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CIty Council Meetmg March 24, 1998
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Santa Monica, Cahfornia
To
Mayor and City CouncIl
From
City Staff
Subject
Recommendation to Adopt Resolution Removing the Emergency MTBE Water
Surcharge, Authonze the City :Manager to CredIt all Past Surcharge Payments to
Water Customers, and Approve Adjustments to the Water Fund Budget
INTRODUCTION
This report recommends that the City Councll approve a revIsed water rate resolutIon which
elImmates all emergency MTBE surcharges and authonze the City Manager to credit past
surcharge payments to water customers Additionally, this report recommends that Council
approve increased appropnatIon authority m the 'Vater Fund to cover anticipated costs through
June 30, 1998 related to the CIty's ImplementatIOn of the Charnock and Arcadia settlement
agreements These costs wlll be fully relmbursed on a monthly basis by the parttcipating oil
comparues FmalIy, the report recommends that the Council release the temporary hold placed on
prevlOusly approved and budgeted \Vater Fund Capital Improvement Projects which was tied to
resolutlOn of the MTBE contammatlOn financlallssues
BACKGROUND
The emergency MTBE water surcharges were first approved by City CouncIl in June, 1996 In
response to extraordmary cost Increases m the water fund related to the MTBE contamination of
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Ctty water wells at the Charnock wellfield with MTBE Upon approval of a partial settlement
agreement for the Charnock well field contammatlon With Shell Od and Chevron in July. 1997
CouncIl reduced the surcharge rate by 50% and authorized a customer credit equal to 50% of all
past surcharge payments At that time. It was not known whether the Charnock agreement would
be extended beyond January of 1998 or what the ultimate disposltlon of the ongoing lItigation
with Mobil Oil at the Arcadia wellfield would be
In January, 1998 the City was mformed by Shell 011 and Chevron that they were extending their
Charnock settlement agreement With the City for another year at a 100% reimbursement rate On
March 17, 1998 the City CouncIl approved a full settlement With ~Iobll Oil related to the Arcadia
well field contammatlOn WhlCh reimburses the City for all past and future :MTBE-related Arcadia
costs
DISCUSSION
The MTBE emergency surcharge was ongmaIIy adopted by Councd so that the City's Water
Fund would have suffiCient financial resources to pay for the substantlal unanticipated costs
assOCiated With purchase ofMetropohtan Water Distnct water, techmcal consultant costs and
legal fees, all caused by the shutdown of the City's Charnock water wells due to 1ITBE
contammation With the extension of the Charnock agreement for another year and with the
approval of a full and permanent settlement agreement With MobIl Od at the Arcadia Site, the
Water Fund wdl be made financially whole With respect to all of the out-of-pocket costs to date
related to the MTBE problem GlVen this successful outcome, the prospective collectIOn of
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emergency surcharges IS no longer necessary, and the settlement payments from the respectIve oil
companies can be used to reimburse water customers for surcharge payments made to date These
past surcharge revenues will be returned to customers In the form of a credit on the bi-monthly
water bill of active customers whIch WIll offset their regular water use charges untIl the cred1t IS
exhausted
The one slgmficant unknown whIch remams related to the MTBE problem 15 the fact that the
Charnock agreement has only been extended untll January, 1999 At that tIme, Shell, Chevron and
any other parhcipatlng comparues will have the option of extending the agreement for an
additional year or termmatmg the agreement altogether Staff wIll update the City Council on the
prospects for extensIOn of the Charnock agreement as Information becomes available Should the
situatIOn at Charnock be slgnificantly changed, staffwill make appropriate recommendations to
Caunell to protect the Water Fund
To date, approximately $1 9 mlllion In emergency surcharge revenues have been received by the
City wh.tch represents the balance of surcharge revenues not previously reimbursed to water
customers Staff recommends that. WIth Council approval, the enhre amount be credited to
customers The ehminatton of prospective emergency surcharge payments will reduce the average
water customer's bill by approXimately 12%
