pasadena water and power public hearing date water capital improvement charge pasadena city council...

Pasadena Water and Power

Public Hearing DateWater Capital Improvement Charge

Pasadena City Council MeetingNovember 16, 2015Agenda Item #13


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Recommendation

1. Find that the Capital Improvement Charge (“CIC”) formula is exempt from the California Environmental Quality Act (“CEQA”)

2. Set the date of January 11, 2016 for a Public Hearing to:

a. Approve the implementation of the CIC formula as defined in the Water Rate Ordinance to recover capital improvement costs of the water distribution system. Based on the current Fiscal Year (“FY”) 2016 Water Fund CIP budget, this would result in a system average increase of $0.45 per billing unit to the CIC effective 1/18/2016

b. Authorize implementation of the CIC formula for FY 2017 upon adoption of the CIP budget


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 • volumetric charge • generates revenues to cover the costs of actual

water • both groundwater and purchased water Purchased Water Adjustment Charge (PWAC)• 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 capital

improvements as approved in the Water Distribution System Master Plan

• Revenues also cover the 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

Proposed$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 Fund Capital Funding Sources

Capital Expenditu

re

CIC

Bond Funds and

Pay-go

Debt Service

Non-CIC

Bond Funds, Pay-go

and outside sources

Debt Service

CIC Rate provides pay-go funding for annual capital expenditures for long-term infrastructureCIC Rate provides funding for debt service on revenue bonds issued to fund capital expenditures for long-term infrastructureNon-CIC projects are funded by D&C revenues, customer requested projects, cash reserves, revenue bonds and outside sources Non-CIC Debt Service for debt issued prior to approval of the Water System Master Plan


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Water Capital Projects Funded by the CIC

Project Types Included Project Types Not Included

Distribution main replacements Meters and Services – customer requested

Fire protection system improvements

Water Telemetry System (SCADA)

Well and Booster Pump Switchgear Upgrades

Facility Security SystemsRecycled Water construction costs

Reservoir Improvements Water IRP update

Permanent 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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Capital Improvement Charge History

This Table is showing the history of rate increases to the Capital Improvement Charge. Established in FY2003 with an initial $0.20/billing unit, the charge has not been adjusted since July 2007

Date Adjustment

AverageRate Per Billing

Unit

Sales Volumes(Million Billing Units)

Approximate Revenues ($

Millions)

4/2003 CIC charge adopted $0.20 16.1 $3.2

7/2004Increased by approximately 22¢ $0.42 14.7 $6.2



FY 2016 Current Rate $0.64 9.6 $6.1

FY 2016 Proposed Rate $1.09 9.6 $10.5


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Water Sales (million BU/year)2

00

3

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

La

st 1

2 m

o

Ne

xt

1..

.0

2

4

6

8

10

12

14

16

18

Fiscal Year


CIC Rate PerformanceFive-year historic and Three-year projected

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Projected Using CIC Formula

Actual Results: CIC Formula was not utilized


Proposed CIC Formula-based Rate Adjustment

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FormulaComponent Description Amount

CE 5-year average CIC Capital Expenditure $10.9

A 5-year average Cash Funded CIP (30% of CE) $3.3

B 5-year average Debt Funded CIP (70% of CE) $7.6

DS 5-year average CIC Related Debt Service $7.2

WS Water Sales in Billing Units 9.6

FTR Funding Target Ratio(A)/(A+B) $3.3 million / ($3.3 million + $7.6 million) = 30%

CIC Formula Capital Improvement Charge per Billing Unit

((FTR x CE) + DS) / WS

((30% x $10.9 million)+$7.2 million) / 9.6 million BU = $1.09 per BU


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 Usage

Monthly 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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Other Agency Water Rate Actions

Agency Name Rate Action When Effective

Riverside Customer charge Pending January 2016

Anaheim Customer charge Pending February 2016

Glendale Drought surcharge Spring 2015

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

funding

3. Revise formula based on higher projected unit sales

4. 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


Proposed Schedule for CIC Rate Adjustment

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Date Action

November 10, 2015 MSC recommendation to set Public Hearing

November 16, 2015 City Council to set Public Hearing Date

November 20, 2015 Notice of Public Hearing mailed per Prop 218 requirement

January 11, 2016 Public Hearing for CIC rate adjustment

January 18, 2016(soonest thereafter)

