SR-9A (9)
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EP\Vl\1. CP cp water
CIty Councll1.1eetmg September 9, 1997
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Santa Monica, Cahforma S EP 0 9 1997
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To
Mayor and CIty Council
From
City Staff
Subject
Recommendauon to Approve A Revised Water Rate ResolutlOn Authorizing the
DIrector of EnvIronmental and Pubhc Works Management to Adjust the Second
\Vater Rate TIer Break Pomt for Ehgible Customers
INTRODUCTION
ThIS report presents a dISCUSSion of current water rate Issues and recommends that the CIty
CounCIl approve a revIsed water rate resolutlOn authonzmg the DIrector of Environmental and
Public Works Management to adjust the second water rate tIer break point for customers who
meet specific ehglbIhty cnteria as descnbed below
BACKGROUND
In May, 1996 the Cay CouncIl adopted a new water rate structure and an emergency MTBE
water surcharge These new rates were authonzed to become effective on July I, 1996 Pnor to
July, 1996, the City'S bilhng rates for water service had not been changed SInce Apnl, 1991 The
adoptiOn of the new rates In 1996 was based on the recommendations of a comprehensive study
WhICh was undertaken for the Cay m 1995 and 1996 by the consultmg firms of David M
Gnffiths and ASSOCIates and the Keese Company The purpose of the study was to recommend
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SEP 0 9 1997
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changes to the rate stmcture whIch would achieve the followmg
1) generate suffiCIent revenues to adequately cover operatmg and capItal costs,
2) encourage water efficiency through the rate structure and assist the City in meetmg
its Sustamable City Program goals,
3) mamtain the affordablhty of basic water selVice,
4) estabhsh a hfehne allowance for low mcome customers,
5) provide eqmty between customer groups and between customers 1.i\r,thm a group,
and
6) keep water rates Simple and understandable
The overall thrust of the consultant study and the subsequent staff recommendatlOns was to
charge water customers for theIr actual fair share of the overall costs whIch have to be borne by
the City to pro\-lde them wlth the level of water servIce whIch they reqmre_ An mformatlOn
report on the new water rates along WIth a copy of the full consultant report were distributed to
Councd on Apnl 17, 1996 A staff report and rate resolutions were presented to Council prior to
its pubhc heanng on May 14, 1996 at WhICh time all of the staff recommendations were approved
DISCUSSION
After a bnef profile of the City's current water customer base, a summary of each ofthe
slgmficant changes to the water rates approved by Councd In May, 1996 IS presented below along
\\lth a bnef explanation and diSCUSSion of the speCIfic Impacts from the change ThIS IS followed
by an assessment of how successful the new rate structure has been In achieving each of the SIX
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goals listed above after a lIttle less than one year offutt Implcmentauon
:}Yater Customer Profile
Presently, the City provides service to 15,584 water meters which are classified as follows
6,947 Smgle Fanuly
5,665 Multi-FamIly
2,057 Non-resldenlial (commercial, industnal, institutiOnal)
279 lrngation
636 Fire Line Service
The percentage oftota1 water usage by each of these customer groups is
25% SIngle Family
42% Multi-Famtly
33% Non-Residential (commercIal, mdustnal, mstitutlOnal)
Smce most multi-family and commerCIal bUlldmgs are "master metered" (only one or a few water
meters serve the entire facIlity) there are slgmficantly fewer water meters than water users There
are approximately 48,000 households m Santa Momca and approximately 8,000 busmesses Of
this 56,000 total, though, less that 16,000 receive a water bIll About 40,000 households and
busmesses are regular water users but are not billed directly by the City
~fajor Features of the New 'Vater Rates
1. Fixed service charges are the same for all customer classes and are based on the size of
the water meter. The prevIous fixed service charge amounts varied slgmficantIy between
customer groups and placed an llleqUltable burden on non-resldentJal and mulu-family customers
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For example, under the old rates the fixed charges were 7 6 times higher for a non-reSidential
customer and 2 6 times higher for a multi-family customer than for a single famtly customer With
the same meter size RevIew by the consultants of the prevIOUS water rate analysIs and
calculations whtch were performed In 1990 mdlcated that these large dIscrepancies in the fixed
service charges between customer groups were the result of erroneous assumptions regardmg
