HomeMy WebLinkAboutItem a - Study Session - Water and Sewer Rates StudyStudy Session Water and Sewer Rate Study
September 15, 2015
Page 1 of 9
DATE:
September 15, 2015
TO:
Honorable Mayor and City Council
FROM:
Tom Tait, Public Works Services Director
By: Ken Herman, P.E., Principal Civil Engineer
SUBJECT:
REPORT AND DISCUSSION REGARDING THE WATER AND SEWER
RATES STUDY
Recommendation: Provide direction on moving forward with water
and sewer rate adjustment process
SUMMARY
In February 2014, the City Council awarded a Professional Services Agreement to
Carollo Engineers (“Carollo”) to prepare a Budget Based Water and Sewer Rates Study
(“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 rate structure. After meetings with Public Works
Services Staff and City Council Members, it was determined that a hybrid budget based
water rate structure was the most effective option that would meet the City’s primary
objectives of providing revenue stability and encouraging water use efficiency.
However, a recent ruling by the California Fourth District Court of Appeal in the
Capistrano Taxpayers Association, Inc. v. City of San Juan Capistrano questioned the
approach of using a budget based rate structure. While budget based rates would not
be prohibited under the San Juan Capistrano decision, implementing such a system
would likely draw legal challenges and delay implementation.
In light of the Court’s decision, the PWSD asked the consultant to review the Study and
recommend an alternate water rate structure that would be consistent with the San Juan
Capistrano decision and avoid any potential conflicts. The alternate structure
recommended is a seasonal (winter and summer) tiered water rate structure with
specific tier allotments adjusted based on meter size for residential customers. The
cost of service analysis performed for the sewer rates determined that the current sewer
rate structure equitably recovers costs from each customer class and should continue
as is with suggested rate increases.
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September 15, 2015
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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
and businesses. Currently, the City’s water and sewer rates are uniform flat rates
based on consumption with a fixed meter charge. Customers pay the same rate for
every unit of water, although cost of delivery gets far more expensive as more water is
used systemwide. 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.
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. On May 5, 2015,
the State Water Resources Control 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 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 Proposition
218 requirements. The Court ruling did not invalidate tiered water rate structures, but
held that to be in compliance with Proposition 218, each tier must be based on the utility
provider's cost of service. Further, the Court determined that the City of San Juan
Capistrano failed to meet its burden of proof and that the record before the Court failed
to disclose that the rates for each tier reflected the actual cost of service. The Court
then published their decision with additional guidance on constitutionally compliant
water rate design. After discussing these findings with Carollo and the City’s legal
counsel, it was determined that a tiered water rate structure, instead of a budget based
rate structure, designed to meet Prop 218 requirements was desirable.
DISCUSSION
Water Rates
Water rates are determined by analyzing the current and projected costs to operate and
maintain the City’s water supply and distribution system (“Water System”); provide for
improvements to the Water System infrastructure through capital improvements; replace
equipment used in the maintenance and operation of the Water System; and maintain
reserve funds to make necessary repairs in the event of a catastrophic event.
Operations and maintenance comprise the majority of the operating expenditures. Of
these costs, providing for the supply of water comprises the majority of the expense.
The cost of service analysis has forecasted and balanced water sales revenues against
Study Session Water and Sewer Rate Study
September 15, 2015
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current and long-term future water supply, including the rising cost of replacement
water, and treatment costs.
The proposed rate structure has taken conservation into consideration as an additional
cost-effective measure to reduce water supply costs without negative impacts on
revenues. Based on discussions and previous direction from the City Council, the rates
have also been designed to eliminate the need to use reserves to fund operations and
capital expenditures. The cost of service analysis determined that the City will need to
increase revenues by 15 percent in Fiscal Years 2015-16 and 2016-17. In the following
three fiscal years, an annual 7 percent increase has been forecasted to fund expected
operation and capital expenditures. After Fiscal Year 2020-21, the City will likely require
similar level revenue increases based on the current projections of funding
requirements.
