HomeMy WebLinkAboutSS3 - 2019 Water Rate StudyQ SEW Pp�T
CITY OF
z NEWPORT BEACH
c�<,FORN'P City Council Staff Report
August 13, 2019
Study Session Item No. SS3
TO: HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL
FROM: Mark Vukojevic, Utilities Director - 949-644-3011,
mvukojevic@newportbeachca.gov
PREPARED BY: Mark Vukojevic, Utilities Director, mvukojevic@newportbeachca.gov
PHONE: 949-644-3011
TITLE: 2019 Water Rate Study
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The Utilities Department is leading the effort to review the rates associated with the Water
Enterprise Fund. On March 12, 2019, City Council approved an agreement to retain the
consulting services of Raftelis Financial Consultants Inc. to prepare the 2019 Water Rate
Study. The previous water rate study was completed in 2009 and the last rate increase
for water users was in 2014. The purpose of this presentation is to present a PowerPoint
summary of the financial analysis, the draft water rates, receive input, and seek the City
Council's direction to bring back the item as a formal City Council agenda item.
RECOMMENDATION:
Receive presentation, consider public comments, and provide direction to staff.
FUNDING REQUIREMENTS:
There is no fiscal impact related to this study session. However, the 2019 Water Rate
Study is proposing changes to water rates and will be formally presented for future City
Council consideration.
DISCUSSION:
Staff and the City's consultant will make a presentation that highlights the proposed water
rates based on the draft results of the 2019 Water Rate Study. In general, the costs of the
Water System Capital Improvement program, wholesale water purchases, and operations
have all increased over the years. Coupled with no inflationary rate adjustments over the
last five years, increases to the rate are recommended in order to maintain the system
needs and for the Enterprise Fund to remain financially sound and debt -free. If acceptable
to City Council, staff would bring the 2019 Water Rate Study for formal approval on
September 10, 2019, prepare the public notice and public information outreach and conduct
a series of steps and actions in order to implement rate changes by January of 2020.
SS3-1
2019 Water Rate Study
August 13, 2019
Page 2
During the May 16, 2019 and June 27, 2019 Finance Committee meetings, staff presented
a financial analysis of the Water Enterprise Fund including the reserve policy and preparing
for future drought concerns. Also discussed were typical steps and decision points for
evaluating water rates, the different types of water rate structures, and rate options
concerning fixed and variable revenues. The Committee provided staff direction and
recommended that the item be forwarded to City Council along with a specific rate
recommendation which increases the fixed revenues to better stabilize the Fund.
If acceptable to City Council, staff is proposing to make the Draft Water Rate Study
available to the Public on the City's website at the end of August. On September 10, 2019,
staff tentatively plans to bring for your approval the Final Water Rate Study Report, the
initiation of the Proposition 218 notice and process and setting of a Public Hearing on
November 5, 2019. Concurrently, staff will conduct public outreach to the community
during this time period.
ENVIRONMENTAL REVIEW:
Staff recommends the City Council find this action is not subject to the California
Environmental Quality Act (CEQA) pursuant to Sections 15060(c)(2) (the activity will not
result in a direct or reasonably foreseeable indirect physical change in the environment)
and 15060(c)(3) (the activity is not a project as defined in Section 15378) of the CEQA
Guidelines, California Code of Regulations, Title 14, Chapter 3, because it has no
potential for resulting in physical change to the environment, directly or indirectly.
NOTICING -
The agenda item has been noticed according to the Brown Act (72 hours in advance of
the meeting at which the City Council considers the item).
ATTACHMENT:
Attachment A — 2019 Water Rate Study PowerPoint Presentation Dated 8/13/2019
SS3-2
ATTACHMENT A
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city couvtcil Meetivtg
Study Sessiovi
August 1-3, 20I9
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Executive Summary:
• Water is a 24/7 community service, asset, and commodity
• Water is critical to public health and the environment
• The water system operates as an enterprise fund
• Current and future capital improvement projects are necessary
• Water operational costs (especially buying water) have gone up
• California water costs have increased 6% per year over the last 12 years
• No rate increases over the last 5 years
• Expenses are now exceeding revenues
• Rate increases are needed ($3.28/month avg.)
