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HomeMy WebLinkAbout01 ADOPT RETAIL WATER RATES-RES 09-41 08-04-09Agenda Item ~ AGENDA REPORT Reviewed: City Manager Finance Director MEETING DATE: AUGUST 4, 2009 TO: WILLIAM A. HUSTON, CITY MANAGER FROM: PAMELA ARENDS-KING, FINANCE DIRECTOR DOUGLAS S. STACK, ASSISTANT PUBLIC WORKS DIRECTOR SUBJECT: ADOPTION OF RETAIL WATER RATES -PUBLIC HEARING RESOLUTION NO. 09-41 SUMMARY: The purpose of the public hearing, under the California Constitution ("Proposition 218") is to permit the property owners to comment upon or present objections to the proposed water rate increases. The proposed rate increases expand the current rate structure from four to seven tiers, see attachment 1; establishes a capital project fee solely dedicated for non-debt financed capital improvement projects; provides for a new pass- through adjustment to account for unanticipated third party charges related to the purchase of electricity and/or imported water; and establishes Water Demand Reduction Stages (WDRS) that would enable the City to comply with wholesale water use restrictions in response to regional water shortage conditions as necessary. The WDRS was included within the official Proposition 218 notice of Public Hearing to ensure proper noticing and compliance. Only upon specific City Council authorization can a WDRS be declared and put into action. The proposed rate increases would be effective August 5, 2009 for fiscal year 2009- 2010 and July 1St in subsequent fiscal years. The typical residential customer would experience an increase of 10.8% in FY 2009-10, 10.5% in FY 2010-2011, and 7% in FY 2011-2012 through FY 2013-2014. Additionally, the pass-through adjustment is restricted to-not-exceed 7% of the annual water charges. RECOMMENDATION: It is recommended that City Council take the following actions: 1. Conduct a public hearing to receive testimony on the proposed water rate increases for fiscal year 2009-2010 through fiscal year 2013-2014; and 2. Adopt Resolution No. 09-41 approving the proposed water rate increases and changes if there is no majority protest. ADOPTION OF RETAIL WATER RATES -PUBLIC HEARING RESOLUTION NO. 09-41 August 4, 2009 Page 2 FISCAL IMPACT: The proposed water rate increases will generate the necessary revenue to meet ongoing operations and maintenance expenses; existing debt service payments and bond covenants; pay-as-you capital improvement; major capital debt financing; establish and maintain reserves; assurance from unanticipated third party increases; and eliminate General Fund subsidy to the Water Enterprise Fund to cover projected revenue shortfalls. BACKGROUND: The City of Tustin's water rates were last adjusted in January 2008. The most recent rate increases were adopted on May 1, 2006, and did not generate sufficient revenues to meet operational and capital needs. Attachment 2 shows the history of rate increases since 1980. During Fiscal Year 2008-2009 budget development, it became evident that revenues derived from existing rates would be inadequate to meet the operating and capital needs of the system and a rate adjustment would be required. In order to provide for the continued operation of a water system on a sound financial basis, revenues must be sufficient to meet the cash requirements of operation, maintenance, capital needs, administrative, debt service payments and ensure necessary debt coverage ratios pursuant to the 2003 Water Refunding bond. In