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HomeMy WebLinkAbout06/14/2011, PH 2 - 2011 WATER FUND REVIEW AND 2011-13 WATER RATE ADOPTION council h'R',D� June 14,2011 j ac Enda izEpout 1�N..k'�N a CITY O F SAN LUIS O B I S P O FROM: Came Mattingly,Utilities Director Prepared By: Gary W. Henderson, Water Division Manager -dP4 L� Kathe Bishop, Senior Administrative Analyst SUBJECT: 2011 WATER FUND REVIEW AND 2011-13 WATER RATE ADOPTION RECOMMENDATION 1. Review and accept the 2011 annual water fund financial review. 2. Approve the amended Capital Improvement Plan for 2010-11, which defers $1.5 million for the Utilities Telemetry System Upgrade construction phase from 2010-11 to 2013-14 based on the revised capital plan program. 3. Adopt a resolution increasing water service charges by ten percent (10%) effective July 1, 2011 and nine percent (9%) effective July 1, 2012 provided there is not a majority protest against such increases. 4. Conceptually approve the Water Fund budget for 2011-13, with final action on June 21, 2011 with adoption of the 2011-13 Financial Plan. REPORT IN BRIEF This report presents the annual review of the financial position of the City's water fund. It makes recommendations for water rate increases as previously projected in the 2009 and 2010 Water Fund Reviews, in the amounts of ten percent (10%) in 2011-12 and nine percent (9%) in 2012- 13, despite revenues less than projections. Expenditure reductions in current (2010-11) and projected (2011-13) operating and capital expenditures, totaling $4.5 million, were necessary to maintain the previously projected rate increases and to improve the balance between income and expenses. As part of the 2010-11 Mid- Year Budget Review, adjustments were made to incrementally reduce water revenue projections for 2010-11. Total water revenues are projected to be about $1.3 million (8%) less than the 2010 Water Fund Analysis($14.4 million compared to $15.7 million). At year-end total water sales, which account for more than 90% of total water revenues, are projected to be about $1.68 million (11%) less than projected in the 2010 Analysis. The 2011 Water Fund Analysis(Attachment 1, Exhibit A.1.) includes the revised revenues as projected for 2010-11 year-end, and presents revised revenue projections for the 2011-13 Financial Plan and forecast. PH2-1 2011 Water Fund Review and 20.11-13 Water Rate Adoption Page 2 The 2011 Water Fund Analysis reflects a changed methodology for revenue projections which calculates water sales based on fiscal year-end water use projections, instead of long-term average water use, and no longer ties population growth to General Plan estimates but to economic indicators. The proposed budget maintains working capital reserve levels above City policy of 20% of operating expenses. Based on the City's multi-year rate strategy, incremental rate adjustments are made over time to build up the working capital balance to prepare the fund for significant expenses (debt service obligations and/or investments in capital infrastructure), and to insure that the fund is self-supporting and able to respond in the event that an emergency infrastructure need occurs. The City's water fund remains positioned to meet debt service requirements associated with the Nacimiento Project and previous upgrades to the City's water treatment plant. The 2011 Analysis presents a revenue and expenditure plan and forecast that improve the balance between current revenue projections and expenditures incrementally, with a structurally balanced budget currently forecasted in 2015-16 as displayed in Attachment 1, Exhibit A.1. DISCUSSION The 2011 Water Fund Analysis takes into consideration current economic conditions, revenue constraints, and expenditure reductions, while maintaining operating and maintenance programs, addressing the highest priority capital improvement projects, and ensuring high quality, safe and reliable water services to the community. Overall, despite decreasing revenues, the water fund is stable. As part of the 2011 Water Fund Analysis, action was taken to reduce operating and capital expenses. Expenditure reductions total $4.5 million, which includes about $1.5 annually beginning in the 2010-11 revised budget and continuing through the two year 2011-13 Financial Plan. Of the total $4.5 million, $3.5 million (78%) is attributable to capital budget reductions, $650,000 (14%) is based on projected operating and materials expenditure savings, and $350,000 (8%) is staffing related savings from an operator position that was not filled in 2010-11 and anticipated staffing related expenditure savings. The water fund remains positioned to meet the debt service and operating and maintenance requirements associated with the community's newest source of water supply. Major reductions proposed for the capital improvement plan are temporary in nature as such reductions in the long- term are not conducive to maintaining the water infrastructure in a reliable manner. A working capital reserve level above City policy of 20% operating reserve is maintained in 2011-13 and into the future. The 2011 Water Fund Review presents a long-range plan to improve the financial condition of the fund over a number of years, remaining sensitive to the community's capacity for water rate increases and Council policy related to rate setting. Moving into the future, a new methodology for projecting water use will take into consideration the impacts of the changed economic environment and other influences on the water fund. PH2-2 2011 Water Fund Review and 2011-13 Water Rate Adoption Page 3 With the completion of the Nacimiento Project, the City has met many of the goals and policies that are identified in the City's General Plan. In particular, the City's multi-source water policy and the reliability reserve provide solid enhancements for meeting current water demands as well as future community needs for decades to come. The reliability reserve has set aside water for unforeseen circumstances, such as a new worst-case drought or loss of a water supply source, and will provide benefits to both current and future residents. This is a major accomplishment achieved by the community. Capital Improvement Plan Overview For over 15 years, the community has made outstanding progress in replacing its water infrastructure. As a result of the significant investments in capital improvements, fewer main breaks are occurring over time and a proactive water service line replacement program, through which defective polybutylene lines have been replaced over the last ten years, was recently completed. Pump station and tank replacements have increased system reliability and equipment has been purchased to increase staff efficiency and preventive maintenance activities. In 2010, revenues were trending downward from original projections. In response, reductions in capital expenditures were made incrementally. Over the next two years significant reductions are being proposed in the City's water fund Water Capital Improvement Plan and Forecast capital improvement plan in order to 3,0M.000- maintain ,0M.aromaintain rates for 2011-13 as previously zsaa.aoo projected in the 2009 and 2010 water fund ZpMADD analyses. 1,N0,000 The chart shows capital improvement 1.aaapaa plan budgets from 2008-09 through those wo,aaa projected in 2015-16.. The chart demonstrates 0 1--, t OM 20WIG 2010-11 2011-u 2012-1a 2013-14 iols-13- 201s1e historic funding levels, 20 reductions taken in 2010-11, along with those recommended in 2011-13, and a return to more historic funding levels in 2013-14. 2011 Water Fund Analysis Report The attached 2011 Water Fund Analysis report provides details associated with major changes in water sales and projected revenues, measures taken to keep water rate increases at the same level as projected in the 2009 and 2010 water fund analyses, assumptions used to complete the analysis, and an update of the major programs and activities. PH2-3 2011 Water Fund Review and 2011-13 Water Rate Adoption Page 4 Revenue Projections and Financial Forecast The 2011 Water Fund Analysis forecasts the water fund's financial position through 2015-16. The analysis takes into consideration current and ongoing economic conditions and has identified significant operating and capital expenditure reductions, especially over the next two years, to moderate rate increases. This past year saw a major drop in water use in the City. Many factors contributed to this lower level of water use including recessionary impacts, significant rainfall, increases in student housing on Cal Poly campus, and a heightened awareness of water use associated with volume based sewer billing. In 2010-11 water revenues did not meet projections throughout the year. Action was taken to revise water sales revenue projections as part of the 2010-11 Mid-Year Budget Review. The long-range financial forecast is impacted by revenues not meeting projections in 2010-11. Long-standing methods (based on population projections tied to the General Plan, along with historic water use trends) that were used to project water sales in the past, have not proven responsive to changing conditions influencing water sales over the last two years. Using this approach resulted in water sales projections being higher than actual metered water use. In preparation for the 2011-13 Financial Plan, staff has analyzed additional utility billing data sets in order to better correlate factors influencing water sales and therefore revenue projections. The analysis evaluated trends in water use among the various customer classes (i.e., single family residential, multi-family, hotels, restaurants, irrigation accounts, etc.). While the analysis did not reveal a single specific factor that caused the reduction, community irrigation use exhibits the largest drop-off. While irrigation use is strongly influenced by the amount and timing of rainfall, it is also a "discretionary" use that water users may decide to cut back on during difficult financial times. After further analysis and discussion, staff has adjusted its methodology for projecting water sales utilizing current economic trends related to indicators such as housing and development, student population, and irrigation. This information has then been applied to the current year water sales. For the 2011-13 Financial Plan, revenue projections assume no net increase in the amount of water used by the community when compared to revised 2010-11 year-end water use projections. The number of factors that have led to the water sales reductions may be a "perfect storm" or it may be the new normal. Staff will continue to closely analyze trends and, as in the past, will recommend course corrections as necessary. 