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Home My WebLink AboutAGENDA REPORT 2016 1221 CCSA REG ITEM 09F ITEM 9.F. art-OF MOORPARK,CALIFORNIA City Council Meeting MOORPARK CITY COUNCIL ACTION: . AGENDA REPORT TO: The Honorable City Council FROM: Jeremy Laurentowski, Parks and Recreation Director .51.- DATE: LDATE: December 15, 2016 (CC Meeting of 12/21/16) SUBJECT: Consider Waterworks District No. 1 Proposed Water Rate Increases and Water Rate Protest BACKGROUND AND DISCUSSION On October 13, 2016, a Special Meeting of the Ventura County Waterworks District No. 1 (District) Citizens' Advisory Committee (Committee) was held at the District's office in Moorpark. The purpose of the meeting was a presentation by District staff regarding proposed water rates for the District's various users. The rate structure was based on a Water Rate Study prepared by Raftelis Financial Consultants, Inc. (Raftelis). City staff felt that the new water rate structure presented by Raftelis and District staff was fair and equitable. The proposed water rate structure proportionally allocated the costs of providing services in accordance with Article XIII D of the California Constitution, commonly known as Proposition 218 (Prop 218). The differences in the various rate structures identified for each type of user was due to an analysis of peaking costs. The peaking costs related to each type of water user allowed for a proportionate increase in water costs. This is based on the maximum demand of water required by the type of user and overall cost increases related to the District's infrastructure needs to supply the demand during a given period of time. Duringthe presentation, both District staff and Raftelis stated that the analysis and rate structure was defensible and in compliance with the requirements of Prop 218. The results of the San Juan Capistrano case support the fact that under Prop 218 an agency cannot collect revenue beyond what is necessary to provide service to its customers. On November 7, 2016, the District held a Special Meeting of the Committee to discuss the rate structure presented by the District during the October 13, 2016 Committee meeting. Again, the District presented the original analysis and rate structure recommended by Raftelis and stated that the proposed rate structure was defensible under Prop 218 and met the requirements of the San Juan Capistrano case, as the rate structure was based solely on the costs of water supply. However, the Committee felt that the rate structure for agricultural users should be reevaluated. The Committee 120 Honorable City Council December 21, 2016 Page 2 referenced a report prepared in 2012 by Reddy Pakala, former Director of the Water and Sanitation Department, that supported a lower rate for agricultural customers for several reasons, including the fact that groundwater was less costly to certain District customers. District staff and Raftelis expressed concern that a lower agricultural rate may not be defensible under Prop 218 and the San Juan Capistrano case. However, the Committee did not approve the rate structure recommended by District staff and made a recommendation that District staff should reevaluate the groundwater supply for agricultural customers. As required under Prop 218, the District prepared a Notice of Public Hearing (Notice) on the Proposed Rate Restructuring and Water Rate Increases, which will be presented to the Ventura County Board of Supervisors (Board) on January 10, 2017. Prior to posting the Notice, the District reevaluated the groundwater supply for agricultural customers and determined that a portion of agricultural customers receive approximately 50% of the District's total groundwater supply. If this approach is used, it would lower all agricultural rates by approximately 14%, while increasing all other users between 2% and 4% above the original recommendation by District staff. However, at the time the Notice was posted, District staff did not have time to present their findings to the Committee. Therefore, the Notice included a rate structure for agricultural users based on the original Raftelis analysis, and a rate structure for all other users based on the lowered cost for agricultural customers. To comply with Prop 218, the Notice included the higher costs to all users so that the District would have time to present their findings to the Committee. On December 6, 2016, the District held a Special Meeting of the Committee to present their findings regarding the analysis on agricultural water supply, particularly related to groundwater. The District confirmed that approximately 50% of the groundwater supply is provided to a portion of agricultural users within certain zones. This is the result of the piping and supply infrastructure. The District believes that a certain percentage of groundwater does