HomeMy WebLinkAbout2009-09-02 - Board of Directors Meeting Agenda Packet
'rb Linda
Water District
AGENDA
YORBA LINDA WATER DISTRICT
BOARD OF DIRECTORS SPECIAL MEETING
Wednesday, September 2, 2009, 8:00 AM
1717 E Miraloma Ave, Placentia CA 92870
1. CALL TO ORDER
2. PLEDGE OF ALLEGIANCE
3. ROLL CALL
John W. Summerfield, President
William R. Mills, Vice President
Paul R. Armstrong
Michael J. Beverage
Ric Collett
4. ADDITIONS/DELETIONS TO THE AGENDA
5. PUBLIC COMMENTS
Any individual wishing to address the Board is requested to identify themselves and state the matter on which
they wish to comment. If the matter is on the agenda, the Board will recognize the individual for their comment
when the item is considered. No action will be taken on matters not listed on the agenda. Comments are limited
to matters of public interest and matters within the jurisdiction of the Water District. Comments are limited to five
minutes.
6. ACTION CALENDAR
This portion of the agenda is for items where staff presentations and Board discussions are needed prior to
formal Board action.
6.1. 2009 Water Rate Report
Recommendation: That the Board of Directors receive and file the 2009 Water Rate
Report.
6.2. Resolution of Support for the Municipal Water District of Orange County (MWDOC)
Recommendation: That the Board of Directors discuss and consider adopting
Resolution No. 09-14 In Support of the Municipal Water District of Orange County
and In Opposition of Efforts to Divide Orange County into North and South
Wholesale Water Agencies.
7. ADJOURNMENT
7.1. The next regular meeting of the Board of Directors will be held September 10, 2009 at
6:30 p.m.
Items Distributed to the Board Less Than 72 Hours Prior to the Meeting
Pursuant to Government Code section 54957.5, non-exempt public records that relate to open session agenda items
and are distributed to a majority of the Board less than seventy-two (72) hours prior to the meeting will be available for
public inspection in the lobby of the District's business office located at 1717 E. Miraloma Avenue, Placentia, CA 92870,
during regular business hours. When practical, these public records will also be made available on the District's internet
website accessible at http://www.ylwd.com/.
Accommodations for the Disabled
Any person may make a request for a disability-related modification or accommodation needed for that person to be
able to participate in the public meeting by telephoning the Executive Secretary at 714-701-3020, or writing to Yorba
Linda Water District, P.O. Box 309, Yorba Linda, CA 92885-0309. Requests must specify the nature of the disability and
the type of accommodation requested. A telephone number or other contact information should be included so the
District staff may discuss appropriate arrangements. Persons requesting a disability-related accommodation should
make the request with adequate time before the meeting for the District to provide the requested accommodation.
ITEM NO. 6.1
AGENDA REPORT
Meeting Date: September 2, 2009 Budgeted: N/A
To: Board of Directors
Funding Source: N/A
From: Ken Vecchiarelli, General
Manager
Presented By: Ken Vecchiarelli, General Dept: Administration
Manager
Reviewed by Legal: No
Prepared By: Ken Vecchiarelli, General CEQA Compliance: N/A
Manager
Subject: 2009 Water Rate Report
SUMMARY:
Attached for the Board's review and discussion is the 2009 Water Rate Report. The report provides
the justification and the rationale behind the proposed rates scheduled to be considered by the
Board on September 10, 2009. The proposed rates within the report have been included in the
notice mailed to all District customers pursuant to Proposition 218.
STAFF RECOMMENDATION:
That the Board of Directors receive and file the 2009 Water Rate Report.
PRIOR RELEVANT BOARD ACTION(S):
At the Board meeting held on August 13, 2009, Staff provided the Board with an overview of the
proposed rates, including the justification and the rationale to support Staff's recommendation.
ATTACHMENTS:
DraftYLWDRateStudy A.pdf graft Report Report(sl
Yorba Linda Water District
Water Rate Report
September/2009
YLWD Water Rate Report – September 2009
Table of Contents
Background ........................................................................................................... 3
Purpose and Scope .............................................................................................. 4
Proposition 218 Compliance ................................................................................. 5
Service Classifications .......................................................................................... 5
Historical Water Rates .......................................................................................... 6
Existing Water Rates ............................................................................................ 6
Operating and Non-Operating Expenses .............................................................. 7
Vehicle and Equipment Expenses ........................................................................ 8
Depreciation Expense ........................................................................................... 9
Capital Improvement and Replacement Programs ............................................... 9
Operating Reserves ............................................................................................ 10
Revenue Requirements and Revenue Targets ................................................... 10
Proposed Water Rate Increase ........................................................................... 11
Alternative 1 – Flat Commodity Rate for all Classes of Service .......................... 12
Alternative 2 - Block Tiered Rate Structure for Single-Family Residential Class. 13
Wholesale Water Charges above Allocation Levels............................................ 18
Conclusions and Recommendations ................................................................... 19
Exhibit “A” – Proposition 218 Notice ................................................................... 21
Exhibit “B” – Breakdown of Expenses and Outlay............................................... 23
Exhibit “C” – Historical and Breakdown of Variable Water Costs ........................ 24
Exhibit “D” – Variable Water Costs Budget Assumptions .................................... 25
Exhibit “E” – Five Year Capital Improvement Program ....................................... 26
Page 2
YLWD Water Rate Report – September 2009
Background
Yorba Linda Water District (“District”) provides water and partial sewer service to
approximately 23,000 homes and businesses within a 23 square-mile territory
serving the cities of Yorba Linda, portions of Brea, Anaheim, and Placentia, and
a small unincorporated area in the County of Orange. The District is an
independent California Special District formed pursuant to California Water Code
Division 12, Section 30,000 et seq.
In 1959, local residents voted to organize the Yorba Linda County Water District
by authorizing the issuance of $1,900,000 in general obligation bonds to acquire
the assets of the Yorba Linda Mutual Water Company. From 1959 to the mid-
1970's, the District's service area changed from an agricultural to a residential
community. In 1978, the District expanded its boundaries by annexing nearly
7,000 acres of undeveloped land north of the Santa Ana River between Fairmont
Boulevard on the west, and the San Bernardino/Orange County line on the east.