Utilities Department 2.01 q Water Rate Study
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Presentation Outline:
• Recent water systems discussions
• Background on the water system
• Current and future Capital Improvement Program
• Enterprise funds and water rates
• Financial plan
• Proposed water rate changes
• Next steps and implementation schedule
• Additional information slides
Utilities Department 2-01q Water Rate Study
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Recent Water Projects/ Discussions at City Council
• Jan. 22, 2019, Presentation on Advanced Metering Systems
• Feb. 2, 2019, Capital Improvement Program Planning
• Mar. 12, 2019, Capital Improvement Program Early Look
• Mar. 26, 2019, Spyglass Hill Reservoir Mixing System Contract
• May 14, 2019, Water Master Plan Approval
Big Canyon Reservoir Improvement Completion
• May 28, 2019, Capital Improvement Program Final Draft
Water Transmission Valve Project Contract
Lido Village West Newport Water Main Completion
• Jun. 11, 2019, Capital Improvement Program Approval
• Jun. 25, 2019, Balboa Island Water Main Completion
• Jul. 9, 2019)
Utilities Department
Water Well Rehab Contract
2.01-q Water Rate Study
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Water System
Extensive & Complex System Covering Most of the City's Boundaries
Water Deliveries Double in the Summertime
System Overview
• 302 Miles of Potable Water Pipeline
• 202 Million Gallon Storage Capacity
• 26,550 Service Connections
• 17 Booster Pumps
• 42 Pressure Reducing Stations
• 2,723 Fire Hydrants
• 8,172 Distribution Valves
• 12 Interconnects with Local Agencies
Utilities Department
2018 Water Delivery Facts
4.8 Billion Gallons Delivered (-15,000 acre feet)
74% from 4 Local Groundwater Wells
23% from 6 Import Connections
3% from local Recycled Supplier
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2919 Water Master Plan
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* Increased Capital Projects by $2.2mil annually
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Replacing Infrastructure
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SS3-9
Replacing Infrastructure:
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SS3-10
Water Utility Customer Service:
• On-call and 24-hour emergency service
• Water quality testing
• Public health and environment protections
• Water conservation and use efficiency
• Leak detection notifications
• Consolidating municipal billing
• Fire fighting support
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Water Enterprise Fund:
• Best Practice
• Segregated fund
• Similar intent to a private business enterprise
• Can only be spent for the specific purpose of water
• Separate accounting and financial reporting
• Not a part of the General Fund
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4ewport each
Water Rate Study
August 13, 2019
RAFTELIS
SS3-13
Background on the Water Utility
Most recent rate increase: January 2014
No rate changes in the last 5 years
Cost to purchase water has increased by 75% since
2014
In 2015, the Stateexperienced historical drought
conditions
Newport Beach successfully cut backover 20%
In 2019, the City conducted a Water MasterPlan study to
determine the capital needs of the water system
$7.2 million dollars per year ( T $2.2mil annual increase)
SS3-14
Goals and Objective of the Study
Develop aFinancia/ plan that sufficiently funds the
operating /maintenance costs, future water supply costs,
and future capital needs of the water utility
Develop a reserve po/icythat takes into account the
different types of risk the water utility faces, including
future drought conditions
Enhancerevenuestabilitywhile maintaining afforda,bilit�
and communicating intention of conservation
:R SS3-15
Proposed Reserve Policy
O&M
Reserve —for
Operating
Cash Flow
33%
of operating
expenses (or
4 months of expense
Capital Reserve — for Capital Working Capital
75% of 5 -year average CIP
Rate Stabilization Reserve — for unexpected water
demand reduction or unexpected water supply cost
increases, emergencies, and noribudgeted CIP capital
projects, causing net revenue loss for the Water Fund
Recommended Rate Stabilization Reserve Target
Balance: $2.7M
SS3-16
Reserve Policy Discussion
Current Target Level
O&M Reserve 50% of O&M $12.5M 33% of O&M $8.9M
Capital Reserve
Rate Stabilization
Reserve
Annual Master $0-$3M 75% of 5 -yr $5.4M
Plan (variable) average CIP
Net revenue loss
N/A N/A for 30% water $2.7M
usage reduction
Total Target
Reserve $12.5M - $15.5M $17.OM