peak water use charactenstlcs It was therefore determmed that making the monthly service
charges the same for aU customers using the same size meter would be the approach most
consistent wIth the actual "cost of service" analysIs completed by the consultants and City staff
Since this change resulted in a sigmficant decrease in fixed charges for all but single family
customers, a higher proportIOn of the total fixed costs are now paid by the City's single family
customers
2. The commodity rate structure now has three rather than two tiers, and the break points
for each customer group have been modified. The third tIer of the rate structure provides
greater mcentives for water effiCiency and can be admmistratively waived on a case by case baSIS
If a customer has implemented water efficient practIces/technologies or can demonstrate other
umque circumstances for which the trurd tIer should not apply The recommended tIers for each
customer group are based on each group's particular water use characterIstIcs and, in the case of
non-residential customers, the size of the water meter Also, the pnce dIfference between the first
and second tiers is now Wider than in the past which should improve the effectiveness of the tier
structure as a water efficiency tool
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Water use charactenstics are relatively homogeneous for smgle family and multi-famIly customers
However, smgle famIly customers on the whole exhibit seasonal vanatlon III water use whereas
there ]S very httle seasonal varIation in multi-famIly water use 11edlan monthly water use for
single family customers is 24 HCF (hundred cubic feet)1 and fOf mulu-famlly customers IS 9 HeF
(per dwelling urnt) TIer break pomts under the new rates are establIshed so that the proportion of
water use at each tIer is the same for each customer group These common proportIons are set at
40% for the first tier, 59% for the second tier and 1% for the thIrd tIer The new first break pOInt
for smgle fam]ly]s 14 ReF as compared with 13 ReF previously, and for multl~family the new
break point is 4 HCF as compared with 7 RCF previously This means that the single famIly water
use bIlled at the first tier rate (0 to 14 RCF) and the multi-family water use bIlled at the first tIer
rate (0 to 4 ReF) represents 40% of the total aggregate bl-monthly water use in the smgle family
and multi-famIly groups, respectIvely
3. In order to increase the incentives to all customers for reducing water use, the rates
collect a higher portion of revenues from the commodity rates as compared to the fixed
service charge. Although the overall mcrease In revenues which was identified by the consultant
as being necessary to cover the costs of water operatIons dunng FY 1996-97 (Ignonng all MTBE
related costs) was only 4 7%, the fixed service charges were slgmficantly reduced for all
customers except smgle fanuly and the variable commodIty charges were sigmficantly increased
for all customers The new first tIer rate, not mcludmg the MTBE surcharge, IS SO 71, the new
second tIer rate is $1 68, and the new thIrd tIer rate IS $4 00 Under the prevIous rates, the first
]Each hundred cubic feet equals 748 gallons of water
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two tIers were $0 50 and $097, respectively (there was no third tier under the prior rates)_
Therefore, the actual Impact from the new rates on specific water customers has been highly
variable wIth some customers expenencmg a sIgnIficant decrease in costs, some customers
experiencmg a sigmficant mcrease m costs and some customers payIng essentially the same as they
were paymg before
Success of the New Structure in 'Meeting the City's \Vater Rate Goals
1) Generate sufficient revenues to adequately cover operating and capital costs. The new
rates would have met the initial year's goal for funding of operatmg and capital costs and
estabbshment of a responsible fund reserve level had it not been for the MTBE contaminatIOn
which Impacted two of the City's well fields As a result of this MTBE contarmnation, fund
reselVes have been drawn down to pay for a sIgnIficant portlOn of the emergency costs and an
1.1TBE surcharge apphed to all customers' btlls has covered the balance of the Increased budget
needs ThIS partIcular goal cannot be met, therefore, untIl MIBE related costs are fully paid by
the parties responsible for the -r.,'1TBE contamination
2) Encourage water efficiency through the rate structure and assist the City in meeting its
Sustainable City Program goals. Total water demand dunng FY1995-96 (the last full year
before the ImplementatIon of the new rates) was 12 52 million gallons per day (11GD) Total
