title
PROPOSITION 218 PUBLIC PROTEST HEARING TO CONSIDER WATER RATE INCREASES
recommended action
RECOMMENDATION
At the conclusion of the Public Hearing, it is recommended that the City Council adopt a resolution that does the following:
1. Adopts the final May, 2016 Water Rate Study as prepared by HDR Engineering, Inc.;
2. Approves the water rates adjustments as identified in the Report, and amends the City of Stockton 2016-2017 Fee Schedule to reflect those adjustments for the current fiscal year if less than 50% of the affected record owners of any parcel upon which the water service charges are proposed for the imposition or tenants who are directly responsible for the payment of water service charges have submitted written protests, as tallied by the City Clerk;
3. Declares and adopts a Stage 1 Drought Surcharge; and
4. Authorizes the City Manager to take all appropriate and necessary actions to carry out the purpose and intent of the resolution.
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Summary
In July 2015, the Municipal Utilities Department retained HDR Engineering, Inc., to conduct a comprehensive water rate study. The objective of the rate study was to review the City of Stockton Water Utility’s operating and capital costs necessary to provide water service to its customers. The May 2016 Water Rate Study revealed that current drought and water conservation measures resulted in lower water consumption levels, and in overall reductions in revenues for the Water Utility fund. In addition to the reduction in water consumption levels and overall revenues, there was a substantial increase in the cost of purchased water from Stockton East Water District. As a consequence, legally required debt service coverage ratios for outstanding bonded indebtedness of the Water Utility will not be met, and capital investments will be deferred absent water rate increases. The proposed May 2016 Water Rate Study proposes a five years of scheduled increase in water rates to ensure the Water Utility recovers its operations and maintenance costs, including ensuring there is sufficient revenue to meet its debt service obligations. Approval of the proposed rate schedules will establish the maximum rates that may be imposed during the five-year period. The City staff will review the revenue requirements and the rates necessary to meet those revenue requirements each fiscal year during the Annual Budget process.
Rate adjustments are necessary for the following reasons:
• Meet legally required debt service coverage ratios. Failure to meet the Water Utility’s required debt service coverage ratios may result in a technical default, and, if left uncured, may ultimately result in a payment default on the Water Utility’s outstanding bonded indebtedness.
• Reflect the reduction in annual water consumption due to the drought and State mandated conservation savings. This reduced level of consumption may be reflective of the new level of water consumption for the foreseeable future.
• Maintain the Water Utility’s financial health and provide long-term sustainable funding levels.
• The proposed rates alone will not meet the revenue targets to fund operating and capital needs, or meet legally required debt service coverage ratios, absent the proposed Drought Surcharges.
The proposed rate increases for each year of the five years are as follows:
|
Rates and Effective Dates for the Monthly Fixed Meter Service Charge ($/Meter Size) |