Although costs for the cleanup actIvities at both Charnock and Arcadia WIll be fully paid by the
respective OIl companies, the City's out-of pocket consultant costs are paid directly by the City
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and then retmbursed on a monthly basis under the ternlS of the agreements In order to continue
the processmg of payment requests from the City's consultants through June 30, 1998 it IS
estlmated that an additional $500,000 needs to be appropnated to the Charnock MTBE account
and an additional $75,000 needs to be appropnated to the Arcadia MTBE account
BUDGET /FISCAL 11\-1P ACT
There will be no net financial impact on the \Vater Fund from the recommendations in this report
as the reimbursement of past surcharge payments to water customers WIU be offset by
reimbursement payments to be made to the City under the Charnock and Arcadia agreements
There will be no Impact from the elImmatlOn of prospective emergency surcharge revenues as
under the terms of both the Charnock and Arcadia agreements all additional :MWD water costs
and other out-of-pocket City costs Will be fully reimbursed on a monthly basis The following
appropriation mcreases are necessary, as descnbed above, to allow suffiCient expenditure
authority for the City to pay its MTBE consultant costs which are then reimbursed on a monthly
baSiS by the participatmg ad compames
Arcadia
Charnock
account # 25-760-671-20098-8900-99387
account # 25-760-671-20098-8900-99386
TOTAL
$ 75,000
$500,000
$575,000
RECOl\1MENDATION
It IS recommended that the City CounCil approve a reVised water rate resolution wluch elimmates
prospective emergency MIBE surcharges, authonze the City Manager to credit past surcharge
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payments back to water customers, approve increased appropriation authority in the Water Fund
to cover anticipated costs through June 30, 1998 related to the City'S Implementation of the
Charnock and Arcadia settlement agreements, and release the temporary hold placed on
prevlOusly approved and budgeted Water Fund Capital Improvement Projects which was tIed to
resolution of the MTBE contammatlOn finanCIal issues
Prepared by Cralg Perkms, Director of Environmental and Public Works Management
Gtl Borboa, Uulities Manager
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City Council Meeting March 24, 1998
Santa MOnica, California
RESOLUTION NUMBER 9250 (CCS)
(CITY COUNCIL SERIES)
A RESOLUTION OF THE CITY COUNCIL OF THE
CITY OF SANTA MONICA ELIMINATING THE EXISTING
WATER RATE SURCHARGE
WHEREAS, the City CouncIl may establish, amend or revise from time to time by
resolution the rates and service charges to be charged for supplYing water service to
any customer pursuant to Section 7 12 010 of the Santa MonIca MUnicipal Code, and
WHEREAS, as part of the adoptlon of Fiscal Year 1997-98 City budget, the
Santa Monica City Council established a water rate surcharge effective July 1,1996 to
June 30, 1998, and
WHEREAS, the CIty has entered Into agreements with Chevron and Shell
regarding the contamination at the Charnock well field, and With Mobil for the
contamination at the Arcadia well field, to reimburse the City for costs associated WIth
lost water from the fields and other out-of-pocket costs,
NOW, THEREFORE, THE CITY COUNCIL OF THE CITY OF SANTA MONICA
DOES RESOLVE AS FOLLOWS
SECTION 1 The water rate surcharge established by ResolutIon Number 9163
(CCS) IS eliminated In ItS entIrety
SECTION 2 Amounts collected from the surcharge shall be credIted to the
customers of the water enterpnse beginning May 1, 1998
SECTION 3 The City Clerk shall certify to the adoption of thIs Resolution, and
thenceforth and thereafter the same shall be In full force and effect
APPROVED AS TO FORM
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MARSHA JONES MOUTRIE
City Attorney
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Adopted and approved thIs 24th of March, 1998
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Robert T Holbrook, Mayor
I, Mana M Stewart, City Clerk of the CIty of Santa Monica, do hereby certify that
the foregoing Resolution 9250 (CCS) was duly adopted at a meetIng of the Santa
MOnica City Council held on the 24th of March, 1998 by the followIng vote
Ayes Counellmembers
Ebner, Femsteln, Genser, Greenberg, Holbrook,
O'Connor, Rosenstem
Noes Councllmembers
None
AbstaIn Councllmembers
None
Absent Councllmembers
None
ATTEST
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Mana M Stewart, City Clerk