2011-13 Financial Plan Operating Program Change Reductions Significant operating program change (SOPC) reductions total $824,300 in 2011-12 and $1,268,000 in 2012-13, as summarized in Attachment 1, page 4. Detailed supporting documentation for each request is provided in Appendix A of the Preliminary Financial Plan, PH2-4 i 1 2011 Water Fund Review and 2011-13 Water Rate Adoption Page 5 pages 25 to 40. In addition, a list of water operating program cost reductions is located on pages 144 to 147 of the Preliminary Financial Plan,Appendix A. The majority of the operating program reductions are associated with the water source of supply program. The 2009-10 and 2010-11 Salinas Reservoir operations budgets included funding for design and construction of an upgrade of the Salinas Booster Pump Station. Adequate funding has now been set aside to complete this project. This operating budget reduction of$675,900 in 2011-12 and $1,135,900 in 2012-13 was anticipated and included in previous water fund analyses. Electrical pumping costs associated with delivery of water from Whale Rock Reservoir have been reduced $91,600 annually in 2011-13 due to water deliveries now coming primarily from the Nacimiento and Salinas Reservoirs. Staffing cost reductions associated with the 2009-11 Financial Plan carried over into the 2011-13 Financial Plan with additional reductions in staffing related costs projected in 2011-13. Projected staffing cost reductions are also programmed into the long-range financial forecast and water rate plan. Operating Program Change Increases The significant operating program change (SOPA increases total $75,800 in 2011-12 and $82,600 in 2012-13. SOPC increases are summarized in Attachment 1, page 4 with detailed supporting documentation for each request provided in Appendix A of the Preliminary Financial Plan, pages 25 to 40. Capital Improvement Plan Requests and Reductions Capital improvement plan requests are summarized in Attachment 1, page 6, with detailed supporting documentation Can-yo verCapital ImprovementPlan Projects for each provided request ided in q p Cap rtal projects for Salinas and Whale Rock Reservoirs are accounted Appendix B Of the for in the Water Fund Source ofSupp ly Operatlng Program Preliminary Financial Plan, APPROVED pages 3-54 to 3-76. Even I saa.cenjsnpply j I BITOGEr with the recommended _l Salinas Reservoir Booster Pump Station Upgrade 1,500,000 capital reductions, major Whale Rock Reservoir Telemetry System Upgrade 235,000 investments will be made in Water Treatment Plant Air Compressor Replacements 200 000 the water infrastructure - Raw Waterline Recoating _ 150,000 serving the community. Filter Media Replacements 100,000 Carryover capital projects RoofRepair and Replacement 81,100 for the water system that Water Distribution were previously approved Distribution System Pipeline Replacements 1,057,300 Telemetry System Upgrade-Design 325,000 total about $4 million. The Johnson Waterline and Pavement Repay 194,000 water fund Carryover Maintenance and Assest Management System 1 120,0001 projects, as displayed in the Administration and Engineering following table, are plannedUtility Billing System Upgrade(50%share) 75,0001 for completion in 2011-13. TOTAL CARRYOVER WATER CAPITAL PROJECTS 4,037,400 PH2-5 2011 Water Fund Review and 2011-13 Water Rate Adoption Page 6 An upgrade to the Salinas Reservoir Booster Pump Station, with a total budget of$1.5 million for design and construction, will be completed during fiscal year 2011-12. While no funding is identified for water distribution pipeline replacement over the next three years, previously identified funding of approximately $1 million will enable replacement of pipelines at various locations throughout the City this summer. In addition, a project to replace approximately 350 linear feet of 16-inch water main in Johnson Avenue, including pavement repair, will be in construction this summer in front of French Hospital. During the next year, design for upgrades to the City's telemetry control systems for the Whale Rock conveyance system and the citywide water distribution system will be initiated with previously approved funding. Construction of the telemetry system, previously approved at $1.5 million in 2010-11,has been deferred until the 2013-14 fiscal year to moderate rate increases. The 2011-13 water capital improvement plan totals $311,400 in 2011-12 and $200,000 in 2012- 13. The capital plan includes water reuse automation improvements ($50,000) and an analysis of the recycled water distribution system ($40,000) planned in 2011-12. A total of $200,000 annually in 2011-13 is identified for trench repair 2011-13 Capital Impr�ov�ement Plan and to raise valve covers — _ _ 2011-12 zo1G1T f SuPPIY following the completion Source o �— BUDGET BUDGET of city paving projects. A lWater Reuse Automation Improvement 50,000 total of $21,400 in 2011- 17Water Reuse Distribution System Analysis 1 40,000 12 reflects the wateI I Water Distribution fund's share of city I IDistribution System Improvements 200,000 200,000 information technology Total WaterServices_CW290,0001 200,000 capital projects. The Water Shared City Information Technology _ Fund 2011-13 Capital �Office Application Software Replace 10,000 Improvement Plan is Wireless Network Infrastructure 9,500 displayed below. I City Website Upgrade 1 1,900 —7-Total Share ofTechoology CII' I 21,400 i 0 After two years with a TOTAL WATER FUND CAPITAL PLAN I 311,400 IT 200,000 significantly reduced level I— —: of capital projects, the longer term capital plan returns to funding levels of approximately $2 million annually beginning in 2013-14. Funding is projected to return to historic levels in 2013- 14 which more closely align with Council's infrastructure replacement goal of two percent per year. The most significant investment in 2013-14 is $1.5 million in information technology related to construction of water distribution telemetry system upgrades. In 2014-15, funding shifts to water distribution system improvements related to water pipeline replacements. Attachment 1, Exhibit A.3 displays the Water Fund 2011-13 Capital Improvement Plan and forecast through 2015-16. The most significant budget balancing in the water fund was achieved by reducing or deferring capital improvement projects related to water distribution over the next two years. When compared to the 2010 Analysis and capital plan forecast, the 2011-13 capital reductions total $964,600 in 2011-12 and $1,090,700 in 2012-13 to maintain previously projected rates. Capital project funding for existing waterline replacements is projected to return in 2014-15. The PH2-6 2011 Water Fund Review and 2011-13 Water Rate Adoption Page 7 following table demonstrates how capital improvement plan funding levels have been adjusted over time(2009, 2010, and 2011 Water Fund Analyses) in response to changes in projections. Water Capital Improvement Plan Revised Funding Levels 3,000,000 2,500.000 2.000,000 132009 1,500,000 132010 2010 ❑2011 1,000,000 500,000 0 2011-12 2012-13 2013-14 2014-15 201510 Community Engagement On April 22, 2011, pursuant to the requirements of California Constitution Article XIII (commonly referred to as Proposition 218), a Notice of Public Hearing (Attachment 2) was mailed to all water and sewer customers informing them of the proposed rate increases for the water and sewer funds 45 days in advance of the June 14, 2011 public hearing. The Notice of Public Hearing included proposed water rate increases of ten percent (10%) in 2011-12 and nine percent (9%) in 2012-13, which are the final recommended water rates for Council consideration. As outlined in the Proposition 218 notice, the recommended rate increases will be discussed as a public hearing item before the City Council on June 14, 2011, when the public will have an opportunity to comment on the recommendations and register official protests to the proposed rate increases as required by Proposition 218. Staff looks forward to Council and community input on these issues. The Utilities Department notified the public of the proposed rate increases and the associated public hearing utilizing a number of outreach methods including- Utilities Resource newsletter, The Tribune, SLO City News, and the City website. Information and scripts were provided to local media outlets for community calendars and for public service announcements. In addition, the