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HomeMy WebLinkAboutItem 3a - Setting City Water and Sewer Rates for Calendar Year 2018Resolutions adopting City Water and Sewer Rates November 21, 2017 Page 1 of 8 DATE: November 21, 2017 TO: Honorable Mayor and City Council FROM: Tom Tait, Public Works Services Director By: Jacquelyn Mercado, Management Analyst SUBJECT: SETTING CITY WATER AND SEWER RATES FOR CALENDAR YEAR 2018 RESOLUTION NO. 7187 SETTING CITY WATER RATES AND FINDING THE RATES WILL NOT EXCEED THE ESTIMATED AMOUNT NECESSARY TO FUND THE OPERATION OF THE CITY WATER SYSTEM FOR CALENDAR YEAR 2018 Recommendation: Adopt RESOLUTION NO. 7188 SETTING CITY SEWER RATES AND FINDING THE RATES WILL NOT EXCEED THE ESTIMATED AMOUNT NECESSARY TO FUND THE OPERATION OF THE CITY SEWER SYSTEM FOR CALENDAR YEAR 2018 Recommendation: Adopt SUMMARY On January 19, 2016, the City Council adopted a tiered water rate structure and approved a five-year water and sewer rate adjustment schedule for calendar years 2016 through 2020. The Public Works Services Department (“PWSD”) has reviewed water and sewer operating budgets, revenues, expenditures, and reserve fund balances, and determined that it is necessary to adjust water and sewer rates for calendar year 2018 to recover increasing water and sewer system operations and maintenance costs, and to continue to replace aging infrastructure. In addition, the PWSD has determined that a 3% sewer rate adjustment, instead of the approved maximum of 6%, will be appropriate for calendar year 2018. The water and sewer rate adjustments will ensure revenue stability and encourage water use efficiency. The City of Arcadia’s water and sewer rates are among the lowest in the area and will remain so, even with the proposed rate adjustments. It is recommended that the City Council adopt Resolution Nos. 7187 and 7188 authorizing the proposed rate adjustments for calendar year 2018. Resolutions adopting City Water and Sewer Rates November 21, 2017 Page 2 of 8 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. In February 2014, the City Council awarded a Professional Services Agreement to an independent rate consultant for the preparation of a Water and Sewer Rates Cost of Service Study (“Cost Study”) that determined how best to recover projected cost increases over a five-year period. The PWSD and the City’s consultant gathered and analyzed data on the City’s water and sanitary sewer operations, and established an appropriate rate structure that would meet the City’s primary objectives of providing revenue stability, and encouraging water use efficiency. At the September 15, 2015, Study Session, the City Council directed the PWSD to proceed with the implementation of a tiered water rate structure and sewer rate adjustments based on the completed 2015 Cost Study. The seasonal tiered water rate structure for single-family customers includes variable consumption allotments based on the customers’ water meter size. This helps to account for the usage requirements of a large property with more irrigable land area versus a smaller property with less irrigable land area. On October 20, 2015, the City Council directed the PWSD to follow Proposition 218 balloting procedures to establish water and sewer rates. On January 19, 2016, the City Council conducted a public hearing and, finding no majority protest, adopted the seasonal tiered water rate structure, and approved a five-year water and sewer rate adjustment schedule for calendar years 2016 through 2020. DISCUSSION Water Rates Water rates are determined by analyzing expenditures and revenues, and forecasting the water sales for calendar year 2018. The following goals were identified in the 2015 Cost Study: • Generate sufficient revenue to fund continued operations and maintenance of the City’s water supply and distribution system (“Water System”). • Provide for equipment replacement and improvements to the Water System infrastructure through capital improvements. • Enhance conservation measures and meet state mandates. • Maintain reserve funds to make necessary repairs in the event of a catastrophic event. Operations and maintenance expenditures comprise the majority of the expenses within the Water budget with the single largest line item being water supply costs. The 2015 Cost Study Financial Model was used to forecast water sales and expenditures that include looking at the cost of current and future water supplies, including the rising cost of replacement water, and system operation costs. Based on discussions and previous Resolutions adopting City Water and Sewer Rates November 21, 2017 Page 3 of 8 direction from the City Council, the annual rate adjustments have been designed to use reserve funds to lessen the amount of annual water rate adjustments. Accordingly, the City Council agreed to lower the water reserve fund balance from $20 million to $12 