HomeMy WebLinkAbout01 RESOLUTION NO 06-054 • Agenda Item 1
Reviewed:
,- AGENDA REPORT City Manager
Finance Director
MEETING DATE: May 1, 2006
TO: William A. Huston, City Manager
FROM: Ronald A. Nault, Finance Director
SUBJECT: RESOLUTION NO. 06-054 ADOPTING PROPOSED WATER SERVICE RATES
SUMMARY:
The City of Tustin's water rates were last adjusted in November 1994. A comprehensive Water Rate
Study was undertaken in 2004 to evaluate the future operation and capital needs of the water
distribution system. An active rate model was developed so that we may continuously monitor the
financial health of Tustin's water system. The City's Audit Committee reviewed and approved the
recommendations contained in the study. Based on the current factors generated by the model, staff
is recommending a 13.5% increase in water service rates effective June 1, 2006, with additional
increases of 11.45% scheduled for January 2007 and 10% in January 2008.
RECOMMENDATION:
Adopt Resolution No. 06-054 approving new Water Service Rates on or about June 1, 2006,
January 1, 2007 and January 1, 2008, as detailed in this report.
FISCAL IMPACT:
The revised rates are expected to generate approximately four million dollars over the next thirty-six
months to support the operational requirements of and capital improvements to the City's water
distribution system.
DISCUSSION:
Since the last rate increase, the City has been able to stretch its available capital improvement dollars
to complete several significant water system projects, such as replacing/enlarging the Main Street
Reservoir for $9.3 million, without incurring additional debt or raising rates to our water customers.
But in developing the current budget, it became evident that revenues derived from existing rates
would be inadequate to meet the current operating and capital needs of the system; and that a rate
adjustment would be required to provide additional operational and capital resources. 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, administrative and debt service
expenses, routine replacements to the system as well as any non-operating expenses and capital
improvement costs. In addition, cash reserves should be sufficient to provide funds in the event of
emergencies and short term fluctuations in revenue due to drought and other factors affecting water
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, production and assorted materials and supplies. The attached Exhibit I is
extrapolated from the City of Tustin's Water Rate Model. It summarizes data regarding meters,
consumption, operating expenses, capital expenses, annual debt service, future capital needs and
reserve requirements for the three years of rate increases. This information is generated by various
tables throughout the model. The key assumptions used to develop the revenue projections for the
period FY 2006-07 through FY 2007-08 are based on increases in the following categories since
water rates were last raised in 1994:
FACTORS AFFECTING TUSTIN WATER RATES
Factor Percent Increase
➢ Groundwater replenishment fee increases 230 %
➢ Increased cost of Treatment Chemicals 160%
➢ Electrical Expense 105%
➢ Equipment Repairs and Replacement 99%
Salary and Benefits 83%
➢ Postage 36%
➢ Property Taxes 33%
➢ Interest Expense 25%
➢ General Fund Overhead 23%
➢ Imported water fees -29%
➢ All other O & M expense 1%
The overall increase in the operating cost of the system since 1994 has been 38.43%. Over the same
period, the U. S. Department of Labor - Bureau of Labor Statistics reports the Consumer Price Index
increased 36.78%.
Using the FY 2005-06 Budget Projections as our base year, the following assumptions were used to
project the needs of the City's water distribution system through 2010-2011:
FINANCIAL ASSUMPTIONS
Criterion Amount
➢ General Operating Expense Escalator 3.5 percent per year
➢ New Debt Issuance $ 30.4 million over the next 4 years
➢ Capital Improvement Program $26.6 million
➢ Target Reserve Funds $5.1 million
➢ Target Debt Service Coverage 1.25% net revenue to Annual Debt Service
The proposed water rates and charges will yield adequate revenues to cover the operating expenses,
repairs and capital improvement program costs, and maintenance of debt service and depreciation of
water facilities owned and operated by the City in providing water service to its customers.
The City's rate model allows us to evaluate various "what if' factors, such as operational changes,
capital outlays, rates, etc., and immediately determine the impact on reserves and debt coverages.
For example, as the City experiences increased costs for energy or purchased water, rates in the
model can be adjusted accordingly to recover the additional expense, maintain appropriate reserves,
and satisfy bond covenants.
• •
In the notice of the Public Hearing sent to all Water Service customers, a table was included which
shows the proposed consumption fees through January 2008. Those fees are based on the
recommended increases of 13.5% effective June 2006, 11.45% effective January 2007 and 10%
effective January 2008. In the narrative of the Public Hearing notice, it was indicated the January
2007 increase would be 15 percent. The correct proposed amount for January 2007 is 11.45 percent.
Water service is currently provided to approximately 13,800 customer accounts. About half of these
accounts are within the City's corporate boundaries, while the remainder are in the unincorporated
County area north of Tustin. The number of service connections and average water consumption
have been stable, and are anticipated to remain essentially the same into the future. About 85% of
our customers are "typical" residential users with a 5/8 X 3/4 inch meter, and consuming about 40 ccf
of water bi-monthly [one hundred cubic feet (ccf) of water equals 748 gallons]. The City's rate
structure is consistent within the Southern California water industry in which a fixed portion is based
on meter size. This effectively determines the demand capacity that the water distribution system
must be sized to, with a four-tiered rate structure. This is generally the same rate structure that the
City assumed when the system was purchased from Tustin Water Works in the early 1980's. The
consumption tiers were increased from two to four tiers in 1992 to encourage customer conservation.
