Loading...
HomeMy WebLinkAboutItem 11f - City Water and Sewer Rates for 2024City Water and Sewer Rates for 2024 November 21, 2023 Page 1 of 10 DATE: November 21, 2023 TO: Honorable Mayor and City Council FROM: Paul Cranmer, Public Works Services Director By: Daniel Vargas, Management Analyst SUBJECT: CITY WATER AND SEWER RATES FOR CALENDAR YEAR 2024 CEQA: Not a Project Recommendation: Receive and File SUMMARY On February 2, 2021, the City Council adopted a five-year water and sewer rate adjustment schedule for the 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 2024 to recover increasing water and sewer system operations and maintenance costs, and to continue to replace aging infrastructure. Based on the previously adopted rate schedule, the sewer rate will increase 2% and the water rate will increase 6%. This will be the fourth year of the approved five-year water rate adjustment. 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 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 will remain so through calendar year 2024, 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. In order to provide quality service to Arcadia residents and businesses, utility rate increases are necessary to keep up with ongoing operations and maintenance costs, capital improvements, and to maintain adequate Reserve Fund balances for the water and sanitary sewer systems. 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. In the Study, Carollo developed financial models that would City Water and Sewer Rates for 2024 November 21, 2023 Page 2 of 10 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. Carollo and PWSD collaborated to analyze performance of the City’s water and sanitary sewer operations and established a seasonal tiered water rate structure that meets 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 increases in operations and maintenance budgets – mainly due to the imposition of the Resource Development Assessment (“RDA”) and higher Replacement Water costs (described below) – rising capital improvement costs, and the change in water usage patterns, an update to the 2015 Cost of Service Study was necessary. In July 2019, City Council approved a Professional Services Agreement with Carollo to complete an update to the 2015 Water and Sewer Cost Study and to recommend a new five-year water and sewer rate adjustment schedule. 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 have not returned to optimal operating levels since the previous drought. In response to these conditions, the Main Basin Watermaster adopted a Drought Management Plan. The Drought Management Plan 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 and in addition to, the purchase of Replacement Water. The RDA will cost the City over $2 million dollars in Fiscal Year 2023-24 and is anticipated to cost the same in Fiscal Year 2024-25. DISCUSSION The Cost Study Update relied on Arcadia’s financial models 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 updated again 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 Fiscal Year 2024-25. Water Rates Water rates are determined by analyzing revenues, expenditures, and forecasting water sales for year 2024. The following goals were identified in the Cost Study Update: o Generate enough revenue to fund continued operations and maintenance of the City’s water and sewer supply and distribution system, including increases in water supply costs driven by the Main Basin’s Drought Management. City Water and Sewer Rates for 2024 November 21, 2023 Page 3 of 10 o Provide for equipment replacement as well as 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 a variety of influencing factors: water sales and expenditures that included assessing the cost of current and future water supplies; the rising cost of replacement water; system operation costs; and the Watermaster’s imposed RDA fee. Data from an analysis of the forecasted water use, expenditures, and capital improvement projects was used to determine that the City must increase revenues by 6%, as recommended by the Cost Study Update, and that the previously-adopted maximum rate adjustment for water rates should be applied for calendar year 2024. The reason for applying the maximum rate adjustment next year is primarily due to the RDA fee to purchase additional water from the State Water Project, and the proposed limitations on the purchase of cyclic water, which would result in an increased cost to purchase Replacement Water. Although there is currently no proposed decrease in the Operating Safe Yield, or the amount of water that can be removed from the Main San Gabriel Basin, in 2024 for all producers with pumping rights, the allowable extractions from the Basin remain low. As a result, the cost of purchasing more costly Replacement Water to meet consumer demand continues to be high. The adopted water rates for calendar year 2024 are shown in the tables below and do not exceed the amount necessary to fund City Water System operations for 2024. This table shows the adopted increase to the current fixed bimonthly meter charge effective January 1, 2024, for all customer classes, to adequately reflect the true cost of service. BI-MONTHLY RATES FOR METER CHARGE ($/SIZE OF METER) – ALL CUSTOMER CLASSES Meter Size Current Rates Effective 1/1/2024 5/8” $35.41 $37.53 3/4” $37.83 $40.10 1” $42.67 $45.23 1 1/2” $54.78 $58.07 2” $69.31 $73.47 3” $103.20 $109.39 4” $151.63 $160.73 6” $296.90 $314.71 8” $466.38 $494.36 10” $708.50 $751.01 City Water and Sewer Rates for 2024 November 21, 2023 Page 4 of 10 The following tables are the commodity charges [$/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. No changes are included in these allotments. 