Pasadena Water and Power Public Hearing Water Capital Improvement Charge Pasadena City Council Meeting January 11, 2016 Item #12

Pasadena Water and Power

Public Hearing Water Capital Improvement Charge

Pasadena City Council MeetingJanuary 11, 2016

Item #12


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Recommendation

1. California Environmental Quality Act (“CEQA”) exemption2. Public Hearing to receive public comment on CIC

recommendation:a) Approve the implementation of the CIC formula and,b) Adopt the recommended system average increase of $0.45

per billing unit and, c) Authorize use of the CIC formula for FY 2017 based upon

adoption of the CIP budget and updated forecast of water sales volumes;

3. City Clerk to report on timely written protests received;4. Close the Public Hearing;5. Approve the proposed CIC formula implementation and rate

increase effective January 18, 2016 or as soon as practical thereafter; and

6. Direct the City Attorney to prepare an amendment to the Water Rate Ordinance to reflect the proposed CIC formula implementation.


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Projected Financial Impact of State Mandated 28% Reduction in Water Usage

Water Fund(Numbers shown in

$ millions)

2016 Adopted Budget

2016 Revised

Projections

Differenc

eGross Operating Revenues $59.0 $46.9 ($12.1)Operating Expenses $55.1 $49.0 ($6.1)Net Income $3.9 ($2.1) ($6.0)


Water Rate Components

Water Rate Components

Distribution and Customer (D&C) Charge• fixed charge• generates revenues to recover maintenance and

operations costs• Includes Fire Protection Surcharge which covers the

cost of fire hydrant replacements and upgrades that are not directly related to new development

Commodity Charge • 100% volumetric charge • generates revenues to cover the costs of actual

water • both groundwater and purchased water Purchased Water Adjustment Charge (PWAC)• 100% volumetric charge • mechanism to recover the increased cost of water

purchased from the Metropolitan Water District (“MWD”)

• Also applied to increased groundwater production costs

Capital Improvement Charge (CIC)• 100% volumetric charge • generates revenues dedicated to long-term

capital improvements to water infrastructure• Revenues also cover debt service of bonds

issued for investment in the water infrastructure.

$-

$1.00

$2.00

$3.00

$4.00

$5.00

$6.00

SYSTEM AVERAGE RATE*Per Billing Unit

Pro-posed$5.21

Commodity$2.20

D&C$1.92

Proposed CIC In-crease$0.45

CIC$0.64

Current$4.76

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* System average rate based on 9.6 million billing units of sales


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Water Capital Projects Funded by the current CIC

Project Types Included Project Types Not IncludedDistribution main replacements Meters and Services – customer

requestedFire protection system improvements

Water Telemetry System (SCADA)

Well and Booster Pump Switchgear Upgrades

Facility Security SystemsRecycled Water construction costs

Reservoir Improvements Water IRP updatePermanent infrastructure expansion/replacement

Customer Billing System replacementRadio replacementsVehicle replacements

• Water Master Plan approved by City Council in 2002• CIC formula and rate approved as part of funding plan for

Master Plan• Formula provides for annual adjustments based on adopted

budget


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FY2016 Major Water Capital Projects

CIP Project Type FY2016 Work PlanDistribution Mains Replacement, Fire Protection System Improvements

$3.8 million

Monk Hill Perchlorate Treating System $1.9 millionArroyo Spreading Basins $1.8 millionReservoir Improvements $1.1 millionUpgrade Well and Booster Pump Switchgear

$650,000

Sunset Chloramination Facility $500,000


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CIC Rate Adjustment Formula

Capital Improvement Charge =((Funding Target Ratio x Capital Expenditure) + Debt

Service)Water Sales

Where:

Funding Target Ratio

Ideal debt to equity (cash from pay-go) funding

Capital Expenditure

Five-year average annual capital expenditure

Debt Service Five-year average annual CIC-related debt service

Water Sales Projected water sales volume for next 12 months

$1.09 = [(30% x $10.9M) / $7.18M] /9.6M billing units


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Water Sales (million BU/year)20

03

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

Last

12

mo

28%

Ta.

..02468

1012141618

Fiscal Year


Sample Bill Impact on Monthly Charges (no reduction of water usage)

Meter Size

Monthly Usage

Existing Monthly Charges

Impact of Proposed Increase

Revised Monthly Charges

% Change

5/8" 5 $27.19 $2.09 $29.28 7.7% 3/4" 12 $46.95 $5.01 $51.96 10.7% 1" 25 $101.80 $10.45 $112.25 10.3%

1 1/2" 100 $389.65 $41.78 $431.43 10.7%

2" 125 $518.99 $52.23 $571.22 10.1%

3” 300 $1,251.03 $125.34 $1,376.37 10.0%

4" 600 $2,334.85 $250.68 $2,585.53 10.7%

6" 1,400 $5,017.95 $584.92 $5,602.87 11.7%

8" 2,400 $9,075.38 $1,002.72 $10,078.10 11.0%

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Bill Impact with 25% Reduced Usage

Bill Comparisons Based on Reduced Water Consumption

Historical Usage Reduced UsageMonthly Usage(in billing units) 12 9

Existing Monthly Bill $46.95 $36.50

Impact of CIC Increase $5.04 $3.78

Revised Monthly Bill $51.99 $40.28

% Change 10.7% (14.2%)


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Alternative Sales Volume Forecast Scenarios