Seasonal tiered water rates provide a price signal to customers to use water efficiently
through a volumetric rate that reflects seasonal variation in water delivery costs. The
seasonal tiered single-family rate structure design will assist in managing customer
demand for water by pricing discretionary water uses, such as landscape irrigation, at a
higher rate than water used for drinking and sanitation purposes.
The proposed tiered rate structure design is comprised of the following:
An increase to the current fixed bimonthly meter charge for all customer classes
to adequately reflect the actual cost of service incurred. (Table 1 in the Attached
Appendix)
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September 15, 2015
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Implementation of a four-tier rate structure for Single-family customers with
seasonal adjustments and specific meter size tier allotments. (Tables 2 and 3)
Implementation of a two-tier rate structure for Multi-family customers with water
allocations based on the number of dwelling units in each Multi-family complex.
(Tables 4 and 5)
Implementation of customer specific uniform rates for Government, Institutional,
and Commercial classes. (Tables 6 and 7)
Single-Family Water Rates
The proposed Single-family rate structure has been expanded to allow for variable
consumption allotments based on the customers’ water meter size. The tier allocations
were determined by analyzing the relationship between meter size and consumption
patterns for all single family accounts. The rates were then developed with a four-tier
inclining block structure, with tier allotments that vary seasonally to reflect varying
outdoor water use during winter (November – April) and summer months (May –
October).
The proposed Single-family rates are calculated by adding the fixed bimonthly meter
charge to the corresponding tier’s rate. For example, a customer with a ¾” water meter
will experience the increases depicted below at varying consumption levels during
summer months.
*1 HCF = 1 Unit
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September 15, 2015
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The net change to a customer’s water bill will be affected by the customer’s ability to
use water efficiently. Low users will have a small change (11.6% shown) and high
users will have a more significant change (22% shown). The percent increase will vary
among customers based usage. Arcadia’s water rates are among the lowest in the area
and will remain so, even with the proposed increases.
Sewer Rates
The City’s sewer pipes are on average 50 years old and include 138 miles of pipe
throughout the City. The Sewer Master Plan is a comprehensive report outlining a long-
range program of capital improvements and preventative maintenance measures to
upgrade and maintain the City’s sewer system. Sewer rate adjustments are necessary
to fund the operations and maintenance activities of the sewer system to ensure that the
City’s sewer system is in compliance with state regulations that mandate the elimination
of sewer overflows.
The proposed revenue increases would allow the City to fund ongoing operations and
achieve a 75 year replacement cycle for the sewer system. The results of the cost of
service analysis determined that the current sewer rate structure equitably recovers
costs from each customer class but that the City must increase sewer revenues
annually in order to fund Capital Improvement Projects and meet projected expenditure
increases. The following graphs depict the impact to customers of the proposed sewer
rate adjustments for a five year period.
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September 15, 2015
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Residential – Bimonthly Sewer Rate Proposed Increase
Commercial – Bimonthly Sewer Rate Proposed Increase (Based on 50 HCF variable)
The proposed sewer rates are increased proportionally in each year to generate the
necessary projected level of revenues provided in the cost study. Should the City find
that revenue requirements are less than those projected in the study, the City could opt
to forgo rate increases in any given year or implement rates lower than the proposed,
which has been the case in recent years.
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September 15, 2015
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Implementation of New Rates
The PWSD will be holding a citywide informational meeting on September 24, 2015, to
obtain feedback and address Arcadia water customer questions regarding the proposed
rate structure. At the October 6, 2015, City Council Meeting, the PWSD will request
that the City Council approve the Water and Sewer Rate Study and set a Public Hearing
date for December 1, 2015, to consider any protests to the proposed rates. The PWSD
will, at least forty-five (45) days before the date of the Public Hearing, mail a notice to all
water customers detailing the proposed rate increase in accordance with Proposition
218 requirements. Additionally, the notice will include a “Questions and Answers”
informational sheet to help water customers better understand the proposed rate
structure. All public outreach efforts and informational pieces developed will be
approved through the City Attorney’s office to ensure that the City is in compliance with
Prop 218 regulations. If there is no majority opposition, the newly established rates will
become effective January 1, 2016.
