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sr-052477-11d• J~ Santa Monica, California, May 13, 1977 T0: tiayor and City Council FROM: City Staff SUBJECT: Mater Operations - Financial Projections and Conservation Measures Introduction This report revieeu financial projections .and current status of the ldater Enterprise Fund and makes recommendations for consideration by the Council and the community at the hiay 24, 1977 public discussion,"It also outlines pro- jections of the financial impact of increased costs which will be incurred in the near future. Back round With: financial penalties for not conserving water already a reality and with enforced conservation by state or local governing entities almost a certainty, action must. 6e taken immediately to attain financial stability for the Water Enterprise. Although $120,000 in anti-recessionary funds was transferred to the fund on April 12, inflated operating costs plus decreasing consumption (.and the consequent decrease in revenues) have far outstripped the gain from this and the revenues derived from the 7975 water rate increase. System Deterioration The distribution system in Santa Monica has more than. one hundred miles of old, unlined and undersized water mains, many of which predate 1924, and at the rate of replacement prior to 1475, T0,000 feet per year it would take more than Mayor and City Counci'I flay 13, 1977 Page T~~ro forty years to replace these mains. 8y that time the remainder of the system would have aged long past any reasonable expectation of serviceable life. In other words, without an appreciable increase in the rate of replacement, a minimum of 18,003 feet per year,~the system will deteriorate with increasing rapidity leading to a point where a massive allocation of funds will be re- quired to prevent-its decline:. The 1977-78 preliminary budget now proposes funding for only 3000 feet. In addition to the day to day operations, it is necessary to plan for capital improvements on a long range basis. The annual cost of replacing 18,000 feet of main per year is: 1977-78 $545,850 78-79 X600,435 79-80 5660,479 In addition, capital improvements to wells, pumps and reservoirs sails require 5312,000 per year. Funding Sources A total of~_1.29 million dollars was budgeted from General Funds in 1971,1972,1973 and 7974 and reserved for the. purchase of additional. sewage treatment capacity at the Los Angeles Hyperion Treatment Plant. No action is being taken on this. program presently and there is no demand for the use of these funds. Transfer of this amount to the Water Operating Fund would have the effect of accomplishing the needed capital improvements for the 1977-78 budget and a portion of 1978-79. It would also allow for continued operation until the necessary revenues could be effected from an adjustment in the rate structure keyed to accomplish desired reduction in usage. The alternative to this transfer 4vould be an immediate 40-5090 water rate increase or failing. that, continued deterioration of the system with a large bond issue likely in the very near future. -- Mayor and City. Counci 1 May 13, 1977 ' Page Three tdater Rates and Conservation t4easures The increased casts of electrical energy, $81,000 in the past 12 months, and the anticipated increased costs of purchased water, $80,000 for the next 12 months, and costs related to the water conservation effort, require an adjust- . ment of the current .water rate. An adjustment of 3¢ per. 700 cubic feet' is recommended to pass on these costs. A 3~ per 100 cubic feet increase will generate approximately $220,000. The City currently has a single block structure. It is recommended that an increase in water rates be based on this concept, since limitations in the current computer program for billing do not provide for increasing block rates such as vrould be desirable to provide greater incentives for conservation. These capabilities can be provided in the computer program but will require several months and the full time of one programmer. Such an approach is desirable and is contained in Recommendation 5. It should be recognized that additional large increased costs of purchased water will be forthcoming_from the t4etropolitan Water District due to new contracts for power from the northwest. These. costs from t4GlD and additional electrical power costs which are anticipated in the next 12 months will require a water rate increase in July. }978. In addition, legislation is recommended to provide for restrictions on non-essential water use.. These restrictions would be implemented in phases by the Council if the water supply situation deteriorates as forecast by State officials. ~. r... -, t4ayor and City Council May 73, 1977 Page Four Sewer Rates This report also recommends a reduction in .the Sewer Service Fee. Funds accumulated by collection of this fee are used for the following on-going annual expenses. 1, Santa Monica's annual operating and maintenance expenses for sewer line maintenance. 2. Santa P9onica's annual capital costs. This includes annual sewer replacement program and equipment replacement. 3. tJastewater Capital Recovery Fund, which is an annual amount reserved for re- placement of Hyperion plant equipment. This recovery is required by federal regulations. > 4. Santa Monica's share of Hyperion Sewage Treatment Plant's annual operating and maintenance costs. 