The newly annexed territory was divided into two areas of benefit known as
Improvement District No. 1 and Improvement District No. 2. This expansion
increased the total area covered by the District to about 13,900 acres, or about
22 square miles.
The District’s service area can best be described as a suburban residential
bedroom community. According to demographic data from a recent survey, about
60% of the District’s residents are classified as either professional or white collar
workers. Retail commercial businesses are located at key points throughout the
service area. No heavy industrial or manufacturing occurs within the District’s
boundaries. There are, however, several small commercial/light industrial centers
located in the southern and eastern portions of the District.
Sources of water supply for the District include both groundwater and imported
water. Groundwater is pumped from the Orange County Aquifer, and currently
accounts for approximately 50% of the District’s total water supply. The District
also obtains import water from the Colorado River and northern California
through the Municipal Water District of Orange County, the local wholesaler for
Metropolitan Water District.
The water system consists of more than 600 miles of various diameter water
pipes, 13 reservoirs with a combined capacity of about 54 million gallons and
nine water wells with a combined capacity of about 20 million gallons per day. In
addition, there are three connections for imported water supply with a combined
capacity in excess of 50 million gallons per day.
Page 3
YLWD Water Rate Report – September 2009
Purpose and Scope
The main purpose of this study is to design water rates for FY 2009/10 based on
cost of service which will generate adequate revenues to support operations and
maintenance (O&M) costs, a portion of capital funding, debt service and reserve
requirements. This report will also provide the justification for the recommended
rate structure with the goal of generating the revenue needs of the District.
The existing water rate structure includes a monthly basic service charge and a
commodity charge. The combination of these two charges generate the majority
of the revenues required to cover the expenses of providing safe and reliable
water service to the community for domestic, irrigation and fire protection
purposes. Other revenue sources include the District’s share of ad valorem
property taxes, revenue from fees, leases and interest on investments. The
scope of this Water Rate Report does not address the District’s sewer rate or
sewer related activities, as it focuses only on the water enterprise.
The 2009 Water Rate Report will address the District’s current rate structure, the
revenues and expenses from the District’s FY 2009/10 budget and the
methodology for a recommended rate structure that is sufficient to cover the
District’s expenditures.
As identified in the FY 2009/10 Budget, the District has instituted cost saving
measures to reduce or maintain expenses while maintaining or in some cases,
increasing the level of service to customers. These cost reductions and service
improvements include the following:
The number of authorized full time employees has been reduced by
one position
Six authorized positions will remain vacant and have not been funded
in FY 2009/10
No cost of living adjustments for employees were budgeted for FY
2009/10
The total number of vehicles in the District’s fleet will be reduced by
four
Meters are now read on a monthly basis and customers billed within
seven days
On line bill pay and web based bill viewing will be available in
September
Web based agenda posting and report downloading will be improved
Increased customer service outreach, public information and programs
supporting water conservation and water use efficiency
Page 4
YLWD Water Rate Report – September 2009
Two options for the water commodity charge will be presented to the Board of
Directors for consideration. One option includes a flat commodity charge, similar
to the existing rate with an adjusted amount. The second option is a five-tiered
water commodity charge designed to provide a lower rate for critical water usage
and to promote water conservation for non-essential use. In both cases, the
methodology and recommendation for an adjusted monthly service charge
remains the same.
A public hearing for the proposed rate adjustments is scheduled for September
10, 2009. Should the Board of Directors adopt a rate change, the effective date
is scheduled to be September 14, 2009.
Proposition 218 Compliance
Proposition 218 is applicable to the District and compliance includes developing
a nexus between the proposed rates and the costs for providing service, in
addition to providing notification to the rate payers of a proposed rate adjustment
45 days prior to a public hearing. Additionally, the rate payers must be provided
opportunity to protest the rate adjustments in writing. On July 23, 2009, District
th
customers were notified of the September 10 public hearing by means of a
mailed notice. The notice provided details of the proposed rate adjustment along
with the protest procedures. A sample of the notice is attached as Exhibit “A”.
Service Classifications
The District currently provides water service to four primary classes. The
following is a breakdown of each class, including the number of services and
percentages within each class as of June 30, 2009.
Service Classifications Services % of Services
Residential (Single-Family) 21,582 92%
Residential (Multi-Family) 228 1%
Commercial 799 3%
Landscape & Irrigation 831 4%
Total 23,440 100%
Page 5
YLWD Water Rate Report – September 2009
Historical Water Rates
Since 2004, the District has implemented four rate adjustments. The rates which
became effective on January 1, 2008, are currently in place today. The following
table provides a history of rate modifications since 2004:
Effective Effective Effective Effective
Type of Charge 01/01/2004 01/01/2005 07/01/2005 01/01/2008
Basic Monthly Service Charge $6.70 $7.47 $7.92 $8.35
Commodity Charge $1.33/HCF $1.48/HCF $1.57/HCF $1.79/HCF
Existing Water Rates
The current water rate structure includes a fixed basic monthly service charge of
$8.35 per meter. Each water meter, regardless of size and water usage, is
charged this minimum basic monthly service charge since it receives the benefit
of service on demand. This basic monthly service charge generates revenue to
cover a small portion (approximately 22% in prior years) of the District’s fixed
expenses. The justification for the basic monthly service charge is that expenses
related to operating and maintaining the water system infrastructure are incurred
regardless of the amount of water produced and delivered to the District’s
customers. These expenses include supplies and services, salaries and
benefits, and expenditures related to the District’s debt service. The debt service
includes principle and interest payments on money borrowed to pay for capital
improvement and replacement projects. The District’s total debt service for FY
2009/10 is approximately $2.8M.
The current commodity charge of $1.79/HCF is the amount the District charges
for each billing unit of water used, which is equivalent to one hundred cubic feet
or 748 gallons. This charge generates the majority of the District’s total revenue
and is intended to cover the balance of the fixed expenses as well as the variable
expenses which include the costs to purchase water and the energy required to
transport this water throughout the District’s service area. The FY 2009/10
Budget identifies basic assumptions for the fiscal year’s total expenses and total
revenues. The water enterprise revenues calculated in the budget document
were generated using the existing water rate structure and showed a net deficit
of $8,617,261, not including principle repayment of debt and outlay for vehicles
and equipment. The net loss also does not include outlay for capital
improvements and replacements, which will be funded from reserves restricted
for these capital outlays. The magnitude of this deficit underscores the
importance of establishing a water rate that will generate the revenue required to
fund the continuation of vital services to the community.
