HomeMy WebLinkAbout06-16-2015 PH1D Water Fund Review and Water Rate AdoptionCity of San Luis Obispo, Council Agenda Report, Meeting Date, Item Number
FROM: Carrie Mattingly, Utilities Director
Prepared By: Aaron Floyd, Water Division Manager
Brigitte Elke, Utilities Business Manager
SUBJECT: 2015-16 WATER FUND REVIEW AND 2015-17 WATER RATE
ADOPTION
RECOMMENDATION
1. Approve the release of certain previously approved Capital Improvement Projects and
return these appropriations to working capital in 2014-15 (Attachment 4);
2. Authorize the amendment of the Water Enterprise Fund 2014-15 budget to reflect the
revised values shown in the fund review documents.
3. Review and approve the 2015-16 annual Water Fund financial review;
4. Conceptually approve the 2015-16 Water Fund budget, with final action on June 23,
2015, with the adoption of the 2015-17 Financial Plan; and
5. Adopt a resolution increasing the water base fee and adding a drought surcharge
associated with both the water base fee and volumetric rates.
6. Authorize the Utilities Director to lower the drought surcharge, should revenue amounts
come in higher than anticipated.
DISCUSSION
Background
The City of San Luis Obispo’s Water Division is run as an enterprise fund and its operating,
capital and debt service expenditures are covered by rates and fees paid for the services. The
Water Fund financials for the upcoming City budget are
reviewed and approved by the City Council together with
the City’s overall budget with the two-year Financial Plan.
Currently, the Water Fund collects service fees from
approximately 15,000 accounts (including dedicated
irrigation meters) to cover the water services provided and
infrastructure maintained. The Fund is comprised of five
programs that support the different tasks required in water
treatment and delivery to San Luis Obispo customers.
Current Challenges
California is facing its fourth year of drought with most of
the State now in a severe to extremely severe drought
situation. Locally, drought conditions continue to persist
with 2013 being the driest year since rainfall data has been
collected followed by 2014 with rainfall well below
average. The drought conditions coupled with state-
mandated water use reductions have impacted the Water
June 16, 2015
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City Water at a Glance
Programs 5
Employees 28
Water Reservoirs 3
Distribution Pipes 145 miles
Storage Tanks 10
Pressure Zones 16
Water Treated
1.9 billion gallons
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2015-16 WATER FUND REVIEW Page 2
Fund revenues due to the decrease in water consumption throughout the year. Given the lack of
rainfall during the past winter, the Governor issued an Executive Order on April 1, 2015
requiring every water purveyor in the state to implement programs to meet further mandatory
water use reductions.
Fund Review
Provided these unprecedented climatic challenges, the attached Water Fund Review (Attachment
1) presents the Water Fund’s proposed 2015-16 budget, its work program and capital
investments considering water conservation efforts and state-mandated water use reduction.
Despite these challenges, the budget process and the allocation of resources keeps the fund’s
core purpose in mind:
“To provide essential services that support the community’s health, well-being, and quality of
life”
As a result, it defines the work program with forecasts and financial positions for the upcoming
two years to:
• Sustain an ongoing level of capital improvement projects to maintain the
community’s water treatment and delivery infrastructure assets;
• Maintain a positive fiscal position in the Water Fund;
• Maintain sufficient working capital and a revenue plan forecast to position the Water
Fund to secure favorable financing terms for possible debt financing of treatment,
storage, and delivery assets; and,
• Continue to deliver safe and reliable water services to the community.
The 2015-16 Water Fund Review (Attachment 1), provides an in-depth look at changes in
financial position, revenue and operational assumptions, an update on major activities and
programs, and incorporates key financial impacts. In order to arrive at the proposed budget, the
fund review takes a look at the past as well as into the future to determine the budget needed to
fulfill all obligations under current drought conditions.
1. Revenues
As the community began
responding to California’s
drought, water use declined
and the Water Fund is
expected to end the fiscal
year 2014-15 with a revenue
loss of one million dollars. In
order to avoid mid-year rate
adjustments, the rate
stabilization reserve was
activated and used to offset
the shortfall. However, as the
drought continues into its
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2015-16 WATER FUND REVIEW Page 3
fourth year and San Luis Obispo is mandated to further reduce water use by 12% (Attachment 2
– Drought Response Strategy), revenue is expected to decline accordingly. In order to collect
sufficient revenue to cover the fund’s expenses and obligations, increased base fee charges and
drought surcharges are proposed for 2015-16 and 2016-17.
Water Fund revenues are collected from multiple sources, but approximately 90 percent are
directly tied to water service charges including the base fee. As shown in the chart, San Luis
Obispo is currently experiencing high development activity. This is reflected under development
impact fees that will reach much higher levels than originally budgeted. However, it is not
expected that the level of development will continue into the future and revenue forecasts take a
conservative approach as to projected impact fee collection.
Sales to Cal Poly will only increase slightly despite the applicable rate going from 41 to 49.9
percent for fiscal year 2015-16. Cal Poly pays part of the applicable rate as it has its own water
supply in Whale Rock and is only paying for treatment and distribution. The University has
implemented stringent conservation measures that have shown a decrease in water use of over 20
percent, offsetting some of the increase.
2. Operating Program Expenses
The Water Fund’s operating and capital budgets are evaluated by looking at past expenditures
and assessing upcoming needs of the infrastructure and the five operating programs that maintain
and service it. The operating costs include salaries, benefits, contract services, operating material
(including utilities and chemicals), training, and minor capital and encompass:
● Water Distribution ● Water Treatment Plant
● Water Source of Supply ● Water Administration & Engineering
● Utilities Services
For the upcoming fiscal year, the operating budget also includes allocations for three significant
operating program changes for additional staff to support the Division’s process control systems,
a Health and Safety Engineer, a Utilities Engineer, and funding for contract services.
It is anticipated that the Water Fund will finish 2014-15 with substantial savings in electricity use
due to the Nacimiento pipeline being out of service from August through April. Provided that the
drought scenario will require increased pumping from Nacimiento Reservoir, staff anticipates
having to carry the savings forward to cover increased costs in the Source of Supply program.
The Capital Improvement Project plan addresses the needs of the City’s water infrastructure
that includes the Water Treatment Facility and the system that works to store, pump and
distribute water to the ratepayers. On May 5, 2015, the City Council received the new Potable
Water Distribution System Master Plan that identifies zone consolidations that will ultimately
allow a reduction in needed infrastructure assets. However, in order to consolidate the system,
several large projects, such as the replacement of Reservoir 2 located at the Water Treatment
Plant, will require significant capital investments. The Water Distribution system will also see
significant investments due to needed upsizing of pipes for increased fire flow and to
accommodate pressure zone consolidation. There are currently appropriations in the 2014-15
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2015-16 WATER FUND REVIEW Page 4
Capital Improvement Project plan for projects that will no longer be moving forward based on
the findings in the Water Master Plan (Attachment 4). Approval is needed to release these
appropriations and return this funding to working capital in order to provide adequate funding for
the proposed Capital Improvement plan.
3. Debt Service Update
The Water Fund was able to reduce its debt obligation due to the refinancing of the 2002 bonds
in 2012. The debt for the Nacimiento pipeline is carried in the operating program under Source
of Supply and therefore not showing under debt obligations. The fund is programmed to seek
additional debt service in order to replace Reservoir 2 in 2016-17. The presented financials
include this assumption. After the Preliminary Budget went to print, staff learned that the Water
Fund requires additional debt proceeds to finance a portion of the 2016-17 Reservoir #2 project
in order to maintain adequate cash reserves in 2018-20. If the City Council approves the
assumptions shown within this Fund Review, staff will prepare an amendment to the Preliminary
Financial Plan that incorporates both the debt proceeds and the related debt service costs.
Expenditure Projected
2012-13 2013-14 2014-15 2015-16 2016-17
Operating
Programs
12,167,500 12,272,232 12,989,990 13,821,908 14,077,331
General
Government
1,316,700 1,268,800 1,876,830 1,797,668 1,843,012
Capital Plan 826,100 1,485,019 4,420,528 2,812,485 7,968,493
Debt Service 2,126,600 2,191,161 2,195,300 2,192,600 2,561,909
Debt
Proceeds
*(5,000,000)
Total
Expenditures
16,436,900 17,217,212 21,482,648 20,724,661 21,450,745
*Differs from preliminary budget document. See paragraph above for explanation.
4. Proposed Water Rates
Under the City’s water rate structure, bills are based mainly on customer usage choices and
resulting demand on the water systems. The City currently applies a base fee (minimum charge)
and a unit rate based on the volume of water used. The City applies a two tier rate structure with
water usage over eight units charged at a higher rate than the first eight units.
Why are Water Rates proposed to be increased?