Utilities Department held "Open House" hours from 5-7 pm, once weekly over a four week period to meet with community members in an informal setting to provide educational information about the City's water and wastewater services and proposed rate changes, and to assist with specific information to answer individual questions. PHZ-7 1 2011 Water Fund Review and 2011-13 Water Rate Adoption Page 8 Water Service Charges The City's water rate structure is commodity-based and has been since 1993. From 1993 through 2005, the water rate structure included two tiers for all account types. In 2006, the City Council approved the addition of a third tier to the single family residential water rate structure for water use greater than 25 units monthly effective July 1, 2006. Water bills are based on customer usage choices and resulting demand on the water system. The water service charge is fully volumetric, based on the volume of water used by the individual customer. The following table shows a summary of the current and proposed water rates for single family residential accounts which includes three tiers. Current and Proposed Water Service Rates Water Rates Single Family Residential Units 2010-11 2011-12 2012-13 Current Proposed Proposed 1 -5 $5.21 /unit $5.73/unit $6.25/unit 6-25 $6.52/unit $7.17/unit $7.82/unit 26+ $8.17/unit $8.99/unit $9.80/unit 1 unit= 100 cubic feet=748 gallons of water The following table shows a summary of the current and proposed water rates for all other accounts which includes two tiers. Water Rates All Other Account Types Units 2010-11 2011-12 2012-13 Current Proposed Proposed 1 -5 $5.21/unit $5.73/unit $6.25/unit 6+ $6.52/unit $7.17/unit $7.82/unit 1 unit= 100 cubic feet=748 gallons of water Exhibit A of Attachment 3 provides the detailed list of the proposed rate increases for 2011-12 and 2012-13. For the few accounts outside of the City limits, rates are twice the amounts shown. Additionally, there are a couple of commercial accounts within the City that do not have a water meter (served by private wells), but are attached to the City's water system for emergency purposes such as fire protection as established in 1996 under Resolution No. 8578, and included in the proposed water rate resolution(Attachment 3, section 3). PH2-8 2011 Water Fund Review and 2011-13 Water Rate Adoption Page 9 Fiscal Impact on the Average Residential Customer Bill The proposed water rate increases for 2011-12 and 2012-13 are the same rates as previously forecasted in the 2009 and 2010 water fund analyses presented to the City Council over the past two years. The following table displays the current and proposed water rates for the average residential customer, assuming an average of nine (9) units of water monthly. Average Residential Water Customer Monthly Bill Assuming nine(9)units of water use per month Units 2010-11 2011-12 2012-13 1 -5 $5.21 /unit 26.05 $5.73/unit 28.65 $6.25/unit 31.25 6-25 $6.52/unit 26.08 $7.17/unit 28.68 $7.82/unit 31.28 26+ $8.17/unit n/a $8.99/unit n/a $9.80/unit n/a $52.13 $57.33 $62.53 1 Water rate increases for the average residential customer are$5.20 monthly in 2011-12,plus$5.20 monthly in 2012-13 In the past, the average residential customer's water usage was ten (10) units monthly. Based on actual water usage, the average residential customer's water usage is reduced to nine (9) units of water monthly beginning in 2010-11. The table above illustrates the changes to the monthly bill with the proposed rate increases. The fiscal impact to the average residential customer is $5.20 monthly in 2011-12 and an additional $5.20 monthly in 2012-13. Water Rate Protests Under Proposition 218, customers directly responsible for the payment of the fee subject to the proposed rate increase may submit a written protest against the proposed rate increases. The protest must be in writing, received by the City Clerk at or before the public hearing on June 14, 2011, identify what is being protested, and contain the service address. The party signing the protest must be listed on the account as the person responsible for payment of the water bill and/or the property owner. In the event that a protest is submitted by the owner and also by the tenant responsible for payment of the bill, then one valid protest is counted for the account. If written protests are filed by a majority, the applicable proposed rate may not be imposed. A majority of approximately 14,700 customers is 7,351. As of May 25, 2011, a total of 118 written protests were received by the Office of the City Clerk. Of the 118 written protests received, 106 protests are valid, as summarized below. Proposition 218 Validated Protests as of May 25, 2011 Proposed Fee Chane Protests Submitted Number of Valid Protests Water Rate Increases 118 106 The City Clerk will provide an updated summary of the protests received at the June 14, 2011 City Council meeting. PH2-9 2011 Water Fund Review and 2011-13 Water Rate Adoption Page 10 FISCAL IMPACT The recommended general purpose water rate increases of ten percent (10%) effective July 1, 2011 and nine percent (9%) effective July 1, 2012 will allow the City to fund the operating and capital needs of the City's water system as presented to Council on June 14, 2011 during a public hearing on the annual water fund review. ATTACHMENTS 1. 2011 Water Fund Analysis Exhibit A — Updated Financial Schedules A.1. Changes in Financial Position A.2. Assumptions for Fund Projections A.3. Capital Improvement Plan 2. Paying for Water and Sewer Services Proposition 218 Notice of Public Hearing 3. Resolution Establishing Water Service Rates for 2011-13 AVAILABLE FOR REVIEW IN THE COUNCIL OFFICE 2011 Water Fund long-term financial forecast through 2022-23 g:%adminikathelfiscaMnancial plans12011-13 finanetat plan\2011-12 fund analysisll.watem.water staff reports\2011 water fund Car.doc PH2-10 ATTACHMENT 1 2011 Water Fund Analysis June 1.4, 2011 Prepared by the Utilities Department city Of san WIS OBISPO PH2-11 `a Attachment 1 Page 2 city of san Luis OBISPO 2011 Water Fund TABLE OF CONTENTS I. OVERVIEW II. 2011-13 FINANCIAL PLAN A. Summary of Operating Programs B. Operating Program Reductions C. Operating Program Increases D. Approved Carryover Capital Projects E. Capital Improvement Plan and Forecast 111. WATER RATE SETTING A. Water Rate Structure B. Proposed Water Rate Changes IV. ASSUMPTIONS A. Revenues B. Expenses C. Debt Service V. MAJOR ACTIVITIES AND PROGRAMS A. 2010-11 Update B. 2011-12 and Forecast EXHIBIT A— FINANCIAL SC14EDULES A.1. Changes in Financial Position A.2. Assumptions for Fund Projections A.3. Capital Improvement Plan PH2-12 1 Attachment I Page 3 city Of san lues OBIS130 2011 Water Fund Analysis I. OVERVIEW This report presents the financial condition of the Water Fund, based on the 2011-13 Financial Plan operating and capital programs. The 2011 Water Fund Analysis takes into consideration current economic conditions, revenue constraints, and recommends previously anticipated rate increases for 2011 .and 2012, while still addressing the highest priority capital improvement projects, and ensuring high quality, safe and reliable water services to the community. II. 2011-13 FINANCIAL PLAN Water Division operating programs are summarized in Table A. The summary of operating programs reflects the net operating program budget amounts for 2011-13, which includes the proposed operating budget reductions and increases, as further discussed in this report and displayed in Table.13 and:Table C-on;the following page. A. Summary of Operating Programs Includes Operating Program Reductions and Increases 2011-12 2012-13 BUDGET BUDGET Water Source ofSiupply 8,377,700 7,939,600 Utilities Conservation 388,200 389,400 Water Treatment 2,248,400 2,318,300 Water Distribution 1,146,600 1,175,600 Water Customer Service m 321,300 327,100 Water AdministratiomEngineering 601,500 599,900 Water Franchise Fees 519,600 562,000 TOTAL WATER SERVICES OPERATING PROGRAMS 13,603,300 13,311,900 Source of Supply costs include about$6.5 million annually for the Naciniento WaterProject beginning in 2011-12. Salinas Reservoir operations funding levels are reduced in 2012-13. '3) Wastewater Collection program funds 50%of the Water CnStOmer Service progm The 2011-13 two-year financial plan development process included identifying operating cost reduction options to further tighten the ongoing operating program budgets for water services. This action was taken in an effort to recommend the lowest responsible budget and associated water charges, while ensuring high quality, safe, and reliable water services to the,community. Operating budget reductions were identified in the water operating programs resulting in both one-time and.ongoing cost savings with minimal service impacts to water customers and the community. As outlined in Table B, the significant operating program change reductions ($5,000 or greater) for water services include total reductions of$824,300 in 2011-12 and $1,268,000 in 2012-13. The significant reduction for Salinas Reservoir operations of $675,900 in 2011-12 and PH2-13 Attachment I Page 4 $1,135,900 in 2012-13 was previously forecasted and included in the 2010 and 2009 analyses and water rate forecasts. In addition to the budget reduction associated with Salinas Reservoir, water operating program savings in 2011-12 includes $148,400 of which $16,300 is one-time in nature and $132,100 is ongoing savings, resulting in a savings of$132,100 in 2012-13 that is ongoing in nature. As displayed in Table C, significant operating program change increases are necessary