SR-9-A (14)~
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EPWM CP cp rebate Santa Monica, California
Caunc~l Meet~ng July 8; 1997
Ta Mayor and City Council
From City Staff
Sub~ect Recommendation to D~scuss Financ~al [mpacts of Appro~ed Settlement
Agreement Concerning MTBE Cantamination af the Graund Water at the
Charnock Well Field and Recommendation ta Consider Rebates andlor
Reduction of Wa#er Rate Surcharge and Adopt Appropriate Resolution
INTRQD~JCTION
This repart discusses the c~~renf stat~s of the emergency MTBE water rate surcharge
and presents recommendations regardEng continuation af tf~e surcharge and rebates for
past surcharge paymer~#s
BAGKGROUND
In Jur~e, 1996, C~ty Cauncii adopfed an emergency water rate surcharge m order t~
recover a portiQn of the additianal costs which the City was b~anng du~ to
cantamination of drinking water wells at the Charnock well fEelc~ w~th Methyl tert[ary
Butyl Ether {MTBE) The MTBE surcharge represertted an increase of $a 26 per billing
unit to the firs# t~er and $Q 57 per b~lling unit to the second tier ~f the water usage
charges for a~f Santa Monica's water customers During fisca~ year 1996-97, it fs
pro~ected that total MTBE surcharge revenues amount to apprax~mately ~2 m~flion
~ µ
JUl 0 $ i~,97
On July '1, 1997. Council approved an agreement with Chevron O~I Products Company
and Shell Oil Company which w~[I reimburse the City for 75% of ~ts past casts for water,
technical consul#ants and o~tside legal assistance and future costs for water and
technical consu[tants related to MTBE contaminatian at the Charnock wefl field s~te
sub~ect to an o~erall payment lim~t of $5 mill~on through January 6, 1998 The City w~ll
recei~e an additEOnal payment of ~50.000 as a partial reimbursement for any fega]
costs which wi[l be incurred between the date of execu#ior~ of the agreement and
January 6, 1998 In order for #he City to reach 9~~% reEm~ursement for the Charnock
contam~nation, other oil compan~es who are potentially responsible for the
contamination need to ~oin the agreement pnor to January 6. ~998 If the City has nflt
been guaranteed 1 QD% reimbUrsement by that date then the agreement may be
terminated by #he City Under the agreement. respansibility for removing MTBE from
the Chamock well field and returning it to full p~oduct~on ~s also assumed by the
potent~ally respQnsible parties
DISCUSSION
Within 30 days of execution of the agreement with Chevron and Shell, the City will
receive a payment of approximately ~4 1 mEll~on representing 75% reimbursemer~t for
past Chamock MTBE costs An addi#~onal ~9~0,400 in reimbursements will be received
by the City fram Ci~evran a~d Shell priar to January 6, 1998 for a total reimbursement
of $S,a50,~a0 during the ~nit~al term of the agreement
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The agreement, at present, only guarantees a 75°fo reimbursement far past and future
costs up to January ~, ~ 998 It is passible that the agreement wi11 n~t be renewed past
January 6, 1998 and tf~at the City will ha~e to assume all fma~cial respons~bility for
Charnack MTBE cos#s ~ncluding poterttially substantral fitigat~on fees The City w~11
dil~gently wor~t with Chevron and Shell to bring the other potent~ally respons~ble oif
companies inta the agreement prior ta January. 1998, but that is not a certa~n autcame
In add€tion to the situat~on at Charnock, li#igation cantinues w~th Mobil Qil o~er
contaminatian at the Arcadia well fiefd To date, Mobil Oil has complied with the
Regional Water Quality Contro! Board's requirements ta refmburse the City's cost to
purchase water to replace the waker last from shutting ciown the Arcadia well field fn
addition to the cost of replacement water. the City has s~ent a significant amount of
money to date on the MTBE cor~tamination problem at the Arcadia well field ~ncluding
attorney`s fees for the City's i~t~gation against MobiE Oil It is anticipated that the Arcadaa
costs will increase substantially during the next fiscal year The current MTBE
