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SR-502-001-01 (3) e 5oz-~t?/ e ? -0/ 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 - e 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 $.074. Since 1975 major categories of vltal Water Division operating expenses have risen rapidly due to inflation and related factors, and are projected to rise even more sharply in the next few years. (Refer to Attachment "All) The largest major on-going expense to the Water Division is the cost of imported water purchased from the Metropolitan Water District of Southern California. Imported water represents 50-60% of the total water production, and while the Division is striving to maximize local production through new wells and more efficient pumping equipment, it is unlikely that this e e Mayor and City Council -3- March 28, 1979 dependence on imported water will ever be s1gnlf1cant1y decreased due to popu1at1on growth Metropolitan Water D1strictls water price history in recent years and its effect on Water Division expenses is as follows: Cost to City Tota 1 Ci ty Cost % of Total ,$ 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. e e 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. e e 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. e e Mayor and City Council r -0- 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 $.415 per one hundred cubic feet of water usage effective July 1,1979, and, additionally) provide for an annual Purchased Water Adjustment to main- tain water rates apace with the cost of imported water, utilizing the method e e r1ayor and Ci ty Counei 1 -7- herein described~ and effective January 1 ~ 1980. Prepared by: Stan Scholl Ed lash Attachments A. Major Operating Expenses Categories B. Revenues vs. Expenses C. Water Rates Compared to Other Utilities D. 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QJ til s- O) +> l'O :3 cO s- Q) c Q) ~ od" ~- V} c:: L.i.J ::E =:J V} Z o U o I-- I-- (/") o U I 1Il QJ +> .,.... u tJ'J ;:! o ..... s- l'O > I c:: w I- 0::( 3: e e RESOLUTION NO. 5312 (CCS) (Clty Council Series) A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF SANTA MONICA REVISING THE BASIC RATE FOR WATER SERVICE SUPPLIED BY THE SANTA MONICA WATER DIVISION WHEREAS, the City Counci1 may estab1ish, amend or revise from tlme to time by resolution the rates to be charged for supplying water service to any consumer, pursuant to Section 7200 of the Santa Monica Municipal Code; and, WHEREAS, the Water D1vision has conducted a study of water rates for the purpose of adequately supporting Water Div1sion expenditures; and, WHEREAS, said study indicates a need for and proposes a water rate 1ncrease: NOW, THEREFORE, THE CITY COUNCIL OF THE CITY OF SANTA MONICA DOES RESOLVE AS FOLLOWS: SECTION 1. Water Rate. The bi-monthly base rate 1S hereby established at for ty - 0 n e and one ha 1f ($.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. ~~~~~_~._~~..:.<:~~-!~~~.l!~~~~~"": b~ --- .__.I_.~,o.;:,~~~.- e e 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. . -2- ~J"~___~ z.-.!II.o.~~~ It e 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 I/~ s~o~u S~e ~4rur~ City" Attorney - -3- e e 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 '. \ ., I , / , , 1 ........ ,; I' ., . ;Jk l;t:S;~ ,>jp0-u- e;V- cliRK , '] .1. ", ,'. ..' - . ~~ - ~.............. 1._~~~~:"L-h...!. _:L.::".~~~b..~.-.: ~--lIiiiIri!L' ....~~"04_.... ...~~.~n~~d.~ ~