There are a number of factors driving the need to increase water rates, including:
1. Cost of a multi-source water supply;
2. Ongoing maintenance and operations costs;
3. Debt covenants; and
4. Reduced water consumption due to drought conditions and State water use reduction
mandates.
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2015-16 WATER FUND REVIEW Page 5
Having several sources of water avoids dependence on
any one source that may not be available during a water
supply reduction or emergencies. This strategy has served
the City well, provided the current drought conditions and
uncertainties. The City’s reliable multi-source water
supply provides the water needed to achieve the City’s
General Plan goals. Maintaining different types of sources
(surface water from Salinas, Whale Rock, and Nacimiento Reservoirs, recycled water for
irrigation, and limited ground water) provides valuable reliability and flexibility.
In addition to water supply, the proposed rate increases will support ongoing maintenance and
operating programs needed to ensure that the water treatment and delivery systems meet all
federal and state water treatment regulations and are operated and maintained to provide safe and
reliable service. The fixed cost to do so is about eighty (80) percent of the water utility’s cost of
service.
Additionally, water rates must provide enough revenue to cover the costs of debt payments.
Because of obligations and covenants to bondholders, the City must maintain a healthy debt
coverage ratio to continue its favorable bond rating.
Drought Surcharge. Because of the Governor’s Executive Order mandating the City’s 12
percent water use reduction, a drought-related surcharge is proposed to offset the additional loss
in Water Fund revenue associated with the Order. The following table shows the proposed rates
and drought surcharges. The purpose of the surcharge is to reach needed revenue levels. It is not
structured to achieve excess revenue. Should revenue numbers surpass anticipated budget levels,
it is recommended the Utilities Director be authorized to reduce the drought surcharge
accordingly.
The proposed rates have consciously been chosen to include a drought surcharge that can be
eliminated once the Governor rescinds his executive order and the drought is officially declared
over.
PROPOSED WATER RATES FOR 2015 AND 2016
Rate Basis Current July 1, 2015 July 1, 2016
Base Fee $5.28 $7.63 $9.98
Drought Surcharge $0.00 $0.37 $0.74
Volume Charge
0 – 8 units $6.92 per unit No change No change
Tier 1 Drought Surcharge $0.00 $0.98 per unit $1.10 per unit
9+ units $8.65 per unit No change No change
Tier 2 Drought Surcharge $0.00 $1.23 per unit $1.37 per unit
1 unit = 748 gallons
80%
20% Fixed
Cost
Variable
Cost
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2015-16 WATER FUND REVIEW Page 6
5. Water Rate Protest
Under Proposition 218, property owners and/or 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 submitted on the form provided, received by the City Clerk at
or before the public hearing on June 16, 2015, 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 (50% + 1), the proposed rate increases may not be
imposed. A majority of approximately 15,000 customers is 7,500. As of May 15, 2015, a total of
400 written protests were received by the Office of the City Clerk. All protests will need to be
validated regarding property ownership and duplicate addresses.
The City Clerk will provide an updated summary of the protests received at the conclusion of the
Water Fund Review public hearing on June 16, 2015.
ATTACHMENTS
1. 2015-16 Water Fund Review
2. Drought Response Strategy
3. Resolution establishing Water Rates for 2015-17
4. List of previously approved Capital Projects to be unappropriated
g:\admin\fiscal officer\financial plans\2015-17 financial plan\cars\water fund\water fund car.docx
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ATTACHMENT 1
WATER FUND
REVIEW
2015
June 16, 2015 City of San Luis Obispo
Utilities Department
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Attachment 1
City of San Luis Obispo 2015 Water Fund
Page 1
Table of Content
I. OVERVIEW
II. Key Assumptions
III. 2015-17 FINANCIAL PLAN
a. Revenue
i. Water Service Charges
ii. Cal Poly
iii. Development Impact Fees
b. Fund Expenditures
i. Operating Programs
ii. Capital Improvement Plan
iii. Debt Service
IV. MAJOR ACTIVITIES AND PROGRAMS
a. 2014-15 Update
b. 2015-16 and Forecast
V. WATER RATE SETTING
a. Water Rate Structure
b. Proposed Water Rate Changes
EXHIBIT A – FINANCIAL SCHEDULES
A.1 Changes in Financial Position
A.2 Assumptions for Fund Projections
A.3 Capital Improvement Plan
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Attachment 1
City of San Luis Obispo 2015 Water Fund
Page 2
| OVERVIEW
The City of San Luis Obispo’s water services are administered, serviced, and maintained through the Utilities
Department’s Water Division. The financials are recognized as an enterprise fund as it finances all facets of its
operation, maintenance of capital assets, and debt obligations through rates charged for services.
The Water Division is responsible for:
Operating Program Core Function
Water Source of Supply This program provides the funding for the City’s three
surface reservoirs: Nacimiento, Salinas, and Whale Rock.
Recycled Water is also included as one of the water sources
for irrigation.
Water Treatment Treating 1.9 billion gallons of raw water annually from three
surface reservoirs.
Water Distribution Maintaining 145 miles of distribution lines, 10 water tanks,
16 pressure zones, 15,000 water meters, and 2,000 fire
hydrants.
Utilities Services Provides water conservation and customer service
assistance, communications and engagement/education.
Water Administration and Engineering Oversight of 30.5 employees, capital projects, and overall
fund administration
| KEY ASSUMPTIONS
When preparing for the budget, the Water Division analyzes past financial results, assesses upcoming
operational and capital needs, reviews debt obligations, considers future need for additional debt financing to
assess the financial position of the fund and its continued health. The budget prepared for the two-year financial
plan follows a “zero based budgeting” approach, considering each and every line item and its future needs
informed by past expenditures. Asset condition, infrastructure age, and future capacity needs are driving factors
in determining the Capital Project plan presented in this report.
The revenue need is then evaluated based on current rates, analysis of current use and effects on future
revenue to provide a recommendation as to needed rate levels and possible increases.
| 2015-16 FINANCIAL PLAN
REVENUE
As an enterprise fund, the Water Division finances its operation mainly with rates charged for water services.
According to its mandate, rates have to be sufficient to cover operation, capital asset improvements and
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Attachment 1
City of San Luis Obispo 2015 Water Fund
Page 3
maintenance, debt obligations, and appropriate reserve levels to keep the fund healthy and prepared for future
funding needs.
Revenues are collected from multiple sources which include:
• Water Service Charges combining a base fee and volumetric charge per unit. The drought surcharge
revenue is incorporated into the revenues for each of these charges.
• Sales to Cal Poly
• Development Impact Fees
• Misc. Charges such as account set-up fees, late charges, meter sales, and connection fees.
• Investment and Property Revenue
As illustrated below, approximately 90% of the fund’s revenue comes from water services charges including the
base fee and volumetric charges.
Water Service Charges: Revenue projections for water service charges are based on a water rate analysis that
includes a review of approximately 15,000 water accounts (including dedicated irrigation accounts) using the
most recent 12-month period, including monthly usage and billed amounts. The total monthly usage and billed
amounts are compared against actual revenues received for the same period. The data sets are pulled from the
City’s utility billing software program to capture the most recent usage trends by customer account type and by
individual residential accounts. Historical data for all customer types are analyzed to evaluate revenue stability
in the current fiscal year, to forecast usage, and to test the previously forecasted water rates for revenue
adequacy in the rate setting process.
0 10,000,000 20,000,000
2012-13
2013-14
2014-15
2015-16
2016-17
Other Revenue
Dev. Impact Fees
Water Base Fee
Water Service Charges
Investment Revenues
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Attachment 1
City of San Luis Obispo 2015 Water Fund
Page 4
As the community began responding to California’s drought, water use declined and the water fund is expected
to end the fiscal year 2014-15 with a revenue loss of one million dollars. In order to avoid mid-year rate
adjustments, the rate stabilization reserve was activated and used to offset the shortfall. However, as the
drought continues into its fourth year and San Luis Obispo is mandated to further reduce water use by 12
percent, revenue is expected to decline accordingly. In order to collect sufficient revenue to cover the fund’s
expenses and obligations, increased base fee charges and drought surcharges are proposed for 2015-16 and
2016-17 (page 12 – Proposed Rates).
Cal Poly: Revenue projections for Cal Poly are based on the 2012 Agreement between the City and the
University. This agreement, covering the period beginning July 1, 2013, set the methodology of the non-
residential rate the University pays to account for the University’s difference from other customers as the
University owns its own water supply in Whale Rock and capacity interest at the Water Treatment Plant
associated with the 1994 plant upgrade. For 2015-16 the percentage will be 49.9 percent.
