HomeMy WebLinkAbout11-13-2012 b1 water rate structure studycounci lAac,Enea Repont
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 Water
Ron Munds, Conservation Manage r
SUBJECT :FINAL REPORT : WATER RATE STRUCTURE STUD Y
RECOMMENDATION
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
Backgroun d
• 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 . The
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 rat e
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).
Meeting Dat e
Nov. 13, 2012
Item Number
B 1
Based on the input and comments from the previous four study sessions, th e
Council and community will discuss the final water rate structur e
recommendation on November 13, 2012 . Although there are dollars associated with the fma l
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recommendation, this is not an exercise in setting the actual rates . A recommendation on the rate s
will be presented to the Council as part of the 2013-2015 financial planning process .
Council Goals &
Objective s
Revenue Stability
& Predictability
Stability &
Predictability o f
Rates
Simple & Easy t o
Understand an d
Administe r
Fair Allocation o f
Total Cost
Discourage
Wasteful Use
3 .
1 .
2 .
4 .
5 .
Water Rate Structure Study –Final Report Page 2
•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 tier s
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 Commercial
Monthly Fixed Charge $0 .00 $0 .00 Monthly Fixed Charge $5 .00
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 th e
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 technica l
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 th e
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 unit s
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 pe r
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 .
Public Outreac h
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
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 newsletter s
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 Step s
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 know n
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 .
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 .
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Water Rate Structure Study – Final Report Page 4
•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 the
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 . More detaile d
information is provided in HDR Engineering's technical memorandum in the Attachment .
Residential Multi-family & Non-residentia l
Monthly Fixed Charge $5 .00 Monthly Fixed Charge $5 .0 0
Consumption Charges Consumption Charge s
0-8 units $5 .90 All Consumption $7 .5 0
9-25 units $7 .3 8
26+ units $9 .26
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 . Mor e
detailed information is provided in HDR Engineering's technical memorandum i n
the Attachment .
Non-residentia lResidential
Monthly Fixed Charg e
Consumption Charge s
First unit
2-8 unit s
8+ units
$6 .0 0
$0 .0 0
$6 .1 3
$7 .66
Monthly Fixed Charg e
Consumption Charge s
First uni t
2-8 units
8+ units
$6 .0 0
$0 .0 0
$6 .1 3
$7 .6 6
ATTACHMEN T
HDR Engineering Technical Memorandum
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document T :\Council Agenda Reports\ 2012\2012-11-13\Water RateStructureStudy(Matungly-Hmton)•
Attachmen t
Technical Memorandum HR
To :Ron Munds, City of San Luis Obispo
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•Counclt Priontlzation City Staff Prioritization .
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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
B1-5
Attachmen t
Proposed Water Rate Structure
At the completion of the "Road Test" presentation the Council requested an alternative preferre d
rate option for consideration . The proposed rate option was based on the rate alternatives provide d
by 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 s
also 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 n
block 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 units
per 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 Structure
Monthly Customer Charge $5 .00
Consumption Charges
Block 1 First 8 CCF $6 .1 0
Block 2 > 9 CCF $7 .63
As shown above, the proposed water rate structure includes a monthly customer charge and a tw o
tier increasing block rate structure . The first block has been increased to include up to 8 units pe r
month . This 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 . The expansion o f
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 r
rate 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 t
typical consumption levels for the present water rate structure and the proposed water rat e
structure .
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HDR Engineering, Inc .Page 2 of 5
B1-6
Attachmen t
Comparison of the current and proposed rate structur e
Based on typical residential consumptio n
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
® Present Rates 1 $109 .45 $383 .15 I $969 .65 $1,360 .65 1,947 .1 5
® Proposed Rates $107 .21 $374 .26 $946 .51 $1,328 .01 1,900 .26
$2,500 .00
$2,000 .00
$1,500 .00
$1,000 .00
$500 .00
$0 .00 15 50 125 175 25 0
$200 .0 0
$180 .0 0
$160 .0 0
$140 .0 0
$120 .0 0
$100 .0 0
$80 .00
$60 .00
$40 .0 0
$20 .0 0
$0 .00
Present Rates 1 $0 .0 0
111 Proposed Rates $5 .00 $23 .3 0
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HDR Engineering, Inc .Page 3 of 5
B1-7
Attachmen t
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)-2 .2 %
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
5 - 25 ccf 7 .82 9+ ccf 7 .6 3
26+ ccf 9 .80
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HDR Engineering, Inc .Page 4 of 5
B1-8
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Attachmen t
Non-Residential Proposed Rate Structure -Adjusted 2-Blocks Wit h
Fixed Monthly Charg e
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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