October 19, 2016

San Jose Water Company Rate Review Procedures and City

Authority to RegulateOctober 19, 2016

Council Direction

• At its August 17, 2017 meeting the City Council directed staff to prepare a report on how water rates are set and what, if any, jurisdiction the City has regarding rates.• Staff has reviewed:

• Laws regarding private utility rate-setting;• State proceedings concerning the recent San Jose Water Company rate

increases;• The scope of City jurisdiction regarding water rates; and• Options for the City to influence water rates.

Key Players

• San Jose Water Company (SJWC)• Santa Clara Valley Water District (District)• California Public Utilities Commission (PUC)• Office of Ratepayer Advocates (ORA)

Overview of Rate-Setting Process

• Utility Application• Revenue Requirement• Rates• Surcharges

• Review by Public and ORA• PUC Proceedings• PUC Decision• Requests for Modification/Complaints

Factors Affecting SJWC Water Bills

1. Water Rate Increase2. Drought Surcharges3. District Rate Increases

Water Rate Increase

• In 2015 SJWC applied for a 12.22% increase in its revenue requirement and authority to adjust water rates.• Following objections from ORA and others PUC approved an 8.6%

increase in the revenue requirement.• Decision in June, 2016 was retroactive to January 1.• PUC requires that rates recover 70% of revenue requirement from

volume-based charges and 30% from fixed fees.

Drought Surcharge

• In 2015 State of California mandates 25% statewide water conservation.• PUC orders private water utilities to file plans to achieve water

conservation goals.• San Jose Water files plan for 30% conservation consistent with

District water conservation goal.• Plan sets “baseline” based on average usage of all residential

customers and sets increasingly higher charges for use above the baseline.• Adjusted for 20% Goal in 2016

SJWC Residential Customer Drought Allocations

Month2013 Average Monthly Residential Usage (ccf)

June 15, 2015 – June 30, 2016 Monthly Drought Allocation (ccf)(70% Average Monthly Residential Usage)

Effective July 1, 2016 Monthly Drought Allocation (ccf)(80% Average Monthly Residential Usage)

Jan 10 9 9Feb 9 9 9Mar 9 9 9Apr 11 9 9May 14 10 12Jun 16 11 13Jul 19 13 16Aug 19 13 16Sep 19 13 16Oct 17 12 14Nov 17 12 14Dec 14 10 12

SJWC Drought Surcharges Surcharge (per ccf)

Drought Surcharge 1Excess consumption over Monthly Drought Allocation up to the 2013 Average Monthly Usage

$3.5634

Drought Surcharge 2 Excess consumption over the 2013 Average Monthly Usage $7.1268

ORA Objections to Drought Surcharge

• Surcharge Trigger should not be based on the average usage of all residential customers but instead on each customer’s past use.• Surcharge should not be limited to residential customers.• PUC rejected both claims and approved SJWC Drought Surcharge

Proposal.

Santa Clara Valley Water District Rate Increase

• District raised rates by roughly 7% effective July 1, 2016• PUC rules allow SJWC to pass through all rate increases to customers.

Options for City

• City has no regulatory authority over SJWC rates.• Proposition 218 does not apply to private utility rates.• City, like other customers, may appeal past PUC decisions.• City, like other customers, may participate in future PUC proceedings.• City may seek to influence future rates by promoting dialog regarding

the 70/30 cost allocation rule.