Development Impact Fees: These fees become due when new development “buys” into the water system that
was sized and constructed to accommodate population growth. After the Great Recession, San Luis Obispo is
experiencing a construction boom with unprecedented development activity. Provided the volatility of
development, the fund analysis took a conservative approach as to future income levels as future activity will
not likely keep pace with 2014-15 collection of fees.
Revenue Summary with revised 2014-15 budget and Financial Plan Assumption 2015-17
2014-15 2015-16 2016-17
Revised
Budget Projection Variance Projection Variance
Revenues
Investment Revenues 50,000 50,000 0.00% 50,000 0.00%
Service Charges
Customer Sales
Water Service Charges* 15,270,000 15,294,450 0.2% 15,312,836 0.1%
Water Base Fee 937,728 1,420,800 51.5% 1,903,872 34.00%
Sales to Cal Poly 760,000 845,000 11.2% 905,000 7.1%
Development Impact Fees 1,870,000 1,300,000 -30.5% 800,000 -38.5%
Account Set-Up Fees 103,400 105,800 2.32% 108,200 2.27%
Connection Charges and Meter Sales 45,000 46,000 2.2% 47,100 2.4%
Other Revenue 162,000 166,000 2.5% 170,100 2.5%
Total Revenue 19,198,128 19,228,050 0.2% 19,297,108 0.4%
*includes recycled water
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City of San Luis Obispo 2015 Water Fund
Page 5
| FUND EXPENDITURES
| Operating Programs
The Water Division’s five operating programs cost are summarized in Table A. The summary of operating
programs reflects the net operating program budget amounts for 2015-17, which includes the proposed
operating budget increases, as further discussed in this report and displayed in Table B. A rigorous and thorough
review of operating costs and trends was conducted in development of the proposed budget. As outlined in
Table B, the significant operating program change increases are necessary to continue to provide protective,
reliable water services to the community.
A. 2014-15 2015-16 2016-17
Revised
Budget Projection Variance Projection Variance
Summary of Operating Programs
Source of Supply 7,716,900 8,639,436 12.0% 8,718,966 0.9%
Water Treatment 2,463,023 2,394,523 -2.8% 2,505,881 4.7%
Water Distribution 1,129,968 1,437,924 27.3% 1,506,735 4.8%
Utilities Services 354,000 610,787 72.5% 621,189 1.7%
Water Customer Service 299,889 0 0
Water Administration 694,485 739,238 6.4% 724,561 -2.0%
Total Water Division Operating 12,658,265 13,821,908 9.2% 14,077,331 1.8%
Notable Changes und upcoming efforts
In April 2015, the Utilities Department changed to contract meter reading commissioning the monthly read of
water meters to Alexander Contract Services. With this change, the Utilities Services program assumed
additional responsibility related to water and customer service. It is also the program in charge of all the
drought-related activities and implementation strategies including the administration of an incentive program.
Proposed Changes to Operating Programs
Proposed significant operating program changes include a total increase of $293,600 in 2015-16 and $253,150 in
2016-17.
B. Significant Operating Program Changes
2015-16 2016-17
Water Distribution
Control Systems Staffing 106,900 106,200
Water Administration
Staffing due to Dept. Reorganization 136,700 136,950
Contract Services 50,000 10,000
Total Significant Operating Program Changes 293,600 253,150
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City of San Luis Obispo 2015 Water Fund
Page 6
Operating and Maintenance Expenses
Total operating and maintenance costs for 2015-17 are based on the proposed 2015-17 Financial Plan.
The most significant non-staffing operating costs for water services are: (1) Nacimiento debt and operation &
maintenance cost; (2) chemicals for raw water treatment; (3) electric utility services for water treatment and
distribution processing, and; (4) cost of service for right-of-way and public safety paid to the General Fund. In
the two-year 2015-17 Financial Plan when annualized, chemical costs are projected at over $230,000 annually,
electric utility services at over $540,000 annually, and cost of service for right-of-way and public safety paid to
the General Fund at over $500,000 annually.
1. The City of San Luis Obispo’s portion in Nacimiento including its debt obligation is included in the
Water Fund’s operating budget under Source of Supply. The annual payment will amount to:
2015-16 $6,372,154 2016-17 $6,383,998
2. Chemicals go out to bid on an annual basis with chemical contracts running from February 1 through
January 31. For budget development purposes, any potential changes to treatment processes are
evaluated and dosage amount for chemicals calculated. The measured chemical quantity is used to
develop the budget.
3. Electric utility rate assumptions, as provided by PG&E, include a rate increase of 5.5% to 6.4% in
2015-16 and 2016-17 for commercial and industrial accounts.
4. Water cost of service for right-of-way and public safety are calculated based on 1) investments in
street surfacing and Public Works Street division and 2) a Water fund asset valuation for the cost of
Public Safety to the Water Fund. The cost is assessed with the City’s annual cost allocation plan and
will be reflected as a transfer between the Water and the General Fund.
| Capital Improvement Plan
The City of San Luis Obispo Water Division maintains and upgrades a complex infrastructure including a Water
Treatment Plant treating 1.9 billion gallons of raw water from three surface reservoirs, 145 miles of water
distribution pipes, 10 storage tanks, and 16 pressure zones, 15,000 water meters and 2,000 fire hydrants. Each
year, the infrastructure’s needs are prioritized which includes previous projects that have yet to be started.
Capital expenses are forecast using the new Potable Water Distribution System Master Plan and hydraulic
modeling tool (presented to the City Council on May 5, 2015) as well as being based on infrastructure
maintenance and repair history, individual project budget estimates, regulatory requirements, and projected
changes in community demographics. Maintaining the water system infrastructure, including major equipment
upgrades, ongoing treatment processes, technology, and planning for long-term infrastructure upgrade and
replacement is essential to providing protective and reliable water services for the community.
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City of San Luis Obispo 2015 Water Fund
Page 7
Table C displays the proposed five-year Capital Improvement Plan for water infrastructure. The proposed Water
Fund capital plan includes a total of $2,812,485 in 2015-16 and $7,968,493 in 2016-17.
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). The 2015-20 five-year CIP program continues
investments in maintaining the City’s infrastructure and begins the consolidation according to the new strategy.
In 2015-16 and beyond, it also includes dedicated capital funding for meter and hydrant replacements.
It is anticipated the actual cost of completing capital projects will vary from the budgeted cost estimate. These
cost estimates are generally conservative, therefore it is expected sufficient funding for those projects listed for
each year will be completed. Should the bidding climate change dramatically, and costs increase above those
estimated, project timelines will be amended.
C-1 WATER DISTRIBUTION
Capital Improvement Plan 2015-16 2016-17 2017-18 2018-19 2019-20
Distribution System Improvements - Pipelines 1,860,000 1,505,000 1,508,000 1,620,000 1,524,000
Serrano Zone Consolidation-(Study & Design)
100,000
Serrano Zone Consolidation Phase 1 (Const)
1,000,000
Serrano Zone Consolidation Phase 1 (CM)
100,000
Serrano Zone Consolidation Phase 2 (Const)
1,000,000
Serrano Zone Consolidation Phase 2 (CM)
100,000
Trench Repairs
125,000 125,000 125,000 125,000 125,000
Raise Valve Covers
25,000 25,000 25,000 25,000 25,000
Water Meters and Water Meter Boxes
82,500 82,500 85,000 87,500 90,000
Fire Hydrants and Parts
25,000 25,000 25,000 30,000 30,000
Tank Maintenance (Design)
62,500
75,000
Tank Maintenance (Construction)
480,000
675,000
Tank Maintenance (CM)
50,000
70,000
Fleet replacement: Pickup
28,500
Fleet replacement: Caterpillar Backhoe Loader
136,000
Fleet replacement: Portable vacuum pump
112,000
Extended Cab Pickup Truck
34,500
2,326,500 2,292,500 1,943,000 3,761,000 3,030,000
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City of San Luis Obispo 2015 Water Fund
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C-2 WATER TREATMENT
Capital Improvement Plan 2015-16 2016-17 2017-18 2018-19 2019-20
Major Facility Maintenance
160,000 170,000 290,000 160,000 160,000
Wash Water Tank #2 (Design)
15,000
Wash Water Tank #2 (Const)
170,000
Reservoir 2 Replacement (Study)
50,000
Reservoir 2 Replacement (Design)
200,000
Reservoir 2 (Construction)
5,000,000
Reservoir 2 Replacement ( CM)
300,000
Fleet Replacement: Service Body Truck
59,100
484,100 5,640,000 290,000 160,000 160,000
C-3 UTILITIES SERVICES
Capital Improvement Plan 2015-16 2016-17 2017-18 2018-19 2019-20
Fleet replacement: Compact Pickup
25,200
57,000
0 25,200 0 0 57,000
C-4 ADMINISTRATION AND ENGINEERING
Capital Improvement Plan 2015-16 2016-17 2017-18 2018-19 2019-20
Fleet replacement: Sedan
33,700
0 0 0 33,700 0
C-5 SHARED INFORMATION TECHNOLOGY
Capital Improvement Plan 2015-16 2016-17 2017-18 2018-19 2019-20
Virtual Private Network (VPN) Replacement
9,028
Network Firewalls
15,259
Network Switching Infrastructure Replacement
14,140
Radio Handhelds and Mobile Replacements
24,282
VM Infrastructure
8,945
8,945
Server Operating System
1,848
VoIP
20,360
Finance System Replacement
125,000
Tait Radio System
24,282
Office Application Software Replacement
16,773
UPS Battery Replacement
1,885 1,885
1,885 10,793 44,642 26,167 189,145
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City of San Luis Obispo 2015 Water Fund
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| Debt Service
The following is a summary of the current debt payments the fund has to secure within its annual budget. The
Water Fund’s largest debt obligation, which is its share in the Nacimiento Project, is not listed here as it is part of
the Fund’s operating budget under Source of Supply. In 2016-17, the Fund is expected to assume new debt to
construct the replacement of Reservoir 2.
