HomeMy WebLinkAboutSeal Beach Rate Study Public HearingCity of
al Beach
aid
Water and Sewer Rate Study
Public Hearing
- _ February 22, 2021
Water and Sewer Rate Study
Project Team
Steve Gagnon, PE (AZ)
Project Manager
22+ years experience
Extensive Orange County water and
sewer rate setting experience
E: sgagnon@raftelis.com
P: 714.351.2013
2
Steve Myrter, PE
Director of Public Works
32+ years experience
Extensive Municipal Water and
Sewer Operations and
Engineering Experience
E: smyter@sealbeach.gov
P:562.431.2527
(Extension 1321)
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4
Why do we need to adjust water and sewer rates?
Water System
Water Financial Plan
Proposed Water Rates
Sewer System
Sewer Financial Plan
Proposed Sewer Rates
Total Water and Sewer Customer Bills Impacts
5. Proposition 218 Requirements and Recommendations
Why Adjust Water
and Sewer Rates',?,
O
'rl
s
Why Adjust Water Rates?
Last rate study was in 2010
No rate increases since 2014
Costs increases every year
Employee labor and benefits
Water production / purchase costs
Chemicals and energy costs
Repair & replacement of capital infrastructure
City water system needs capital improvements
An average of $3.3 million per year, over the next 5 years,
starting in FY 2021
Rate structure need to be revised to follow
"textbook" principles to improve equity among
rate payers
Water, Sewer,
and Trash vs CPI
Across the country Water,
Sewer and Trash rates are
rising faster than normal
goods/services.
7
240
220
200
180
160
140
120
100
Water, Sewer and Trash CPI and CPI All Items - All Urban Consumers Over Time,
1998 = 100
131%increase since 1998
i_
Gap between CPI's from
2010 to current is wider
54% increase since 1998
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Water, Sewer and Trash with 1998 = 100
CPI Index, All Urban Consumers, US City Average, 1998 = 100
Source: https://data.bls.gov/timeseries/CUSROOOOSEHG
Water Supply Costs (Acre -Feet)
Municipal Water District of
Orange County
Wholesaler of MWD
Imported water
Orange County Water District
City pays OCWD for
groundwater
The city needs working wells
to access groundwater
Establishes Annual Basin
Pumping Percentage (ratio
of imported vs. groundwater
supplied)
$1,400
$1,200
$1,000
$600
$200
$0
010� 0 0 4 N 0
Sets Pumping Assessment �'��` �'�<0 NCO �'�� �N00 �'�°� ��1(j- �`l,N ti �`l� �`l,�` <0 �` (0
Fee for ever gallon pumped
-�OCWD MWDOC
8
s
Water Supply Cost Increases
$3.00
$2.50
$2.00
o $1.50
$1.00
$0.50
$0.00
FY2014
$2.55 Million
West Orange County Water
Board
Orange County Water District
FY 2020
Foot Notes: 1. Average Annual Citywide Water Demand (FY2014 to FY2020) = 3350 acre-feet
Municpal Water District of
Orange County
2. Average Basin Pumping Percentage ratio set at 76%
(ratio of groundwater pumped vs. imported water supplied)
3. West Orange County Water Board manages the transmission main that conveys imported water from the
MWDOC connection to the City
Seal Beach Water Supply Well Facilities
(5 -year Capital Improvement Program -High Priority Projects)
Bolsa Chica Water
Supply Well
(Renovation)
Beverly Manor
Pump Station &
Water Supply Well
(Renovation)
Lampson Avenue
Water Supply Well
(Treatment Plant)
10
'21
Well placed in service: 1977
Estimated project cost $2.3 milli
Well Placed in Service: 1969
Estimated project cost: $4.7 million
Well Placed in Service.
Estimated project cost
2011
2.0 mil
Seal Beach Water System
Piping Network
1AF1
Water System Piping Network
Transmission Mains
• 22 miles total length
• Average years in service: 55 years
Distribution Mains
• 50 miles total length
• Average years in service: 50 years
• Appx. 1 mile of pipe over 100 years in service
Seal Beach Water Distribution System
(5 -year Capital Improvement Program - High Priority Projects)
Transmission
Piping Network
Distribution
Piping Network
Water Meters
Replacement
12
High priority transmission main replacement
Projects budget: $2.5 million
High priority distribution main replacement
�y
Projects budget: $1.5 million
r
u
5400 meters / average meter age: 25 years
Citywide Advance Meter Infrastructure (AMI) Project
Project budget: $3.2 million
Why Adjust Water Rates?
