HomeMy WebLinkAbout12-04-2012 b2 water rate structure study final reportcounci l• j acenea nepont
C I T Y O F S A N L U I S O B I S P O
FROM :
Carrie Mattingly, Utilities Directo r
Prepared By :Wade Horton, Deputy Director of Wate r
Ron Munds, Conservation Manager
SUBJECT :FINAL REPORT : WATER RATE STRUCTURE STUD Y
RECOMMENDATIO N
1.Approve the water rate structure which establishes a fixed charge plus a two tier variabl e
water rate structure for all water customers, effective July 1, 2013, with final adoption a s
part of the 2013-2015 Financial Plan ; and
2.Direct staff to continue its public outreach efforts to inform water customers of the change s
in water rate structure and report back to the Council on community feedback prior to fina l
rate structure adoption .
DISCUSSIO N
Background
• The City Council, HDR Engineering, and City staff have been working through a comprehensiv e
review of the current water rate structure since July 2012 . This has included presentations to th e
Council on the fundamentals of rate design or "Rates 101", a thorough review and selection of rat e
structure goals and objectives in alignment with the community's values, an evaluation of variou s
conceptual rate structures, and the "road test" of the final rate structure alternatives . Th e
culmination of all this work has provided the basis and method of setting rates to meet the Council's
and community's water rate structure goals and objectives .
During the fourth and final water rate structure study session held o n
October 16, 2012, HDR Engineering presented to the Council the "road test "
of five single family and five multi-family and non-residential rate
structures . The analysis of the options used actual rates and bill comparison s
to identify and assess the impacts on the different customer classes . The
Council narrowed the focus down to two options . A majority indicated a
preference for a rate structure that included 1) a fixed charge, and 2) tw o
pricing tiers with the first tier set at 1 to 8 units . A majority of counci l
members also indicated they would prefer the same rate structure for al l
customer classes (i .e . both residential and non-residential).
Dec . 4, 2012
dumber
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Based on the input and comments from the previous four study sessions, th e
Council and community discussed the final water rate structur e
recommendation on November 13, 2012 and continued the matter until December 4, 2012 to ensur e
all members of the City Council could participate in this item . Although there are dollars associate d
with the final recommendation, this is not an exercise in setting the actual rates . A recommendatio n
on the rates will be presented to the Council as part of the 2013-2015 financial planning process .
Council Goals &
Objective s
Revenue Stabilit y
& Predictability
Stability &
Predictability o f
Rate s
Simple & Easy t o
Understand and
Administe r
Fair Allocation of
Total Cost
Discourage
Wasteful Us e
3 .
1 .
2 .
4 .
5 .
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Water Rate Structure Study – Final Report
Page 2
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Recommended Water Rate Structur e
Based on Council consensus reached at its October 16, 2012 study session, the following water rat e
structure option was developed . The proposed water rate structure applies to all customer classe s
(residential and non-residential) and includes the following elements :
1)A monthly customer charge that would be charged regardless of the amount of water use d
2)Two tiers
a.First block : 1-8 unit s
b.Second block: 9+ unit s
Below is an example of the per unit costs associated with the current and proposed water rat e
structures based on today's revenue requirements .
Present Rate Structure Proposed Rate Structur e
Residential Commercia l
Monthly Fixed Charge $0 .00 $0 .00 Monthly Fixed Charge $5 .0 0
Consumption Charges Consumption Charge s
0-5 units $6 .25 $6 .25 0-8 $6 .1 0
6-25 units/6+ for comm .$7 .82 $7 .82 9+ units $7 .6 3
26+ units $9 .8 0
The block pricing in the proposed rate structure is slightly lower than the current rate structure i n
order to maintain revenue neutrality. As with any rate structure, when the City goes through the
water rate review process, the charges to the customer will adjust based on the overall targe t
revenue levels . More detailed information is provided in HDR Engineering's technical
memorandum in the Attachment to this report .
The proposed rate structure meets the Council goal of increasing rate and revenue stability throug h
the addition of the monthly customer charge and the expansion of the first block . Expanding the
first block captures over 70% of the residential consumption allowing revenue predictions to b e
made with increased certainty .
Monthly Bill Compariso n
Using the per unit costs from the table above, HDR Engineering calculated the impacts t o
residential and non-residential customers under various consumption scenarios .