1. Debt service for the 1994 upgrade of the Water Treatment Plant (now the 2012 Refunding Water
Revenue Bond debt payment) is $568,600 in 2015-16 and $572,000 in 2016-17.
2. Debt service for the 2006 upgrade of the Water Treatment Plant, the 2006 Water Revenue Bond,
is $1,032,747 in 2015-16 and $1,030,947 in 2016-17.
3. Debt service for the repayment of the State Revolving Fund loan for the construction of the Water
Reuse system is $525,457 annually in 2015-17.
4. Debt service for the Water Fund’s proportionate share of the City’s Public Safety Communications
Center is $28,600 annually for 2015-17. In addition, the Water Fund’s share of the Public Safety
Radio System Upgrade is $37,500 annually in 2015-17.
5. Debt service is currently projected in the long-term financial forecast at $481,500 annually
beginning in 2021-22 for Ozone Generation Upgrades at the Water Treatment Plant, based on
total project costs currently estimated at $7 million. Study and design of the upgrade will be paid
for by the Fund.
6. The 2015-17 Financial Plan also includes debt service for the replacement of Reservoir 2 to begin
the consolidation of the Water Distribution system. The annual debt service cost for the $5.3
million project is estimated at $367,900 with design being paid for by the Fund.
| MAJOR ACTIVITIES AND PROGRAMS
2014-15 Update
1. Water Master Plan Update
The Water Master Plan was received by City Council in May of 2015 and will serve to update the
2000 Water Master Plan. The Master Plan update includes the development and calibration of a
hydraulic model. The model further helps to identify system improvements to address modern fire
and plumbing codes. In addition, the hydraulic model will inform infrastructure required to serve
the Orcutt and Airport Specific Plan areas, as well as Avila Ranch, including distribution system
expansion.
2. Monterey Street Waterline Replacement
In December 2013, the City Council authorized the invitation of bids for the Monterey Street
Water Main Replacement project. This ten-inch waterline serves Monterey Street between
PH1D - 16
Attachment 1
City of San Luis Obispo 2015 Water Fund
Page 10
California and Pepper and has experienced repeated breaks in the past years. This replacement of
this waterline is expected to be complete in early June 2015.
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. 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. The project was awarded October 2012 and after significant
staff involvement, the 100% design submittal was received in April 2015. Construction is
anticipated to begin in Fall 2015.
2015-16 and Forecast
1. Water Distribution System Improvements
With the completion of the Water Master Plan in 2015, several necessary projects have been
identified to maintain the water distribution system. These projects will replace over 5 miles of
the highest priority waterlines. These improvements will help reduce the amount of waterline
breaks related to aging infrastructure and address fire-flow deficiencies within the system. In
addition, these projects will facilitate the consolidation of water distribution pressure zones, allow
for tanks to be removed, and improve the reliability of the system.
2. Water Storage Reservoirs
Also studied in the 2015 Water Master Plan was Reservoir #2, one of the City’s treated water
storage reservoirs. Initially this project looked at replacing the deteriorating floating covers. It
was determined that the entire distribution system would be better served and reliability
improved by constructing two smaller tanks that could operate independently to allow for
maintenance. The study and design phase will occur in 2015-16 with the construction phase
starting in 2016-17.
3. Water Treatment Plant
The Water Treatment Plant serves the drinking water needs of the City, Cal Poly, and the County
Airport. The plant was originally constructed in 1961 and was last upgraded in 2008. The
upcoming maintenance projects will ensure the plants future ability to continue to meet stringent
drinking water quality standards.
PH1D - 17
Attachment 1
City of San Luis Obispo 2015 Water Fund
Page 11
| WATER RATE SETTING
Water Rate Structure
Under the City’s water rate structure, bills are based mainly on customer usage choices and resulting demand on
the water systems. The City currently applies a base fee (minimum charge) and a unit rate based on the volume
of water used. The City applies a two tier rate structure with water usage over eight units charged at a higher
rate than the first eight units.
Current policies to guide rate structure setting:
1. Revenue Stability and Predictability
2. Stability and Predictability of Rates
3. Simple and Easy to Understand and Administer
4. Fair Allocation of Total Cost
5. Discourage Wasteful Use
The number of active water accounts changes daily with service turn-on and turn-offs due to move-in and move-
outs. A large volume of account changes directly correlate with the academic schedules at Cal Poly University
and Cuesta College. According to the last read schedule, the City currently has 15,000 service connections
including dedicated irrigation accounts.
There are a number of factors driving the need to increase water rates, including:
1. Cost of a multi-source water supply;
2. Ongoing maintenance and operations costs;
3. Debt covenants;
4. Reduced water consumption due to drought conditions and State water use reduction mandates.
Having several sources of water avoids dependence on any one source that may not be available during a water
supply reduction or emergencies. This strategy has served the City
well, provided the current drought conditions and uncertainties. The
City’s reliable multi-source water supply provides the water needed
to achieve the City’s General Plan goals. Maintaining different type of
sources (surface water from Salinas, Whale Rock, and Nacimiento
Reservoirs; recycled water for irrigation; and limited ground water)
provides valuable reliability and flexibility.
In addition to water supply, the proposed rate increases will support ongoing maintenance and operating
programs needed to ensure that the water treatment and delivery systems meet all federal and state water
80%
20% Fixed
Cost
Variable
Cost
PH1D - 18
Attachment 1
City of San Luis Obispo 2015 Water Fund
Page 12
treatment regulations and are operated and maintained to provide safe and reliable service. The fixed cost to do
so is about eighty (80) percent of the water utility’s cost of service.
Additionally, water rates must provide enough revenue to cover the costs of debt payments. Because of
obligations and covenants to bondholders, the City must maintain a healthy debt coverage ratio to continue its
favorable bond rating.
Drought Surcharge. Because of the Governor’s Executive Order mandating the City’s 12 percent water use
reduction, a drought-related surcharge is proposed to offset the additional loss in Water Fund revenue
associated with the order. The following table shows the proposed rates and drought surcharges. The purposed
of the surcharge is to reach needed revenue levels. It is not structured to achieve excess revenue. Should
revenue numbers outpace anticipated levels due to winter rain, it is recommended that the Utilities Director is
authorized to reduce the drought surcharge accordingly.
On May 1, 2015, the City of San Luis Obispo released its Proposition 218 notification. Under Proposition 218, the
owner of record of a parcel or parcels or a tenant directly liable for payment of the water and Water bill may
submit a written protest against the proposed changes to the water rates presented in this notice. If written
protests are filed by a majority (50% +1) of the affected parcel owners and/ or customers, the proposed rate
increases will not be imposed.
