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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 /_1 16"t I:7_T91 6 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 2-01q Water Rate Study Presevitattovi Qj %M9,*WPIIzY� Z: �krfio��'� city couvtcil Meetivtg Study Sessiovi August 1-3, 20I9 Utilities Department SS3-3 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 o u SS3-4 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 u C9J! FO RN`PSS3-5 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 O n u _ � C941FOVL % SS3-6 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 W o e� . c441FORL S3-7 2919 Water Master Plan Apil --9.2019 ARCADES e,,;�,- PQM 0 l FO 2019 Water Master Plan Newport Beach City Council Meeting May 14, 2019 * Increased Capital Projects by $2.2mil annually SEW POS, T 2.01 q Water Rate Study Utilities Department C94l FORNPSSq_S Replacing Infrastructure XL 203-q Water Rate Study SS3-9 Replacing Infrastructure: 20lq Water Rate Study 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 Li 2.01-q Water Rate Study ' aF W'PD,i'T p � u � C941FO RNA SS3-11 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 Utilities Department 201-q Water Rate Study u C9Jr FOUL " S3-12 . f.k G TIfE 1'41 L 11180 9i6E I1122 Utilities Department 201-q Water Rate Study u C9Jr FOUL " S3-12 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 �11 ••• -• 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 �E,W POS, T C0 u� C9Ir FO VL S3-25 Additional Information Slides attached: Utilities Department 201-q Water Rate Study u c941FOVL 53-26 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 u C9Jl FOUL S3-27 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 u c941 FO VL `'3-28 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