sr-061080-9bSanta htonica, California
To: P~ayor and City Council
From: City Staff
Subject: Authorization for Restructuring of 4later Utility Rates
May 20, 7980 ~~ ~ 0 9S on
Introduction:
This report requests the City Council approve detailed recommendations concerning
the structure and form of water rates and approve the attached resolution to
accomplish said recommendations.
Background
The Santa Monica Ulater System is operated as a Division of the General Services
Department. It provides water to more than 90,000 consumers through 15,000
service connections, 4500 valves, 236 miles of distribution and transmission
mains. Fire protection is provided through a network of 1,100 fire hydrants
and 280 fire sprinkler connections. To distribute an average of more than
15,000,000 gallons per day, the Division operates and maintains three major pumping
plants, seven (currently) 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 P.iver water are purchased
from the Metropolitan tv'ater District and delivered daily for introduction into
the system. .Twelve thousand feet of distribution mains are replaced yearly by
City forces because of deterioration or inadequate size, eighteen acres of well field
and reservoir grounds are maintained. Total worth of the system is in excess of
10 million dollars; its total replacement would cost more than 35 million dollars.
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To: Mayor and City Council - 2 - May 20, 1980
In recent years, major categories of vital Division operating expenses have risen
sharply due to inflationary and related factors. Projections for the future
indicate an even sharper increase in coming years due to increases in expenses
such as pumping power and purchased water costs. These costs are, to a large
degree, outside the control of the City, and constitute as much as 60% of the
annual operating expense. Capital costs have also risen due to inflation which
complicates the continuing need for new and replacement structures and equipment.
In the corresponding period, revenues failed to keep pace, due largely to reduced
water usage which resulted in the reduction of revenues. This reduction continues
today. If water operations and capital investment are to be kept on a sound
financial basis, revenues must be increased.
The current water rate structure is based on a fixed bi-monthly service charge
related to the cost of maintenance of the service and a uniform charge per
billing unit (100 cubic feet of water used). Since the 1977-78 Fiscal Year,
established by Council as Water base year for calculating costs in June, 1979,
the uniform charge per billing unit has been increased 8%* while the service
charge has not been changed since 1972. The current charge is $.45 per 100
cubic feet of water.
During 1980-81 budget preparation, it became apparent that proposed water Operations
expenditures would exceed anticipated revenues not only in 1980-81 fiscal year,
but also in ensuing years. The major factors contributing to the situation are
these:
* Not including $.035/100 cubic feet currently charged under "pass through" costs
for imported water.
To: Mayor and City Council - 3 - May 20, 1980
1. Operational and distribution system maintenance costs increases, mainly due
to increases in material as well as labor costs;
2. Increases in maintenance costs of meters and services;
3. Costs increases in purchased water and electrical power;
4. Capital expenditures for needed replacements and improvements;
5. Costs due to "oversizing" of water mains to satisfy increasing fire
suppression demands.
Understanding many elements of these and other costs are largely outside the control
of utility management is necessary to understand rate structuring of a commodity
such as water. It is proposed the costs of the major cost factors be separated
and delineated in budget and rate structuring studies and those costs be identified
on future water bills.
A discussion of each of these factors follows:
1. Ease t-later Rate:
Ulhile Consumer Price Index has risen by 37.8% since 1977-78, the ..uniform
water rate per billing unit has risen by 8%. Until this separation of
incremental costs, all the increased costs of factors #2, #4 and #5 were
included in the uniform rate. This increment of cost should instead
encompass all operations costs except for those delineated in the other
four factors. Costs should be salaries; maintenance of water mains, treatment
plant, pumps, water wells; landscaping; mechanical and automotive equipment
maintenance and all factors not specifically identified in the other four
factors.
To
Mayor and City Council - 4 - f4ay 20, 1980
2. Service Charge;
As mentioned above, service charges should equate costs of maintenance
of consumer service lines and meters. They have not been adjusted since
1972. The fixed "Service Charge" should be doubled to more nearly reflect the
actual costs of this maintenance.
3. Power and Imported Water Adjustment:
The City of Santa Monica currently purchases and imports more than one half
of its water supply from the Metropolitan b!ater District of Southern
California. The cost increases of that purchased water since the 1977-78
base year are currently being "passed through" to the consumer by Council
resolution effected in 1979. It is proposed that these cost increases be
delineated as part of the rate structure. Also included are the increased
costs of pumping power. This factor would be identified as "Power and
Improted Water Adjustment" and would appear on the water bill.
4. Capital Improvement Rate:
To fund the capital improvements for a given year, it is proposed a
"Capital Improvement Rate" be delineated and appear on the consumer
bill. This element will enable continuing replacements and improvements
while reserving bond capacity for construction of new reservoirs, filtration
plants, etc. should they become necessary because of future developments.
5. Fire Demand Rate:
The ability of the water supply system to furnish water for fire suppression
at any point in the system is probably the single most significant factor
in determining the size of water supply mains. It results in installing
water lines of a diameter at least twice that required to simply furnish
To: P~layor and City Council - 5 - May 20, 1980
5. Fire Demand Rate
(cont)
potable water for all other purposes
Insuring agencies recognize this
fact and local fire insurance rates are a direct reflection of the community's
fire suppression capability. Although every structure in the City shares in
the benefits of the fire suppression capability, this increment has not
heretofore been separated from the basic water rate, and the costs of this
"over-sizing" have not, in the opinion of the staff, been distributed equitably
among consumers. This "Fire Demand Rate" is the final increment proposed
to be identified on the consumer water bill.
The derivation of and calculations for the above incremental factors are as follows:
1. Base Water Rate is derived by -
Total operating costs less the costs of Power and Improted Water, New
Meters and services*, one half the water main replacements, fire hydrant
replacements, and remaining capital improvements.