surcharge was not intended to pay for any costs related to cantamination at Arcadia as
thase wells had not been shut down at the #ime that #he surcharge was adopted
However, it is imperativ~ that the City collect ~no~rgh revenue to suppor~ the purchase
of water and litigat~or~ support costs until a responsible party is ~dentEfied
fn ftght of the recently approved seitlement agreement #or Charnock and the remammg
uncertainties related to tha Char~ock and the ongoing expenses associated with the
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contamination of the Arcadia well f~eld, the following options regarding rebate andlor
reduction of th~ water rate surcharge were analyzed The analyses included pra~ections
of the Water Fund baEance under the different sce~anos considermg ar~y possible
reductions in re~enue to the Water Fund by a rebate andlor a reduction in the MTBE
surcharge
O~tion A:
Keep the ongoing MTBE surcharge at ~ts prese~t le~el and rebate 1a~% af the past
surcharge payments
This optian would keep the ex~stGng MTBE surcharge a# its current le~e1 a#
approximately $2.76~,000 in annual re~enues but would result in the rebate of
approx~mately $2 m~ll~on to water customers Under th~s o~tion. water customers would
receive an rmmediate benefit b~t #herr water rates would remain unchanged from their
present h~gf~ le~el The ad~ar~tage of th~s approach is that the Water Fund would be in
a better p~sit~on ~n the event the Charr~ock agreement ~s not renewed
Option B:
Reduce MTBE surcharge by 25% and defer any re~ates for past surcharge payments
until the City recei~es 100% reimbursement far a~l Charnock costs
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T~~s option woufd reduce the customers' ongo~ng water bills and revenues fram the
MTBE surcharge This approach reta~ns funds pa~d to date in #he event thaf the
agreement ~s not renewed and the Ci~y must agam assume all costs for Charnock
Howe~er, the ratepayer rece~ves no immediate benefit from a rebate of past surc~arge
payments
Option C:
Reduce MTBE surcharge by ~0°/fl and rebate 25% of ~ast surcharge paym~nts
This o~tion wauld reduce the ongoir~g MTBE surcharge billed to customers by about
$1,383,000 and rebate a~praximately $500,00~ in past surcharge payments Under th~s
option, water customers wo~ld both receive a small immediate ber~efit and would see a
reduct~on in their future water bills !n the event that the Cha~noci~ agreemen# is not
renewed, the City Counc~! would have to take act~on to increase the surcharge to
mainta~n a fESCally respons~ble Water Fund balance
Optio~t D:
Reduce tE~e ongoing MTBE surcharge by 5D°/o and rebate 50% of past surcharge
payments
This opt~on would reduce the ~ngamg MTBE surcharge b~fled to customers by about
~1,383,004 and rebate approximately $1 millior~ ~n past surcharge payments Under this
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option, water custamers wauld both receive ar~ immed~ate benefit and would see the~r
water rates reduced In the event that the Charnock agreement is not renewed, the C~ty
Cour~cil wauld ha~e to take ac#ion to increase the surcharge as in Optian C
SUMMARY
Staff recommends Option D because it represents the maximum amount af past MTBE
surc~arge rebate to ratepayers and a reduet~on m future surcharge payment that wilf
msure that the Water Fund remains fiscally responsEble Staff will return to Council on
or about January 6, 1998 w~th recamrr~endat~ons regarding the future of the MTBE
surcharge At that t~me, the recommendations will ~nclude any prudent ad~ustments to
the MTBE surcharge-an increase or decrease-in order to ma~ntaEn a fiscally
responsible Water Fund balance Moreover, to insure the stability of th~ fund, aff
proposed cap~tal improvement pro~ects funded from the Water Fund will be suspended
unt~l aft~r a~ec~sian is made by the Counc~l r~gafd~ng the long-term status of the
MTBE surcharge
FISCAL/BUDGET IMPACT
The follawing budget actions need approval to ~mplemer~t Optian D{a ~0°/o reductEOn of
