SR - RES-11046 - PROPOSED WATER RATE INCREASE1. SUBJECT
Resolution No. 11046 - A resolution of the City Council of Orange Amending and Revising the
Master Schedule of Fees and Charges to Adopt New Water Rates.
2. SUMMARY
The City has completed a water rate study that concluded rate adjustments are needed over the
next five years to sustain the water system. The study, conducted by Raftelis Financial
Consultant, Inc., included: (1) the development of a financial plan and proposed revenue
adjustments for the water enterprise to ensure financial sufficiency, adequate reserves, and
funding for capital improvements, (2) a cost of service analysis for the water system, (3) develop
fair and equitable water rates compliant with the requirements of Proposition 218 that fairly and
equitably recover costs from all customer classes, and (4) an update of the City's existing water
rate model to incorporate the cost analysis of items 1, 2, and 3.
3. RECOMMENDED ACTION
1) Adopt Resolution No. 11046
2) Receive and file the Comprehensive Water Rate Study conducted by Raftelis Financial
Consultant, Inc.
4. FISCAL IMPACT
Implementation of the recommended water rates will result in additional revenues as follows:
Fund 600 (Water Fund) FY 2017 -18 FY 2018 -19 FY 2019 -20 FY 2020 -21 FY2021 -22
$1,286,863 $4,566,366 $7,756,344 $10,521,078 $13,730,688
5. STRATEGIC PLAN GOAL(S)
1. Provide for a safe community:
b. Provide and maintain infrastructure necessary to ensure the safety of the public.
2. Be a fiscally healthy community:
d. Effectively manage and develop City assets.
4. Provide outstanding public service:
b. Provide facilities and services to meet customer expectations.
6. GENERAL PLAN IMPLEMENTATION
Infrastructure Element Goal 6.0: Ensure water, sewer, and storm drain systems that meet the
needs of residents and businesses.
Policy 1.1: Provide sufficient levels of water, sewer, and storm drain service throughout the
community.
Economic Development Element Goal 6.0: Provide sufficient infrastructure to support
anticipated economic development and growth.
Policy 6.1: Provide public improvements to support commercial, industrial and institutional
uses.
7. DISCUSSION and BACKGROUND
Background and Introduction:
In 2009, the City conducted a comprehensive rate study for the Water Fund to ensure the
adequacy of funds for maintenance and operation of the City's water system. Following a public
review process, the City Council adopted new water rates in March 27, 2012 that would be
effective through January 1, 2017. Recognizing that costs to purchase and provide water to the
residents of Orange continue to increase, on April 12, 2016, the City Council approved a contract
to retain Raftelis Financial Consultant, Inc. to conduct a new water rate study.
The major objectives of the study included: (1) the development of a financial plan and proposed
revenue adjustments for the water enterprise to ensure financial sufficiency, adequate reserves,
and funding for capital improvements, (2) a cost of service analysis for the water system, (3)
develop fair and equitable water rates compliant with the requirements of Proposition 218 that
fairly and equitably recover costs from all customer classes, and (4) update the City's water rate
model to incorporate the resulting cost analysis of items 1, 2, and 3.
The water rates formulated in this study were developed using cost of service principles set forth
by the American Water Works Association's Principles of Water Rates, Fees, and Charges
(AWWA M1 Manual). The cost of service principles endeavor to distribute costs to customer
classes in accordance with the way each class uses the water system.
The recently completed rate study concludes that the costs of inflation, fuel, maintenance,
construction materials (asphalt, concrete, and pipe), chemicals, parts and supplies, and
ITEM 2 12/12/17
regulations have, and are, projected to increase, and will exceed the water rate revenue currently
received by the City. Therefore, rate increases will be needed to provide the critical funding
necessary to cover the City's essential operating and maintenance requirements while meeting
the legal requirements of Proposition 218.
