HomeMy WebLinkAboutSS2 - 2023 Water and Wastewater Rate StudyQ �EwPpRT
CITY OF
s NEWPORT BEACH
`q44:09 City Council Staff Report
August 22, 2023
Study Session Item No. SS2
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: 2023 Water and Wastewater Rate Study
ABSTRACT:
The Utilities Department is leading the effort to review the rates associated with the
Water and Wastewater Enterprise Funds. Black and Veatch Corporation has been
retained to conduct the studies. The previous water and wastewater rate studies were
completed in 2019 and 2017, respectively. Inflationary cost increases, especially on
operational and capital improvements costs, continue to put pressure on the funds.
The Finance Committee was presented with information and provided feedback on
May 11, 2023, and July 26, 2023. The purpose of this Study Session presentation is to
present a summary of the financial analysis and the draft water and sewer rates, and
to receive input and seek direction from the City Council to bring back the item as a
formal City Council agenda item.
RECOMMENDATIONS:
Receive presentation, consider public comments, and provide direction to staff.
DISCUSSION:
Staff will make a presentation that highlights the proposed water and wastewater rates
based on the draft results of the 2023 Water and Wastewater Rate Study. In general, the
costs of the infrastructure replacement (commonly known as the Capital Improvement
Program), wholesale water purchases, and operations have all significantly increased
over the years and inflation is expected to continue. The monthly utility rates serve as the
only source of income for the water and wastewater expenditures. Regular rate
adjustments and increases are recommended in order to maintain the system needs and
for the Enterprise Fund to remain financially sound and debt free.
During the Finance Committee meetings on May 11, 2023, and July 26, 2023, staff presented
a financial analysis of the Water and Wastewater Enterprise Fund, including the reserve goals
for each fund. Also discussed were typical steps and decision points for evaluating water
and wastewater rates, the simplicity of our current water rate structure, and rate options
concerning fixed and variable revenues. The Committee provided staff direction and
recommended forwarding the item to City Council along with a specific rate
recommendation which increases the fixed revenues to better stabilize the funds.
SS2-1
2023 Water and Wastewater Rate Study
August 22, 2023
Page 2
If acceptable to the City Council, staff tentatively plans to bring the Final Water and
Wastewater Rate Study Reports to the September 26, 2023, City Council meeting.
Additionally, the initiation of the Proposition 218 Public Notice and setting of a Public
Hearing will take place at the November 14, 2023 City Council meeting. Concurrently,
staff will begin community outreach during this time in anticipation of rate changes set to
begin in January 2024. Staff will make the Draft Water and Wastewater Rate Study
available to the public on the City's website assoon as possible.
FISCAL IMPACT:
There is no fiscal impact related to this study session. The studies have been funded
within the existing budget of the water and wastewater enterprise funds. However, the
2023 Water and Wastewater Rate Studies are proposing changes to water and
wastewater rates. A formal report and recommendation will be presented at a future City
Council meeting for consideration.
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 — 2023 Water and Wastewater Rate Study PowerPoint Presentation
SS2-2
ATTACHMENT A
2023 Water & Wastewater
Rate Study
Presentation
City Council
August 22, 2023
Presented by Mark Vukojevic, Utilities Director
Summar from May 11 and July 26tn
Finance Committee:
• Water and wastewater is a 24/7 community service, asset, and commodity
• The systems operate as independent/segregated Enterprise Funds
• The balance between fixed and variable costs
• Current and future capital improvement projects are necessary
• Operational & Capital costs continue to go up
- Buying water, construction, materials, equipment, insurance, conservation,
regulatory compliance
• Rates need to recover costs, especially with inflation
* Operations * Capital Improvements * Reserves/Emergencies
• Rate increases are needed to keep up with inflation
P -qw
61 o02 03
Maintain similar Develop a financial Move rates to
rate structure —
plan that corrects recover more fixed
Obthe structural business costs
(maintain simplified OP
deficit; and
customer sufficiently funds
understanding) *operations, capital
and reserves
UTILITIES DEPARTMENT 2023 Rate Studies
3
SS2-5
Current Water Rates:
• Monthly and Bimonthly Billing
• Fixed Charge and Use Charge
• Use Charge incentivizes conservation
$641month is the typical home water bill
Rate revenue: vs.
