City Council Meeting: July 8,
2008
Agenda Item: 9-A
To: Mayor and City Council
From: Lee E. Swain,
Director of Public Works
Subject: Water and Wastewater Rates
Recommended
Action
Staff recommends that
the City Council adopt resolutions establishing revised water and wastewater
rates, approve low-income provisions for water and
wastewater rates, and
hear public comment
pursuant to Proposition 218 requirements.
Executive
Summary
Following the last significant
rate study and rate modification in 1996, annual inflationary increases in the
water and wastewater rates have been outpaced by the rate of change in costs
for labor, equipment, power, materials, purchased water and sewage disposal. Through a series of study sessions with City Council
beginning in 2005, and new rate studies initiated in 2007, a five-year schedule
of revenue increases for water and wastewater was approved by Council in May
2008, as follows:
|
|
FY 08/09 |
FY 09/10 |
FY 10/11 |
FY 11/12 |
FY 12/13 |
|
WATER |
11.0% |
10.5% |
10.5% |
10.0% |
10.0% |
|
WASTEWATER |
18.0% |
18.0% |
15.0% |
9.0% |
4.0% |
In accordance with Proposition
218 requirements, notices of the proposed rate increases were mailed out to all
property owners in the city. All water
customers, independent of property owners, were also mailed the notices. A commodity-only rate structure is proposed,
which eliminates the fixed service charge component of the previous rate
structure. As such, a strong
conservation incentive will be created.
Low-income provisions for water and wastewater rates have been
incorporated in the proposed structure, and enhanced reserve fund levels for
operating and capital reserve funds will provide greater flexibility to meet
future unforeseen challenges.
Background
Existing Rates
The City provides water service to three customer types: single-family,
multi-family and non-residential. The
current water rate structure was adopted in 1996 to provide equity between
customer types and among customers within a class. There were no rate changes
in 1997 or 1998. In 1999, a resolution
to annually increase rates by the actual Consumer Price Index (CPI) increase
was adopted and has been implemented with each annual budget. A 6% increase was approved by Council for FY 05/06.
The existing water rate is structured so that every single family,
multi-family and non-residential customer pays a fixed bi-monthly service
charge based on size of the water meter. The service charge rates do not differ
by customer class. Customers are also charged a commodity, or usage rate based
on the quantity of water used in each two-month billing period. There are three
levels, or tiers, of the commodity rate, the purpose of which is to provide
financial incentives for water conservation. As an example, for single family customers,
Tier 1 rates are charged on the first 13 hundred cubic feet (HCF: each HCF
represents 748 gallons of usage). Tier 2
rates are charged for usage from 14 to 126 HCF, and Tier 3 rates are charged on
any usage above 127 HCF, which very few customers reach.
Established pursuant to a 1996 rate study, the existing
wastewater rate structure similarly comprises a fixed service charge plus a
commodity charge. The rate structure
has remained unchanged since 1996; however, an annual CPI-based rate increase
has been in effect since 2001.
The fixed service charge component is assessed to each
customer account based on water meter size, and the commodity charges are based
on estimated wastewater flows during the bi-monthly billing period. A discharge factor is applied to the metered
water consumption to represent the portion of water usage returned to the
wastewater system. The discharge factors
range from 51% for single family residential accounts, to 95% for multi-family
residential accounts with more than 4 units.
Typically, single family residential users exhibit the greatest level of
outdoor water usage which is not returned to the wastewater system. All non-residential customers are assigned a
discharge factor of 89%. Commodity
charges for non-residential customers vary depending on type of business.
Previous Council Actions
In a City Council study session on May 17, 2005, staff presented
information addressing the status of the fund balances for the Water and
Wastewater funds. Specifically,
expenditures in both of these funds were outpacing revenues. Options were provided in the study session
to balance expenditures and revenues.
A subsequent report to Council on June 21, 2005, provided additional
information regarding expenditures and revenues for the Water fund and presented
additional options for bringing expenditures and revenues into balance. Staff indicated in the June 21, 2005 report
that consideration of wastewater rate adjustments could be deferred until FY
06/07 or FY 07/08 depending on actual costs and revenues during the ensuing
period. Council direction to staff
received on June 21, 2005 included:
·
Implement a 6% increase to water rates for FY 05/06 that
would balance revenues and expenditures for one year only;
·
Conduct a water rate study to finalize the additional
rate increase amounts required to balance the fund, including examining a
restructuring of the tiered system to provide a conservation incentive to
reward customers who voluntarily conserve water;
·
Utilize a cost of service approach in any new rate
design; and
·
Review practices and procedures to assess efficiencies
throughout the operational functions of the Division.