For FY 2018, the cost of providing water services will be at $32,774,136; however, revenues will
be at $30,618,083 for a $2,156,053 deficit. The City is using its water reserve funds to mitigate
the deficit along with reducing the CIP funding to $2,445,000 from $3,500,000. The water
reserve fund cannot sustain an annual deficit at this level. If no action is taken, the water reserve
fund will be depleted by the end of Fiscal Year 2019.
The proposed rate adjustments are needed to complete the recovery of the City's actual increased
costs of operating a safe and reliable public water system. Approximately two - thirds of the City's
water related expenditures in any fiscal year are water and power purchase costs paid to regional
agencies including the Metropolitan Water District of Southern California ( MWDSC), Municipal
Water District of Orange County ( MWDOC), Orange County Water District (OCWD), and
Southern California Edison (SCE). The City purchases imported water from MWDSC through
MWDOC, electricity from SCE, and pays OCWD for water pumped out of the ground. In
addition to increases in the cost of imported and well water supplies, operational expenses must
also be considered including pumping, chemicals, insurance, electricity, fuel, regulatory agencies,
and routine capital improvement projects.
Therefore, to cover projected cost increases, revenue adjustments are proposed in the amounts of-
9% effective January 1, 2018; 7% effective on January 1, 2019, 5% effective January 1, 2020,
5% effective January 1, 2021, and 5% effective on January 1, 2022. If these revenue increases are
approved, the City will still be among the lowest water rates in Orange County.
The above mentioned are revenue increases to the City. However, the first year revenue increases
will affect residential, commercial, and agriculture customers differently. While most single and
multi - family will see increases above 9 %, most commercial and agriculture customers will see a
reduction. The actual impact to any one customer will depend on the amount of water used in a
billing cycle.
Pursuant to Proposition 218; all property owners received mailed notices outlining the proposed
rates and protest hearing process. The hearing notices were postmarked on October 26, 2017 and
mailed the required 45 days prior to the water rate hearing. The rate adjustment notice offered
property owners the opportunity to call for additional information, review information on the
City's website, and outlined the written protest process. As of the time when this report was
prepared, four protests and one support letter were received. In addition, staff contacted the
Apartment Association of Orange County and provided them with the Proposition 218 notice.
Proposed Water Rate Aduustments:
All water customers have a fixed service capacity charge, which is a flat rate based on the size of
their water service line. Each customer also has a variable water usage charge. The water usage
charge consists of a rate structure which supports additional operating costs to pump and /or
ITEM 3 12/12/17
purchase additional water. This charge is based on units of water used, with one unit of water
equal to one hundred cubic feet (hcf) or 748 gallons.
The proposed rate adjustments include the elimination of increased rates for service outside the
City. Currently, per Orange Municipal Code Section 13.20.010; the City charges customers
outside the City limits one and one third times the regular rate. Additional proposed changes
include adjustments on the single and multi- family residential tiered rates, the elimination of
tiered rates for commercial and agricultural customers, changes to water usage charge, the
elevation charge, fire service charge and a new pass - through formula. Changes to tiers for
residential and multi - family are noted in the table below.
Single Family:
Multi- Family:
Tier
Current
(Units)
Proposed
(Units)
Tier
Current
(Units)
Proposed
(Units)
1
0to20
0to23
1
0 t 12
0 t 15
2
21 to 70
24 to 42
2
13 to 20
16 to 19
3
> 70
>42
3
> 20
>19
The changes proposed for the water rate structure are noted in the following table.
Proposed Adjustments:
ITEM 4 12/12/17
Current
Charges
1/1/2018
Proposed
1/1/2019
Proposed
1/1/2020
Proposed
1/1/2021
Pro posed
1/1/2022
Proposed
Service Capacity Charge - a fixed 2 -month charge based on meter size.