PROPOSED WATER RATES FOR 2015 AND 2016
Rate Basis Current July 1, 2015 July 1 2016
Base Fee $5.28 $7.63 $9.98
Drought Surcharge $0.00 $0.37 $0.74
Volume Charge
0 – 8 units $6.92 per unit No change No change
Tier 1 Drought Surcharge $0.00 $0.98 per unit $1.10 per unit
9+ units $8.65 per unit No change No change
Tier 2 Drought Surcharge $0.00 $1.23 per unit $1.37 per unit
1 unit = 748 gallons
PH1D - 19
CHANGES IN FINANCIAL POSITION - WATER FUND
2014-15 2015-16 2016-17 2017-18 2018-19 2019-20
Revised
Budget Projection Variance Projection Variance Projection Variance Projection Variance Projection Variance
Revenues
Investment and Property Revenues 50,000 50,000 0.0%50,000 0.0%50,000 0.0%50,000 0.0%50,000 0.0%
Water Sales
Water Service Charges 15,270,000 15,294,450 0.2%15,312,836 0.1%15,925,300 4.0%16,562,300 4.0%17,059,200 3.0%
Water Base Charges 937,728 1,420,800 51.5%1,903,872 34.0%2,386,944 25.4%2,482,400 4.0%2,556,900 3.0%
Sales to Other Agencies 760,000 845,000 11.2%905,000 7.1%941,200 4.0%978,800 4.0%1,008,200 3.0%
Development Impact Fees 1,870,000 1,300,000 -30.5%800,000 -38.5%824,100 3.0%848,900 3.0%876,600 3.3%
AB 939 Reimbursement 131,000 134,300 2.5%137,700 2.5%141,600 2.8%145,600 2.8%150,000 3.0%
Account Set-up Fees 103,400 105,800 2.3%108,200 2.3%110,900 2.5%113,700 2.5%116,500 2.5%
Connection Charges and Meter Sales 45,000 46,000 2.2%47,100 2.4%48,300 2.5%49,500 2.5%50,700 2.4%
Other Revenues 31,000 31,700 2.3%32,400 2.2%33,200 2.5%34,000 2.4%34,900 2.6%
Total Revenues 19,198,128 19,228,050 0.2%19,297,108 0.4%20,461,544 6.0%21,265,200 3.9%21,903,000 3.0%
Expenditures
Operating Programs
Public Utilities 12,658,266 13,821,908 9.2%14,077,331 1.8%14,136,240 0.4%14,318,042 1.3%14,600,986 2.0%
General Government 1,876,830 1,797,668 -4.2%1,843,012 2.5%1,786,652 -3.1%1,786,652 0.0%1,786,652 0.0%
Total Operating Programs 14,535,096 15,619,576 15,920,343 15,922,892 16,104,694 16,387,638
General Carryover 120,330
Capital Improvement Plan 4,420,528 2,812,485 -36.4%7,968,493 183.3%2,277,642 -71.4%3,980,867 74.8%3,436,145 -13.7%
Debt Service 2,195,300 2,192,600 -0.1%2,561,909 16.8%2,562,109 0.0%2,565,409 0.1%2,520,509 -1.8%
Total Expenditures 21,271,254 20,624,661 -3.0%26,450,745 28.2%20,762,643 -21.5%22,650,970 9.1%22,344,292 -1.4%
Other Sources (Uses)
Operating Transfer In
Operating Expenditure Adjustment (33,725)(34,400)(35,087)
Projected Retirement Buyouts (78,700)
PERS employer rate increase (20,800)(25,500)(26,100)(26,800)
Projected Debt Proceeds 5,000,000
Drought Related Rebate Program (100,000)
Other Sources (Uses)
Other Sources (Uses)(111,894)(131,406)
Total Other Sources (Uses)(211,394)(231,406)5,000,000 (59,225)(60,500)(61,887)
Revenues and Other Sources Over (Under)
Expenditures and Other Uses (2,284,520)(1,628,017)(2,153,637)(360,324)(1,446,269)(503,179)
fund balance adj to CAFR
Working Capital, Beginning of Year 17,999,995 15,715,475 14,087,458 11,933,821 11,573,498 10,127,228
Working Capital, End of Year 15,715,475 14,087,458 11,933,821 11,573,498 10,127,228 9,624,049
Reserve (20% of operating)2,907,000 3,123,900 3,184,100 3,184,600 3,220,900 3,277,500
Rate Stabilization Reserve (10% of sales revenue)603,000 900,000 1,200,000 1,686,700 1,754,100 1,806,700
Capital Reserve for WTP upgrade
Unreserved Working Capital 12,205,475 10,063,558 7,549,721 6,702,198 5,152,228 4,539,849
Attachment 1
Exhibit A.1
PH1D - 20
Attachment 1
Exhibit A.2
PROJECTION ASSUMPTIONS - WATER FUND
CATEGORIES 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20
Utilities Service Fees CPI Projections 2.0%2.3%2.3%2.5%2.5%2.5%
Nacimiento Payment for Operating and Maintenance & Reserves $1,477,000 $1,854,163 $1,921,100 $1,978,100 $2,036,900 $2,097,300
Nacimiento Payment for SLO County Debt Service $4,713,500 $4,698,600 $4,660,200 $4,664,100 $4,658,900 $4,659,400
Debt Service - 2012 Water Revenue Bonds $569,600 $568,600 $572,000 $569,600 $571,600 $567,800
Debt Service - 2006 Water Revenue Bonds $1,034,000 $1,032,800 $1,031,000 $1,033,600 $1,035,400 $1,030,900
Debt Service - State Revolving Fund Loan - Water Reuse Project $525,500 $525,500 $525,500 $525,500 $525,500 $525,500
Lease Purchase - Energy Projects $0 $0 $0 $0 $0 $0
Projected Debt Service - 2021 Water Treatment Plant Upgrade $0 $0 $0 $0 $0 $0
Projected Debt Service-Reservoir Replacement $0 $0 $367,909 $367,909 $367,909 $367,909
Debt Service - 2009 Public Safety Radio System Upgrade $37,600 $37,100 $36,900 $36,900 $36,500 $0
Debt Service - 2009 Public Safety Communications Center $28,600 $28,600 $28,600 $28,600 $28,500 $28,400
Revenue Debt Coverage 168%128%329%165%186%202%
Net Revenues/ Debt Service 1.60 0.98 1.24 3.56 3.55 1.72
Water Service Rate (Volumetric) Increase 5.5%0.0%0.0%4.0%4.0%3.0%
Tier 1 Drought Surcharge 0.98$ 1.10$ 1.18$
Tier 2 Drought Surcharge 1.23$ 1.37$ 1.48$
Water Base Rate 5.28$ 7.63$ 9.98$ 12.33$ 12.70$ 13.08$
Water Base Fee Drought surcharge -$ 0.37$ 0.74$ 1.11$
*This assumes a regular rate increase provided that consumption returns to 2013 levels
PH1D - 21
CAPITAL IMPROVEMENT PLAN - WATER FUND
PROJECT DETAIL AND PHASING - PUBLIC UTILITIES
2014-15 2015-16 2016-17 2017-18 2018-19 2019-20
BUDGET PROPOSED PROPOSED PROPOSED PROPOSED PROPOSED
Water Treatment
Major Facility Maintenance 160,000 170,000 290,000 160,000 160,000
Air Compressor Replacements (design)10,000
(10,000)
Air Compressor Replacements (construction)130,000
(130,000)
Stenner Canyon Raw Waterline Replacement (Study)14,935
Stenner Canyon Raw Waterline Replacement (Design)35,000
Stenner Canyon Raw Waterline Replacement (Const)100,000
Floating Cover Replacements 80,000
(80,000)
Wash Water Tank #2 (Design)15,000
Wash Water Tank #2 (Const)170,000
Reservoir 2 Replacement (Study)50,000
Reservoir 2 Replacement (Design)200,000
Reservoir 2 (Construction)5,000,000
Reservoirt 2 Replacement ( CM)300,000
WTP Major Equip Maintenance 42,425
Fleet Replacement: Compact Pickup 24,300
Fleet Replacement: Service Body Truck 59,100
Total 216,660 484,100 5,640,000 290,000 160,000 160,000
Water Distribution
Distribution System Improvements - Pipelines 1,860,000 1,505,000 1,508,000 1,620,000 1,524,000
16" Waterline Replacement (Design)67,552
16" Waterline Replacement (Construction)-Phase I 1,342,242
(1,100,000)
16" Waterline Replacement (Construction)-Phase 2 910,000
Serrano Zone Consolidation-(Study & Design)100,000
Serrano Zone Consolidation Phase 1 (Const)1,000,000
Serrano Zone Consolidation Phase 1 (Constr Mgmt)100,000
WATER SERVICES
Attachment 1
Exhibit A.3
PH1D - 22
CAPITAL IMPROVEMENT PLAN - WATER FUND
PROJECT DETAIL AND PHASING - PUBLIC UTILITIES
2014-15 2015-16 2016-17 2017-18 2018-19 2019-20
BUDGET PROPOSED PROPOSED PROPOSED PROPOSED PROPOSEDWATER SERVICES
Serrano Zone Consolidation Phase 2 (Const)1,000,000
Serrano Zone Consolidation Phase 2 (Constr Mgmt)100,000
Trench Repairs 112,723 125,000 125,000 125,000 125,000 125,000
Fire Lateral Reimbursement 105,000
Raise Valve Covers 100,765 25,000 25,000 25,000 25,000 25,000
Water Meters and Water Meter Boxes 82,500 82,500 85,000 87,500 90,000
Fire Hydrants and Parts 25,000 25,000 25,000 30,000 30,000
Tank Maintenance (Design)62,500 75,000
Tank Maintenance (Design)60,000
(60,000)
Tank Maintenance (Construction)260,000 480,000 675,000
(260,000)
Tank Maintenance (CM)40,000 50,000 70,000
(40,000)
IT - CityWorks Upgrade 30,811
Fleet Replacement: Portable Generators (50% share)152,900
Distribution Pump Station Upgrades 50,000
(50,000)
Water Pump Station Analysis 4,096
Fleet replacement: Pickup 28,500
Fleet replacement: Caterpillar Backhoe Loader & Attachments 136,000
Fleet replacement: Portable vacuum pump 112,000
Extended Cab Pickup Truck 34,500
Sinsheimer Parking Resurface 860
Monterey Waterline Replacement (Design)26,036
Monterey Waterline Replacement (Const)529,000
Foothill/Chorro PRV Replacement (Design)19,000
Foothill/Chorro PRV Replacement (Const)90,000
Total 2,390,985 2,326,500 2,292,500 1,943,000 3,761,000 3,030,000
Water Customer Service
Attachment 1
Exhibit A.3
PH1D - 23
CAPITAL IMPROVEMENT PLAN - WATER FUND
PROJECT DETAIL AND PHASING - PUBLIC UTILITIES
2014-15 2015-16 2016-17 2017-18 2018-19 2019-20
BUDGET PROPOSED PROPOSED PROPOSED PROPOSED PROPOSEDWATER SERVICES
Fleet replacement: Compact Pickups 24,300 57,000