SUMMARY
Current revenue will not pay for increases in O&M costs
Current revenue will not pay for critical infrastructure
improvements
3. Implement more equitable rate structure
13
Why Adjust Sewer Rates?
SUMMARY
Last sewer rate study completed in 2005
2. Goal of 2005 sewer study was to build reserves to fund infrastructure
improvements, which has now been met
3 Financial analysis shows that sewer fund revenue requirements can be
reduced
Rate structure need to be revised to follow "textbook" principles to
improve equity among rate payers
14
Financial Assessments and Modeling
Forecast revenue and expenses using inflationary
assumptions
Modeling was completed in early 2020
Initially the study's target completion date was April
2020 for rates effective July 1, 2020
Used the best information available during this
time
Modeling must stop at a point in time so the City
can implement findings
Assumptions will continue to change:
Inflationary assumptions, O&M and capital budgets
etc.
Best practice is to conduct new forecasts every
five years to "true -up" to actuals and reset
assumptions for next five years.
15
Forecast Planning
Extrapolating from the Recent Past
'/o
Water Enterprise
Financial'Health
D
16
Financial Health
Without Rate
Adjustments
Assumes no change to
revenue and planned
O&M and capital
expenses
If City does not increase
rates, it will have to
substantially reduce
capital projects
17
Operating Financial Plan
$12.0
$10.0
$8.0
$6.0
$4.0
$2.0 kA
$0.0
-$2.0
-$4.0
-$6.0
FYE 2021 FYE 2022 FYE 2023 FYE 2024 FYE 2025
Operating Expenses i Rate Funded Capital Debt
Net Cashflow Current Revenue — — Proposed Revenue
Proposed Revenue Increases
I Developed by comparing revenues to expenses
2 Assumes an $11 M in capital financing to fund capital in FY 2023
FY 2021 FY 2022 FY 2023 FY 2024 FY 2025
May 2021
14.0%
18
Jan 2022
12.0%
Jan 2023
9.0%
Jan 2024
8.0%
Jan 2025
8.0%
Water Financial
Health With
Proposed Rate
Changes
Even with these revenue
adjustments the City does
not reach desired total
reserve goals (dark line in
bottom graph)
Total reserve goal = 3
months of operating
expenses + 1 year of
average capital expenses
19
Operating Financial Plan
N $12.0
$10.0
$6.0 _�--
$4.0
$2.0 AL
$0.0
-$2.0
-$4.0
-$6.0
FYE2021 FYE2022 FYE2023 FYE2024 FYE2025
Operating Expenses Rate Funded Capital Debt
Net Cashf low Current Revenue — — Proposed Revenue
All Reserves
$2.0
0
$6.0
$5.0
$4.0
$3.0
$2.0
$1.0
$0.0
FYE2021 FYE2022 FYE2023 FYE2024 FYE2025
Total Reserve Balance O&M and Capital Reserve Target Minimum Operating Reserve
Water Rate
Changes
0
20
Current Water Rate Structure
hcf = 100 cubic feet = 748 gallons
Water Capital Fund Fixed Charge
5/8" - 3/4"
$37.86
1"
$47.89
11/2"
$72.97
2"
$103.06
3"
$183.32
4"
$273.60
6"
$524.39
8"
$825.34
10"
$1,176.45
12"
$1,577.72
21
Residential Bi -monthly (Includes Multi -family Accounts)
All Meter Sizes $ / hcf
Tier 1 0 - 26 hcf $2.23
Tier 2 26+ hcf $2.88
Commercial Bi -monthly
Commercial Bi -monthly
5/8 - 3/4"
4"
Tier 1
0 - 26 hcf
$2.25
Tier 1
0 - 686 hcf
$2.25
Tier 2
27+ hcf
$2.81
Tier 2
687+ hcf
$2.81
ill
611
Tier 1
0 - 43 hcf
$2.25
Tier 1
0 - 1,941 hcf
$2.25
Tier 2
44+ hcf
$2.81
Tier 2
1,942+ hcf
$2.81
11/2"
8"
Tier 1
0 - 88 hcf
$2.25
Tier 1
0 - 4,951 hcf
$2.25
Tier 2
89+ hcf
$2.81
Tier 2
4,952+ hcf