the current MTBE s~rcharge and a 50% rebate of past MTBE surcharges to ratepayers)
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Establ~sh a~udget for FY 1997-98 ~n the amaunt of $5.050,000 for revenu~ account
number 25-5Q0-671-~D000-0597-1000D to record t~e settlement payment
REd~c~ the FY ~997-98 budget by $1,383,040 for re~enue account number
2~-500-671--00000-0565-14000 due to the 50% recfuction in the MTBE surcharge
Establish a FY 'f997-98 appropr~at~an m the amaunt of $996,638 in expenditure
accaunt number 25-500-671-OQ000-~575-0OODO for the 50% rebate of prtor year
MTBE surcharges
Any rebate of past surcharge payments would come from Charnack settlement agreement
reimbursements and would be applied ~n the form af cred~ts on each appl~cable water
billing account
RECOMMENDATION
Staff recommends #hat Cauncil apprc~ve Opt~on D and direct staff to rebate 54°/fl of the
MTBE surcharge payments received to date, adopt #he revised water surci~arge resalution
reducmg by 5Q% the amount of the ongoing emerger~cy MTBE surcharge, and approve #he
abo~e ment3oned budget actions
Prepared by Cra~g Perkins, Director of Environmen#a! and Public Works
Management
Attachment Resolution
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City Cauncil Meet~r~g Ju1y 8, 7997
Santa Mon~ca, Cal~forn~a
RESOLUTION NUMBER g163 ~CCS}
(CITY COUNCIL SERIES)
A RESOLUTfON OF THE C{TY C4UNCIL OF THE
ClTY QF SANTA MONICA REDUClNG THE EXISTING
WATER RATE SURCHARGE
WHEREAS, tf~E C~ty Council may estabi~sh, amend ar revise from time to fime by
resa~ution th~ rates and serv~ce char~es to be c~arged far sUpply~ng water service to any
customer purs~ar~t to Sectton 7~2 010 of the Santa Mor~+ca M~n~c~pai Code, and
V1IHEREAS, as part of #he ad~~tion af the F~scal Year 9 997-~ 998 Clty budget, the
Santa Monica City Cauncil established a wat~r rate surcharge efFect~ve Juty 1, 1997 to
June 30, '~998, and
WHEREAS, f# has cont~nued to be n~cessary ta shut dowr~ ce~am water welis
supplyrng water to the Cr#y's customers because af a eontamEnant, anc}
WHEREAS, it cont~nues to be necessary tfl raise aciditiona! revenue to purc~ase
imported water to provjde continuous water serv~ce to the C~ty's custamers, and
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WHEREAS, the C~ty has recer~t~y ente;ed ~nt~ an agreement w~th Chevro~ ar-d Shell
regarding the cantamir~afi~~ at the Charnoc~C welf field to pay for replacMng iost water from
that weil freld,
N4W, THEREFORE, THE GiTY CQUNCI~. OF THE GITY ~F SANTA MONtCA
DOES RESflLVE AS FOLLOWS
SEC7i4N ~ The water rate s~rchar~e establ~shed by Resolutsor~ Number 9033
(CCS} s~a~l be reduced to th~ fol~owrng
~urcharq~
First Tier $ 93
Secor~d T~er $ ~9
SECTIQN 2 The water rate surcharge shall cont~nue to be ~n effect from Ju[y 1,
1997, to .iune 30, 199B The City shall se~arately acco~nt far surcharge rever~ues
SECTI~N 3 Any amounts collected m excess of casts from responsible parties for
the contam~nat~ar- sha[I be refur~ded ar cred~ted to customers of the water enterprise
SECTION 4 TY~e Crty Cferk shali certRfy ta the adoption o~ tY~ES ResolutEOn, and
thenceforth and thereafter the same shall be m full force and effecf
APPROVED AS TO FORM
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MAf~SHA~3flNES MOUTRIE
C~ty Attorney
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Adopted and approved tlus 8th of Jul~~ 1997
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P m O~Connor. Ma~-or
I. 1~1ana M Stewart_ Crt~~ Clerk of the Cit~~ o~ Santa Mon~ca, do hereb~- cer[if~~ that the
#oregoing Resoluuon 9163(CCS) ~~-as dulv adopted at a meet~ng of the C~tF• Councal held on the
8th of Jul~~, 1997 b~ the foliowmg ~~ote
A~-es CouncilanemE~ers Ebner, Feinstein, Genser, Greenberg. Mayor Pro Tem
- Holbraok. Ma~~or O'Cannor. Rosenstem
\ oes C ouncilrnembers ~ one
?~bstain Councilmembers None
absent Councilmembers None
ATTEST
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Maria M Ste«~art, Cit~~ Cl~k