Concurrent with the commissioning of a water rate study in 2007, staff
also commissioned a wastewater rate study to review the revenue requirements
necessary to meet required wastewater operating and capital expenditures as
well as existing debt service obligations.
In a study session with Council on May 8, 2007, staff presented various
options for both water and wastewater rate and structure modifications. A five-year plan was presented for each, with
water rate increase recommendations by staff comprising an 11% annual rate
increase for water, and a wastewater rate increase plan of 30%, 25%, 20%, 10%,
and 0%. Structural modifications for
each were also suggested. Council was
informed that alternative information was pending at the time and that staff
would return with updated information, and very likely lower rate increase
options at a later date.
At a follow-up study session with Council on April 22, 2008, staff
presented updated financial projections and alternate scenarios for water and
wastewater rates. Two updated options
each were presented for water and wastewater rates (each presented with and
without a one time cash infusion alternate).
A change to a commodity-only rate structure was recommended, in addition
to a recommendation for enhanced reserve levels in order to provide increased
flexibility in the event of unforeseen financial challenges. Council directed staff to return with the preferred
option, as described in detail herein, with the proposed change to a
commodity-only rate structure and the enhanced reserve levels.
On May 13, 2008 Council took the following actions:
1.
approved a five-year
plan to increase water rates:
|
WATER |
FY 08/09 |
FY 09/10 |
FY 10/11 |
FY 11/12 |
FY 12/13 |
|
Maximum
Projected Increase |
11.0% |
10.5% |
10.5% |
10.0% |
10.0% |
2.
approved a five-year
plan to increase wastewater rates:
|
WASTEWATER |
FY 08/09 |
FY 09/10 |
FY 10/11 |
FY 11/12 |
FY 12/13 |
|
Maximum Projected Increase |
18.0% |
18.0% |
15.0% |
9.0% |
4.0% |
3.
approved a
revision of the rate structure for both water and wastewater to a
commodity-only structure to promote water efficiency and conservation;
4.
approved
enhanced funding levels for capital, operating, and rate stabilization reserve
funds for both water and wastewater;
5.
adopted a
resolution setting a public hearing on July 8, 2008, in accordance with
Proposition 218, to consider water and wastewater rate increases; and
6.
directed staff
to present to Council a revised proposal for low income rates.
Notices of proposed rate increases were mailed out to all property
owners, and all water customers, on May 21, 2008, in compliance with Proposition
218 requirements. Details of the
analyses, and the rate study reports, were included as attachments to the May
13, 2008 staff report to Council.
Discussion
Highlights of the proposed water rate:
1.
The five-year schedule of rate increases
represents maximum projected rate increase percentages. Financial conditions will be reviewed annually
to determine the appropriate increase, up to the approved maximum. Follow-up rate analyses will be performed at
five year intervals in order to monitor fund balance positions and ascertain
the need for future rate revisions.
2.
The fixed service charge has been eliminated in
the new structure. In adopting a
commodity-only rate structure, a stronger conservation incentive will apply,
allowing customers to have a more direct impact on their water charges.
3.
The existing three-tier structure, irrespective
of meter size, is replaced with four tiers for residential customers. For non-residential customers, a uniform
commodity rate is established applicable to nearly all water use; a second tier
will apply to only the extreme high end of consumption. The tier breaks vary with meter size for
non-residential customers.
4.
Reserve fund levels will be increased for
Operating Reserve and Capital Reserve, providing enhanced ability to meet
unforeseen future challenges.
The recommended
water rate structure in FY 08/09 (effective August 1, 2008) is as follows:
Single-Family Residential Customers:
Tier Rate
1 $1.65 0-14
2 $2.47 15-40
3 $3.70 41-148
4 $5.78 149+
Multi-Family Residential Customers:
Tier Rate Per Dwelling Unit/HCF
1 $1.65 0-4
2 $2.47 5-9
3 $3.70 10-20
4 $5.78 21+
Non-Residential
Customers:
Meter Size Tier
Rate
Ύ & 1 Tier 1 $2.35 0-210
Tier 2 $5.78 211+
1-1/2 Tier 1 $2.35 0-465
Tier 2 $5.78 466+
2 Tier 1 $2.35 0-870
Tier 2 $5.78 871+
3 Tier 1 $2.35 0-1,700
Tier 2 $5.78 1,701+
4 Tier 1 $2.35 0-2,550
Tier 2 $5.78 2,551+
6 and above Tier 1 $2.35 0-5,280
Tier 2 $5.78 5,281+
For fire-line meters, fixed bi-monthly service charge:
Meter Size Service Charge
2 $62.67
3 $111.63
4 $181.60
6 $356.48
8 $566.37
10 $811.23
Unauthorized metered water usage for fire-line meters will result in
doubling of the service charge.
