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CC 2016-08-09_10b Temp Water and Wastewater Rate Increase TO: FROM: SUBJEC DATE: RECOM It is rec regardin majority effective IMPACT The pro water ra water an FY 201 caused the Gov three ye Should approxim million c now est three fis three fis BACKG On May Water a rate incr and pub surcharg Based u written adjustm was cal CITY GEO DEBB CT: CONS RATE AUGU MMENDATIO ommended ng the prop protest, a e Septembe T ON FINAN oposed tem ates and a nd sewer re 6-17 to FY by the imp vernor’s 28 ears is esti drought r mately $1.8 coming from timated to scal years. cal years. GROUND: y 10, 2016, and Sewer reases. The blicly notice ge from 10% upon the p notice by ents. The culated an COUNCIL FF ENGLIS BIE MALIC SIDERATIO ES FOR FIS UST 9, 201 ON: d the City C posed wate adopt a Re er 1, 2016 f NCIAL AND mporary dro 10% surc evenue wo Y 2018-19. lementation % mandato mated to b rates be i 8 million to m fund rese be $2.8 mi The propo the City C Funds, incl e City Coun e the rates % to 11% in provisions o mail at le notice mus d the date ME L SH, DIREC COAT, DIRE ON OF TEM SCAL YEA 16 Council: 1) er and wast esolution e for Fiscal Ye D PERSON ought rates charge to w ould total $2 . Due to n of the Sta ory reductio be $17.9 m n effect u owards this erves and re illion, a sho osed droug Council rece luding a rec ncil directed as propose n order to fu of Proposit ast 45 day st include th e, time and EMORANDU TOR OF P ECTOR OF MPORARY AR 2016-17 conduct a tewater rat establishing ear 2016-1 NNEL RESO s would ad wastewater 21.1 million the unpre age 1 Wate on, the pro million, a sh until June $3.3 millio eductions in ortfall of ap ght rate wou eived a rep commenda d staff to pr ed, with on und additio ion 218, a ys prior to he amount o d place of t UM UBLIC WO F ADMINIST Y WATER A 7 THROUG a public he te adjustme g new wat 7 though F OURCES: d an 11% rates. It w n and $3.3 ecedented er Shortage ojected wat hortfall of a 2019, th on shortfall n expenditu pproximatel uld generat port on the ation to mov roceed to sc ne modifica onal conserv ll affected o the City of the fee, t the public ORKS TRATIVE S AND WAST H FISCAL aring to co ents and; 2 ter and wa Fiscal Year surcharge was initially million, res reduction i e Emergenc ter revenue approximate e rates w l, with the ures. Sewe ly $450,000 te $200,00 e financial c ve forward chedule the ation, increa vation effor rate payer Council c the basis o hearing an SERVICES TEWATER YEAR 201 onsider pro 2) if there i astewater r 2018-19. e to the cu y projected spectively, in consum cy program e over the ely $3.3 mi would gene remaining er revenues 0 over the 0 over the condition o with tempo e public hea asing the w rts. rs must rec consideratio on which the nd must cl 8-19 otests is no rates urrent that from ption m and next illion. erate $1.5 s are next next of the orary aring water ceive on of e fee early Item 10.b. - Page 1 CITY CO CONSID AUGUS PAGE 2 advise o written p City Cou Therefor were 15 ANAYLY Water F As deta Emerge to FY 2 fees cha 38% rep originally Due to impleme balance Howeve 17, fund 2018-19 $500,00 With the this pas level, si in the th OUNCIL DERATION ST 9, 2016 2 of the right protests ag uncil may n re, 3,171 w protest lett YSIS OF IS und iled in the ncy Progra 014-15 and arged to cu presenting y anticipate the past ented by th has been s er, without a d balance w 9, $2.4 m 00 below the e uncertain st winter, t milar to co hird year. N OF TEMP to protest t gainst the p not adopt t would repres ters receive SSUES: May 10, 20 am, consum d 35% com stomers ar a flat fee p ed to be $6. manageme e City, the sufficient e any adjustm will be $11 illion below e contractu nty of the the financi onsumption ORARY W the fee incr proposed r the propose sent a majo ed. 016 report mers have mpared to F re based on