million over the five year period. As a result, the 2015 Cost Study recommended that the City increase revenues by 15% in calendar years 2016 and 2017, and 7% for the following three calendar years in order to fund expected operations, maintenance, and Capital Improvement Program expenditures. Following an analysis of forecasted water use, it is recommended that the maximum rate adjustment of a 7% increase for water rates be applied for calendar year 2018. The reason for applying the maximum rate adjustment is primarily due to the increased cost for Replacement Water and a new water supply fee assessed by the Main San Gabriel Basin Watermaster (“Watermaster”). Although the Governor declared the state drought to be over, local regions continue to suffer from long-term drought impacts. In the Main San Gabriel Basin (“Main Basin”), where the City pumps most of its water from, basin levels have not recovered to minimum operating levels. In response, the Watermaster established a plan to restore the health of the Main Basin by purchasing and importing water from the State Water Project. The cost for this large water purchase will be passed on to local water purveyors, including the City of Arcadia, through a new Water Resource Development Assessment (“RDA”) fee. The RDA fee will be assessed based on how much water the City pumps from the Main Basin during a year (the City’s average annual water pumped from the Main Basin is 10,000 acre feet). In addition to regular replacement water costs, the RDA fee will increase annually and is anticipated to cost the City over $5 million dollars through Fiscal Year 2020-21. Fiscal Year Watermaster RDA ($/AF) Expected City Demand (AF) Total Due 2017-18 $70 10,000 $ 700,000 2018-19 $105 10,000 $ 1,050,000 2019-20 $140 10,000 $ 1,400,000 2020-21 $175 10,000 $ 1,750,000 Rate Structure The City has implemented a four-tier rate structure for single-family residential customers with seasonal adjustments in allotments based on meter size. The four-tier inclining block structure varies seasonally to reflect outdoor water use during winter (November - April) and summer months (May - October). Additionally, the single-family tiered rate structure assists 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. This is to provide a price signal to customers to use water efficiently, and offers an incentive to reduce excess water use. As water Resolutions adopting City Water and Sewer Rates November 21, 2017 Page 4 of 8 usage increases, so does the cost per unit of additional water; this methodology has proven effective in curtailing wasteful water practices. The proposed water rates for calendar year 2018 are as shown in the tables below, and will not exceed the estimated amount necessary to fund the operation of the City Water System for calendar year 2018: (a) Fixed bimonthly meter charge for all customer classes. Proposed Meter Charge ($/Meter Size) Meter Size (in inches) Current Rate Proposed Rate 1/1/2018 5/8” $ 20.34 $ 24.21 3/4” $ 22.17 $ 26.10 1” $ 25.82 $ 29.87 1 1/2” $ 34.97 $ 39.29 2” $ 45.94 $ 50.60 3” $ 71.55 $ 76.99 4” $ 108.13 $ 114.69 6” $ 217.87 $ 227.78 8” $ 345.90 $ 359.73 10” $ 528.80 $ 548.21 (b) Commodity charges ($/Hundred Cubic Feet (HCF)) for single-family residential customers based on the approved four-tier inclining block rate structure, and variable consumption allotments based on the customers’ water meter size. Bimonthly Tier Break Points (in HCF) for Winter Months’ Water Usage (November through April) Meter Size (in inches) 5/8” 3/4” 1” 1 1/2” 2” Tier 1 0-22 HCF 0-22 HCF 0-22 HCF 0-22 HCF 0-22 HCF Tier 2 23-28 HCF 23-36 HCF 23-42 HCF 23-46 HCF 23-60 HCF Tier 3 29-34 HCF 37-46 HCF 43-58 HCF 47-62 HCF 61-86 HCF Tier 4 35+ HCF 47+ HCF 59+ HCF 63+ HCF 87+ HCF Bimonthly Tier Break Points (in HCF) for Summer Months’ Water Usage (May through October) Meter Size (in inches) 5/8” 3/4” 1” 1 1/2” 2” Tier 1 0-22 HCF 0-22 HCF 0-22 HCF 0-22 HCF 0-22 HCF Tier 2 23-34 HCF 23-48 HCF 23-62 HCF 23-66 HCF 23-94 HCF Tier 3 35-44 HCF 49-66 HCF 63-92 HCF 67-96 HCF 95-140 HCF Tier 4 45+ HCF 67+ HCF 93+ HCF 97+ HCF 141+ HCF *HCF = Hundred Cubic Feet Resolutions adopting City Water and Sewer Rates November 21, 2017 Page 5 of 8 Proposed Single-Family Bimonthly Rates for Commodity Charges ($/HCF) Current Rate (All Usage) Proposed Rate 1/1/2018 Tier 1 $1.54 $1.62 Tier 2 $1.88 $1.98 Tier 3 $2.13 $2.26 Tier 4 $2.29 $2.42 (c) Commodity charges ($/HCF) for multi-family residential customers based on the approved two-tier rate structure with water allocations based on the number of dwelling units in each multi-family complex. Bimonthly Tier Allotments (Per Dwelling Unit) Tier (HCF) x Per Dwelling Unit Tier 1 12 Tier 2 13 + Proposed Multi-Family Bimonthly Rates for Commodity Charges ($/HCF) Current Rate (All Usage) Proposed Rate 1/1/2018 Tier 1 $1.49 $1.53 Tier 2 $1.74 $1.78 (d) Specific uniform rates for