Total 24,300 0 0 0 0 57,000
Utilities Services
Fleet replacement: Compact Pickup 24,300 25,200
Total 24,300 0 25,200 0 0 0
Administration and Engineering
Fleet replacement: Sedan 16,200 33,700
Mobile Equipment Lifts & Safety Stands 9,100
Total 25,300 0 0 0 33,700 0
General assumption for future planning purposes
Total Water Services CIP Requests 2,681,546 2,810,600 7,957,700 2,233,000 3,954,700 3,247,000
Shared Information Technology
Laserfiche 465
UB System Upgrade 1,667
Water Reuse Automation Impr 16,150
Wirless Net Infrastructure Replacement 115
Telemetry System Upgrade (Design)141,559
Telemetry System Upgrade - Construction 1,495,744
Virtual Private Network (VPN) Replacement 9,028
Network Firewalls 33,500 15,259
GPS System Replacement 2,719
Network Switching Infrastructure Replacement 17,000 14,140
Radio Handhelds and Mobile Replacements 24,282
VM Infrastructure 8,945 8,945
Server Operating System 1,848
VoIP 20,360
Finance System Replacement 125,000
Document Management System 5,200
Tait Radio System 24,282
Office Application Software Replacement 12,400 16,773
Attachment 1
Exhibit A.3
PH1D - 24
CAPITAL IMPROVEMENT PLAN - WATER FUND
PROJECT DETAIL AND PHASING - PUBLIC UTILITIES
2014-15 2015-16 2016-17 2017-18 2018-19 2019-20
BUDGET PROPOSED PROPOSED PROPOSED PROPOSED PROPOSEDWATER SERVICES
UPS Battery Replacement 1,885 1,885
Total Share of Information Technology CIP 1,726,519 1,885 10,793 44,642 26,167 189,145
Completed Projects 12,463
TOTAL WATER FUND CAPITAL PLAN 4,420,528 2,812,485 7,968,493 2,277,642 3,980,867 3,436,145
Attachment 1
Exhibit A.3
PH1D - 25
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blank.
PH1D - 26
ATTACHMENT 2
Drought Response Strategy
Current Situation
In response to the unprecedented drought conditions experienced statewide for the past four
years, Governor Brown declared a drought emergency on January 17, 2014. As part of the
response, the Governor directed the State Water Resources Control Board (State Water Board) to
draft water conservation regulations to respond to the emergency. In July 2014, the State Water
Board adopted regulations prohibiting water waste and issued directives to reduce water use
statewide. On March 17, 2015, the State Water Board extended the 2014 emergency regulations
and added new measures in response to the continuing drought conditions. On April 1, 2015, the
Governor issued Executive Order B-29-15 mandating increased enforcement against water waste
and declared a statewide water use reduction goal of 25 percent. On May 5, 2015, the State
Water Board adopted regulations that require specific water purveyors to reduce water use by 8
percent to 36 percent compared to their 2013 water usage in order to facilitate the statewide
reduction of 25 percent. The amount of the mandated reduction is dependent on the water
purveyor’s reduction in comparison to 2013. The City’s required reduction is 12 percent, which
when achieved, would equate to citywide per capita water demand of 101 gallons per person per
day. The City’s 2014 per capita water demand was 108 gallons per person per day.
In addition to the state requirements, staff has been closely monitoring the City’s three primary
water supplies, Whale Rock, Salinas and Nacimiento Reservoirs. The City utilizes a Water
Projection Model to predict the City’s water storage capacity. Until recently, the model
incorporated climatic information from the 1986 to 1990 drought conditions (worst case drought
on record). Using this data, the Water Resources Status Report published in October 2014
indicated the City had about seven years of supply available. In December 2014, the model
showed six years of supply.
Although early rainfall events were strong, the 2014-15 rainy season ended at about 50 percent
of normal, following 2013-14 - the lowest rainfall year in recorded history. Because of the
severity of the drought conditions, climatic data for 2012, 2013 and 2014 was analyzed to see if
current conditions should be considered as the new “worst case scenario” used in the model. City
staff determined that the 2012-14 time period was indeed the new appropriate parameter for
determining the City’s available water resources. The new information has been incorporated
into the model and, based on this analysis, the model indicates the City has approximately a 3.5
year supply of water (as of April 2015) if the community continues at its current consumption
level of 108 gallons per person per day.
The primary conditions that have influenced the model are:
1. The impacts of the Nacimiento pipeline being down for ten months; and
2. The historic lack of rainfall in 2013 followed by about 50 percent below normal in 2014
which severely impacted inflow and water storage; and
3. The above-average temperatures coupled with windy conditions which increased
evaporation.
PH1D - 27
Drought Response Strategy ATTACHMENT 2
Page 2
Staff will continue to monitor the 2015 reservoir data and adjust the model based on any changes
in factors.
Action Plan
In response to the state-mandated water waste prohibitions and water use reductions and local
water supply conditions the City will use the following strategies to reduce water use citywide.
Drought Declaration
City Council will be requested to declare a drought emergency consistent with Chapter
13.07.030 of the City’s Municipal Code in order to comply with the Governor’s Executive
Order. This will allow the Council to implement measures as deemed appropriate to protect the
City’s water supply.
Water Use Prohibitions
Since July 2014, the State Water Board has adopted and directed the enforcement of many water
waste prohibitions statewide. Many of the prohibitions were already in the City’s Municipal
Code. Community members and city personnel are important partners in preventing and
identifying water waste. The Utilities Department’s Utilities Services section is responsible for
the oversight and enforcement of the prohibitions.
The following is a list of the water prohibitions:
Using potable water to wash sidewalks and driveways;
Allowing runoff when irrigating with potable water
Using hoses with no shutoff nozzles to wash cars
Using potable water in decorative water features that do not recirculate the water
Irrigating outdoors during and within 48 hours following measurable rainfall
Irrigation with potable water of ornamental turf on public street medians is prohibited
Irrigation with potable water outside of newly constructed homes and buildings not delivered by
drip or micro-spray is prohibited
Limit outdoor irrigation to two days per week (recommended)
Restaurants are prohibited from serving water to customers unless the customer requests it
Hotels and motels must offer guests the option to not have linens and towels laundered daily, and
prominently display this option in each guest room
PH1D - 28
Drought Response Strategy ATTACHMENT 2
Page 3
Other City State Mandated Requirements
• Notify customers about leaks that are within the customer's control;
• Report on water use monthly by customer class; and
• Report on compliance and enforcement
Enforcement and Fines
Primary enforcement of the prohibitions will done by the Utilities Services section, though the
state regulations state that any peace officer or employee of a public agency charged with
enforcing laws and authorized to do so by ordinance may issue a citation to a violator.
In general, the philosophy on enforcement will be to gain compliance through assistance and
education with fines being the last resort. The Enforcement Response process listed below will
be followed:
1. Initial contact of water waste violation either by direct contact, telephone or written
notice left at the property explaining the nature of the problem and the technical
assistance available to resolve the issue.
2. If the violation continues, a formal written notice of violation will be issued explaining
the nature of the violation and a time period in which the violation must be corrected.
3. If after the issuance of a formal written notice of violation is given, the problem
continues, a fine will be assessed starting at $100 and escalating up to $500 for non-
compliance.
