HomeMy WebLinkAbout09/07/1993, 1B - WATER FUND RATE REVIEW IIIIN�I�III�IIIII^II� III MEETING DATE:
city or San WIS OBISPO - -
COUNCIL AGENDA REPORT ITEM NUMBER: /
FROM: William C. Statler, Director of Finance
Prepared by: Linda Asprion, Revenue Manager . ;ice
SUBJECT: WATER FUND RATE REVIEW
CAO RECOMMENDATION
Adopt a resolution increasing water rates by eight and one-half percent (8.5%) effective
October 1, 1993 and six and one-half percent (6.5%) effective July 1, 1994.
DISCUSSION
Overview
On June 1, 1993, Council examined the Water Fund rate review recommending a six percent
(6%) rate increase and determined that additional time and analysis was required to ensure
appropriate groundwater claim costs and capital expenditures were properly assessed. This
report analyzes the revenue requirements of the Water Fund based on the predicted 1992-93
revenues and expenditures, approved 1993-95 Financial Plan, and the potential groundwater
claim costs.
An additional factor included in this analysis is the timing of the proposed rate increase.
With the proposed rate increase not being in effect from July through September, when the
City experiences 30% of the total annual water sales, the Water Fund loses 30% of the
revenue generated from the increase. Based upon these factors an eight and one-half
percent (8.5%) rate increase is recommended effective October 1, 1993. It should be noted
that this proposed rate increase will not retain the Water Fund at the required 20%
unreserved fund balance status by year-end 1993-94, although this level will be achieved by
the end of the 1993-95 Financial Plan period.
It should be noted that rates were last adjusted for revenue purposes in June of 1990; if
adopted, the proposed rate increase will reflect a modest adjustment in rates after almost
three and one-half years since their last increase.
Water Rate Review Objectives
As adopted by the Council in May of 1988, the City's rate review should accomplish the
following objectives:
■ Comply with legal requirements
■ Ensure revenue adequacy to fully meet system operating and capital needs
■ Encourage conservation
■ Provide equity and fairness between classes of customers
■ Be easy to understand by our customers and easy to administer
■ Provide for ongoing review in order to facilitate rate stability
,��i�iuiil!IlIII�� IIIIIII city Of San t OBISPO
00 COUNCIL AGENDA REPORT
This review of the Water Fund has been performed with these goals and philosophy in
mind. Provided in Exhibit 1 is a summary projection of revenues, expenditures and changes
in financial position for the Water Fund through fiscal year 1996-97, with the assumptions
used in this financial position projection detailed in Exhibit 2. The additional anticipated
costs of the groundwater claim have been shown with the approved 1993-95 capital
improvement plan for the Water Fund in Exhibit 3. Support for the water service revenue
projections is presented in Exhibit 4, detailing the projected consumption at the various
conservation levels and the projected revenue.
Based upon this analysis, an eight and one-half percent (8.501o) rate increase for revenue
purposes is proposed effective October 1, 1993. This proposed increase is higher than the
six percent (6%) rate increase originally proposed in June of 1993 because of two factors: I
■ Groundwater claim costs have added an additional $800,000 in expenditures.
■ Deferring implementation of a water rate increase from July to October reduced the
originally proposed rate increase revenue by 30% or approximately $107,000. This
reduction is based on analysis indicating that between July and September the City j
uses 30% of its annual water consumption.
It should be noted that this Water Fund projection indicates that during fiscal year 1993-94,
unreserved fund balance will be expended in order to complete capital projects and that at
year-end the unreserved fund balance is projected to fall below the 20% requirement.
However, this Water Fund projection, which includes a six and one-half percent (6.5%) rate
increase in 1994-95, indicates that at fiscal year-end 1994-95 the unreserved fund balance
will meet the 20% requirement.
I
Rate Setting Methodology
In determining waterrate rate revenue requirements and setting recommended rates, the
following general methodology is used:
Step 1: Determine Water Fund revenue requirements for:
■ Operations and maintenance
■ Capital improvements and replacements
■ Debt service obligations (existing and projected)
Step 2: Subtract from this amount "non-rate revenues" such as:
■ Interest earnings
■ Connection fees and meter sales
■ Sale of electricity from hydroplant operations
■ Revenues from other agencies (Cuesta/Cal Poly)
■ Other service charges (service start-up fees, late charges, returned
check charges)
►�n����►►�IIIII�Ip IIl1 city of San LUIS OBIspo
COUNCIL AGENDA REPORT
Step 3: Identify water rate requirements.