Residential Monthly Bill Compariso n
Consumption
3 units
7 units
12 units
25 units
Current
$18 .75
$46 .89
$85 .99
$187 .6 5
Proposed
$23 .30
$47 .70
$84 .32
$183 .5 1
Non-residential Monthly Bill Compariso n
Consumption 15 units 50 units 125 units 250 units
Current $109 .45 $383 .15 $969 .65 $1,947 .1 5
Proposed $107 .21 $374 .26 $946 .51 $1,900 .26
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Water Rate Structure Study –Final Report Page 3
• For residential customers, the impacts of the proposed rate structure will vary based on monthl y
water use . For those customers using less than seven units per month the impact will range from a n
increase of $0 .81 (at seven units per month) to $5 .00 (at zero units per month). Customers usin g
between eight and 25 units will see their bills decrease on average by approximately $2 .50 per
month .
For non-residential customers, those customers using less than seven units per month will see a n
increase in their monthly bill (same as the residential comparison in first table), and those usin g
more than seven units per month will see a decrease in their monthly bill . The typical customer wil l
see a monthly decrease of approximately two percent.
Several questions were asked about how this rate structure will impact low income rate-payers an d
staff will be prepared to provide that information at the December 4, 2012 City Council meeting .
Public Outreach
To ensure the community was informed and had an opportunity to participate in the water rate stud y
process, staff engaged Verdin Marketing to assist in the development of a public outreach plan . Th e
plan was designed to enable City staff to handle most of the activities therefore keeping costs to a
minimum . The desired outcome of the plan was to communicate and update the community on th e
goals and objectives, and results of each meeting . Information was provided ahead of each meetin g
about the topics to be covered, the community was invited to participate in the process and a mean s
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for those who could not attend, the ability to access the information provided at each meeting . The
outreach included :
1.Print ads in the Tribun e
2.Radio ads on KVEC and KST T
3.Articles in the summer and fall Resource newsletters
4.Facebook ad s
5.Facebook posting s
6.Website access to presentations and report s
Outreach efforts will continue until the final of adoption if the Council chooses to move forwar d
with the recommendation to approve the water rate structure .
Next Steps
Should Council approve the recommended rate structure at this meeting and direct staff to continu e
its public outreach efforts to inform the community of the change, staff will report back to th e
Council with the outcome of these efforts prior to final adoption . Changing the water rate structure
requires voter approval in accordance with California Constitution Article XIII (commonly known
as Proposition 218)before final adoption can occur. The new water rate structure would b e
presented to the community in the spring and results of the vote would be presented to Council a s
part of the 2013-15 Financial Plan process .
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Water Rate Structure Study —Final Report
Page 4
•CONCURRENCE S
Finance and Information Technology Department utility billing staff has confirmed that th e
recommended water rate structure and the alternatives presented in this report can b e
accommodated by the City's utility billing software and incorporated into the billing system .
FISCAL IMPAC T
The recommended changes to the rate structures are intentionally designed to be revenue neutral ;
therefore there will be no substantive fiscal impact to the water fund to change the water rat e
structure . If nothing but the water rate structure were to change in the future, water customers woul d
see slight increases or decreases depending on their level of water use .
ALTERNATIVE S
1.As compared to the existing rate structure, this alternative, for residential, 1) maintains th e
current three block increasing rate structure, 2) modifies the block sizes to include 8 units i n
the first block, 3) maintains the existing block levels (ending levels) for the second and thir d
block, and 4)includes a monthly customer charge . The multi-family and non-residential rat e
structure 1) adds a monthly customer charge, and 2) the increasing block rate structure ha s
been revised to a uniform rate, or a rate that is the same for all consumption .
Residential Multi-family & Non-residentia l
Monthly Fixed Charg e
Consumption Charge s
0-8 units
9-25 units
26+ units
$5 .0 0
$5 .9 0
$7 .3 8
$9 .26
Monthly Fixed Charg e
Consumption Charge s
All Consumption
$5 .0 0
$7 .5 0
2.This alternative is the same structure for both residential and non-residential . It includes 1)a
monthly customer charge, 2) the first unit of water in the customer charge, 3) a second bloc k
for consumption over 1 unit per month up to 8 units per month, and 4) a third block .
Residentia l
Monthly Fixed Charge $6.00
Non-residentia l
Monthly Fixed Charge $6.0 0
Consumption Charge s
First unit $0 .00
Consumption Charge s
First unit $0 .0 0
2-8 units $6 .13 2-8 units $6 .1 3
8+ units $7 .66 8+ units $7 .66
ATTACHMEN T
HDR Engineering Technical Memorandu m
documentT .\COUnaI Agenda Repatl\201212012 11-13~4Vater Rate Structure Study (Matingly-Harton)
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Attachmen t
S
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Technical Memorandum FiR
To :Ron Munds, City of San Luis Obisp o
From :Shawn Koorn, HDR Engineering, Inc .
