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 CITY COUNCIL AGENDA ITEM NO. 16 


Meeting Date: December 10, 2002

Subject/Title: Waive second reading and adopt Ordinance No. 729 implementing the new tiered water rate structure and water rates for Fiscal Years 2002/03 to 2006/07 as submitted herein and accept the Water Rate Study as prepared by Berryman & Henigar dated November 18, 2002. 

Submitted by: Paul Zolfarelli, Director of Public Works/ Pam Ehler, Director of Finance & Information Systems

Approved by: John Stevenson, City Manager


RECOMMENDATION

Waive second reading and adopt Ordinance No. 729 implementing the new tiered water rate structure and water rates for Fiscal Years 2002/03 to 2006/07 as submitted herein and accept the Water Rate Study as prepared by Berryman & Henigar dated November 18, 2002

PREVIOUS ACTION

On November 26, 2002 the City Council introduced with the first reading waived Ordinance No. 729 approving a tiered water rate and rate structure for Fiscal Years 2002/03 to 2006/07.

BACKGROUND

The City of Brentwood Water Division Enterprise Fund must recover its cost of service to ensure that there is no need for funding from the City General Fund. It does this by examining operations costs, material and supply costs, debt services, normal additions and replacements of the existing system, administrative costs and capital improvement programs then distributing these costs appropriately among the purchasers of water.

In 1998, when the last rate study was conducted, the City of Brentwood population receiving water service was less than 17,000 people. Today, the community has grown to 32,500. This is an increase in population of 85% in just four years. This significant increase in population has required the City to build additional potable water wells and purchase additional surface water to meet our growing demands. Also, the City is examining the possibility of constructing a new water treatment facility. This facility would meet future demands as well as serve current users. State loans needed for funding this facility will require rates that support the enterprise fund.

The demands from peak water use have also placed a significant load on our water resources. Peak load uses can be defined as the time when users place the largest demand on the system. This is especially evident in the summer when irrigation demands are at their highest. This places the City in a potential water crisis. Peak demands could out pace supply.

These issues necessitated the staff to examine the rate structure needed for the coming fiscal years.


DISCUSSION

Rate studies are critical to ensure that proper funds are collected to operate the various City of Brentwood enterprises. Staff has utilized the services of a rate consultant in the past to develop a rate structure that creates an equitable rate for all water customers. The current rate structure charges a fixed rate for meters and a variable rate of $1.89 per 1,000 gallons of water purchased. These existing rates will not be sufficient to ensure that future revenues maintain pace with expenditures.

City staff contracted with Berryman & Henigar to review the current water structure and recommend possible rate and fee increases to cover cost of operating, upgrading, and when needed, expanding the water service. Additionally, Berryman & Henigar were tasked with developing a tiered rate structure that would promote water conservation and help reduce peak water usage.

The City of Brentwood water service provides over 1,750 million gallons of water annually through 92 miles of distribution mains to 11,700 customer connections. From Fiscal Year 1998/99 to 2002/03 rates have only increased by $0.30. In Fiscal Year 1998/99 the consumption rate charge was $1.59 per unit (one unit = 1,000 gallons). Today, that rate is $1.89. This variable rate charge covers 2/3 of all personnel cost and materials and supplies.

The monthly 1” meter charge has increased from $15.44 in Fiscal Year 1998/99 to $18.38 today. This $2.94 increase covers the increase in our fixed costs, which includes all work and replacement on the piping and the valves and meters used to bring the water to the customer.

Berryman & Henigar examined revenue requirements and projected these through a five-year period beginning in Fiscal Year 2002/03 and running through Fiscal Year 2006/07. The projected costs were based on historical operating costs, inflationary trends and anticipated increases. Operations and maintenance costs are anticipated to increase at a similar rate as new water service accounts.

Debt service coverage was also examined, as was the potential of the City financing a new water treatment facility using the SWRCB (State Water Resources Control Board) Revolving Fund Loan. Debt service coverage is required because in 1996 the City issued $12,195,000 in revenue bonds to fund pipelines, additional wells, pump stations and connections. The bond covenant requires that net revenues available for payment of the debt be at least 125% of the annual payment requirements. Net revenues are defined as gross revenues minus operating expenses. While the existing rate covers the current debt service, increases in operating expenses will create a considerable short fall in the coming fiscal years. If the City were to apply for a SWRCB loan, it would be required to have a rate structure that would support the loan repayment.

