HomeMy WebLinkAboutAGENDA REPORT 2017 1206 CCSA REG ITEM 09A ITEM 9.A.
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MOORPARK CITY COUNCIL t , , 14/1,„„,AGENDA REPORT ii./ .4
TO: The Honorable City Council a41- /
FROM: Jeremy Laurentowski, Parks and Recreation Dilly ` ,w,, ,
DATE: November 28, 2017 (CC Meeting of 12/6/17)
SUBJECT: Consider Waterworks District No. 1 Proposed Water Rate Increases
for 2018
BACKGROUND
Detailed background information regarding this item was provided to the City Council on
November 15, 2017 (see attached report for reference).
On October 26, 2017 the District mailed the Notice of proposed water rates for 2018 to
District customers, per Proposition 218 (Prop 218) requirements. The 2018 rates
presented by the District are as follows:
Residential Current Rates Proposed Rates 2018
Tier 1 (0-10 HCF) $3.20 $3.43
Tier 2 (>10-25 HCF) $3.83 $4.10
Tier 3 (>25 HCF) $4.40 $4.71
Residential Non-Tiered $3.92 $4.20
Residential Multi-Family $3.39 $3.63
Commercial $3.67 $3.93
Agricultural $2.58 $2.97
Industrial $3.44 $3.69
Institutional $4.12 $4.41
Temporary Constructions $5.22 $5.59
On November 15, 2017 Michaela Brown, Director of Water and Sanitation for Ventura
County Waterworks District No. 1 (District) presented to the City Council the District's
2018 water rate proposal. The District's proposal includes a 7% increase for M&I users
and a 15% rate increase for agricultural customers. As a reminder, the Ventura County
Board of Supervisors (Board) approved a 33% reduction in agricultural rates for 2017.
The-33% reduction is a comparison of the current water rates, and the water rates that
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Honorable City Council
December 6, 2017
Page 2
are equivalent to the full cost of service required under Prop 218. The additional
percent increase for agricultural customers recommended in the 2018 proposal is the
District's attempt to catch up with the 33% reduction in agricultural rates approved by
the Board earlier this year. Ms. Brown discussed the fact that the District is proposing a
six year `glide path' for agricultural rates to catch up with the actual cost of service and
that the District will be using unrestricted revenue sources, such as cell tower leases, to
support the agricultural glide path over the next six years.
DISCUSSION/FISCAL IMPACT
During the November 15, 2017 City Council meeting, staff requested that the District
provide the City with a rate analysis regarding the proposed glide path and ultimate
costs to the District. Staff received this information on November 28, 2017. According
to the analysis (see Attachment 2 and summary below), the total loss of revenue to the
District due to the glide path over the next six years is approximately $3,223,721.76.
According to discussions with Ms. Brown, the loss of revenue is the worst case scenario
and based on historical demand. The following is a summary:
FY 18 FY 19 FY 20 FY 21 FY 22 FY 23 Total
Revenue loss to
the District(*) $968,353 $835,929 $692,316 $494,584 $232,540 $ - $3,223,722
* amounts are rounded to the nearest dollar
However, the glide path projection does not include the current year. The current rate
for agricultural customers approved by the Board earlier this year is 33% lower than the
cost of providing the water service. Based on the rate analysis provided by the District,
staff estimates that the District will be providing approximately $1,000,000 in the current
year to support the current agricultural water rate.
As mentioned previously, the loss of revenue to the District will be supplemented by
unrestricted revenue sources over the next six years. However, according to Ms.
Brown, the use of these revenue sources to support the agricultural glide path will not
be paid back to the M&I users. Clearly M&I rates would be lower if these unrestricted
revenue sources were utilized to benefit all water customers. Staff believes that the
current and proposed water rates to M&I users is higher than the cost of the water
service due to the fact that the District has chosen to provide additional financial support
to only one customer class. Additionally, the District has proposed a water rate for
agricultural customers that is far below the actual cost of service. Due to these
concerns, staff believes that the 2018 proposed water rates do not meet the
requirements of Prop 218. Staff estimates that the total loss of revenue to the District,
during the current year, and over the projected six year glide path, will be more than
$4,000,000.
