The URL can be used to link to this page

Home My WebLink About17 Water Rate Study Update Prop 218Agenda Item #17 T o: From: Date: Subject: Board o f Directors Robert Mesc her May 20, 2 015 Water Rate St udy Upd ate and Discus sion of the Pro cess for Adopting New Wa te r Rates WORKS HO P 1. WHY T HIS MAT T ER IS BEFORE T HE BOARD The purpose of this workshop i s to prese nt an update of the water rate study performed by the District's outsi de consultant and to revi ew the process for adopti ng new water rates i n comp liance wi th Prop 218. 2. HIST ORY In 2013, the District contracted with Shawn Ko orn, of HDR Engi neering, Inc., to review the Districts cost of service to provide wa ter and i ts water rates. The revenue requirement cal culated by HDR i ndicated that the Di strict shoul d increase its rates 3% annually from 2014 through 2017, and 2.5% annually thereafter for at l east the next si x years. The Board adopted an ordinance to raise rat es an average of 3% an nually for 2014 and 2015 i n compliance with California's Prop ositi on 218, al so known as the "Right to Vote on Taxes Act." The mai n requirements of Prop 218 are: Rates must be based on actual cost of s ervice; District must mail a noti ce to all rate pa yers and may mail a noti ce to property owners of the proposed change i n rates ; District must hold a public hearing at l east 45 days after the maili ng of the noti ces; Proposed change in rates is considered rejected if wri tten protests are recei ved from a majority of the affected property o wners; and if not rejected Rates can become effe ctive 30 days a fter the public hearing and ad opti on of 3. NEW INFORMAT ION Since 2013, there has been upward pressure on the Di strict's revenue requi rements due to California's conti nuing severe drought. This year, the State i s mandating that the Dis trict reduce its water production by 28% as comp ared to 2013. Al though the Di stri ct ha s al ready achieved a reduction of 10%, i t needs to reduce production by an another 1 8%. Staff is projecti ng that there will be si gnificant administrative costs i n educati ng t he District customers and enforci ng the regulations, all while the Di strict's revenue is r educed by lower consumpti on. Additi onally, the District has benefited from re cent pipeline repl acements by reduci ng water losses and by pumping less water. Staff is r ecommendi ng th at the Di strict i ncrease i ts efforts i n replaci ng impaired pi pe l i nes to continue the reduction of water l osses and pumping costs whi ch will be nefi t customers in the long run. The esti mated additional cost is approximately $600,000 pe r year. W ith the se two new circumstances, the Distri ct will need to annually raise its rates by approximately 6.0% in 2016 and 5.0% i n 201 7, then back to about 3% thereafter, in order to maintain a minimum of $5 mi l lion in cash an d reserves. The W ater Uti l i ty's reserve goal is $8 million. Last month, the Di strict contracted HDR to pe rform a review of the cost of service and rates. Tonight, Shawn Koorn wi l l summari ze the water rate study, propose rates to accompl i sh the Di strict's goals, and request d i rection from the Board. Attachment 1 is a draft o f his presentati o n. If the Board adopts new rates for the future years, th e following schedul e woul d be i mpleme nted: W orksh op to discuss the rate study an d proposed new rates -May 20, 2015 (tonight); Approve the water rate increase subject to a public hea ring -June 3, 2015; Mail noti ces to customers and parcel o wners of proposed rates and of public hearing -June 30, 2015 or before; Adverti se i n local newspaper of proposed rates and of publ i c hearing -July and August 2015; Hol d a public hearing regardi ng propose d water rates -August 19, 201 5; Adopt a n ordi nance for the new water r a tes -August 19, 2015; and New rates woul d be effective the fi rst bil l pri nted after January 1st of each year. Staff recommends Scenario 1 of Attachment 1 because it woul d allow the Di strict to reduce the annual rate i ncrease after 2017 to the exp ected rate of CPI increases. It al so recommends the Board authorize the pr oposed rates for the next fi ve years so that customers and the District will have more certai nty of future rates. 4. FISCAL IMPACT This workshop i s part of the overall Pr op 21 8 process that may affect the Distri ct's spending for the next five years. Robert Mescher Mi chael D. Holley Admini strati ve Services Mana ger General Manager 5. RECOMMENDAT ION Receive this report and provide direction to st aff and HDR.