per accoun .9 million an ent of the Water Fun nough to h ments to re 11,000 belo w minimu ally obligat length of t ial model n in FY 201 WATER AND ease. If, at ate increas ed rates. ority. At the , since the reduced wa FY 2013-14 n the actua nt. As a re nd are now rate adjus nd has held elp absorb evenues an ow minimu m reserve ed minimum he drough projects c 15-16 for tw D WASTEW the conclu se are rece There are e time the r implement ater consu 4. Approx l water con esult, in FY w projected stments an d a healthy the shortfa d expenses m reserve e requirem m fund bala t and the onsumptio wo years w WATER RA usion of the eived from currently 6 report was ation of the mption by ximately 62 nsumed wit Y 2015-16, to be $5.7 nd cost co y fund bala all in curren s, by the e requireme ments and ance. average ra on remains with a very ATES e public hea a majority 6,340 acco prepared, t e Stage 1 W 24% comp 2% of the w h the rema revenues w million. ntrol meas ance. This nt year reve end of FY 2 ents, and in approxim ainfall rece s at a redu slight incre aring, y, the unts. there Water pared water ining were sures fund enue. 2016- n FY ately eived uced ease Item 10.b. - Page 2 CITY COUNCIL CONSIDERATION OF TEMPORARY WATER AND WASTEWATER RATES AUGUST 9, 2016 PAGE 3 A number of items have been examined to help minimize the impact of the shortfall in revenue, including deferring Reservoir No. 3 and 4 exterior recoating and seismic evaluation project ($640,000) and suspending the contribution to the Water Neutralization Fund ($200,000 per year). These actions will reduce expenditures by approximately $1.3 million over the next three fiscal years. It is recommended that a temporary drought rate be added to the current rates to help offset the revenue shortfall caused by the dramatic reduction in consumption and support continued conservation programs. These rates are temporary in nature so that when the drought ends and consumption returns to “normal,” the revenues initially projected should return as well. Regardless, consumption habits have been permanently changed in some instances as demonstrated by the increased usage in the cash for grass and plumbing retrofit programs. The City will need to examine consumption habits after the drought to determine what constitutes the new normal consumption and base rates accordingly. It is anticipated that this will be reviewed in 2018, at the end of the current 5-year rate study. Should the temporary rates remain in effect through FY 2018-19, it is anticipated that this will carry the fund balance for the Water Fund above the minimum required by $550,000. Sewer Fund Similar to the Water Fund, the Sewer Fund revenue is performing less than initially projected due to the reduction in water consumption. A portion of sewer charges is based on the amount of wastewater generated, as measured by the amount of water consumed. In addition, there is a fixed fee. Prior to the Stage 1 Water Shortage Emergency program, the average amount of wastewater added to the system was approximately 64 gallons per person per day. Due to conservation measures, the amount has been reduced to 55 gallons per person per day. It was originally anticipated that the City would receive $3.3 million in sewer-related revenues from FY 2016-17 through FY 2018-19. It is now projected that revenues will be $2.8 million over the same period, a shortfall of $450,000. Unlike the Water Fund, it is recommended that the capital projects anticipated to be constructed over the next 3-years should not be deferred to future years. The need to complete these projects is important to the overall infrastructure of the system and any deferrals could place the City at higher risk for system failure and result in higher project costs. Without any additional rate increase, the Sewer Fund’s balance will remain above minimum