5/8" Meter
$26.60
$25.87
$27.68
$29.07
$30.52
$32.05
1" Meter
$38.13
$39.53
$42.29
$44.41
$46.63
$48.96
1.5" Meter
$66.87
$73.66
$78.82
$82.76
$86.90
$91.24
2" Meter
$101.40
$114.63
$122.65
$128.78
$135.22
$141.98
3" Meter
$193.53
$210.21
$224.92
$236.17
$247.98
$260.38
4" Meter
$297.16
$346.76
$371.03
$389.58
$409.06
$429.51
6" Meter
$584.98
$688.12
$736.29
$773.11
$811.76
$852.35
8" Meter
$930.41
$1,643.95
$1,759.03
$1,846.98
$1,939.33
$2,036.29
10" Meter
$2,196.89
$2,599.78
$2,781.76
$2,920.85
$3,066.89
$3,220.23
Single Family and Condominium Charge - water consumption charge based on units of
one - hundred cubic feet (748 gallons).
0- 23 hcf unit
$1.34
$2.16
$2.31
$2.43
$2.55
$2.67
24 -42 hcf unit
$2.23
$2.22
$2.37
$2.49
$2.62
$2.75
42+ hcf unit
$2.40
$2.30
$2.46
$2.59
$2.72
$2.85
ITEM 4 12/12/17
Volumetric
Private Fire Service Charge - fixed fee for customers with fire service connections.
4" Service
$77.55
$33.08
$35.39
$37.16
$39.02
$40.97
6" Service
$116.41
$96.08
$102.80
$107.94
$113.34
$119.01
8" Service
$155.06
$204.75
$219.08
$230.03
$241.53
$253.61
10" Service
$193.72
$368.20
$393.98
$413.68
$434.36
$456.08
Multi- Family Water Usage Charge - water consumption charge based on units of one-
hundred cubic feet (748 gallons).
0 -15 hcf unit
$1.34
$2.16
$2.31
$2.42
$2.54
$2.67
16 -19 hcf unit
$2.23
$2.19
$2.34
$2.46
$2.58
$2.71
19 + hcf unit
$2.40
$2.23
$2.38
$2.50
$2.63
$2.76
Current
Charges
1/1/2018
Proposed
1/1/2019
Proposed
1/1/2020
Proposed
1/1/2021
Proposed
1/1/2022
Proposed
Volumetric
Rates ($/hcf)
Agricultural Water Usage Charge - water consumption charge based on units of one-
hundred cubic feet (748 gallons).
Flat Rates
*
$2.20
$2.36
$2.47
$2.60
$2.73
Volumetric
Construction Water Usage Charge - water consumption charge based on units of one-
Rates ($/hcf)
Commercial Water Usage Charge - water consumption charge based on units of one-
Rates ($/hcf)
hundred cubic feet (748 gallons).
Flat Rates
*
$2.21
$2.37
$2.49
$2.61
$2.74
Volumetric
Construction Water Usage Charge - water consumption charge based on units of one-
Rates ($/hcf)
hundred cubic feet (748 gallons).
Flat Rates
2.54
1 $2.20
$2.36
$2.47
$2.60
$2.73
*Current Agricultural and Commercial charges and tier rate are identical to single Family
Residential.
Elevation Charges:
Zone
Current
2018
2019
2020
2021
2022
4
$.21
$.21
$.22
$.24
$.25
$.26
5
$.47
$.55
$.58
$.61
$.64
$.68
ITEM 5 12/12/17
Proposed Pass- throueh charize:
The Water Rate Model adopted by the City Council in 2012 included the addition of a pass -
through charge. The most current rate study also includes a proposed pass - through charge.
