HomeMy WebLinkAbout05/29/2001, 1 - 2001 WATER FUND REVIEW counat ' ay
May 29, 2001
acEnaa Report
CITY OF SAN LUIS OBISPO
FROM:; John Moss,Utilities Direc
Prepared By: Sue Baasch, Administra . Analyst
Gary Henderson, Water Division Manager
SUBJECT: 2001 WATER FUND REVIEW
CAO RECOMMENDATION
a. Review and accept the 2001 annual water fund financial review•, and
b. Conceptually approve the proposed operating program change requests and capital
improvement plan requests contained in the preliminary 2001-03 Financial Plan,pending the
final budget review and adoption.
REPORT IN BRIEF
The 2001 analysis shows the City's Water Fund is healthy and stable, capable of supporting all of
the requested operations and capital programs with no rate increases in 2001-02 or 2002-03 and
only minor rate increases in 2003-04 and 2004-05. This is good news because within the
projected revenues, the City will be able to supplement its current water supply through the
implementation of the recycled water program and a possible expansion of the groundwater
treatment program. These two projects relieve the City from the immediacy of a pending water
shortage situation, providing needed time to continue to collaborate with the County and north
county water agencies in developing long term regional water supply solutions such as the
Nacimiento Pipeline.
There is more good news. The analysis shows that water operations have minimally increased in
cost over the last few years due to ongoing departmental efforts to control expenses through
prudent system maintenance, off-peak pumping, and holding the line on staffing increases. That
is not to say that the water fund has not been affected by the current significant increases in
electrical and chemical costs—it has. But the ongoing cost containment measures allow the
water fund to pay the projected prices and still not raise rates. Utilities will continue to seek
opportunities to enhance its operations and staffing resources, and one such opportunity is
presented for Council review and approval in our proposed skills-based pay program(also known
as broad banding).
Important water system infrastructure improvements have been completed over the past several
years, and this financial plan and fund analysis continues this commitment to system
maintenance and improvements. At a time when many other Cities are faced with huge
unanticipated costs associated with replacement of their aging infrastructure, San Luis Obispo
Council Agenda Report—2001 Water Fund Review
Page 2
has prudently committed to an ongoing appropriate level of capital funding that ensures sound
water infrastructure.
To prepare for the future, Utilities has prepared a Draft Water Facilities Master Plan, which
recommends future capital projects needed to serve the City and strengthen our water system as
the City approaches build-out. Funding required for a number of Master Plan projects is
included in the 2001-03 Financial Plan and this fund analysis. A few of the more significant
projects include construction of a new clear well at the Water Treatment Plant for storage of
treated water; study and design of a replacement storage facility for the existing Bishop Tank;
and replacement of the Alrita hydro-pneumatic pump station.
Total funding for the Nacimiento. or Salinas water supply projects is not included in this
recommended capital plan or fund analysis, as these projects fall outside of the four year
projection, and no one is able to accurately project the exact timing and cost. Some funding is
recommended for costs associated with study and analysis of these projects, and the projects will
continue to require a significant amount of staff time. At this time, the best way to plan for these
projects is to maintain the existing healthy working capital balance that exceeds the minimum
requirements.
Another reason to maintain a working capital balance of more than the minimum is to plan
prudently for a Drought Contingency reserve to cushion the impacts of revenue losses due to the
inevitable reduced water sales. Rates will not need to be raised as quickly or as much to meet the
operating requirements of the water system with a drought contingency reserve in place.
In summary, the 2001 water fund analysis is very positive: within water rates that are at about
the same level as rates seven years ago, the City is maintaining its water system infrastructure,
planning for the future, and ensuring resource and revenue adequacy.
DISCUSSION
An overview of the key water projects-and.issues is provided below. Following this discussion is
a listing of the recommended 2001-03 significant operating program changes and capital
improvement projects.