Commercial, Government, and Institutional classes. Proposed Rates for Commodity Charges ($/HCF) Current Rate (All Usage) Proposed Rate 1/1/2018 Commercial $1.60 $1.64 Government & Institutional $1.88 $1.93 The net change to a customer’s water bill will be affected by the customer’s ability to use water efficiently. The percent increase will vary among customers based on usage. Arcadia’s water rates are among the lowest in the area and will remain so, even with the proposed increases. The table below provides a comparison of Arcadia’s rates along with other neighboring jurisdictions. Resolutions adopting City Water and Sewer Rates November 21, 2017 Page 6 of 8 * Proposed rates for 2018 Sewer Rates The City’s sewer system includes 138 miles of pipe and is, on average, 75 years old. 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. Annual 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 City’s sewer system. The results of the 2015 Cost Study 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 PWSD has determined that only a 3% sewer rate adjustment, instead of the approved maximum of 6%, for calendar year 2018 is necessary to recover operations and maintenance costs for the City’s sewer system. The proposed sewer rates for calendar year 2018 are shown in the tables below, and will not exceed the estimated amount necessary to fund the operation of the City Sewer System for calendar year 2018: $456.59 $330.78 $319.01 $291.34 $184.23 $138.77 $129.26 $- $100.00 $200.00 $300.00 $400.00 $500.00 LADWP SouthPasadena*Sierra Madre Pasadena Monrovia*ArcadiaProposed (2018) ArcadiaCurrent Single-Family Bimonthly Water Cost for Neighboring Cities Total Bimonthly Charge for 1 inch Meter with Summer Usage of 59 HCF Resolutions adopting City Water and Sewer Rates November 21, 2017 Page 7 of 8 (a) Single-Family Residential and Multi-Family Residential Dwellings Proposed Bimonthly Rate Current Rate Proposed Rate 1/1/2018 $15.53 $16.00 (b) Commercial Properties Proposed Bimonthly Rate Current Rate Proposed Rate 1/1/2018 $46.40 + $0.25 Variable Per HCF Billed Water Usage $47.79 + $0.26 Variable Per HCF Billed Water Usage The proposed sewer rates are increased proportionally in each year to generate the necessary projected level of revenues provided in the 2015 Cost Study. Arcadia’s sewer rates are also among the lowest in the area and will remain so through the year 2020, even with the proposed increases, as shown in the table below. * Proposed rates for 2018 Each year, as part of the budgeting process, water and sewer operating budgets will be reviewed and analyzed. Should it be determined that revenue projections do not require the full percent rate adjustment, the PWSD will recommend a lesser rate adjustment. In addition, water and sewer rate adjustments will be brought to the City Council for adoption each year. $32.24 $26.03 $25.92 $19.50 $18.51 $18.02 $16.00 $- $5.00 $10.00 $15.00 $20.00 $25.00 $30.00 $35.00 Sierra Madre South Pasadena* Pasadena San Gabriel Arcadia Proposed(2020) Monrovia Arcadia Proposed(2018) Residential Bimonthly Sewer Cost for Neighboring Cities Resolutions adopting City Water and Sewer Rates November 21, 2017 Page 8 of 8 ENVIRONMENTAL ANALYSIS The proposed action does not constitute a project under the California Environmental Quality Act (“CEQA”), and it can be seen with certainty that it will have no impact on the environment. Thus, this matter is exempt under CEQA. FISCAL IMPACT Water and sewer rate increases are necessary to fund ongoing operations and maintenance budgets and the Capital Improvement Program while maintaining an adequate Reserve Fund balance in case of a natural disaster or emergency. The lack of a rate adjustment 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 2015 Water and Sewer Costs of Service Study determined that the City will need to increase water revenues by seven percent in calendar year 2018 to fund expected operations and capital improvement expenditures. Additionally, the PWSD has determined that a 3% sewer rate adjustment, instead of the approved maximum of 6%, for calendar year 2018 is necessary to fund expected operations and maintenance costs for the City’s sewer system. The City’s General Fund is charged for water usage by the City at various facilities. The rate increases have been anticipated in the adopted Budget. RECOMMENDATION It is recommended that the City Council adopt the following Resolutions: a. Resolution No. 7187 setting City Water Rates and finding the rates will not exceed the estimated amount necessary to fund the operation of the City Water System for calendar year 2018; and b. Resolution No. 7188 setting City Sewer Rates and finding the rates will not exceed the estimated amount necessary to fund the operation of the City Sewer System for calendar year 2018. Attachments: Resolution No. 7187 (City Water Rates) Resolution No. 7188 (City Sewer Rates)