$2.81
2"
10"
Tier 1
0 -205 hcf
$2.25
Tier 1
0 - 7,117 hcf
$2.25
Tier 2
206+ hcf
$2.81
Tier 2
7,118+ hcf
$2.81
311
1211 2'I
Tier 1
0 -420 hcf
$2.25
Tier 1
0 - 45,490 hcf
$2.23
Tier 2
421+ hcf
$2.81
Tier 2
45,491+ hcf
$2.88
Leisure World
Capital Fund Fixed Charge
12" $788.86
Tier 1 0 - 45,490 hci $2.23
Tier 2 45,490 + hcf $2.88
City Volumetric Rate
All Water Use $2.42
22
Proposed Water Rate Structure
Fixed Charges
Meter Size
Bi -monthly
Fixed Charge
5/8"
$36.79
3/4"
$36.79
1"
$54.72
1.5"
$106.00
2"
$160.35
3"
$285.30
4"
$474.70
6"
$934.74
8"
$1,495.09
10"
$2,140.04
6" - Leisure World
$467.37
2" - Aquatic Park
$241.99
Volumetric Charges
Single Family Residential Bi -Monthly
All Meter Sizes
$/hcf
Tier 1 0- 17 hcf
$2.65
Tier 2 17+ hcf
$2.80
Multi -family (Tiers are per dwelling unit)
All Meter Sizes
$/hcf
Tier 1 0- 17 hcf
$2.65
Tier 2 17+ hcf
$2.77
Leisure World - Same as Multi -family
All Meter Sizes
$/hcf
Commercial
$2.65
Irrigation
$2.71
City
$2.68
Aquatic Park
$3.00
Single Family, Multi -
Family, and Leisure
World have tiered
volumetric rates.
Commercial, Irrigation,
City, and Aquatic Park
have uniform
volumetric rates.
Aquatic Park has a special rate to reflect the capital costs of the undersea pipeline
Two new customer classes: Multi -Family Residential & Irrigation
Proposed Five Year Water Fixed Charges
Bi -monthly Fixed Charge
Meter Size
Current
May
January
January
January
January
2021
2022
2023
2024
2025
5/8"
$37.86
$36.79
$41.20
$44.91
$48.50
$52.38
3/4"
$37.86
$36.79
$41.20
$44.91
$48.50
$52.38
1"
$47.89
$54.72
$61.28
$66.80
$72.14
$77.92
1.5"
$72.97
$106.00
$118.72
$129.40
$139.75
$150.93
2"
$103.06
$160.35
$179.59
$195.75
$211.41
$228.33
3"
$183.32
$285.30
$319.53
$348.29
$376.16
$406.25
4"
$273.06
$474.70
$531.66
$579.51
$625.87
$675.94
6"
$524.39
$934.74
$1,046.91
$1,141.13
$1,232.42
$1,331.01
8"
$825.34
$1,495.09
$1,674.50
$1,825.20
$1,971.22
$2,128.92
10"
$1,176.45
$2,140.04
$2,396.84
$2,612.56
$2,821.56
$3,047.29
6" Leisure World*
$788.86
$934.74
$1,046.91
$1,141.13
$1,232.42
$1,331.01
2" Aquatic Park
$103.06
$241.99
$271.03
$295.42
$319.05
$344.58
Private Fire Charges
Meter Size
Current
May
January
January
January
January
2021
2022
2023
2024
2025
4"
$50.40
$38.22
$42.80
$46.65
$50.39
$54.42
6"
$113.42
$111.01
$124.33
$135.52
$146.36
$158.07
8"
$201.62
$236.57
$264.95
$288.80
$311.90
$336.86
10"
$315.04
$425.43
$476.48
$519.36
$560.91
$605.79
23
* Leisure World
charges are
assessed monthly
but presented here
as bi-monthly for
consistency with
other classes.
Proposed Five Year Water Volumetric Rates
Customer Class Tier Breakpoint
May
2021
January
2022
January
2023
January
2024
January
2025
Single Family Residential
Tier 1
0 to 17 h cf
$2.65
$2.97
$3.24
$3.49
$3.77
Tier 2
>17 h cf
$2.80
$3.14
$3.42
$3.69
$3.99
Multi -Family Residential
Tier 1
0 to 17 h cf
$2.65
$2.97
$3.24
$3.49
$3.77
Tier 2
>17 h cf
$2.77
$3.10
$3.38
$3.65
$3.94
Leisure World*
Tier 1
0 to 17 h cf
$2.65
$2.97
$3.24
$3.49
$3.77
Tier 2
>17 h cf
$2.77
$3.10
$3.38
$3.65
$3.94
Commercial
$2.65
$2.97
$3.24
$3.49
$3.77
Irrigation
$2.71
$3.04
$3.31
$3.57
$3.86
City
$2.68
$3.00
$3.27
$3.53
$3.82
Aquatic Park
$3.00
$3.36
$3.66
$3.95
$4.27
24 * Leisure World rates are assessed monthly but presented here as bi-monthly for consistency with other classes.