Source of Supply Projects
Water Reuse
The Water Reuse Project, currently under design, is recommended for $11,847,500 in
construction funding in 2001-02 and an additional $310,000 in 2002-03. It will be a debt-
financed project, and is on the State list to receive grant and loan funding through the State
Revolving Fund Clean Water program. The previous financial plan showed a construction
budget of$8,900,000 for this project in 2000-01 and a corresponding debt financing. Part of the
$8.9 million funded the recent recycled water pipeline placed in South Higuera and mitigation
Council Agenda Report—2001 Water Fund Review
Page 3
efforts; the remaining amount, $8,187,500, is recommended to be returned to the fund working
capital and reprogrammed to meet the new construction estimates. Debt service on $11,847,500
is conservatively estimated at$1,066,300 annually.
On May 8, 2000, the State Water Resource Control Board (SWRCB) issued an Order approving
the City's petition to use recycled water for irrigation and other non-potable uses. The Order also
recognized the City's dedication of 1.7 cubic feet per second of treated wastewater to San Luis
Obispo Creek for maintaining existing instream uses. On November 21, 2000 the City Council
reviewed alternatives and approved the recommendation to construct recycled water storage and
pumping facilities at the Water Reclamation Facility and a transmission line along Los Osos
Valley Road, Prado Road and Tank Farm Road, and to investigate the possibility of a
groundwater exchange with adjacent agricultural operations.
Brown and Caldwell is scheduled to begin the final design phase in June, 2001. The schedule
calls for the award of a construction contract in early 2002 and recycled water deliveries are
anticipated to begin by the end of 2003.
Groundwater Development
The Groundwater Development program is currently in the study phase. Pending positive
outcome of the current studies, funding for preliminary engineering and siting is $50,000 in
2001-02, $150,000 in 2002-03 for engineering design and environmental review and$2,000,000
in 2003-04 for construction of the new groundwater treatment and related facilities.
Nacimiento Pipeline and Salinas Reservoir Projects
The City continues to pursue the Nacimiento Pipeline Project and the Salinas Reservoir
Expansion Projects to meet the projected water demands for the community.
a. Nacimiento Pipeline
The County of San Luis Obispo is the lead agency in charge of the Nacimiento Pipeline
Project. A revised draft environmental impact report (EIR) is currently being prepared to
evaluate the revised pipeline alignment for the project. The draft EIR is expected to be
released in early 2002 with certification of the ETR by the Board of Supervisors scheduled for
the fall of 2002. The revised EIR is being funded by the County so no money has been
included in the budget for this project.
b. Salinas Reservoir
The work identified for the Salinas Project for the next several years involves downstream
fisheries studies between the dam and Highway 58. In addition, staff will pursue an
independent technical peer review of the recent seismic analysis of the dam. The funding for
these studies is available from previous budgets and no additional funding is being requested
as part of the 2001-03 capital improvement plan.
/-3
Council Agenda Report—2001 Water Fund Review
Page 4
Water Facilities Master Plan
The draft Water Facilities Master Plan was completed in the fall of 2000 in conjunction with the
Airport Area Specific Plan. The Plan included an analysis of the entire water system including.
the Water Treatment Plant. The report recommends various water system improvements to meet
current city water demands as well as future development needs. Some of the more significant
proposed projects included in the recommended four year capital improvement program include
an upgrade to the Transfer Pump Station; replacement of the Alrita hydro-pneumatic pump
station; study and design of a new 1.2 million gallon water tank to replace the existing Bishop
Tank (above General Hospital); and design and construction of a new four million gallon clear
well at the Water Treatment Plant.
Water Rate History
Water rates have been very stable over the last ten years; in fact, rates were rolled back in July
1999 by ten percent and have not changed since that time. The current rates are equivalent to the
rates in 1994.
