SR-502-001-01 (3)
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Santa Monica~ California March 28 ~ 1979 JUN 1 2 1979
TO: Mayor and Gi ty Councl1
FRot1: Ci ty Staff
SUBJECT: Recorrmendation for Water Rate Increase
Introduction
ThlS report presents information regarding revenues and expenses for the
City's water enterprise and makes recommendations for an increase in the
water rate.
Background
Description of System
The Santa Monica Water System is operated as a Division of the General
Services Department. It provides high qual1ty potable water to more than
90~OOO consumers through 15~OOO service connectlons~ 4~500 valves, 236 miles
of distribution and transmission mains, and provldes water for fire protec-
tion at 1,100 fire hydrants and 280 fire sprinkler connections. To distri-
bute an average of more than 15,000.000 gallons per day. the system operates
and maintalns three major pumping plants. nlne water wells. a softening plant
for locally produced water. and four reservoirs containing 40 million gallons
of stored water. In addition, more than eight ml1lion gallons of State
Project or Colorado River water are purchased from the Metropolitan Water
District and delivered daily for introduction into the system. Twelve
thousand feet of distrlbutlon malns are replaced yearly by City forces and
by pipeline contractors because of deterioration or inadequate size. and
9
JUN 1 2 1979
-
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Mayor and City Council
-2-
March 28, 1979
18 acres of well and reservoir grounds landscaping are maintained. Total
worth of the system is in excess of 10 million dollars, and could be as
much as 35 million dollars, based on today's replacement costs.
financial Status of Water Operations
The present water rate structure became effective in July, 1975, with a
uniform commodity rate of $.32 per 100 cubic feet of water (1 bl11ing unit).
In July, 1977, an additional 3~ per billing unit was added to bring the
commodity rate to $.35 per 100 cubic feet. The impact on the consumer
was partially offset by a reduction in the Sewer Treatment Fee of 3~ per
billing unit,
In July, 1978, the current rate of $.385 per 100 cubic feet became effective.
In perspective, this is an annual increase of only 5% per year since 1975,
or 3% per year since 1967, and these rates have failed to keep pace with
inflationary pressures. Currently, consumer cost for the water lS 12<:; per
ton, and the average cost per day per capita is $.074. Since 1975 major
categories of vltal Water Division operating expenses have risen rapidly
due to inflation and related factors, and are projected to rise even more
sharply in the next few years. (Refer to Attachment "All)
The largest major on-going expense to the Water Division is the cost of
imported water purchased from the Metropolitan Water District of Southern
California. Imported water represents 50-60% of the total water production,
and while the Division is striving to maximize local production through
new wells and more efficient pumping equipment, it is unlikely that this
e
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Mayor and City Council
-3-
March 28, 1979
dependence on imported water will ever be s1gnlf1cant1y decreased due
to popu1at1on growth
Metropolitan Water D1strictls water price history in recent years and its
effect on Water Division expenses is as follows:
Cost to City Tota 1 Ci ty Cost % of Total
,$ per Acre-Foot for Fiscal Year Fiscal Year Expenses
$ 63 - 77 $ 735,856 1975-76 54%
81 - 84 730,412 1976-77 39%
95 811,241 1977-78 34%
100 817,000 (projected) 1978-79 35%
104 1,034,590 {Est.) 1979-80 38%
Because the City can not exercise any direct control over imported water
prices, some mechanlsm is needed to pass annual increases in the cost of
purchased water to the consumer without formal rate increases. The formula
recommended and described herein is similar to that used by other Southern
California Cities whose water supply systems rely heavily on imported water:
PURCHASED WATER RATE ADJUSTMENT FORMULA
Dollars per Acre Foot Number of A.F. to
for MWD purchase for x be purchased next
next year year
Next year's estimated sales
(in 100's of Cubic Feet)
Total water
purchased in
base year
Increase or
= Decrease in
Cost per 100
Cubic Feet
Base Year selected 15 1977-78 Fiscal Year, which was the year following the
recent threatened water shortage and is more representative of a "normal"
water usage pattern.