City Facilities and Operations
City offices, parks and other facilities, unless served by recycled water, will be required to
reduce potable water use reduction in alignment with the mandate. Parks and facilities with
potable outdoor irrigation will be targeted for a higher percentage of water use reductions while
offices and other facilities with mostly indoor water use will be provided with employee outreach
materials explaining the water reduction mandates and tips on how to do their share to reduce.
Other strategies include:
• Working with large events to require porta-potties (closure of the bathroom facilities);
examples of events would include Blues games at Sinsheimer Stadium and all events in
Mission Plaza; and
• Substantially decreasing the irrigation of non-essential turf areas around facilities like
City Hall resulting in brown lawns; and
• Water audits of City buildings to determine if there are additional water saving
opportunities beyond what has been done in the past.
Priority for water use will be given to:
• Safety mainly as it relates to play fields
• High use areas like Mission Plaza
• Preserving trees in parks and other areas
PH1D - 29
Drought Response Strategy ATTACHMENT 2
Page 4
An internal city drought team has been formed to monitor the City’s water use, inform
employees on the progress being made and to make recommendations to enhance the City’s
water conservation activities. The Council will receive updates and other pertinent information
from the drought team regarding the effectiveness of the drought response plan on a regular basis
(to be determined).
Public Outreach and Education
A key to successfully reaching the state mandated water use reduction is a comprehensive public
outreach and education program. The strategy will use a combination of in-house and external
resources to communicate the water conservation message. Examples of strategies are:
• Expanded website presence with interactive tools and videos to help water users reduce
use
• Expanded social media presence
• Event participation (Farmer’s Market, SLO Expo, etc.)
• Newsletters and other printed material
• Individual consultation with Utilities Services technicians
• Traditional media (radio, television)
• Coordination with special interest groups like the Chamber of Commerce, Residents for
Quality Neighborhoods, etc.
New Development
New landscape associated with a planning or building application will be deferred until the
drought emergency is rescinded by City Council, unless it is irrigated with recycled water or an
alternative landscape plan that substantially reduces water use (i.e. 50% or greater) and is
approved by the Community Development Director. Such landscaping shall be irrigated with
only drip emitters, micro spray or equivalent water saving devices. The emphasis for this
program will be on water efficient landscaping, however, if deferred, bonding or another
financial surety will be required to be posted by building applicants to assure the landscape is
installed after the drought emergency is rescinded. In addition, an interim landscape plan will be
required to control dust/erosion and maintain property aesthetics for any deferments.
Implementation of the Water Shortage Contingency Plan
If, through the use of the above strategies, the community is not on track to meet the required
water use reductions during the summer when there is the most potential to decrease water usage
as compared to the same time period in 2013, implementation of the City’s Water Shortage
Contingency Plan will be necessary. The complete Water Shortage Contingency Plan is
incorporated into the City’s approved Urban Water Management Plan. The implementation of
the Water Shortage Contingency Plan mandatory measures occur when the Water Projection
Model indicates there is a three year supply of water available, usually starting at Stage 1.
Alignment with the State regulations will require the implementation of Stage 2 of the plan
which has a reduction goal of 100 gpcd. The State mandate requires that the City reduce to 101
gpcd. The following is a summary of the water allocation based program that would need to be
implemented:
PH1D - 30
Drought Response Strategy ATTACHMENT 2
Page 5
Single Family Residential- A per capita allotment of 72 gpcd during Stage 1, 60 gpcd during
Stage 2 and 50 gpcd during Stage 3 based on a three person household which will be assigned to
each single family residence. If there are more than three people in the household, additional
water would be allocated dependent on verification of the actual number of people in a
household and will be based on the health and safety (50 gpcd) requirements previously
identified for each additional person.
Multi-family Residential- A per capita allotment based on a three person household will be
assigned to each multi-family residence. If there are more than three people in the household,
additional water would be allocated dependent on verification of the actual number of person in
the household and will be based on the health and safety requirements previously identified.
Commercial- Commercial customers will receive an allocation using a percent reduction
methodology based on the average of the previous three years of water use. An optional
commercial baseline standard allocation will also be available to commercial customers.
Institutional- Institutional customers will receive an allocation using a percent reduction
methodology based on the average of the previous three years of water use.
Landscape Meters- Landscape only metered customers will receive an allocation using a percent
reduction methodology based on the average of the previous three years of water use.
Excessive Water Use Penalties- Customers exceeding their assigned allocation will pay 100%
surcharge of the water portion of their water and sewer bill. If the customer exceeds the base
allocation assigned to their account, a 200% surcharge will be assessed.
PH1D - 31
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PH1D - 32
ATTACHMENT 3
R ______
RESOLUTION NO. (2015 Series)
A RESOLUTION OF THE COUNCIL OF THE CITY OF SAN LUIS OBISPO
ESTABLISHING THE WATER RATES AND DROUGHT SURCHARGE
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 2015-17 through 2019-20; and
WHEREAS, this comprehensive analysis has been revised based on updated revenue and
expenditure information; and
WHEREAS, current drought conditions and the Governor’s Executive Order to reduce
water use by 12 percent have been taken into consideration when evaluating consumption and
water revenue; and
WHEREAS, the Council has reviewed the water service rates necessary to meet system
operating, capital, and debt service requirements under current drought conditions; and
WHEREAS, the Council desires to modify the existing water rates and include a drought
surcharge; and
WHEREAS, the Council authorizes the Utilities Director to reduce the drought
surcharge, should revenues surpass anticipated revenue levels; and
WHEREAS, a public hearing was properly noticed and held on June 16, 2015; 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. 10442 (2013 Series) is hereby rescinded, effective 11:59
p.m. June 30, 2015.
SECTION 2. The water rates set forth in Exhibit “A” are hereby adopted, establishing
water rates and drought surcharges effective July 1, 2015 and July 1, 2016.
SECTION 3. The water system access charges for emergency purposes, such as fire
protection, are increased from $57.66 per month to $68.60 per month, effective July 1, 2015 and
$79.59 effective July 1, 2016 to reflect the increase in water rates.
PH1D - 33
Resolution No. _______________ (2015 Series) ATTACHMENT 3
Page 2
Upon motion of _______________________, seconded by _______________________,
and on the following vote:
AYES:
NOES:
ABSENT:
The foregoing resolution was adopted this _____ day of _____________________ 2015.
____________________________________
Mayor Jan Marx
ATTEST:
____________________________________
Anthony Mejia
City Clerk
APPROVED AS TO FORM:
_____________________________________
J. Christine Dietrick
City Attorney
PH1D - 34
Resolution No. _______________ (2015 Series) ATTACHMENT 3
Page 3
EXHIBIT A
MONTHLY WATER SERVICE RATES
Rate Basis Current July 1, 2015 July 1, 2016
Base Fee $5.28 $7.63 $9.98
Drought Surcharge $0.00 $0.37 $0.74
Volume Charge
0 – 8 units $6.92 per unit No change No change
Tier 1 Drought Surcharge $0.00 $0.98 per unit $1.10 per unit
9+ units $8.65 per unit No change No change
Tier 2 Drought Surcharge $0.00 $1.23 per unit $1.37 per unit
1 unit = 100 Cubic Feet = 748 gallons of water
For service to customers outside the City, the water rates are two times the “in-City” rate.
Recycled water charges are 90% of potable water charges.
PH1D - 35
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PH1D - 36
Attachment 4
Project Name
Financial
Plan Budget
Return to
Working
Capital
Water Treatment
Air Compressor Replacements (design)2013-15 10,000 (10,000)
Air Compressor Replacements (construction)2013-15 130,000 (130,000)
Floating Cover Replacements 2013-15 80,000 (80,000)
Water Distribution
16" Waterline Replacement Phase I 2013-15 1,100,000 (1,100,000)
Slack Tank Design 2013-15 60,000 (60,000)
Slack Tank Construction 2013-15 260,000 (260,000)
Slack Tank Construction Management 2013-15 40,000 (40,000)
Distribution Pump Station Upgrades (design)2013-15 50,000 (50,000)
Total Return to Working Capital (1,730,000)
WATER FUND
Capital Improvement Plan
Funding to Return to Working Capital
PH1D - 37
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PH1D - 38
THENewspaper of the Central Coast j °
MBUNE
3825 South Higuera • Post Office Box 112 • San Luis Obispo, California 93406-0112 • (805) 781 -7800
In The Superior Court of The State of Cal ifornia
ss.