to continue to meet the operational requirements to provide high quality, safe and reliable water services for the community. Proposed significant operating program changes include a total increase of $75,800.in 2011=12 and $82,600 in 2012-13. Of the total operating program cost increase about 8.5% is attributable to increased costs for chemicals and electric utility services. The increased cost for chemicals used in the treatment process for potable and recycled water is based on an increased quantity of filter aids for the treatment of Nacimiento water, an increase in recycled water production, andprojected price increases in chemicals in year two for potable water treatment. The cost increases for electric utility services are based on projected electrical rates and an increase in recycled water production and deliveries. B. Significant Operating Program Changes-Reductions Appendix A of the Preliminary Financial Plan itcludes detailed supporting docuirents 2011-12 2012-13 SAVINGS SAVINGS 1. Reduction in Salinas Reservoir operations funding levels 675,900 1,135,900 2. Reduction in Electric Utility Usage at Whale Rock Reservoir 91,600 91,600 3. Reduction in Water Distribution Electric Utility Usage 14,600 14,600 4. Reduction in Water Treatment Contract Services 14,600 14,600 5. Reduction in Water Treatment Chemicals(Chlorine) 14,000 11,300 6. Reduction in Water Treatment Electric Utility Service 13,600 0 Water Services Operating Program Cost Reductions 824,300 1,268,000 C. Significant Operating Program Changes-Increases 2011-12 2012-13 BUDGET BUDGET Source of Supply Water Reuse Electric Utility Service 12,000 14,600 Water Reuse Chemicals(Sodium Hypochlorite) 9,300 9,300 Water Treatment Chemicals(Filter Aids=Liquid Cationic Polymer) 35,800 38,500 Chemicals(Aluminum Sulfate) 4,1007,100 Electric Utility Service 0 3,200 Water Distribution Accelerated Water Meter Replacements 7,600 9,900 Water AdministratiomEngineering Exterior Painting of 879 Morro Street Building(50%share) 7,000 0 Water Services Operating Program Cost Increases 75,800 82,600 Offsetting Revenues from Meter Replacements (6,000) (12,000) 2011-13 Water Services Net Operating Program Changes (754,500) (1,197,400) Detailed supporting documents for each request is provided in Appendix A of the Preliminary Financial Plan,pages 25 to 40. PH2-14 Attachment 1 Page 5 When considering the 2011-13 operating cost reductions and increases together, including the offsetting revenues from water meter replacements, the net water operating program changes include a budget reduction of$754,500 in 2011-12,with a reduction of$1,197,400 in 2012-13. The net operating budget changes are incorporated in the Water Fund Change in Financial Condition(Exhibit A.1). For capital improvement projects, the City has identified a goal of replacing approximately 2% of its infrastructure on an annual basis which assumes a 50 year useful life for existing pipelines. For the past 15 or more years, the City has been making significant investments in the water supply, treatment, and distribution system infrastructure. This has achieved significant improvements to the City's overall water system. Carryover capital improvement projects for the water system that were previously approved and funded with design, equipment acquisitions, and/or construction pending completion are summarized in Table D. The carryover capital improvement projects total about $4 million and are planned for completion in 2011-13. D. Carryover Capital Improvement Plan Projects Capital projects for Salinas and Whale Rock Reservoirs are accounted for in the Water Fund Source of Supply Operating Program APPROVED BUDGET Source of Supply Salinas Reservoir Booster Pump Station Upgrade 1,500,000 Whale Rock Reservoir Telemetry System Upgrade 235,000 Water Treatment Plant Air Compressor Replacements 200,000 Raw Waterline Recoating 150,000 Filter Media Replacements 100,000 Roof Repair and Replacement 81,100 Water Distribution Distribution System Pipeline Replacements 1,057,300 Telemetry System Upgrade-Design 325,000 Johnson Waterline and Pavement Repair 194,000 Maintenance and Assest Management System 120,000 Administration and Engineering Utility Billing System Upgrade(50%share) 75,000 TOTAL CARRYOVER WATER CAPITAL PROJECTS 4,037,400 The 2011=13 Capital Improvement Plan requests are based on the Preliminary 2011-13 Financial Plan. Table E below displays the proposed five-year Capital Improvement Plan for water services. The proposed capital plan is based on the highest priority projects for the water fund, with capital expenses based on individual project budget estimates. A reduction in water sales over the last two years has resulted in water revenues below budget projections. In order to maintain proposed 2011-13 water rates as previously forecasted in the 2009 and 2010 water fund analyses, the 2011-13 water fund capital plan includes a total of $311,400 in 2011-12 and $200,000 in 2012-13. The proposed capital budget over the next three years does not include funding for planned water pipeline replacements. The funding identified for water distribution system improvements is for paving trench repairs associated with water PH2-15 Attachment I Page 6 line repairs performed by City staff and the raising of water valve covers associated with pavement management projects. Other capital funding reductions reflected in the capital plan include the Telemetry System Upgrade $1.5 million construction.component deferred to 201344. Funding for the Telemetry System Upgrade was approved in the 2009-11 Financial Plan including $325,000 for design and $1.5 million for construction. The design component will be completed during 2011-13, with the construction funding deferred to 2013-14. After three years with a significantly reduced level of new capital projects, the Water Fund gradually returns to more appropriate long-term funding levels (about $2 million annually) for water-related infrastructure. E. Capital Improvement Plan and Forecast 2011-12 2012-13 2013-14 2014-15 2015-16 BUDGET BUDGET PROPOSED PROPOSED PROPOSED Source of Supply Water Reuse Automation Improvement 50,000 100,000 Reuse System Analysis/Master Plan Update 40,000 50,000 Water Treatment Plant Major Facility Maintenance 200,000 100,000 100,000 Fleet Replacement:Compact Pickup 20,000 Fleet Replacement: Service Body Truck 35,000 Water Distribution Distribution System Improvements 200,000 200,000 200,000 1,487,300 1,421,400 Distribution Pump Station Assessment Study 35,000 Reservoir Maintenance/Tank Replacements : 181,000 446,000 Equipment Replacement:Generator(50%share) 55,000 Distribution Pump Station Upgrades 50,000 Fleet Replacement:Pickup 20,000 AdmirdEstradon and Engineering Fleet Replacement:Sedan 20,000 Fleet Replacement:Compact Pickup 20,000 Water Division Asset Management Plan 100,000 Total Water Services CIP 290,000 200,000 575,000 1,928,300 2,137,400 Shared City Information Technology Office Application Software Replace(5%share) 10,000 Wireless Network Infrastructure(14%share) 9,500 City Website Upgrade(40/o share) 1,900 Telemetry System Upgrade-Construction 1,500,000 Virtual Private Network(VPN)Appliances 29,000 Network Firewalls 10,500 Web Filter,Network Security Upgrades 6,500 Network Equipment Replacement 17,000 Total Share of Technology CIP 21,400 0 1,546,000 17,000 0 TOTAL WATER FUND CAPITAL PLAN '311,400 200,000 2,121,000 1,945,300 2,137,400 Detailed supporting documents for each request is provided in Appendix B of the Preliminary Financial Plan,pages 3-54 to 3-76. Maintaining the water system infrastructure, including pipeline replacements, major equipment upgrades, ongoing treatment processes, technology, and long-term infiastructure upgrade and replacement planning is essential to providing high quality, safe, and reliable water services for the community. PH2-16 Attachment 1 Page 7 III. WATER RATE SETTING A. Water Rate Structure Current policies to guide rate structure setting: ■ Comply with legal requirements e Encourage conservation ■ Ensure revenue adequacy to fully meet system operating and capital needs • Provide equity and fairness between-customers ■ Be easy to understand and administer ■ Facilitate ongoing review to maintain rate stability The current water rate structure is commodity-based with charges based on the volume of water used. The table below shows the water rate structure with the current 2010-11 water rates. Ulm Customer Type Single Family All Other Customers Residential Customers Inside the City Rates 1 -5 Units $5.21/Unit 2 1 -5 Units $5.21/Unit 6-25 Units $6.52/Unit 6+ Units $6.52/Unit 26+ Units $8.17/Unit Outside the City Rates' I -5 Units $10.42/Unit 1 -5 Units $10.42/Unit 6-25 Units $13.04/Unit 6+ Units $13.04/Unit 26+ Units $16.34/Unit 'Third tier charges for more than 25 units are applicable for Single Family Residential(SFR)customers 'I unit =100 Cubic Feet=748 gallons of water 'For service to customers outside the City,the water razes are two times Che"in-City"rate. B. Proposed Water Rate Changes The proposed water rate increases for 2011-12 and 2012-13 are the same rates as previously forecasted in the 2009 and 2010 water fund analyses presented to the City Council over the past two years. The following table displays the current and proposed water rates for the average residential customer, assuming an average of nine (9) units of water monthly. In the past, the average residential customer's water usage was ten (10) units monthly. Based on actual water usage the average residential customer's water usage is reduced to nine (9) [nuts of water monthly