Sewer Enterprise
Financial Health
25
Financial Health
Without Rate
Adjustments
Reserves are healthy
Therefore, we propose
revenue/rate decrease
26
Operating Financial Plan
$6
.o
$4
$2
$0
-$2
-$4
FYE 2021 FYE 2022 FYE 2023 FYE 2024 FYE 2025
� Operating Expenses M Rate Funded Capital Debt
� Net Cashflow Current Revenue — — Proposed Revenue
$10
$6
$4
$2
$o
All Reserves
FYE 2021 HE 2022 FYE 2023 FYE 2024 FYE 2025
� Total Reserve Balance — Minimum Operating Reserve
&M and Capital Reserve Target
Proposed Revenue Decreases
I Developed by comparing revenues to expenses
2 Assumes using reserves on hand for capital improvements
FY 2021
May 1, 2021
-25%
27
FY 2022 FY 2023 FY 2024 FY 2025
Jan 1, 2022
0%
J an 1, 2023
0%
J a n 11 2024
0%
J an 11 2025
0%
Sewer
Financial
Health With
Proposed
Rate Changes
Reach reserve targets
after 5 years
28
V) $6
0
$4
$2
$0
-$2
WE
$10
C
0
$8
$6
$4
t')
Operating Financial Plan
FYE 2021 FYE 2022 FYE 2023
� Operating Expenses � Rate Funded Capital
� Net Cashflow Current Revenue
All Reserves
FYE 2024
M
M
FYE 2025
Debt
Proposed Revenue
FYE 2021 FYE 2022 FYE 2023 FYE 2024 FYE 2025
Total Reserve Balance Minimum Operating Reserve
O&M and Capital Reserve Target
Sewer Rate
Changes
0
29
40
Current Bi -monthly Sewer Rate
Structure
How Sewer Customers are billed:
Sewer Bill = 22% of Water Bill* + Sewer Capital Charge
75% of current sewer revenue ($2.1 M of $2.8M) comes from
the Sewer Capital Charge
City is billing sewer customers in proportion to water meter
size; meter size is an estimate of potential sewer use
We propose a more equitable rate structure that charges in
proportion to estimated sewer flow/use
30 *Water Bill = Water Service Charge + Water Capital Charge
Residential Capital Charge
5/8"
$43.32
3/4"
$43.32
1"
$59.88
1.5"
$110.26
2"
$173.46
3"
$1,228.60
4"
$2,055.54
Commerical Capital Charge
5/8"
$47.26
3/4"
$47.26
1"
$102.38
1.5"
$133.88
2"
$535.54
3"
$1,480.62
4"
$2,669.84
6"
$3,772.42
8"
$7,875.62
10"
$7,875.62
Proposed Sewer Rate Structure
Single Family Residential is a fixed charge (current average bill is about $59)
All other customers = Bi -monthly fixed charge + Sewer Rate ($ / hcf) x water use x return to sewer
(RTS) factor.
RTS = 100% for Multi -Family Residential and 90% for Commercial.
Customer Class
Single Family
31
Proposed Bi -
Monthly Fixed
Charge
$48.04
All Other Classes
Multi -family
Commercial
City
Proposed Bi-
monthly Billing &
Customer
Service Charge
(per account)
$1.22
$1.22
$1.22
Proposed Bi -
Monthly
Volumetric Rate
($/hcf)
$4.00
$4.00
$4.00
Calculating Leisure World's
Fixed Monthly Sewer Charge
Capital Cost
of Sewer Pipe
Expected
Life
qak it C(D
Annual
O&M
Pro -
Rated
$1.03 0
80 Years $1,000 95%
Million • + it
Monthly
Charge
$1,099.03*
Monthly
Charge
32 *Includes $0.61 billing and customer service charge
Sewer Five -Year Rates
Fixed Charges Customer Class
Single Family
Leisure World
May 2021
January 2022
January 2023
January 2024
January 2025
January 2025
Multi -family,
Commercial, City
Fixed Charge per Account $1.22
Volumetric Rate ($ /hcf) $4.00
$1.22
$4.00
$1.22
$4.00
$48.04
$48.04
$48.04
$48.04
$48.04
$1,099.03
$1,099.03
$1,099.03
$1,099.03
$1,099.03
Leisure World
billed monthly. LW
rate includes fixed
charge of
$0.61 /mo.