Date :10/26/1 2
Subject :Final Proposed Water Rate Structur e
Introductio n
HDR and City staff has been working through a review of the current water rate structure with th e
City Council . This has included presentations to the Council on "Rates 101", goals and objectives ,
conceptual rate structures, and the "Road Test" of the final rate structure alternatives . Thes e
meetings provided the basis and method of setting rates to meet the Councils water rate structur e
goals and objectives .
During the second meeting the City Council and staff prioritized the goals and objectives that wer e
presented . Provided below is a summary of the prioritized goals and objectives that were used t o
refine the rate structures presented to the Council for consideration .
Prioritization of the Rate Design Goals and Objective s
By The City Council and City Staff
City Council Prioritization Rank City Staff Prloritlzation
Revenue Stability & Predictability 1 Stability and Predictability of Rate s
Stability and Predictability of Rates 2 Revenue Stability & Predictabilit y
Easy to Understand and Administer 3 Fair Allocation of Cost s
Fair Allocation of Costs 4 Reflect Present and Future Cost s
Discourage Wasteful use 5 Easy to Understand and Administer
The above goals were used to develop the conceptual rate structures . Eight conceptual rat e
structures were developed for Council review . These conceptual rate structures were discusse d
with the council, and at the completion of that meeting, several of the conceptual rate structure s
were selected to move forward for further analysis .
During the "Road Test" five rate structures were reviewed in more detail . The "Road Test" provide d
the actual rates for each alternative as well as how each alternative rate structure impacte d
customers at various consumption levels . Each alternative rate structure was discussed with th e
Council and how it fit with the prioritized goals and objectives .
At the completion of the "Road Test" presentation the Council provided HDR and staff wit h
direction on the preferred alternative to move forward for final consideration . Provided below is a
summary of the proposed rate structure, as proposed by the City Council, along with severa l
additional rate structure alternatives that were discussed as possible rate structure options .
HDR Engineering, Inc .Page 1 of 5
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Attachment
Proposed Water Rate Structur e
At the completion of the "Road Test" presentation the Council requested an alternative preferre drate option for consideration . The proposed rate option was based on the rate alternatives provide dby HDR . The proposed rate option adds a monthly customer charge to reflect a portion of the fixe d
costs incurred to provide water service regardless of water usage . The proposed rate structure i salso applicable to both the residential and non-residential customers . For the residentia l
customers the third block, over 25 units per month, has been removed and the first consumptio nblock has been expanded from 5 units per month to 8 units per month . For non-residentia l
customers the same monthly customer charge applies and the first block is increased from 5 unit sper month to 8 units per month . Provided below is an overview of the proposed water rat e
structure for the City's residential and non-residential customers .
Proposed Water Rate Structur e
Monthly Customer Charge $5 .0 0
Consumption Charges
Block 1 First 8 CCF $6 .1 0Block 2 > 9 CCF $7 .63
As shown above, the proposed water rate structure includes a monthly customer charge and a tw otier increasing block rate structure . The first block has been increased to include up to 8 units pe rmonth. This rate structure meets the Council goal of increasing rate and revenue stability throug hthe addition of the monthly customer charge and the expansion of the first block . The expansion of •the first block results in over 70% of the residential consumption being captured in that bloc k
allowing City staff the ability to predict revenues with greater certainty .
As a reminder, the proposed rates are set to be revenue neutral, that is, no change to the curren t
level of overall revenues the water utility receives . In the future, as the City goes through the wate rrate review process, the impacts to customer will change based on the overall target revenu e
levels . Provided below is a summary of the customer bill impacts for residential customers a ttypical consumption levels for the present water rate structure and the proposed water rat estructure.
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HDR Engineering, Inc .Page 2 of 5
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Attachment
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Comparison of the current and proposed rate structur e
Based on typical residential consumptio n
$200 .0 0
$180 .0 0
$160 .0 0
$140 .0 0
$120 .0 0
$100 .0 0
$80 .00
$60 .0 0
$40 .0 0
$20 .00
$0 .0 0
® Present Rates
I®Proposed Rates ;$5 .0 0
•
As can be seen in the chart, the impacts of the proposed rate structure will vary based on monthl y
consumption . For those customers using less than 7 units per month the impact will range from a n
increase of $0 .81 (at 7 units per month) to $5 .00 (at 0 units per month). For those customers usin g
more than 7 units per month, the monthly bill will decrease on average by approximately $2 .50 pe r
month up to 25 units per month .
The following chart provides the bill impacts for non-residential customers at various consumptio n
levels .