reserve. However, a 10% surcharge to the current rates is recommended because the minimum reserves are relatively small and are unlikely to be sufficient should a major system failure occur. Implementing drought rates for the Sewer Fund will result in a fund balance of just over $1 million by the end of the 2018-19 fiscal year. Item 10.b. - Page 3 CITY COUNCIL CONSIDERATION OF TEMPORARY WATER AND WASTEWATER RATES AUGUST 9, 2016 PAGE 4 Effects on the Customer The impact of the water rate recommendations on an average water customer will be approximately $10 to $18 per billing cycle (or $5-$9 per month). Eighty percent of the Single Family Residential (SFR) customer base uses between 10 and 30 units of water on a 5/8” size water meter per billing period. The actual increase per usage level is shown below: FY 2016-17 FY 2017-18 FY 2018-19 Current Rates Drought Rates Increase Current Rates Drought Rates Increase Current Rates Drought Rates Increase 10-units 91.71 101.84 10.13 94.26 104.60 10.34 96.82 107.52 10.70 15-units 109.44 121.49 12.05 112.56 124.90 12.34 115.72 128.52 12.80 20-units 127.86 141.94 14.08 131.60 146.02 14.42 135.38 150.36 14.98 25-units 147.36 163.59 16.23 151.75 168.37 16.62 156.18 173.46 17.28 30-units 166.86 185.24 18.38 171.90 190.72 18.82 176.98 196.56 19.58 The impact of the sewer rate recommendations on an average water customer will be approximately $6 to $8 per billing cycle (or $3-$4 per month). Unlike the water rates that already have approved rate increases for the next three years, the sewer rates remain the same for the next several years. As a result, the changes in the increase in the drought rates will remain the same until a detailed rate study is conducted. The actual increase per usage level is shown below: Current Rates Drought Rates Increase 10-units 11.50 17.96 6.46 15-units 14.85 21.66 6.81 20-units 18.20 25.36 7.16 25-units 21.55 29.06 7.51 30-units 24.90 32.76 7.86 ALTERNATIVES: The following alternatives are provided for the Council's consideration: 1. Adopt a Resolution establishing new water and wastewater rates; or 2. Modify the proposed rates to reduce increases by drawing down future reserves or increase rates more to utilize fewer reserves, which would require an additional Proposition 218 public notice and public hearing; or 3. Provide direction to staff. ADVANTAGES: Implementing the proposed water rate increases and rate structure changes will provide ongoing revenue to meet the next 3-years of operating, capital and debt expenditures and reserve recommendations in the Water Fund and Sewer Fund. The recommendations will balance minimizing rate increases with maintaining adequate reserves available to meet important capital and water supply needs. Item 10.b. - Page 4 CITY COUNCIL CONSIDERATION OF TEMPORARY WATER AND WASTEWATER RATES AUGUST 9, 2016 PAGE 5 DISADVANTAGES: Some customers will experience higher water utility costs. ENVIRONMENTAL REVIEW: No environmental review is required for this item. PUBLIC NOTIFICATION AND COMMENTS: In compliance with Proposition 218, notices were mailed to all property owners and rate payers more than 45 days in advance of the public hearing. The Agenda was posted in front of City Hall on Thursday, August 4, 2016. The Agenda and report were posted on the City’s website on Friday, August 5, 2016. All protest letters will be provided to the Council. Attachment: 1. Proposition 218 notice Item 10.b. - Page 5 RESOLUTION NO. A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF ARROYO GRANDE ESTABLISHING WATER AND WASTEWATER RATES AND CHARGES WHEREAS, Section 13.04.030 of the City of Arroyo Grande Municipal Code enables the City Council to modify, by resolution, the rates and charges for furnishing water and wastewater services to customers; and WHEREAS, the City has conducted an analysis which developed financial