Revenue to be generated from water rates is the difference between water
revenue requirements (Step 1) and "non-rate" revenues (Step 2).
Step 4: Determine new rates.
Model the rate base (consumption and customer account assumptions) against
the existing rate structure and rate requirements identified in Step 3.
Because we perform this analysis over a multi-year period, other factors are considered such
as fund balances available to support capital projects, debt service coverage requirements,
and minimum fund balance policy.
Summary of Key Assumptions
Based upon the assumptions in Exhibit 2 and the three factors discussed above, the financial
position projections indicate that water rates require an increase of 8.5% in 1993-94 and
6.5% in 1994-95. The following is a summary of key assumptions for expenditures and
revenues:
■ Annual decrease in water conservation from 1987 levels over the next three years
ranging from 30% in 1993-94 to 20% in 1995-96, with 1996-97 remaining at a 20%
conservation level.
■ Operations and maintenance as approved in the 1993-95 Financial Plan with an
inflation rate of 4% thereafter.
■ Debt service for the water treatment plant is based upon the 1993 Water Revenue
Bond payment schedule.
■ Rate increases for other agencies who receive their water from the City. The City
has signed agreements with both Cal Poly and Cuesta.
■ Water customer growth rate at less than 1% until 1996-97. This projection
corresponds with the assumptions used in the March 13, 1993 Budget Workshop.
■ Capital improvement charges are estimated as a percentage of the "base projection"
of $688,400 which is the estimated amount of fees that would be collected at a 1%
growth rate. These revenues are then discounted by 87% due to the retrofit credit
currently in place, which is projected to be discontinued with the construction of the
Salinas Reservoir expansion.
■ -Connection and meter charges are projected at the inflation rate.
■ Service start-up fees in the amount of $25 to be effective October 1, 1993. The
revenue from this fee has been prorated for 1993-94 to reflect the lost revenue from
July through September. Future years anticipate revenues of $75,000 annually.
4111111111111111 011,11 city of San WIS OBIspo
COUNCIL AGENDA REPORT
■ Expansion of Salinas Reservoir is estimated to cost $1,300,000 for study and design
during the 1993-95 Financial Plan period. Construction is projected for 1995-96 with
an annual debt service of $700,000 under existing market conditions for the $8
million construction project.
■ The water reclamation program has not been included in these projections as there
is insufficient information on cost versus revenues to include in this analysis.
■ The cost of receiving water from Nacimiento is not included in these projections as
preliminary cost estimates are unavailable.
As reflected above, .these assumptions do not include two anticipated projects - water
reclamation and Nacimiento. It should be noted that the cost of these projects would not
affect water rates for 1993-94, although they could impact future water rate increases as
necessary to cover additional debt service or operating requirements. As plans and
specification for these projects are prepared, any required modifications to existing
projections for future rate increases will be reviewed and presented.
FISCAL IMPACT
The proposed 8.5% and 6.5% rate increases will (rounded to the nearest five cents) affect
the monthly water rates as follows:
Current Proposed Rates Proposed Rates
Rates October 1. 1993 July 1. 1994
1 to 5 ccf $2.25 per ccf $2.45 per ccf $2.60 per ccf
over 5 ccf $2.80 per ccf $3.05 per ccf $3.25 per ccf
ccf = one hundred cubic feet
I
Based upon the consumption of the average residential customer at 30% conservation from
1987 consumption (which is the conservation rate used in the Water Fund analysis for 1993-
94), the proposed rate increase effective October 1, 1993 will increase the monthly water
bill as follows:
Current Proposed
Water Bill Water Bill Difference
9 ccf $22.45 $24.45 $2.00
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= COUNCIL AGENDA REPORT
ATTACHMENT
Resolution adopting water service rates
EXHIBITS
1. Changes in water fund balance
2. Assumptions for water fund projections
3. Summary of water fund capital projects
4. Water consumption and revenue projections
I
�— a—r
RESOLUTION NO. (1993 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 1993-94 through 1996-97.
