San Diego City Council to consider 2013 water rate case (updated)
Posted by George J Janczyn on August 1, 2013
RESIDENTS WHO CONSERVE COULD SEE LOWER RATES IN 2014
The San Diego City Council’s Natural Resources & Culture Committee (NR&C) on July 31 accepted a proposal for a new water rate billing structure, including a rate increase, and sent it to the City Council for consideration at its September 10 meeting. The committee recommends a new billing method that would use a four-tier rate structure designed to provide a greater financial incentive to conserve water. The current rate structure has three tiers with weaker conservation incentives.
The new rate structure is an option in the 2013 Water and Wastewater Cost of Service Study delivered at the NR&C meeting. 43 percent of the water ratepayers in San Diego (those who use 10 HCF or less per month) could see lower rates under the new plan, according to Public Utilities Department (PUD) staff that presented Study. Those who consume water at the high end of the scale (19+ HCF) would pay dramatically higher rates (HCF = Hundred Cubic Feet = 748 gallons). More details about rates will follow below.
For the past two years PUD has been operating under a requirement to “absorb” rate increases for imported water that it buys from the San Diego County Water Authority (SDCWA or CWA), rather than pass the cost on to ratepayers. San Diego imports some 80% of the water it uses.
The decision to do that was made by then-Mayor Jerry Sanders in mid-2011. The news was well-received by the public, likely because of the recession, high unemployment rates, and of course, because nobody likes rate increases. Public opinion and Sanders’ decision may also have been influenced by Carl DeMaio, a city councilmember who had positioned himself as a mayoral candidate for the 2012 election and was waging an aggressive campaign arguing that past water rate increases had been excessive due to mismanagement within PUD. One of DeMaio’s goals was to cut water rates by 15% and then freeze rates at that level for five years.
So, PUD had a tightrope to walk.
To “absorb” SDCWA’s 2012 rate increase PUD cut back on contracts, supplies, materials, personnel, and drew down reservoir “surplus” so that less imported water would need to be bought, at a fiscal impact of $17.5 million.
This year, the fiscal impact on PUD from SDCWA’s 2013 price increase is estimated to be $20.6 million due to further cuts in contracts, supplies, materials, personnel, and drawdown of reserve funds.
“Over the last two years (Calendar Years [CY] 2012 and 2013), PUD absorbed CWA’s purchased water increases. PUD estimates that the cumulative impact of these increases is approximately $35 million. PUD was able to absorb the impacts through a combination of one‐time revenues, drawing on reserves, and implementing operational efficiencies. However, as Tables 10 and 11 indicate, continued absorption of the CY 12/CY 13 pass‐through increases, and trying to absorb the CWA CY 14 increase is not sustainable. If the City does not make revenue adjustments in FY 14, then by FY 15, PUD will not meet DSC requirements for senior or aggregate debt.”
(From the Study)
“ABSORB” IS THE WRONG WORD
The problem with saying PUD had to “absorb” higher rates is that they are not one-time expenses; they are permanent, and future SDCWA rate hikes will just add to the burden.
Assistant PUD Director Alex Ruiz made just that point at the Independent Rates Oversight Committee (IROC) at its July 18, 2011 meeting, saying the situation would be more properly called “Deferral of Rate Increases” rather than absorption of increased costs.
On top of all that, new imported water rate increases for 2014-2015 have already been announced by SDCWA.
FACING THE INEVITABLE
It seems fairly obvious that in order for PUD to continue as a viable self-supporting enterprise (i.e., not funded by local taxes), water rates will have to go up. But what should the price be?
Guidance on that question is contained in the Cost of Service Study delivered to NR&C (the study is also referred to as the 2013 Rate Case). The Study examined “what actions the PUD should undertake to maintain the financial viability of the Water and Wastewater enterprises in light of the results of the 2007 Rate Case, increasing purchased water costs, minimal economic growth, regulatory requirements, and needed future large infrastructure investments.”
