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HomeMy WebLinkAboutItem 10f - City Water and Sewer Rates for 2022City Water and Sewer Rates for 2022 December 7, 2021 Page 1 of 10 DATE: December 7, 2021 TO: Honorable Mayor and City Council FROM: Paul Cranmer, Public Works Services Director By: Jacquelyn Mercado, Senior Management Analyst SUBJECT: CITY WATER AND SEWER RATES FOR CALENDAR YEAR 2022 Recommendation: Receive and File SUMMARY On February 2, 2021, the City Council adopted a five-year water and sewer rate adjustment schedule for calendar years 2021 through 2025. 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 2022 to recover increasing water and sewer system operations and maintenance costs, and to continue to replace aging infrastructure. The sewer rate will increase 2% based on the previously-adopted rate schedule. The water rate will increase 5% based on previously-adopted rate schedule. The water and sewer rate adjustments will ensure revenue stability and encourage water use efficiency. The following report is to provide an update on the City’s current water and sewer operations. The City of Arcadia’s water and sewer rates are among the lowest in the area and will remain so through calendar year 2022, even with the adopted increases. It is recommended that the City Council receive and file this report. BACKGROUND The City provides and maintains water and sewer services to more than 56,000 residents. Utility rate increases are necessary to fund ongoing operations, maintenance, and capital improvements, and to maintain adequate Reserve Fund balances for the water and sanitary sewer systems, in order to provide quality services to Arcadia residents and businesses. In February 2014, the City Council awarded a Professional Services Agreement to Carollo Engineers (“Carollo”) for the preparation of the Water and Sewer Cost of Service Study, and the development of financial models that would determine how best to recover projected ongoing operational costs, capital improvements to water and sewer infrastructure, and water supply costs over a five-year period. The PWSD and Carollo gathered and analyzed data on the City’s water and sanitary sewer operations City Water and Sewer Rates for 2022 December 7, 2021 Page 2 of 10 and established a seasonal tiered water rate structure that would meet the City’s primary objectives of providing revenue stability, while encouraging water use efficiency. The goal of the 2015 Cost of Service Study was to utilize Reserve Funds to minimize larger rate adjustments. Due to changes in water use trends resulting from the last drought emergency, increases to operations and maintenance budgets, mainly due to the cost of the Resource Development Assessment (“RDA”) and Replacement Water, and funding capital improvements, an update to the 2015 Cost of Service Study was necessary. In July 2019, the City Council approved a Professional Services Agreement with Carollo to complete an update to the 2015 Cost Study and to recommend a new five- year water and sewer rate adjustment for calendar years 2021 through 2025. Based on the Cost Study Update, on February 2, 2021, the City Council adopted a five-year water and sewer rate adjustment schedule for calendar years 2021 through 2025. In the Main Basin, from which the City draws most of its water, basin levels continue to decline and have not recovered to optimal operating levels since the previous drought. In response, the Main Basin Watermaster adopted a Drought Management Plan that includes a Resource Development Assessment, which is a pass-through fee based on each individual producer’s annual amount of water pumped from the Main Basin. The purpose of the RDA is to restore ground water levels by purchasing imported water from the State Water Project, separate from the purchase of Replacement Water. The RDA is anticipated to cost the City over $2 million dollars in both Fiscal Years 2021-22 and 2022- 23. The PWSD annually reviews water and sewer operating budgets, revenues, expenditures, and Reserve Fund balances to determine whether the approved maximum rate adjustment is necessary. The City of Arcadia’s water and sewer rates are among the lowest in the area and have remained so even with annual rate adjustments over the past five years. DISCUSSION The Cost Study Update relied on the City’s financial and rate models, which were exclusively developed for the City by Carollo during the 2015 Cost Study and were subsequently updated and refined in 2017. In 2020, these models were again updated to include actual revenues and operational expenditures, capital improvement costs, and customer usage data, along with additional items that were necessary to develop financial projections for Fiscal Years 2020-21 through 2024-25. Water Rates Water rates are determined by analyzing expenditures and revenues and forecasting the water sales for calendar year 2022. The following goals were identified in the Cost Study Update: City Water and Sewer Rates