water demand dunng FY1996-97 was 13 28 MGD, an mcrease in demand of6% An analysis of
data through the end of the 1996-97 fiscal year shows that water demand by the multi-fatnlly
customer group dId not increase over 1995-96, demand by the smgle famIly group increased by
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about 10% and demand by the non-residential group mcreased by about 2 5% Also, It appears
that about 75% of the mcreased water usage IS due to greater extenor water use (landscape
imgation, etc) The chart on the followmg page presents a ten year comparison of total water
usage and sewer flows for Santa Monica
The analysis that was undertaken by the City's consultants in developmg the rate
recommendations concluded that the financial incentives/disincentIves embodied in the new rates
could be expected to reduce overall water usage m the City by a maximum of approximately 7%
over about a five year period, all other factors remammg unchanged Although It was understood
at the time that thiS estimate was subject to a slgmficant marglll of error, nevertheless, It IS clear
that water demand in the City has moved in an opposIte duection from that which was antiCipated
With the new rates There are many factors, however, whIch may have contributed to thiS increase
m water demand over the past year mcIudmg variations III ramfall, variations III seasonal
temperatures, mcreases or decreases m permanent or non-permanent (employees, employers,
Vlsltors, etc ) populatIOns, changes III level of economic actiVity, completlOn of new development
projects (residential and commercial) and, finally, changes m per capita water use within existmg
customer groups, 1 e people are usmg more water per person than they were usmg m the prevlOus
year
The level of analYSIS whtch would need to be performed to ascertain whIch of the factors hsted
above mfluenced water demand in Santa MOllica and to what degree they exerted an influence IS
complex and time consummg Dunng the current fiscal year, staffwill contmue to momtor water
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demand and will also develop a new water demand measurement Instrument whtch will be based
upon adjusted per capita consumptIOn A per capita water demand measurement which aggregates
both permanent and non-permanent populatIOns should allow a much more accurate assessment
of Santa MOnIca> s water demand trends and better identification of the factors which explam the
trends Staffwlll also be Implementmg new water efficiency programs and strengthenmg eXisting
programs specifically targeted at the types of water use (extenor) that appear to be the basIs for
the recent increase In citywide demand
3) .Maintain the afTordability of basic water service. The new rate structure maintams Santa
Momca's water rates at an affordable level when compared to vanous other cities m the area
\\'hen separate composites of the new smgle family, mulu-famtly and non-residenual water rates
(not includmg the MTBE surcharge) are compared to the water rates for these same customer
groups m the cIties of Los Angeles, Beverly Hills, lnglewood and Glendale, the Santa 1\.1onica
smgle family and multi-family rates rank lowest and the non-reSidential rate ranks 4th lowest
4) Establish a lifeline allowance for low income customers. The new rate structure waives the
bi-monthly setvlce charge for qualifying low mcorne customers Commodity rates remam the same
for low Income customers to mamtam a water efficiency incentive Customers quahfy for the low
mcome allowance If they can show proof of quahficatlOn for low mcome allowance under
Southern Cahforma Edison or Southern Cahforma Gas Company programs To date, the
implementation of the hfelme allowance has been without problem
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5) Provide equity between customer groups and customers within a group. The new rate
structure mherently provides for eqUIty between customer classes because the total amount of
revenues which are received from each customer group are calculated to match the actual costs to
the City for providIng water service to each group By removIng the cross-subsidies which had
eXIsted pnor to the ImplementatIOn of the new rates, the rate structure was made much more faIr
for customers as a whole The bi-monthly service charges are the same for all customers who have
the same sIze water meter, and the price of water at each rate tier IS the same for all customers
\\1J1at vanes between customer groups are the tIer break pomts
The mechamsm by WhICh the new rate structure attempts to provIde for customer eqUity wlthm
each customer group IS to treat every customer wlthm each group In the same way based on
average customer charactenstlcs Tills means that the tier break pomts witlun each customer