Customer Class
May 2021
January 2022
January 2023
January 2024
January 2025
Multi -family,
Commercial, City
Fixed Charge per Account $1.22
Volumetric Rate ($ /hcf) $4.00
$1.22
$4.00
$1.22
$4.00
$1.22
$4.00
$1.22
$4.00
Navy*
*Navy billed monthly.
33
Fixed Charge
Volumetric Rate ($ /hcf)
$0.61 $0.61 $0.61 $0.61
$0.24 $0.24 $0.24 $0.24
$0.61
$0.24
Estimated Combined Water
and Sewer Bill Impacts
O
34
Combined Water and Sewer Bills
Water rates and bills will go up
Sewer rates and bills will go down
Single Family Residential customers should see their total bill
either stay the same or qo downy
35 'Estimated by calculating customer bills based on prior historical water use patterns
Water & Sewer
Single Family
Residential
Customer Bill
Impacts
All single family residential
customers combined bill go
down
36
70%
60%
M
L
50%
0
40%
U
30%
20%
a
10%
Water & Sewer - Historgram of SFR Dollar Bill Impacts
66.7%
0.0% 0.0% ,
09ra
,yy � P �o
16.2%
9.4%
4.6% ,
1.2% 1.6°la 0.1% 0.2% a.a°r°
aa o
hy4p�, a
Dollar Impact
Water &Sewer
Average Single
Family
Residential
Customer Bill
Impact
37
Current Proposed
Single Family Residential Average Bill Average Bill Difference
Water $71.31 $76.54
Wastewater $59.01 $48.04
Total $130.32 $124.58 -$5.74
Water & Sewer
Multi -Family
Residential
Customer Bill
Impacts
Larger impacts are the
1 St Street Apartments
City will assess water
return to sewer
38
Water & Sewer - Histogram of MFR Bill Impacts
25.0% 23.1%
20.0% 18.5%
L
U 15.0%
6 9.2% 9.6%
10.0% 8.1% 8.5%7.7%
U 6.2%
a�
a 5.0%
0.4%1.2%1.5%1.5%1.2% 1.5%0.8%1.2%
0.0% — ■ ■ ■ ■ I I I I I I I 1 ■ M ■
°° moo° �o°
opo .0 �'�0 tia'` 0 a Q oo�
~
t
,
Dollar Impact
Commercial
Customers
68% of commercial customers
will see no change or a bill
decrease
City will review large bill
impacts for water returned to
sewer
39
Water & Sewer - Histogram of Commercial Bill Impacts
60%
50% 48%
L
40%
30%
20% 17%
Q6 10% a% aff 1% 4% 7%
5% � �5% '
arL % 11
0% — ■ ■ ■ ■ ■
—
ao �o �a o a �o oa yaa o° affl o
te ti %0 -1 P W4 �' N, ff,
g VZ
Dollar Impact
Leisure World
Bill Impact per
Dwelling
40
Leisure World
(Billed Monthly)
Avg Water Bill
Fixed Sewer Charge
Total
# of Dwellings
Increase per Dwelling Unit per Month
Monthly Increase
$16,141.49
$1,099.03
$17,240.52
6,608
$2.61
FINAL TAKEAWAY
Water rate increases are needed to pay
for pipeline and well improvements
Sewer rates are going down due to
healthy reserves
The overall affect for Single Family
Customers in the first year is bills should
either stay the same or go down
Proposition 218 Requirements
All residents and property owners are mailed a protest hearing notice
45 days before the public hearing.
City Council holds a public hearing on the proposed adjustments.
If 50% + 1 of the property owners mail in protests, adjustments cannot
be adopted.
4 Staff recommends the City Council vote to approve the resolutions
and ordinance for rate adjustments.
42
Recommended Action
Adoption of Resolution 7115 to set municipal water rates effective
May 1, 2021; and
Introduction by First Reading by title only and waive further reading
of Ordinance 1688 the Seal Beach City Council Amending Section
9.30.130.020 of Chapter 9 of Title 9 of The Seal Beach Municipal
Code relating sewer rates; and
Adoption
2021.
43
of Resolution 7116 to set sewer charges effective May 1,
End of
Presentation
0
4d
End of Presentation
(Back Up Slides Follow for
Reference If Needed)
61
45
Steps in Conducting
a Rate Study
STEP 1
Rate Setting
Framework
Financial goals and policies
Pricing objectives
STEP ?
