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HomeMy WebLinkAbout01 ADOPTION OF RETAIL WATER RATES- PUBLIC HEARING RESOLUTION 10-57~~ • A ends Item 1 AGENDA REPORT Reviewed: City Manager Finance Director MEETING DATE: JUNE 15, 2010 TO: WILLIAM A. HUSTON, CITY MANAGER FROM: DOUGLAS S. STACK, DIRECTOR OF PUBLIC WORKS/CITY ENGINEER PAMELA ARENDS-KING, DIRECTOR OF FINANCE SUBJECT: ADOPTION OF RETAIL WATER RATES -PUBLIC HEARING RESOLUTION NO. 10-57 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 will (1) generate the necessary revenues to meet ongoing operations and maintenance expenses and eliminate a General Fund subsidy; (2) generate the necessary revenues to meet ongoing operations, maintenance expenses and debt financing for major capital projects; and meet current bond covenant requirements; (3) expand the current rate structure from four to seven tiers; (4) establishes a capital project fee solely dedicated for non-debt financed capital improvement projects; (5) provides for a new pass-through provision to account for unanticipated third party charges related to the purchase of electricity and/or imported water; and (6) 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 July 1, 2010 for fiscal year 2010-11 and July 1St in subsequent fiscal years. The typical residential customer (a residential user with a 5/8 or 3 / 4 inch meter and consuming about 40 units) would experience an increase of 17.8% in FY 2010-11, 14.13% in FY 2011-12, 6.31% in FY 2012-13 through FY 2014-15. Additionally, the pass-through provision is restricted to-not-exceed 7% of the annual water charges. RECOMMENDATION: It is recommended that City Council take the following actions: Conduct a public hearing to receive testimony on the proposed water rate increases for fiscal year 2010-2011 through fiscal year 2014-2015 pursuant to Proposition 218 requirements; and 2. Adopt Resolution No. 10-57 approving the proposed water rate increases and changes if there is no majority protest. Adoption of Retail Water Rates June 15, 2010 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 revenue shortfalls. BACKGROUND: The City of Tustin's water rates were last adjusted in January 2008 (see Attachment 1 for history of water rate increases since 1980). The current rate structure does not generate sufficient revenues to meet operational and capital needs and therefore, rate adjustment is necessary. In order to provide continued operation of a water system on a sound financial basis, revenues must be sufficient enough to meet the cash requirements of operation, maintenance, capital improvement needs, administrative, debt services payment and ensure necessary debt coverage ratios pursuant to the 2003 Water Refunding bond. In addition, adequate cash reserves need to be established in the event of emergencies and short term fluctuations in revenues. The Water Enterprise is currently operating at a loss. Attachment 2 shows the current financial status of the Water Enterprise fund and the projected financial status with the implementation of the proposed rate increases. The proposed water rates and charges will adequately generate revenues to cover operating expenses, necessary repairs, capital improvement programs, debt service payments, bond covenants, depreciation of water facilities and re- establish cash