Item 5.1 - Recommendations for Water and Sewer Rate AdjustmentsOF PDO, F.
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DATE:
City of Poway
a
. COUNCIL AGENDA REPORI
December 2, 2014
APPROVED
APPROVED AS AMENDED
❑
(SEE MINUTES)
DENIED
❑
REMOVED
❑
CONTINUED
Resolution No.
TO: Honorable Mayor and Members of the City Council
FROM: Daniel Singer, City Manager Iywo
INITIATED BY: Scott Edwards, Director of Administrative Services
Peter Moote, Assistant Director of Administrative Servicekp'-
SUBJECT: Recommendations for Water and Sewer Rate Adjustments
Summary:
This report presents recommended changes to the City's water and sewer rates and charges
that would take effect in March 2015. Rate changes per Council's direction this evening would
be adopted under the provisions of Article XIIID Section 6 of the California Constitution,
commonly known as "Proposition 218 ". The proposed timeline for this process is as follows:
December 2, 2014 Rate Workshop
December 16, 2014 Prop 218 Public Hearing Notice sent to rate payers
February 17, 2015 Public Hearing on rates and first reading of the ordinance
March 3, 2015 Second reading of the ordinance
March 4, 2015 New rates in effect
May 2015 First mailing of bills reflecting new rates
The proposed water rates would recover increases to the raw water rate and fixed charges
adopted by the San Diego County Water Authority in effect January 2015, as well as cover a
portion of the City's increased commitment to water capital improvement projects. The
proposed sewer rates would reduce the annual operating shortfall for sewer utilities operations.
Recommended Action:
In order to recover pass- through costs, continue proper maintenance of the water and sewer
systems, meet regulatory requirements, and fund necessary capital projects, it is
recommended the City Council authorize:
1. Increasing the water commodity rate by 7.75 %, and increasing the fixed meter charge by
8.75 %;
2. Increasing the sewer use rate by 7.50 %, and increasing the fixed sewer service charge by
8.75 %.
Combined, the proposed increases total $8.22 a month for a customer with median water use
(30 units) with the most common residential meter size (3/4- inch), and assigned to the most
common sewer tier (2). With Council authorization, the City will proceed with the Prop 218
process to implement the recommended rate changes, effective in March 2015.
1 of 7 December 2, 2014 Item #5.1
Recommendations for Changes to Water and Sewer Rates
December 2, 2014
Page 2
Water Rates
Background:
Due to limited local resources, the City buys nearly 100% of its water supply from the San
Diego County Water Authority (CWA). Rate increases adopted by the Metropolitan Water
District (MWD) are passed on to the CWA, and ultimately to CWA member agencies, including
Poway.
The last increase to the City's water rates was in January 2013, when both the service (fixed
meter) charge and volumetric commodity charges were increased by 3.5 %. Increases to the
cost of water and CWA charges at that time were 7.2 %, resulting in the City absorbing a
substantial portion of the higher pass- through costs. Since that time, the cost of raw water and
CWA charges were increased again by approximately 2.5% in January 2014, and CWA
increases taking effect January 2015 will result in an additional estimated increase of 7% for
Poway.
The single largest driver of the January 2015 CWA increase is the recovery of costs for the
Carlsbad desalination plant. The cost of improvements for this regional water resource (and its
ongoing operation) is projected to increase the region's overall water supply costs by 10 %-
12%. The CWA's rate plan anticipates spreading recovery of the higher supply cost through
future rates.
The City's FY 2014 -15 Adopted Budget for water supply, operations, maintenance and
administration is $22.98 million. Roughly 65% of this cost is made up of water supply
purchases and other pass- through charges from the CWA. The remaining 35% represents the
City's cost for operations, maintenance, and administration. Revenue collected by the City
from water fees and charges is used exclusively to operate, administer, maintain, and
rehabilitate the water system.
Cost reduction measures implemented by the City between 2007 and 2012, primarily in
response to the economic downturn, have resulted in reduced costs across all operations,
including water and sewer utilities. The most significant of these measures includes reduction
of the City workforce and the early application of pension reform.
Facts and recent trends for water consumption are as follows:
• The City's water customer base is comprised of 14,129 service connections;
single - family residential customers represent about 89% of the customer base.
• Despite moderate increases since 2011 -12, overall consumption for FY 2013 -14 is
still 18% below peak use in 2007 -08.
• Median household bimonthly use declined from 36 units in 2007 -08 to 30 units in
2013 -14.
• An average of 145 customers (residential) per bi- monthly billing period reached
the second rate block (200 units or more).
2 of 7 December 2, 2014 Item #5.1
Recommendations for Changes to Water and Sewer Rates
December 2, 2014
Page 3
Further, the City declared a Level 2 Water Shortage Alert in August, restricting outdoor
watering. Anticipating that water supply challenges will continue, and that the region may
experience an allocation (reduced deliveries), the rates presented for Council consideration
assume a 6% decrease in consumption from 2013 -2014.