beginning in 2010-11. PH2-17 Attachment 1 Page 8 The table below illustrates the changes to the monthly bill with the proposed rate increases. Average Residential Water Customer Monthly Bill Assuming nine(9)units.of water use per month Units2010-11 2011-12 Z 2012-13 Z l -5 $5.21 /unit 26.05 $5.73/unit 28.65 $6.25/unit 31.25 6-25 $6.52/unit 26.08 $7.17/unit 28.68 $7.82/unit 31:28 26+ $8.17/unit n/a $8.99/unit n/a $9.80/unit n/a $52.13 $57.33 $62.53 One(1)unit= 100 Cubic Feet=748 gallons of water Z Water rate increases for the average residential customer are$5.20 monthly in 2011-12,plus$5.20 monthly in 2012-13 3 For service to customers outside the City,the water rates are two times the"in-City"rate. IV. ASSUMPTIONS The following provides more detail for the key assumptions in Exhibit A.I. and A.2. to this report. The financial schedules include the Water Fund changes in financial position and assumption for the Water Fund projections included in the Analysis. A. Revenues 1. Revenue projections for water service charges are calculated based on the percentage increase in rates applied to the 2010-11 revised revenue budget, assuming no net growth in water deliveries when compared to metered water usage estimates as projected for 2010-11 year-end. 2. Revenue projections for Cal Poly are based on historic use and the 2007 Agreement between the City and the University. This agreement, covering the period beginning July 1, 2007 and extending through June 30, 2012, set the proportion (66%) of the non-residential rate the University pays to account for the University's difference from other customers (the University owns its own water supply and capacity interest at the Water Treatment Plant associated with the 1994 plant upgrade). Utilities and University staff will enter into discussions in summer 2011 to negotiate and develop the 2012 Agreement between the City and the University. Utilities staff develops the proposed water rate methodology which reviews five years of financial data to determine the University's appropriate ratio of the adopted water rates. 3. Development impact fee collection is calculated according to the actual 2009-10 base year revenues and adjusted by projected inflation based on consumer price index (CPI) and growth. Current assumptions, which are intended to be conservative, include no significant growth in development activity in 2011-13. CPI is projected at 1.5% in 2011-12 and 1.8% in 2012-13 to be applied to the current development impact fee amount effective July 1st of each year, respectively. Annually, this calculation is evaluated and proportionately adjusted due to changes in growth as well as development occurring under maps vested prior to current PH2-18 Attachment 1 Page 9 impact fee establishment. Development in those areas pay those fees in place at the time of approval plus an annual adjustment based on the consumer price index. For 2010-11 water development impact fee revenues are projected at$567,400, which is 27% ($119,200) greater than the prior year actual of $448,200 in 2009-10. The increase in 2010-11 includes impact fees from development activity including commercial developments in the Los Osos Valley Road and Calle Joaquin areas. Water development impact fee revenues for 2011-12 are projected at$383,800. B. Expenses Operating and Maintenance Expenses Total operating and maintenance costs for 2011-13 are based on the proposed 2011-13 Financial Plan. Forecasted operating and maintenance costs assume an inflationary rate of 2% for non-staffing (1.5% for staffing) in 2013-14, with 2.5% for non-staffing (2% for staffing) in 2014-15, and 2.5% for both staffing and non-staffing in 2015-16. The most significant non-staffing operating costs for water services are for: (1) the City's share of the Nacimiento Water Project debt service cost that is facilitated through the county, and accounted for as an operating expensed (2) electric utility services to pump raw water from the reservoirs, for water treatment and distribution of potable water, and for the production.and distribution of recycled water, and; (3) water franchise fees paid to the general fund. In the two-year 2011-13 Financial Plan when annualized, the Nacimiento debt service payment is about $4.74 million annually, electric utility service is projected at over$1 million annually, and water franchise fees paid to the general fund at over $500,000 annually. 1. With the Nacimiento water supply project debt financing facilitated through the County, the City's share of the project debt service is accounted for as an operating expense. The City's share of the Nacimiento project annual costs began in 2010-11, with operating costs and an interest only payment for debt service. The full debt service payment including principal and interest is about $4.74 million annually beginning in 2011-12. 2. Electric utility rate assumptions, as provided by PG&E, include a rate increase of 3.6% in 2011-12 and 4.0% in 2012-13 for commercial and industrial accounts. In addition, Utilities staff conducted a detailed analysis of recent electrical usage trends for water services. The outcome from this analysis resulted in an electrical budget reduction in water distribution annually in 2011-13 due to increased energy efficiencies. Additionally, the Water Treatment Plant electric budget is reduced in 2011-12 (compared to 2010-11 and when considering a 3.6% rate increase) based on current water treatment processes and projected production levels, with a 1% increase in electric utility budget at the WTP in 2012-13. Of the total water fund electric utility service cost estimates approximately 55% is for water supply, with about 45% attributable to the treatment and distribution of potable and recycled water. 3. Water franchise fees are calculated based on 3.5% of audited gross revenues from the previous year, excluding investment and property revenues, other revenues, and PH2-19 Attachment I Page 10 bond proceeds. Public Utilities Code Sections 6001 et seq. and 6201 et seq.; and Section 39732 of the Government Code,provides cities with the authority to impose fees on privately owned utility companies and other businesses for the privilege of using the City's infrastructure in the course of daily business. Given that the City's water pipes, valves, and services are within the City's streets (infrastructure) to distribute water for the community, a franchise tax is charged to the water fund and payable to the general fund. The 3.5%rate of gross revenues was changed July 1, 2003 from 2%to 3.5%. Capital Improvement Plan Project Expenses Project budget estimates in the capital plan forecast include inflationary adjustments, assuming a moderate increase in material costs over time (e.g., price per foot of pipe). During the past three years, with the downturn in the construction industry, the construction bidding climate has remained competitive..Based on many factors, but particularly with changes in oil prices, this year (2011) the City is beginning to see increased costs for construction-related materials. For 2011, on the whole, oil prices are expected to be higher than 2010 levels. Higher oil prices result in increased costs for petroleum-based products that are used in construction related materials (pipe, asphalt, cement, plastics, synthetic rubber, solvents, lubricating oils, etc.) and transportation fuels such as gasoline and diesel used in vehicles, construction related equipment, and the transport (freight) of construction materials. In addition, metal prices are steadily increasing including copper, nickel, aluminum, and other metals used in construction materials and equipment. Key assumptions for capital projects are that the actual cost of completing any particular project will vary from the preliminary "budgetary" cost estimate. While cost estimates are intended as a budgetary guide, it is anticipated that all of the projects listed for each year will be completed. C. Debt Service Payments 1. Debt service for the 1994 upgrade of the Water Treatment Plant, the 2002 Refunding Water Revenue Bond debt payment, is $688,200 in 2011-12 and $692,900 in 2012-13. 2. Debt service for the 2006 upgrade of the Water Treatment Plant, the 2006 Water Revenue Bond, is $1,034,000 in 2011-12 and$1,034,600 in 2012-13. 3. Debt service for the repayment of the State Revolving Loan Fund for the construction of the Water Reuse system is $525,500 annually in 2011-13. 4. Debt service to pay for the Water Fund's proportionate share of the energy conservation project is $29,200 in 2011-12, with the final debt payment of$29,300 in 2012-13. .5. Debt service for the Water Fund's proportionate share of the City's Public Safety Communications Center is $29,000 in 2011-12 and $28,800 in 2012-13. In addition, the Water Fund's share of the Public Safety Radio System Upgrade is $37,900 in 2011-12 and $37,800 in 2012-13. When combined, the Water Fund's share is $66,900 in 2011-12 and $66,600 in 2012-13. PH2-20 Attachment I Page 1 I 6. Debt service is currently projected in the long-term financial forecast at$1,128,300 annually beginning in 2021-22 for Ozone Generation Upgrades at the Water Treatment Plant, based on total project costs currently estimated at $16.6 million including $100,000 for study in 2017-18, $1.5 million for design in 2019-20, and $15 million for construction in 2021-22. V. MAJOR ACTMTIES AND PROGRAMS A. 2010-11 Update 1. Nacimiento Pipeline Water Supply Project The construction of the Nacimiento Project was completed in December of 2010 and water deliveries to the City of San Luis Obispo water treatment plant began in January 2011. The initial preliminary studies for the project started in 1992 and culminated this year with the commissioning of this very important project. The project includes 45 miles of pipeline, three pump stations, and three water storage tanks. The project participants currently include the City of Paso Robles, Templeton Community Services District, Atascadero Mutual Water Company, County Service Area l0A (Cayucos), and the City of San Luis Obispo. With the addition of this water resource to the City's water supply portfolio, the City is now positioned to have sufficient water to meet the City's General Plan build-out projections and has also established the "reliability reserve" as identified in the Water Management Element to the General Plan and the City Charter(Section 909). 