Page 6
YLWD Water Rate Report – September 2009
Operating and Non-Operating Expenses
The Adopted Budget for FY 2009/10 indentifies the total expenses of the District
and allocates these expenses appropriately to the water and sewer enterprise
funds. The cost to provide water service includes operating and non-operating
expenses and capital outlay. Operating expenses include the day to day costs to
purchase, deliver water to each service connection and to operate and maintain
the water utility infrastructure. Operating expenses also include depreciation of
the District’s capital assets including reservoirs, booster pump stations, wells,
pipelines, buildings, meters, fire hydrants and other appurtenances. Non-
operating expenses and capital outlay include principle and interest payments on
debt service, vehicle and equipment purchases and capital improvement and
replacement expenditures. Exhibit “B” provides a breakdown of the major
expenses and outlay components.
Variable Water Costs
The Variable Water Cost components include the cost of water the District pays
to the Municipal Water District of Orange County (MWDOC) for import water,
assessments paid to Orange County Water District (OCWD) for local
groundwater replenishment and power costs. The costs associated with each of
these components are beyond the District’s control as these expenses are
primarily determined by external entities. In FY 2009/10, Variable Water Costs
are anticipated to increase an unprecedented $2.2M from the previous fiscal
year. Attached as Exhibit “C” is a graph depicting historical Variable Water Costs
since FY 2006/07 and a breakdown with each variable cost component.
Import water costs increased 14.1% effective January 1, 2009 and will increase
another 19.7% effective September 1, 2009. Furthermore, it is expected this cost
will rise another 21.5% by January 1, 2011.
While the groundwater replenishment assessment (RA) increased by only 11.7%
over the past two years, the basin production percentage (BPP), which
establishes the amount of groundwater each agency can pump at the established
RA, dropped dramatically from 80.1% in FY 2007/08 to 62% for FY 2009/10.
This results in the District having to buy a higher percentage of water from the
more expensive import water source. The FY 2009/10 Budget included
assumptions which were the basis for the Variable Water Costs. An excerpt of
these budget assumptions is attached as Exhibit “D”.
The table below presents a summary of the budgeted operating and non-
operating expenses and other sources of outlay for FY 2009/10.
Page 7
YLWD Water Rate Report – September 2009
Budget
FY 2009/10
Operating Expenses
Depreciation & Amortization $3,945,750
Variable Water Costs (GW, Import & Power) 12,612,700
Salaries and Benefits 6,538,008
Supplies & Services 4,032,096
Subtotal $27,128,554
Non-Operating Expenses
Interest on Long Term Debt $1,981,300
Other 194,500
Subtotal $2,175,800
Other Sources of Outlay
Principal of Long Term Debt $825,000
Vehicles & Equipment 628,500
Subtotal $1,453,500
Total $30,757,854
Vehicle and Equipment Expenses
The Adopted FY 2009/10 Budget also identifies $628,500 in vehicle and
equipment expenses, including purchases to replace vehicles that have
surpassed their useful life and have become a maintenance liability. Also
included in this category of expenses are new portable pumps and a portable
generator that allow the District to augment system capacity during emergencies,
and periods of water and power supply outages. These equipment purchases
improve the District’s reliability and service to its customers. Other expenses
related to capital outlay include computer hardware and software upgrades
required to complete conversion of the billing, accounting and human resources
software systems and install a new computerized maintenance management
software system. These additions and conversions will standardize and update
the District’s technological capability to track and manage District accounting
functions more effectively and efficiently.
In water rate discussions with the Board of Directors over the past three months,
the Board, for FY 2009/10, has decided to fund the vehicle and equipment outlay
from reserves, which are the same funding sources for other capital improvement
and replacement programs.
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YLWD Water Rate Report – September 2009
Depreciation Expense
The District depreciates and amortizes expenses for capital improvement and
replacement projects as well as vehicles and equipment with a purchase value in
excess of $5,000. This is done in accordance with generally accepted
accounting principles (GAAP) and appropriate government accounting practices.
In FY 2009/10, depreciation in the water enterprise is estimated to increase to
nearly $3.95M as shown in the expenses summary table. This amount
represents approximately 13.5% of the District’s operating and non-operating
expenses. While this expense does not affect the District’s cash flow, it does
affect the value of net assets.
In water rate discussions with the Board of Directors over the past three months,
Staff was directed to defer 75% of the depreciation expense in calculating the
revenue needs of the District. For this reason, the Water Rate Report considers
a water rate that will generate only enough revenue to cover 25% of the
depreciation expense.
Currently, the District is in the process of developing an Asset Management Plan
which will address the funding for replacing facilities in the future, including, but
not limited to recommendations related to depreciation. When completed, the
Board will re-evaluate the funding recommendations of the plan. The Asset
Management Plan is scheduled to be completed by no later than April/2010.
Capital Improvement and Replacement Programs
In addition to the expenses previously identified, the District is continuing with its
aggressive and much needed capital improvement and replacement program.
The adopted Budget for FY 2009/10 identifies $44.6M in capital projects over the
next five years with $34.5M of this total estimated for outlay in FY’s 2009/10 and
2010/11. As stated previously, these projects and programs will be funded from
previous general obligation bond fund balances (Improvement Districts 1 and 2
GO Bonds) and the 2008 Revenue Bonds which are currently in District reserves
restricted for capital projects. In addition to these funds, with the adoption of the
FY 2009/10 budget, the Board restricted the use of the Annexation Fund
balance, which was previously reserved to offset yearly operating expenses, to
fund the capital improvement program. Attached as Exhibit “E”, is a listing of the
District’s Capital Improvement Program.
Page 9
YLWD Water Rate Report – September 2009
Operating Reserves
The Water Operating Fund represents cash and investments dedicated to fund
operating expenses. Revenue in excess of requirements to fund operating
expenses would be invested and dedicated to reserves. Under the current rate
structure, the Water Operating Fund has been decreasing substantially over the
past few years, with a projected ending FY 2008/09 negative balance of $4.5M.