Cost of Service
& Rate Design
Cost allocations
Rate design
Rate calculations
Customer impact
analyses
46
STEP 2
Financial Plan
Evaluation of CIP and
financing options
Cash flow analysis for
financial sufficiency
STEP 4
Final Rate Adoption
Report
Prop 218 Notice
Public Hearing
Navy Sewer Rate
Customer Class
Navy
47
Current Rate
($ /hcf)
$0.07
Proposed Monthly
Fixed Charge
$0.61
Proposed
Monthly
Volumetric Rate
($/hcf)
$0.24
Bi -Monthly Water
Bill Impacts
48
Bi -Monthly Water - Histogram of SFR Bill Impacts
Single Family 1,800
539
Residential Bill 1,500
Impacts 1x400 1, 25 �
� 1,156
1,200
E
0 1,000
Many large bill impacts are
likely not SFR customers ° 800
° 500
but MFR customers
(classification errors) 400
200 3 4 25 7 23 59 0
SFR = Single Family Residential
a o o o 4.0.
MFR = Multi -family Residential'�'�,',','�-
Dollar Impact
49
Bi -monthly Multi -
Family
Residenti
Impacts
al Bill
Large impacts are 1St St
Apartments who will see
larger sewer decreases
50
Water - Histogram of MFR Bill Impacts
120
100 91
o
O
60
0
zo
20
12 15
6 � 6 10
3
0 M ■ M 1 1
o o a 1%0, o
a two t a ti
Dollar Impact
111
Bi -monthly
Commercial Bill
Impacts
Larger impacts are very
large water users
(Boeing)
Result of the new
uniform rate instead of
tiered rate by meter size
51
Water - Histogram of Commercial Bill Impacts
60 56
50
1
36
20
OT
13 13
1
aao aao ao 4a as , <7 <te q1 ya �a oKP tP e
�a 0 0
baa a e ��<.) 4 4 Q q
P CP
Dollar Impact
a,
40
O
30
46
Zo
10
7
1
36
20
OT
13 13
1
aao aao ao 4a as , <7 <te q1 ya �a oKP tP e
�a 0 0
baa a e ��<.) 4 4 Q q
P CP
Dollar Impact
Monthly LW Water Cost Per Apartment
6,608 Residential Apartments
Monthly Min HCF
19,486
$ 44,243
$ 6.70
$ 52,105
$ 7.89
$ 1.19
Monthly Average HCF
39,198
$ 88,199
$ 13.35
$ 104,341
$ 15.79
$ 2.44
Monthly Max HCF
53,302
$ 124,730
$ 18.88
$ 141,751
$ 21.45
$ 2.57
52
Wastewater
Customer Bill
Impacts
O
53
Sewer Single
Family
Residential
Customers
All SFR customer bills
go down
54
Sewer- Historgram of SFR Dollar Bill Impacts
4,000
3,500
,, 3,004
0 2,500
2,000
° 1,500
6
z 1,000
500
12 4t
3,503
517
43 3 9
tP 1P
vo
e
Dollar Impact
9
Multi Family
Residential
Customers
1 St Apartments bills go down (on
far right)
City will review large bill impacts
for water returned to sewer as
opposed to used for irrigation
55
54
45
44
35
0 30
U
25
6 24
z 15
Sewer- Histogram of MFR Bill Impacts
43
0
14 6
4 2 1 2 2
0 ° 1 . _ . .
�P yv & ov ov yo p
mayyoy'�a• •�y• � 1 4 &
4 4,y;
o{
Dollar Impact
Commercial
200
Customers 180
160
140
City will review large bill impacts 120
u 100
for water returned to sewer 6 80
Z 60
40
Sewer- Histogram of Commercial Bill Impacts
175
20 3 1 9 11 14 10 13 6 ' 11 3 6
oob�QOh�q �'1�aQ��a4
NO
"tie
Dollar
Dollar Impact
56
Leisure World
Currently is not billed for sewer
6,608 dwelling units
57
Leisure World
(Billed Monthly)
Monthly Charge
Monthly Charge per Dwelling Unit
Monthly
$1,099.03
$0.17
Proposed Cash Reserve Policies
City has no formal reserve policies for the Water Enterprise
Purpose of reserves are to:
Provide sufficient cash on hand to cover short-term operating costs
Provide sufficient funding to quickly and efficiently award construction contracts
Mitigate financial risk of potential asset failure
Enhance credit rating for more cost-effective debt financing options
Raftelis' recommended reserve policy
Operating reserve target: 90 days of operating cash on hand
Capital reserve target: 1 year of annual average CIP
58
Why Are Wastewater Rate Structure Changes
Needed?