According to the 2004 Water Rate Survey conducted by the Municipal Water District of Orange
County [MWDOC], approximately twenty of the thirty-four water service providers within the County
utilize a minimum of three tiers in their rate structure. Exhibit II which is from the same MWDOC
survey shows that the City's 2004 water rates were below the median rates at the time the survey
was taken. The impact of the proposed rates has been added at the bottom of the Exhibit to show that
the City's new rates will still be favorably below the county wide median if the new rates are adopted.
The Water System's Capital Improvement Program is designed to reduce Tustin's reliance on
expensive imported water controlled by other agencies, and improve the water system's storage,
production, treatment and distribution capabilities. Tustin 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. This strategy will minimize the cost of water service,
meet new State and Federal drinking water requirements and increase the system's reliability for the
foreseeable future.
Staff is recommending that the City Council adopt three consecutive rate increases at one time in
order to address short term reserves and debt service coverage as quickly as possible. We also
know that the Rawlings Reservoir replacement cost will be significant, $16 million estimated, and that
we will have to issue new bonds to provide the resources to complete this vital project. The three
consecutive rate increases will demonstrate to the market that we are willing to take appropriate steps
to protect the interests of the Water Bond buyers.
At the May 1 Public Hearing, staff will make a presentation which explains in detail how Water
Se ice revenue will be used to improve the Water System.
Ronald A. Nault
Finance Director
Attachments
EXHIBIT I
PROJECTED REVENUE PLAN-PROPOSED RATES
Projected Projected
Description FY 05-06 FY 06-07 FY 07-08
Total Operating Revenues $9,489,586 $11,160,883 $12,344,820
Operating Expenses(b)
Salaries and Benefits $1,834,436 $1,889,469 $1,946,153
Maintenance and Operations $2,846,192 $2,931,578 $3,019,526
Miscellaneous Capital
Sources of Supply Costs
Production Costs $3,587,880 $3,713,282 $3,436,740
Energy Costs $1,072,048 $1,205,442 $1,427,160
Total Operating Expenses $9,340,556 $9,739,771 $9,829,579
Net Operating Revenue $149,030 $1,421,112 $2,515,241
Non-Operating Revenue(Expense)
Interest Income(®2%)(c) $155,000 $217,500 $507,200
Interfund Transfers In/(Out)(d) ($850,000) ($871,250) ($893,031)
Net Other Revenues/Expenses
Water Capital Facility Charges(e) $0 $0 $0
Debt Service
Existing Debt $813,921 $813,920 $705,410
Proposed Debt Issuance $0 $0 $878,633
Subtotal Debt Service $813,921 $813,920 $1,584,043
Total Non-Op Revenues/Expenses ($1,508,921) ($1,467,670) ($1,969,874)
Net Funds Available Before Capital ($1,359,891) ($46,558) $545,367
Capital Expenditures
Capital Improvements&Carryover Projects $1,665,000 $8,435,000 $6,600,000
Miscellaneous Capital Outlay $420,896 $25,875 $25,875
Subtotal $2,085,896 $8,460,875 $6,625,875
Capital Financing
Proposed Debt Issuance $0 $18,000,000 $0
Subtotal $0 $18,000,000 $0
Capital Financing Issuance Expense
Bond Pay-Off $0 $0 $0
Revenue Bond Reserve Fund Requirement $0 $1,800,000 $0
Capital Financing Issuance Expense $0 $450,000 $0
Subtotal $0 $2,250,000 $0
Net Fund Balance After Capital ($3,445,787) $7,242,567 ($6,080,508)
Beginning Fund Balance $8,882,068 $5,436,281 $12,678,848
Ending Fund Balance $5,436,281 $12,678,848 $6,598,340
Target Reserve Balance(g) $4,802,167 $4,921,931 $4,948.874
Net Fund Balance vs.Target Reserve $634,114 $7,756.917 $1,649,466
Annual Debt Service Coverage
Net Revenue(h) ($545,970) $767,362 $2,129,410
Total Annual Debt Service Requirements $813,921 $813,920 $1,584,043
Coverage (0.67) 0.94 1.34
Proposed Annual Rate Increases Proposed Rates
Service Charge Rate Increase 13.50% 11.45% 10.00%
EXHIBIT II
MWD of Orange County's annual survey of Water Rates