2. Water Distribution System Improvements While funding for replacement of old pipelines in the City's water distribution system has been eliminated for the next three years, there will be improvements made to the system this summer from previously approved budgets. The City awarded a major water main replacement project for numerous areas around the City. The project funding is approximately $1 million and targets old, deteriorated pipelines that have reached the end of their useful life. Construction of this waterline replacement project begins in mid-June 2011. In addition, as a result of the major water main break in Johnson Avenue(in front of French Hospital) which occurred on May 31, 2010, a project to repair the damaged roadway was required to be undertaken. This project will replace approximately 350 linear feet of 16 inch cast iron waterline with a more durable and stronger ductile iron pipe in the area of the major street reconstruction. This project was identified to eliminate the potential for another water main failure under the newly reconstructed roadway. As part of this project, City staff identified an option to provide a second point of connection to the City's water system for French Hospital to minimize future disruptions to this critical facility. Staff initiated. discussions with French Hospital representatives who agreed to participate in the project to fund this second point of connection to improve the reliability of water service to the hospital. This project will be under construction this summer and has a total estimated project cost of$194,000. PH2-21 Attachment I Page 12 3. Telemetry System Upgrade Design An upgrade to the Utilities Department telemetry system for the water distribution and the Whale Rock water conveyance systems was approved in the 2009-11 Financial Plan, Appendix B, pages 3-99 to 3-101. The approved funding identified $400,000 for the design phase and $1,850,000 for the construction phase. The funding for the Whale Rock portion of the project is provided through the Whale Rock Fund and is shared by the Whale Rock Commission agencies (Cal Poly, California Men's Colony, and the City of San Luis Obispo). The City's share of the. Whale Rock cost is 55.05% which represents the City's portion of ownership in Whale Rock Reservoir. The Water Fund's share of the project cost is about $366,300 for the design phaseand$1,692,700 for the construction phase. The telemetry systems provide oversight and operation of the facilities which are critical for the efficient and reliable delivery of water. The current systems are over 20 years old and have far exceeded the normal life for this type of system. Funding for construction of the City's costsassociated with the water distribution component of the project ($1.5 million) has been moved out to the 2013-14 fiscal year. Staff has prepared the request for proposals for the design of the project. The design will be completed over the next year and the-project construction for both the Whale Rock and Water Distribution components of this project will likely begin in the summer of 2013. 4. Computerized Maintenance Management System Upgrade The Utilities Department utilizes a computerized maintenance management system to effectively manage the wastewater collection, stormwater, and water distribution systems in the city. These critical assets require diligent oversight and maintenance to ensure reliable provision of services to the community. The existing computer software is outdated and will no longer be supported in the near future. The City Council approved the request for proposals for the upgrade of this system on May 17, 2011. The total budget for this project is $265,000, with$120,000 attributable to the Water Fund. B. 2011-12 and Forecast 1. Salinas Reservoir Infrastructure Upgrades The San Luis Obispo County Flood Control and Water Conservation District operates the Salinas Reservoir under contract with the U.S. Army Corps of Engineers. Through payments identified in the City's source of supply program, the City pays for the total cost of operating and maintaining Salinas Reservoir and the delivery system for transporting raw water to the City's water treatment plant. In 2007, City and County staff began forecasting budgetary needs fora booster pump station upgrade for the delivery system. The pump station was built in 1941-42 and many components of the facility are original equipment. The studies and design for the project have been underway for the past several years and the project is currently out to bid. The total cost estimate for the project is $1.5 million, including studies, design, construction, and construction management. Project completion is anticipated by the summer of 2012. PH2-22 Attachment 1 Page 13 2. Recycled Water System Improvements The proposed budget includes two capital projects in 201.142 for improvements to the City's recycled water system. The Water Reuse System Major Maintenance Project identifies $50,000 in 2011-12 and $100,000 in 2013-14 for the purchase of additional equipment associated with the production of recycled water at the Water Reclamation Facility. The project will provide improvements to the automation and overall efficiency for providing reliable recycled water to the community. The Water Reuse Distribution System Analysis and Master Plan Update identifies funding of$40,000 in 2011-12 for studies to address fluctuations in water pressure, and $50,000 in 2014-15 to update the 2004 Water Reuse Master Plan. The study in 2011-12 involves evaluation of options to eliminate problems associated with large pressure fluctuations in the water delivery system. The study identified in 2014-15 includes updating the 2004 Water Reuse Master Plan. The Master Plan identified the goal of utilizing 1,000 acre feet per year (afy) of recycled water. Current recycled water use is approximately 160 afy. The 2004 Master Plan identified an option for an agricultural exchange of recycled water in the amount of 400 afy for a similar amount of groundwater for municipal use. This is no longer a viable alternative..The update to the Master Plan will identify,facilities needed to expand the delivery system to achieve the goal of utilizing 1,000 afy of recycled water in the city. PH2-23 Attachment 1 Page 14 EXHIBIT A 2011 WATER FUND FINANCIAL SCHEDULES PH2-24 Attachment 1 Exhibit A.1. c o 0 0 0 0 0 0 0 0 0 0 0 0 0 0 c o o o 0 0 0 0 0 0 0 0 0 0 o O x 0 0 0 0 0 O o o O o o 0 V1 U M O •-� 00 M M �O 00 D\ N - -e - 1O .. 00 O .• N 07 M 'a0 \D M\ M r -It N [l M N N N O vi R w Oo N M O` M b b M M - Go �O n kn - \0 t- ell c O 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 O O O O O 0 0 0 0 0 0 0 0 0 0 0 0 0 0 O O O O O O h. O V� V) M 00w �O O, O M V1 ?� 00 Vi 00 O M N\0 N n - 00 O�Vf M 00 O O r 00 N M Vi 00 N O 7 - \0 ON O : V) N M.- ? - (Y. n N T M ? N v N C O 0 0 0 0 00 0 0 0 0 0 0 0 0 O O C O O O O O O 0 0 0 0 0 0 0 0 0 0 0 0 0 0 000 O O O O M U N O r- V1 uw T O - CT R h m O en R - N O 1- N n h m N - T O O�% N CT l-O e`^ N .+ O\ n O M W n N N a\ O D\ M 00 M b 00 O 00 N ^ N V1 O O M 00 O N^' 00 N .M. O O 0 0 0 0 0 0 0 0 0 0 0 0 0 O O O O O O O e O 0 0 0 0 0 0 0 0 0 0 0 0 0 0 O O O O O O O T 00 l, O m w T n O ? v1 N r N M NOOnoo vi^ O - O+ OeoO e`MO c oo �p n M O\ N O% N 00 M T O R R ^ T O M - !` M M b N M ej V N r" Vl cq V O 0 0 0 0 0 0 0 0 0 0 C. 0 0 0 O O O O O O O e O O O O O O O O O 000000 O O O O O O O _ — nO\ oo �ohoorne�, �twovao�Y. vw�o eT 00 o N O . D\ 7 V1 M.Vi\O Vi O N M N�O - M- 00 M O P �O M �p N [� Vf m 00 N 00 M O O V) Vl - V V1 M Vl eA �O Vl Go eA �p M O� M M �O N N lO 00 �p Z y O 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 O o O O y O 0 0 0 0 0 0 0 0 0 0 0 0 0 0 00 O O O O - O '� 9 l� M OO 7 r- N l-- v ry. h r N P h b O b b 00 0o O N N O h � N 000 m � ut O .�. V .�.i h �c O h to W N Vf 00 V) - "1 M l� O Vt M O� l� go l- b p^ r N _ N - �Vi N N 1vp� Vi 00 wn Q - 3 cd O 0 0 0 0 0 0 0 0 O0 O O 0 O O O O O O 1 O 0 0 0 0 0 0 0 0 000000 O O O O O ZIq O MO N M W Nc ri r r r- < 00 N ^ \O 7 1n R CN M 00 t`T a\ CT \O n eh O N V1.M 7 00 n r M �O O •-� n CT — ... 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Q N Z PH2-26 _ Attachment 1 Exhibit A.3. O o O O o a a o 00 0 a vO1 N O ej M a N ry 4n CD M CD O O C eW/J O O O O O O O O O O N 0. h O M 00 00 V�1 N N h O o 0 O o p O 0 0 0 0 O O rn O O O O O O O O VOl vO1 p p O O O O O O w O vj O 0� N M. O O N O en N ^ O N Q N N en F. ; W c o 0 0 V c o 0 c N .7 O O O m N N N _NCD Cz [ CD M — (�'� 0 001 O. N j h 0V O Q O 0� N ti m N N M W F" v � A � C C Sv ' C y .�.. rz 0 2 tl d Q E Q F 4 pp V Y m ttl 0 .� a aEi 4 o aci. .C�. E .�. vm < z c z V E y .° e a a 4. aEi _ -�.a s 3 z o e c 0 d a tl ° `o E o o > o a r 4C z ; v m oo a . to E -2 eU E.