|
Meter Size (in inches) |
August 1, 2016 |
July 1, 2017 |
July 1, 2018 |
July 1, 2019 |
July 1, 2020 |
|
1” & less |
$28.00 |
$31.00 |
$31.95 |
$32.90 |
$33.90 |
|
1 1/2” |
56.00 |
62.00 |
63.90 |
65.80 |
67.80 |
|
2” |
89.60 |
99.20 |
102.24 |
105.28 |
108.48 |
|
3” |
168.00 |
186.00 |
191.70 |
197.40 |
203.40 |
|
4” |
280.00 |
310.00 |
319.50 |
329.00 |
339.00 |
|
6” |
560.00 |
620.00 |
639.00 |
658.00 |
678.00 |
|
8” |
896.00 |
992.00 |
1,022.40 |
1,052.80 |
1,084.80 |
|
10” |
1,288.00 |
1,426.00 |
1,469.70 |
1,513.40 |
1,559.40 |
|
12” |
1,890.00 |
2,092.50 |
2,156.63 |
2,220.75 |
2,288.25 |
|
Rates and Effective Dates for the Monthly Consumption Charge ($/CCF) |
|
Customer Class |
August 1, 2016 |
July 1, 2017 |
July 1, 2018 |
July 1, 2019 |
July 1, 2020 |
|
Single Family |
|
|
|
|
|
|
Tier 1: 0 - 15 CCF |
$2.00 |
$2.23 |
$2.31 |
$2.39 |
$2.47 |
|
Tier 2: 15 + CCF |
2.39 |
2.66 |
2.76 |
2.86 |
2.95 |
|
Multi-Family |
|
|
|
|
|
|
Winter (Oct-Apr) |
$1.70 |
$1.90 |
$1.97 |
$2.04 |
$2.11 |
|
Summer (May-Sept) |
1.85 |
2.07 |
2.14 |
2.22 |
2.30 |
|
Non Residential |
|
|
|
|
|
|
Winter (Oct-Apr) |
$1.70 |
$1.90 |
$1.97 |
$2.04 |
$2.11 |
|
Summer (May-Sept) |
1.98 |
2.21 |
2.29 |
2.38 |
2.46 |
|
Irrigation |
|
|
|
|
|
|
Winter (Oct-Apr) |
$1.78 |
$1.99 |
$2.06 |
$2.13 |
$2.20 |
|
Summer (May-Sept) |
2.26 |
2.53 |
2.62 |
2.70 |
2.79 |
The amount of the water service charges paid by individual customers will vary based on a variety of factors-e.g., the type of customer, the size of the water meter serving the customer’s property, and the amount of monthly water used. A detailed description of proposed rates is included below.
In addition to the proposed adjustments to the water rate structure, Drought Surcharges are also proposed to be adopted to provide a mechanism to recover the costs of operating the water system during imposed conservation stages. The Drought Surcharges described in more detail on the following page, and are as follows:
|
Rates and Effective Dates for Drought Surcharges ($/CCF) |
|
Customer Class, Drought Stage, and Reduction Level |
August 1, 2016 |
July 1, 2017 |
July 1, 2018 |
July 1, 2019 |
July 1, 2020 |
|
Single Family |
|
|
|
|
|
|
Stage 1 (10%) |
$0.23 |
$0.27 |
$0.28 |
$0.29 |
$0.30 |
|
Stage 2 (20%) |
0.53 |
0.60 |
0.62 |
0.64 |
0.66 |
|
Stage 3 (30%) |
0.90 |
1.03 |
1.07 |
1.11 |
1.15 |
|
Stage 4 (40%) |
1.40 |
1.60 |
1.66 |
1.72 |
1.78 |
|
Stage 5 (50%) |
2.10 |
2.40 |
2.49 |
2.58 |
2.66 |
|
Multi-Family |
|
|
|
|
|
|
Stage 1 (10%) |
$0.20 |
$0.22 |
$0.23 |
$0.24 |
$0.25 |
|
Stage 2 (20%) |
0.44 |
0.50 |
0.52 |
0.54 |
0.56 |
|
Stage 3 (30%) |
0.76 |
0.86 |
0.89 |
0.92 |
0.95 |
|
Stage 4 (40%) |
1.18 |
1.33 |
1.38 |
1.43 |
1.48 |
|
Stage 5 (50%) |
1.77 |
2.00 |
2.07 |
2.15 |
2.23 |
|
Non-Residential |
|
|
|
|
|
|
Stage 1 (10%) |
$0.21 |
$0.23 |
$0.24 |
$0.25 |
$0.26 |
|
Stage 2 (20%) |
0.46 |
0.52 |
0.54 |
0.56 |
0.58 |
|
Stage 3 (30%) |
0.79 |
0.90 |
0.93 |
0.97 |
1.00 |
|
Stage 4 (40%) |
1.23 |
1.40 |
1.45 |
1.50 |
1.55 |
|
Stage 5 (50%) |
1.85 |
2.10 |
2.18 |
2.26 |
2.34 |
|
Irrigation |
|
|
|
|
|
|
Stage 1 (10%) |
$0.23 |
$0.26 |
$0.27 |
$0.28 |
$0.29 |
|
Stage 2 (20%) |
0.52 |
0.59 |
0.61 |
0.63 |
0.65 |
|
Stage 3 (30%) |
0.90 |
1.02 |
1.06 |
1.10 |
1.14 |
|
Stage 4 (40%) |
1.39 |
1.58 |
1.64 |
1.70 |
1.76 |
|
Stage 5 (50%) |
2.09 |
2.38 |
2.47 |
2.56 |
2.65 |
It is recommended that the City Council adopt the final 2016 Rate Study and proposed rate schedules.