2004 Monthly Residential Water Bill
for Three Levels of Potable Water Use
Median Bill Comparisons
Bill for ccf of water used in 1 month:
Typical single family
Agency 10 20 30
South Coast WD $31.82 $61.34 $98.89
Santiago CWD $44.00 $69.00 $94.00
Laguna Beach CWD $34.90 $62.30 $89.70
Capistrano WD Jan $29.60 $53.70 $88.98
San Clemente Winter $23.04 $51.89 $86.49
Seal Beach $21.83 $42.86 $77.49
San Clemente Summer $22.27 $43.06 $76.51
Capistrano WD July $29.60 $49.30 $71.75
Trabuco Canyon WD $28.15 $48.05 $67.95
Orange Park Acres $28.03 $47.35 $66.67
Westminster $18.37 $39.27 $65.37
Newport Beach $23.50 $43.50 $63.50
IRWD Low ET $11.31 $24.63 $63.27
Serrano WD $26.75 $43.75 $60.75
Southern California WC $28.87 $44.56 $60.24
City of La Palma $19.80 $39.60 $59.40
Mesa Consolidated $23.70 $41.40 $59.10
East Orange CWD Retail $32.00 $45.00 $58.00
Brea $20.87 $38.87 $56.87
Santa Ana $19.58 $35.66 $54.50
Huntington Beach $26.71 $40.38 $54.05
Santa Margarita WD $20.26 $35.86 $51.46
Fountain Valley $14.40 $31.50 $48.60
Yorba Linda $20.00 $33.30 $46.60
EI Toro WD $20.15 $33.35 $46.55
La Habra $19.12 $32.20 $44.92
IRWD High ET $11.05 $21.01 $42.59
Anaheim $17.25 $29.50 $41.75
Garden Grove $16.09 $28.57 $41.37
Fullerton $16.86 $28.59 $40.74
Buena Park $16.02 $26.57 $37.11
Tustin `'$74.58' $25 778 77-477-06 9
Orange $13.33 $24.49 $35.65
Moulton Niguel WD $12.00 $20.00 $30.00
Note: Includes fixed charges
Median: $20.57 $39.44 $58.55
Tustin's Proposed
2006 Rates Are: $16.56 $29.26 $41.96
Tustin's Proposed
2007 Rates Are: $18.44 $32.64 $46.84
Tustin's Proposed
2008 Rates Are: $20.31 $35.91 $51.51
U:\EXCEL\Water\Annual Water Rata Survey.xls:2006 Proposed Rates 04/25/2006 Page 1 of 1
RESOLUTION 06-054
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 System'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 Service has experienced increased costs of operations; and
5. A study of the Tustin Water Service 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 and to finance the recommended capital improvements; and
7. It will be necessary to increase rates for next three 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 three years.
NOW, THEREFORE, the City Council of the City of Tustin does hereby resolve as follows:
The bi-monthly water usage rates and charges are hereby established as follows:
FIXED CHARGE 06/01/2006 01/01/2007 01/01/2008
Meter Size Charge Charge Charge
5/8 " X 3/4 " $ 18.16 $ 20.24 $ 22.26
1 " $ 45.40 $ 50.60 $ 55.66
1-1/2 " $ 90.80 $ 101.20 $ 111.32
2 " $ 145.28 $ 161.91 $ 178.11
3 " $ 272.40 $ 303.59 $ 333.95
411 $ 454.00 $ 505.98 $ 556.58
6 " or Larger $ 908.00 $ 1,011.97 $ 1,113.16
Multiple Units Charge/Unit $ 14.53 $ 16.19 $ 17.81
Resolution No. 06-054
Page 2 of 2
CONSUMPTION CHARGE - per one hundred cubic feet (HCF)
Volume Block Multi-family" 06/01/2006 01/01/2007 01/01/2008
0-6 hcf 0-5 hcf $ .40 $ .44 $ .49
7-40 hcf 6-32 hcf $ 1.27 $ 1.42 $ 1.56
41-60 hcf 33-48 hcf $ 1.36 $ 1.52 $ 1.67
Over 60 hcf Over 48 hcf $ 1.50 $ 1.67 $ 1.84
* Multiple dwelling is per unit charge
FIRE METER CHARGE 06/01/2006 01/01/2007 01/01/2008
4 " $ 53.25 $ 61.24 $ 70.42
5 " $ 67.10 $ 77.16 $ 88.73
6 " $ 80.94 $ 93.08 $ 107.04
8 " $ 108.63 $ 124.92 $ 143.66
101, $ 134.19 $ 154.32 $ 177.47
12 " $ 160.82 $ 184.94 $ 212.68
PASSED AND ADOPTED at a regular meeting of the City Council of the City of Tustin
on the 1 st day of May, 2006.
Doug Davert
Mayor
ATTEST:
Pamela Stoker
City Clerk
STATE OF CALIFORNIA )
COUNTY OF ORANGE )
CITY OF TUSTIN )
RESOLUTION NO. 06-054
Pamela Stoker, City Clerk and ex-officio Clerk of the City Council of the City of Tustin,
California, does 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 was passed and adopted at a
regular meeting of the City Council held on the 1 st day of May, 2006 by the following vote:
COUNCILMEMBER AYES:
COUNCILMEMBER NOES:
COUNCILMEMBER ABSTAINED:
COUNCILMEMBER ABSENT:
Pamela Stoker
City Clerk
U:I ResolutionsBAgreementslResolution06-054 WaterSewiceRates.doc