reserves. New seven consumption tiers were introduced to promote conversation (see Attachment 3) and capital charge was added to ensure sufficient revenues for capital improvement programs. The proposed water rate 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 capital charge was previously included in the consumption charges but now has been separated to provide a dedicated funding source for capital projects. A pass-through provision has been included to offset increases from third party costs. 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, Municipal Water District of Orange County (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 in case of unexpected supply cost increase. The pass-through is restricted to-not-exceed 7% of the annual water charges to a typical residential user in any given fiscal year. All water customers would receive a notification prior to the assessment of these charges. S:\City Council Items\2010 Council Items\Adopt Water Rate Increases Reso 10-57.docx Adoption of Retail Water Rates June 15, 2010 Page 3 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, if necessary. The WDRS would only be declared and put into action by explicit City Council direction. The WDRS reduces the unit allocation of each tier at different stages. Stage 1 reduces the allocation by 10%, Stage 2 by 20%, Stage 3 by 30%, and Stage 4 by 40%. According to 2009 Water Rate Survey conducted by MWDOC, City's 2009 water rates were below the median rates at the time the survey was conducted (see Attachment 4). The City's proposed rate for FY 2010-2011 would still be below the countywide median. ~ S. Stack, P.E. r of Public Works/City Engineer ~ ! ~~ Vicky Ki Manage ent Analyst, Public Works Attachment(s): Attachment 1 -History of Water Rate Increases Attachment 2 -Water Enterprise's Financial Status Attachment 3 -Change in Tier Structure Attachment 4 - 2009 MWDOC Water Rate Survey Resolution No. 10-57 Pamela Arends-King Director of Finance n Tran Senior Finan ial Analyst S:\City Council Items\2010 Council Items\Adopt Water Rate Increases Reso 10-57.docx ATTACHMENT 1 SUMMARY OF TUSTIN WATER RATE INCREASES: 1980-2008 MARCH 17, 2009 DATE OF RESOLUTION PERCENTAGE AVERAGE SINGLE NOTES RESOLUTION NO. INCREASE FAMILY USAGE* 7/6/81 81-82 Consumption charge: 12% $24.15 Adopted single year increase. 3/15/82 82-25 No increase to rates. Added multiple residential service charges. 1/17/83 83-7 Consumption charge: 17% $29.94 Adopted single year increase. Service capacity charge: 54% Decreased service capacity charge, and added customer service and debt service charges. No Increase from 1984 tol992 9/21/92 92-110 1992/Consumption charge:6% Adopted three year rate increase. 1992/Service capacity charge:100% 1992/$42.00 1993/Consumption charge:11 % 1993/Service capacity charge:18% 1993/$48.08 1994/Consumption charge:11 % 1994/Service capacity charge:23% 1994/$56.18 5/1/06 06-054 2006/Consumption charge:13% Adopted a three year rate increase. 