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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. t '~~.`: a n 4n~~ 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. 6~ 1 U C O O U U c i O O~ f- v t c 0 c 3 0 t v ~a 0 V N ~ i-~ O •r +~ C U ~ 4- ~- a-` •r N }~ O C U N t6 N ~ v C i v U ~ r C{- ~ r- s +' '-' 4- U O 'r iZ L >; U +~ O O O t o N E al ~ E X O ~ N G C O C U ~ ® m 399 ~> i ~ c~i ~ 4 1 I J J I ~= m ~ ~ i ~ ,~! 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O O H C O V c v E E O U N K N i N O `~ N a E O i r N v +~ s a N N N i-~ C r +~ E tC ~ N +~ K U rC i r i +> -O N 3 v- m ~ ~ a rC 3 O y- ~ +~ '6 N N O to N 6> "6 N a i ~ LD t6 ~ - N _O v t V ~ U N E i i-> N 0000000 E N -f-~ i C U I~ tO ~ r• W L() N y S U O 4- O •r N +~ ~ 4- E > N r I~MIf) lONO ~ •O r i i i i r• ~ N M Gt u7 I~ •r~ C C O •r O •~- O ~ ~ m N 4- tq Q Ol V 'O N rt3 = i N O N N W N .C N 4J +-` M i N O) lp p~ O i i 3 tR ~ v ~ U S +> t b N +~ N v i i ~- N v 4- U ff3 O O r >~L a i v O > ~ U +> +~ +~ i t U H ~ r6 O N i-~ N •r O 00 00 00 000 t6 i C v N C U+-` lD lOOIp M GY l01~ IAN 'O 3 'O ~ ~ E > 4J Y ~O d' of l0 to ~ O I~ c0 as ++ C +-' U >~ I i E r•r•d'~OMOO~N i rp ~ •r •r N O r N N ct i O s m Na ~ ~ a N O ~ +~ 3 E N N U C O r +' O O p. i i ~ E _ -O r6 S S rC ~ ~ ~ O +> C +> i .N i Q ~ a v Q ~ >> O t O •• -I~ 0 3 ~ +~ tC i t6 3 L \ N r6 a -1-~ tp N O M \ N .C Q 4- 4- +-~ O i 1 O O U CO U O O r r-N MGF IO~ON U S 'D C N C ~ dJ r ~ ~ i-~ -6 O O O N •~- \ O O C C V ~` U tC N L(1 V U O E 'O E v O ~ N M N U rt5 N C] i v -N i r• o ~ ~ ~ N a v m v N 'O i ~ N U +~ N 3 O ~ Q N +-~ N U t N i~ Q X O N -F~ N L t[$ +-' O O" a ~ .O v ~ ~ ~ ~ "O i > i-~ -a v E i > rt5 O N i T ~ N ~- N a ~ a-+ W ~ •na I ~ I~ V n ~ ~ ~ ~ ~ s. a S rtf O i-~ N -6 ~ T ~ r 1-~ C r- i N U N N C +~ N O ~6 i O 3 a v ~; v V N L > +~ i N N N v ~ (A N +~ i U N N +~ O E i a 3 i N b C N R 4- ~ E O +> C i i-~ v N N N +-~ O 4J cC U i 3 a N 4- t N O o -.~ ~ _ +~ i-~ N O N N i ~F O N O V r ~ N rt5 N N S N N N ++ c a~ O r6 i 4- •r N t6 ~ t rt5 r6 i V t N i-~ "6 C +~ 3 rO6 O N E c a v N r v '6 N +~ ~ i-~ U N C UJ i ro a N i X 4- ~ ~ N b O S O U S +.~ a~ +~ a -ice i O ~ >, -o ~ ~ a ~ v 4- "O > O N r O Ti U i +.+ r C a N > ~ E o ~ ~ 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