Final analysis by Berryman & Henigar determined that the current rate structure of $1.89 per unit does not generate sufficient funds to cover operating expenses, debt service and depreciation. The additional revenue is needed to cover projected operating costs as well as future debt service requirements.

Berryman & Henigar has proposed the following tiered rate structure to meet our revenue requirements:



MONTHLY CONSUMPTION RATE CHARGE + CPI

Tier Units 2002/03 2003/04 2004/05 2005/06 2006/07
1 1-10 $2.10 $2.14 $2.18 $2.22 $2.26
2 11-20 $2.50 $2.55 $2.60 $2.65 $2.70
3 21-30 $3.00 $3.06 $3.12 $3.18 $3.24
4 31+ $3.50 $3.57 $3.64 $3.71 $3.78

This will replace the current flat rate of $1.89 per unit (1 unit = 1,000 gallons). This is the variable portion of the rate. Residential accounts will be based on a four-tier structure and commercial accounts will be based on the first two tiers. The current rate structure is based on a flat charge for all water use. It is believed that implementing a tiered rate structure will encourage water conservation and in turn reduce the peak demand on our water system. Additionally, this tiered rate structure will assist in compliance with SWRCB requirements for future loans. The rationale for implementing four (4) tiers for residential and two (2) for commercial are that it was more equitable for the commercial and commercial irrigation users since the nature of the business may not allow for significant conservation. Charging commercial users for water based on the first two tiers lessens the impact of the tiered rate on those users that have minimal control over their water usage.

Berryman & Henigar has proposed the following fixed rate for monthly meter charges:

MONTHLY METER RATE CHARGE + CPI

Meter Size 2002/03 2003/04 2004/05 2005/06 2006/07
5/8” or 3/4" $13.42 $13.69 $13.96 $14.24 $14.53
1” $20.22 $20.62 $21.03 $21.46 $21.88
1 ½” $40.16 $40.96 $41.78 $42.62 $43.47
2” $66.98 $68.32 $69.68 $71.08 $72.50
3” $111.65 $113.88 $116.16 $118.48 $120.85
4” $178.63 $182.20 $185.85 $189.56 $183.35
6” $357.35 $364.49 $371.78 $379.22 $386.80


This is necessary to cover the expected increases associated with maintenance and repair of the infrastructure. This is the fixed portion of the rate and will not change on a month-to-month basis. The current meter rate creates a deficient in this category.

The current connection fee for new customers is sufficient to cover the costs of expansion based on the City of Brentwood’s current plan to apply for a State Water Resources Control Board loan to assist in the financing a new water treatment facility. No adjustment in this charge is recommended. If staff does not secure funding from the State, this portion of the rate should be re-evaluated.

The proposed rate structure was also compared to similar water purveyors in neighboring communities. The chart below compares Brentwood’s existing and proposed rate with these agencies:

Other Water Rate Structures 

Block (1) Rate per unit (100 cu ft.) Rate per unit 1000 gal Meter Charge
(1” and 1-1/2”)
Dublin San Ramon Services District 0-11 units
12+ units $1.74
$1.89 $2.33
$2.53 $18.20
$34.35
City of Pleasanton (2) Residential:
0-11 units
12-28 units
Over 28 units
Non-Residential:
All units 
$1.55
$2.05
$2.25
$1.63 
$2.07
$2.74
$3.01
$2.18 
$19.63
$39.25
Diablo Water District Per 100 cf/748 gal
Commercial $2.48 $3.32 $28.00
$41.00
City of Pittsburg Rate per 748 gal $2.08 $2.78 $14.05
$17.92
City of Brentwood (current) Rate per 1000 gal $1.41 $1.89 
City of Brentwood (proposed) 1-10
11-20
21-30
31+ $2.10
$2.50
$3.00
$3.50 
$20.13
$39.98
City of Antioch Zone 1 (3) $1.71 $2.29 $7.85
$33.25
City of Livermore 0-4 units
5-26 units
Over 26 units
Commercial:
0-37 units
Over 37 units $1.56
$1.87
$2.89

$1.87
$2.89 $2.08
$2.50
$3.86

$2.50
$3.86 
$35.00


$35.00

City of Tracy (Summer Rates)
Residential & Commercial 0-13 units
14-22 units
23-215 units
Over 215 units $0.85
$1.20
$1.40
$1.50 $1.14
$1.60
$1.87
$2.01 
$17.15
$39.20
City of Tracy (Winter Rates)
Residential and Commercial 0-9 units
10-14 units
15-143 units
Over 143 units $0.85
$1.20
$1.40
$1.50 $1.14
$1.60
$1.87
$2.01 
$17.15
$39.20

(1) Where necessary blocks were adjusted and rounded up to the nearest unit to be consistent with 1,000 gallon units. (2) City of Pleasanton has a separate charge for seasonally for irrigation. Usage charges were converted from bi- monthly to monthly for comparison purposes by dividing by 2. (3) Zone II, III, IV include pumping quantity surcharge of .04,.10 and .18 respectively.