DISCUSSION
Background
In 2009, a water rate study was completed in conjunction with the inception of the Delta Water Supply Project (DWSP). Updated water rate studies identify and incorporate changes in revenues and expenses that have transpired since the previously completed water rate study.
Water rate increases adopted in 2009 to finance the DWSP assumed a conservative level of growth and associated water consumption, with a commensurate growth in revenue over time.
As a result of the drought that began in 2012 and accelerated in 2014 and 2015, the City experienced greater than projected reductions in water use. On April 1, 2015, the Governor instituted California’s first-ever statewide mandatory water reductions (Executive Order B-29-15), mandating the implementation of several conservation measures. On November 15, 2015, those conservation measures were extended until October 31, 2016. Under the drought regulations established pursuant to the Executive Order, the City of Stockton’s water use reduction target was established at 28 percent below the 2013 baseline water use established by the State mandate.
On July 15, 2015, the City retained HDR Engineering, Inc. to update the 2009 Water Rate Study (the “Study”). For calendar year 2015, the City’s yearlong water use reduction met the State’s water conservation target of 28 percent. More recently, water use for the months of March and April of 2016 yielded water conservation savings of 38 percent and 34 percent respectively compared to its 2013 baseline water use. As a result, the Water Utility’s revenues declined in 2014 and 2015 by approximately $3 million dollars in each year.
The reduction in revenues resulted in the utility’s reliance on rate stabilization funds to meet bond coverage in FY 2015-16. It is anticipated that the rate stabilization fund will be depleted in FY 2016-17. Failure to comply with bond covenants may result in the declaration of an Event of Default and a downgrade of the Water Utility’s credit rating. If left uncured, the Water Utility’s bond obligation(s) may be due and payable immediately. The bond obligations total $249 million, and the utility does not have the resources to make an immediate lump sum payment of this amount. Therefore, maintaining the legally required bond coverage and making its debt service payments are critical in maintaining a financially stable Water Utility.
Other factors that prompted the water rate study include:
• The cost of purchased water from the Stockton East Water District increased substantially.
• Operating and maintaining the water system requires sufficient funding for facility repairs and replacement to ensure that the water infrastructure system remains safe and reliable.
• Operations and maintenance expenses are projected to increase at inflationary levels with no assumed changes to levels of service or anticipated extraordinary expenses.
On May 10, 2016, by Resolution 2016-05-10-1503, the City Council cancelled the previously scheduled May 24, 2016 Public Hearing to consider adoption of proposed water rate increases set by City Council Resolution 2016-03-29-1506. The Resolution authorized and directed the City Manager to schedule a new Public Hearing to consider the adoption of a revised schedule of maximum allowable rates and to mail a notice of the Public Hearing to all record owners of parcels subject to the proposed rate increases as well as tenants who are directly responsible for the payment of water service charges. On May 12, 2016, a Notice of Rescheduled Public Hearing on Proposed Adjustments to Water Rates was mailed out to the record owners of each identified parcel upon which the proposed water service charges will be imposed and any tenants identified as being directly responsible for the payment of water service charges upon which the charges are proposed for imposition
Present Situation
The comprehensive Study uses three interrelated analyses to address the adequacy and equity of the utility’s rates. These three analyses are a revenue requirement analysis, cost of service analysis, and rate design analysis.
A revenue requirement analysis compares the revenues to the expenses of the utility to determine the overall rate adjustment required; the cost of service analysis allocates the revenue requirement to the various customer classes of service in a “fair and equitable manner”; and the rate design analysis considers both the level and structure of the rate design to collect the target level of revenues.
Prior to commencing the analytical work associated with the Study, a number of the key objectives were identified. Among the primary objectives were:
• Develop the Study in a manner that is consistent with the principles and methodologies established by the American Water Works Association (AWWA), M1 Manual, Principles of Water Rates, Fees, and Charges.