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Mayor and City Council
-4-
March 28. 1979
For 1979-80 Fiscal Year:
$104 per Acre Foot
(79-80)
9,948 A.F.
x (79-80)
17.200 A.F. x 435.6
$ 811.241
(77-78)
:;:;
$1~034,590 - $811,241 = $.02981 per 100 Cubic Feet
7,492.320
(lOO's of Cubic Feet)
Expressed to the nearest one half cent. the increase in the commodity rate
(water) would be $.03
To minimize the impact on the consumer, it is recommended that this annual
adjustment to the base water rate be effected at mid-Fiscal Year.(January 1)
RECONCILLIATION TO ACTUAL COSTS FORMULA
Because portions of the Purchased Water Rate Adjustment formula are based
on estimates for the next Fiscal Year, a reconciliation of these rates should
be made after the year's end:
$ Budgeted - Water $ Total (Actual)
Purchases - Prior Year Base Year
--- BUdgeted Sal es - Pnor Year
(expressed in laO's of Cubic Feet)
Actual A.F.
$ per Purchases $ Total (Actua
Acre Foot x Prior Year - Base Year
=
Actual Sales Prior Year
(in 10015 of Cubic Feet)
= increase or decrease to be applied to the water rate for the following
Fiscal Year, independent of the Purchased Water Rate Adjustment calculation.
This method would reconcile actual expenditures durinQ the Fiscal Year
with the adJustment rate charged durinq the year.
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Mayor and C1ty Counc1l
-5-
March 28, 1979
System Replacement
In any well managed water utl1ity 1t 15 1mperat1ve that elements of the
system 1nclud1ng wells. pumping equ1pment. water lines and reservoirs be
constantly ma1nta1ned and replaced when outmoded or worn out. Dur1ng many
periods 1n the past the City has not adequately prov1ded for system replace-
ment. During the 1978-79 Fiscal Year considerable progress has been made 1n
thlS effort w1th the help of the $1 mlllion Federal EDA Grant. The proposed
1979-80 budget. together w1th the water rate 1ncrease recommended here1n w1ll
prov1de a cont1nuat1on of th1S replacement work 1n the amount of $772,000.
This w111 provide a replacement of 17 of the 11nes in the C1ty.
Methods of Increasing W~ter Revenues
There are various means by which the 1ncreased costs of ut1l1ty operation can
be distributed among the users, but the most equitable is by a commodity pr1ce
increase. since the actual usage of the commodlty lS the reason for the existence
of the system. Rates can take many forms. two of Wh1Ch are here1n d1scussed:
a. Un1form Rate. The unit cost of water rema1ns un1form regardless
of the amount used. This method is the most equitable and 1S the
basls of Santa Mon1ca's current rate structure.
b. ~scendlng Block Rate. The un1t cost lncreases (blocks or steps)
as the amount used 1ncreases. Although some c1ties have tr1ed or
are trying th1S method, many are return1ng to the Un1form Rate
to allev1ate some of the inequ1ties 1nherent 10 the Ascending Rate.
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Mayor and City Council
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March 28, 1979
Example: A renter in a large apartment building would pay
(through increased rent) for water at the increased unit price due
to the demand of the large building, while a single residential
building owner would pay the lowest unit commodity price. There is
no more parity in an Ascending Block Rate than in the now nearly
obsolete Descending Block Rate where the large user pays a smaller
unit cost.
For discussion, some alternative methods of producing additional water
revenues are:
a. Increase installation costs, service charges, etc. Although these
costs are low in Santa Monica as compared to other Cities, this method
is somewhat inequitable, as it does not fairly distribute costs to
all consumers.
b. Bond Issues. Bonding capacity should be reserved for large
construction such as new plants or additional reservoirs if they
are ever required rather than used for ongoing capital outlay such
as the annual main replacement program.
In summary, it is recommended that an increased commodity rate based on
the Unlform Rate method should be the vehicle by which the necessary
revenues are realized.
Recommendatlon
It is recommended that Council, by resolution, adopt a uniform water base
rate of $.415 per one hundred cubic feet of water usage effective July 1,1979,
and, additionally) provide for an annual Purchased Water Adjustment to main-
tain water rates apace with the cost of imported water, utilizing the method
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r1ayor and Ci ty Counei 1
-7-
herein described~ and effective January 1 ~ 1980.
