sr-061378-9aJUN 1 3 1978
Santa Monica, California May 30, 1978
T0: Mayor and City .Council
FROM: City Staff
SUB.TECT: Recommendation for Water Rate Increase
Introduction
This 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 P4onica tdater System is operated as
a Division o£ the General Services Department, ht provides high quality
potable water to more than 90,000 consumers through 15,000 service con-
nections, 4500 valves,. 236 miles of distribution and transmission mains
and provides water for fire protection at-1,100 fire hydrants and 280
fire sprinkler connections. To distribute an average of more than
15,000,000 gallons per day, the system operates and maintains three
major pumping plants, eight water wells, a softening plant for locally
.produced water, and four reservoirs containing 35 million gallons of
stored water, In addition, more than eight million gallons of State
Project or Colorado River water are purchased from the Metropolitan
GJater District and delivered daily for introduction into the system..
Twelve thousand feet o£ distribution mains are replaced yearly by City
JUN 1 3 1978
Mayor and City Council
Page Two
May 30, 1978
forces because of deterioration or inadequate size and IS acres of
well and reservoir grounds 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 Sta ii5 of Wanes Operations: The present water rate structure
became effective in July, 1975., with a uniform commodity rate of $:32
per l00 cubic feet of water (1 billing unit). In July, 1977, an addi-
tional 3fi per billing unit was added to bring the. current .commodity rate
to $.35 per 100 cubic feet. This was partially offset by a reduction in
the sewer fee of 3fi per billing unit. Consumer cost for the commodity
is 11¢ per ton of water, and the average cost per day per capita is $.Q74.
Since 1975, major categories of vital Division operating expenses have
risen sharply due to inflation and related factors, and projections
indicate an even sharper increase in coming years. The increases in
costs in operations since 1975 include increases in power costs, 169%;
taxes for well fields and facilities owned in the City of Los Angeles,
33%; water purchased from M[dD, 32%; and payroll, 23%. .These costs are,
to a large degree, outside the control of the City and constitute as
much as 60% of the annual operating expense. In the corresponding
period, revenues have failed to keep pace, due largely to the successful
conservation effort during the water shortage when reduced water usage
resulted in a reduction of revenues of more. than $500,00.0-,
Mayor and City Council
Page Three
May 30, 1978
System Replacement In any well managed water utility it is imperative
that elements of the system including wells, pumping equipment, water
lines and reservoirs be constantly improved and replaced when outmoded.
The .City during many periods in the past did not adequately provide
for system replacement. During-the past year considerable progress
has. been made in this effort with the h~.lp of the $1 million Federal
EDA Grant. .The proposed 1978-79 budget together with the water rate
increase recommended herein will provide a continuation of this re-
placement work in the amount of $667,000
Methods of Increasing tidater Revenues There are various means by which
the. increased costs of utility operation can be distributed among the
users, but the most equitable is by a commodity price increase, since
the actual usage of the commodity is the reason for. the existance of
the system. Rates can take many forms, two of which are herein discussed:
a. Uniform Rate The unit cost of water remains uniform regardless
of the amount used, This method is the most equitable and is
the basis of Santa Monica's current rate structure,
b. Ascending Block Rate The unit cost increases (blocks or steps)
as the amount .used increases. Although some cities have tried
or are trying. this method, many are returning to the Uniform
Rate to alleviate some of the inequities inherent in the As-
cending Rate, Example: A renter in a large apartment building
Mayor and City Council
Page 4
May 30, 1978
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 oumer would pay the lowest unit
commodity price.. There is no more parity in an Ascending Block
Rate than.in the now obsolete Descending Rate where the large
user. pays a smaller unit cost.
For discussion,. other applicable. methods of increasing water revenues
are:
a. Increase installation costs, service charges, etc. 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 reservoirs rather than used
for ongoing capital outlay .such as annual main replacement programs.
In summary, it is believed that an increased commodity rate based on
the Uniform Rate method should be the vehicle by which the required
increase in revenues is realized.