In and for the County of San Luis Obispo
County of San Luis Obispo
A public hearing to consider:
AFFIDAVIT OF PUBLICATION
f. A Resolution of the City Council of file
City of San Luis Obispo, California, estatr
�iT OF
lishing sewer service rates: (This Resole•
lion would Increase the wastewater service
interested in the above entitled matter; 1 am now, and at
FU
all times embraced in the publication herein mentioned
SAM LUiF�5 OBISPO CITY COUNCIL
AD # 1773541
NOT 9CE OF PUBLIC HEARING
CITY OF SAN LUIS OBISPO
The Sari Luis Obispo City Council Invi
OFFICE OF THE CITY CLERK
ail interested persons to attend a pu
hearing on Tuesday, June 16; 2015,
Obispo in the above named county and state; that notice
6 :00 p.m. in the City Hall Council Cho
at which the annexed clippings is a true copy, was
bar, 990 Palm Street, San Luis Mal
published in the above -named newspaper and not in any
California, relative to the following:
STATE OF CALIFORNIA
.2-0.1.5-1.7 WATER RATE AND SEWER
ss.
RATT9 ADOPTION
County of San Luis Obispo
A public hearing to consider:
I am a citizen of the United States and a resident of the
f. A Resolution of the City Council of file
City of San Luis Obispo, California, estatr
Count, aforesaid; I am over the age of eighteen and not
`� � g g
lishing sewer service rates: (This Resole•
lion would Increase the wastewater service
interested in the above entitled matter; 1 am now, and at
charge by 4.6 percent effective July 1,
2015 and three percent effective July T,
all times embraced in the publication herein mentioned
2016 provided there is no majority protest
was, the principal clerk of the printers and publishers of
against such increases.
THE TRIBUNE, a newspaper of general Circulation,
2, A Resolution of the City Council of the
City of San Luis Obispo, California, estab-
printed and published daily at the City Of San Luis
Ilshfng the water rates and drought sur-
Obispo in the above named county and state; that notice
charge." (This Resolution would increase
the water base fee and adding a drought
at which the annexed clippings is a true copy, was
surcharge associated with both the water
published in the above -named newspaper and not in any
base fee and volumetric rates, effective Ju-
ly 1, 2015 and July 1, 2016.)
supplement thereof — on the following dates to wit;
For more information, you are invited to
JUNE 5, 2015 that said newspaper was duly and
contact Ron Munds of the City's Utilities De-
regularly ascertained and established a newspaper of
partment at (805) 781 -7215 or by emall at
rmunds@slocity.org.
general circulation by Decree entered in the Superior
The City Council may also discuss other
Court of San Luis Obispo County, State of California, on
hearings or business items before or'atter
June 9, 1952, Case #19139 under the Government Code
the Items listed above. If you challenge the
proposed projects in court, you may be lim-
of the State of California.
Iled to raising only those Issues you or
someone else raised at the public hearing
described In this n0flca, or In written corre-
I certify (or declare) under the penalty of perjury that the
spondence delivered to the City Council at,
or prior to, the public hearings.
foregoing is true and correct.
Reports for this meeting will be available
for review in the City Clerk's Office and on-
line at Www_sfocity.crg on Wednesday,
June Please
10, 2015. call the City Clerk's
/SI Principal
Office at (805) 781 -7100 for more Informa-
lla t'L' Of Clerk
1 g p )
lion. The City Council meeting will be tele-
DATED: JUNE 5, 2015
vised live on Charter Cable Channel 20
AD COST: $171.60
and live streaming on www.slocity orq
Anthony J. Melia
City Clerk
City of San Luis Obispo
Juno 5, 2015 1773541
Enterprise Fund Review
Preliminary Budget Review
June 16
1.Enterprise Fund Reviews
2.Water/Sewer Rate Reviews
June 23
1.Budget Adoption
1
Tonight’s Presentation Overview
Preliminary Budget Review
1.Water Fund Review
2.Water Rate Proposal for 2015-17 Public Hearing
3.Sewer Fund Review
4.Sewer Rate Proposal for 2015-17 Public Hearing
5.Wrap -up
2
The Journey of San Luis Obispo’s Water
Preliminary Budget Review 3
Water Fund 2015-16 Expenditures
Preliminary Budget Review 4
O&M Capital
Source of Supply $ 8,639,436
Water Treatment $ 2,394,523 $ 485,985
Distribution $ 1,437,924 $2,326,500
Utilities Services $ 789,787
Administration/Engineering $ 739,238
General Government $ 1,797,668
Debt Service $ 2,192,600
Total Expenditure $17,991,176 $2,812,486
80%
20% Fixed Cost
Variable
Cost
2015-16 Water Fund Expenses
5
Operating
costs
Preliminary Budget Review
Operating
Costs
67%
CIP
13%
Debt
Service
11%
General
Gov.
9%
Water Fund Expenditures
Staffing
27%
Contract
Services
63%
Other
Operating
10%
Water Fund Operating Costs
2015-16 Significant Operating Program
Changes
6
Water Distribution & Treatment
Control Systems Technician $106,900
Water Administration / Engineering
Hydraulic Model, Recycled Water Rate Study
Update to Development Impact fee $ 50,000
Staffing - Department Reorganization $136,700
(Utilities Engineer , Health & Safety Engineer,
¼ -time Administrative Assistant) ________
Total S293,600
Water Fund 2015-16 Revenue
Preliminary Budget Review 7
1.Water Sales Revenues (91% of
total Water Fund Revenue):
a.Water Service Charges
b.Water Base Fee
c.Sales to Other Agencies
2.Other Revenue
a.Development Impact Fees
b.Connection Fees & Meter
Sales
c.Account Set-Up
d.Investments & Property
Revenue
Water
Service
Charges
80%
Water Base
Fee
7%
Sales to
Other
Agencies
4%
Dev. Impact
Fees
7%
Misc.
Revenue
incl. AB939
2%
Why are rates going up?
8 Preliminary Budget Review
Overall, despite the proposed increases, next year’s
water sales revenues will remain close to last year’s
revenues
80%
20% Fixed Cost
Variable Cost
0
4
8
12
16
20
1 2 3
Water Use
Revenue
Expenses
Revenue / Expenditure Delta
developing
Public Concerns Addressed
9
•Low Income Subsidy – 2014-15 Budget $73,500
–Supplemental Social Security Income
–Cal Fresh Food Stamps
–Temporary Assistance for Needy Families (TANF )
–Veteran Survivor Pension Benefits
•Single Family Residence vs. Multi-Family Residence
Dwelling units x 8 = units charged at tier 1 rate
•Implement additional Tiers for high users
-Must be connected to cost of service
-Tiered rates challenged in court
Recommended Water Rates
10
Rate Basis Current July 1, 2015 July 1, 2016
Base Fee $5.28 $7.63 $9.98
Drought Surcharge $0.00 $0.37 $0.74
Volume Charges
0 – 8 units $6.92 per unit No change No change
Drought Surcharge $0.00 $0.98 per unit $1.10 per unit
9+ units $8.65 per unit No change No change
Drought Surcharge $.0.00 $1.23 per unit $1.37 per unit
Staff Recommendation
Authorize the Utilities Director to lower the drought surcharge, should revenue amounts come in
higher than anticipated.
Recommendations
11
1.Approve the release of certain previously approved Capital Improvement Projects and return these appropriations to working capital in 2014-15;
2.Authorize the amendment of the Water Enterprise Fund 2014-15 budget to reflect the revised values shown in the fund review documents.
3.Review and approve the 2015-16 annual Water Fund financial review;
4.Conceptually approve the 2015-16 Water Fund budget, with final action on June 23, 2015, with the adoption of the 2015-17 Financial Plan; and
5.Adopt a resolution increasing the water base fee and adding a drought surcharge associated with both the water base fee and volumetric rates.
6.Authorize the Utilities Director to lower the drought surcharge, should revenue amounts come in higher than anticipated.
Questions
12
Proposition 218
Official Protest Count – Water Rates
13
Mayor
•Open the Public Hearing
•Call for any written protests from the public
•Close the Public Hearing
City Clerk
•Confirm number of written protests received
•Confirm total number of valid protests
Council may not adopt the proposed rates if 7,477 valid protests (50%
plus 1) are filed
Recommendations
14
1.Approve the release of certain previously approved Capital Improvement Projects and return these appropriations to working capital in 2014-15;
2.Authorize the amendment of the Water Enterprise Fund 2014-15 budget to reflect the revised values shown in the fund review documents.
3.Review and approve the 2015-16 annual Water Fund financial review;
4.Conceptually approve the 2015-16 Water Fund budget, with final action on June 23, 2015, with the adoption of the 2015-17 Financial Plan; and
5.Adopt a resolution increasing the water base fee and adding a drought surcharge associated with both the water base fee and volumetric rates.
6.Authorize the Utilities Director to lower the drought surcharge, should revenue amounts come in higher than anticipated.