• Review the Water Utility rates utilizing “generally accepted” rate making methodologies to determine the adequacy and equity of the utility rates.
• Meet the Water Utility’s financial planning criteria, particularly as it relates to legally required debt service coverage ratios.
• Provide for adequate funding of capital infrastructure, maintenance and prudent reserve levels.
• Develop a final proposed financial plan which supports the Water Utility’s funding requirements, while attempting to minimize overall impacts to the rates.
• Provide rates designed to meet the legal requirements of the California Constitution Article XIII D and recent legal decisions related to Article XIII D.
• Develop rates that provide additional conservation incentives that are cost based, while reflecting the Water Utility’s specific costs and maintaining the revenue stability of the current rate structure.
The first analytical task undertaken was the revenue requirement analysis which considers the adequacy of the existing water rates in relation to the projected operating and capital expenses of the Water Utility. For the Study, the revenue requirement was developed for the 10-year period from Fiscal Year 2016 through Fiscal Year 2025. The results of the Study indicate that, before including any Drought Surcharges, the existing water rates are not sufficient to meet the operation and capital needs of the utility; therefore, the water rates must be adjusted to meet the utility’s revenue requirement.
HDR reached this conclusion for the following reasons:
• Rate adjustments are necessary to meet the legally required debt service coverage ratios. Failure to meet these required debt service coverage ratios may result in a technical default. In addition, if the rates are left unadjusted long enough, this may ultimately result in a payment default on the utility’s outstanding bonds.
• Rate adjustments are necessary to reflect the reduction in annual water consumption due to the drought and State mandated conservation savings. This new level of consumption may be reflective of the new level of water consumption for the foreseeable future.
• The proposed rate adjustments maintain the Water Utility’s financial health and provide long-term sustainable funding levels.
The objective of the cost of service analysis is to determine a fair and equitable manner to collect the revenue requirement from each customer class of service; namely, single family, multi-family, non-residential, and irrigation in conformance with the provisions of California Constitution article XIII D, section 6. These costs are then segregated to determine the overall revenue responsibility for each customer class.
The final step of the comprehensive rate study was the water rates schedules to collect the required levels of revenue, based on the results of the revenue requirement and cost of service analysis. HDR and the Municipal Utilities Department (MUD) staff developed the proposed single family rate schedule that includes a variable meter charge and a two block tiered rate structure.
The water rates for the single family customer class proposed to be phased in over the five- year period are shown in Table 1 below:
|
Table 1 Present & Proposed Single Family Water Rates |
|
|
Present Rates |
FY 2017 |
FY 2018 |
FY 2019 |
FY 2020 |
FY 2021 |
|
Fixed Charge ($/Meter Size) |
|
5/8" |
$18.94 |
N/A |
N/A |
N/A |
N/A |
N/A |
|
3/4" |
22.25 |