2006/Service capacity charge:l4% 2007/Consumption charge:12% 2006/$58.52 2007/Service capacity charge:12% 2008/Consumption charge:10% 2007/$65.28 2008/Service capacity charge:10% 2008/$71.82 *NOTE: Average single family usage is 40 units bi-monthly, based on a 5/8" meter. Revenues(a) Fixed Charges Consumption Charges Other Revenues Total Operating Revenues Operating Expenses (b) Salaries and Benefits Maintenance and Operations Miscellaneous Capital Depreciation Expense Sources of Supply Costs Production Costs Energy Costs Total Operating Expenses Net Operating Revenue Non -Operating Revenue (Expense) Interest Income (@ 2%) (c) General Fund Loan to Water Debt Service - City Loan (Interest) Debt Service - Interest Expense Proposed Debt Service - Interest Expense Subtotal Debt Service Interest Expense Total Non -Op Revenues/Expenses Net Revenues(Loss) Beg. Retained Earnings Net of Fixed Assets (Avallable for Captial Outlay & Debt -Principal Payments) Capital Fee Capital Outlay Non -Debt Financed Capital Improvement Projects Capital Financing Debt Service - City Loan (Principal) Existing Debt Service Principal Payments Proposed Debt Service Principal Payments Subtotal Ending Retained Earnings Available for Captial Outly, Principal Payment & Reserves Target Reserve Balance(g) Retained Earnings Available for Captial Outlay & Principal Payments Net of Target Reserves Annual Debt Service Coverage Net Revenue (h) Total Annual Debt Service Requirements Annual Debt Service Coverage ATTACHMENT 2 WATER ENTERPRISE'S FINANCIAL STATUS Actual Projected FY 08-09 FY 09-10 FY 10-11 FY 11-12 FY 12-13 FY 13-14 FY 14-15 $3,968,254 $3,900,000 $4,749,966 $5,224,963 $5,747,459 $6,322,205 $6,954,425 $7,041,627 $6,480,000 $9,597,016 $11,444,926 $12,145,409 $12,882,447 $13,703,243 $459,295 $336,100 $344,503 $353,116 $361,944 $370,993 $380,268 $11,469,176 $10,716,100 $14,691,485 $17,023,005 $18,254,812 $19,575,645 $21,037,937 $2,332,684 $2,541,800 $2,618,054 $2,696,595 $2,777,492 $2,860,816 $2,946,640 $3,450,381 $3,591,700 $3,799,451 $3,913,434 $4,030,837 $4,151,763 $4,276,316 $11,931 $104,000 $104,000 $104,000 $104,000 $104,000 $104,000 $1,405,918 $1,406,000 $1,406,000 $1,406,000 $1,406,000 $1,406,000 $1,406,000 $4,705,396 $3,774,314 $4,246,379 $4,246,379 $4,246,379 $4,246,379 $4,246,379 $751,675 $1,098,018 $1,015,200 $1,015,200 $1,015,200 $1,015,200 $1,015,200 $12,657,985 $12,515,832 $13,189,084 $13,381,608 $13,579,908 $13,784,158 $13,994,535 ($1,188,808) ($1,799,732) $1,502,401 $3,641,397 $4,674,904 $5,791,487 $7,043,402 $81,180 $125,700 $26,300 $43,400 $62,200 $99,300 $159,400 $0 $2,123,437 $0 $0 $0 $0 $0 $0 $0 ($86,532) ($67,455) ($60,469) ($53,362) ($46,130) ($550,385) ($530,105) ($502,705) ($474,305) ($444,705) ($413,905) ($381,905) $0 $0 $0 ($767,437) ($905,152) ($888,711) ($1,635,531) ($550,385) ($530,105) ($589,237) ($1,309,197) ($1,410,327) ($1,355,978) ($2,063,565) ($469,205) $1,719,032 ($562,937) ($1,265,797) ($1,348,127) ($1,256,678) ($1,904,165) ($1,658,013) ($80,700) $939,464 $2,375,600 $3,326,777 $4,534,809 $5,139,236 $6,282,539 $2,255,301 $1,317,001 $2,169,398 $3,110,773 $4,963,155 $7,968,960 $0 $0 $1,018,914 $1,025,592 $1,107,534 $1,114,212 $1,140,990 $1,849,225 $172,600 $0 $1,000,000 $1,000,000 $1,000,000 $1,000,000 $0 $0 $395,981 $409,841 $424,185 $439,032 $454,398 $520,000 $685,000 $710,000 $740,000 $770,000 $800,000 $830,000 $0 $0 $0 $309,976 $387,743 $404,184 $609,707 $520,000 $685,000 $1,105,981 $1,459,816 $1,581,928 $1,643,216 $1,894,105 $2,255,301 $1,317,001 $2,169,398 $3,110,773 $4,963,155 $7,968,960 $11,355,082 $6,328,992 $6,257,916 $6,594,542 $6,690,804 $6,789,954 $6,892,079 $6,997,267 ($4,073,691) ($4,940,915) ($4,425,144) ($3,580,031) ($1,826,799) $1,076,882 $4,357,814 $936,383 $1,855,405 $2,452,188 $4,613,501 $5,658,449 $6,804,394 $8,108,274 $1,070,385 $1,215,105 $1,212,705 $2,291,718 $2,507,600 $2,506,800 $3,457,143 87% 153% 202% 201% 226% 271% 235% 6/8/2010 3:25 PM Attachment 3 Change in Tier Structure Current Tier Structure: Residential /Commercial Multi le Unit Tiers Units 1 S Tier 0-12 2" Tier 13-40 3` Tier 41-60 4 Tier 61 + New Tier Structure: Residential /Commercial 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 1 S Tier 0-10 2" Tier 11-32 3` Tier 33-48 4 Tier 49 + Multiple Unit Tiers Units 1 S 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 + ATTACHMENT 4 2009 MUNICIPAL WATER DISTRICT OF ORANGE COUNTY SURVEY OCWD Basin Agency 30 ccf /month 20 ccf /month Anaheim, City of $22.75 $40.50 Buena Park, City of $22.23 $35.84 East Irabge CWD Retail $40.75 $60.75 Fountain Valley, City of $22.91 $43.31 Fullerton, City of $21.95 $41.07 Garden Grove, City of $29.12 $52.82 Golden State WC $33.97 $56.73 Huntington Beach, City of $27.75 $44.79 Irvine Ranch WD with 20 ccf $17.81 $29.31 allocation Irvine Ranch WD with 40 ccf $16.85 $26.91 allocation 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 $17.68 $26.53 Santa Ana, City of $30.23 $56.96 Seal Beach, City of $31.56 $57.96 Serrano WD $39.08 $63.98 Tustin, City of $20.31 $35.91 Westminster, City of $25.83 $45.53 Yorba Linda WD $35.40 $60.60 Non-Basin Agency Brea, City of $29.10 $56.28 EI Toro WD $29.04 $47.94 Emerald Bay Services Distr. $40.55 $71.50 La Habra, City of $29.08 $49.18 Laguna Beach CWD $43.65 $77.70 Moulton Niguel WD $17.67 $28.87 San Clemente Summer $28.60 $54.29 San Clemente Winter $29.57 $76.82 San Juan Capistrano July $38.70 $65.70 San Juan Capistrano Jan $38.70 $73.54 Santa Margarita WD $25.41 $45.51 South Coast WD $42.46 $83.50 Trabuco Canyon WD Warm $28.10 $48.50 Trabuco Canyon WD Cool $28.25 $49.93 Median $28.82 $49.56 Tustin's Proposed Rates * 10 ccf /month 20 ccf /month FY 2010-2011 * $25.80 $42.30 FY 2011-2012 * $28.57 $48.12 FY 2012-2013 * $30.92 $51.52 FY 2013-2014 * $32.95 $54.60 FY 2014-2015 * $35.13 $57.88 *does not include pass-through RESOLUTION NO. 10-57 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 Multiple 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 1 S 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 7/1/2010 7/1/2011 7/1/2012 7/1/2013 7/1/2014 5/8" x 3/4" $24.49 $26.94 $29.63 $32.59 $35.85 1" $61.23 $67.35 $74.09 $81.50 $89.65 11/2" $122.45 $134.70 $148.17 $162.99 $179.29 2" $195.93 $215.52 $237.07 $260.78 $286.86 3" $367.36 $404.10 $444.51 $488.96 $537.86 4" $612.24 $673.46 $740.81 $814.89 $896.38 6" or Lar er $1224.48 $1346.93 $1481.62 $1629.78 $1792.76 Multi le Unit $19.60 $21.56 $23.72 $26.09 $28.70 CAPITAL CHARGE: Meter Size 7/1 /2010 7/1 /2011 7/1 /2012 7/1 /2013 7/1 /2014 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: Residential Small Meter Consum tion Char a unde r 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 + 07/01/2010 $0.60 $1.11 $1.47 $1.83 $2.19 $2.56 $2.93 07/01 /2011 $0.71 $1.31 $1.74 $2.17 $2.61 $3.05 $3.50 07/01/2012 $0.74 $1.38 $1.83 $2.29 $2.79 $3.26 $3.74 07/01/2013 $0.78 $1.45 $1.93 $2.40 $2.99 $3.49 $3.99 07/01 /2014 $0.82 $1.52 $2.02 $2.53 $3.19 $3.72 $4.28 Multiple Unit Small Meter Consum tion Char a unde r 2" meter size Tiers 1 S Tier 2" Tier 3~ Tier 4 Tier 5 Tier 6 Tier 7 Tier Units 0-8 9-16 17-24 25-32 33-40 41-48 49 + 07/01/2010 $0.60 $1.11 $1.47 $1.83 $2.19 $2.56 $2.93 07/01 /2011 $0.71 $1.31 $1.74 $2.17 $2.61 $3.05 $3.50 07/01/2012 $0.74 $1.38 $1.83 $2.29 $2.79 $3.26 $3.74 07/01/2013 $0.78 $1.45 $1.93 $2.40 $2.99 $3.49 $3.99 07/01/2014 $0.82 $1.52 $2.02 $2.53 $3.19 $3.72 $4.28 Lar a Mete r Consum tion Char a 2" meter size & reater 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 + Hi h $0.72 $1.34 $1.77 $2.21 $2.65 $3.09 $3.54 07/01/2010 Normal $0.66 $1.22 $1.61 $2.01 $2.40 $2.81 $3.22 Low $0.60 $1.11 $1.47 $1.83 $2.19 $2.56 $2.93 Hi h $0.86 $1.59 $2.11 $2.63 $3.15 $3:69 $4.24 07/01/2011 Norma $0.78 $1.44 $1.92 -$2.39 $2.87 $3.36 $3.85 Low $0.71 $1.31 $1.74 $2.17 $2.61 $3.05 $3.50 Hi h $0.90 $1.67 $2.22 $2.77 $3.38 $3.95 $4.52 07/01/2012 Normal $0.82 $1.52 $2.02 $2.52 $3.07 $3.59 $4.11 Low $0.74 $1.38 $1.83 $2.29 $2.79 $3.26 $3.74 Hi h $0.94 $1.75 $2.33 ' $2.91 $3.62 $4.22. $4.82 07/01/2013 Normal $0.86 $1.59 $2.12 $2.64 $3.29 $3.83 $4.38 .Low $0.78 $1.45: $1.93 $2.40 $2.99 $3.49 $3.99 Hi h $0.99 $1.84 $2.45 $3.06 $3.86 $4.50 $5.17 07/01/2014 Normal $0.90 $1.67 $2.23 $2.78 $3.51 $4.09 $4.70 Low $0.82 $1.52 $2.02 $2.53 $3.19 $3.72 $4.28 Hi h Greater t han 110% of rior ear consum tion Normal 90% - 110% of rior ear consum tion Low Less than 90% of rior ear consum tion PASS-THROUGH PROVISION: The pass-through provision is cost per unit charge calculated based on the difference between the projected base production cost and the actual production costs, which is divided by total annual consumption. The pass-through provision would not exceed 7% of the annual water charges. See projected production cost table and formula below: The projected base production cost used. for the pass-through calculations is $5,261,579. Formula: Pass-through -_ jActual Production Cost) - (ProLcted Base Production Cost) Total Annual Consumption WATER DEMAND REDUCTION STAGES: Residential /Commercial 1st 2nd 3rd 4th 5th sth 7th STAGES 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 Voluntary Compliance 0-9 10-18 19-27 28-36 37-45 46-54 55+ 10-20% Reduction STAGE 2 -Water Alert Mandatory Compliance 0-8 9-16 17-24 25-32 33-40 41-48 49+ 20-30% Reduction STAGE 3 -Water Warning 0-7 8-14 15-21 22-28 29-35 36-42 43+ Mandatory Compliance 30-40% Reduction STAGE 4 -Water Emergency 0-6 7-12 13-18 19-24 25-30 31-36 37+ Mandatory Compliance 40%+ Reduction Multiple Unit 1s 2" 3~ 4 5 6 7 STAGES 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 Voluntary Compliance 0-7 8-14 15-21 22-28 29-35 36-42 43 + 10-20% Reduction STAGE 2 -Water Alert Mandatory Compliance 0-6 7-12 13-18 19-24 25-30 31-36 37 + 20-30% Reduction STAGE 3 -Water Warning 0-5 6-10 11-15 16-20 21-25 25-30 31+ Mandatory Compliance 30-40% Reduction STAGE 4 -Water Emergency 0-4 5-8 9-12 13-16 17-20 21-24 25+ Mandatory Compliance 40%+ Reduction PASSED AND ADOPTED at a regular meeting of the City Council of the City of Tustin, California, held on the 15th day of June, 2010. JERRY AMANTE, 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. 10-57 was duly assed and adopted at a regular meeting of the Tustin City Council, held on the 15th day of June, 2010, by the following vote: COUNCILMEMBER AYES: COUNCILMEMBER NOES: COUNCILMEMBER ABSTAINED: COUNCILMEMBER ABSENT: PAMELA STOKER City Clerk