Water Rates
Findings:
Based on the cost recovery of water purchases and operating costs, it is recommended that
the water commodity rate be increased by 7.75 %. The City's water service charge is
recommended to increase by 8.75 %. The proposed rate increases would take effect in March
2015.
As discussed in the background section of this report, the City's current rates for service and
commodity reflect the City's absorption of increases in the cost of water in effect since January
2013. After taking into account all revenue used for recovery of operating expenditures and
contributions toward water system capital improvements in FY 2013 -14, a $321,000 reduction
in the Water Operating Fund resulted.
Going forward, increases similar to those proposed for March 2015 may be necessary for 2016
and 2017 in order to maintain an appropriate level of Water Fund reserve, and to provide for
needed rehabilitation of the City's aging water system. Preliminary results of the updated
water master plan indicate that the annual contribution necessary to fund system rehabilitation
projects should be increased from the current $850,000 annual investment to approximately
$1.7 million for the foreseeable future. Staff will bring. the final Water Master Plan to Council
upon its completion. It should be noted that staff continues to actively look for ways to reduce
the City's capital costs while still protecting infrastructure.
The Water Operating Fund balance at FY 2013 -14 year end is $4.38 million. When combined
with the $294,119 balance in the Water Improvement Fund (AB 1600 Development Fees),
balances are in -line with the City's financial policy goal of maintaining 20% of annual operating
requirements in reserve.
The City's rate structure continues to support water conservation; acknowledging small water
users via our ratio of fixed (i.e., service charges) to variable (i.e., commodity charges) revenue.
The City currently receives approximately 13% of its water revenue through fixed charges. In
order to reduce rate volatility caused by unpredictable (due to weather) year -to -year
consumption while moving the City closer to full recovery of the fixed costs assessed by the
CWA, staff recommends that the City incrementally increase its revenue received from fixed
charges to 20% of total revenue. Doing so will require annual increases in service charges
that exceed annual cost - indexes as well as annual CWA fixed charge increases. While the
percentage of revenue received from fixed charges will increase to 20% over time, revenue
from variable charges will be adjusted to achieve overall revenue that is projected to meet, not
exceed, the amount necessary to recover operating and system maintenance costs.
Additionally, with fixed charges at 20% of total water revenue, the City's ratio would remain
well below the 30% industry- recommended standard for water conservation purposes.
3 of 7 December 2, 2014 Item #5.1
Recommendations for Changes to Water and Sewer Rates
December 2, 2014
Page 4
If adopted, the rate increases would be in effect March 2015, and would be reflected on
customer bills beginning May 2015, as shown in the following tables. The increase to water
rates and charges for a single - family residential customer with median water use (30 units bi-
monthly) and the most common residential meter size (3/4 -inch) would be $5.92 per month.
Current and Proposed Fixed Water Meter Charges
(All Customer Classes)
Meter Size
5/8 ", 3/4 ", 1" Fire
Current Charge
• • nthly)
$28.98
Proposed Charge
(bimo
$31.52
ill
$48.30
$52.53
1-1/2"
$96.60
$105.05
2"
$154.56
$168.08
3"
$289.80
$315.16
4"
$483.00
$525.26
6"
$966.00
$1,050.53
8"
$1,545.59
$1,680.83
Current and Proposed Water Commodity Rates
(1 unit = 748 gallons)
Single Family
Residential
Block 1 0 -199 units I $3.96 $4 -27
------------- - - - - -1
Block 2 1 200+ units 1 $5.65
$6.09
Multi Family & I Uniform I $4.04 I $4.35
Non - Residential
In addition to recovering CWA pass- through costs, the proposed rate increases are necessary
to continue proper maintenance of our aging water system; meet all state and federal
regulations and requirements; fund necessary capital projects; and continue to provide the
best quality service to our customers. The proposed rate changes are expected to result in
recovery of day -to -day operating costs. However, because of the need for increased capital
reinvestment, staff expects a $776,000 reduction in the Water Operating Fund balance at fiscal
yearend after allocating funds for system rehabilitation projects.
4 of 7 December 2, 2014 Item #5.1
Recommendations for Changes to Water and Sewer Rates
December 2, 2014
Page 5
Sewer Rates
Background:
Wastewater generated in Poway is collected by the City's sewer system and conveyed to the
City of San Diego Metropolitan Wastewater System (Metro), where it is treated and ultimately
discharged to the Pacific Ocean. Approximately 54% of the City's costs for providing sewer
services are pass- through costs from Metro and other component systems relied on for
sewage transport, treatment and discharge.
The City's FY 2014 -15 Adopted Budget for sewer treatment, operations, maintenance and
administration is $8.59 million. Revenue collected by the City from sewer fees and charges is
used exclusively to operate, administer, maintain, and rehabilitate the sewer system. Between
2011 and 2012, the City Council reduced sewer commodity charges by 20% followed by no
rate changes in 2013. A modest 2% increase to the sewer fixed service charges and
commodity charges was adopted for 2014 as the first step toward once again achieving full
recovery of sewer operating costs. Combined, these actions have resulted in a reduction in
the Sewer Fund balance over time, as reserves have supported operations and allowed
absorption of increased Metro pass- through charges.