N/A |
N/A |
N/A |
N/A |
N/A |
|
1" |
29.24 |
N/A |
N/A |
N/A |
N/A |
N/A |
|
1" & less |
N/A |
$28.00 |
$31.00 |
$31.95 |
$32.90 |
$33.90 |
|
1 1/2" |
42.17 |
56.00 |
62.00 |
63.90 |
65.80 |
67.80 |
|
2" |
54.49 |
89.60 |
99.20 |
102.24 |
105.28 |
108.48 |
|
3" |
96.36 |
168.00 |
186.00 |
191.70 |
197.40 |
203.40 |
|
4" |
138.53 |
280.00 |
310.00 |
319.50 |
329.00 |
339.00 |
|
6" |
228.20 |
560.00 |
620.00 |
639.00 |
658.00 |
678.00 |
|
8" |
330.87 |
896.00 |
992.00 |
1,022.40 |
1,052.80 |
1,084.80 |
|
10" |
412.91 |
1,288.00 |
1,426.00 |
1,469.70 |
1,513.40 |
1,559.40 |
|
12" |
581.32 |
1,890.00 |
2,092.50 |
2,156.63 |
2,220.75 |
2,288.25 |
|
Consumption Charge ($/CCF) |
|
All Usage |
$1.67 |
N/A |
N/A |
N/A |
N/A |
N/A |
|
0 - 15 CCF |
N/A |
$2.00 |
$2.23 |
$2.31 |
$2.39 |
$2.47 |
|
15 + CCF |
N/A |
2.39 |
2.66 |
2.76 |
2.86 |
2.95 |
Tiered water rates may be developed for the single-family class of service; however, it is technically more challenging to develop tiered rates for other customer classes given the variation in their consumption patterns. To meet the conservation and revenue stability goals of the Study, the proposed rates for multi-family customers are proposed to be a seasonal rate structure. The winter period has been identified as October through April, and the summer period is identified as May through September. The water rates for the multi-family customer class proposed to be phased in over the five-year period are presented below in Table 2:
|
Table 2 Present & Proposed Multi-Family Water Rates |
|
|
Present Rates |
FY 2017 |
FY 2018 |
FY 2019 |
FY 2020 |
FY 2021 |
|
Fixed Charge ($/Meter Size) |
|
5/8" |
$18.94 |
N/A |
N/A |
N/A |
N/A |
N/A |
|
3/4" |
22.25 |
N/A |
N/A |
N/A |
N/A |
N/A |
|
1" |
29.24 |
N/A |
N/A |
N/A |
N/A |
N/A |
|
1" & less |
N/A |
$28.00 |
$31.00 |
$31.95 |
$32.90 |
$33.90 |
|
1 1/2" |
42.17 |
56.00 |
62.00 |
63.90 |
65.80 |
67.80 |
|
2" |
54.49 |
89.60 |
99.20 |
102.24 |
105.28 |
108.48 |
|
3" |
96.36 |
168.00 |
186.00 |
191.70 |
197.40 |
203.40 |
|
4" |
138.53 |
280.00 |
310.00 |
319.50 |
329.00 |
339.00 |
|
6" |
228.20 |
560.00 |
620.00 |
639.00 |
658.00 |
678.00 |
|
8" |
330.87 |
896.00 |
992.00 |
1,022.40 |
1,052.80 |
1,084.80 |
|
10" |
412.91 |
1,288.00 |
1,426.00 |
1,469.70 |
1,513.40 |
1,559.40 |
|
12" |
581.32 |
1,890.00 |
2,092.50 |
2,156.63 |
2,220.75 |
2,288.25 |
|
Consumption Charge ($/CCF) |
|
All Usage |
$1.67 |
N/A |
N/A |
N/A |
N/A |
N/A |
|
Winter |
N/A |
$1.70 |
$1.90 |
$1.97 |
$2.04 |
$2.11 |
|
Summer |
N/A |
1.85 |
2.07 |
2.14 |
2.22 |
2.30 |
As with multi-family customers, the non-residential customer consumption patterns and level of consumption varies significantly from customer to customer. The proposed rate structure for non-residential customers maintains the fixed meter charge at the same level as all other customers; however, the consumption charge is proposed to be a seasonal (winter/summer) rate structure, as proposed for multi-family customers. The proposed rates for the non-residential customers are different than multi-family customers as they are based on the cost of service analysis unit costs and reflect the specific usage characteristics unique to the non-residential customer class. The water rates for the non-residential customer class proposed to be imposed for the five-year period are presented in Table 3 on the following page:
|
Table 3 Present & Proposed Non-Residential[1] Water Rates |
|
