HomeMy WebLinkAboutAgenda: Study Session: Tiered Water RatesDATE:
TO:
FROM:
SUBJECT:
November 2, 2010
Mayor and City Council
Tom Tait, Public Works Services Director
Prepared by: Ken Herman, Deputy Public Works Services Director
DISCUSSION REGARDING TIERED WATER RATES
Recommendation: Provide Direction
SUMMARY
In December 2009, the City Council awarded a Professional Services Agreement to
Raftelis Financial Consultants (RFC) to conduct a Tiered Water Rate Study. For the
past seven (7) months, staff has been gathering and analyzing data for the water
distribution system to determine the best rate structure to enhance water conservation
measures to meet new state mandates and to continue to generate sufficient revenue to
fund continued operations and maintenance activities and maintain a reserve fund in
case of a catastrophic event.
BACKGROUND
Three consecutive dry years, low reservoir storage, restrictions on pumping and
reduced Colorado River supplies have triggered the first statewide drought declaration
in 16 years. In February 2008, Governor Schwarzenegger introduced a seven -part
comprehensive plan for improving the Sacramento -San Joaquin Delta. As part of this
effort, the Governor directed state agencies to develop a plan to reduce statewide per
capita urban water use by ten percent (10 %) by 2015 and by twenty percent (20 %) by
the year 2020. This directive led to the passage of the Water Conservation Act of 2009,
also known as Senate Bill SB7.
Local climate conditions also affect the City of Arcadia's annual allocation of water that
can be pumped from the groundwater basins free of Replenishment water costs. The
current drought has affected local groundwater tables in the Raymond Basin and Main
San Gabriel Basin which have lowered significantly, reaching record low levels. Arcadia
typically meets roughly seventy percent (70 %) of the City's annual demand with local
groundwater rights. The remaining annual water supply is imported from the Colorado
River Aqueduct system and the California State Water Project through Metropolitan
Water District (MWD) as Replenishment water.
Page 1 of 4
STAFF REPORT
Public Works Services Department
Mayor and Council
November 2, 2010
Recently however, the statewide drought and the court ordered pumping restrictions on
the State Water Project to protect endangered species of fish have resulted in MWD's
allocation of water to be reduced. This reduction in water moving from Northern
California to Southern California has caused MWD to increase its rates for imported
treated surface water and Replenishment water significantly. MWD has also limited the
availability of Replenishment water making it available only three (3) out of ten (10)
years rather than seven (7) out of ten (10) years as it has been in the past. Each year
the City purchases an average of 3,500 Acre Feet (AF) of Replenishment water to cover
the over - pumping of allocated water rights. Since FY 2007 -08, the cost of
Replenishment water has increased from $252/ AF to $587 /AF, an increase of 133 %.
The total water sold is measured by water meters at each service connection, and
separated by customer type. Customers in Arcadia are divided into different customer
types, or classes, with the following usage distribution:
• Single Family Residents (SFR) — 66%
• Multi- family Residents (MFR)— 13%
• Commercial — 13%
• Other (City, Government, Irrigation & Fire Sprinklers) — 8%
SFR put the biggest demand on the City water supply and distribution system especially
during the summer when outdoor use is at its highest. With that in mind, staff's goal is
to reduce water consumption to keep the cost of operating the water system low thus
translating into low water rates for residents. The cost of providing water will continue to
increase therefore it is necessary to implement a strategy to reduce water waste and
reward water conservation, while maintaining a fund reserve to maintain the water
system in case of a catastrophic event.
DISCUSSION
Rates are predicated on an annual operating budget, capital improvement projects
outlined in the Water Master Plan Update and the City's policy to maintain a twenty (20)
million dollar fund reserve. Currently, the City charges a fixed service charge and a
uniform consumption rate.
Tiered pricing is a common practice in California and the nation, not just for water, but
also for electricity. In 2009, the State Legislature and Gov. Arnold Schwarzenegger
supported legislation (SB7) requiring California water agencies to develop urban water
use targets designed to reduce the per capita water use by at least ten percent (10 %)
by the end of 2015 and twenty percent (20 %) by the end of 2020. Implementation of a
tiered water rate structure is an effective means for the City to achieve the per capita
reductions required by this legislation.
Page 2 of 4
Mayor and Council
November 2, 2010
Studies show that tiered water rate structures are extremely effective in promoting
efficient water use. Many people assume that establishing a conservation price in a
water rate structure translates to higher water bills for most customers. However, this is
not the City's objective. Staff has been working with RFC to design a rate structure that
promotes water conservation therefore providing an incentive for those who save water.
Reducing water consumption in the City will reduce the City's reliance on expensive
imported Replenishment water from MWD, thus keeping rates low in general.
Inclining block and budget based rate structures can promote efficient water use while
maintaining an equitable and reasonable charge to water customers. At the same time,
a well- designed rate structure will also provide the City with a reliable revenue flow that
will sufficiently fund operations and maintenance costs.
Most water rate structures are made up of two charges. Both charges play a role in
determining how effectively a water rate structure communicates a water use efficiency
message to the customer.
1. Service Charge: Fixed service fee per billing period based on meter size
regardless of consumption level
2. Consumption Charge: Price for each unit of water consumed.
(1 unit = 100 cubic feet = 748 gallons)
With these two charges as a basis, there are three (3) options the City Council can
choose to implement.
Option 1: Uniform Rates — The price unit for water is constant or flat regardless
of the amount of water consumed (current structure).
Option 2: Inclining Block Tiered Rates — The unit price of water increases with
increasing blocks of usage.
Option 3: Budget Based Tiered Rates — A version of inclining block rates in
which blocks are determined for each customer individually based
upon the number of occupants in the household and the square
footage of landscape on the property.
Maintaining the current rate structure, without implementation of mandatory water
conservation measures as detailed in the City's Municipal Code, would make it very
difficult to achieve the state mandate of reducing per capita water consumption by
twenty percent (20 %) by the year 2020. Budget based tiered rates can be very
cumbersome and tedious because it will be necessary to calculate a budget for each
individual property.
Page 3 of 4
Mayor and Council
November 2, 2010
However, inclining block tiered rates can work as effectively as budget based, but some
may argue inequity in the structure because it does charge large users at a higher rate
regardless if they are efficient or not. To help address this concern, staff will work with
large water users to educate and inform them on what they can do to lower their water
consumption. For example, they can plant drought tolerant plants and install drip
irrigation. They can use "smart" controllers to reduce watering for turf areas.
Since SFR are the largest customer class in Arcadia and account for 65% of total water
usage in the City, implementing tiered water rates for SFR will have the greatest
conservation impact.
The attached also provides a description of each water rate structures as discussed in
this report including their impact.
RECOMMENDATION
Provide direction whether or not to move forward with a tiered water rate
structure
TT:KH
Approved by: - P,„,,,_-/
Page 4 of 4
Donald Penman, City Manager
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