FISCAL IMPACT

Proposed Billing Structure 
Tier Gallons in 0000s Consumption in Units (1,000 gal) Projected Consumption for FY 2003/04 Rate / Unit (1,000 gal) Revenue Revenue w/5% Reduction in Tiers 3 & 4 Revenue w/10% Reduction in Tiers 3 & 4 Revenue w/15% Reduction in Tiers 3 & 4 Revenue w/20% Reduction in Tiers 3 & 4
Tier 1 1-10 649,522 861,621 $2.10 $1,809,405 $1,809,405 $1,809,405 $1,809,405 $1,809,405
Tier 2 11-20 457,063 606,315 $2.50 $1,515,789 $1,515,789 $1,515,789 $1,515,789 $1,515,789
Tier 3 21-30 126,990 126,990 $3.00 $380,970 $361,922 $342,873 $323,825 $304,776
Tier 4 31+ 211,832 211,832 $3.50 $741,412 $704,341 $667,271 $630,200 $593,130
Estimated Revenue @ New Rate: $4,447,575 $4,391,456 $4,335,337 $4,279,218 $4,223,099


This new rate structure places 41% of all residents in the first tier. Tier 2 includes approximately 34% of our users, thus putting 75% of the residents in the first two tiers of the rate structure. The remaining users would fall in the last two tiers, with 15% in Tier 3 and 10% in Tier 4. These upper tiers are historically the areas where the greatest opportunity for conservation occurs. Changes in water use through landscape modifications are usually the most efficient way for high residential water users to bring water use down, potentially dropping them into one of the lower tiers. This would have a significant effect on reducing peak water demands. The proposed rate structure will generate sufficient revenue even if the water use is reduced by 10%. Reductions in use greater than 10% would require a supplemental rate adjustment to ensure revenues maintain pace with expenses. It is important to note that the highest water users, those in tiers 3 and 4 contribute significantly to the need for the City of Brentwood to implement capital improvement projects needed to meet their peak water use demands. It is therefore equitable for these users to pay a higher rate for water.

This tiered rate along with the meter rate charge will be increased by 2% each year plus CPI through Fiscal Year 2006/07.

The rates outlined above are sufficient to ensure the financial stability of the Municipal Water Rate Enterprise Fund. It is recommend that Council direct staff to implement this rate structure. It should also be noted that since this is a new rate structure utilizing a tier rate for billing, staff will be updating this study in the next 24 months.

Attachments:
• Ordinance
• Water Rate Study


ORDINANCE NO. 729

AN ORDINANCE OF THE CITY COUNCIL OF THE CITY OF BRENTWOOD ADOPTING MONTHLY USER CHARGES FOR WATER SERVICE

WHEREAS, the Water Enterprise Rate Study provides a financial vehicle to secure a safe, reliable water supply, and funds a strong ongoing maintenance program and requires a new monthly user rate for water service; and

WHEREAS, it is imperative for the adequacy of the City's water needs that an ordinance be adopted to establish new rates, in accordance with the requirements of Health and Safety Code Section 5471; and

WHEREAS, the Water Enterprise Rate Study proposes a new monthly water rate and tiered water rate structure to address the needs of the citizens for sanitary and effective water service; and

WHEREAS, the revenue derived from the user rates shall be used in a manner consistent with Health and Safety Code Section 5471 and the City's ordinances pertaining to water services including without limitation, the payment of installment sales payments or other debt service with respect to the financing of capital facilities for the water system; and

WHEREAS, the subdivision and development of property within the existing and planned water service area will require construction of the facilities described in the Plan, Study and CIP, and that the user charges are fairly apportioned within such area on the basis of the need for such facilities created by such planned and existing development; and

WHEREAS, the City has analyzed the existing CIP (Capital Improvement Plan), the Water Enterprise Five Year Plan and Rate Study adopted through Ordinance 607 on November 24, 1998, and has determined that a new "Water Enterprise Rate Study" was warranted; and

WHEREAS, the provisions of Proposition 218, which added Article XIII D to the State Constitution, do not apply to this proposed ordinance in light of the fact that the proposed rates are based upon metered consumption and charged to the consumer. They do not have a direct relationship to property ownership and are not imposed upon parcels of land nor as an incident of property ownership; and

WHEREAS, the City has studied the proposed charge per parcel and has concluded that they do not exceed the reasonable cost of providing water service and facilities to water consumers and is proportionately representative of the costs incurred by the City. The charges reflect the burdens placed on the water system by users and are not in excess of the benefits the users receive from the system.