|
Present Rates |
FY 2017 |
FY 2018 |
FY 2019 |
FY 2020 |
FY 2021 |
|
Fixed Charge ($/Meter Size) |
|
5/8" |
$18.94 |
N/A |
N/A |
N/A |
N/A |
N/A |
|
3/4" |
22.25 |
N/A |
N/A |
N/A |
N/A |
N/A |
|
1" |
29.24 |
N/A |
N/A |
N/A |
N/A |
N/A |
|
1" & less |
N/A |
$28.00 |
$31.00 |
$31.95 |
$32.90 |
$33.90 |
|
1 1/2" |
42.17 |
56.00 |
62.00 |
63.90 |
65.80 |
67.80 |
|
2" |
54.49 |
89.60 |
99.20 |
102.24 |
105.28 |
108.48 |
|
3" |
96.36 |
168.00 |
186.00 |
191.70 |
197.40 |
203.40 |
|
4" |
138.53 |
280.00 |
310.00 |
319.50 |
329.00 |
339.00 |
|
6" |
228.20 |
560.00 |
620.00 |
639.00 |
658.00 |
678.00 |
|
8" |
330.87 |
896.00 |
992.00 |
1,022.40 |
1,052.80 |
1,084.80 |
|
10" |
412.91 |
1,288.00 |
1,426.00 |
1,469.70 |
1,513.40 |
1,559.40 |
|
12" |
581.32 |
1,890.00 |
2,092.50 |
2,156.63 |
2,220.75 |
2,288.25 |
|
Consumption Charge ($/CCF) |
|
All Usage |
$1.67 |
N/A |
N/A |
N/A |
N/A |
N/A |
|
Winter |
N/A |
$1.70 |
$1.90 |
$1.97 |
$2.04 |
$2.11 |
|
Summer |
N/A |
1.98 |
2.21 |
2.29 |
2.38 |
2.46 |
[1] Non-Residential class includes commercial, industrial, and institutional customers
The proposed rate structure for irrigation class customers maintains the fixed meter charge equal to the other customer classes. However, similar to the non-residential customers, the proposed rate structure for the consumption charge is seasonal (winter/summer). Although the structure is the same as all others, the rates for irrigation customers reflect the unit costs allocated to the irrigation customers and the usage characteristics unique to the irrigation customer class. The water rates structure for the irrigation customer class of service proposed to be imposed for the five-year period are presented in Table 4 on the following page:
|
Table 4 Present & Proposed Irrigation Water Rates |
|
|
Present Rates |
FY 2017 |
FY 2018 |
FY 2019 |
FY 2020 |
FY 2021 |
|
Fixed Charge ($/Meter Size) |
|
5/8" |
$18.94 |
N/A |
N/A |
N/A |
N/A |
N/A |
|
3/4" |
22.25 |
N/A |
N/A |
N/A |
N/A |
N/A |
|
1" |
29.24 |
N/A |
N/A |
N/A |
N/A |
N/A |
|
1" & less |
N/A |
$28.00 |
$31.00 |
$31.95 |
$32.90 |
$33.90 |
|
1 1/2" |
42.17 |
56.00 |
62.00 |
63.90 |
65.80 |
67.80 |
|
2" |
54.49 |
89.60 |
99.20 |
102.24 |
105.28 |
108.48 |
|
3" |
96.36 |
168.00 |
186.00 |
191.70 |
197.40 |
203.40 |
|
4" |
138.53 |
280.00 |
310.00 |
319.50 |
329.00 |
339.00 |
|
6" |
228.20 |
560.00 |
620.00 |
639.00 |
658.00 |
678.00 |
|
8" |
330.87 |
896.00 |
992.00 |
1,022.40 |
1,052.80 |
1,084.80 |
|
10" |
412.91 |
1,288.00 |
1,426.00 |
1,469.70 |
1,513.40 |
1,559.40 |
|
12" |
581.32 |
1,890.00 |
2,092.50 |
2,156.63 |
2,220.75 |
2,288.25 |
|
Consumption Charge ($/CCF) |
|
All Usage |
$1.67 |
N/A |
N/A |
N/A |
N/A |
N/A |
|
Winter |
N/A |
$1.78 |
$1.99 |
$2.06 |
$2.13 |
$2.20 |
|
Summer |
N/A |
2.26 |
2.53 |
2.62 |
2.70 |
2.79 |
In addition, Drought Surcharges are proposed as part of the updated rate structure. The Drought Surcharges would be implemented only when it is necessary to safeguard against significant financial losses resulting from greater than projected reductions in water usage by City customers as a result of the current or future water shortage conditions. If implemented, the Drought Surcharges are designed to provide sufficient revenues for the City to continue meeting its expenditures and debt obligations, as well as additional costs that may be incurred, such as additional water supply pumping and conservation program related costs.
