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Home My WebLink AboutSS3 - 2019 Water Rate Study - PowerPoint2019 Water Rate Study Presentation City CouvLcil MeetivLg Study Sessim po August 13, 2019 o e� 3 � z c �P 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 • Water inflation is (approx.) 3-4% per year • No rate increases over the last 5 years • Expenses are now exceeding revenues • Rate increases are needed ($3.38/month avg.) 2.01q Water Rate Study �e�EWPORJ O 6� Updated GLOQhP 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 �e�EWPORT 201q Water Rate Study a.. P LIF00.�\ 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) Water Well Rehab Contract 2.01q Water Rate Study AWADISI " v sn e. �igrop+p 2019 Water Master Plan Ppri129,2019 SEW 2019 Water Master Plan* Newport Beach City Council Meeting May 14, 2019 * Increased Capital Projects by $2.2mil annually ?F W PpRp 2.01q Water Rate Study Replacing Infrastructure: �e�6WPORJ 201q Water Rate Study tu � e� a.. P LIF00.�\ Replacing Infrastructure: 4�vzpo T 201q Water Rate Study U x A -~ CgLIFOQH`P 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 2.01q Water Rate Study 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 r� TIlr 1:M 'CE11%T. 114 i F , c jn� 2.01q Water Rate S turf y a.. P LIFO0.�\ City of Newport Beach Water Rate Study August 13, 2013 RAFTELIS 11 Background on the Water Utility Most recent rate increase: January 2014 No rote changes in the last 5 years Cost to purchase water has increased by 75% since 9014 In 2015, the State experienced historical drought conditions Newport Beach successfully cut back over 20% In 2010, the City conducted a Water Master Plan study to determine the capital needs of the water system $7.2 million dollars per year (t$2.2mil annual increase) Goals and Objective of the study Develop a financial plan that sufficiently funds the operating / maintenance casts, future water supply casts, and future capital needs of the water utility Develop a reserve policVthat takes into account the different types of risk the water utility faces, including future drought conditions Enhance revenue stability while maintaining affordability and communicating intention of conservation Proposed Reserve Policy O&M Reserve — for Operating Cash Flow 33% of operating expenses ( or 4 months of expenses) 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 non -budgeted CIP capital projects, causing net revenue loss for the Water Fund Recommended Rate Stabilization Reserve Target Balance: $2.7M Reserve Policy Discussion O&M Reserve Capital Reserve Rate Stabilization ilm—WIT 50% of O&M $12.51M 33% of O&M $8.3M Annual Master $0-$3M 75% of 5 -yr Plan (variable) average CIP $5.4M Net revenue loss N/A N/A for 30% water $2.7M usage reduction Total Target $12.5M - $15.5M $17.OM Reserve Status Quo Financial Plan — Fund Balance If water rates remain unchanged Projected Ending Balances u) $30 o $25 $20 $15 $10 -$5 -$10 FY 2020 FY 2021 FY 2022 FY 2023 =Ending Balances —Min Target Balances 0 FY 2024 Proposed Financial Plan 7.4% increase per year for the next 5 years ($3.38/month avg. for 1St gear) U) $30 0$25 $20 $15 $10 $5 $0 Projected Ending Balances FY 2020 FY 2021 =Ending Balances FY 2022 FY 2023 FY 2024 —Min Target Balances Customer Impact Analysis $3.381rr oath is the average, (`�$401yeaFr) Sample Customer Bills Impacts Monthly WaterBills, 5/8 -inch meter $200 $180 $160 $140 $120 $100 $80 $60 $$0 10 HCF 20 HCF 30 HCF 40 HCF 50 HCF ■ Current Bills $48.07 $78.87 $109.67 $140.47 $171.27 ■ Proposed Bills $51.45 $82.55 $113.65 $144.75 $175.85 Impact $ $3.38 $3.68 $3.98 $4.28 $4.58 Impact % 7.0% 4.7% 3.6% 3.0% 2.7% 19 Updated Proposed Monthly Water Fixed Charges Water Fixed Number 8 -inch Proposed FY ,. , Charges 5/8 -inch 16,545 $17.27 $20-35 $3.08 3/4 -inch 4 $17.27 $20.35 $3.08 1 -inch 7,585 $28.79 $31.54 $2.75 1 1/2 -inch 551 $57.58 $59.47 $1.89 2 -inch 1,430 $92.12 $93.00 $0.88 3 -inch 32 $172.73 $246.68 $73.95 4 -inch 51 $287.88 $422.71 6 -inch 15 8 -inch 8 10 -inch 0 12 -inch Per Dwelling Unit Charge $575.76 $921.22 $1,655.90 $2,663.48 Updated $897.73 $1,568.33 $2,350.70 $134.83 $321.97 $647.11 $694.80 $2,965.44 $301.96 $1.00 Eliminate Proposed Water Usage Charge Water Usage Charges C of . 