The proposed rate structure is more equitable
Rate structure does not charge in proportion to meter size, but charges in proportion
to estimated sewer flow.
e.g., park with 2" meter may only have a small bathroom; the rest of water use is for
irrigation and does not go into the sewer.
Meter size as estimate of potential sewer use.
59
Proposed Water Rate Structure
Proposed Changes:
Traditional rate setting groups customers by class (SFR, MFR, Commercial, Irrigation, etc.) instead of
meter size because customers in each class tend to use water similarly.
e.g., 1" commercial customer has constant use throughout the year whereas 1" irrigation customer
has summer peaking periods. They use water very differently. We set rates based on how
customers use water.
State Water Conservation Policies (SB 606 and AB 1668) will require each water provider to calculate
water budget by June 2022.
Possible fine for providers that do not meet budget by 2027.
Smaller Tier 1 (17 hcf instead of 26 hcf) will incentivize conservation to make sure Seal Beach
stays within its budget.
We are calculating fixed charges in proportion to American Water Works Association hydraulic capacity
factors — the industry standard for setting fixed charges. Thus, the fixed charge increase for larger
meters.
60
Irrigation
Irrigation is a new customer class created from Commercial, City, and
Residential irrigation accounts to account for how this class uses water.
Classes are based on peaking characteristics and Irrigation has a
different peaking factor compared to other classes.
About 50 - 2" meters
Uniform volumetric rate
61
Proposed Water Rate Structure
Single Family Residential (SFR)
No change to structure, but a change to the tier widths to better align with average water use
Tier 1 = average yearly water use for SFR account (17 hcf). This is average indoor and
outdoor water use for the average home.
New Multi -Family Residential (MFR) class with tiers by dwelling unit.
Quadplex would get 4 x 17 = 68 units in Tier 1.
Commercial, Irrigation, and City Customer Classes
Uniform Rate
62
Typical Reserve Targets
Operating Reserve
Capital Reserve*
Rate Stabilization Fund
Emergency
90 days (25% of O&M)
1 Year of Average CIP
Expenditure
10 - 20% of Volumetric
Revenue
Critical Asset Repair
Monthly billing
Industry Norm
Revenue sensitivity analysis
Critical Asset Study
*Other Capital Reserve Targets include yearly depreciation or 2-5% of asset value
Backup Sewer Caics
for Aquatic Park &
Navy
ol
64
.-C=::Wf5
d
Navy Water & Sewer CaIcs
Water—charged bi-monthly
Navy water rates are identical to commercial rates discussed earlier
$2.64 per hcf volumetric charge
Fixed charges:
2" meter: $163
4" meters: $482
10" meter" $2,171
Sewer—charged monthly
Navy represents roughly:
5.4% of total miles of sewer pipe collection system
15.2% of total sewer flow
Annual capital cost x 5.4% x 15.2% _ $10,812
Annual O&M cost x 5.4% x 15.2% _ $808
TOTAL annual sewer charge = $10,812 + $808 = $11,620
Rate Setting Legal
Environment
61
67
Legal Environment of Rate Making
Cost of Service Requirements
Proposition 218 (Article XIIIC and XIIID of California Constitution)
Pass-through Provision
AB 3030 — Section 53756 of the Government Code
Water Conservation
Article X of California Constitution — prohibits water waste
CA Water Code Chapter 3.4 — Allocation -based Conservation Water Pricing (AB
2882 )
SB X7-7 — 20% reduction by 2020
New SWRCB regulations call for each agency to self certify that they have adequate
supplies for three years assuming drought of 2012-2015 and set conservation
standards equal to their projected supply shortage
EO B-37-16 — Each water agency will have a target based on an indoor and outdoor
water budget
M
Proposition 218 Requirements
An agency cannot collect revenue beyond what is necessary to provide service.
Revenues derived by the charge shall not be used for any other purpose other
than that for which the charge was imposed.
The amount of the fee may not exceed the proportional cost of service for the
parcel.
4. No charge may be imposed for a service unless that service is actually used or
immediately available to the owner of property.
5. Awritten notice of the proposed charge shall be mailed to the record owner of
each parcel at least 45 days prior to the public hearing, when the agency considers
all written protests against the charge.
69
rreSE STUDY
City of San Juan Key Factors:
Lack of administrative record
Capistrano City used multipliers to justify the tiered rates
without any administrative record of an
underlying rationale
Lesson: MUST SHOW YOUR WORK!!!!