plans for the provision of water service and wastewater service that included any revenue adjustments required to meet all financial obligations, construction of the capital improvement projects determined to be necessary by the City, and maintenance of appropriate fund balances and debt service coverage requirements; and WHEREAS, water and wastewater service rates and charges are designed to meet the objectives desired by the City Council which consist of operating and maintaining safe and reliable water and wastewater systems, simplified rate structures that are easy to understand and administer, consideration of industry practices, and recovery of the cost of service; and, WHEREAS, the City Council has reviewed and considered the information and public testimony presented at a duly noticed public hearing, and in the staff report and record of this matter; and WHEREAS, notice of the proposed increase in water and wastewater rates and charges has been provided pursuant to Proposition 218, and a majority of the affected property owners and ratepayers have not presented written protests to the proposed increase in water and wastewater rates and charges. NOW, THEREFORE, BE IT RESOLVED that the City Council of the City of Arroyo Grande hereby adopts the water and wastewater rates and service charges set forth in Exhibit “A” attached hereto and incorporated herein by this reference. BE IT FURTHER RESOLVED that this Resolution shall repeal and replace all prior inconsistent resolutions or portions thereof. On motion of Council Member , seconded by Council Member , and on the following roll call vote, to wit: AYES: NOES: ABSENT: The foregoing Resolution was passed and adopted this day of 2016. Item 10.b. - Page 6 RESOLUTION NO. PAGE NO. 2 JIM HILL, MAYOR ATTEST: KELLY WETMORE, CITY CLERK APPROVED AS TO CONTENT: GEOFF ENGLISH, ACTING CITY MANAGER APPROVED AS TO FORM: HEATHER WHITHAM, CITY ATTORNEY Item 10.b. - Page 7 RESOLUTION NO. PAGE NO. 3 EXHIBIT A WATER RATE SUMMARY Fixed Service Charge ($/month) Meter Size FY 2016‐17 FY 2017‐18 FY 2018‐19  5/8” 31.27 32.00 32.76  ¾” 33.54 34.34 35.15  1” 40.39 41.34 42.31  1 ½” 49.51 50.67 51.87  2” 74.59 76.35 78.16  3” 259.28 265.40 271.66  4” 327.68 335.41 343.33  6” 487.30 498.79 510.56  8” 669.71 685.50 701.68  Service fee per  additional unit 8.47 8.67 8.87  Private Fire Line Fixed Service Charge ($/month) Meter Size FY 2016‐17 FY 2017‐18 FY 2018‐19  2” 3.96 4.06 4.15  3” 11.52 11.80 12.08  4” 24.55 25.13 25.73  6” 71.33 73.02 74.74  8” 152.00 155.59 159.26  10” 273.36 279.81 286.41  Residential Tiered Volume Charges ($/ccf*) Customer Class Allotment FY 2016‐17 FY 2017‐18 FY 2018‐19  Single Family     Tier 1 1 – 18 ccf 3.93 4.06 4.20  Tier 2 19 – 36 ccf 4.33 4.47 4.62  Tier 3 >36 ccf 5.76 5.96 6.16  Multi‐Family     Tier 1 1 – 18 ccf 3.93 4.06 4.20  Tier 2 19 – 27 ccf 4.33 4.47 4.62  Tier 3 >27 ccf 5.76 5.96 6.16  *ccf = 100 cubic feet Non‐Residential Volume Charges ($/ccf)  Customer Class FY 2016‐17 FY 2017‐18  FY  2018‐19  Business 4.10 4.24 4.38  Irrigation 4.37 4.53 4.67  Hydrant 6.49 6.65 6.80  Wheeling 2.16 2.22 2.26  Item 10.b. - Page 8 RESOLUTION NO. PAGE NO. 4 EXHIBIT A WASTEWATER RATE SUMMARY Customer Class FY 2016‐17 FY 2017‐18 FY 2018‐19  All Customers 2.64 2.64 2.64  Volume Charge  ($/ccf):     Single Family 0.74 0.74 0.74  Multi Family 1.03 1.03 1.03  Non‐Residential 1.45 1.45 1.45  Item 10.b. - Page 9 June 15, 2016 Dear Property Owner or Tenant Customer, This notice is intended to inform you that the Arroyo Grande City Council will hold a public hearing regarding proposed temporary water and wastewater service rate increases for City of Arroyo Grande customers (the “Proposed Water and Wastewater Rate Increases”). The Proposed Water and Wastewater Rate Increases will be considered by the Arroyo Grande City Council at the date, time and