^'40 % Fixed Charges
N60% Variable Charges
Business costs:
"v65 % Fixed Costs
35% Variable Costs
Goal: Gradually adjust revenue % to better match business costs
NEWPORT BEACH WATER DELIVERED IN ACRE FEET
19,000
18,000
O O
17,000
16,000
�i
15,000
14,000
13,000
12,000
11,000
10,000
2006 2008 2010 2012 2014 2016 2018 2020 2022 2024
UTILITIES DEPARTMENT
2023 Rate Studies
0
Current Revenues & Expenditures:
Water: —$1+mil Structural deficit
—$35million Revenues
N$36mil Expenses
* Water purchases
* Operations
* Capital
Escalation/Inflation Factors
>5% over next years
* Water purchases
* Contracts
* CIP, labor & materials
* Electricity & Equipment
*Insurance
$13 million
$17 million
$6 million
NEWP0RT BEACH
Water System
302 202 � 4 2
MILES OF POTABLE Million gallons P R E S S U R E
WATER PIPELINE storage capacity REDUCING STATIONS
269550 17 =
Service BOOSTER r
connections * PUMPS
UTILITIES DEPARTMENT 2023 Rate Studies
32112 - -
iTRIBUTION
ALVES
N EWPO RT BEACH
Aging Infrastructure
I m�
UTILITIES DEPARTMENT 2023 Rate Studies lW
SS2-10 8
NEWPORT BEACH
2019 Water Master Plan /
30-year Capital Improvements Plan
Increased capital
projects:
ESCALATING
ANNUALLY
11
FACILITIES
PROJECTS
a a
0 0
Pressure reducing
stations projects
1
r.
UTILITIES DEPARTMENT
2023 Rate Studies
w9
SS2-11
Reserve Targets for Water:
Type
O&M Reserve*
Capital Reserve
Drought/
Stabilization
120 days of O&M $10.0/$11.5 Mil
75% of annual CIP
30% water use reduction
* this reserve is also a
emergency water purchase
reserve
$5.6/$6.8 Mil
$3.0/$3.3 Mil
$18.6/$21.6 Mil
Water Reserve Comparisons
With Rate Increases:
Target
$18.6 M $19.3 M $20.0 M $20.8 M $21.6 M
Proposed $17.9 M
Status Quo $17.9 M
$17.6 M
$15.5 M
$18.9 M
$11.4 M
$19.8 M
$5.4 M
Estimated 2028 Rate Revenue = 48% fixed & 52% variable
$19.9 M
-$2.4 M
Typical Water Customer Impacts:
;.
monthly increase s
• 2024 - $4.77 (previously approved rate study)
($1.87 fixed plus $2.90 variable)
• 2025 - $5.50 Year 2, new rate study
($4.50 fixed plus $1.00 variable)
• 2026 - $6.00 Year 3, new rate study
($5.00 fixed plus $1.00 variable)
• 2027 - $6.00 Year 4, new rate study
($5.00 fixed plus $1.00 variable)
• 2028 - $6.00 Year 5, new rate study
($5.00 fixed plus $1.00 variable)
Proposed Water Rates:
$641month is the typical home water bill
$25.22
��
$38.70 = $63.92
Monthly Fixed
Charge
Approved
2023
Approved
2024
Proposed
2025
Proposed
2026
Proposed
2027
Proposed
2028
5/8" Meter *
$25.22
$27.09
$ 31.59
$ 36.59
$41.59
$46.59
Use Charge
$3.87
$4.16
$4.26
$4.36
$4.46
$4.56
Net Increase
(mostcommon) $4.44 .77
* 5/8" meters represent 64% of accounts
5.50
6.00
$6.00
6.00
o�
Proposed Water Rates:
Monthly Fixed Approved Approved Proposed Proposed Proposed Proposed
Charge 2023 2024 2025 2026 2027 2028
51811 25.22 27.09 31.59
39.09 41.99 50.07
73.69 79.15 96.28
115.23 123.76 151.73
36.59 41.59
58.31 66.53
112.60 128.88
177.74 203.71
46.59
74.75
145.17
229.66
311 305.61 328.23 405.88 476.34 546.65 616.92
8
523.69
562.45
697.00
818.37
939.48
1,060.51
11112.15
11194.45
1,482.55
1.1741.30
1,999.50
21257.50
1,942.91
2,086.69
2,591.56
3,044.27
3,495.99
3,947.37
Use Charge $3.87
Net Increase
(most common) $4.44
$4.16 $4.26 $4.36
$4.77 $5.50 $6.00
ID
w- i 2023 Rate Studies
$4.46 $4.56
$6.00 $6.00
Current Wastewater Rates:
• Monthly and Bimonthly Billing
• Fixed Charge and Use Charge
$141month is the typical home wastewater bill
Rate revenue: vs.