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 1/1/2024 Tier 1 $2.13 $2.26 Tier 2 $2.65 $2.81 Tier 3 $2.73 $2.89 Tier 4 $3.41 $3.61 City Water and Sewer Rates for 2024 November 21, 2023 Page 5 of 10 The table below shows the two-tier water allocations based on the number of dwelling units in each multi-family complex, followed by a table showing the proposed multi-family rates. Again, there are no proposed changes to these allotments. BIMONTHLY TIER ALLOTMENTS (PER DWELLING UNIT) Tier Tier (HCF) x Per Dwelling Unit Tier 1 12 Tier 2 13 + The table below shows the adopted multi-family residential rates based on the tier structures: MULTI-FAMILY RESIDENTIAL WATER RATES ($/HCF) Tier Current Rates Effective 1/1/2024 Tier 1 $1.94 $2.06 Tier 2 $2.17 $2.30 Finally, the following table shows specific uniform rates for Commercial, Government, and Institutional classes: COMMERICAL, GOVERNMENT, & INSTITUTIONAL WATER RATES ($/HCF) Tier Current Rates Effective 1/1/2024 Commercial $2.07 $2.19 Government & Institutional $2.52 $2.67 The net change to a customer’s water bill will be affected by the customer’s ability to use water efficiently. The percentage 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 for 2023. City Water and Sewer Rates for 2024 November 21, 2023 Page 6 of 10 *Golden State Water Areas include over 25 different territories providing residential metered water service to single- family residential customers. For the full list, visit https://www.gswater.com/ The previous annual rate adjustments were designed to use Reserve Funds to smooth and decrease 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 needed, combined with about $3.8 million to fund operation and maintenance costs for at least 90 days. To meet these industry standards and financial best practices, the City needs to increase rates to reach the recommended $11 million for the Water Reserve Fund. 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. These planned increases fund expected operations, maintenance, and CIP expenditures, and maintain a sufficient Reserve Fund balance. This will be the fourth 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. $479.70 $397.72 $377.18 $354.36 $339.13 $238.36 $228.57 $216.58 $198.86 $187.68 $176.98 Monterey Park South Pasadena Golden State Water Areas* Pasadena Sierra Madre Monrovia Alhambra Azusa Arcadia Expected 2025 Arcadia Expected 2024 Arcadia Current Single-Family Bimonthly Water Cost for Neighboring Cities Total Bimonthly Charge for 1 inch Meter with Summer Usage of 55 HCF City Water and Sewer Rates for 2024 November 21, 2023 Page 7 of 10 The goal of the Cost Study Update was to utilize reserve funds to minimize larger rate adjustments in the initial years, with rates catching up over time to better fund operations and replenish reserves; unfortunately, to date, that has not happened, as water costs remain unusually high. The graph below includes a 6% increase in revenue for the fourth year of the five-year approved water rate adjustment, and a 6% increase is projected for the following year. Even with the adopted annual 6% increase in revenue, over time the reserve fund balance will continue to fall below the recommended reserve fund balance of $11 million. Therefore, it should be anticipated that maximum rates need to 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). In addition, Water Division staff will look for alternative funding sources for CIP projects and delay optional projects to protect Water Reserve Fund balances. Nevertheless, water rates will need to increase substantially in the next five-year rate cycle to ensure the long- term health of the program. $- $4 $8 $12 $16 $20 $24 FY 21-22 FY 22-23 FY 23-24 FY 24-25 FY 25-26 Mi l l i o n s Water Fund Balance O&M Costs CIP Proposed Revenue Total Reserves City Water and Sewer Rates for 2024 November 21, 2023 Page 8 of 10 Sewer Rates The City’s sewer system includes 138 miles of pipe and is, on average, 50 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 follows state regulations that mandate the elimination of sewer overflows. On November 15, 2022, City Council accepted the 2022 Sewer Master Plan Update. The Plan contains a list of recommended improvements to the City’s sewer system to be implemented over the next 20 years, with the most critical projects indicated as Priority 1 and the remaining projects indicated as Priority 2. There are eight Priority 1 projects with a total estimated cost of approximately $3.2 million, and 34 Priority 2 projects with a total estimated cost of approximately $5.4 million. Project costs are expected to have a continued impact on the Sewer Fund. The adopted rate adjustments and revenue increases would allow the City to fund ongoing operations and provide adequate maintenance and upgrades to 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 to adequately fund Capital Improvement Projects and meet projected expenditure increases. The PWSD has determined that the approved 2% sewer rate adjustment for calendar year 2024 is necessary to meet operations and maintenance expenditures and complete capital improvement projects. The adopted sewer rates for calendar year 2024 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 2024. The table below shows Single-Family Residential and Multi-Family Residential Dwellings Bimonthly Rates: Current Rate Effective 1/1/2024 $18.05 $18.41 Commercial Dwellings Bimonthly Rates (Fixed Rate + Variable Per HCF Billed Water Usage) are shown in the following table: Current Rate Effective 1/1/2024 $54.15 + $0.29 Variable Per HCF $55.23 + $0.29 Variable Per HCF City Water and Sewer Rates for 2024 November 21, 2023 Page 9 of 10 The adopted sewer rates are increased proportionally each year to generate the necessary level of revenues projected 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. Even with the proposed increases, Arcadia’s sewer rates are also among the lowest in the area and will remain so through year 2025, as shown in the table below. 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”) per Section 15061(b)(3) of the CEQA Guidelines, as it can be seen with certainty that it will have no impact on the environment. Thus, this matter is exempt under CEQA. $44.55 $39.80 $38.50 $37.40 $26.00 $19.32 $18.78 $18.41 $18.05 Azusa Sierra Madre Pasadena South Pasadena San Gabriel Monrovia Arcadia Expected 2025 Arcadia Expected 2024 Arcadia Current Residential Bimonthly Sewer Cost for Neighboring Cities City Water and Sewer Rates for 2024 November 21, 2023 Page 10 of 10 FISCAL IMPACT Water and sewer rate increases are necessary to fund ongoing operation and maintenance budgets, the Capital Improvement Program, and 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 6% for calendar year 2024 to fund expected operations, maintenance, and Capital Improvement Program expenditures. While the rates will be a nominal increase for most ratepayers, collectively, the City will receive approximately $1,000,000 in additional water revenue. Based on study projections, the City must increase water revenue annually to meet expected expenses. Additionally, the Cost Study Update recommends that a 2% sewer rate adjustment, or approximately $55,000 collectively, for calendar year 2024 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 action does not constitute a project and is therefore 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)