group are set based on average demand for the entire group IneVItably, whenever a rate structure
IS based on average charactenstlcs and usage patterns some customers WithIn the group will more
closely match the average than others The question than arises as to whether It is feaSible from a
techmcal standpoInt and advlsable from a rate policy standpomt to allow adjustments to or
Walvers from the standard break points for specIal circumstances
The new rate resolutIon does allow City staff to consider admmlstratIve remedies at the third tIer
for those customers who can "demonstrate that they have taken all reasonable water effiCIency
measures to reduce water use but stIll find themselves In the third tier" The resolution further
empowers CIty staff to perform a water audit ofa customer applYIng for such a waiver and
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reqUIre the customer to Implement recommendatIOns of the audit before a rate structure
adjustment is made To date, the City has received two requests for administrative adjustment
from customers who consistently enter the third tIer ($4 00 per HCF) Both of these customers
are non-residentIal (one manufactunng plant and one car wash), and following an analysIs by staff
and, ill one case an outSide consultant, both customers were granted an adjustment to move them
out of the third tIer Also, staffhave processed and approved several requests for third tier
adjustments as a result of a major leaks As a general pohcy, customers are charged at no more
than the second her for increased usage resultmg from accidental leaks which have been promptly
repaired
Recommended Change to Rate ResolutIOn
Although the current rate resolution does not authonze any other types of admlmstrahve
adjustments, staffhas concluded that a moddicatlOn to the resolutlOn should be made so that the
Director of EPW1\1IS granted authonty to approve adjustments to the second tier break point
Ehglbllity for adjustments would be hmIted to those customers who submit an applicatIon which
demonstrates that their water use patterns or the phYSical charactenstlcs of their property differs
slgmficantly from the averages for their group ReSidential customers would be eligible to apply
for an adjustment If their household size is at least twIce the average for their respective group
Both reSidentIal and non-residentIal customers would also be ehglble to apply for an adjustment If
the ratlo of perviousness2 for thelf parcel exceeds the standard perviousness factor by at least
2Pervlousness IS essentially the ratio of hard scape to landscape for a particular parcel The
L A County Flood Control DIstnct has estabhshed standard perviousness factors for all types of
parcels which have also been mcorporated mto Santa Momca's Urban Runoff Control Ordmance
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50% If an adjustment IS granted based on a slgmficant vanation m a parcel's perviousness from
the average, It wdl automatically result m a review and possIble reductIon in the customer's sewer
dIscharge facto~ used m the calculatIOn of their sewer rate Conversely, if a customer applies for
and IS granted a water rate adjustment based on a larger than average household size this Wl]] also
automatIcally result 10 a revIew and possIble increase to theIr sewer discharge factor
In all cases, It wIll be the responslblhty of the customer/appltcant to provIde CIty staff with all of
the documentatiOn and verificatiOn WhICh IS necessary to process theIr request It wdl also be
necessary for the customer/applIcant to demonstrate that they have taken aU reasonable water
effiCIency measures to reduce mtenor and extenor water use The reVIsed resolutiOn wIll also
empower CIty staff to perform a water audIt of a customer applymg for an adjustment and reqUire
that the customer Implement recommendatIOns of the audIt before a rate structure adjustment is
made Dpon CounCIl adoption of the attached resolutIOn, staff IS prepared to Immediately
dlstnbute adjustment applIcatIOns to qualified customers and implement the review process for
adjustments
6) Keep water rates simple and understandable Whenever an attempt IS made to develop a
rate structure wluch IS sophIsticated enough to be fair and equitable and accomplish multiple
goals, It IS mevltable that some customers wIll perceive the rates as overly complex and difficult to
3 The dIscharge factor IS a standard percent applIed to each type of customer whIch
represents the assumed percentage of water usage whIch ends up in the sewer system The higher
the proportion oflandscape imgatiOn, the lower the proportion of water (from mterior uses)
entenng the sewer system The dIscharge factor constitutes one of the pnmary bases for the