As cited in the water rates background section of this report, cost reduction measures
implemented between 2007 and 2012 have resulted in reduced costs across all operations,
including sewer utilities. The most significant of these measures includes reduction of the City
workforce and the early application of pension reform.
Sewer Rates
Findings:
Sewer rates for single - family residential customers are based on a percentage of winter water
use. In the first full billing cycle after January of each year, residential customers are assigned
to one of seven bimonthly tiers based upon their lowest winter water consumption averaged
over the prior three years. Commercial and other non - residential customers pay sewer
charges based on their water consumption for that billing period. All customers also pay a
fixed bimonthly sewer service charge based on water meter size and customer classification to
recover the City's costs for system capacity, billing, and administrative overhead.
In order to continue the gradual climb to full recovery of sewer operating costs and increased
Metro pass- through costs, it is recommended that the sewer use (commodity) rate be
increased by 7.5 %. It is also recommended that the City's sewer service charge increase by
8.75 %. The proposed rate increases would take effect in March 2015.
The proposed increases, followed by similar increases through 2020, would result in the
continued use of Sewer Fund balance to cover a portion of operating costs. At that time, the
Sewer Fund balance is projected to remain sufficient, after absorbing the City's share of
increased capital and operating costs associated with the region's planned Pure Water /sewer
outflow reduction program.
5 of 7 December 2, 2014 Item #5.1
Recommendations for Changes to Water and Sewer Rates
December 2, 2014
Page 6
If adopted, the rate increases would be in effect March 2015, and would be reflected on
customer bills beginning May 2015, as shown in the following tables.
Residential Bimonthly Sewer Rates
Current and Proposed
$16.68 1 $18.14
Tier 1
0 -5 Units
$23.69
$25.47
Tier 2
6 -12 Units
$41.80
$44.94
Tier 3
13 -19 Units
$62.92
$67.64
Tier 4
20 -26 Units
$68.96
$74.13
Tier 5
27 -37 Units
$81.04
$87.12
Tier 6
38 -50 Units
$93.11
$100.09
Tier 7
51+ Units
$102.17
$109.83
Non - Residential Sewer Rates
Current and Proposed
Meter Size
Service Char .- .
Current Proposed
$22.01 $23.94
5/8" and 3/4"
1 "
$29.89
$32.51
1-1/2"
$49.59
$53.93
2"
$73.25
$79.66
3"
$136.30
$148.23
4"
$207.24
$225.37
6"
$483.14
$525.41
8"
$640.78
$696.85
6 of 7 December 2, 2014 Item #5.1
General
$3.22 $3.46
Commercial
Medium -Low
$3.69
$3.97
Medium
$4.29
$4.61
Medium-High
$5.49
$5.90
High
$6.53
$7.02
Light Industry
$3.39
$3.64
Institutional
Churches, Schools,
Multi- family, Mobile
$3.22
$3.46
Home
6 of 7 December 2, 2014 Item #5.1
Recommendations for Changes to Water and Sewer Rates
December 2, 2014
Page 7
In addition to recovering Metro pass- through costs, the proposed rate increases are necessary
to continue proper maintenance of our aging sewer system; fund necessary capital projects;
and continue to provide the best quality service to our customers.
Combined Water and Sewer Rates:
The combined proposed water and sewer rate increases for a single - family residential
customer with median water use (30 units), the most common residential meter size (3/4- inch),
and most common sewer tier (2), would be $8.22 per month.
Single Family Residential Customer
Combined Water and Sewer Bill
(Median Use 30 Units, Most Common 3/4 -inch Meter, Tier 2)
Fiscal Impact:
There is no fiscal impact from this workshop. If the proposed rates are adopted following a
Prop 218 hearing, water revenues are expected to be sufficient to meet operating
expenditures. However, after allocating for system rehabilitation projects, staff expects that the
City will need to use $776,000 of Water Fund balance for FY 2014 -15. Sewer revenues are
expected to be supported by $331,000 from the Sewer Fund balance to meet operational and
system rehabilitation needs in FY 2014 -15.
Environmental Review:
This item is not subject to CEQA review.
Public Notification:
None
7 of 7 December 2, 2014 Item #5.1
Water Service Meter
Current Proposed
$28.98 $31.52
Increase
$2.54
Water Commodity
$118.80 $128.10
$9.30
Sewer
$58.48 $63.08
$4.60
Total Combined Bill
$206.26 $222.70
Bimonthly $16.44
Monthly $8.22
Fiscal Impact:
There is no fiscal impact from this workshop. If the proposed rates are adopted following a
Prop 218 hearing, water revenues are expected to be sufficient to meet operating
expenditures. However, after allocating for system rehabilitation projects, staff expects that the
City will need to use $776,000 of Water Fund balance for FY 2014 -15. Sewer revenues are
expected to be supported by $331,000 from the Sewer Fund balance to meet operational and
system rehabilitation needs in FY 2014 -15.
Environmental Review:
This item is not subject to CEQA review.
Public Notification:
None
7 of 7 December 2, 2014 Item #5.1