Prepared by: Stan Scholl
Ed lash
Attachments
A. Major Operating Expenses Categories
B. Revenues vs. Expenses
C. Water Rates Compared to Other Utilities
D. Water Rate Compared to Other Cities' Water Utilities
March 28, 1979
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RESOLUTION NO. 5312 (CCS)
(Clty Council Series)
A RESOLUTION OF THE CITY COUNCIL OF
THE CITY OF SANTA MONICA REVISING
THE BASIC RATE FOR WATER SERVICE
SUPPLIED BY THE SANTA MONICA WATER
DIVISION
WHEREAS, the City Counci1 may estab1ish, amend or revise from tlme
to time by resolution the rates to be charged for supplying water service to
any consumer, pursuant to Section 7200 of the Santa Monica Municipal Code;
and,
WHEREAS, the Water D1vision has conducted a study of water rates
for the purpose of adequately supporting Water Div1sion expenditures; and,
WHEREAS, said study indicates a need for and proposes a water rate
1ncrease:
NOW, THEREFORE, THE CITY COUNCIL OF THE CITY OF SANTA MONICA DOES
RESOLVE AS FOLLOWS:
SECTION 1. Water Rate. The bi-monthly base rate 1S hereby established
at for ty - 0 n e and one ha 1f ($.415) cents per one hundred (100) cubi c feet
of water used.
SECTION 2. Purchased Water Adjustment. The Purchased Water Adjust-
ment established herein is based on an annual purchased water expense of
$811,241, as establ1shed by actual expenditures during 1977-78 Fiscal Year.
The commodity rate shall be adjusted to compensate the Water Division or the
consumer when the annual cost of purchased water expense is greater than, or
less than the base amount of $811.241, respectively.
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The adjustment shall be determlned in accordance with the following formula:
Dollars per Acre Foot
For Purchased Water
(for next year)
Number of Acre
X Feet to be Purchased -
(next year)
Next year's estlmated sales
(In laO's of cubic feet)
$811 ,241
(b~se year)
Increase or decrease
~ adjustment to the base rate
per 100 CUblC feet *
HBase year" is 1977-78 Fiscal Year
IIprojected Sales for next F. Y. II sha" mean the hundreds of cubi C feet of potable
water sales for the next following Fisal Year as estimated by the Water Division.
* Since the adjustment to the base rate is based partlally on estimates, an
annual reconclllation will be applied by the use of the following formula:
Dollars budgeted for $811,241
water purchases - - (base year)
Prior year
Budgeted sales - prior year
(In lOa's of CUblC feet)
Dollars per acre foot Actual AF $811,241
. (actual) X Purchase - (base year)
(Prior year)
Actual sales - prlor year
(In laO's of cubic feet)
~ Cost per 100 cubic feet to be applied to the Water Base Rate
for the followlng Fiscal Year, independent of the Purchased
Water Rate Adjustment calculatlon
This method reconciles actual expendltures during the Fiscal Year with the
adJustment rate charged durlng the year.
Estimates and calculations shall be completed as soon as practicable after
November 30 of each year and the adjustment to the nearest one-half cent
shall become effectlve on bills issued for water used on or after January 1.
SECTION 3. BPpllcability. The provislon herein shall be applicable
to all water service by the Clty of Santa Monica Water Division except as
otherwise provided in Artlcle VII, Chapter 2 of tbe Santa Monica Munlcipal
Code.
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SECTION 4. This resolution shall take effect upon its adoptlon~
or upon its administrative implementation, whichever last occurs.
SECTION 5. The City Clerk shall certify to the adoptlon of this
resolution, and thenceforth and thereafter the same shall be in full force
and effect.
atJroved as t"jormi1/
\ ~J ~b '__fA
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s~o~u S~e ~4rur~
City" Attorney -
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ADOPTED AND APPROVED THIS
15
DAY
OF
June
I 1979.
~
/kg-v' f! Ptjd!tl~~!k>(r ~~L~
r~lA YOR
I HEREBY CERTIFY THAT THE FOREGOING RESOLUTIONJ
No. 5312 J WAS DULY ADOPTED BY THE CITY COUNCIL OF THE CITY
OF SANTA MONICA AT A REGULAR MEETING THEREOF HELD ON
June 15
I 1979 BY THE FOllOWING COUNCIL VOTE:
AYES:
COUNCIlMEMBERS: Banbrick, Jennings, Reed, Swink,
Yannatta, van den Steenhoven
NOES:
COUNCIlMEMBERS: Scott
ABSENT:
COUNCIlMEMBERS: ~one
ABSTAIN:
COUNCILMEMBERS: ~one
ATTEST: '
I '. \ .,
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