for 2022 December 7, 2021 Page 3 of 10 o Generate enough revenue to fund continued operations and maintenance of the City’s sewer and water supply and distribution system, including increases in water supply costs driven by the Main Basin’s Drought Management Plan to restore the health of the basin. o Provide for equipment replacement and improvements to the water and sewer systems infrastructure through capital improvements. o Review reserve policies and set rates to adequately maintain a Reserve Fund to make necessary repairs in the event of an emergency. Operations and maintenance expenditures comprise most of the expenses within the Water budget, with the single largest line item being water supply costs. The updated 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, system operation costs, and Watermaster’s imposed RDA fee. Following an analysis of forecasted water use, expenditures, and capital improvement projects it was determined that the City must increase revenues by 5%, as recommended by the Cost Study Update, and that the previously adopted maximum rate adjustment for water rates be applied for calendar year 2022. The reason for applying the maximum rate adjustment is primarily due to the increased cost for Replacement Water and the RDA fee to purchase additional water from the State Water Project. The adopted water rates for calendar year 2022 are as shown in the following tables, and will not exceed the estimated amount necessary to fund the operation of the City Water System for calendar year 2022. This table shows the adopted increase to the current fixed bimonthly meter charge effective January 1, 2022 for all customer classes to adequately reflect the actual cost of service incurred. BI-MONTHLY RATES FOR METER CHARGE ($/SIZE OF METER) – ALL CUSTOMER CLASSES Meter Size Current Rates Effective 1/1/2022 5/8” $31.82 $33.41 3/4” $33.99 $35.69 1” $38.34 $40.26 1 1/2” $49.22 $51.68 2” $62.27 $65.38 3” $92.73 $97.36 4” $136.23 $143.05 6” $266.75 $280.09 8” $419.03 $439.98 10” $636.57 $668.39 City Water and Sewer Rates for 2022 December 7, 2021 Page 4 of 10 The following tables are the commodity charges [$/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 WATER USAGE (NOVEMBER THROUGH APRIL) Meter Size Tier 5/8” 3/4” 1” 1 1/2” 2” Tier 1 0 - 22 0 - 22 0 - 22 0 – 22 0 - 22 Tier 2 23 - 32 23 - 34 23 - 42 23 – 48 23 - 60 Tier 3 33 - 42 35 - 44 43 - 58 49 – 70 61 - 90 Tier 4 43+ 45+ 59+ 71+ 91+ BIMONTHLY TIER BREAK POINTS (IN HCF) FOR SUMMER WATER USAGE (MAY THROUGH OCTOBER) Meter Size Tier 5/8” 3/4” 1” 1 1/2” 2” Tier 1 0 - 22 0 - 22 0 - 22 0 - 22 0 - 22 Tier 2 23 - 34 23 - 42 23 - 60 23 – 70 23 - 94 Tier 3 35 - 44 43 - 58 61 - 92 71 – 112 95 - 148 Tier 4 45+ 59+ 93+ 113+ 149+ A seasonal single-family tiered water 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 to offer an incentive to reduce excess water use. As water usage increases, so does the cost per unit of additional water; this methodology has proven effective in curtailing wasteful water practices. The table below shows the proposed single-family rates: SINGLE FAMILY RESIDENTIAL WATER RATES ($/HCF) Tier Current Rates Effective 1/1/2022 Tier 1 $1.91 $2.01 Tier 2 $2.38 $2.50 Tier 3 $2.46 $2.58 Tier 4 $3.06 $3.21 City Water and Sewer Rates for 2022 December 7, 2021 Page 5 of 10 The table below shows the two-tier water allocations based on the number of dwelling units in each multi-family complex, followed by a table showing the proposed multi-family rates: BIMONTHLY TIER ALLOTMENTS (PER DWELLING UNIT) Tier Tier (HCF) x Per Dwelling Unit Tier 1 12 Tier 2 13 + Finally, the following table shows specific uniform rates for Commercial, Government, and Institutional classes: MULTI-FAMILY RESIDENTIAL WATER RATES ($/HCF) Tier Current Rates Effective 1/1/2022 Tier 1 $1.75 $1.83 Tier 2 $1.95 $2.04 COMMERICAL, GOVERNMENT, & INSTITUTIONAL WATER RATES ($/HCF) Tier Current Rates Effective 1/1/2022 Commercial $1.86 $1.95 Government & Institutional $2.27 $2.38 City Water and Sewer Rates for 2022 December 7, 2021 Page 6 of 10 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 adopted increases. The table below provides a comparison of Arcadia’s rates along with other neighboring jurisdictions. The previous annual rate adjustments were 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 $11 million over the five-year period. The updated Cost Study has estimated the value of the City’s water system replacement at $236 million. Based on industry standards for such a valuation, the Cost Study determined that $7.1 million in capital reserve (or 3% of the replacement value) is required, combined with about $3.8 million required to fund operation and maintenance costs for at least 90 days. As such, the total reserve required for an emergency is $11 million. Based on those factors, the Cost Study Update recommended that the City increase water revenues by 5% for calendar years 2021 and 2022, and 6% for each of the following calendar years through 2025, in order to fund