The Drought Surcharges are an additional per unit (CCF) charge added to the rates of the Consumption Charge and would be activated by a declared water shortage stage pursuant to the City’s Urban Water Management Plan as a result of a drought, a statewide order mandating water use reductions, or other natural disaster or event that results in a water shortage and an unforeseen drop in water demand. The Urban Water Management Plan provides an analysis of the sufficiency of the City’s combined water supply and defines five stages of water use reductions and restrictions. These five stages, along with the estimated consumption reductions resulting from additional conservation restrictions implemented at each stage, are outlined on the following page:
|
Declared Stage of Water Conservation Savings |
Reduction in Water Consumptive Use |
|
Stage 1 |
10% |
|
Stage 2 |
20% |
|
Stage 3 |
30% |
|
Stage 4 |
40% |
|
Stage 5 |
50% |
Although the Stockton City Council is the only authority that can declare a stage of water conservation and associated Drought Surcharges within the City, the City remains subject to statewide conservation mandates. While Stockton’s Urban Water Management Plan concludes sufficient water supply within the City, the ongoing effect of State conservation mandates is likely to reduce revenues and warrants a Stage 1 Drought Surcharge. However, should changes in drought conditions or state mandates occur the Water Utility will continue to monitor consumption and make recommendations to Council accordingly during future Annual Budget processes. The Drought Surcharges are listed in table 5 below:
Table 5
Proposed Drought Rate Surcharges (4/CCF)
|
|
FY 2017 |
FY 2018 |
FY 2019 |
FY 2020 |
FY 2021 |
|
Single Family |
|
|
|
|
|
|
Stage 1 |
$0.23 |
$0.27 |
$0.28 |
$0.29 |
$0.30 |
|
Stage 2 |
0.53 |
0.60 |
0.62 |
0.64 |
0.66 |
|
Stage 3 |
0.90 |
1.03 |
1.07 |
1.11 |
1.15 |
|
Stage 4 |
1.40 |
1.60 |
1.66 |
1.72 |
1.78 |
|
Stage 5 |
2.10 |
2.40 |
2.49 |
2.58 |
2.66 |
|
Multi-Family |
|
|
|
|
|
|
Stage 1 |
$0.20 |
$0.22 |
$0.23 |
$0.24 |
$0.25 |
|
Stage 2 |
0.44 |
0.50 |
0.52 |
0.54 |
0.56 |
|
Stage 3 |
0.76 |
0.86 |
0.89 |
0.92 |
0.95 |
|
Stage 4 |
1.18 |
1.33 |
1.38 |
1.43 |
1.48 |
|
Stage 5 |
1.77 |
2.00 |
2.07 |
2.15 |
2.23 |
|
Non Residential |
|
|
|
|
|
|
Stage 1 |
$0.21 |
$0.23 |
$0.24 |
$0.25 |
$0.26 |
|
Stage 2 |
0.46 |
0.52 |
0.54 |
0.56 |
0.58 |
|
Stage 3 |
0.79 |
0.90 |
0.93 |
0.97 |
1.00 |
|
Stage 4 |
1.23 |
1.40 |
1.45 |
1.50 |
1.55 |
|
Stage 5 |
1.85 |
2.10 |
2.18 |
2.26 |
2.34 |
|
Irrigation |
|
|
|
|
|
|
Stage 1 |
$0.23 |
$0.26 |
$0.27 |
$0.28 |
$0.29 |
|
Stage 2 |
0.52 |
0.59 |
0.61 |
0.63 |
0.65 |
|
Stage 3 |
0.90 |
1.02 |
1.06 |
1.10 |
1.14 |
|
Stage 4 |
1.39 |
1.58 |
1.64 |
1.70 |
1.76 |
|
Stage 5 |
2.09 |
2.38 |
2.47 |
2.56 |
2.65 |
DROUGHT SURCHARGES
The proposed rates in the Study were based on projected water consumption levels that are higher than current consumption levels due to the drought. These levels were based on a review of the prior 3 years of consumption data and the impacts the drought has had on customer usage patterns. Based on this review, estimated consumption levels were developed for the basis of the rates. Current consumption levels were not used, so that the rate projections would reflect normal water conditions. Had current consumption levels been used, the overall revenue adjustments would need to be greater than the current proposed adjustments. This would result in revenues that exceed the Water Utility’s needs should the drought end, watering restrictions be relaxed, or customers stop conserving at current levels.