Year Water Service Rates per
2002-03 1-5 ccf 2.51
More than 5 ccf 3.15
2001-02 1-5 ccf 2.51
More than 5 cd 3.15
2000-01 1-5 ccf 2.51
More than 5 ccf 3.15
1999-00 1-5 ccf 2.51
More than 5 ccf 3.15
1998-99 1-5 ccf 2.79
More than 5 ccf 3.50
1997-98 1-5 ccf 2.79
More than 5 cd 3.50
1996-97 1-5 ccf 2.75
More than 5 ccf 3.45
1995-96 1-5 ccf 2.65
More than 5 ccf 3.35
199495 1-5 ccf 2.60
More than 5 ccf 3.25
Oct 1993 1-5 ccf 2.45
More than 5 ccf 3.05
Mar 1993 1-5 ccf 2.25
More than 5 ccf 2.80
In March 1993,the rate structure was changed to become
totally consumption based, eliminating minimum charges.
(
Council Agenda Report—2001 Water Fund Review
Page 5
2001-03 FINANCIAL PLAN: Water Operations
Operating Programs 2001-02 2002-03
Administration 704,500 704,900
Source of Supply 832,100 840,500
Conservation 332,800 337,200
Water Treatment Plant 967,400" 1,001,100"
Distribution 689,300 708,400
Customer Service 219,400 243,800
Total 3,745,500 3,835,900
*Note: Electrical increases have been projected at 150% of historical costs in the Water
Treatment Plant budget. Normally, water treatment's electrical costs would be about$165,000 in
2001-02 and $170,000 in 2002-03. Because of the projected increased costs, an additional
$82,000 (total of $247,500) has been budgeted in 2001-02 and $84,900 (total of $254,900) in
2002-03. The other impact of the increased costs of electricity is the reluctance of chemical
vendors to enter into contracts guaranteeing the price of chemicals produced using electricity.
No vendor was willing to commit to long term pricing for sodium hydroxide.
Requests for Significant Operating Program Changes
Skills Based Pay
Implementing a pilot skills-based pay program (broad banding) in the Utilities Department will
provide incentive and recognition for employees to achieve higher certifications and function at
advanced journey levels of skills and certification, which, in turn, will allow the department to
achieve maximum use of its personnel resources and maintain minimal staffing levels, will have
a projected maximum additional cost of$21,900 in 2001-02 and$45,400 in 2002-03.
Water Reuse Mitigation Monitoring
Monitoring the emigration and abundance of steelhead in San Luis Obispo Creek to comply with
National Marine Fisheries Service Endangered Species Act requirements for the Water Reuse
Project will cost $40,000 per year through 2005.
Increase Office Assistant Position from.5 to.75 FTE
Increasing the hours of the Office Assistant II from 20 to 30 hours per week to ensure adequate
clerical resources to support the Utilities Department activities will cost $5,600 in 2001-02 and
$5,700 in 2002-03.
Council Agenda Report–2001 Water Fund Review
Page 6
High Efficiency Washing Machine Rebate Program
Establishing a pilot rebate program for high efficiency washing machines to enhance and increase
our water conservation program efforts will cost $15,000 per year. The projected rebate amount
is approximately$150 per machine,which equates to 100 washing machine rebates per year.
Irrigation Certification Program
Implementing an Irrigation Certification Program which will offer landscape maintenance
professionals an opportunity to attend a series of short courses on all aspects of irrigation
systems, including maximizing water efficiency from irrigation systems, and being listed as an
irrigation resource for water customers,will cost$10,000 per year.
Special Equipment Replacement(Water Distribution)
Replacing wom and acquiring new special construction equipment (power compaction
equipment, portable pumps and power tools) used in the daily operation and maintenance of the
water distribution system will cost$9,600 in 2001-02 and$4,600 in 2002-03.
Legislative Advocacy.
Contracting for an additional year with a legislative advocate in Sacramento to assist the City
with permits, grants, special project funding and legislation is $9,500 in 2001-02 (25%of the
total cost of$37,800).
2001-03 FINANCIAL PLAN: Water Capital Improvement Plan
The complete proposed Capital Improvement Plan for the Water Fund for the next four years is
shown in Exhibit A.3. Below are brief descriptions of the major projects for the next two years.
Water Reuse–Reclaimed water distribution system
Building the water reuse project to make use of high quality treated wastewater for irrigation,
offsetting existing uses of potable water, will cost $11,847,500 in 2001-02 and $310,000 in
2002-03 for construction and environmental mitigations.