--SO % Fixed Charges
N50% Variable Charges
Business costs:
100 % Fixed C
Goal: Gradually adjust revenue % to better match business costs
Current Revenues & Expenditures:
Wastewater: -$1 mil Structural deficit
-$4.7mil Revenues
-$5.7mil Expenses
* Pump Stations
* Operations
* Capital
Escalation/Inflation Fartnrr,
N 5% over next yea
* Contracts
* CIP, labor
* Equipmen-
* Insurance
$5.1 mil operations
$600k CI P
Wastewater Capital needs:
200+ miles of pipelines
25,000 Laterals
21 Pump Stations
$1.1 Million Annual
Escalating Investment
Reserve Targets for Wastewater:
Type �q
O&M Reserve
90 days of O&M
$1.2/1.5 Mil
Capital Reserve 1-Year of CI $1.1/1.3 Mil
$2.3/2.8 Mil
Wastewater Reserve Comparisons ,
With Rate Increases:
7§Wlr qw JEW
Target $2.3 M $2.4 M $2.5 M $2.7 M $2.8 Mil
Proposed $800k $200k
Status Quo $500k -$1.2 Mil
$150k
-$3.3 Mil
$800k
-$5.6 Mil
Estimated 2028 Rate Revenue = 70% fixed & 30% variable
$2.1 Mil
-$8.3 Mil
Wastewater Typical Customer
monthly increase
Impacts:
• 2024 - $2.20 Year 1, new rate study
($2.00 fixed plus $0.20 variable)
• 2025 - $2.50 Year 2, new rate study
($2.30 fixed plus $0.20 variable)
• 2026 - $3.00 Year 3, new rate study
($2.80 fixed plus $0.20 variable)
• 2027 - $3.50 Year 4, new rate study
($3.30 fixed plus $0.20 variable)
• 2028 - $3.50 Year 5, new rate study
($3.50 fixed plus $0.20 variable)
Proposed Wastewater Rates:
$141month is the typical home wastewater bill
Monthly Fixed
Charge Existini
Up to 1" Meter * $8.55
Use Charge $0.51
N
$5.10 = $13.65
Proposed
Proposed
Proposed
Proposed
2024
2025
2026
2027
$10.55
$12.85
$15.65
$18.95
Proposed
2028
$22.25
$0.53 $0.55 $0.57 $0.59 $0.61
Net Increase
(mostcommon) $2.20
* Up to 1" meters represent 92% of accounts
2.50 3.00 3.50 3.50
Proposed Wastewater Rates:
Monthly Fixed
Charge Existing
5/8" 8.55
1" 8.55
?� 202JM j 2027 2028
10.55 12.85 15.65 18.95 22.25
10.55 12.85 15.65 18.95 22.25
1-1/2" 9.41 15.82 19.27 23.48 28.42 33.38
2" 12.83 21.09 25.69 31.31 37.90 44.50
3" 14.54 26.37 32.12 39.13 47.37 55.63
4" 17.11 31.64 38.54 46.96 56.85 66.76
6" 19.25 36.91 44.96 54.79 66.32 77.88
8" 21.39 42.18 51.39 62.62 75.80 89.01
Use Charge $0.51 $0.53 $0.55 $0.57 $0.59 $0.61
Net Increase
(most common) $2.20 $2.50 $3.00 $3.50 $3.50
Recommendation:
• Review the Water and Wastewater Rate Study Information provided
• Provide Input to Staff regarding the rate structure and proposed rates
• Approve in concept the proposed rate structures
• Direct staff return with the final studies and setting of the public hearing
Tentative Schedule:
• August 22, 2023, City Council Study Session
• Proposed Water and Sewer Rate Studies
• September 26t", City Council Meeting
• Approve Water & Wastewater Rate Study Reports
• Set Public Hearing for Rates Change for November 14tn
• Authorize Mailed Public Notice (Prop 218 Compliance)
• Public Information and Outreach
• Public notices, direct mailings, utility bill messages & inserts, community meetings, City
website
• November 14t", Public Hearing to amend Rates
• November 281n, 2nd Reading to amend Rates
• January 1st, 2024, Implement Water and Wastewater Rate Changes