The Governmental Finance Officers Association (GFOA) recommends a
minimum operating (General Reserve) reserve of 5% to 15% of operating
revenues or one to two months of operating expenditures (one to two months
translates into about 8% to 17% of operating expenditures for the fiscal year).
Using the 5-15% of operating revenue criteria for FY 2009/10, the District would
be prudent to maintain a balance of $1,034,355 - $3,103,064 in its Water
Operating Reserve. Using the 8-17% of operating expenditures criteria (which is
more commonly used in local governments) the District should maintain an
operating reserve balance of $2,344,248 - $4,981,740 during FY 2009/10.
The Water Operating Reserve is projected to be approximately negative $4.5M at
the close of the FY 2008/09. A one-time transfer of Annexation Reserves has
been approved to bring the Water Operating Reserve to zero. If the Board does
not adjust the current rates as proposed, the District is budgeted to draw down
the Water Operating Reserves to a negative ending balance of $5.5M as of June
30, 2010.
Alternatively, if the Board adopts the proposed rate structure, the District is
projected to have a positive ending balance in the Water Operating Reserve at
year-end of $986,438, which is 25% depreciation expense. Although this amount
does not quite meet the standards for reserves most commonly followed, it is
preferable to the alternative if the proposed rate structure is not adopted.
Revenue Requirements and Revenue Targets
The development of the water rate is determined by the expenses derived in the
Adopted Budget for FY 2009/10. The approved budget supports the short and
long term goals and established objectives of the District and the estimated costs
to achieve these objectives, to provide reliable service to the community. As
shown in the previous table, the District’s water operating and non-operating
expenses for FY 2009/10 are estimated to be $30,757,854. The net revenue in
FY 2009/10 using the existing water rate structure and other identified revenue
sources totals $20,687,093. The sum of these figures nets a shortfall of
$10,070,761.
Page
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YLWD Water Rate Report – September 2009
As identified previously in the Vehicle and Equipment and Depreciation sections
of this report, the Board of Directors has directed staff to defer 75% of the
depreciation expense this year ($2,959,312) and has agreed to fund the vehicle
and equipment outlay ($628,500) from reserves. These two decisions reduce the
total expenses to $27,170,042, and the revenue shortfall to $6,482,949.
With the total adjusted expenses identified, the non-operating revenue identified
in the FY 2009/10 Budget of $1,325,400 is deducted from the total adjusted
expenses of $27,170,042. This results in a net revenue target of $25,844,642,
which represents the amount of revenue that must be generated from the water
rates, which is a combination of the basic monthly service charge and the
commodity rate.
Budget
FY 2009/10
Adjusted Operating Expenses
Adjusted Depreciation & Amortization (25% only) $986,438
Variable Water Costs (GW, Import & Power) 12,612,700
Salaries and Benefits 6,538,008
Supplies & Services 4,032,096
Subtotal $24,169,242
Non-Operating Expenses
Interest & Principal on Long Term Debt $2,806,300
Other 194,500
Subtotal $3,000,800
Non-Operating Revenue ($1,325,400)
Net Revenue Requirements $25,844,642
Proposed Water Rate Increase
As previously mentioned, the water rates are made up of the basic monthly
service charge and the commodity charge. The basic monthly service charge
was established in prior years to cover 22% of the fixed operating expenses. For
FY 2009/10, this report proposes that the basic monthly service charge cover
25% of these fixed costs, which includes the adjusted depreciation, salaries,
benefits, supplies and services, for a total of $2,889,136. The budget assumes
the District will serve an average of 23,680 accounts throughout the year. Based
on this, the basic monthly service charge is recommended to be $10.20 per
month for all meters, regardless of size, class of service, or water usage.
Page
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YLWD Water Rate Report – September 2009
Budget
FY 2009/1025%
Adjusted Depreciation & Amortization $986,438 $246,610
Salaries and Benefits 6,538,008 1,634,502
Supplies & Services 4,032,096 1,008,024
Total Revenue from Monthly Service Charge $2,889,136
$2,889,136 / 23,680 accounts / 12 months = $10.20/month
The balance of the revenue, or approximately $22,955,500 must then be
generated by the commodity charge.
Alternative 1 – Flat Commodity Rate for all Classes of
Service
The flat rate commodity charge would apply to all classes of service, regardless
of meter size. The commodity charge is calculated by dividing the revenue
required, less the revenue generated from the basic monthly service charge, by
the number of billing units (hundred cubic feet of water) projected to be sold in
FY 2009/10. This amounts to $2.52 per billing unit.
$22,955,500 / 9,091,843 billing units = $2.52/Unit
Under this scenario, every $.01 within the commodity rate generates
approximately $90,900 in revenues. The following table is a breakdown of the
various components that develop the recommended $2.52 commodity rate:
Page
12
YLWD Water Rate Report – September 2009
FY 2009/10
Budget $/Unit
Expenses & Outlay (Excludes CIP)
Variable Water Costs $12,612,700 $1.39
Salaries & Benefits 6,538,008 0.72
Supplies & Services 4,032,096 0.44
Depreciation (100%) 3,945,750 0.43
Debt Obligations (Principal & Interest) 2,806,300 0.31
Vehicles & Equipment 628,500 0.07
Other 194,500 0.02
Total Expenses & Outlay $30,757,854 $3.38
Deductions
Basic Monthly Service Charge Collected ($2,889,136) ($0.32)
Depreciation (75% - Deferred) - FY 2009/10 (2,959,313) (0.33)
Vehicles & Equipment (Funded by reserves) (628,500) (0.07)
Other Non-Operating Revenue (Prop. Tax & Misc) (1,325,400) (0.15)
Total Deductions ($7,802,349) ($0.86)
Net Commodity Rate $22,955,505 $2.52
Alternative 2 - Block Tiered Rate Structure for Single-
Family Residential Class
Tiered water rate structures are proven to encourage water conservation
practices. With the restriction of wholesale water supplies and resulting
mandatory water conservation measures, Staff studied an alternative to the flat
commodity charge and modeled the impacts of a block tiered rate on water
revenues for single family residential accounts. This class of customers
represents over 91% of the total customer base, 71% of the total water demands
and the equivalent associated revenue. All other classes of service, which are
not single family residential customers, would be charged the flat commodity
charge of $2.52/Unit. The following tiered structured is recommended should the
Board choose this alternative:
Consumption Charge per Unit
Tier I 1 – 10 units 2.17
Tier II 11 – 30 units 2.50
Tier III 31 – 60 units 2.83
Tier IV 61 – 80 units 3.16
Tier V 81+ units 3.49
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YLWD Water Rate Report – September 2009
The expense and revenue estimates in the FY 2009/10 Budget are based on a
fixed amount of water supplies available at wholesale pricing schedules.