Sales Forecast (Billing Units) 9,600,000 10,000,000 10,400,000

Reduction in sales from CY 2013 (%) 28% 25% 22%

Formula CIC Rate Increase ($/Billing Unit) $0.45 $0.41 $0.36

Overall System-Average Rate Increase 10% 9% 8%

Full CIC Rate ($/Billing Unit) $1.09 $1.05 $1.00

FY2016 CIC Revenue at Current Rate($0.64/Billing Unit) $ 6,144,000 $ 6,400,000 $ 6,656,000

New Revenue from CIC Increase(February - June 2016) $ 1,512,000 $ 1,435,000 $ 1,310,400

Projected FY2016 CIC Revenue $ 7,654,000 $ 7,835,000 $ 7,966,000

Projected Annual Revenue at Full CIC Rate $ 10,464,000 $ 10,500,000 $ 10,400,000


Revised Draft Schedule:Water Cost of Service and Rate Redesign

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Date ActionMarch 2016 MSC info item – rate structure discussionApril 2016 City Council – workshop discussionMay and June 2016 Customer outreach and feedback

July 2016 MSC and City Council Action – rate recommendation and set public hearing

September 2016 Public Hearing and City Council Rate Action

October 2016 Rate action effective


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City Council Actions That Could Reduce CIC Rate

1. Reduce level of capital improvement budget More “deferred maintenance” May result in more water main breaks and higher water losses Higher future rate increases

2. Consider additional debt issuance Maintains higher level of capital investment Increased debt service costs Impacts funding target ratio of pay-go to long-term debt

funding3. Revise formula based on higher projected unit

sales4. Importance of taking current action

Mitigate part of FY 2016 net income reduction Provide coverage of debt service requirements and some

pay-go Encourage additional conservation


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Other Agency Water Rate Actions

Agency Name Rate Action When Effective Riverside Customer charge Pending January 2017Anaheim Customer charge Pending February

2016Glendale Drought surcharge Spring 2015Irvine Ranch Water District

Multi-year rate action from cost of service update

Beginning July 2015

LADWP Four-year rate plan, cost of service update

Pending - Approved by Board October 2015, to be effective April 2016

Santa Monica Five annual consecutive increases

Annual beginning January 2014

Santa Margarita Water District

Rate action of cost of service update

January 2016


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Existing & Proposed CIC Rates ($ per Billing Unit)

Existing Rates

Proposed Rates

Increase

SummerArea A $0.62429 $1.06715 $0.4428

6Area B $0.84274 $1.44056 $0.5978

2Winter

Area A $0.58896 $1.00676 $0.41780

Area B $0.79504 $1.35902 $0.56398These are the specific rates that would go into

effect if the staff recommendation is approved.


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Existing and Proposed Rates28% Sales Reduction and 25% rate differential

Existing Rates Proposed Rates Increase

Summer Area A $0.62429 $1.08109 $0.45680 Area B $0.84274 $1.35136 $0.50862

Winter Area A $0.58896 $1.01990 $0.43094 Area B $0.79504 $1.27487 $0.47983

Same sales units as in AR recommendation 9.6 million 28% reduction Reduced the Inside/Outside rate differential from 35% to 25%. Since we kept the revenue requirement and sales volumes the same as in the AR, the System Average increase is still 45¢ .


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Existing Rates Proposed Rates IncreaseSummer

Area A $0.62429 $1.03785 $0.41356 Area B $0.84274 $1.29731 $0.45457


Sales forecast is 10.0 million BU (this is the “25% alternative” in Table IV of AR)Reduced the Inside/Outside rate differential from 35% to 25%. We kept the revenue requirement the same as in the AR ($10.452 million), the System Average increase is 41¢ per BU.


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Existing Rates Proposed Rates Increase

Summer Area A $0.62429 $0.99793 $0.37364 Area B $0.84274 $1.24741 $0.40467


Sales forecast is 10.4 million BU (this is the 22% alternative in Table IV of AR)Reduced the Inside/Outside rate differential from 35% to 25%. the System Average increase is 36¢ per BU for a system average rate of $1.00


Annual Debt Service

20

2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

2026

2027

2028

2029

2030

2031

2032

2033

2034

2035

2036

2037

2038

2039

2040

01,000,0002,000,0003,000,0004,000,0005,000,0006,000,0007,000,0008,000,000

Water System – Direct Debt Service by Fiscal Year

Series 2003 Series 2007 2010A (BABs) 2010B 2011A

Fiscal Year


Annual Debt ServiceIncluding Projected 2016 Issuance

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[comment]

2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

2026

2027

2028

2029

2030

2031

2032

2033

2034

2035

2036

2037

2038

2039

2040

2041

2042

2043

2044

2045

2046

01,000,0002,000,0003,000,0004,000,0005,000,0006,000,0007,000,0008,000,0009,000,000

10,000,000Water System – Direct Debt Service After 2016

Issuance

Series 2003 Series 2007 2010A (BABs) 2010B 2011AProjected Bonds (FY16)

Fiscal Year


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$ millions)

2016 Adopted Budget

2016 Revised

Projections

Differenc




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$ millions)

2016 Adopted Budget

2016 Revised

Projections

Differenc




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$ millions)

2016 Adopted Budget

2016 Revised

Projections

Differenc


Documents

Pasadena Water and Power Public Hearing Water Capital Improvement Charge Pasadena City Council Meeting January 11, 2016 Item #12