calculation of a customer's sewer charges
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understand This IS a dIlemma which IS faced by all water agencies The alternative of adoptmg
"one sIze fits all" rates, however, IS a clearly mfenor approach, e g a rate structure where
everyone pays the same amount regardless of their customer group or volume of water use One
of the pnmary challenges faced by Santa Monica m ensunng that the water rates are understood
by customers is that the vast majority of the water users m the City are not dIrectly billed for
water service ThiS Situation presents great challenges to the City m terms of the communicatton
ofmformation on water efficiency, water quality and other key issues of which water users should
be aware
Based on the mqumes and complamts received by City staff since the rates were changed, it
appears that the new rates are suffiCiently Simple and understandable There were a large number
(a few hundred) of customer mqUlnes/complamts Immediately after the first bills With the fully
Implemented rates were mailed out The maJonty of the mqumes/complaints were from reSidential
customers \Vlth multi-family customers, a number of property owners and property managers
complained that their costs had mcreased slgmficantly and that they had no control over how
much water was used by their tenants In many of these cases, the overal1 volume of water used
by the respective customer had Increased as well With smgle fanuly customers, a number of
complamts were received about the large magmtude of the increased costs Many of these same
smgle family customers had also experienced an mcrease In the total volume of water used during
the bilhng peflod Smce the early part of 1996, the number of customer inqUIries/complaInts has
returned to normal levels
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,PropositlOn 2 I 8 EvaluatIon
As a part of the analysIs 10 prepanng this report, staff evaluated the potentIal Impacts of
Proposition 218 on the City's water rates Although there IS much ambigUIty in the language of
the irutiattve which wIll ultimately be resolved by the courts or through subsequent legislation, the
most authontatlve legal opmions to date (including an opmion by the California Attorney General)
conclude that water rate structures such as Santa Monica's are not subject to the proviSIOns of
ProposItIon 218 Staf!wIll contmue to morutor any future legal and/or legIslative developments
pertaining to Proposltton 218
FlSCALIBUDGET Th-fPACT
It IS not anticipated that CouncIl adoptlOn of the recommendations In tills repon Will Significantly
Impact the revenue or expendIture budget of the water fund It 1S not poss1ble for staff to
accurately predIct how many applIcatIOns for adjustment may be filed by customers over the
course of the current fiscal year or how many of the customers who apply may be deemed ehgible
and be granted an adjustment Smce the proposed adjustment would apply, by defimtion, to
customers who are the "exception" It 1S assumed that any Impact on revenues wtll be relauvely
small The Impact on staff from administering the proposed application process is also dIfficult to
predict In the absence of any actual expenence on the number of apphcations Wh1Ch WIll ult1mately
be filed The processmg and revIew of applicatIons will be carried out by existmg staff In the
EPWM Department If the volume ofapphcatlOns 1S unexpectedly great, staff wIll obtain
addltlOnal assistance on a temporary baSIS and present a full evaluation of any Impacts on revenues
and expendItures as a part of the FY 1998-99 budget process
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RECOl\.11'v1ENDA nON
It is recommended that City CouncIl approve the attached water rate resolutIon authonzmg the
DIrector of Environmental and Pubhc Works Management to adjust the second water rate tier
break point for customers who meet specific ehglbllity cntena as descnbed above
Prepared by
Craig Perkms, DIrector of EnvIronmental and Pubhc \Vorks Management
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RESOLUTION NO. 9197 (CCS)
(CITY COUNCIL SERIES)
A RESOLUTION OF THE CITY COUNCIL OF THE
CITY OF SANTA MONICA REVISING THE CITY'S
WATER RATE STRUCTURE
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 ~ater service to any customer, pursuant to
Section 7.12.010 of the Santa Monica Municipal Code; and
WHEREAS, it is the goal of the City of Santa Monica's
sustainable City Program to encourage efficient use of water by
water customersj and
WHEREAS, the following water rate structures will provide
greater equity between customers,
NOW, THEREFORE, THE CITY COUNCIL OF THE CITY OF SANTA MONICA
DOES RESOLVE AS FOLLOWS:
SECTION 1.