addition, revenues in excess of expenses should be sufficient to provide and maintain cash reserves in the event of emergencies and short term fluctuations in revenue due to drought and other factors affecting water supplies and sales. Projected operating and maintenance expenses are driven by various costs including personnel, utilities, customer billing, meter reading, purchased water, ground water replenishment assessments, water treatment, routine maintenance, production and various materials and supplies. Attachment 3 illustrates the current financial status of the Water Enterprise fund and the projected financial status with the implementation of the proposed rate increases. The Water Enterprise is currently operating at a loss. The factors used to develop the revenue requirements for the Water Enterprise are: - Imported and ground water costs - Electrical costs - Operation and maintenance costs - Debt service coverage - New debt service issuance - Rebuilding the reserve - Capital improvement program The proposed water rates and charges will yield adequate revenues to cover operating expenses; repairs; capital improvement program costs; debt service payments and depreciation of water facilities owned and operated by the City in providing water service to its customers; and establish and maintain cash reserves. ADOPTION OF RETAIL WATER RATES -PUBLIC HEARING RESOLUTION NO. 09-41 August 4, 2009 Page 3 In the notice of Public Hearing sent to all Water Service customers and property owners, several tables were included which shows the proposed consumption tiers and charges, service capacity charges, and capital charge. The impact of the proposed rate increase on the "typical" residential user with a 5/8 x 3/4 inch meter and consuming about 40 units (one unit =one hundred cubic-feet = 748 gallons) is 10.8% in FY 09/10, 10.5% in FY 10/11, and 7% in FY 11/12 through FY 13/14. The pass-through charge has been added to the proposed rate increase to offset the increasing costs of purchasing and pumping water imposed by third party agencies. Imported water rates are established by Metropolitan Water District of Southern California (MWD) and additional fees are added to those rates by wholesale water purveyors, MWDOC and East Orange County Water District (EOCWD). Ground water rates are established by the Orange County Water District (OCWD) and electricity rates are established by Southern California Edison. The proposed pass-through would allow the Water Enterprise to assess and recoup the costs of providing water beyond current budget appropriation. The pass-through is restricted to-not-exceed 7% (approximately $0.14 per unit in FY 09-10) of the annual water charges to a "typical" residential user in any given fiscal year. The pass-through charge could be added to or subtracted from (when the production cost is less than estimated) the consumption charge. All water customers would receive a notification prior to the assessment of these charges. The Water Demand Reduction Stages (WDRS) has been added to the proposed rate increase to enable the City to comply with wholesale water use restrictions in response to regional water shortage conditions, as necessary. The WDRS would only be declared and put into action by specific City Council direction. The WDRS reduces the unit allocation of each tier at different stages. Stage 1 reduces the allocation by 10%; Stage 2 reduces the allocation by 20%; Stage 3 reduces the allocation by 