� aBiCna.. XwU V [" v�oi c. j 2 a e ° v n .. .. .. y d z 0 Y o`o E =_ ' c Zi EE ° > E ° E °' c •o o a z ro a `1 yy A 4 h w COi U 3 C C °Q m C V z N y 'y d T V1 7 ` w F y uum a a .o o z 'N [x y W [r d ` H H E •Q. e 0. y33 3 � � 3oo3Wca � � c� a3 z3z PH2-27 ATTACHMENT 2 an lues ompo NOTICE OF PUBLIC HEARING PROPOSED RATE INCREASES FOR WATER AND SEWER SERVICE A public hearing on proposed water and sewer rate increases will be held on: DATE: TUESDAY, JUNE 145 2011 TIME: 7:00pm PLACE: CITY OF SAN LUIS OBISPO, COUNCIL CHAMBERS 990 PALM STREET SAN LUIS OBISPO, CA 93401 The hearing will cover the proposed 2011 and 2012 rate increases for water and sewer services. This notice has been sent to all customers who currently receive either of these services provided by the City of San Luis Obispo. If adopted, the proposed rate increases will become effective July 1, 2011 and July 1, 2012. This Notice of Public Hearing provides information regarding proposed rate increases to the City's water and sewer service customers pursuant to the requirements of California Constitution Article XIII(commonly referred to as Proposition 218). The proposed rate increases will be presented to the City Council for adoption on Tuesday,June 14, 2017, at 7.•00 p.m.,in the Council Chambers. This notice also provides information on how rates are calculated, the reasons for the required rate increases, how customers can receive more information on the effect of the proposed rate increases on their water and sewer bills,and how to file a protest against the proposed rate increases. HOW ARE WATER AND SEWER RATES CALCULATED? Annually, the City prepares detailed analyses of the revenues and expenditures for the Water and Sewer Funds to ensure that sufficient revenues are collected to effectively provide for the water and sewer service needs of the community. These analyses include a minimum five-year look ahead in order to adequately prepare the funds for upcoming expenses and to avoid significant unexpected increases in rates. The long-term rate analyses look at projected operating costs including electricity, chemicals, staffing, supplies, minor equipment and repairs, contract services, debt service, reserves, and capital program costs which include replacing pipes, tanks, pump stations, vehicles, master planning and system studies, major treatment plant upgrades and repair projects. When there is a large capital project needed to support the community's service needs out in the future, incremental rate increases over a number of years is the preferred method for ensuring rate stability. Water and sewer services are operated as enterprise funds, which means revenues to support operations and capital improvements must be funded by the rate payers receiving the services. Projected revenues from sources in addition to user rates, such as development impact fees, loan proceeds, and investment earnings are also included in the annual analyses. =CrLyof san Luis .. NOTICE OF ATTACHMENT 2 WHAT HAPPENS TO THE REVENUES THAT ARE COLLECTED? Revenues received from water and sewer charges are restricted solely for the programs and services related to the community's water and sewer service. This chart shows how the revenues are used. Capital Investments Operating Programs Utilities Staffing The primary uses of revenue go to pay for capital projects (investing the money directly back into the system); electricity, chemicals, parts, and equipment to maintain operations of the treatment plants, and the distribution and collection systems, and staff to operate and maintain the systems to ensure the community has water and sewer services 24 hours a day. WHY ARE THE WATER AND SEWER RATES BEING INCREASED? There are several reasons water rates need to be increased. The major driver is assumptions made when current water . rates were set two years ago that did not anticipate the unprecedented drop in water use by the community, especially in the last year. Cool weather, plentiful rain, outstanding conservation practices, a fully volume-based water rate, recessionary pressures, and changing demographics all have contributed to the decrease in water sales. The resulting decrease in revenues has been significant and rates need to increase in order to continue to pay for the community's investment in securing its new water supply sources, to continue meeting the ongoing operating and maintenance program needs, and to maintain prudent reserves. The proposed increase to sewer rates is needed to fund required upgrades to the City's water reclamation facility in order to meet added regulatory requirements for protection of San Luis Obispo Creek. This is a very large capital project and the fund is being prepared through incremental rate increases to be able to pay the future debt service for this project. In addition, the proposed rates will assist in funding several other major capital projects in the wastewater collection system including replacing two failing lift stations and a pipe crossing a creek. Finally, the proposed rates are needed to fund ongoing operations and maintenance costs of an aging infrastructure in both the wastewater collection system and the water reclamation facility. For questions regarding the City's water and sewer operations and maintenance programs, or inquiries about specific water or sewer capital projects, please contact the Utilities Department at (805) 781-7215. WHAT ACTIONS ARE BEING TAKEN TO CONTROL COSTS? Work to control costs is continuous and the City remains focused on keeping rate increases to a minimum. Interns and volunteers are used extensively in order to get the job done. In 2009, three positions were eliminated; one from water operations, one from sewer operations, and one management position. Employees are empowered to take action to reduce expenses and especially focus on ways to reduce energy and chemical costs. Two extensive, no-cost energy audits have been conducted at the Water Reclamation Facility and energy reduction projects are actively being explored. Efficiency measures, like the low-cost local purchase of three-wheeled scooters that helped to reduce the walking time to read meter routes by one hour each day and reduced fuel use have been successfully implemented. All water and sewer work programs started with zero-based budgets: the existing budget was not increased by some percentage but was essentially rebuilt from scratch. Vehicles scheduled to be replaced wil continue to be used for at least two more years to further reduce expenditures in 2011-13. NOTICEOF ATTACHMENT 2 WHAT ARE THE PROPOSED RATES? Under the City's water and sewer rate structures, bills are based on customer usage choices and resulting demand on the water and sewer systems. The City has a commodity-based water rate-the service charge is fully based on the volume of water used. The sewer rate contains two components-a minimum base charge and a service charge based on the volume of water used. Residential sewer accounts include a cap on the volume, set at the 3-month average of winter water use (also referred to as the "sewer cap"). The following shows current and proposed rates for accounts inside the City limits. For the few accounts outside of the City limits, rates are twice the amounts shown. TABLE 1. CURRENT AND PROPOSED WATER RATES USE CURRENT PROPOSED JULY 1, 2011PROPOSED JULY 1, 2012 Single Family Residential 1 to 5 units' $5.21 $5.73 $6.25 6 to 25 units $6.52 $7.17 $7.82 26 or more units $8.17 $8.99 $9.80 All Other 1 to 5 units $5.21 $5.73 $6.25 6 or more units $6.52 $7.17 $7.82 All rates shown are for one unit of water. A unit equals 748 gallons. TABLE 2. CURRENT AND PROPOSED SEWER RATES USE CURRENT PROPOSED JULY 1, 2011 PROPOSED JULY 1, 2012 Single Family Residential including single metered condominiums and townhomes Base fee per dwelling unit (minimum charge) $6.55 $7.01 $7.43 Volume (service) charge per unit $7.22 $7.73 $8.19 NOTE. Total monthly charge is capped based on average winter water use' Master-metered Multifamily Dwellings in any duplex, apartment house, or rooming house Mobile Home or Trailer Base fee per account (minimum charge) $6.55 $7.01 $7.43 Volume (service) charge per unit $7.22 $7.73 $8.19 NOTE:For accounts without a separate irrigation meter, the total monthly charge is capped based on average winter water use. Accounts with a separate irrigation meter have no cap. Public, Private, or Parochial School Per average daily attendance (ADA) at the school $5.85 - $6.26 $6.64 All Other Accounts - Minimum charge per account $6.55 $7.01 $7.43 Volume (service) charge per unit $7.22 $7.73 $8,19 'For single family residential and for those master-metered multifamily dwellings and mobile home or trailer parks without a separate irrigation meter, the sewer service charge is based on the volume of water used during a 3-month period during the winter months (December-March, depending on when your meter is read). This is known as the average winter water use. The volume of water used during this period-is used to calculate your sewer cap. NOTICEOF ATTACHMENT 2 CO PRESORTED SrANDARD 'y� 1 c U.S.POSTAGE PAID sAI I uis ompO SAN LUIS MAILING SERVICE 93401 UTILITIES DEPARTMENT 879 Morro Street San Luis Obispo, CA 93401 WHAT IS THE IMPACT ON A TYPICAL RESIDENTIAL CUSTOMER? The following shows the impact of the increase on a typical residential customer, which assumes 9 units of water use per month and a sewer cap of 6 units per month. Even though current water rates are proposed to increase, the average water bill would decrease slightly in the first year. This is because the amount of water the average