Agencies that exceed these allocations may still purchase imported water and
local groundwater supplies, but at substantially inflated prices amounting to
approximately three times and five times the new wholesale prices. The water
supplies allocated to the District in FY 2009/10 from its wholesale suppliers
amounts to approximately 21,970 acre feet, which was derived by the suppliers
by averaging the three year water demands in calendar years 2004 through 2006
(the baseline). From this baseline, the wholesale water supplies were cut by
15% for FY 2009/10 with a small allowance added back for growth and past
conservation practices.
Historically, water sales fall short of water purchases on the average by 3 to 8
percent. This difference is labeled as unaccounted for water and is comprised of
water losses due to breaks, leaks, mainline flushing for water quality purposes,
water used for fire protection purposes, water used for District financed
construction projects, street and sewer cleaning, and losses from stuck and
inaccurate/aging meters. The FY 2009/10 budget uses 5% as the estimated
unaccounted water loss to determine the estimated revenue generated through
the metered water sales. This results in 20,872 acre feet (9,091,843 billing units)
in water sales.
In developing a tiered rate alternative, Staff sampled the historic water use
records and selected the single year that matched closest to the water use
estimates for FY 2009/10. The closest match was FY 2005/06 with total water
sales of 9,122,629 HCF. With this data set, Staff ran an annual revenue
calculation with a flat commodity rate of $2.52 and determined the proportion of
the total revenue generated by each of the customer classes. The results of
these calculations are shown below.
FISCAL YEAR 2005/06 Historical Data
# of % Billing Units %
Service Classifications Services Services Consumption Consumption
Residential (Single-Family) 21,193 92.2% 6,506,631 71.3%
Residential (Multi-Family) 225 1.0% 197,314 2.2%
Commercial 791 3.4% 748,742 8.2%
Landscape & Irrigation 782 3.4% 1,669,942 18.3%
Total 22,991 100% 9,122,629 100%
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YLWD Water Rate Report – September 2009
Staff also performed a statistical comparison using the historical data sets from
Calendar Years 2004 through 2006. This is consistent with the period that the
District’s wholesale supplier used to determine the FY 2009/10 baseline water
supply allocation. The average of the three year data did not differ significantly
from the FY 2005/06 data set as shown in the table below. Using the three year
historical data set, staff also tallied average monthly water usage (demands) for
the single family residential customer class and used this data to establish water
use blocks or ranges for the tiered water rate structure.
CALENDAR YEARS 2004 - 2006 Average Historical Data
# of % Billing Units %
Service Classifications Services Services Consumption Consumption
Residential (Single-Family) 21,014 92.2% 6,608,385 71.0%
Residential (Multi-Family) 223 1.0% 233,248 2.5%
Commercial 790 3.4% 789,600 8.5%
Landscape & Irrigation 773 3.4% 1,671,023 18.0%
Total 22,800 100% 9,302,256 100%
Using the average water demands, staff developed a tiered block rate structure
that is revenue neutral within the District’s water allocation for FY 2008/09, when
compared to the revenue generated by the flat commodity charge for the
baseline allocation. The block rate structure generates a higher revenue stream
proportionately to the water used within the higher blocks or tiers. The block rate
structure also allows for a base indoor use of up to ten units per month at a
substantially reduced rate of $2.17/HCF (Tier 1), when compared to the
proposed flat commodity charge of $2.52/HCF. This first tier, while benefiting all
customers, is particularly desirable to customers that tend to use much less
water on the average. The next block or tier of use is for 11 to 30 units per
month at a slightly discounted rate of $2.50/HCF (Tier 2). This block represents
the average customer use with over 72% of the residential customers falling in or
below this range on the average each month over the three year period tested.
The vast majority of water used in this and subsequent ranges is for outdoor,
irrigation use, which is primarily a non-essential water use.
The table below shows the average usage patterns over the data set studied and
the associated Tiers 1 through 5 selected. The results are also shown
graphically in the chart below the table.
Page
15
YLWD Water Rate Report – September 2009
The commodity rate in each tier was adjusted through trial and error, using the
FY 2005/06 data set and testing various commodity charges through this data set
to model equitable tiered ranges and appropriate revenue percentages within
each range. If the revenue generated in any range fell short of revenue
requirements, it was adjusted slightly and the model was rerun. If the revenue
inside a particular tier ran too high above the equity range, the rate was adjusted
down proportionately. The Modeling Results table shows that the revenue
generated using the tiered rate structure totals approximately $16.28M, which is
consistent with the target revenue (71%) of the total $22.96M revenue target
required from the commodity charge. The balance of the revenue from the
commodity charge is generated by other class customers including multi-family
residential, irrigation, and commercial accounts using the flat commodity charge
of $2.52/HCF.