Groundwater Development
Pursuing expansion of the City's groundwater production program, to increase the safe annual
yield of our water supplies to meet existing and future demands, are estimated to cost $50,000 in
2001-02 for preliminary engineering and site evaluation; $150,000 in 2002-03 for engineering
design and environmental review, and around $2;000,000 in 2003-04 for construction of the new
groundwater treatment facilities.
Water Treatment-Master Plan Implementation
To maintain water treatment quality and reliability, study and design of a second clearwell and
plant water supply line and the performance of a seismic evaluation of existing storage tanks at
the Water Treatment Plant are estimated to cost $125,000 in 2001-02, while actual construction
of the second clearwell is projected to cost $2,800,000 in 2003-04. Recoating the existing
—(
Council Agenda Report–2001 Water Fund Review
Page 7
clearwell and construction of the new plant supply line is projected to cost $455,000 in 2003-04.
Water Distribution System Improvements
Replacing pipelines and related infrastructure to eliminate bottlenecks, leaking, deteriorating or
substandard mains and facilities; to strengthen portions of the distribution system; and to
improve water flow for fire protection will cost approximately $1,300,000 in 2001-02 and
$1,000,000 per year thereafter.
Polybutylene Replacements
Replacing polybutylene water services to proactively and systematically eliminate this inferior
material from the water system will cost $250,000 annually, until all polybutylene services are
removed from the system.
Water Distribution Master Plan Implementation
Implementing the projects identified in the draft Water Facilities Master Plan to correct existing
deficiencies and provide additional facilities necessary to serve existing residents and planned
growth within the City will cost$75,000 in 2001-02 and$260,000 in 2002-03.
Rate Review Exhibits
Financial schedules providing detail for the Water Fund analysis are provided in Exhibits A.1
through A.3. These include an analysis showing changes in working capital from 1999-00 to
2004-05; a summary of key assumptions by year for fund projections; and the proposed four year
capital improvement plan.
Rate Setting Methodology
In determining water revenue requirements and setting recommended rates,the following general
methodology is used:
Step 1: Determine Water Fund revenue requirements for:
a. Operations and maintenance
b. Capital improvements and replacements
c. Debt service obligations(existing and projected)
Step 2: Subtract from this amount"non-rate revenues" such as:
a. Interest earnings
b. Connection fees and meter sales
c. Revenues from other agencies (Cal Poly)
d. Other service charges (service start-up fees, late charges, etc.)
Step 3: Identify water rate requirements:
a. Revenue needed to be generated from water rates is the difference between water
revenue requirements (Step 1) and"non-rate"revenues(Step 2).
/- 7
Council Agenda Report—2001 Water Fund Review
Page 8
Step 4: Determine new rates:
a. Model the rate base (consumption and customer account assumptions) against the
existing rate structure and rate requirements identified in Step 3.
Because this analysis is performed over a multi-year period, other factors are considered, such as
working capital available to support capital projects, debt service requirements, and minimum
working capital policy.
Summary of Key Assumptions
The following is a summary of key assumptions for expenditures and revenues:
a. Operations and maintenance costs are based on the 2001-02 and 2002-03 budgets with an
inflation rate of 3%thereafter.
b. Sales to Cal Poly are based on historic use and the 1998 Agreement with Cal Poly. This
agreement set the proportion (53%) of the commercial rate the University pays to account
for the University's difference from other customers (own water supply and ownership
percentage at the treatment plant).
C. Debt Service is increased by $1,066,300 in 2002-03 to pay for the construction of the
water reuse project.
d. Capital improvement charges (development impact fees) are estimated based on inflation
and customer growth assumptions. This analysis assumes a varying percentage collection
of these fees (see Exhibit A-2). Development occurring under maps vested prior to
impact fee establishment pays only those fees in place at the time of approval. Impact
fees are reduced by$150 per toilet retrofit as a requirement for new development.
FISCAL IMPACT
No changes are recommended to the approved rate schedule shown below.
