Item 460/2024
Final
City of Garden Grove
INTER-DEPARTMENT MEMORANDUM
To:
Lisa L. Kim From: Patricia Song
Dept:
City Manager Dept: Finance
Date: 11/12/2024
Subject: Review of Automatic Pass-Through Water Rate Adjustment. (Action Item)
OBJECTIVE
To request that the City Council review the automatic pass -through adjustment calculation for increased wholesale water delivery charges, effective January 1, 2025.
BACKGROUND
The City’s Water Utility fund pays for wholesale water purchases from the Metropolitan Water District of Southern California (MET), the Municipal Water District of Orange County (MWDOC), and Orange County Water District (OCWD). The City also pays a replenishment assessment to OCWD for its groundwater supply.
Ordinance No. 2948 adopted by the City Council on December 12 , 20 23 provides for automatic pass -through adjustment to changes in costs of wholesale water purchases .
Section 1. D of the ordinance states that “The Commodity Delivery Charge shall be automatically adjusted to reflect adopted increases or decreases in wholesale charges for water established by other public agencies from which the City of Garden Grove purchases water to the extent such increases or decreases are not reflected in the schedule of charges then in effect. The amount of a ny such automatic adjustments shall be calculated by the Finance Director, or his designee, and shall be presented to the City Council for review.”
Passing through wholesale water purchase cost increases to ratepayers enables the City to recover water delivery expenses and comply with covenant requirements associated with its outstanding water bonds.
The analysis below provides for the basis of the pass-through rate adjustment. Notice of the rate adjustment will be provided to all City water customers at least thirty (30) days prior to the effective date of rate change.
Item 460/2024
DISCUSSION
MET, MWDOC and OCWD have adopted their rate and fee adjustments for FY 2024-25. As a result, and in accordance with Ordinance 2948, the City will pass the increase s to its water customers.
Below is an illustration of the calculated changes to the Commodity Delivery Charge. Base year data was derived from the 2023 rate study performed by FG Solutions.
Water Commodity Delivery Charge Pass-Through Adjustment Calculation - Calendar Year 2025 For Rates Effective January 1, 2025
Water Rate Study Estimated
Base Year Calendar
FY 23/24 (1) Year 2025 (2)
Total Acre-Feet (AF) of Imported Water 2,966 3,075 (B) = (A)*15% Total Acre-Feet (AF) of Ground Water 16,807 17,425 (C) = (A)*85% Total Wholesale Water Supply (AF) 19,773 20,500 (A)
OCWD Replenishment Assessment ($/AF) 624$ 688$ (D) MWD Tier 1 Water Rate ($/AF) 1,209 1,395 (E) Ground Water Cost (Including Replenishment Assessment) 10,487,623$ 11,988,400$ (E) = (B) * (D) MWD Tier 1 Water Rate Charge 3,585,842 4,289,625 (F) = (C) * (D) MWD Readiness to Serve Charge 541,486 723,941 (E) MWD Capacity Charge 207,834 226,834 (E) MWD Connection Charge 492,275 502,931 (E) MWDOC Choice Programs 28,734 42,657 (E) Total Wholesale Water Charges 15,343,794$ 17,774,388$ (G) Cost per AF $776.00 $867.04 (H) = (G) / (D)
Cost per CCF (1 AF = 435.60 CCF) $1.71 $1.91 (H) / 435.60 (a) (b)
Increase from Base Year (pass-through), $/CCF $0.20 (I) = (b) - (a) Bi-Monthly Commodity Delivery Charge Before Pass-Through Adjustment for Calendar Year 2025:
Tier 1, $/CCF $3.53 (J)
Tier 2, $/CCF $5.67 (K)
Bi-Monthly Commodity Delivery Charge with Pass-Through Adjustment Effective 1/1/25:
Tier 1, $/CCF $3.73 (J) + (I)
Tier 2, $/CCF $5.87 (K) + (I)
Notes:
(1) Base Year amounts were from the City's 2023 Rate Study, not FY 23/24 actuals. (2) CY 2025 water supply is estimated by City based on historical consumption.
Line and Number References:
(A) Total wholesale water supply estimate by City based on historical consumption. (B) City estimates 15% of total water supply will be imported. (C) City estimates 85% of total water supply will be from groundwater production. (D) OCWD Board approved Replenishment Assessment per adopted OCWD FY24/25 budget. (E) Rate per Metropolitan Water District of Orange County Ordinance 2147 adopted 4/17/2024. (J) Bi-Monthly Commodity Delivery Charge per Ordinance No. 2948, Section 1.B for Calendar Year 2025. (K) Bi-Monthly Commodity Delivery Charge per Ordinance No. 2948, Section 1.B for Calendar Year 2025.
Item 460/2024
Based on the above calculation, the Commodity Deliv ery Charge will increase by $0.20 per billing unit, or 100 cubic feet, for calendar year 2025 from the base rate established for that year by Ordinance No. 2948 . The adjustment reflects the actual cost inc rease of wholesale water the City has to incur to continue to provide water to its residents. The City is authorized to automatically adjust the Commodity Delivery Charge component based upon actual increases incurred by the City for acquiring groundwater and imported water.
The table below presents the current year commodity delivery charge, alongside with the pre- established rates for calendar year 2025, and the adjusted 2025 rates:
With this adjustment, it is estimated that the average residential customer’s water bill will increase by approximately $3.63 per month (assuming a 5/8 x 3/4-inch meter and 22 CCF of water use), or $7 .26 on each bi -monthly bill. The new rate will take effect on January 1, 2025.
Notice of Change in Water Commodity Delivery Charges will be sent to all City water customers on or before November 27, 2024.
FINANCIAL IMPACT
The proposed pass-through water Commodity Delivery Charge increase will allow for the Water Utility to continue meeting its financial obligations and carry out its capital improvement and replacement programs. There will be no impact to the General Fund.
RECOMMENDATION
It is recommended that the City Council:
Review the Water Commodity Delivery Charge Adjustment Calculation for Calendar Year 2025 regarding the automatic pass -through adjustments for purchased water costs.
ATTACHMENT(S)
Notice of Change in Water Commodity Delivery Charges
Calculation of 2025 Water Commodity Rate Adjustment performed by FG Solutions
Bimonthly Commodity Delivery Charge
($ per CCF)
2025 Rate Adjusted Rate
Current (2024) Before Effective
Rate Adjustment1 Jan. 1, 2025
Tier 1 $3.40 $3.53 $3.73
Tier 2 $5.29 $5.67 $5.87
1 Established by Ordinance No. 2948.