not mix with the overall supply of water and can only be used by customers that are located within certain zones identified by District staff. The primary users in these zones are agricultural users. However, during the Committee meeting, District staff stated that they support the original recommendation provided by Raftelis because it is the most -defensible under Prop 218. They stated that Raftelis also supports the original proposal and a representative of Supervisor Foy's (Supervisor) office also made a statement during the Committee meeting that the Supervisor also supports the original recommendation by Raftelis due to the fact that it is the most defensible under Prop 218. The discrepancy in the groundwater analysis is due to the fact that not all agricultural users are located within the zones that receive the groundwater benefit, yet all agricultural customers will receive the reduced rate. In addition, a number of M&I users (the District was not able to confirm this number) are located in the areas where they would benefit from the groundwater supply, however, they will not receive the benefit of the groundwater supply. Without a detailed analysis of all users in all zones, the groundwater analysis may not be defensible under Prop 218. District staff stated that this type of analysis may not be possible. 121 Honorable City Council December 21, 2016 Page 3 The Committee members did not necessarily agree with the recommendation presented by District staff. They felt that since the District confirmed that 50% of the groundwater. is dedicated to a number of agricultural customers, the lower agricultural rate is justified for all agricultural users. Although there was no information provided by the District regarding what percentage of agricultural customers would receive the benefit, or what percentage of M&I users would not benefit from the analysis, the Committee made a recommendation to the District that both options should be presented and that the Board should make the final decision regarding the proposed water rates for the District. On December 7, 2016, District staff presented both the original water rate structure that was recommended by Raftelis, as well as the revised water rate structure due to the groundwater analysis to the City Council. At the time this report was prepared, City staff has not been provided any additional information regarding the water rate structure that will be recommended to the Board on January 10, 2107. However, due to the fact that the revised water rate structure favoring agricultural customers may not be defensible under Prop 218, and the fact that the option giving a groundwater benefit to agricultural users will ultimately increase the water costs to M&I users an additional 2% to 4%, staff feels that a Water Rate Protest (Protest) sent to the Board of Supervisors is appropriated. The Protest will state the City's concerns and support for the original water rate proposal presented by District staff, and will protest the water rate increases due to the groundwater benefit to agricultural users. Staff believes that the agriculture favored option is no more defensible under Prop 218 that the District's current rate structure. FISCAL IMPACT As mentioned previously, the net benefit to agricultural users based on the groundwater analysis is a savings of approximately 13%. This is equivalent to approximately $405,000 in savings. The total cost increase to M&I users varies between 2% and 4%, resulting in an overall increase of approximately $407,000. The direct cost increase to City operations is approximately $32,500, which is approximately 8% of the savings to agricultural users. STAFF RECOMMENDATION Authorize staff to prepare a Water Rate Protest and direct staff to send Protest to the Ventura County Board of Supervisors. Attachment: 1. Revenue Comparison — Original water rate proposal (Scenario A) & Revised water rate proposal (Scenario B) 122 Attachment 1 TOTAL REVENUE TOTAL REVENUE Total.Rate Total Rate DELTA REVENUE Customer Class RECOMMENDED RECOMMENDED $ %CHANGE to B SCENARIO A SCENARIO`B SCENARIO A SCENARIO B Residential Tier 1 $3.20 $2,780,116.37 $3.33 $2,893,058.60 $112,942.23 4% Tier 2 $3.83 $2,102,451.39 $3.97 $2,179,303.40 $76,852.01 4% Tier 3 $4.40 $2,507,685.81 $4.54 $2,587,475.82 $79,790.00 3% Residential Non-Tiered $3.92 $572,153.89 $4.05 $591,128.38 $18,974.49 3% Residential Multi Family $3.39 $643,715.46 $3.52 $668,400.71 $24,685.25 4% Commercial $3.67 $1,239,736.58 $3.81 $1,287,028.98 $47,292.40 4% Industrial $3.44 $198,666.89 $3.58 $206,752.17 $8,085.28 4% Institutional $4.12 $1,023,456.71 $4.26 $1,058,234.37 $34,777.66 3% Temporary Construction $5.22 $157,738.48 $5.35 $161,666.84 $3,928.35 2% M&I Total $11,225,721.58 $11,633,049.25 $407,327.68 4% Agricultural $3.86 $3,558,538.38 $3.42 $3,152,901.88 ($405,636.50) -13% N (A)