30%; and Stage 4 reduces the allocation by 40%. According to the 2008 Water Rate Survey conducted by the Municipal Water District of Orange County (MWDOC), approximately 20 of the 31 water service providers within the County utilize a tiered rate structure. Attachment 4 is from the MWDOC rate survey that shows that the City's 2008 water rates were below the median rates at the time the survey was conducted. The City's proposed rate for FY 2009-2010 would still be below the countywide median. The Water Enterprise's Capital Improvement Program is designed to reduce its reliance on imported water, and improve the water system's storage, production, treatment, and distribution capabilities. The Water Service will continue its program objectives of proactively managing the quantity and the quality of its groundwater supplies, and to rehabilitate or replace older facilities as needed. The proposed rates would enable the Water Enterprise to obtain $30 million in debt financing for the construction of the Rawlings Reservoir, Tustin Avenue Well, Simon Ranch Reservoir and Booster Station, and Beneta Well. The new capital charge will be dedicated to non-debt financed capital projects. The capital charge was previously a component of the consumption charges that has now been separated to provide a dedicated funding source for capital projects. ADOPTION OF RETAIL WATER RATES -PUBLIC HEARING RESOLUTION NO. 09-41 August 4, 2009 Page 4 On May 28, 2009, the Audit Commission received a presentation on the proposed water rate increase. The commission made the unanimous recommendation that the water rate increase be forwarded to City Council for consideration. Staff is recommending that the City Council adopt five consecutive rate increases at one time in order to address short term reserves, debt service coverage, and enable the Water Enterprise to obtain debt financing. If approved the first increase would be effective August 5, 2009, with subsequent increases going into effect July 1St of each fiscal year. ~~ ~ Pamela Arends-King Finance Director i. Stack Public Works Director S n Tran Senior Financial Analyst Attachment(s): Attachment 1 -Change in tier structure Attachment 2 -History of rate increase Attachment 3 -Water Enterprise's financial status Attachment 4 - 2008 MWDOC rate survey Attachment 1 Change in Tier Structure Current Tier Structure: Residential /Commercial Tiers Units 1S Tier 0-12 2" Tier 13-40 3~ Tier 41-60 4 Tier 61 + New Tier Structure: Multiple Unit Tiers Units 1 S Tier 0-10 2" Tier 11-32 3r Tier 33-48 4 Tier 49 + Residential /Commercial Multi le Unit Tiers Units 1 S Tier 0-10 2" Tier 11-20 3~ Tier 21-30 4 Tier 31-40 5 Tier 41-50 6 Tier 51-60 7 Tier 61 + Tiers Units 1S Tier 0-8 2" Tier 9-16 3~ Tier 17-24 4 Tier 25-32 5 Tier 33-40 6 Tier 41-48 7 Tier 49 + H z w x u H a~ a °~ ~' = v c ~ m Q~ Qj ~ aj U f6 N U f0 ~ tp d ~ ~ U U C • C N 'C O O U ~ - O ~. U Q` f6 V n O C ~ N (`0 C fd ~ ` ~ ~ ~ U ~ U N O L N j N a~~E~ N , ~ ,U A •- O N A N N ~ "' O m N V U N Y ~ N t ~ d 'O U +L. 