Current Rates
Inside the City
■ 1 —5 ccf's $2.51
Outside the City
$5.02
Inside the City
■ More than 5 ccf's $3.15
Outside the City
$6.30
l— b
i
Council Agenda Report-2001 Water Fund Review
Page 9
OTHER ISSUES
Monthly Utility Billing
One significant issue that continues to confront our rate payers is the magnitude of the City's
current bi-monthly utility bills. During consideration of the draft Water Shortage Contingency
Plan in July of 2000, Council authorized staff to review options for reducing the impact of utility
bills on our customers by moving to a monthly billing cycle.
Staff has completed extensive research and analysis of various ways to complete both meter
reading and utility billing. We have compared our cost to provide these services to that of
private contractors such as the California Water Service Company and Southern California Gas
Company and have found our per unit cost to provide these services is very competitive. With
the analysis demonstrating that the City can and does provide these services competitively, the
issue can now focus more specifically on whether it is reasonable and appropriate to move to
monthly billing,rather than how the services should be provided.
The negative perceptions surrounding the size of our bi-monthly bills are likely to become more
severe as citizens pay higher energy bills this summer. The recently proposed addition of a storm
water utility fee to the City's water and sewer bills will exacerbate the situation and provides
even more incentive to move to a monthly billing cycle. Staff plans to return to Council this fall
with a complete report on the monthly utility billing analysis and a review of options for Council
consideration..
Impact Fees
An analysis of revised impact fees for both water and sewer is currently underway and should be
coming to Council within the next few months. The development of the draft Water and
Wastewater Facilities Master Plans, completed in conjunction with the Airport Area Specific
Plan, has provided the information necessary to identify the costs of facilities required to
accommodate growth within the General Plan. Consistent with City policy that new
development pays its share of the infrastructure required to serve it, the updated development
impact fees (citywide and possibly area-specific) should be completed soon for Council review
and adoption.
While revised impact fees may have some impact (positive) on the overall revenues of the funds,
the magnitude of that impact is dependent upon a number of factors such as the amount and
extent of development occurring in the City and the level of cost recovery adopted by the
Council. The current fund analysis does not include any projections for revenues from impact
fees beyond those projected at the currently adopted rates.
EXHIBITS
A. Water Fund Review
1. Changes in financial position
2. Assumptions for fund projections
3. Capital improvement plan
Exhibit A.1
C C O C C O C C C C C C O O O
R S O o o8o0O 0ooCcO o g 00C) o v to
v ey orwvloe� oo off, ci —L0 VI a4.
0N a, Npp ey, N dO O to O 0� 00 tn O N
oN
N O
.moi' c (,j n n. r �, h O
00 O R - en. N N O h Vi
N N
S tn S S S 0 0 0 0 o IOn O o 0 S S 0 O O h 0 n
enl I l% 1 L O n1; v1 O0. OQ, �D O O wl Rq O O N Vl
R N th N O t, O n v O N h t` A en vn t`
cu ve V'eq `� — 0R, 0 ry, — o et I. (y el \0 a h.
00 O1 M - in r- N v t i tn 7 h
p po .w
R tabta 0 S S O S S 0 00 0l CL O r $ 0 0 0 0 et O S N CIL
8 O
O t� h -It O N e- O W) Off' v1 Vn t.- V O
fJ kn 000, 7 N0 ^ oM0' 00 O O� fy, eCh In [\Y, ..+ - 00 Off,
[� D+ en N •.• N D+ It R
N LRQ O . O O O O O SS O OO 0 0 0 0 SOO O O O O O
ei wl rkq el50o ryvl ^ 00vl 0( oo Wl 1. oocli o
N OO
O N -O �. e0 N ID N v1 U, m t- M It r- N
� o ro v nao0000 — v en —
v'ni t�Dr, v M "I r oo � t;, Vw a aq•
en
o o So SSSSS8SSoo SSSSSo v 0 0 0
Q $ vl t i eY oo v_ o — n ry o0 o v, e� t w o ell
avi n t� ar oo \ov M or- 00v MH .. r- v �
�p M G\ 00 t- �o O O� N 0% M - V in 7 R V1 ON e'7
Z N 1W- V1 �o V M erj• O vl ri OS, Cl
r a. v — in to - en n M
U.