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Honorable City Council
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According to the District, agricultural customers currently utilize approximately 23%
(827,652 hcf) of the total water used by District customers. M&I customers utilize the
remaining 77% (2,698,460 hcf). The District stated that prior to 2017 the District utilized
the revenue generated from the unrestricted revenue sources to supplement operational
costs. If the District continued to utilize unrestricted revenue sources to offset
operational costs, and proportionately distributed the $4,000,000 in revenue amongst all
users, $920,000 (23%) would be used to offset agricultural water rates and the
remaining $3,080,000 (77%) would be used to offset M&I water rates over the six year
glide path.
City operations generally account for approximately 8% of the total water used by M&I
customers. Based on the analysis above, approximately $246,400 of the total
unrestricted revenue should be utilized to offset future rate increases for City
operations. The District is proposing a 7% increase in water rates for City operations in
2018, which is equivalent to an increase of approximately $60,000. The District is
proposing to maintain the 7% annual increase for M&I users over the next five year
period in order for the District to catch up with operating expenses. This will result in an
overall impact to the City's operating budget of approximately $300,000 over the next
five years. However, staff believes that the total impact to City operations would be
significantly less, and equal to approximately $53,600 over the next five years, if the
unrestricted revenue was equally distributed amongst all District customers.
The District will present their 2018 water rate proposal to the Board on December 12,
2017. Staff believes that a Water Rate Protest letter should be sent to the Board stating
the City's concerns discussed in this report.
STAFF RECOMMENDATION
Authorize staff to prepare a Water Rate Protest and direct staff to send Protest to the
Ventura County Board of Supervisors.
Attachments:
1. November 15, 2017 Agenda Report (Item 9.B.)
2. Agricultural Glide Path Rate Analysis
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ITEM 9.B.
MOORPARK CITY COUNCIL
AGENDA REPORT
TO: The Honorable City Council
FROM: Jeremy Laurentowski, Parks and Recreation Director
DATE: November 8, 2017 (CC Meeting of 11/15/17)
SUBJECT: Consider Waterworks District No. 1 Proposed Water Rate Increases
for 2018
BACKGROUND
On October 13, 2016, a Special Meeting of the Ventura County Waterworks District No.
1 (District) Citizens' Advisory Committee (CAC) 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. During the presentation, both District staff
and Raftelis stated that the analysis and rate structure was defensible and in
compliance with the requirements of Prop 218.
On November 7, 2316, the District held a Special CAC Meeting to discuss the rate
structure presented by the District during the October 13, 2016 CAC meeting. The CAC
felt that the rate structure for agricultural users should be reevaluated and referenced a
report prepared in 2012 by the former Director of the Water and Sanitation Department.
The report identified support for a lower rate for agricultural customers due to the fact
that groundwater was less costly to certain District customers.
As required under Prop 218, the District prepared a Notice of Public Hearing (Notice) on
the Proposed Rate Restructuring and Water Rate Increases. Prior to posting the
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Honorable City Council
November 15, 2017
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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. This approach lowered all agricultural rates by
approximately 14%, while increasing all other users between 2% and 4% above the
original recommendation by District staff. 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 CAD.
On December 6, 2016, the District held a Special CAC Meeting 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 believed 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, staff believes that this analysis failed to equally
distribute the costs of water to all customers as was not defensible under Prop,218. Not
all agricultural users are located within the zones that receive the groundwater benefit,
yet all agricultural customers would receive the reduced rate. In addition, a number of
M&I users are located in the areas where they would benefit from the groundwater
supply, however, they will not receive the benefit of lower costs.
The CAC determined 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 CAC 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 rates that were
recommended by Raftelis, as well as the revised water rates due to the groundwater
analysis prepared by District staff to the City Council. The District presented several
scenarios that they felt justified a lower rate for agricultural customers. The first was
regarding treatment costs, stating that agricultural customers don't require treated
water. The second scenario was regarding certain revenue sources that the District felt
could subsidize agricultural rates over a certain period of time. The third was regarding
interruptibility of service. The District explained that during certain periods of peak
demand they may be able to receive reduced water rates from imported water
purveyors, particularly Calleguas, provided agricultural service is designated as
interruptible. However, it was not clear which water rates were going to be
recommended to the Ventura County Board of Supervisors (Board) during the Board
meeting on February 28, 2107.