location specified below. Consistent with the requirements of Proposition 218, this notice also provides you with the following information: The basis upon which the amount of the Proposed Water and Wastewater Rate Increases were calculated The amount of the Proposed Water and Wastewater Rate Increases; The reason for the Proposed Water and Wastewater Rate Increases; and Majority protest procedures. PROPOSED WATER RATE INCREASE AMOUNTS AND BASIS OF CALCULATION The following charts provide a summary of the proposed changes to the water and wastewater rates to be considered by the Arroyo Grande City Council at the public hearing referenced above. The charts set forth the Proposed Water and Wastewater Rate Increases from fiscal years 2016/2017 through 2018/2019. The rate structure for both water and wastewater service has two components: (1) a fixed monthly charge; and (2) a variable (water consumption-based) charge. The first component is a fixed amount calculated to recover the City’s fixed costs of operating and maintaining the City’s water and wastewater systems and NOTICE OF PUBLIC HEARING A Public Hearing for the Proposed Water and Wastewater Rate Increases will be held on: Date: Tuesday, August 9, 2016 Time: 6:00 pm Place: City of Arroyo Grande, Council Chambers, 215 East Branch Street, Arroyo Grande, CA 93420 This notice has been sent to all property owners and customers who are tenants o f leased property (tenant customer) that are directly responsible for payment of water utility services. If adopted, the Proposed Water and Wastewater Rate Increases would become effective August 1, 2016. If you would like to receive this notice in Spanish, please contact the City of Arroyo Grande at (805) 473- 5438. Si le gustaria recibir este documento en Espanol, por favor llame a the City of Arroyo Grande (805) 473-5438. ATTACHMENT 1 Item 10.b. - Page 10 is established on the basis of the customer class and size of water meter. The variable component of the rate structure is based on water consumption. The variable component is structured in such a way as to capture the costs of providing water or wastewater service and to deter waste and encourage conservation. For residential water customers, the variable charges (base and peaking) are further apportioned between three distinct tiers. The goal of the first tier is to provide for basic indoor water use; the second tier is to provide for outdoor irrigation; and the third tier is for excessive use or to encourage conservation. Together, the components are calculated to recover the proportionate cost of providing water and wastewater service attributable to parcels within each customer class. The Proposed Water and Wastewater Rate Increases are scheduled to go into effect September 1, 2016. As part of the proposed increases, staff has proceeded with the notification process, pursuant to Proposition 218. PROPOSED THREE-YEAR TEMPORARY WATER RATE SUMMARY Fixed Service Charge ($/month) Meter Size FY 2016-17 FY 2017-18 FY 2018-19 5/8” 31.27 32.00 32.76 3/4” 33.54 34.34 35.15 1” 40.39 41.34 42.31 1 ½” 49.51 50.67 51.87 2” 74.59 76.35 78.16 3” 259.28 265.40 271.66 4” 327.68 335.41 343.33 6” 487.30 498.79 510.56 8” 669.71 685.50 701.68 Service fee per additional unit 8.47 8.67 8.87 Private Fire Line Fixed Service Charge ($/month) Meter Size FY 2016-17 FY 2017-18 FY 2018-19 2” 3.96 4.06 4.15 3" 11.52 11.80 12.08 4” 24.55 25.13 25.73 6” 71.33 73.02 74.74 8” 152.00 155.59 159.26 10” 273.36 279.81 286.41 Residential Tiered Volume Charges ($/ccf*) Customer Class Allotment FY 2016-17 FY 2017-18 FY 2018-19 Single Family Tier 1 1 - 18 ccf 3.93 4.06 4.20 Tier 2 19 - 36 ccf 4.33 4.47 4.62 Tier 3 >36 ccf 5.76 5.96 6.16 Multi-Family Tier 1 1 - 18 ccf 3.93 4.06 4.20 Tier 2 19 - 27 ccf 4.33 4.47 4.62 Tier 3 >27 ccf 5.76 5.96 6.16 *ccf = 100 cubic feet Item 10.b. - Page 11 