New CIC rate becomes effective


Revised Draft Schedule:Water Cost of Service and Rate Redesign

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Date Action

March 2016 MSC info item – rate structure discussion

April 2016 City Council – workshop discussion

May 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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Attachment A - Table A-1

Historical Actual/Projected Forecast Five-Year Average

FY2011 FY2012 FY2013 FY2014 FY2015* FY2016 FY2017 FY2018 FY2019 FY2020 Historic Forecast Change

Actual Annual Sales (million BU) 12 12.3 13.2 13.8 12.4 9.6 9.9 10.3 10.6 11.0 12.74 10.28 -19%

System Average CIC Rate** $0.63 $0.64 $0.64 $0.64 $0.64 $1.09 $1.11 $1.11 $1.11 $1.11 $0.64 $1.11 74%

Water Capital Expenditure CIC CapEx $8.60 $7.40 $12.30 $15.70 $7.10 $9.80 $12.40 $11.90 $13.20 $7.20 $10.22 $10.90 7% Non-CIC CapEx $2.90 $3.20 $2.90 $4.80 $0.10 $5.50 $5.80 $5.60 $4.90 $4.90 $2.78 $5.34 92%

Total Capital Expenditures*** $11.50 $10.60 $15.20 $20.50 $7.20 $15.30 $18.20 $17.50 $18.10 $12.10 $13.00 $16.24 25%

CIC-Funded Capital Expenditures Pay-go as % of Total CIC 35% 35% 35% 35% 35% 30% 35% 35% 35% 35% 35% 35% 0%

a Pay-go CIC CapEx $3.00 $2.60 $4.30 $5.50 $2.50 $3.00 $4.30 $4.20 $4.60 $2.50 $3.58 $3.72 4% Bond funded CIC CapEx $5.60 $4.80 $8.00 $10.20 $4.60 $6.90 $8.00 $7.70 $8.60 $4.70 $6.64 $7.18 8% Total CIC CapEx $8.60 $7.40 $12.30 $15.70 $7.10 $9.80 $12.40 $11.90 $13.20 $7.20 $10.22 $10.90 7%

Water System Debt Service b CIC Debt Service (DS) $5.10 $5.60 $5.50 $6.00 $6.00 $6.00 $7.10 $7.50 $7.50 $7.80 $5.64 $7.18 27%

Non-CIC Debt Service (DS) $0.90 $1.00 $1.00 $1.10 $1.10 $1.10 $1.30 $1.30 $1.30 $1.40 $1.02 $1.28 25% Total Debt Service $6.00 $6.60 $6.50 $7.10 $7.10 $7.10 $8.40 $8.80 $8.80 $9.20 $6.66 $8.46 27%

CIC Cash Flow Balance CIC Revenues $7.60 $7.90 $8.40 $8.80 $7.90 $7.40 $11.04 $11.48 $11.82 $12.26 $8.12 $10.80 33% Annual CIC Expense (a+b) $8.10 $8.20 $9.80 $11.50 $8.50 $9.00 $11.40 $11.70 $12.10 $10.30 $9.22 $10.90 18% Surplus (Shortfall)**** ($0.50) ($0.30) ($1.40) ($2.70) ($0.60) ($1.60) ($0.36) ($0.22) ($0.28) $1.96 ($1.10) ($0.10) -91%

Non-CIC Expenditures (Info only) Non-CIC CapEx $2.90 $3.20 $2.90 $4.80 $0.10 $5.50 $5.80 $5.60 $4.90 $4.90 $2.78 $5.34 92% Non-CIC Debt Service (DS) $0.90 $1.00 $1.00 $1.10 $1.10 $1.10 $1.30 $1.30 $1.30 $1.40 $1.02 $1.28 25% Total Non-CIC Expenditures $3.80 $4.20 $3.90 $5.90 $1.20 $6.60 $7.10 $6.90 $6.20 $6.30 $3.80 $6.62 74%

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pasadena water and power public hearing date water capital improvement charge pasadena city council...

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