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Honorable City Council
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Page 3
Staff believes that the scenarios presented by the District were not substantiated for
several reasons. First, all water is treated and the supply cannot be separated to
different customers. Second, the allocation of unrestricted revenue sources to
subsidize agricultural users is a violation of Proposition 218 proportionality requirement.
If non-rate payer revenue sources are applied to discount the rates charged to one
class of users but not others, then the District is necessarily charging non-agricultural
users a disproportionate share of the District's total revenue needs. And lastly,
interruptibility is a paper policy that does not currently translate into actual cost savings.
On February 28, 2017 staff submitted a Letter of Protest (LOP) to the Board for their
consideration, as the District recommended to the Board the District's preferred
scenario which included the lower water rate for agricultural users. The LOP submitted
by the City stated that the City supported the original rate structure originally
recommended in the study prepared by Raftelis, and expressed the City's concerns
regarding the Distict's alternative scenario that favored agricultural users, particularly
the fact that M&I customers would need to subsidize agricultural rates and that the
scenario presented by the District was not defensible under Prop 218 for the various
reasons discussed above. The Board seemed receptive to the City's concerns and
deferred a decision on the water rates to a future Board meeting.
The Board meeting was deferred to the March 14, 2017. During the meeting staff
resubmitted the LOP to the Board and discussed the City's concerns regarding the
proposed water rates by the District. The Board was not receptive to the City's
concerns and approved the District's water rate proposal, which provided a reduced rate
to agricultural users. The agricultural rate approved by the Board was $2.58/HCF,
which was a 33% reduction in the agricultural rates recommended by Raftelis. The rate
recommended by Raftelis was $3.86/HCF.
Staff met with the County Supervisor Foy and District staff to discuss the City's
concerns and.to determine a plan moving forward. It appeared to staff that there was a
genuine understanding that a solution needed to be determined regarding agricultural
rates and a future plan needed to be developed to increase the rates over a period of
time, and make whole the 33% difference in the rate discrepancy. Based on several
conversations during these meetings, staff was under the impression that the District
would prepare a long range plan and meet with City staff prior to the 2017 deadline to
post the Prop 218 Notice and associated Board meeting.
In order to memorialize the City's commitment to determine a solution to this matter, on
May 9, 2017 the District entered into a Tolling Agreement (Agreement) with the City of
Moorpark. The Tolling Agreement will expire on or before March 24, 2018.
DISCUSSION
On October 11, 2017 staff met with Michaela Brown, Director of Ventura County Water
District regarding the District's 2018 Water Rate Proposal. The District provided City
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November 15, 2017
Page 4
staff with a copy of the proposal one day prior to the CAC meeting that was scheduled
on October 12, 2017. The District's proposal included a 7% increase for M&I customers
and a 15% rate increase for agricultural customers. As mentioned previously, the
District recommended, and the Board approved, a 33% reduction in agricultural rates for
2017, as compared to the water rates recommended by Raftelis. The additional
increase for agricultural customers recommended in the 2018 proposal was an attempt
to make agricultural rates whole and to catch up with the overall reduction approved by
the Board. However, at this rate, it would take ten years for agricultural rates to catch
up with the Raftelis recommendation.
Staff prepared a letter (attached), and met with the CAC on October 12, 2017. Staff
requested that the CAC and District staff propose a higher rate for agricultural
customers in the Prop 218 Notice. City staff requested that the District and the CAC
Notice an agricultural adjustment that would make agricultural customers whole with the
rate structure recommended by Raftelis over a seven year period. Staff felt this was a
reasonable compromise, as the ten year payback proposed by the District would require
a subsidy to agricultural customers, from M&I customers, for an excessive period of
time. Staff also made this recommendation so that staff and the City Council would
have time to evaluate all water rate options prior to the Board meeting in
December. The final water rate proposal adopted by the Board can 'be lower than the
rates in the Prop 218 notice, but not higher. The CAC agreed with staffs
recommendation and made a motion as such.