expected operations, maintenance, and CIP expenditures, and maintain a sufficient Reserve Fund balance. This will be the second year of an approved five-year water rate adjustment. Currently, the maximum water rate adjustment is not resulting in sufficient revenues to meet total expenditures for operations and maintenance costs and capital improvement projects. The goal of the Cost Study Update was to utilize reserve funds to minimize larger rate adjustments. $397.72 $359.19 $313.45 $306.55 $238.36 $238.13 $205.90 $198.87 $192.25 $166.98 $158.90 South Pasadena Golden State Water Areas* Sierra Madre Pasadena Monrovia Monterey Park Alhambra Arcadia Proposed 2025 Azusa Arcadia Proposed 2022 Arcadia Current Single-Family Bimonthly Water Cost for Neighboring Cities Total Bimonthly Charge for 1" Meter with Summer Usage of 59 HCF City Water and Sewer Rates for 2022 December 7, 2021 Page 7 of 10 The graph below includes a 5% increase in revenue for the second year of the five-year approved water rate adjustment and a projected 6% increase is projected for the following years. Even with the adopted annual 5% increase in revenue, the reserve fund balance continues to fall below the recommended reserve fund balance of $11 million. Therefore, it should be anticipated that maximum rates be applied in the following years to maintain a healthy fund balance or significant savings in overall water purchases will be necessary (i.e., customers would need to significantly reduce their usage). 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 adopted rate adjustments and 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 Cost Study Update 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 the approved 2% sewer rate $- $4 $8 $12 $16 $20 FY 21-22 FY 22-23 FY 23-24 FY 24-25 FY 25-26MillionsWater Fund Balance O&M Costs CIP Proposed Revenue Total Reserves City Water and Sewer Rates for 2022 December 7, 2021 Page 8 of 10 adjustment for calendar year 2022 is necessary to meet operations and maintenance expenditures and complete capital improvement projects. The adopted sewer rates for calendar year 2022 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 2022. The table below shows Single-Family Residential and Multi-Family Residential Dwellings Bimonthly Rates: Current Rate Effective 1/1/2022 $17.35 $17.70 Commercial Dwellings Bimonthly Rates (Fixed Rate + Variable Per HCF Billed Water Usage) are shown in the following table: Current Rate Effective 1/1/2022 $52.04 + $0.28 Variable Per HCF $53.09 + $0.29 Variable Per HCF The adopted sewer rates are increased proportionally each year to generate the necessary projected level of revenues provided in the Cost Study Update. Should the City find that revenue requirements are less than those projected in the study, the City Council could opt to forgo rate increases in any given year or implement rates lower than the proposed increase for that year. Arcadia’s sewer rates are also among the lowest in the area and will remain so through the year 2025, even with the proposed increases, as shown in the table below. City Water and Sewer Rates for 2022 December 7, 2021 Page 9 of 10 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. ENVIRONMENTAL ANALYSIS The proposed action does not constitute a project under the California Environmental Quality Act (“CEQA”) under Section 15061(b)(3) of the CEQA Guidelines, 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 an 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 systems. The Water and Sewer Costs of Service Study Update recommended that the City increase water revenues by 5% for calendar years 2021 and 2022, and 6% for the following three years through 2025 in order to fund expected operations, maintenance, and Capital Improvement Program expenditures. Based on study projections, the City must increase water revenue annually in order to meet expected revenue needs. $44.55 $38.64 $28.15 $27.52 $19.50 $19.04 $18.78 $17.70 $17.35 Azusa*Sierra Madre South Pasadena Pasadena San Gabriel Monrovia Arcadia Proposed 2025 Arcadia Proposed 2022 Arcadia Current Residential Bimonthly Sewer Cost for Neighboring Cities City Water and Sewer Rates for 2022 December 7, 2021 Page 10 of 10 Additionally, the Cost Study Update recommends that a 2% sewer rate adjustment for calendar years 2021 through 2025 is necessary to fund expected operations, maintenance and Capital Improvement Programs expenditures for the City’s sewer system. Based on study projections, the City must increase sewer revenue annually in order to meet expected revenue needs. RECOMMENDATION It is recommended that the City Council determine that this item is exempt under the California Environmental Quality Act (“CEQA”); and that the City Council receive and file this report. Attachments: Adopted Resolution No. 7348 (City Water Rates) Adopted Resolution No. 7349 (City Sewer Rates) ADOPTED /s/ Roger Chandler /s/ Gene Glasco /s/ Gene Glasco ADOPTED /s/ Roger Chandler /s/ Gene Glasco /s/ Gene Glasco