5. Santa Monica's share of Hyperion Quality Improvement Capital- Costs. s Amount. Cents/100 ft3 Generated 03.7 $186,000 - 02.0 $i00,000* 03.8 $190,000 07.8 $399.000 06.7 $336,000 TOTAL $.24 $1,202,000 * Staff considers this portion to be underfunded and will be adjusted in future fundings. . .. P~!ayor and City Council May i3, 1977 Page Five The Sewer Service Fee provides funds for increasing the quality of the Hyperion Plant.. These quality improvements by the City-of Los Angeles have been delayed indefinitely until the quality of the effluent into the ocean is assured. It was the intent of staff to recommend that this portion, (item 5) of the fee be eliminated. However, on P4ay 9, 1977 the City re- ceived a letter from the City of Los Angeles notifying us that substantial improvements are planned for the Venice Pumping Station and requesting that Santa Plonica provide $1,453,700 for this. improvement as indicated below. Santa t4onica's portion of this work is 46% of total costs. If it is de- cided to reduce the sewer service charge by 3 cents this will result in a decrease in revenue of $150,000.annually. The reason for. this possible reduction is the delay of the need for increasing the quality of the effluent at the Hyperion Plant. The amount estimated. cost for this improvement is $336,000 annually. The projected cash .flow of the capital portion of the .Sewer Service Fund, {item 5) with the effect of a recommended 3¢ per 100 cubic feet redaction is shown below: City of L.A. 77-78 78-79 79-80 • 80-81 81-82 Totals Capital Portion of Expenses for Year End Revenues of Sewer Venice Pumping Balance of Service Fee (net of Station (S.M. Capital Portion Recommended Reduction) Portion) of Sewer Service Items 3 + 5 Fee _ _ _ $376,000 $173„400 $2.02,600 376,000 831,900 {253,300> 376,000 326,700 ( 204,000> 376,000 112,300 59,700 376,000 9,400 426,3 00 $1,380,000 $1,453,700 . . ' ;.' ADDENOUt~t I 1. Council. legislation to establish progressive conservation goals and .phased enforcement. a. Phase 1 10q reduction over 1976 usage by appeals for voluntary conservation plus prohibitions: - Water only on request in restaurants. - Washing down paved areas - ilon re-cycling fountains, ponds or pools - Over watering of la;vns and landscaping - Hose running car dashing Penalties: mailed warning, personal contact by 'r,ater Operations, floiv restrictor, shut-off. b. Phase 2 Define and prohibit non-essential uses of water: Non-essential water use defined and prohibited: - Water usage.n excass of 90~ of the equivalent billing period of 1976 - Car, boat,. 'trailer washing except at commerical facility - Use of water for those purposes at commercial facility except where water recycling equipment is installed (effective 6 months from effective. date of action).. - Hosing, washing dawn of any building or structure - Filling or refilling of recreational pool. except where recycling water equipment is installed, or where physician authorizes. . .. Mayor and City Council May 13, 1977 Page Six Effect of Recommended Changes The effect of the recommended changes in the water and sewer rates is shown below: Typical Apartment (10 units) Typical Single Family Residence Sma11 Business Large Business Present Bill for 2 months service (Mater and Sewer) ~~4.72 $2].22 $39.48 $472.85 Bill for 2 months service with ' changes in rates ~Se~•rer and 4tater) -X85.02 X21.85 X39.48 $475.37 Recommendations Successful financial operation of a utility as an enterprise depends on the transfer of the final costs of a commodity to the consumer. To accomplish this and to attain the conservation goal of 90w or less than 1976 consumption,. the following is recommended: Prepared 6y: S.E. Scholl E.H. Lash J.J. Johnson R.H. Nash :.~ -z- c. Phase 3 d. Phase 4 e. Phase 5 - Nan recycling pond or wading pool, except where necessary to support existing fish life. - tJatering of lawns and landscaping between the hours of 10:00 a.m. and 4:00 p.m. - Scheduled street flushing - extreme need only - Scheduled sewer flushing -extreme need only - Expansion of nursery facilities (or mfg?) -• Use of water from fire hydrants for construction purposes or fire drills - Scheduled water main flushing - extreme need only - Use if consumer does not comply with 10 day leak repair notice - Golf course irrigation except tees and greens - Plumbing leaks Same except 15% reduction Same except 20% reduction Same except 25% reduction Legislation would also provide for beginning with Phase 2 Exception - - Those consumers who use 10 cu.ft.3/bi-monthly period Enforcement -Authority to water Operations to install. restrictors in service lines or to terminate service for non- compliance, to issue exemption in case of health, sanitation, fire protection, public safety require- . menu , and to'adjust requirements due to changes since the base year. f . -3- Recommended Penalties _for Noncompliance ~~rith 4later Usa e Reductions Specii'ied in_Phase 2,3,4 or 5 - - - - After t:wo consecutive billing periods where usage has exceeded 90~ of 1976, a $1.00 charge for each 100 ft.3 over that maximum. Continued violation - install flow restrictor at meter, then shut-off. - . • ,. ~ .,.