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HomeMy WebLinkAboutSupplemental Questions from Councilmember MooreQuestions for Water and Sewer Rate Study Public Hearing 2/22/2021 Water Rates 1) What are the implications if we push out these water rate increases one year to 2022? Could the rate study adopted be started one year late? The December 18, 2019 Rate Study Final Report along with the supporting study assumes that the new rate structures and corresponding rate adjustments would be implemented May 1, 2021. If implementation of these proposed water and sewer rate structures is delayed by one year, then the findings and recommendations in the December 18, 2019 Rate Study Final Report would no longer support the financial health of the water enterprise. An additional delay of twelve months would likely result in a shortfall in the revenues needed to meet the required reserves. 2) According to a LW resident, "the CPUC only allows rates to include the costs related to capital improvements after the capital improvement is completed and put into use. Why doesn't the City borrow all of the planned $16M when and if they need it for each project and not just the $9.4M that the rate study includes?" Can you respond to this? The California Public Utilities Commission (CPUC) regulates privately -owned utilities, not government agencies. For government agency utilities, like the City's water and sewer services, Proposition 218 governs how rates are established. The City has a rate study to justify that its rates meet the requirements of Proposition 218. The City Water Utility must maintain a certain amount of revenue in order to qualify for debt financing and cannot borrow unlimited quantities. Under the proposed water rate adjustments the City gets close to its debt capacity limit, which is established by maintaining a debt coverage ratio of 1.25 and in FY 2024 it is projected to be 1.29. Therefore, the City's Water Utility is near its debt capacity even with the proposed water rate adjustments being implemented in accordance with the Rate Study recommendations and thus it would not be feasible to borrow the full $16 million to fund all the planned capital projects. Also, there are arbitrage laws that limit the amount of debt a City can take on. It has to show that it is diligently using its debt proceeds to meet arbitrage laws, usually within 3 years of getting the proceeds. The $11 Million in debt is almost 3 years of CIP. 3) As requested last week, could you provide an alternate rate analysis without the smart meter CIP item and adjusting the annual RA increase from 6.5% to 4.5% as the Orange County Water District as I understand it has revised their estimate for the next 5 years? There is currently no additional funding remaining in the Consultant's contract to perform additional modeling analyses, and this request would require a consensus of the Council to provide direction to staff. However, in regards to how OCWD's decision to lower the annual RA inflator to 4.5% affected the overall Rate Study, the bottom Chart on slide 19 that will be shown as part of the Rate Study Presentation tonight will be very helpful to further clarify the impact of this change to the overall Rate Study analysis and recommendations. This Chart illustrates that given the proposed water rate increases over the 5 year rate study period, the City is just barely meeting its "Minimum O&M Reserve Target" of ($1.53M) in the last year of the study (FY 2025) and will not be able to meet the recommended "O&M and Capital Fund Reserve Target" of $3.5 million (show as a black line). If OCWD rates go up only 4.5% instead of projected 6.5%, the ending FY 2025 water fund reserves would increase to approximately $1.9 million, still well below the recommended "Capital Fund Reserve Target" of $3.5 million. The direction to Raftelis was to purposely keep rates as low as possible by only meeting the "minimum operating reserve Target" and not fully funding the "Capital Fund Reserve Target" in year 5 of the Rate Study. Raftelis does not recommend going any lower than this because the City needs working capital (i.e. O&M reserve) and the City should have capital reserves fully funded at the end of the rate study period (FY 2025). Thus, it is highly recommended that any savings that may result from lower water purchase costs be utilized to fund the Capital Fund Reserve. 4.) If new meters are required that are not smart meters, please provide an alternate estimate with the difference. This article says smart meters can be 7X more expensive according to Bloomberg: "The report found that two thirds of the 700 surveyed water utilities cite cost as a barrier to implementing smart meter technologies, especially among small- to mid-sized utilities. A smart meter can cost as much as seven times as much as the regular, analog, spinning meter," Bloomberg BNA reported. Jun 7, 2017 www.wateronline.com > doc f repo rt -finds -that -costs -still-_ Report Finds That Costs Still Make Smart Meter... - Water Online As noted in previous rate study presentations, the average age of the City's water meters is approximately 25 years which is beyond the recommended service life and therefore they are all in need of replacement. A citywide meter replacement project without utilizing AMI technology would be approximately $2 million. Staff is currently pursuing grant opportunities offered by the Federal Bureau Reclamation that are geared towards small and medium size water agencies to help offset the additional cost to deploy smart meters given that they have proven to be a very effective water conservation measure. 4) 1 see that the City will be paying for its portion of its water use as implied in the rate study starting when the new rates are adopted. Is that correct? Yes, the City will be paying water and sewer rate as the Rate Study assumes.