates (DMG) to assess the appropriateness of
water and wastewater rates. The goal of the study was to provide
revisions in the rate structures which would:
1) generate sufficient revenues to adequately cover
operating and capital costs;
2) encourage water efficiency through the rate structure and
assist the City in meeting the Sustainable City Program goals for
water use and sewer flows;
3) maintain the affordability of basic water and wastewater
service;
4) establish a lifeline allowance for low income customers;
5) provide equity between customer classes and customers
within a class; and
6) keep water and wastewater rates simple and
understandable.
FY 1996-97 Revenue Requirements
DMG's report determined that the current water fees have not
generated adequate annual revenue to fund the operating and
capital expenses of the Water Fund since the beginning of FY
1995-96. Based on the proposed FY 1996-97 budget, 4.7%
additional revenue is required to meet expenditures. Conversely,
current sewer fees generate 14.7% more revenue than necessary to
meet FY 1996-97 operating and capital expenses for the Wastewater
Fund. This is due to the removal of the stormwater management
costs (a new stormwater fee collected through the property tax
bill was adopted in August 1995) and reduced sewage treatment
costs. The following rates reflect the FY 1996-97 budget
requirements for the Water and Wastewater Funds.
Proposed Rate Structures
The following recommended changes to the rate structure achieve
the objectives set for the study.
Highlights of Recommended Water Rate Structure
1. Monthly service charges for all water service customers will
be the same across all customer classes and increase with meter
size. The current service charge as previously presented varies
significantly between customer classes which places an
inequitable burden on multi-family and non-residential customers
and is not supported by the consultants' cost of service
analysis. This recommendation will cause a shift of cost to
single family customers that will be partially mitigated by other
rate recommendations. The shift will still provide affordability
to low end users.
2. The commodity rate structure is proposed to change from two-tiers to three tiers. The third tier will provide greater
incentives for water efficiency in contrast to the current rate
structure which offers limited cost reductions to low end users
for reduced water use. The recommended tiers are based on water
use characteristics providing a more equitable tier system across
customer classes of service.
3. Separate rate schedules for commodity rates will apply to non-residential customers with different water meter sizes. The
current tier structure for these customers does not reflect that
this class of customer has varying water needs. The recommended
approach to define tier break points for each meter size will
improve the effectiveness of the tier structure as a water
efficiency tool.
4. To encourage water efficiency, and help to minimize utility
bills for low water-using customers, the recommend rates will
collect a higher portion of revenues from the commodity rates.
5. The proposed water rates will generate approximately 4.7
percent more revenue than the current rate structure. The
additional revenues are required to cover the cost associated
with operating and maintaining the water system and planned
capital improvements. However, it should be recognized that with
the restructuring of the rates some customers will see increases
greater than 4.7 percent and others will see overall reductions
in their water utility bill.
The recommended water rate structure is as follows:
Bi-Monthly Water Service Charge - All Customers
Meter Size Service Charge Meter Size Service Charge
5/8 & 3/4" $8.66 3" $70.64
1" $15.30 4" $114.91
1 «" $26.37 6" $225.59
2" $39.65 8" $358.40
10" $513.35
Water Commodity Rates
Rate/HCF Range of Use
Single Family - 1st Tier $0.71 0-14 HCF
2nd Tier $1.68 15-136 HCF
3rd Tier $4.00 137+ HCF
Multi-Family - 1st Tier $0.71 0-4 HCF
/dwelling 2nd Tier $1.68 5-28 HCF
unit 3rd Tier $4.00 29+ HCF
Non-Resid. - 1st Tier $0.71 See
2nd Tier $1.68 Below
3rd Tier $4.00
Meter Size 5/8-3/4" 1" 1 «" 2" 3" 4" 6"
1st Tier 0-15 0-21 0-54 0-120 0-220 0-390 0-1500
2nd Tier 16-240 22-240 55-522 121-1092 221-1840 391-2610 1501-9400
3rd Tier 241+ 241+ 523+ 1093+ 1841+ 2611+ 9401+
Highlights of Recommended Wastewater Rate Structure
1. The rate structure will be based on the estimated quantity of
each user's discharge to the wastewater system, the capacity of
each discharger, and the discharger's estimated or actual
strength of sewage discharged. This system provides for a system
of fair and equitable charges to the users of the City's sewer
system and fairly distributes the cost.
2. The monthly service charge will be revised to be the same for
all customers. As with the water rate recommendations, this
change will eliminate the inequities between the different
customer classes.
3. As with the water rate recommendations, more revenue will be
collected from the commodity rate. This will provide for a
greater incentive to use water efficiently and allow for low-end
water users to reduce their cost.
4. The non-residential strength categories will be revised to
provide for ten user categories. The current rate structure
provides that a strength category can be established for every
non-residential customer. Where there are mixed use customers on
one water meter, it has been very difficult to determine sewage
strengths in these cases. By establishing a limited number of
categories, the sewer charges for mixed uses can be averaged
providing for a more understandable rate to the customer and a
simpler administrative process to implement.