FISCAL IMPACT
Water and sewer rate increases are necessary to fund the Capital Improvement
Program and the Operating Budgets, and to maintain a Reserve Fund balance in case
of a natural disaster or emergency. The lack of a rate increase would not allow the City
to recover increasing water supply costs, and operations and maintenance costs for the
City’s water and sewer system. The cost of service analysis determined that the City will
need to increase revenues by 15 percent in Fiscal Years 2015-16 and 2016-17. In the
following three fiscal years, an annual 7 percent increase would be needed to fund
expected operation and capital expenditures.
RECOMMENDATION
It is recommended that the City Council provide direction to staff to move forward with
water and sewer rate adjustment process.
Attachment: Appendix “A”
APPENDIX “A”
Table 1. Fixed Meter Charges (Bimonthly)
CURRENT
FY 2015/16 FY 2016/17 FY 2017/18 FY 2018/19 FY 2019/20
METER SIZE BIMONTHLY
PROPOSED PROPOSED PROPOSED PROPOSED PROPOSED
METER CHARGE
5/8" $11.55 $15.61 $20.34 $24.21 $28.46 $30.33
3/4" 12.99 17.27 22.17 26.10 30.41 32.40
1" 14.43 20.58 25.82 29.87 34.30 36.55
1.5" 21.66 28.87 34.97 39.29 44.04 46.93
2" 30.32 38.80 45.94 50.60 55.73 59.39
3" 53.41 62.00 71.55 76.99 83.00 88.45
4" 79.40 95.13 108.13 114.69 121.97 129.97
6" 150.84 194.52 217.87 227.78 238.85 254.53
8" 237.35 310.49 345.90 359.73 375.21 399.85
10" 237.35 476.15 528.80 548.21 570.02 607.45
Table 2. Single Family Tier Allotments
BIMONTHLY ALLOTMENTS (HCF) – WINTER (NOVEMBER – APRIL)
METER SIZE
5/8" 3/4" 1" 1/5" 2"
Tier 1 22 22 22 22 22
Tier 2 28 36 42 46 60
Tier 3 34 46 58 62 86
Tier 4 34+ 46+ 58+ 62+ 86+
BIMONTHLY ALLOTMENTS (HCF) – SUMMER (MAY – OCTOBER)
METER SIZE 5/8" 3/4" 1" 1/5" 2"
Tier 1 22 22 22 22 22
Tier 2 34 48 62 66 94
Tier 3 44 66 92 96 140
Tier 4 44+ 66+ 92+ 96+ 140+
Table 3. Singe Family Rates ($/HCF)
CURRENT
(ALL PROPOSED FY 2015/16 FY 2016/17 FY 2017/18 FY 2018/19 FY 2019/20
USAGE)
$1.40 Tier 1 1.36 1.54 1.62 1.71 1.82
Tier 2 1.65 1.88 1.98 2.09 2.23
Tier 3 1.87 2.13 2.26 2.38 2.53
Tier 4 2.01 2.29 2.42 2.55 2.72
APPENDIX “A”
Table 4. Multi Family Tier Allotments
Per Unit Tiers
Tier 1 12
Tier 2 12+
Table 5. Multi Family Rates ($/HCF)
CURRENT
(ALL PROPOSED FY 2015/16 FY 2016/17 FY 2017/18 FY 2018/19 FY 2019/20
USAGE)
$1.40 Tier 1 $1.36 $1.49 $1.53 $1.57 $1.69
Tier 2 1.58 1.74 1.78 1.83 1.97
Table 6. Commercial Rates ($/HCF)
CURRENT PROPOSED FY 2015/16 FY 2016/17 FY 2017/18 FY 2018/19 FY 2019/20
$1.40 Commercial $1.46 $1.60 $1.64 $1.68 $1.81
Table 7. City, Government, Institutional, and Irrigation Accounts ($/HCF)
CURRENT PROPOSED FY 2015/16 FY 2016/17 FY 2017/18 FY 2018/19 FY 2019/20
AC, AR, GV
$1.40 $1.71 $1.88 $1.93 $1.98 $2.13
and IM