Non-Residential Volume Charges ($/ccf) Customer Class FY 2016-17 FY 2017-18 FY 2018-19 Business 4.10 4.24 4.38 Irrigation 4.37 4.53 4.67 Hydrant 6.49 6.65 6.80 Wheeling 2.16 2.22 2.26 PROPOSED THREE-YEAR TEMPORARY WASTEWATER RATE SUMMARY Customer Class FY 2016-17 FY 2017-18 FY 2018-19 All Customers 2.64 2.64 2.64 Volume Charge ($/ccf): Single Family 0.74 0.74 0.74 Multi Family 1.03 1.03 1.03 Non-Residential 1.45 1.45 1.45 REASON FOR THE PROPOSED WATER & WASTEWATER RATE INCREASES The Proposed Water and Wastewater Rate Increases are necessary for the City to continue to provide safe and reliable water and wastewater services to the citizens of Arroyo Grande. Due to the essential and unprecedented decrease in water consumption, the City will not generate enough revenue to meet obligations for fiscal years 2016-17 through 2018-19. Due to the drought, the City’s water supply is restricted and all customers, existing and new, are required to conserve. However, the water and wastewater systems have large fixed costs, such as payments on debt, which must be paid regardless of the amount of water sold to customers. As the amount of water sold is reduced, the price per unit must be increased in order to generate sufficient revenue to cover these fixed costs. The proposed rates are temporary and are intended to be in effect until the drought ends and consumption returns to normal but no later than June 30, 2019, unless otherwise notified and noticed through an additional Proposition 218 process. Even with these proposed water and wastewater rate increases, the City will be required to reduce expenses and drawdown on fund reserves to meet its obligations. For further detail, please refer to the Water and Wastewater Financial Plan presented to City Council on May 10, 2016. WRITTEN PROTEST Pursuant to Proposition 218, you may submit a written protest against any or all of the Proposed Water and Wastewater Rate Increases to the City Clerk before the close of the Public Hearing referenced above (page 1). A written protest must contain a statement that you protest the Proposed Water Rate Increases, the Proposed Wastewater Rate Increases, or both the Proposed Water and Wastewater Rate Increases, the address or assessor’s parcel number of the parcel or parcels which receive water and wastewater service and must be signed by either the owner or the tenant customer of the parcel or parcels. If the person signing the protest is not shown on the last equalized assessment roll of San Luis Obispo County as an owner of the property, the protest must contain, or be accompanied by, written evidence that such person is an owner of the property or tenant responsible for payment. Protest letters must include an original signature of the owner or tenant customer. Only one written protest will be counted per identified parcel. Item 10.b. - Page 12 Written protests regarding the Proposed Water and Wastewater Rate Increases may be mailed to: City of Arroyo Grande Attn: City Clerk 300 E. Branch St Arroyo Grande, CA 93420 Written protests may also be personally delivered to the City Clerk at the Arroyo Grande City Hall (300 E. Branch Street, Arroyo Grande, CA). To be valid, a protest must be in writing, signed and received by the City Clerk before the close of the public hearing referenced above (page 1). Written protests will not be accepted by e-mail or by facsimile. Oral protests will not be counted in determining the existence of a majority protest. If you have questions about the Proposed Water and Wastewater Rate Increases, please call the City of Arroyo Grande Financial Services Department at (805) 473-5438. City of Arroyo Grande 300 East Branch Street· Arroyo Grande, CA 93420 Pre-Sort Standard U.S. Postage PAID Arroyo Grande California Permit #37 ECRWSS Item 10.b. - Page 13 THIS PAGE INTENTIONALLY LEFT BLANK Item 10.b. - Page 14