5. The proposed sewer rates reflect an overall decrease in
revenues of 14.7 percent from the amount collected under the
current rates. This decrease is a result of the elimination of
the stormwater enterprise cost from the wastewater budget, and
the reduction in anticipated cost from the Hyperion Wastewater
Treatment Plant.
The recommended wastewater rate structure is as follows:
Bi-Monthly Sewer Service Charge - All Customers
Meter Size Service Charge Meter Size Service Charge
5/8 & 3/4" $13.76 4" $284.79
1" $30.70 6" $567.12
1 «" $58.94 8" $905.91
2" $92.81 10" $1301.16
3' $171.86
Sewer Commodity Charge
Rate x HCF of water x discharge factor*
Single Family $1.07
Multi-family $1.07
Non-Residential Sewer Strength Categories
General Commercial $1.12
Medium Low $1.36
Medium $1.68
Medium High $2.08
High $2.64
Churches $1.07
Schools, Institutional $1.04
Misc. Industrial $1.25
Gillette $1.22
*discharge factors are not being revised
Other Recommendations
* Offer low income allowance to qualified low income
customers who have individual water service accounts. The
allowance would be in the form of a waiver of the bi-monthly
service charge in both water and wastewater charges. Commodity
rates will remain the same for low income customers to maintain a
water conservation incentive. Customer will qualify for the
City's low income allowance if they can show proof of
qualification for low income allowance under Southern California
Edison or Southern California Gas Company programs.
* Establish reserve policies to protect the Water and
Wastewater Enterprise from increased revenue instability which
may result from the proposed rate structures. These policies
will help to maintain the current sound financial condition of
the Water and Watewater Enterprise. A discussion of the policies
is contained in the attached draft report.
* Revise bi-monthly fire line charges based on the cost of
service analysis resulting in a reduction in Fire line service
charge to all customers.
* Provide administrative remedies for those customers who
are efficient water users but due to certain circumstances, such
as manufacturing processes, enter the third tier. City staff may
perform a water audit for a customer falling into this category
and require the customer to implement recommendations before
rates structure adjustments are made.
Impacts of MTBE Contamination at Charnock Wells
On April 3, 1996, staff transmitted to City Council an
information item discussing the groundwater contamination at the
City's Charnock Well Field and the need to cease pumping from
most of the wells. Charnock, the City's primary well field,
produces approximately 6,320 acre feet of water per year or about
80% of local groundwater production. If the City is unable to
use the Charnock wells during the next fiscal year an additional
$2,348,120 will need to be funded by water rates for FY 1996-97.
FY 1995-96 costs of approximately $625,000 can be absorbed by the
Water Fund balance.
Staff therefore recommends that as an interim urgency measure a
surcharge be added to the first and second tiers of the proposed
water rates. The third water rate tier of $4.00 will not change
as it represents an incentive to reduce excessive water use
rather than a revenue source. The following table summarizes the
proposed rates and surcharge:
Proposed Surcharge Total
1st tier $ .71 $ .26 $ .97
2nd tier $1.68 $ .57 $2.25
Revenue generated by the surcharge will be recorded separately in
the Utilities Division's billing system. Once the City has
identified the responsible party or parties for the pollution a
reimbursement for all additional expenses will be sought. When
reimbursement from the responsible party or parties is received
staff will recommend that the surcharge be removed and the
appropriate amount refunded to all customers through a reduction
in water rates.
Water/Wastewater Rate Comparison
Attachment A presents a comparison of the rate impacts under the
current rate structures, the proposed rate structures, and the
water surcharge. Also provided is a comparison of the proposed
rates to other cities.
BUDGET/FINANCIAL IMPACT
Revenue generated by water rates is recorded in Account No. 25-500-671-00000-0231-10000. Additional FY 1996-97 revenue will be
approximately $416,866 (4.7%).
Revenue generated by the water surcharge will be recorded in
revenue account 25-500-671-00000-0565-10000. Approximately
$2,348,120 will be generated in FY 1996-97. Staff is
recommending that no Utility Users Tax be applied to the
surcharge.
Revenue generated by wastewater rates is recorded in Account No.
31-500-661-00000-0165-10000. FY 1996-97 revenues are projected
to be $8,429,439. This represents a 14.7% decrease over FY 1995-96 wastewater revenues.
RECOMMENDATION
It is recommended that the City Council adopt the attached
resolutions on the proposed water and wastewater rates, and the
proposed water surcharge.
Prepared by: Craig Perkins, Director of Environmental and
Public Works Management
John R. Mundy, Utilities Manager
Susan Munves, Conservation Coordinator
Jean Higbee, Senior Administrative Analyst
Attachment: Comparison of Water and Sewer Bi-monthly Rates
Rate Resolutions