Single Family Residential Water Demands for Calendar Years 2004 - 2006
Ave. # %
Usage Accts Total Cum % Consumption % Total Cum %
Tier 1 0-10
3,607 16.7% 16.7% 242,815 3.7% 3.7%
11-20
6,350 29.4% 46.1% 1,211,129 18.6% 22.3%
Tier 2
21-30
5,708 26.4% 72.5% 1,715,584 26.3% 48.6%
31-40
2,926 13.5% 86.1% 1,227,352 18.8% 67.5%
Tier 3
41-50
1,412 6.5% 92.6% 760,863 11.7% 79.1%
51-60
697 3.2% 95.8% 460,136 7.1% 86.2%
Tier 4 61-80
574 2.7% 98.5% 468,955 7.2% 93.4%
81-100
184 0.9% 99.3% 196,255 3.0% 96.4%
Tier 5
101-200
132 0.6% 100.0% 202,911 3.1% 99.5%
201-500
10 0.0% 100.0% 31,984 0.5% 100.0%
21,600 100% 6,517,984 100.0%
Page
16
YLWD Water Rate Report – September 2009
Percentage Accounts by Range
CY 2004-06
(Single Family Residential Accts)
35%
% of Customer Accts in Range
29.4%
30%
26.4%
% Total
25%
Tier 1Tier 2
Tier 3Tier 4Tier 5
20%
16.7%
13.5%
15%
10%
6.5%
5%3.2%
2.7%
0.9%
0.6%
0.0%
0%
11-2021-3031-4041-5051-6061-80
101-200201-500
0-1081-100
Average Usage Range (CCF)
FY 2005/06 Tiered Rate Model Results (SFR)
$ Per Unit Consumption Revenue % Total Cum %
Tier I 1-10 units $2.17 2,316,582 $ 5,026,983 30.9% 30.9%
Tier II 11-30 units $2.50 2,598,951 $ 6,497,378 39.9% 70.8%
Tier III 31-60 units $2.83 1,094,000 $ 3,096,020 19.0% 89.8%
Tier IV 61-80 units $3.16 213,347 $ 674,177 4.1% 93.9%
Tier V 80+ units $3.49 283,751 $ 990,291 6.1% 100.0%
Total 6,506,631 $ 16,284,849
Page
17
YLWD Water Rate Report – September 2009
Wholesale Water Charges above Allocation Levels
The proposed water rates developed in this report were derived using the
expenses and revenues identified in the approved FY 2009/10 Budget. The
projected water rate revenues fall substantially short of entirely funding the cost of
providing services as identified in the Budget, primarily in the depreciation
component and vehicle and equipment outlay. Nonetheless, if the District reaches
its water allocation point prior to the end of the fiscal year (June 30, 2010) and
District customers still have water demands to be met, additional expenses the
District will incur are the substantial added variable water costs, which are
unbudgeted. This includes the wholesale cost of the incremental water purchased
and the additional energy (power) costs used to pump it through the community.
The FY 2009/10 Budget identifies $1,509,900 in energy expenses for pumping
water from groundwater wells and through booster pump stations throughout the
District’s service area. Spread over the baseline of 21,970 AF of water purchases,
this amounts to an average power cost for pumping of $68.73 per acre foot. As
previously identified in this report and in the assumptions shown in Exhibit “D”, the
District’s water suppliers have set the wholesale price for water purchases above
the District’s allocation of 21,970 AF, at $1,889 per AF for the first 1,640 AF. The
costs are set at $3,077 for every acre foot purchased thereafter. The combined
cost for water and power therefore is $1,889 + $68.73 = $1,957.73/AF (wholesale
price) for the first overage level above allocation, and $3,077 + $68.73 =
$3,145.73/AF (wholesale price) for all water purchased in the second overage
level. As there are 435.6 HCF in an acre foot, the unit cost of water above
allocation is $1,957.73 divided by 435.6, or $4.49 (Overage Level 1) per unit for
the first 1,640 AF and $3,145.73 divided by 435.6, or $7.22 (Overage Level 2) per
unit thereafter.
As the District has not yet established an equitable and practical method to assess
water use efficiencies for each and every customer, the Overage Level Charges
can be considered a severe pricing disincentive to further support overall water
conservation goals and to encourage water use efficiency for the entire District.
The easiest and least expensive approach to administer these potential cost
increases, if incurred, would be to apply the Overage Level rates to all customers if
the District exceeds its baseline water supply allocation. District staff can track
water production and import water purchase on a daily and monthly basis, and can
determine if water consumption habits are trending toward causing the District to
exceed its baseline water allocation for the year. The District can use proactive
customer outreach to notify its customers of positive and negative water use trends
and how they may affect water rate increases later in the year. If District
customers consciously decide to not adjust their water use habits, Overage Level
1 and Overage Level 2 water rates should be implemented.
Page
18
YLWD Water Rate Report – September 2009
The Board may further decide to levy fines or fees for failure to meet conservation
goals in accordance with the Water Conservation Ordinance and with the statutory
authority granted to the Board. Such fines or fees may be established by separate
resolution of the Board of Directors. For example, the Board may choose to
establish a fine or penalty of up to $10 per unit of water used in excess of an
established allocation. It is clear from the analysis above that the District’s
increased variable costs alone may increase to $7.22 per unit in Overage Level 2.
If the District has collected Overage Level 1, Overage Level 2 or alternate fines for
water use above allocations, and following the water year audit, it is determined
that the District will not be required to pay for all or any portion of this water at the
established allocation prices, the Board may refund the surplus increment, transfer
the balance to a rate stabilization fund for future use, commit the balance to active
water conservation programs and improvements, or any combination thereof, as
determined and approved by the Board of Directors.
Conclusions and Recommendations
This Water Rate Report proposes a water rate increase for the monthly service
charge from $8.35/mo. to $10.20/mo. for all customers and a commodity charge
increase from $1.79/HCF to $2.52/HCF. The report also establishes an
alternative tiered rate structure for all single family residential accounts as shown
below.
Consumption Charge per Unit
Tier I 1 – 10 units 2.17
Tier II 11 – 30 units 2.50
Tier III 31 – 60 units 2.83
Tier IV 61 – 80 units 3.16
Tier V 81+ units 3.49
Furthermore, the report identifies two additional tiers in the commodity charge for
water use above the District’s water allocation baseline. These tiers are
indentified as the Overage Level 1 rate of $4.49/HCF and the Overage Level 2
rate of $7.22/HCF. All customer classes would be charged these Overage Level
rates in the event the District’s water supply purchases exceed its baseline
allocation for FY 2009/10 and in the event subsequent Overage Level allocation
points are exceeded.
Should the Board of Directors implement rate adjustments set forth in this report,
it is recommended that the effective date be September 14, 2009.
Page
19
YLWD Water Rate Report – September 2009
Questions or comments related to this report may be directed to:
Yorba Linda Water District
1717 E. Miraloma Ave
Placentia, CA 92870
Tel: (714) 701-3000
Fax: (714) 701-3028
Email: info@ylwd.com
Prepared by:
Kenneth Vecchiarelli, P.E.