The Study has three components: (1) Determining total revenue requirements; (2) Allocation of costs to the appropriate customer class; and (3) Rate design.
“Since 2008, the effective rate that the City pays for purchased water from CWA (cost/acre‐foot purchased) has doubled. Infrastructure investments by both CWA and Metropolitan Water District of Southern California, restricted allocations from the Colorado River, and the Bay‐Delta all continue to drive costs up, while declining sales reflecting conservation efforts are driving down revenues.”
“Historically, the City has passed increased rates from CWA through to ratepayers. Over the past two years (Calendar Years 2012 and 2013), PUD has used one‐time revenue sources, identified operational efficiencies, and additional local supplies to absorb the CWA pass‐through increases, which is estimated to be approximately $35 million. These increases, however are not one‐time, but continue on yearly. Continuing to absorb these increases creates a structural deficit that is not sustainable. “
“Over the past two years (Calendar Years 2012 and 2013), PUD has used one‐time revenue sources, identified operational efficiencies, and additional local supplies to absorb the CWA pass‐through increases, which is estimated to be approximately $35 million.”
(From the Study)
The Study suggests a revenue adjustment of 7.25% in FY14 and 7.5% in FY15 for PUD. That translates into two rate increases over the two year period. Several options for a new tiered billing structure were given, and as noted earlier, the NR&C committee recommended Option 4 (shown in the tables below).
PUD will still need to finance some capital improvement projects through a combination of fully drawing down the Dedicated Reserve from Efficiency and Savings (DRES) fund and using cash on hand.
Fortunately, the Study’s recommendation for wastewater rates (sewer charges) is to leave them alone. The Study says, “Based on the analyses of revenues and revenue requirements, Black & Veatch recommends that Wastewater does not need a rate revenue increase in FY 14 and FY 15.”
The Study (or Rate Case) will be placed on the September 10 City Council agenda. If councilmembers approve the rate proposal, they will schedule a public hearing in accordance with Proposition 218. That would have to happen fairly soon, since the plan aims for the first rate increases to take effect on January 1, 2014 and the second increase on January 1, 2015.
Keep in mind that further rate increases, in addition to those proposed, are possible in the future because the Cost of Service Study didn’t take into account future expenses from potable reuse projects, desalinated water from Poseidon’s Carlsbad Desalination Plant, and the coming 2015 expiration of the waiver that allowed the Point Loma Wastewater Treatment Plant to avoid upgrading to the secondary treatment standard mandated by the Clean Water Act. If negotiations for a new waiver are unsuccessful the City could face some very expenses choices.
WATER RATE DETAILS
The tables below illustrate the various options identified in the Cost of Service Study. Again, option 4 was the committee’s preferred alternative. Beneath the tables, there are links to documentation submitted to NR&C.
SUPPORTING MATERIALS SUBMITTED TO THE COMMITTEE
- Council Action Executive Summary Sheet
- 2013 Water and Wastewater Cost of Service Study
- Draft Prop 218 Public Notice
- PowerPoint Slide Presentation
- Mayor Sanders Fact Sheet announcing water rate freeze for 2012
- Mayor Sanders Fact Sheet announcing a second year of frozen rates for 2013
UPDATE September 8, 2013: below are links to selected documents that were posted as accompanying materials for the September 10 City Council agenda item on this topic.
- Report to the City Council re. Proposition 218 Noticing of Proposed Water Rate Adjustments (September 5, 2013)
- Sample Notice of Public Hearing
- Public Utilities Department Overview (Powerpoint presentation for City Council)
- Independent Budget Analyst’s report on the Cost of Service Study
This entry was posted on August 1, 2013 at 6:47 am and is filed under San Diego County Water Authority (SDCWA), San Diego Public Utilities Department (PUD), Water. Tagged: Natural Resources and Culture Committee (NR&C), San Diego Water and Wastewater Cost of Service Study, Water prices, Water rate case. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.