65B - PROPOSED WATER AND SEWER RATE ADJ

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Authorize Staff to Prepare Documents for Proposed Water and Sewer Rate Adjustments December 2, 2014 Page 3 The proposed rate adjustments outlined below support the recommended CIP plans and allow the utilities to meet all financial goals: Combined water & sewer rate increase of 3.2% per year (March 2015, July 2015, July 2016, July 2017, and July 2018), comprised of - Water Utility rate increase, 2.8 % per year - Sewer Utility rate increase, 8.8% per year Rate Design The City requested that B &V examine alternative rate structures to increase revenue stability. Currently, the City's water utility only recovers approximately 8% of revenues through the fixed base charge. For the sewer utility, there is no fixed base charge. However, an estimated 80% of the cost to run the utilities is fixed. Rate structures that are heavily dependent on usage levels cannot provide sufficient funds to cover fixed costs. Phasing in water rate adjustments over the next 5 years will help the City reach a 16% fixed cost recovery level by 2018. The consultant determined cost -of- service rates for FY 2018 and then phased in rates for each preceding year. The recommended water rate structure consists of an increasing fixed base service charge and a commodity rate (Exhibit 1, Tables ES -5 and ES -6). For the sewer utility, increased revenue stability will be achieved through the introduction of two fixed charges: a capital recovery charge and a lateral repair program charge. The capital recovery charge covers the capital needs of the utility. The lateral repair program charge funds sewer lateral repair work performed by the City. The sewer rate structure maintains a commodity charge and adds a new Fats, Oils, and Greases monthly charge applicable to food establishment services only (Exhibit 2, Table ES -5). Typical Bill Impact The financial impact of the proposed revenue adjustments and rate structure changes on the typical customer was evaluated. The overall increase in the combined typical bill of a single - family residential customer will be less than $0.07 per day (based on 1500 cubic feet of water used per month). When compared to neighboring cities, the typical Santa Ana customer pays significantly less for water and sewer services than more than half of its neighbors (Exhibit 1, Figure ES -7; Exhibit 2, Figure ES -6). STRATEGIC PLAN ALIGNMENT Approval of this item supports the City's efforts to meet Goal #6 Community Facilities & Infrastructure, Objective #1 (establish and maintain a Community Investment Plan for all City assets), Strategy H (complete waterlwaste water rate study to ensure adequate resources to capture critical long -term capital needs). ENVIRONMENTAL IMPACT There is no environmental impact associated with this action. L• MW