To maintain a stable revenue stream and meet financial targets (e.g., debt coverage ratios), at both normal and drought consumption levels, Drought Surcharges were developed. In this way, the Water Utility can implement temporary Drought Surcharges to meet target revenue needs even during times of reduced consumption. If water consumption returns to more normal levels as projected in the Study, the Drought Surcharges would be removed.
At this time, given a review of the Study projected water consumption levels and current consumption levels, a Stage 1 Drought Surcharge is appropriate. This is recommended for the following reasons:
• Absent the implementation of the Drought Surcharges, and at current consumption levels, the proposed rates alone will not meet the revenue targets to fund operating and capital needs, or meet legally required debt service coverage ratios.
• Consumption levels are still below the levels used to establish the proposed rates in the Study. Recent consumption in March and April of 2016is more than 30 percent below 2013 water use levels for the same months and it appears at this time that reduced consumption levels are likely to continue into the future.
Even with the recent decisions to allow utilities to determine the appropriate conservation measures, these levels will most likely be less than the levels used to establish the proposed rates at normal levels. However, Department staff reviews production and consumption monthly and will continue to do so. Based on this data, staff will monitor consumption patterns based on the drought and conservation requirements and programs.
Resolution No. 09-0226, adopted on July 7, 2009 established annual water rate adjustments effective July 1st of each year in perpetuity in an amount equal to the Consumer Price Index (CPI) for all Urban Consumers, as reported by the U.S. Department of labor, Bureau of Labor Statistics, for all items, U.S. City average. The annual adjustment was also adopted by Council as part of the FY 2016-17 Fee Schedule. If the proposed water rate increases are approved, the most recent CPI adjustment of 0.1%, effective July 1, 2016, and any subsequent CPI adjustments will be terminated, and only the proposed, maximum water rate increases for FY 2016-17 through FY 2020-21 will be effective.
PUBLIC OUTREACH AND NOTIFICATION
A presentation on the Study was given to the Water Advisory Group on February 3, 2016. Subsequently, the City Council Water Committee at its February 11, 2016 was also given a presentation on the Study and recommended that the Study be forwarded to the City Council for further consideration.
On March 26, 2016, a Special City Council meeting was held to present the Study information to the City Council and the public.
Public outreach meetings were conducted on April 25, 2016, May 9, 2016, May 18, 2016, and June 13, 2016 at three locations throughout the City of Stockton. Proposition 218 Notices were mailed to approximately 91,640 tenants who are directly responsible for the payment of water service charges, and record owners of a parcel served by the City of Stockton. The Notice informed customers of the amount of the proposed increase, the reasons for the increase, date and time of the Public Hearing and detailed instructions were on how to protest the proposed water rate increases. Individuals wishing to submit a protest can protest in writing, in person to the City Clerk, or at or before the close of the Public Hearing.
Notice of the Public Hearing for June 28, 2016 City Council meeting was published in The Record on June 10, 2016.
Assuming not more than 50 percent of the affected tenants who are directly responsible for the payment of water service charges, or record owners of a parcel upon which the rates are proposed to be imposed have submitted written protests as tallied by the City Clerk, then by approving the resolution, the City Council may adopt the Study, approve water rate increases as identified in the Study, declare a Stage 1 Drought and Stage 1 Drought Surcharge, and amend the City of Stockton 2016-2017 Water Fee Schedule.
FINANCIAL SUMMARY
Implementation of the proposed water rate increases will generate sufficient revenues over the course of the next five years to pay for Water Utility operation and maintenance costs, infrastructure needs, and will maintain bond coverage covenants. Absent these rate increases, the water fund is projected to violate bond coverage covenants on the existing outstanding debt.
There is no impact to the General Fund, or any other unrestricted fund, from this action.