Item 496/2024
Final
City of Garden Grove
INTER-DEPARTMENT MEMORANDUM
To:
Lisa L. Kim From: Patricia Song
Dept:
City Manager Dept: Finance
Date: 11/26/2024
Subject: Review of Automatic Pass-Through Adjustments for Purchased Water Costs. (Action Item continued from the November 12, 2024 meeting)
OBJECTIVE
To request that the City Council review and file the automatic pass -through adjustment calculation for increased wholesale water delivery charges, effective January 1, 2025.
BACKGROUND
This item is a continuation from the City Council meeting held on November 12, 2024. At that meeting, the City Council directed staff to further review the proposed $0.20 per 100 cubic feet adjustment to the Water Commodity Delivery Charge, analyze the calculation, and explore potential options to reduce the adjustment. In response, staff collaborated with the City’s rate consultant, FG Solutions, to address the City Council’s request.
The City’s Water Utility fund pays for wholesale water purchases from the Metropolitan Water District of Orange County (MET), and the Municipal Water District of Orange County (MWDOC). The City also pays a replenishment assessment to Orange County Water District (OCWD) for groundwater supply.
Ordinance No. 2948 adopted by the City Council on December 12, 2023 provides for automatic pass -through adjustment to changes in costs of whole sale 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 any 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.
Item 496/2024
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 increases to its water customers.
The illustration below provides for the basis of the pass-through rate adjustment.
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$ (F) = (C) * (D) MWD Tier 1 Water Rate Charge 3,585,842 4,289,625 (G) = (B) * (E) MWD Readiness to Serve Charge 541,486 723,941 MWD Capacity Charge 207,834 226,834
MWD Connection Charge 492,275 502,931
MWDOC Choice Programs 28,734 42,657
Total Wholesale Water Charges 15,343,794$ 17,774,388$ (H) Cost per AF $776.00 $867.04 (I) = (H) / (A)
Cost per CCF (1 AF = 435.60 CCF) $1.71 $1.91 (I) / 435.60 (a) (b)
Increase from Base Year (pass-through), $/CCF $0.20 (J) = (b) - (a) Bi-Monthly Commodity Delivery Charge Before Pass-Through Adjustment for Calendar Year 2025:
Tier 1, $/CCF $3.53 (K)
Tier 2, $/CCF $5.67 (L)
Bi-Monthly Commodity Delivery Charge with Pass-Through Adjustment Effective 1/1/25:
Tier 1, $/CCF $3.73 (K) + (J)
Tier 2, $/CCF $5.87 (L) + (J)
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. (K) Bi-Monthly Commodity Delivery Charge per Ordinance No. 2948, Section 1.B for Calendar Year 2025. (L) Bi-Monthly Commodity Delivery Charge per Ordinance No. 2948, Section 1.B for Calendar Year 2025.
Item 496/2024
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 increase 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 estim ated 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 provided to all City water customers at least thirty (30) days prior to the effective date of rate change.
FINANCIAL IMPACT
The proposed pass-through increase to the Water Commodity Delivery Charge is essential for the Water Utility to meet its financial obligations and continue funding its capital improvement and replacement programs. Without this adjustment, the Water Utility fund would face a $1.6 million deficit. This shortfall could lead to potential violations of the rate covenant under the Garden Grove Public Financing Authority Water Revenue Bonds, Series 2020A. Furthermore, the Utility would be forced to postpone the wa ter main replacement project, leading to increased future repair costs , challenges in meeting the new mandated water quality standards, and delays in the implementation of the five-year water capital improvement plan.
These setbacks could ultimately result in higher water rates for the City’s customers.
RECOMMENDATION
It is recommended that the City Council:
Review and file the Water Commodity Delivery Charge Adjustment Calculation for Calendar Year 2025 regarding the automatic pass-through adjustments for purchase water costs.
Bimonthly Commodity Delivery Charge
($ 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.
Item 496/2024
ATTACHMENT(S)
Notice of Change in Water Commodity Delivery Charges. Calculation of 2025 Water Commodity Rate Adjustment performed by FG Solutions.