20 Updated 5 -year Proposed Water Rates Water Service M©nthlu Fixed Charges Proposed R761 Adjustments Current Rates i 7.40% Proposed FY 2021 7.40% Proposed FY 2022 7.40% Proposed FY 2023 7.40% Proposed FY 2024 7.40% Proposed Water Services 5/8 $17.27 $20.35 $21.86 $23.48 $25.22 $27.09 3/4 $17.27 $20.35 $21.86 $23.48 $25.22 $27.09 1 $28.79 $31.54 $33.88 $36.39 $39.09 $41.99 11/2 $57.58 $59.47 $63.88 $68.61 $73.69 $79.15 2 $92.12 $93.00 $99.89 $107.29 $115.23 $123.76 3 $172.73 $246.68 $264.94 $284.55 $305.61 $328.23 4 $287.88 $422.71 $454.00 $487.60 $523.69 $562.45 6 $575.76 $897.73 $964.17 $1,035.52 $1,112.15 $1,194.45 8 10 $921.22 $1,655.90 $1,568.33 $2,350.70 $1,684.39 $2,524.66 $1,809.04 $2,711.49 $1,942.91 $2,912.15 $2,086.69 $3,127.65 12 $2,663.48 $2,965.44 $3,184.89 $3,420.58 $3,673.71 $3,945.57 Per Dwelling Unit Charge $1.00 N/A N/A N/A N/A N//� upaaLeU 5 -year Proposed Water Rates Water Usage Charges Updated 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 • November 5th, Public Hearing on water rates • November 19th, Resolution to amend water rates • January 1St, implement water rate changes 2.01q Water Rate Study 4?�W11Pn�T O I � Additional Information Slides attached: �e�EWPORT 201q Water Rate Study a.. P LIF00.�\ 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, 2019, Drinking Water Quality Report LI < -- �e�EWPORJ 201q Water Rate Study tu � e� a.. P LIF00.�\ LI F] U F] 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 �e�EWPORT 201q Water Rate Study e� a.. P LIFO0.�\ Fate 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 analyses Final Rate Adoption • Report - Public Hearing 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 management transparency Financial Health Indicators Healthy Reserves Operating Reserve — needed for positive cash flaw OIP Reserves — can award contracts quickly and speed up projects if necessary Rate Stabilization Reserve — funds used during periods of revenue shortage, such as draught (aka, revenue lass reserve) Reserve Targets Target Reserves O&M 33% of operating $8,326,572 $8,903,507 $9,043,914 $9,427,501 $9,811,567 expenses Capital 75% of 5-yearaverageCIP $5,708,400 $5,400,000 $5,400,000 $5,400,000 $5,400,000 bilization $2,700,000 serve Target Reserves $2,700,000 $2,700,000 $2,786,914 $2,876,809 $2,969,795 $16,734,972 $17,003,507 $17,230,828 $17,704,311 $18,181,362 Status Quo Financial Plan If water rates remain unchanged U) $50 o $40 $30 Water Financial Plan FY 2020 FY 2021 FY 2022 FY 2023 FY 2024 =Reserve Funding Expenses —Proposed Revenues Proposed Financial Plan 7.4% increase per year for the next 5 years ($3.28/month avg. for 1St gear) u) $45 o $40 $35 $30 $25 $20 $15 $10 $5 $0 -$5 -$10 Water Financial Plan FY 2020 FY 2021 FY 2022 � Reserve Funding ----Current Revenues FY 2023 Expenses FY 2024 —Proposed Revenues Proposed Water Rate Design -�Charges Components • Billing & Customer Services — uniform according to meter size • Meter Related Costs — increasing with meter capacity ratios • Capacity Costs — increasing with meter capacity ratios • Supply Rate • llnnarm1prPri flxPri rr)gtq 5 -year Proposed Fire Service Water Rates Fire Protection Monthly Fixed Charges 34 Updated 2019 FY 2020 FY 2021 FY 2022 FY 2023 FY 2024 Hate . % % % % % AdjustmentsProposed Current Rates Proposed Proposed Proposed Proposed Proposed Fire Protection Services 5/8 $3.13 $10.41 $11.19 $12.02 $12.91 $13.87 1 $5.00 $10.59 $11.38 $12.23 $13.14 $14.12 11/2 $7.50 $11.07 $11.89 $12.77 $13.72 $14.74 2 $10.00 $11.87 $12.75 $13.70 $14.72 $15.81 21/2 $12.50 $13.09 $14.06 $15.11 $16.23 $17.44 3 $15.00 $14.76 $15.86 $17.04 $18.31 $19.67 4 $20.00 $19.78 $21.25 $22.83 $24.52 $26.34 6 $30.00 $37.72 $40.52 $43.52 $46.75 $50.21 8 $40.00 $68.70 $73.79 $79.26 $85.13 $91.43 10 $50.00 $115.28 $123.82 $132.99 $142.84 $153.42 12 $60.00 $179.85 $193.16 $207.46 $222.82 $239.31 34 Updated 5 -year Proposed Recycled Water Rates Recycled Water Monthly Fixed Charges Adjustments Current Y 2019 Rates FY 21120 V Proposed FY 2021 FY Proposed Proposed 2022 FY Proposed 2023 FY Proposed 2024 RW Services 5/8 $20.47 $10.34 $11.11 $11.94 $12.83 $13.78 3/4 $20.47 $10.34 $11.11 $11.94 $12.83 $13.78 1 $34.13 $14.85 $15.95 $17.14 $18.41 $19.78 11/2 $68.25 $26.10 $28.04 $30.12 $32.35 $34.75 2 $109.19 $39.61 $42.55 $45.70 $49.09 $52.73 3 $204.75 $101.54 $109.06 $117.14 $125.81 $135.12 4 $341.24 $172.47 $185.24 $198.95 $213.68 $229.50 6 $682.48 $363.88 $390.81 $419.73 $450.80 $484.16 8 $1,091.97 $634.09 $681.02 $731.42 $785.55 $843.69 RW Usage Charge Pump Station Charge $1.92 $0.39 $2.05 $0.53 $2.12 $0.57 $2.13 $0.62 $2.21 $0.67 $2.29 $0.72 35 Updated