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C O C N N d N' d N «O C w >ii UOF y~n~~ O Vl F O ~ ~~° W F ~ rna .a ~aZ .a _N o :oU H ~ ~ZHQ d d n v o a v d d m'x c c O K O Z Z Z (L U U U W a W ¢ ATTACHMENT 4 2008 MUNICIPAL WATER DISTRICT OF ORANGE COUNTY SURVEY OCWD Basin Agency 10 ccf 20 ccf Anaheim; City of $19.90 $34.80 Buena Park, City of $21.89 $35.43 East Orance CWD Retail $35.40 $51.80 Fountain Valley, City of $20.22 $37.51 Garden Grove, City of $25.54 $46.04 Golden State WC $32.92 $54.83 Huntington Beach, City of $26.47 $42.04 Irvine Ranch WD High ET $17.08 $29.92 Irvine Ranch WD Low ET $17.24 $34.36 La Palma, City of $23.20 $43.60 Mesa Consolidated WD $32.50 $57.50 Newport Beach, City of $25.30 $46.10 Orange, City of $16.35 $24.53 Orange Pk Acres Mut. WC $39.84 $63.02 Santa Ana, City of $26.34 $49.18 Seal Beach, City of $31.56 $57.96 Serrano WD $34.05 $55.75 Tustin, City of $20.31 $35.91 Westminster, City of $19.82 $42.39 Yorba Linda WD $26.25 $44.15 Non-Basin Agency Brea, City of $24.65 $47.11 EI Toro WD $24.55 $40.25 Emerald Bay Services Distr $37.80 $66.20 La Habra, City of $26.33 $44.53 Laguna Beach CWD $41.00 $72.55 Moulton Niguel WD $15.20 $24.80 San Clemente Summer $24.68 $46.72 San Clemente Winter $25.50 $66.25 San Juan Capistrano July $37.34 $63.44 San Juan Capistrano Jan $37.34 $82.64 Santa Margarita WD $20.26 $35.86 South Coast WD $36.59 $67.57 Trabuco Canyon WD Warm $27.25 $47.15 Trabuco Canyon WD Cool $27.55 $47.63 Median: $25.90 $46.41 Tustin's Proposed Rates: FY 2009-2010 FY 2010-2011 FY 2011-2012 FY 2012-2013 FY 2013-2014 * does not include pass-through $25.20 $39.80 $27.42 $43.82 $29.82 $47.22 $31.85 $50.35 $34.08 $53.68 RESOLUTION NO. 09-41 A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF TUSTIN, CALIFORNIA, ADJUSTING WATER SERVICE RATES WHEREAS, the City Council of the City of Tustin finds and determines as follows: 1. An analysis of the Tustin Water Enterprise's water supply, storage, and distribution system improvements has been completed; and 2. The analysis revealed that major storage system improvements are required to maintain system reliability; and 3. The analysis determined that additional funding will be required in order to complete the necessary improvements; and 4. The Tustin Water Enterprise has experienced increase operational costs; and 5. A study of the Tustin Water Enterprise Rate Structure and Financing Plan has been completed; and 6. The study has determined that it has become necessary to adjust water service rates to maintain operations, meet bond covenants, and to finance the recommended capital improvements; and 7. It will be necessary to increase rates for next five years; and 8. The revised rates as set forth herewith are reasonable and are necessary to cover the costs of operations of the Tustin Water Service delivery for the next five years. NOW, THEREFORE, the City Council of the City of Tustin does hereby resolve as follows: The bi-monthly water usage tiers, rates, charges, and water demand reduction stages are hereby established as follows: WATER CONSUMPTION TIERS: Residential /Commercial Tiers Units 1 S Tier 0-10 2" Tier 11-20 3r Tier 21-30 4 Tier 31-40 5 Tier 41-50 6 Tier 51-60 7 Tier 61 + Multiple Unit Tiers Units 1S Tier 0-8 2" Tier 9-16 3~ Tier 17-24 4 Tier 25-32 5 Tier 33-40 6 Tier 41-48 7 Tier 49 + FIXED CHARGE: Meter Size 8/5/2009 7/1/2010 7/1/2011 7/1/2012 7/1/2013 5/8" x 3/4" $24.50 $26.94 $29.64 $32.60 $35.86 1 " $61.24 $67.36 $74.08 $81.50 $89.64 11/2" $122.46 $134.70 $148.18 $163.00 $179.28 2" $195.92 $215.52 $237.06 $260.78 $286.86 3" $367.36 $404.08 $444.50 $488.94 $537.84 4" $612.24 $673.46 $740.82 $814.90 $896.38 6" or Lar er $1224.48 $1346.92 $1481.64 $1629.80 $1792.76 Multi le Unit $19.60 $21.56 $23.72 $26.08 $28.68 CAPITAL CHARGE: Meter Size 8/5/2009 7/1/2010 7/1/2011 7/1/2012 7/1/2013 5/8" x 3/4" $10 $10 $11 $11 $11 1" $12 $12 $13 $13 $14 11/2" $16 $16 $17 $17 $18 2" $22 $23 $23 $24 $25 3" $33 $34 $35 $36 $37 4" $53 $55 $56 $58 $60 6" or Lar er $90 $93 $95 $98 $101 Multi le Unit $8 $8 $9 $9 $9 CONSUMPTION CHARGE: Small Meter Consum tion Char a under 2" meter size Tiers 1S Tier 2" Tier 3~ Tier 4 Tier 5 Tier 6 Tier 7 Tier Units 0-10 11-20 21-30 31-40 41-50 51-60 61 + 08/05/2009 $0.58 $1.01 $1.31 $1.61 $1.91 $2.21 $2.51 07/01/2010 $0.65 $1.14 $1.47 $1.81 $2.15 $2.49 $2.82 07/01/2011 $0.69 $1.21 $1.56 $1.92 $2.28 $2.64 $2.99 07/01/2012 $0.73 $1.28 $1.66 $2.04 $2.42 $2.79 $3.17 07/01 /2013 $0.78 $1.35 $1.76 $2.16 $2.56 $2.96 $3.36 Lar a Mete r Consum tion Char a 2" meter size & reater Tiers 15 Tier 2" Tier 3~ Tier 4 Tier 5 Tier 6 Tier 7 Tier Units 0-10 11-20 21-30 31-40 41-50 51-60 61 + Hi h $0.70 $1.22 $1.59 $1.95 $2.31 $2.67 $3.04 08/05/2009 Normal $0.64 $1.11 $1.44 $1.77 $2.10 $2.43 $2.76 Low $0.58 $1.01 $1.31 $1.61 $1.91 $2.21 $2.51 Hi h $0.79 $1.38 $1.78 $2.19 $2.60 $3.01 $3.42 07/01/2010 Normal $0.72 $1.25 $1.62 $1.99 $2.36 $2.74 $3.11 Low $0.65 $1.14 $1.47 $1.81 $2.15 $2.49 $2.82 Hi h $0.84 $1.46 $1.89 $2.32 $2.76 $3.19 $3.62 07/01/2011 Normal $0.76 $1.33 $1.72 $2.11 $2.51 $2.90 $3.29 Low $0.69 $1.21 $1.56 $1.92 $2.28 $2.64 $2.99 Hi h $0.89 $1.55 $2.00 $2.46 $2.92 $3.38 $3.84 07/01 /2012 Normal $0.81 $1.41 $1.82 $2.24 $2.66 $3.07 $3.49 Low $0.73 $1.28 $1.66 $2.04 $2.42 $2.79 $3.17 Hi h $0.94 $1.64 $2.12 $2.61 $3.10 $3.58 $4.07 07/01/2013 Normal $0.86 $1.49 $1.93 $2.37 $2.82 $3.26 $3.70 Low $0.78 $1.35 $1.76 $2.16 $2.56 $2.96 $3.36 Hi h Greater than 110% of rior ear consum tion Normal 90% - 110% of rior ear consum tion Low Less than 90% of rior ear consum tion WATER DEMAND REDUCTION STAGES: Residential /Commercial STAGES 1S 2" 3' 4 5 6 7 Tier Tier Tier Tier Tier Tier Tier No Mandatory Reduction 0-10 11-20 21-30 31-40 41-50 51-60 61 + in units STAGE 1 -Water Watch 0-9 10-18 19-27 28-36 37-45 46-54 55+ Voluntary Compliance 10-20% Reduction STAGE 2 -Water Alert 0-8 9-16 17-24 25-32 33-40 41-48 49+ Mandatory Compliance 20-30% Reduction STAGE 3 -Water 0-7 8-14 15-21 22-28 29-35 36-42 43+ Warning Mandatory Compliance 30-40% Reduction STAGE 4 -Water 0-6 7-12 13-18 19-24 25-30 31-36 37+ Emergency Mandatory Compliance 40%+ Reduction Multiple Unit STAGES 15 2" 3~ 4 5 6 7 Tier Tier Tier Tier Tier Tier Tier No Mandatory Reduction 0-8 9-16 17-24 25-32 33-40 41-48 49 + in units STAGE 1 -Water Watch 0-7 8-14 15-21 22-28 29-35 36-42 43 + Voluntary Compliance 10-20% Reduction STAGE 2 -Water Alert 0-6 7-12 13-18 19-24 25-30 31-36 37 + Mandatory Compliance 20-30% Reduction STAGE 3 -Water 0-6 7-12 13-18 19-24 25-30 31-36 37 + Warning Mandatory Compliance 30-40% Reduction STAGE 4 -Water 0-5 6-10 11-15 16-20 21-25 26-30 31 + Emergency Mandatory Compliance 40%+ Reduction PASSED AND ADOPTED at a regular meeting of the City Council of the City of Tustin, California, held on the 4th day of August, 2009. DOUG DAVERT, Mayor ATTEST: PAMELA STOKER, City Clerk STATE OF CALIFORNIA ) COUNTY OF ORANGE ) SS CITY OF TUSTIN ) I, Pamela Stoker, City Clerk and ex-officio Clerk of the City Council of the City of Tustin, California, do hereby certify that the whole number of the members of the City Council of the City of Tustin is five; that the above and foregoing Resolution No. 09-41 was duly assed and adopted at a regular meeting of the Tustin City Council, held on the 4th day of August, 2009, by the following vote: COUNCILMEMBER AYES: COUNCILMEMBER NOES: COUNCILMEMBER ABSTAINED: COUNCILMEMBER ABSENT: PAMELA STOKER City Clerk