NOW THEREFORE BE IT RESOLVED by the Council of the City of San Luis
Obispo as follows:
SECTION 1. Resolution No. 8121 (1993 Series) is hereby rescinded.
SECTION 2. Chapter 4.20.060 of the Municipal Code is hereby amended as set forth
in Exhibit A attached hereto.
SECTION 3. The rates set forth in Exhibit A shall be effective October 1, 1993 and
July 1, 1994.
SECTION 4. All other provisions of Chapter 4.20 of the Municipal Code remain in
full force and effect.
On motion of , seconded by
and on the following roll call vote:
AYES:
NOES:
ABSENT:
The foregoing Resolution was adopted on this day of 1993.
Mayor Peg Pinard
ATTEST:
City Clerk Diane Gladwell
APPROVED AS TO FORM:
/A- A
Exhibit A
RATES FOR WATER SERVICE
Monthly water service charges per hundred cubic feet of water (ccf) used per dwelling unit
for accounts classified as residential by the director of finance and per account for all other
users, are as follows:
Commodity Charges Per CCF
Effective October 1, 1993 Inside City Outside City
Construction Site Meters
0 to 1 ccf $ 2.45 $ 4.90
In excess of 1 ccf thereafter $160.00 $325.00
All Others
1 to 5 ccf $ 2.45 $ 4.90
More than 5 ccf $ 3.05 $ 6.10
Commodity Charges Per CCF
Effective July 1, 1994 Inside City Outside City
Construction Site Meters Only
0 to 1 ccf $ 2.60 $ 5.20
In excess of 1 ccf thereafter $170.00 $345.00
All Others
1 to 5 ccf $ 2.60 $ 5.20
More than 5 ccf $ 3.25 $ 6.50
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In The Superior Court of The State of California
In and for the County of San Luis Obispo
AFFIDAVIT OF PUBLICATION
No. --
STATE OF CALIFORNIA,
ss.
County of San Luis Obispo
I am a citizen of the United States and a resident of the
County aforesaid; I am over the age of eighteen and not
interested in the above-entitled (Yt(.-4 r
; I am now, and at all times embraced
in the publication herein mention was, the principal clerk
of the printers and publishers of the SAN LUIS OBISPO '�II�Bn�`II��v or
��
COUNTY TELEGRAM-TRIBUNE, a newspaper of general son luls OBISPONOTICE
CITY COUNCIL
PUBLIC HEARINGS
circulation, printed and published daily, Sundays ex- UTILITY ACCOUNTS
AND RATES
on Tuesday, September 7,
cepted, at the City of San Luis Obispo in the above 1993, the San Luis Obispo
City Council.will hold public
N1,,( hearings beginning at 7:00
named county and state; that __1 1LJS l P.m.in the Council Chambers
of City Hall, 990 Palm Street.
The first hearing scheduled
concerns utility accounts and
rates. The first item is to
consider initiating a utility
account set-up fee in the
amount of$25 with an option.
' al annual service fee of$5oo
at which the annexed clipping is a true printed copy, was to any customer for unlimited
service starts and stops, ef-
published in the above-named newspaper and not in any fective October 1, 1993. The
supplement thereof — on the following dates, t0-wit: second utility item is to consi-
der increasing water rates
8.5% effective October 1,
/1 1993 and 6.5% effective July
"l N 1, 1994. The Council may
discuss other hearings or
I business items before or after
these hems. If you challenge
any one of the proposed
actions described above in
court, you may be limited to
raising only those Issues you
that said newspaper was duly and regularly ascertained or someone else raised at the
Public hearing described in
and established a newspaper of general circulation by this notice, or In written
correspondence delivered to
Decree entered in the Superior Court of San Luis Obispothe Cily Council at or prior to,
the public hearing.
County, State of California, on June 9, 1952, Case #19139 SDiiane1R.3 ladwell,City Clerk
under the provisions of Chapter 1, Division 7, Title of the dve5lsz
Government Code of the State of California.
I certify (or declare) under penalty of perjury that the
foregoing is true and correct.
,
11�4L
i nature of Principal Clerk)
Date �, _ , 19 _
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