General Manager
RCE No. 64299
Exp: 6/30/2011
Page
20
YLWD Water Rate Report – September 2009
Exhibit “A” – Proposition 218 Notice
Page
21
YLWD Water Rate Report – September 2009
Page
22
YLWD Water Rate Report – September 2009
Exhibit “B” – Breakdown of Expenses and Outlay
Vehicles & Equipment
Long Term Debt ($2.8 M)
($0.6 M)
6%
1%
Depreciation ($3.9 M)
8%
CIP Projects
($17.8 M)
Supplies & Services ($4.0 M)
37%
8%
Salaries & Benefits
($6.5 M)
13%
Variable Water Costs
($12.6 M)
26%
Page
23
YLWD Water Rate Report – September 2009
Exhibit “C” – Historical and Breakdown of Variable Water Costs
$15
$14
$13
$12
Millions
$11
$10
$9
$8
FY 2006/07 FY 2007/08 FY 2008/09 FY 2008/09 FY 2009/10
(Actual)(Actual)(Budget)(Forecast)(Budget)
Yearly Cost
$10,703,037$10,516,507$11,156,500$10,451,271$12,612,700
Power ($1.5 M)
12%
Groundwater ($2.6 M)
21%
Import Water ($8.5 M)
67%
Page
24
YLWD Water Rate Report – September 2009
Exhibit “D” – Variable Water Costs Budget Assumptions
(Source: Excerpts from FY 2009/10 Budget)
Variable Water Costs include purchased water from Metropolitan Water
District of Orange County (MWDOC), a readiness to serve (connection
charge) and capacity charge from MWDOC, a groundwater replenishment
assessment (RA) charge from Orange County Water District (OCWD),
natural gas, propane and electricity to transfer water throughout the
District’s distribution system.
An allocation of 11,727 AF of import water for FY 2009/10 has been set by
MWDOC for YLWD.
The MWDOC allocation establishes our total water budget at 21,970 AF
for FY 2009/10.
A total of 11,727 AF will be purchased from MWDOC through the year at a
rate of $604/AF from July 1, 2009 through August 31, 2009 and at a rate
of $701/AF from September 1through June 30, 2010.
Additional import water purchases above the 11,727 AF allocation, up to
1,173 AF (+10%), will be charged a rate of $1,889/AF. Additional import
water beyond the +10% will be charged at $3,077/AF.
A total of 10,243 AF will be pumped from the groundwater basin and
charged a replenishment assessment from OCWD at a rate of $249/AF to
maximize the District’s BPP of 62%.
An additional 330 AF may be pumped from the basin with an additional
basin equity assessment (BEA) charge of $501/AF for a total cost of
$750/AF. Additional groundwater pumped above these limits will be
surcharged an additional $2,400 for a total cost of $3,150/AF.
The District will pump approximately 2,200 AF of groundwater from the
Met storage pool within the basin, in accordance with the terms of the
Conjunctive Use Program (CUP) at an average adjusted MWDOC rate of
$584/AF.
Energy cost increases averaging 14.5% effective January 2009 are
included in the energy component of the variable costs. No additional
energy increases are assumed until late summer 2010.
Page
25
YLWD Water Rate Report – September 2009
Exhibit “E” – Five Year Capital Improvement Program
Previously Approved ProjectsFY 2009/10FY 2010/11FY 2011/12FY 2012/13Total
Highland Reservoir3,952,0001,224,0005,176,000
New Well 20590,0001,025,0001,615,000
Wells 1,5,12 Upgrade190,000190,000
OC-51 Upgrade100,000100,000
Fairmont BPS Pump Retrofit400,000400,000
Zone Reconfig. Pipelines1,300,0001,300,000
San Antonio PRS Upgrades270,000270,000
Hidden Hills Reservoir5,500,0005,500,000
Fire Flow Impvmts Via Sereno & Ohio25,000100,000125,000
Lakeview Sewer Lift Sta Upgrade220,000220,000
Anaheim Interties150,000150,000
Lakeview Fencing & Landscaping210,000210,000
GIS Implementation100,000100,000
Fairmont Site Improvements300,000300,000
Foxtail Pipeline50,000195,000245,000
Elk Mtn. Reservoir Site Impvmts. 300,000300,000
Palm Ave BPS Replacement540,0002,160,0002,700,0005,400,000
Zone 5 BPS270,000270,000540,0001,080,000
FY 2007-12 Program SUBTOTAL$13,767,000$5,674,000$3,240,000$22,681,000
New Projects for CIP
Plumosa Site Redevelop. Study50,00050,000
Asset Management Plan120,000120,000
Sewer Master Plan350,000350,000
CMMS Implementation200,000200,000
Zone Interconnect Stub-ups (3)120,000120,000
Corrosion Monitoring Program20,00020,000
Valley View Pipeline Replacement120,000120,000
Blair Drive Pipeline Replacement50,00050,000
Highland Pipeline Replacement120,000120,000
Plumosa Water Line Relining110,000110,000
Bastanchury Pipeline Replacement1,300,0001,300,000
Vista del Verde Valve Replacement500,000500,0001,000,000
Highland BPS Replacement1,000,0006,500,0007,500,000
Mixing/Re-Chlor Facil at 2 Res Sites100,000100,000
Non-Pot Water Facil for Irrig Use900,000900,0001,800,000
West Wellfield500,0002,500,0003,000,0003,000,0009,000,000
Proposed New Projects SUBTOTAL$4,560,000$10,500,000$3,900,000$3,000,000$21,960,000
COMBINED TOTAL$18,327,000$16,174,000$7,140,000$3,000,000$44,641,000
Page
26
ITEM NO. 6.2
AGENDA REPORT
Meeting Date: September 2, 2009 Budgeted: N/A
Total Budget: N/A
To: Board of Directors Cost Estimate: N/A
Funding Source: N/A
From: Ken Vecchiarelli, General Manager Account No: N/A
Job No: N/A
Presented By: Ken Vecchiarelli, General Manager Dept: Administration
Reviewed by Legal: N/A
Prepared By: Annie Alexander, Executive CEQA Compliance: N/A
Secretary
Subject: Resolution of Support for the Municipal Water District of Orange County (MWDOC)
SUMMARY:
Brett Barbre, MWDOC Director, has respectfully requested that the YLWD Board of Directors consider
adopting a resolution of support for the current structure of wholesale water distribution within the MWDOC
service area.