Recent Litigation: CTA vs. City of SJC
Rate payers (Capistrano Taxpayer Association, CTA)
sued the City of San Juan Capistrano over its water o� Raftelis hired to justify rates
budget rate structure 6 Revised tiered rates by establishing a nexus
4
The Orange County Superior court between costs incurred by each tier
New rates approved in June 2014
ruled that the rates did not meet the Representatives from CTA concurred that
nexus requirement in August 2013 RFC's tiered rate structure complied with
Prop. 218
71
Water Enterprise
ol
72
What Is Funded By The Water Rates You Pay
City's water utility is funded entirely by the money it receives from the water
rates on utility bills sent to customers
City's water utility is an enterprise fund it does not receive money from taxes
The water rates you pay on your utility bill fund all the operating costs and the
infrastructure investments for the city's water system
How many customers pay a utility bill?
4,947 Residential Customers
305 Commercial Customers (includes Irrigation, Navy, Aquatic Park)
87 City Customers
Leisure World
73
REVENUE
• Operating
• Non -Operating
• Growth
FINANCIAL
POLICIES
• Reserve Targets
• Debt Coverage
EXPENSES
•O&M
• Budget & Inflation
• Capital
• (CIP & Debt)
Revenue Adjustment Schedule
Multi -Year Long -Term Financial Plan
Rate Setting lol
75
Legal Environment of Rate Making
Cost of Service Requirements
Proposition 218 and Proposition 26 (Article XIIIC and XIIID of California Constitution)
Pass-through Provision
AB 3030 — Section 53756 of the Government Code
Water Conservation
Article X of California Constitution — prohibits water waste
> CA Water Code Chapter 3.4 — Allocation -based Conservation Water Pricing (AB 2882)
> SB X7-7 — 20% reduction by 2020
New SWRCB regulations call for each agency to self certify that they have adequate
supplies for three years assuming drought of 2012-2015 and set conservation standards
equal to their projected supply shortage
EO B-37-16 — Each water agency will have a target based on an indoor and outdoor water
budget
76
Functionalize
77
Cost - of -Service
Allocate
Distribute to
Customers
Recovers costs from
customer classes in
proportion to the
demands they place on
the system, recognizing
the impact of each
customer class on the
costs to run the
corresponding system
facilities
Cost of Service is the
fundamental methodology
used to establish utility
rates in the United States
Water Cost of Service
Allocation to Cost Components
SUPPLY BASE CONSERVATION EXTRA CAPACITY METER
DELIVERY / (Peaking Costs) MAINTENANCE
COSTS
CUSTOMER
SERVICE
Volumetric Rate ($/hco Fixed Charge by Meter Size
78
Distribute Costs to Customer Classes
SUPPLY DELIVERY COSTS CONSERVATION EXTRA CAPACITY METER
Use Use: Same for All Distributed to (PEAKING) MAINTENANCE
Classes High Vol Users Peaking Factors or Meter Size
Meter Cap Ratios
Distribute Costs to Each Class
79
Lam__
CUSTOMER
SERVICE
# of Cust Bills
Rate Design
Commodity Rate Derivation
To calculate commodity
rates, we combine
the unit ($/CCF) costs
of water
supply, water delivery,
peaking/capacity
costs and conservation
costs
lit =I
SUPPL" DELIVERY EXTRA CAPACITY CONSERVATION
Water supply Delivery rate (Peaking Costs) Conservation program
rate ($ /CCF) ($ /CCF) Peaking rate rate ($ /CCF)
($ /CCF)
TOTAL
VOLUMETRIC RATE
FOR EACH TIER
($ /CCF)
Agencies must develop a nexus between their tiered rates and their costs to serve those tiers and
document the methodology used in a report
We develop a nexus between rates and cost of service by adding unit rates for each cost component
80
Terms You Will Hear
Acre Foot — Enough water to cover an acre of land, about the size of a football field, one foot deep; City purchases
water in these units
Cost of Service — Utility's cost to provide water service to each customer class based on demands each places on utility
Customer Class — Residential, Commercial, City, and Irrigation
Fixed Charge — Amount charged by meter size. Does not vary by water use
hcf — Common billing unit used to charge for water in California. hcf = 100 cubic feet = 748 gallons
Meter Size — Meters track water usage at the property. Size determined by its supply line. Most residential meters are 3/4"
Rate —Amount charged per unit of water
Rate Structure — Rates and charges applied to various customer classes
Rate Study — Process of determining proposed future water rates
Tiered Rate Structure — Pricing water so that cost per unit increases as consumption increases
Uniform Rate Structure — Charging same amount per unit of water used, regardless of how much water is used
Volumetric Rate —Amount charged per unit of water use. Measured in hcf by City.
81