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HomeMy WebLinkAboutItem 2n - Contract Change Order for Water & Sewer Rates Study1,vv � DATE: August 4, 2015 TO: Honorable Mayor and City Council STAFF REPORT Public Works Services Department FROM: Tom Tait, Public Works Services Director Prepared by: Ken Herman, P.E., Principal Civil Engineer SUBJECT: CONTRACT CHANGE ORDER WITH CAROLLO ENGINEERS FOR THE WATER AND SEWER RATES STUDY AND APPROPRIATE AN ADDITIONAL $23,013 FROM THE WATER FUND TO BE ADDED TO THE PROJECT BUDGET Recommendation: Approve SUMMARY In February 2014, the City Council awarded a Professional Services Agreement in the amount of $89,905 to Carollo Engineers ( "Carollo ") to prepare a Budget Based Water and Sewer Rates Study. Since then, Carollo and the Public Works Services Department ( "PWSD ") have been gathering and analyzing data on the City's water and sanitary sewer operations to determine an appropriate water and sewer rate structure. After meetings with Public Works Services Staff and City Council Members, it was determined that a hybrid allocation -based water rate structure was the most equitable and fair option for levying water rates. However, a recent ruling by the California Fourth District Court of Appeal ( "Court ") in the Capistrano Taxpayers Association, Inc. v. City of San Juan Capistrano makes establishing such rates far more difficult. In light of the Court's decision, the PWSD has asked the consultant to revise the study to provide an alternate water rate structure that avoids any potential for conflict with the recent San Juan Capistrano decision. In order to include the additional work necessary to further evaluate and prepare compliant water and sewer rate structures, it is recommended that the City Council approve a contract change order with Carollo Engineers for the Water and Sewer Rates Study and appropriate an additional $23,013 from the Water Fund to be added to the project budget. Change Order to Water and Sewer Rate Study August 4, 2015 Page 2 of 4 BACKGROUND The City provides and maintains water and sewer services to more than 55,000 residents. Utility rates fund the operations, maintenance, and capital improvements of the water and sanitary sewer systems to provide quality services to Arcadia residents. Currently, the City's water and sewer rates are uniform flat rates based on consumption. Additionally, previous annual water and sewer rate adjustments were vetted through the Proposition 218 process and were tied to the previous year's Consumer Price Index. Water and sewer rate adjustments approved through this methodology were last adjusted in Fiscal Year 2013 -14. In February 2014, the City Council awarded a Professional Services Agreement to Carollo to prepare a Budget Based Water and Sewer Rates Study. The purpose of this project is to analyze and develop water and sewer rate structures for water and sewer customers that would address equity, encourage more efficient water use, and provide adequate revenues to ensure the sustainability of City -owned water and sanitary sewer systems. Carollo was instructed to develop a budget based water rate structure that would include personalized indoor and outdoor water budgets for every customer based on unique characteristics of individual properties. This kind of water rate structure was designed to address issues of equity and fairness needed to accommodate the variety of customers, home sizes, property sizes, and landscaping needs that make up the City's water customer base. Likewise, Carollo was to consider the feasibility of a sewer rate structure for single - family and multi - family customers that would tie domestic water use to the flow in the sanitary sewer system and provide recommendations for potential revisions to the existing sewer rate structure. DISCUSSION On April 1, 2015, the Governor issued a landmark executive order mandating water cutbacks for urban water users to address the state's historic drought. Additionally, the State Water Resources Control Board was directed to work with state agencies and water suppliers to facilitate the adoption of rate structures and pricing mechanisms to promote water conservation. On May 5, 2015, the Board adopted an emergency regulation for statewide urban water conservation, which included the promotion of tiered pricing structures to encourage conservation. Many California water providers already use some type of tiered rates (i.e., charging higher unit rates for higher levels of consumption) to support conservation. On April 20, 2015, the Court held that the tiered water rate structure implemented by the City of San Juan Capistrano was considered unconstitutional for violating a requirement added to the California Constitution by Proposition 218, a tax - cutting voter initiative passed in 1996. The Court ruling did not invalidate tiered water rate structures, but held Change Order to Water and Sewer Rate Study August 4, 2015 Page 3 of 4 that to be in compliance with Proposition 218, each tier must be based on the utility provider's cost of service. The Court determined that the City of San Juan Capistrano failed to meet its burden of proof that the record before the Court failed to disclose that the rates for each tier reflected the actual cost of service. The Court published their decision with additional guidance on constitutionally compliant water rate design. Following the Court's ruling, the PWSD requested that Carollo review the recently completed final draft of the budget based water rate structure to ensure that it met the newly published Court guidelines for compliant water rate design. After discussing with Carollo and the City's legal counsel, it was determined that a seasonal tiered water rate structure design, instead of a budget based rate structure, would achieve the City's desired result of detailing a defensible cost -of- service framework while providing ratepayer equity. While the original budget based proposal may, in fact, be fully in compliance with Proposition 218 and the San Juan Capistrano decision, it nevertheless would likely have attracted legal challenges, which would delay implementation and require substantial City costs to defend the rates. The PWSD considers the following additional scope of work as necessary to sufficiently complete the tiered rate structure and finalize the Water and Sewer Rate Study: 1. Provide additional water demand analysis and review tiered methodologies for appropriate customer classes 2. Develop alternative seasonal tiered rate structures to be considered for Single - Family, Multi - Family, and Non - Residential classifications 3. Provide a revised draft and final version of the Cost of Service Report 4. Additional meetings with PWSD staff and preparation of the final report In order to further evaluate and prepare the tiered water and sewer rate structures as described, it is recommended that the City Council approve a contract change order. FISCAL IMPACT The original budget for this project included $80,000 in the Fiscal Year 2013 -14 Capital Improvement Program. An additional $9,905 was requested to be appropriated from the Water Fund to fund the total project cost of $89,905. In light of the Court's recent decision on constitutional compliant water rate design, the request for an additional appropriation or $23,013 is warranted to ensure an effective and successful rate setting process. Change Order to Water and Sewer Rate Study August 4, 2015 Page 4 of 4 RECOMMENDATION It is recommended that the City Council approve a contract change order with Carollo Engineers for the Water and Sewer Rates Study and appropriate an additional $23,013 from the Water Fund to be added to the project budget. ❑Ork i is Lazza City Manager