On October 26, 2017 the District mailed the Notice of proposed water rates for 2018 to
District customers. The Notice did not include the higher rate (7 years, not 10 years) for
agricultural customers as requested by staff, and as recommended by the CAC. The
2018 rates presented by the District are as follows:
Residential Current Rates Proposed Rates 2018
Tier 1 (0-10 HCF) $3.20 $3.43
Tier 2 (>10-25 HCF) $3.83 $4.10
Tier 3 (>25 HCF) $4.40 $4.71
Residential Non-Tiered $3.92 $4.20
Residential Multi-Family_ $3.39 $3.63
Commercial $3.67 $3.93
Agricultural $2.58 $2.97
Industrial $3.44 $3.69
Institutional $4.12 $4.41
Temporary Constructions $5.22 $5.59
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FISCAL IMPACT
As discussed previously, this represents an average 7% increase for M&I users and
15% increase for agricultural customers. At this rate, agricultural rates would reach the
rate developed by Raftelis, which is justifiable under Prop 218, in approximately ten
years, and M&I customers would continue to pay more than the Prop 218 justified rate
for the next ten years. This means that M&I customers would pay more than their fair
share of water costs, which is not supported under Prop 218, during the next ten year
period.
STAFF RECOMMENDATION
Direct staff as deemed appropriate.
Attachment: Letter to Ventura County Water and Sanitation Department
•
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P , o CITY OF MOORPARK
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% .Arto �79 PARKS,RECREATION&COMMUNITY SERVICES DEPT. 1 799 Moorpark Avenue,Moorpark,CA 93021
'4EO Main City Phone Number(805)517-6200 1 Fax(805)532-2550 I moorpark@moorparkca.gov
October 12, 2017
Ms. Michaela Brown, Director
Ventura County Water and Sanitation Department
Ventura County Waterworks District No. 1
6767 Spring Road
Moorpark, California 93021
Subject: 2018 Water Rate Proposal
Dear Ms. Brown:
Thank you very much for meeting with City staff yesterday to discuss the water rate increases
proposed by Ventura County Waterworks District No.1 (District) for the 2018 calendar year.
We understand that due to increases in operating costs, the District is proposing a Commodity
Adjustment resulting in a 7% increase for all M&I customers, and an Agricultural Adjustment
resulting in a 15% increase for all agricultural customers. The reason behind the additional
increase in agricultural rates is to make up a percentage of the 33% rate reduction offered to
agricultural customers in 2017. As demonstrated in the five-year projection that was presented
to City staff, the proposed annual rate increase for agricultural customers would take
approximately ten years to catch up with the rate structure proposed by Raftelis Financial
Consultants (Raftelis) in their final report dated December 7, 2016.
As we discussed, the City feels that there should be an additional analysis prepared by the
District to demonstrate the impacts to agricultural customers where the water rate deficiency is
made whole over a five-year period, and another analysis to show this over a seven-year
' period. However, we understand that due to timing, and the provisions of Proposition 218, the
District intends to mail the proposal to District customers by October 26, 2017 in order to
present the proposal to the County Board of Supervisors (Board) on December 12, 2017. Due
to the timing of this process, City staff will not have time to update the City Council on the rate
increases before the Prop 218 notice has been posted. Therefore, the City is requesting that
the District recommend to the Citizen's Advisory Committee during their October 12, 2017
meeting an Agricultural Adjustment that would make agricultural customers whole with the rate
structure recommended by Raftelis over a seven-year period. This would allow the District the
ability to present a final Water Rate Proposal to the Board that is equal to, or lower than the
rate structure filed under Prop 218, and will also allow time for the Moorpark City Council to
hear the District's proposal and comment as appropriate.
JANICE S.PARVIN ROSEANN MIKOS,Ph.D. KEITH F.MILLHOUSE DAVID POLLOCK MARK VAN DAM
Mayor Councilmember Councilmember Councilmember Councilmember
154
Michaela Brown
October 12, 2017
Page 2
Thank you for your consideration.