Pursuant to Government Code Section 53756, which permits the City to include in its schedule
of water rate adjustments a clearly defined formula that adjusts for inflation and pass - through
increases in wholesale charges for water established by another agency. The City does not have
control over the cost of water purchased from MWDSC through the City's wholesale water
supplier MWDOC. Likewise, the City does not have control over the replenishment cost
generated from OCWD for groundwater produced. The purpose of the pass - through charge is to
provide the City with a mechanism whereby annual increases from MWDOC or OCWD are
passed directly through to ratepayers. As is currently the model, the pass - through is proposed to
be implemented on January 1 for the entire calendar year and would be added to the volumetric
charge. The pass - through charge will be calculated with the following formula:
(FY Wholesale Water Costs — Base year Wholesale Costs)
CY Water Use
Both, the current and proposed pass - through formulas account for increases in wholesale charges
for water established by another agency. However, they differ in that the proposed pass - through
does not include electrical rates.
C'nnphiainn
Based upon the rate study, the rate adjustments noted on the previous page will bring revenues
back in line with expenditures over the next five fiscal years. In addition, it will allow for the
unreserved Water Fund balance to build towards the industry standard of 25% of total revenues
and the funding of approximately $3.5 million annually for CIP projects.
The first year revenue increases will affect residential, commercial, and agriculture customers
differently. While an average single family residence will see increases of 16 %, an average multi-
family will see increases of 12 %, and most commercial and agriculture customers will see a rate
reduction. All customer classes would experience approximately 7% rate increase starting
January 1, 2019 and 5% in January 1, 2020, 2021, and 2022. The actual impact to any one
customer will depend on the amount of water used in a billing cycle.
Currently, the City of Orange has one of the lowest rates in Orange County. With the proposed
water rate adjustments, the City will continue to have one of the lowest rates in the County. If
approved by City Council, the rates will be effective on January 1, 2018. The Finance
Department's Utility Billing Division will implement these rates and utility bills will be prorated
during the initial 60 -day billing cycling to reflect the current rates and the proposed rates after the
rate adjustment.
ITEM 6 12/12/17
8. ATTACHMENTS
Resolution No. 11046
Water Rate Notice
Comprehensive Water Rate Study
Attachment A - Rate Summary
Attachment B - Pass Through Formula
ITEM 7 12/12/17
RESOLUTION NO. 11046
A RESOLUTION OF THE CITY COUNCIL OF
THE CITY OF ORANGE AMENDING AND
REVISING THE MASTER SCHEDULE OF
FEES AND CHARGES FOR WATER RATES.
WHEREAS, on December 12, 2017, a hearing was held before the City Council to
consider the rates and charges assessed by the City in connection with provision of water
service; and
WHEREAS, by October 26, 2017, the notice required by the majority protest procedure
set forth in Article XIIID, Section 6 of the California Constitution was mailed to all owners of
record to announce the hearing date and proposed water rate adjustments; and
WHEREAS, the notice of the time and the place of the hearing was published in a
newspaper of general circulation on November 29 2017; and
WHEREAS, a water rate study was prepared by Raftelis Financial Consultants
Corporation, Inc., a consultant selected by the City because of its expertise in preparing water
rate studies on behalf of municipalities; and
WHEREAS, Government Code section 53756 authorizes the City to adopt a schedule
of fees or charges authorizing automatic adjustments that pass through increases in wholesale
charges for water and adjustments for inflation; and
WHEREAS, the written protests received do not constitute a majority of the property
owners of the identified parcels upon which the water rate will be charged; and
WHEREAS, the City Council has determined pursuant to Article XIIID, Section 6 and
Government Code Section 53756 that the proposed water rates do not exceed the estimated
reasonable cost of providing water service and that such water rates should be amended and
included in the City's Master Schedule of Fees and Charges.
NOW, THEREFORE, BE IT RESOLVED that the City Council of the City of Orange
does resolve as follows:
The Master Schedule of fees and Charges is hereby amended to include
Attachment "A" (Water Rates).
2. The City Council finds that the rates and fees set forth in Attachment "A" do not
exceed the City's estimated reasonable costs of providing the respective goods,
facilities and services for which the rates and fees are charged.
The water rates and fees include multi -year rate adjustments effective January 1,
2018, January 1, 2019, January 1, 2020, January 1, 2021, and January 1, 2022.