Status Quo Financial
If water rates remain unchanged
u) $30
.2 $25
$20
$15
$10
Plan — Fund Balance
Projected Ending Balances
-$5
-$10
FY 2020 FY 2021 FY 2022 FY 2023
=Ending Balances Min Target Balances
■
FY 2024
SS3-18
Proposed Financial Plan
7.4% increase per year for the next 5 years$(3.28/month avg. for 1 St year)
U) $30 -
° $25 -
$20 -
Projected Ending Balances
FY 2020 FY 2021
Ending Balances
FY 2022 FY 2023 FY 2024
Min Target Balances
SS3-19
Customer Impact Analysis
$3.28/month is the a verage, ($40/year)
$200
$180
150
140
120
100
$50
$50
$40
$20
$0
■ Current Bills
■ Proposed Bills
Impact $
Impact
on
10 H CF
$48.07
$51.35
$3.28
6.8%
Sample Customer Bills Impacts
Mon thl Wa#er9ills, -inch meter
20 H CF
$78.87
$82.35
$3.48
4.4%
30 HU
$109.67
$113.35
h .:
3.4%
40 HU
$140.47
$144.35
$3.88
.8%
50 HCF
$171.27
$175,35
$4.05
2.41
SS3-20
Proposed Monthly Water Fixed Charges
5/8 -inch
3/4 -inch
1 -inch
1 '/zinch
2 -inch
3 -inch
4 -inch
6 -inch
8 -inch
10 -inch
12 -inch
Per Dwelling Unit Charge
$17.27
$17.27
$28.79
$57.58
$92.12
$172.73
$287.88
$575.76
$921.22
$1,655.90
$2,663.48
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••• -• 0
1 1
$20.35
$20.35
$31.46
Impact
$3.08
$3.08
$2.67
$59.23
$1.65
$92.54
$0.42
$245.23
$72.50
$420.13
$132.25
$892.11
$316.35
$1,558.42
$637.20
$2,335.77
$679.87
$2,946.57
$283.09
Eliminate
-$1.00
SS3-21
Proposed Water Usage Charge
Potable Water $3.08 $3.10 $0.02
SS3-22
5 -year Proposed Water Rates
Water Service Month/yFixed Charges
Water Services
5/8
3/4
1
1 1/2
2
3
4
0
10
12
Per Dwelling Unit
Charge
$17.27
$17.27
$28.79
$57.58
$92.12
$20.35
$20.35
$31.46
$59.23
$92.54
$21.86
$23.48
$25.22
$27.09
$21.86
$23.48
$25.22
$27.09
$33.79
$63.62
$36.30
$68.33
$38.99
$73.39
$41.88
$78.83
$99.39
$106.75
$114.6,
$123.1z
$172.73 $245.23 $263.38 $282.88 $303.82 $326.31
$287.88
$420.13
$575.76
$892.11
$921.22
$1,558.42
$451.22 $484.62
$958.13 $1,029.04
$1,673.7,r-, $1;797.6
$520.49 $559.01
$1,105.1 $1,186.9E
$1,930.64 $2,073.51
$1,655.90
$2,335.77
$2,508.62
$2,694.26
$2,893.64
$3,107.7
$2,663.48
$2,946.57
$3,164.62
$3,398.81
$3,650.33
$3,920.46
$1.00 N/A N/A N/A N/A N/A
5 -year Proposed Water Rates
Water Usage Charges
SS3-24
Next Steps and Timeline:
• August 30th —
Draft Rate Study Report posted online
• September loth — City Council Meeting
o Approve Water Rate Study Report
o Set Public Hearing for rates change for November 5th
o Authorize Mailed Public Notice
(proposition 218 compliance)
• Public Information and Outreach
• public notices, direct mailings, utility bill messages & inserts,
community meetings, city website 0
• November 5th, Public Hearing on water rates
• November 19th, Resolution to amend water rates
• January 1St, implement water rate changes
Utilities Department 201-q Water Rate Study
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Additional Information Slides attached:
Utilities Department 201-q Water Rate Study
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Recent General Water Discussions at City Council:
• Feb. 26, 2019, Water System & Supply Update
Groundwater Basin Presentation
• Apr. 9, 2019, Water Smart (AMI) Grant Application
• Apr. 23, 2019, Opposition to State Drinking Water Tax
• May 14, 2019, Approval of Water Master Plan
• Jul. 23, 20191
Drinking Water Quality Report
Utilities Department 201-q Water Rate Study
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Recent Water Rate Discussions:
• Mar. 12, 2019, City Council - Selection of Water Rate Study Consultant
• May 14, 2019, City Council - Water Master Plan
• May 16, 2019, Finance Committee — Water Enterprise Fund Analysis
• Jun. 27, 2019, Finance Committee — Draft Water Rate Study Results
• Aug. 13, 2019, City Council — Study Session on Water Rates
Utilities Department 201-q Water Rate Study
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Rate Study at a Glance
Financial Plan
• Evaluation of CIP and
financing options
• Cash flow analysis
for financial
sufficiency
Rate Setting
Framework
• Financial goals and
policies
• Pricing objectives
Cost of Service
& Rate Design
• Cost allocations
• Rate design
— Rate calculations
— Customer impact
analyse s
Final Rate
Adoption
• Report
• Public Hearing
SS3-29
Overview of Financial Policies
Goals of Financial/Reserve Policies:
To mitigate financial risk
Rate / revenue instability
Emergency with asset failure
Volatility in working capital
Importance of Financial Policies:
To maintain financial solvency
Provide a basis for coping with fiscal emergencies (revenue
short -falls, asset failure, emergency,etc ...)