Sincerely,
� | ---
J'ne 'y Laurentowski
Parks and Recreation Director
City of Moorpark
CC: Peter Foy, Supervinor, County of Ventura
Citizen's Advisory Committee
City Council, City of Moorpark
Steven Kuany, City Manager, City of Moorpark
-
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I
Ventura County Waterworks District-Moorpark ATTACHMENT 2
Agricultural Glide Path Rate Analysis - Based on Proposed Rate Increase
AGRICULTURE RATE ADJUSTMENT: At Full Cost of Service Rate in Fiscal Year 2018
7% 7% 7% 7% 7% 7%
, ,
Additional Agricultural Rate Increase si ,, $1.56 $0.00 $0.00 $0.00 $0.00 $0.00
AGR Rate with no Additional Increase $2.58 $2.77 $2.97 $3.18 $3.41 $3.65 $3.91
Maximum Agricultulral Rate $3.86 4.14 4.43 4.75 5.09 5.45 5.84
Commodity Rates Current Rates FY2018 FY2019 FY2020 FY2021 FY2022 FY2023
Agricultural $2.58 $4.14 $4.43 $4.75 $5.09 $5.45 $5.84
Agricultural Rate%of Increase 60% 7% 7% 7% 7% 7%
AGRICULTURE RATE ADJUSTMENT: To be Made Whole within the Six Years Period
7% 7% 7% 7% 7%I 7%
Additional Agricultural Rate Increase $0.20 $0.25 $0.25 $0.30 $0.35 $0.35
AGR Rate with no Additional Increase $2.58 $2.77 $2.97 $3.18 $3.41 $3.65 $3.91
Maximum Agricultulral Rate $3.86 li
4.14 4.43 4.75 5.09 5.45 5.84
Commodity Rates Current Rates FY2018 FY2019 FY2020 FY2021 FY2022 FY2023
Agricultural $2.58 $2.97 $3.43 $3.93 $4.51 $5.18 $5.84
Agricultural Rate%of Increase 15% 15% 15% 15% 15% 13%
-ANALYSIS USING FY18 PROPOSED RATE INCREASE
Revenue Loss from Agricultural Water Sales on the Glide Path Rates:
FY2018 FY2019 FY2020 FY2021 FY2022 FY2023
AGR Rate calculated at Full Cost of Service $4.14 $4.43 $4.75 $5.09 $5.45 $5.84
AGR on the Glide Path Rate-Made Whole in Sixth Year $2.97 $3.43 $3.93 $4.51 $5.18 $5.84
Discount($/hcf) ($1.17) ($1.00) ($0.82) ($0.58) ($0.27) $0.00
Revenue Loss due to the Glide Path: -- _
AGR Estimated Usage(HCF) 844,288.05 852,730.93 861,258.24 869,870.82
Discount($/hcf) ($0.82) ($0.58) ($0.27) $0.00
Annual Revenue Lou ($692,316.20) ($494,583.94) ($232,539.73) $0.00
FY18 Loss ($968,353.12) ($968,353.12) ($968,353.12) ($968,353.12) $0.00
FY19 Loss ($835,928.76) ($835,928.76) ($835,928.76) $0.00
FY20 Loss ($692,316.20) ($692,316.20) $0.00
FY21 Loss ($494,583.94) $0.00
FY22 Loss
Annual Compounding Revenue Loss ($968,353.12) ($1,804,281.89) ($2,496,598.09) ($2,991,182.03) ($3,223,721.76) $0.00
------------
Per Unit(HCF)cost
Total Volume of Consumption for Non-Agriculture Accounts 2698460 2698460 2698460 2698460 2698460 $0.00
_Per Unit(HCF)cost I ($0.36) ($0.31) ($0.26) ($0.18) ($0.09) $0.00
FY18 Loss ($0.36) ($0.36) ($0.36) ($0.36) $0.00
FY19 Loss ($0.31) ($0.31) ($0.31) • $0.00
FY20 Loss ($0.26) ($0.26) $0.00
FY21 Loss ($0.18) $0.00
Compounded totals for Non-AGR Customers ($0.36) ($0.67) ($0.93) ($1.11) ($1.19) $0.00
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