For recycled water,
a uniform rate of $2.22 per HCF will be charged.
Low-income
provisions
The
City of
The recommended
water rate structure for qualified low-income customers in FY 08/09 (effective
August 1, 2008) is as follows:
Residential Low-Income Customers:
Tier Rate* Range of Use/HCF
1 $0.96 0-14
2 $1.78 15-40
3 $3.01 41-148
4 $5.09 149+
* Tier rates represent $0.69
discount from regular residential rates
Highlights of the proposed wastewater rate:
1.
The five-year schedule of rate increases
represents maximum projected rate increase percentages. Financial conditions will be reviewed
annually to determine the appropriate increase, up to the approved maximum. Follow-up rate analyses will be performed at
five year intervals in order to monitor fund balance positions and ascertain
the need for future rate revisions.
2.
The fixed service charge has been eliminated in
the new structure for all user classes. A commodity-only structure is proposed.
This is consistent with the water rate structure and the citys sustainability
objectives, and is also consistent with the regulatory
requirement of the California State Water Quality Control Board to base rates
on quantity and strength of wastewater discharges.
3.
Discharge factors (percentage of water used
returned to the wastewater system) will continue to apply as in the previous
structure.
4.
Reserve fund levels will be increased for
Operating Reserve and Capital Reserve, providing enhanced ability to meet
unforeseen future challenges.
The recommended
wastewater rate structure for in FY 08/09 (effective August 1, 2008) is as
follows:
Wastewater discharge factors, applied to metered water usage, are
unchanged from the existing rate structure.
For information purposes, the discharge factors are presented below:
Single Famlily 51%
Duplex 80%
Triplex 85%
Fourplex 90%
Over Four Units 95%
Individually metered 95%
Non-Residential 89%
Landscape Meter 0%
Wastewater commodity charges:
Sewage Strength Category Rate per HCF
Residential: $2.94
Non-Residential:
General Commercial $2.68
Medium Low $2.79
Medium $3.22
Medium High $3.51
High $4.11
Churches $2.64
School, Institutional $2.64
Misc. Industrial $3.26
Low-income
provisions
The
City currently offers qualified low income customers a discount on wastewater
bills by waiving the fixed service charge.
With elimination of the service charge proposed as part of rate
restructuring, a new approach to the low income discount is warranted. It is recommended that qualified low-income
customers receive a discount of the commodity-only rate of $1.52 per HCF. For the average low-income single family
customer with an average consumption of 14 units of water bi-monthly, this
proposed discount yields a bi-monthly charge for wastewater of $10.14. This is equal to the charge under the present
rates and structure (adjusted for inflation).
The recommended
wastewater rate structure for qualified low-income customers in FY 08/09
(effective August 1, 2008) is as follows:
Wastewater discharge factors*, applied to metered water usage:
Single Family 51%
Duplex 80%
Triplex 85%
Fourplex 90%
Over Four Units 95%
Individually metered 95%
Non-Residential 89%
Landscape Meter 0%
* no change in discharge
factors for low income customers
Wastewater commodity charges:
Residential low-income $1.42 per HCF**
** rate represents $1.52 discount from regular residential rates
Public Notice Requirements
Proposition 218
requirements call for a public notice of proposed changes to rates be made to
all property owners in the affected area.
Notices of the proposed increase were mailed to all property owners, as
well as to all water/wastewater customers, on May 20, 2008. The protest period will close at the public
hearing on July 8, 2008. Absent a
majority protest from property owners, City Council may approve the final
adoption of the rates at the July 8 Council meeting. Rates will become effective August 1,
2008. Copies of protests submitted to
date are included in Attachment A. A
summary of all protests received to the closing date will be presented at the
July 8 Council meeting.
Financial Impacts &
Budget Actions
As a result of the water and wastewater rate increases, the
FY2008-09 Adopted Budget should be revised as follows:
1) Increase water commercial sales revenue account number 25671.402310
by $910,897; and
2) Increase sewer service charges revenue account number
31661.401650 by $1,554,450.
Prepared by: Gil Borboa, P.E., Water Resources Manager
|
Approved: |
|
Forwarded to Council: |
|
|
|
|
|
Lee E. Swain Director of Public Works |
|
P. City Manager |
Attachment: A Water
Rates Resolution
B Wastewater
Rates Resolution
C Protest Letters