Comparison of the current and proposed rate structur e
Based on typical non-residential consumptio n
$2,500 .00
$2,000 .00
$1,500 .00
$1,000 .00
$500 .00
125 175 250 j
$969 .65 $1,360 .65 1,947 .15 j j
$946 .51 $1,328 .01 1 1,900 .2 6
HDR Engineering, Inc .Page 3 of 5
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$0 .00 15 5 0
IS Present Rates [$109 .45 $383 .1 5
5 Proposed Rates ;$107 .21 $374 .26
Attachment
For non-residential customers, those customers using less than 7 units per month will see a n
increase in their monthly bill, and those using more than 7 units per month will see a decrease i n
their monthly bill . The typical customer will see a monthly decrease of approximately 2%.
Summar y
The proposed rate structure meets the goals and objectives of the City Council, as do the provide d
alternatives . As noted earlier the proposed rate structure will be reviewed in more detail during th e
City's rate review process . Provided below are more detailed bill comparisons of the proposed rat e
structure for review .
Residential Proposed Rate Structure -Adjusted 2-Blocks With Fixe d
Monthly Charg e
CONSUMPT PRESENT PROPOSED $DIFF %DIF F
0 $0 .00 $5 .00 $5 .00 0 .0 %
1 6 .25 11 .10 4 .85 77 .6 %
2 12 .50 17 .20 4 .70 37 .6 %
3 18 .75 23 .30 4 .55 24 .3 %
4 25 .00 29 .40 4 .40 17 .6 %
5 31 .25 35 .50 4 .25 13 .6 %
6 39 .07 41 .60 2 .53 6 .5 %
7 46 .89 47 .70 0 .81 1 .7 %
10 70 .35 69 .06 (1 .29)-1 .8 %
12 85 .99 84 .32 (1 .67)-1 .9 %
14 101 .63 99 .58 (2 .05)-2 .0 %
16 117 .27 114 .84 (2 .43)-2 .1 %
18 132 .91 130 .10 (2 .81)-2 .1 %
20 148 .55 145 .36 (3 .19)-2 .1 %
25 187 .65 183 .51 (4 .14)-22 %
PRESENT PROPOSE D
Monthly Fixed Charge Monthly Fixed Charg e
per customer $0 .00 per customer $5 .0 0
Consumption Charges Consumption Charge s
0 - 5 ccf $625 0 - 8 ccf $6 .1 0
•1-55 -25 ccf 7 .82 9+ccf 7 .6 3
26+ ccf 9 .80
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HDR Engineering, Inc .Page 4 of 5
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Attachment
Non-Residential Propose d
Fixed
Rate Structure
Monthly Charg e
-Adjusted 2-Blocks Wit h
CONSUMPT PRESENT PROPOSED $DIFF %DIF F
0 $0 .00 $5 .00 $5 .00 0 .0 %
5 31 .25 35 .50 4 .25 13 .6 %
15 109 .45 107 .21 (2 .24)-2 .0 %
20 148 .55 145 .36 (3 .19)-2 .1 %
25 187 .65 183 .51 (4 .14)-2 .2 %
35 265 .85 259 .81 (6 .04)-2 .3 %
45 344 .05 336 .11 (7 .94)-2 .3 %
50 383 .15 374 .26 (8 .89)-2 .3 %
55 422 .25 412 .41 (9 .84)-2 .3 %
65 500 .45 488 .71 (11 .74)-2 .3 %
70 539 .55 526 .86 (12 .69)-2 .4 %
75 578 .65 565 .01 (13 .64)-2 .4 %
85 656 .85 641 .31 (15 .54)-2 .4 %
95 735 .05 717 .61 (17 .44)-2 .4 %
125 969 .65 946 .51 (23 .14)-2 .4 %
135 1,047 .85 1,022 .81 (25 .04)-2 .4 %
175 1,360 .65 1,328 .01 (32 .64)-2 .4 %
250 1,947 .15 1,900 .26 (46 .89)-2 .4 %
500 3,902 .15 3,807 .76 (94 .39)-2 .4 %
750 5,857 .15 5,715 .26 (141 .89)-2 .4 %
1,000 7,812 .15 7,622 .76 (189 .39)-2 .4 %
1,250 9,767 .15 9,530 .26 (236 .89)-2 .4 %
PRESENT PROPOSE D
Monthly Fixed Charge Monthly Fixed Charg e
per customer $0 .00 per customer $5 .0 0
Consumption Charges Consumption Charge s
0 - 5 ccf $625 0 - 8 ccf $6 .1 0
6+ ccf 7 .82 9+ ccf 7 .63
HDR Engineering, Inc .Page 5 of 5
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