Alternatives
1. Approve a uniform water rate increase in an amount necessary to
provide for increased expenses and to provide for a continuation
of replacement of the system on a rational basis.
2. Approve a lesser water rate increase to provide for increases in
expenses but not large enough to provide for capital improvements.
3. Do not approve a rate increase and subsidize the water utility
from the General Fund.
Mayor and City Council
Page Five
May 30, 1978
Recommendation "
It is recommended that Council, by resolution, adopt a uniform water
rate of $.385 per one hundred cubic feet. of water usage effective
July 1,:.1978.
Prepared by: S. Scholl
E. Lash
At tachmeiit s
A. Major Operating Expenses Categories
S. P.evenues vs.` Expenses
C. Water Rates Compared to Other Utilities
D. Water Pate Compared to Other Cities` Water Utilities
PURCHASED
WATER
PAYROLL
PURCHASED
POWER.
TAXES `':c
$ 1,000,000
$ 900,000
$ 800,000.
$ 700,000
~ soo,ooo
$ 500,000
400,000.
~ 300, 000
$ 200,000
$ 100,000
INCREASE d
SINCE JULY I, 1975 z
w
x
U
F
F
Q
32 %
23 %
169
33
2.B / NOTES:
" / (I) EXPENSE SIN CLUDE FUNDING FOR ANNUAL
"-"" 2.8 OA PITAL IMPROVEMENT PROGRAMS.
2.7
2.6
2.5
EXPENSES (11
2.4
2.3- A~
__ .4~'~
2.2
2 . I .
(4)
(2) REVENUESIN CLUDE WATER CHARGES,
REBATE FROM SEWER TREATMENT FEES,
NON-pPERATING REVENUES.
(3) DIFFERENCES BETWEEN EXPENSES AND
REVENUES WERE MADE UP BY REDUCTION
IN WATER FUND BALANCE AND TRANS-
FERS FROM VEHICLE REPLACEMENT
FUND, CAPITAL IMPROVEMENT FUND,
AND FEDERAL REVENUESHARING,.
(4) INCREASE IN REVENUES DUE TO 3~"
RATE INCREASE EFFECTIVE JULY I,I97
- ivaLUrai Uas July 1, 1975 to July 1, 1978
Power Rates July. 1, 1975 to current
Resi entia )
Power Rates July 1,,1975 to current
Pumping Power)
Water Utilities (2) July 1, 1975 to current
Santa Monica July 1, 1975 to July 1, 1978
Water
(1) 80% increase since 1973
(2)' Based on five city comparison and an averaging of
increases to highest industrial consumer usage and
typical residential usage..
~. a.:.
U
H
z
increase
v
28%(1) H
20%
169%
55%
9%
CITY
Santa Monica
(Curreht)
_ . -- _.
Average Large Large Apartment
Residential Residential Commercia
(1) (2)
20 Unit I 100 Unit 500 Unit
Units Charge Units Char e Units Char e
$9.30 $.465 $42.00 $.420 $198.16 $.396
Industry
Major Hos'itals
lo,ooo unit
Units Char e
$3567.80 $.357
Santa Monica 10.00 .500 45.50 .455 215.16 ` .431 3917.80 .392
Proposed)
Beverly Hills 21.72 1.086 70.90 .709 340.50 .681 6391.30 .639
Inglewood 19.84 `.992 85.22 .852 405.14 .810 6923.24 .692
Pasadena 11.00 .55 58.96 .589 253.54 .507 3936.78 .394
Glendale 15.18 .759 57.00 .570 244.90 .490 4425.30 .443
Los Angeles 16.54(3} .827 63.90(3) .639 216.400+) .433 3600.40(4) .360
(1) Unit = Billing unit o r 100 cubic feet of w ater used.
(2) Unit Charge = Actual
- cost to consumer per billing unit after inclusi on of additional charges such
as mini mum usage charges, service charge s, etc.
(3) Residential Water Ser vice Rate Schedule
(4} General Water Service Rate Schedule
WATER COST Tb CONSUMERS
~ -Various C ities-