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Posts Tagged ‘Natural Resources and Culture Committee (NR&C)’

San Diego storm drain fee poised to rise dramatically

Posted by George J Janczyn on October 21, 2013

A San Diego Independent Budget Analyst (IBA) report on the fiscal impact of new storm water regulations was delivered last Wednesday (October 16, 2013) to the city council’s Natural Resources and Culture (NR&C) Committee. While no action was taken at this meeting, the report left no doubt that the City is in serious need of new revenue (read: fees and taxes) to comply with the new regulations, for infrastructure, flood risk management activities, and deferred capital improvement projects for storm drain assets.

Earlier this year the San Diego Regional Water Quality Control Board approved a new five-year municipal storm water sewer system permit. The so-called Regional MS4 Permit regulates both storm water and non-storm water (dry weather) discharges into the region’s storm water conveyance facilities to prevent pollutants such as trash, metals, bacteria, chemicals, and pesticides from being washed into storm drains and into creeks, rivers and the ocean. Compliance with the permit is projected to be expensive.

This photo from the Port of San Diego website shows the "first flush" from Chollas Creek into San Diego Bay during a storm. They write: "All of the big visible trash is the tip of the iceberg -- what you're not seeing are all of the microscopic pollutants such as bacteria, grease, oil, metals, pesticides and fertilizers."

This photo from the Port of San Diego website shows the "first flush" from Chollas Creek into San Diego Bay during a storm. They write: "All of the big visible trash is the tip of the iceberg — what you're not seeing are all of the microscopic pollutants such as bacteria, grease, oil, metals, pesticides and fertilizers."

The City’s Storm Water Division administers San Diego’s storm water program and is responsible for ensuring compliance with these regulations. The Division’s FY2014 budget includes $35.1 million for operations and maintenance drawn from the General Fund, and $25.9 million in Capital Improvement Project (CIP) funds.

The Storm Water Division’s operating budget is projected to rapidly escalate and could reach $107.6 million by the end of the 18-year outlook discussed in the IBA report, while the total CIP required for the outlook range could hit $2.7 billion (with an emphasis on “B”).

The City collects a storm drain fee from water and sewer customers to help offset the burden on the General Fund but it is, in the words of the IBA report, “significantly short of full cost recovery.” Storm drain fee collections for FY2014 are expected to cover only about 16.2% of the Storm Water Division budget.

The current fee for single-family residences is a flat rate $0.95 per month.

Interestingly, the storm drain fee paid by single family residences is billed at a flat rate while the fee for commercial/industrial and multi-family developments is based on the amount of water they use, under a rate structure that dates back to 1996. According to the Storm Water Division spokesman Bill Harris: “It was thought at the time that a flat rate, like the water and waste water service base fees, would be easier to accept and calculate…..given the hundreds of thousands of service connections. It seemed logical, I am sure, at the time.”

Harris said that in the future, fee structures would likely be more uniformly based on land-use impact models taking into account things like acreage, impervious surface area, and water usage.

The Storm Water Division will need additional funds (in ever-increasing amounts) beginning in FY2015 to address regulatory compliance and for additional flood management activities. For the next five years alone:

From page 3 of the IBA report)

From page 3 of the IBA report)

With a water rate increase already proposed to take effect in January 2014, San Diego residents will be less than happy to learn that the storm drain fee (one of several fees bundled with the water bill) is likely to dramatically rise over the coming years. For single-family residences it could jump from the current $0.95 per month to $3.49 per month in 2015, ballooning to $11.14 per month by 2019.

If that’s not sobering enough, the picture through the year 2031 should make one sit up. The IBA report says: “By the end of the 18 year outlook in FY 2031, $43.25/month would be required from single family residences.”

From page 6 of the IBA report.

From page 6 of the IBA report.

From page 6 of the IBA report.

From page 6 of the IBA report.

One consolation is that beyond the first five year estimate which is fairly certain, standards, methods, and technology may evolve in ways that could reduce anticipated costs in later years.

Any increase in the municipal storm drain fee would require an election with approval by either a majority of property owners or two-thirds of the general electorate.

The City could face monetary non-compliance penalties if action is deferred beyond FY2015. The IBA report noted that state penalties could amount to $10,000 per day per violation, along with federal penalties of $27,500 per day per violation. Each storm drain outfall may be counted as a separate violation.

Another financial consideration is that the City has deferred some $146 million in needed storm drain infrastructure replacement/rehabilitation.

“[T]he City will need to find a dedicated funding source for Storm Water activities as mandated regulations become increasingly stringent and costly. If no funding is identified the City’s General Fund will have to continue to contribute increased funding in order to remain in compliance, reducing funding for other priorities and services. If funding is not identified from either a dedicated revenue stream or the General Fund, the City may fall out of compliance which could potentially result in significant penalties assessed by the state and federal government. Additionally, deferring flood risk management exposes assets to an increased risk of failure, causing sinkholes, property damage and costly emergency replacement and repair.” — the IBA report’s conclusion

____________________________________________________

Notes

SanDiegoWatersheds

Urban storm water management is informally thought of as devising ways to channel rainwater runoff away from roads, structures, parking lots, and other impermeable surfaces as quickly as possible into storm drains leading to creeks and streams and eventually the ocean. It’s more complicated, though, and regulations are just part of the picture.

The City of San Diego lies in six separate watersheds: San Dieguito, Los Peñasquitos, Mission Bay and La Jolla, San Diego River, San Diego Bay, and Tijuana River.

Watersheds cross political boundaries. This map from Project Clean Water is a good illustration of the watersheds in San Diego County (if you use the above link to view the map on their website you can move your mouse pointer across the map to highlight and click for description of specific watersheds.).

Because watersheds cross political boundaries we have collaborative regional management of storm water issues. For example, there is San Diego Integrated Regional Water Management Planning. SDIRWMP is an interdisciplinary effort by water retailers, wastewater agencies, storm water and flood managers, watershed groups, the business community, tribes, agriculture, and non-profit stakeholders. Its 2013 Integrated Regional Water Management Plan in turn follows California Department of Water Resources guidelines.

 

Background and sources

City of San Diego Independent Budget Analyst (IBA)

City of San Diego: Storm Water Division

Integrated Regional Water Management

Federal

Regional Water Quality Control Boards

News media reports

Posts from this blog

 

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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.

Current operating situation of the Public Utilities Department.

Current operating situation of the Public Utilities Department.

BACKGROUND

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.

SUSTAINING OPERATIONS

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.

Water purchases have decreased while cost has gone up.

Water purchases have decreased while cost has gone up.

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.

CHALLENGES AHEAD

“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.”

NEXT STEPS

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.

ProposedMeterRates

ProposedCommodityRates

ProposedIrrigationCommodityRates

 

SUPPORTING MATERIALS SUBMITTED TO THE COMMITTEE

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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.

 

Posted in San Diego County Water Authority (SDCWA), San Diego Public Utilities Department (PUD), Water | Tagged: , , , | 2 Comments »