To provide guidelines for sound financial management with an
overall long-range perspective
To enhance financial managementtransparency
SS3-30
Financial Health Indicators
Healthy Reserves
Operating Reserve- needed for positive cash flow
CIP Reserves- can award contracts quickly and speed up
projects if necessary
Rate Stabilization Reserve- funds used
revenue shortage,
reserve)
such asdrought (aka,
during periods of
revenue loss
SS3-31
Reserve Targets
O&M 33% of operating $8,326,572 $8,903,507 $9,043,914 $9,427,501 $9,811,567
expenses
75%
Capital of 5 -year
p average CIP $5,708,400 $5,400,000 $5,400,000 $5,400,000 $5,400,000
Stabilization $2,700,000 $2,700,000 $2,700,000 $2,786,914 $2,876,809 $2,969,795
Reserve
Total Target Reserves $16,734,972 $17,003,507 $17,230,828 $17,704,311 $18,181,362
:R SS3-32
Status Quo Financial Plan
If water rates remain unchanged
Water Financial Plan
U) $50
.o $40
$30
$20
$10
$0
-$10
-$20
FY 2020 FY 2021 FY 2022 FY 2023 FY 2024
=Reserve Funding Expenses Proposed Revenues
SS3-33
Proposed Financial Plan
7.4%increase per year for the next 5 years 03.28/month avg. for 1St year)
$45
o $40
$35
$30
$25
$20
$15
$10
$5
$0
-$5
-$10
RVITATUR WrIMIM
FY 2020 FY 2021
� Reserve Funding
----Current Revenues
FY 2022 FY 2023 FY 2024
--m Expenses
Proposed Revenues
SS3-34
Proposed Water Rate Design
C
• Billing & Customer Services— uniform according to meter size
• Meter Related Costs— increasing with meter capacity ratios
• Capacity Costs— increasing with meter capacity ratios
WR
Water Usage Rates
• Supply Rate
• Unrecovered fixed costs
• Recycled WaterSupply Rate
SS3-35
5 -year Proposed Fire Service Water Rates
Fire Protection Monthly Fixed Charges
5/8
1
11/2
2
21/2
3
4
6
8
10
12
$3.13
$10.72
$11.52
$12.38
$13.30
$14.29
$5.00
$10.90
$11.71
$12.58
$13.52
$14.53
$7.50
$11.38
$12.23
$13.14
$14.12
$15.17
$10.00
$12.21
$13.12
$14.10
$15.15
$16.28
$12.50
$13.44
$14.44
$15.51
$16.66
$17.90
$15.00
$15.16
$16.29
$17.50
$18.80
$20.20
$20.00
$20.26
$21.76
$23.38
$25.12
$26.98
$30.00
$38.58
$41.44
$44.51
$47.81
$51.35
$40.00
$70.19
$75.39
$80.97
$86.97
$93.41
$50.00
$117.72
$126.44
$135.80
$145.85
$156.65
$60.00
$183.58
$197.17
$211.77
$227.45
$ 2 44.2 9SS3-36
5 -year Proposed Recycled Water Rates
Recycled Water Mont h/v Fixed Charges
RW Services
5/8
3/4
1
11/2
2
3
4
6
8
RW Usage
Charge
ump Station
Charge
$20.47
$10.64
$11.43
$12.28
$13.19
$14.17
$20.47
$10.64
$11.43
$12.28
$13.19
$14.17
$34.13
$15.28
$16.42
$17.64
$18.95
$20.36
$68.25
$26.85
$28.84
$30.98
$33.28
$35.75
$109.19
$40.75
$43.77
$47.01
$50.49
$54.23
$204.75
$104.45
$112.18
$120.49
$129.41
$138.99
$341.24
$177.41
$190.54
$204.64
$219.79
$236.06
$682.48
$374.29
$401.99
$431.74
$463.69
$498.01
$1,091.97
$652.25
$700.52
$752.36
$808.04
$867.84
$1.92 $2.05 $2.12 $2.13 $2.21 $2.29
$0.39 Under review Under review Under review Under review Under review
SS3-37