The bi-monthly fixed service fee for domestic
and landscape metered customers is hereby established as follows:
Bl-Monthly Water Serv1ce Charqe-All Customers
Meter Slze
5/8 & 3/4"
1"
1 ~"
SerV1ce Charqe
$8.66
$15.30
$26.37
Meter Slze
3"
4"
6"
SerVlce Charqe
$70.64
$114.91
$225.59
"
1
2"
$39.65
8"
10"
$358.40
$513.35
SECTION 2.
A three-tier water commodity rate structure
for all meters is hereby established as follows:
Water Commodity Charge
Rate/HCF Ranae of Use
Slngle Famlly - 1st T1er $0.71 0-14 HeF
2nd T1er $1. 68 15-136 HCF
3rd T1ey $4.00 137+ HCF
Multl-Famlly - 1st T1er $0.71 0-4 HCF
/dwell1ng 2nd T1er $1. 68 5-28 HCF
un1t 3rd T1.er $4.00 29+ Her
Non-ReS1d. - 1st Tler $0.71 See
2nd Tler $1.68 Below
3rd Tler $4.00
Meter S~ze
1st T~er
2nd T~er
3rd T~er
5/8-3/4" I"
0-15 0-21
16-240 22-240
241+ 241+
1 ~"
0-54
55-522
523+
2"
3"
4"
6"
0-120 0-220 0-390 0-1500
121-1092 221-1840 391-2610 1501-9400
1093+ 1841+ 2611+ 9401+
SECTION 3.
Bi-monthly fireline rates are hereby
established as follows:
8"
10"
Service Charge
$ 41. 22
$ 65.87
$127.51
$201.48
$287.77
Meter Size
5/8 & 3/4"
1"
1 ~"
2"
Service Charge
$ 6.70
$10.40
$16.56
$23.96
Meter Size
3"
4"
6"
SECTION 4.
A low-income allowance will be offered to water
customers with individual water meters who qualify for either the
Southern California Gas Co. or Southern California Edison low-
income assistance programs. The low-income allowance shall consist
"
of waiving the bi-monthly service fee. The low-income customer
shall be responsible for paying the commodity rates.
SECTION 5. The water rate structure established by this
Resolution shall be applicable to all water service provided by the
City of Santa Monica Water Division except as otherwise provided in
Article VII, Chapter 2 of the Santa Monica Municipal Code.
SECTION 6. The city will establish administrative remedies
consistent with Santa Monica Municipal Code section 7.16.080 for
those third rate tier customers who can demonstrate that they have
taken all reasonable water efficiency measures to reduce water use
but still find themselves in the third tier. City staff may
perform a water audit for a customer and require the customer to
implement recommendations before rate structure adjustments are
made.
SECTION 7. The City will establish administrative remedies
to adjust the second tier break point for those customers who can
demonstrate their water use patterns or the physical
characteristics of the~r property differs signif~cantly from the
averages for their customer group. Each customer submitting an
application for such an adjustment will be required to demonstrate
that they have taken all reasonable water efficiency measures to
reduce water use. City staff may perform a water audit for a
customer and require the customer to implement recommendations
before rate structure adjustments are made.
,
SECTION 8.
The water rate structure as established by this
Resolution will be effective on July 1, 1996, or as soon thereafter
as administratively feasible.
SECTION 9.
Resolution Number 8188 (CCS) is hereby repealed
as of the effective date of this Resolution.
SECTION 10.
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:
hvudu~~
MARSHA JONE$ MOUTRIE
Cl. ty Attori<ey
,
Adopted and approved thIS 9th of September 1997
~ ()~~
Pamela O'Connor. Mayor
1. Mana M Stewart. Cny Clerk of the CIty of Santa MOllica, do hereby certIfy that the
foregomg ResolutIon 9197 (CCS) was duly adopted at a meetIng of the Cn)' Council held on
the 9th of September. 1997 by the followmg vote
Ayes
CouncIlmembers
Femstem. Genser. Greenberg. Holbrook, O'Connor
Noes
CouncIlmembers
Ebner
Abstam
CouncIlmembers
None
Absent
CouncIlmembers
Rosenstem
ATTEST
(
~,.~J.) ~._~
Mana M Stewart. Cltf Clerk