Total of above divided by Total Water Production - Base Water Rate
2. Service Charge - fixed charge, base d on costs of maintaining water services
and meters:
Size of Meter Bi-Monthly Bi-Monthly
Service Charge Service Charge
Domestic Meter Fire Meter
5/8 or 3/4 $ 4.60 $
1 6.60
1-1/2 14.00
2 19.60 11.70
3 46.30 17.60
4 65.40 23.40
6 135.60 35.10
8 200.70 46.80
10 287.70 58.50
12 428.20 70.20
*Costs of new meters and services are reimbursed by the Consumer at time of
installation.
To: Mayor and City Council - 6 -
3. Power and Imported Water Adjustment
Current Cost of Power and Imported Water less base year (1977-78) costs
Total above divided 6y Total Water Production
4. Capital Tmprovements Rate
Proposed capital improvement costs less the costs of one half of the water
main replacements, Fire Hydrant replacements and water services.
Total of above divided by Total Water Production = Capital Improvement Rate
5. Fire Demand Rate
Fixed bi-monthly charge based on the size of domestic and fire sprinkler
May 20, 1980
service and is as follows:
Size of Service
Meter
Bi-Monthly Fire
Demand Charge
Domestic Services
Bi-Monthly Fire
Demand Charge
fire Services
5/8 or 3/4
1
1-1/2
2
3
4
6
8
10
$ 2.00
2.00
2.00
2.00
12.00
40.00
100.00
250.00
500.00
67.00
100.00
133.00
167.00
200.00
233.00
The above bi-monthly charges are designed to generate an amount equal to one-
half of the main replacement costs and the total of fire hydrant replacement costs.
To: Mayor and City Council - 7 - May 20, 1980
As an example of this method of rate structuring, following is an example of application of the method to past and
projected years.
Fiscal Acct. Acct. Budget Budget Budget Budget Budget Budget
Year 77-78 78-79 79-80 80-81 81-82 82 83
- 83-84 84-85
Power & $938,298 $1,220,354 $1,200,000 $1,448,733 $1,593,606 $1,752,967 $1,928,964 $2,121,090
MWD Cost
Total Cap. 147,897 864,150 1,182,693 2,393,165 2,067,417 1,761,968 2,105,670 1,745
105
Mains
' 65,882 634,135 580,000 840,480 918,984 1,187,736 1,404,737 ,
1,205
247
FH
s 0 3,461 26,250 28,000 30,800 33,880 39,930 ,
.46
851
Ser.Mtr. 54,582 94,563 95,000 154,055 113,223 124,545 137,000 ,
150,700
Total Oper. 2,308,654 3,247,204 3,759,446 5,672,154 2,013,293 2,214,622 2,436,084 2,679,692
Tot. Depre. 350,636 741,063 1,182,693 2,393,165 2,067,417 1,761,968 2,105,670 1,745,105
Water Prod. 4,684 5,155 5,602 5,211 5,211 5,211 5,211 5
211
(MG) ,
Base Rate .24 .25 .25 .26 .28 .31 .34 .38
Import & .00 .04 .04 .08 .10 .12 .15 .17
Power Adj.
Cap. Improv. .O1 .07 .11 .26 .22 .15 .19 .14
Rate
Total * .25 .41 .45 .60 .60 .58 .68 .69
Rate
Serv.Charge 500,000 500,000 500,000 1,000,000 1,000,000 1,000,000 1,000,000 1,000,000
fire Demand 548.,000 548,000 548,000 548,000 548,000 548,000 548,000 548,000
* The tot al bill for any consumer is this rate times the number of units of water used plus the applicable
Service Charge and Fire Demand charge. See example of consumer bill, page 9 of this report.
To: Mayor and City Council
- 8 - May 20, 7980
Application of this rate structuring as applied to consumer charges through. the
range of meter sizes and amounts of consumption is as follows:
Water Cost to Consumers - various cities -
2 inch 6 inch
City 3/4 inc h 1&1/2 inch commercial & industry &
average large large Major
residen tial residential apartment Hospitals
20 unit 100 unit 500 unit 70,000 unit
units charge units charge units charge units charge
Santa Monica Water 11.20 .560 51.50 .515 232.20 .465 4517
80 452
(current) . .
Santa Monica Water * 18.60 .930 76.00 .760 321.60 .643 6235
60 624
(proposed) . .
Beverly Hills 15.92 .796 58.78 .588 283.78 .568 5597.08 .560
Water
Inglewood 20.56 1.028 87.81 .878 116.57 .833 6324.62 .632
Water
Pasadena Water 10.50 .525 52.60 .526 257.76 .516 3788.00 .379
& Power
Glendale Power 17..82 .891 70.20 .702 317.20 .634 5760.80 .576
& Light
Los Angeles Water 16.69 .834 58.63 .586 194.85 .390 3673.40 .367
& Power
Unit = Billing unit or 100 cubic feet of water used.
Unit Charge = Actual cost to consumer per billing unit after inclusion of additional
charges such as minimum usage charges, service charges, etc.
* See example of consumer bill, page 8 of this report.
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To
Mayor and City Council
11 _
.Size of~::Service
5/8 or 3/4
1
1-1/2
2
3
4
6
8
10
6
Bi-monthly
Fire Demand Charge
Domestic Services
$ 2.00
2.00
2.00
2.00
12.00
40.00
100.00
250.00
500.00
MaY 20, 1980
Bi-monthly
Fire Demand Charge
Fire Services
$ 67.00
100.00
133.00
167.00
200.00
233.00
Council adopt these charges effective July 1, 1980, or upon administrative
implementation, whichever occurs last.
Prepared by: Stan Scholl
Ed Lash
John Johnson
Attachment: Resolution