STAFF RECOMMENDATION:
That the Board of Directors discuss and consider adopting Resolution No. 09-14 In Support of the Municipal
Water District of Orange County and In Opposition of Efforts to Divide Orange County into North and South
Wholesale Water Agencies.
DISCUSSION:
The Orange County Local Agency Formation Commission (LAFCO) is currently completing a Governance
Study for MWDOC and a small number of MWDOC client agencies in south Orange County are attempting
to utilize this process to facilitate the division of MWDOC into north and south entities. There are several
reasons for supporting the current structure of wholesale water distribution within the MWDOC service
area, all of which are containted in the attached resolution. Most importantly, formation of an additional
wholesale water district would result in inefficiencies and additional expenses. If adopted, a copy of this
resolution will need to be submitted to LAFCO prior to a public hearing scheduled for September 9, 2009.
ATTACHMENTS:
Resolution 09-14 - Supporting MWDOC.doc ?esolutlon No. 09-14 Resolution
RESOLUTION NO. 09-14
RESOLUTION OF THE BOARD OF DIRECTORS
OF THE YORBA LINDA WATER DISTRICT
IN SUPPORT OF THE MUNICIPAL WATER DISTRICT OF ORANGE COUNTY
AND IN OPPOSITION OF EFFORTS TO DIVIDE ORANGE COUNTY
INTO NORTH AND SOUTH WHOLESALE WATER AGENCIES
WHEREAS, Municipal Water District of Orange County (MWDOC) has been in
existence since 1951 and was formed by a vote of the people to provide
imported water from Metropolitan Water District of Southern California
(MET) into Orange County for the benefit of the residents and businesses
within the twenty eight Client Agencies of MWDOC; and
WHEREAS, MWDOC has been performing this function and many other functions
since its formation in support of the Client Agencies within the service
area; and
WHEREAS, MWDOC is governed by a publicly elected Board of Directors; and
WHEREAS, MWDOC has operated with an efficient but effective budget that has
grown over time and now totals about $6 million per year; and
WHEREAS, the Coastal Municipal Water District of Orange County was merged into
the Municipal Water District of Orange County in 2000 by action of LAFCO
because south county agencies wanted a more proactive, unified and
countywide agency that provided effective services to each Client Agency;
and
WHEREAS, the Orange County Local Agency Formation Commission (LAFCO) is
currently completing a Governance Study for Municipal Water District of
Orange County (MWDOC); and
WHEREAS, a vocal minority of MWDOC Client Agencies in south Orange County are
attempting to utilize this process to facilitate dividing MWDOC into north
and south entities; and
WHEREAS, the creation of a separate south Orange County water agency would
fracture and dilute Orange County's position competing within the MET
family as the 2nd or 3rd largest MET member agency and would reduce
MWDOC's influence as a member agency of MET in ensuring that the
$140 million paid to MET each year is used efficiently, thereby costing
Orange County consumers more money in the form of higher water rates;
and
Resolution No. 09-14 Supporting MWDOC 1
WHEREAS, MWDOC has been very effective at bringing outside funds into Orange
County to keep MWDOC's budget low and to help fund Water Use
Efficiency measures by MWDOC's Client Agencies ($33 million over the
past eight years) and other activities ($12 million for reliability and
emergency preparedness activities and $44 million in Local Resources
funding from MET - for a grand total of $89 million over the past eight
years, funding which is not included or accounted for in MWDOC's base
operations budget of $6 million per year); and
WHEREAS, formation of an additional wholesale district would result in inefficiencies
and additional expenses not only for the southern service area but also for
the successor northern service area, through duplication of services
including engineering and planning, MET issue analysis, finance and
accounting, building leases, legal services and administrative and clerical
support; and
WHEREAS, the creation of a second agency would increase combined costs by an
estimated $2 million per year over MWDOC's existing budget and would
require a costly election of the public to pursue (estimated at $1.5 million);
and
WHEREAS, the proposed division of MWDOC would result in the imposition of
significantly higher water costs for the new south Orange County agency
because the growing agencies in this service territory will be subject to
purchases of more expensive Tier 2 water that MWDOC has previously
been able to mitigate for the south county agencies with its melded rate
structure; and
WHEREAS, the assertion by certain south Orange County districts that they are paying
more than their fair share of MWDOC's costs is not supported based on
recent statistics provided to the Client Agencies and LAFCO; and
WHEREAS, MWDOC operates effective programs in support of its Client Agencies,
including a Water Use Efficiency Program that saves 25,000 acre feet of
water per year and a School Education Program that in the last three fiscal
years reached 172,000 students, including 52,000 students in the area of
the proposed south Orange County agency; and
WHEREAS, MWDOC has organized and operates an effective Emergency
Management Program through the Water Emergency Response
Organization of Orange County (WEROC) that involves all water and
wastewater entities in the County; and
WHEREAS, an overwhelming majority of Orange County residents prefer to elect their
water directors, but a newly constituted south Orange County agency's
governing board would be comprised entirely of appointees.
Resolution No. 09-14 Supporting MWDOC 2
NOW THEREFORE BE IT RESOLVED that the Yorba Linda Water District hereby
supports the current structure of wholesale water distribution within the MWDOC service
area and calls on LAFCO to also support this structure and to reject efforts by a minority
of agencies to pursue actions that cost all Orange County water agencies more money
and weakens our representation at MET. We furthermore call on Orange County's
water agency officials and other elected representatives to ensure that all MWDOC
Client Agencies be treated equitably, that minor differences be collaboratively
addressed, and that further discussion of dividing MWDOC be tabled.
PASSED AND ADOPTED this 2nd day of September, 2009 by the following called vote:
AYES:
NOES:
ABSTAIN:
ABSENT:
John W. Summerfield, President
Yorba Linda Water District
ATTEST:
Ken Vecchiarelli, Secretary
Yorba Linda Water District
Resolution No. 09-14 Supporting MWDOC 3