residential customer is using has decreased from 10 to 9 units and the average sewer cap has decreased from 7 to 6 units per month. SAMPLE RESIDENTIAL WATER AND SEWER BILL JULY 1, 2011 PROPOSED JULY 1, 2011PROPOSED JULY 1, 2012 Water Service $58.65 $57.33' $62.53 Sewer Base Fee $6.55 $7.01 $7.43 Sewer Service Use Fee $43.32 $46.38 $49.14 Average water use for a typical residence has decreased from 10 units to 9 units HOW CAN I FIND OUT MORE ABOUT THE PROPOSED INCREASES? Information to help you calculate how the proposed rates affect your bill is on the Web at www.slocity.org/utilities; click on "How to Calculate Your Water and Sewer Bill." If you keep your old water and sewer bill, you can look back at the units of water you used and your sewer cap to determine how the proposed rate may impact you. You can also look up your bill online by going to www.slocity.org and clicking "Pay Utility Bill". You may also call Utility Billing at (805) 781-7097 or the Utilities Department at (805) 781-7215 for assistance. HOW DO I PROTEST THE PROPOSED WATER AND/OR SEWER RATE? Proposition 218 mandates how protests to water and/or sewer rates are conducted. Customers directly responsible for the payment of the fee subject to the proposed rate change or the property owner of the service address may submit a written protest against the proposed rate. If written protests are received from a majority of the affected customers or the property owners, the proposed rate will not be imposed. IT IS IMPORTANT TO FOLLOW THESE INSTRUCTIONS IN ORDER FOR YOUR PROTEST TO BE VALID: 1. The protest must be in writing and received by the City Clerk at or before the public hearing. Written protests may be mailed or personally delivered to the City Clerk at 990 Palm Street, San Luis Obispo, CA 93401. 2. All written protests must contain the service address. 3. The protest must be signed by either the account holder or the property owner of the service address. NOTICEOF R RATES Designed by:Verdto Marketing Ink Printed or ICC L; d ra-Ir i f I ATTACHMENT 3 RESOLUTION NO. (2011 Series) A RESOLUTION OF THE COUNCIL OF THE CITY OF SAN LUIS OBISPO ESTABLISHING WATER SERVICE RATES WHEREAS, it is the policy of the City of San Luis Obispo to review enterprise fund fees and rates on an ongoing basis and to adjust them as required to ensure that they remain equitable and adequate to fully cover the cost of providing services; and WHEREAS, a comprehensive analysis of Water Fund operating, capital and debt service needs has been performed for fiscal years 2011-13 through 2015-16; and WHEREAS, this comprehensive analysis has been revised based on updated revenue and expenditure information; and WHEREAS, the Council has reviewed the water service rates necessary to meet system operating, capital and debt service requirements. WHEREAS, a public hearing was properly noticed and held on June 14, 2011; and WHEREAS, a majority protest, as contemplated by Article XIII D of the California Constitution, was not received by the conclusion of the public hearing. NOW, THEREFORE, BE IT RESOLVED by the Council of the City of San Luis Obispo as follows: SECTION 1. Resolution No. 10094 (2009 Series) is hereby rescinded, effective 11:59 p.m. June 30, 2011. SECTION 2. The rates set forth in Exhibit "A" are hereby adopted, establishing water rates effective July 1, 2011 and July 1, 2012. SECTION 3. The water system access charges for emergency purposes, such as fire protection are increased from $42.40 per month to $46.64 per month, effective July 1, 2011 and $50.84 effective July 1, 2012 to reflect the increase in water rates. Upon motion of seconded by and on the following vote: AYES: NOES: ABSENT: R PH2-32 Resolution No. (2011 Series) ATTACHMENT 3 Page 2 The foregoing resolution was adopted this day of 2011. Mayor Jan Marx ATTEST: Elaina Cano City Clerk APPROVED AS TO FORM: C1. Cstine Dietrick City Attorney PH2-33 i Resolution No. (2011 Series) ATTACHMENT 3 Page 3 EXHIBIT A MONTHLY WATER SERVICE RATES Rates Effective July 1, 2011 Customer Type Single Family Residential All Other Customers Customers Inside the City Rates 1 -5 Units $5.73/Unit 1 -5 Units $5.73/Unit 6 -25 Units $7.17/Unit 6+ Units $7.17/Unit 26+ Units $8.99/Unit Outside the City Rates' 1 -5 Units $11.46/Unit 1 -5 Units $11.46/Unit 6 -25 Units $14.34/Unit 6+ Units $14.34/Unit 26+ Units $17.98/Unit For service to customers outside the City,the rates are two times the in City rate. Rates Effective July 1, 2012 Customer Type Single Family Residential All Other Customers Customers Inside the City Rates 1 -5 Units $6.25/Unit 1 -5 Units $6.25/Unit 6-25 Units $7.82/Unit 6+ Units $7.82/Unit 26+ Units $9.80/Unit Outside the City Rates' 1 -5 Units $12.50/Unit 1 -5 Units $12.50/Unit 6 -25 Units $15.64/Unit 6+ Units $15.64/Unit 26+ Units $19.60/Unit For service to customers outside the City,the rates are two times the in City rate. 1 Unit= 100 Cubic Feet= 748 Gallons of Water PH2-34 amr.scouncit mcmoRanoum Ig ty of an lus owspo, abmmisti ation'aepaatment DATE: June 14, 2011 ¢ ENED TO: City Council ;}l��I� 14 11011111 FROM: Katie Lichtig, City Manage §LQ CITY CLERK SUBJECT: Sewer Rate Structure—Residential o Commercial Conversions The attached memorandum was originally distributed on June 1, 2010, in preparation for the 2010 Sewer Fund review. Staff is redistributing the memo now because it could help address comments that may be made during public testimony. Staff will refer to the memo during the meeting tonight if necessary to clarify any issues regarding the sewer rate structure, and residential to commercial conversions. herd co emalk o Coumn o CDD DM o CrrYMGR a FlTDM RED FILE ° AWCM o MECHU o AnGRM n PW= MEETING AGENDA 0 CuMuowG o PDUCECHIU o M o PAW&MCDa DATEITEM #� ° NW TOM ORDM o TMU?E S a U*nL D o =CWNM ocouMaL o CrrY MGR O CLERK Paul Rys PO Box 1502 San Luis Obispo, CA. 93406 July 7, 2009 k-T- Ctrs? Aal& BIS San Luis Obispo City Council Amp"ceI &&ae- ?ac e�;UAAkA Re: AWWU Sewer rate structure Account# 130-0082-00-01 1302 Marsh Street Dear City Council, The purpose for this letter is to inform you that the present sewer rate structure for 1302 Marsh Street is inequitable in that older homes that have been converted into offices, such as this property,are not able to utilize the average winter water use (AWWU) in order to calculate the sewer cap. The result of this is that the sewer rates are not volume based, as all water usage,even for landscaping,is being double-charged as if it were being used for sewage. The water used for this property for sewage averages only 1 unit per month,yet at those times of the year, when landscaping requires water, any units used above one unit are charged not only for water, but also charged for sewer use. The City has"a community-based water rate—the service charge is wholly based on the volume of water used. The sewer rate contains two components—a minimum based charge and a service charge based on the volume of water used". The present sewer rate structure does not allow for converted residential properties that now serve the comm ercia/office demands of the city,to benefit from the AWWU rates. This property has low water usage similar to single-family residential dwellings and in fact uses even less water for sewage than single-family residences. This property is one of many such properties within the City of San Luis Obispo that helps fill the demand for office space. Additionally, because these structures are aesthetically appealing and are surrounded by beautiful landscaping, they help preserve the heritage and beauty that this city is known for that helps draw in tourists and helps generate revenue. It has been suggested by city staff that a second meter for landscaping be installed. This option has been explored and is neither financially nor physically feasible due to the twelve foot wide, sub-standard sidewalk that may have to be completely rebuilt; not just where it would have to be cut for the new water line,but the entire area Secondly, the change in the plumbing would be cost prohibitive. The simple solution would be to have this property included in the AWWU-based sewer rate structure. Then we would be charged a truly volume-based sewer rate that is consistent with the City's sewer rate policy. My family and I have invested a considerable amount of money and life energy over the years to restore this property and make it a beautifiil asset to our wonderful community. We ask that this request be addressed and go through the proper channels to resolve this issue. Sincerely, Paul Rys i We the San Luis Obispo property owners named below agree with the concerns of our neighbor,Paul Rys,regarding the unfair water and sewer rates that we are experiencumg at our properties due to the manner in which the city of San Luis Obispo computes sewer usage based on all water usage. We support his call for putting on the agenda as soon as possible a change in the manner in which sewer rates are computed to alleviate the gross overcharging. Jim Buttery Morris&Garritano Insurance 1102 Laurel Lane 1122 Laurel Lane Rollie McCormack The Real Estate Group 1306 Higuera Street 952 Mill Street Matt Kokkonen Marilyn Farmer 1103 Johnson.Avenue 1350 Marsh Street William Henry Crew Mile Spangler 1397 Marsh Street 15 Higuera Street Robert Crosby Terry Clark 1457 Marsh Street 1238 Marsh Street John Pratt Lee and Associates 1303 Higuera Street 1230 Higuera Street Susan Boatman Daniel Helbert 1305 Marsh Street 1,239 Higuera Street Krist an Cindrich Ralph Slocum 1368 Marsh Street 1360 Marsh Street Tom Swem 570 Marsh Street (partial list) .s.