w
W g R S S 0 S S S S 0 S o o S S S S = o S 0 0
H
o+ � of 77t- efl. . , oo vl r o It ry, � ao t: \q, r I t;,
Q 00 00 O% M ai h N �o O 0% eT en h_ 00 N b M - 7
h N w N en N ai o\ O tn N \O 00 en O O e0 00 OA
W) l: IT N It wl, O b V O O v in
l� Oe v - h N - 0%
Z
LOL
V/
O
a
J
Q �
y =
61 L
C y�
V 61 L
yQ N ¢ rn N y Vy y Z L
y0
o° a
o y =
V Q N L N E0 y v- r y. m N O _ 'u0 C
CL v y � u E e° c o U y y e °� ° E 0a—ci t m W
W r2 00
E° Z s E U � E � c. '_ > � = � � Q % Z E E
vc U y o rn a' 'v ami00
Q = ' a�i3 $ " ao c� ms � sF"
> Ernrn c� U ¢ 0000 a0
/-/D
Exhibit A.2
I
7 O e ._. p O d' p 0 00
O M D\ M p �p vi cc .•:
N n M 00 �O
N9 64 69
O O O
O M M O� �D. C t�+1 00 M 01 C
N C O O ~ W Q
64 69 64
O O O
en y O O o O
N O U p O C Q� 0 00 eT
N
N
69 bs 69 O
L
O
'L
Q
b
N
ti ^ O V1 CD
' O R o O N C
O N •C_ 00 p p > R
NO\ M (r en D. N
(n
uv uq
V
40. co 0 O
G
Ja
co ca S
IA : p 000 O. lu
k v
O °
b U R
V
Vm C
a� � .5 c
00 w
W c y
O
IL 5 N
U N
Zwca
y c z
0 _ O U b"0 m ai
A U =
at N A R U R b
W h .•. R O � � > a� O O
pV00
O
^J "' ^R C O kn 7 y O C" j O vn
C 0.R' a = E y u ; ^ A � ° >
G L v oRi O E O C
O d ° co CG ° A oo U U .E
LL U e m °' a E s o t ° cj a r° w
co ° 3 x� R cc CL3 cr E V� o o°'n o cc o"n
Z r x O U U U E . ° c y °
ON
IL
.2 u
N Gn V] ^R R R d O E
cn
Q 3 ca ca ca 3 u a a 3
Exhibit A.3
00 0 0 0 0 0 0 0 O
0 0 0 0 0 Co 0 0 o O
CD to o 00 0000 w
Lnr- O 0 0 0 0 6 vi P.
N f� O co 00 O O O CO It
C 6% � N V). co O
CO � � M
C6 V� 69
F r y ER � N
EA fA
as
0 0 0 0 0 O
o a o 0 0 0 0 0
ao
`O N O O N Ln N COO b
4a
C O O O 0 0 0 0 O
OO O OmCO O O Cl O
O N O O N O N N LO co
N
4 N C r h
WF
Z29
00
0 0 0 0 0 0 O
a cm 0 0 0000 0
�cLa Cr N b COO CDCD
Q d N M r O N N Of
Z
LL
w z N
O O O O 0000 O
Q Lo0 OOOp O O O w
Q m N � 11') M COO N N n
W
0 Q
Z ~
d w
J a �
d 5 o�y CD
E
Z a) a) aai
W v a o:
CU W >o o
a a
E E U c y a� c
O E 'gyp 0 m N C (n N
_ ,y N
.0 LL E �� N j �.. p N E w .+ N
a N Q Q: N C O a w O J O a
C v d tL E > E
Q
C c w' c h a) m Q aLL c m
LL J ea m eo — .. _E m
M `Q y 2 O � � � - pE
C] r U
— fA C L C1 f0 O L fA W L y 3 >+ to
Q1 T O O l0
0 Q c > C C7 � � � cnoa2
N a (a