NOW, THEREFORE, the City Council of the City of Brentwood does ordain as follows:

1. The City Council accepts the Study attached hereto;

2. The City Council adopts the rates as set forth in the Study, which shall be effective and applied to all users February 1, 2003;

3. The City Council authorizes an annual automatic adjustment to the rates effective each July 1st based upon the most current San Francisco CPI (Consumer Price Indexes) for the preceding twelve (12) months;

4. The rates, as may be adjusted, shall be effective February 1, 2003 through and including the Fiscal Year 2006/07 unless otherwise modified by virtue of future Council action. If no such Council action occurs relative to the Fiscal Years following 2006/07, the rates then charged for the Fiscal Year 2006/07 shall continue to apply to subsequent fiscal years;

5. For water delivered or furnished, within the limits of the City of Brentwood water service area, the following rates shall apply, effective February 1, 2003;

(a) A monthly service charge per billing unit for each month that service is available for consumption, according to the schedule following:

RESIDENTIAL MONTHLY CONSUMPTION RATE CHARGE + CPI

Tier Units 2002/03 2003/04 2004/05 2005/06 2006/07
1 1-10 $2.10 $2.14 $2.18 $2.22 $2.26
2 11-20 $2.50 $2.55 $2.60 $2.65 $2.70
3 21-30 $3.00 $3.06 $3.12 $3.18 $3.24
4 31+ $3.50 $3.57 $3.64 $3.71 $3.78


COMMERCIAL MONTHLY CONSUMPTION RATE CHARGE + CPI

Tier Units 2002/03 2003/04 2004/05 2005/06 2006/07
1 1-10 $2.10 $2.14 $2.18 $2.22 $2.26
2 11+ $2.50 $2.55 $2.60 $2.65 $2.70


MONTHLY METER RATE CHARGE + CPI

Meter Size 2002/03 2003/04 2004/05 2005/06 2006/07
5/8” or 3/4" $13.42 $13.69 $13.96 $14.24 $14.53
1” $20.22 $20.62 $21.03 $21.46 $21.88
1 ½” $40.16 $40.96 $41.78 $42.62 $43.47
2” $66.98 $68.32 $69.68 $71.08 $72.50
3” $111.65 $113.88 $116.16 $118.48 $120.85
4” $178.63 $182.20 $185.85 $189.56 $193.35
6” $357.35 $364.49 $371.78 $379.22 $386.80


6. The CIP Plan and Study and all other pertinent evidence demonstrate that, notwithstanding the inapplicability of Article XIII D Section 6(b) of the State Constitution to this ordinance, the findings contained therein have been met: (a) the revenues derived from the charges shall not exceed the funds required to provide the water service; (b) the revenues derived from the charges shall not be used for any purpose other than that for which the charges are imposed; (c) the amount of a charge imposed upon a consumer shall not exceed the proportional cost of the water services attributable to the consumer; and (d) the charges are imposed only inasmuch as the water services are actually used by, or immediately available, to the consumer. The charges adopted herein do not include standby charges, which are separately regulated;

7. Until the February 1, 2003 effective date specified in Section 1 of this Ordinance, all water rates as established under Sections 1(a) and (b) of Ordinance 607, adopted by this Council on November 24, 1998 shall remain in full force and effect;

8. Notwithstanding any other provision hereof, in the event that any installment sale or purchase agreement, loan, bond or other indebtedness lawfully entered into by the City requires the City to increase the rates and charges to comply with any covenant regarding rates and charges for the City's water system, the rates and charges herein provided for may be increased by this Council by resolution; and

9. All resolutions and ordinances, or portions thereof, in conflict herewith are hereby repealed. The City Clerk is directed to publish this ordinance in any manner consistent with Government Code Section 36933.

INTRODUCED, WITH FIRST READING WAIVED by the City Council of The City of Brentwood at its regular meeting on November 26, 2002 and adopted at its regular meeting December 10, 2002 by at least 4/5ths vote;

City Administration
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Brentwood, CA 94513
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E-mail allcouncil@brentwoodca.gov