Agenda Item No. 7
CITY COUNCIL STAFF REPORT
TO: Honorable Mayor and City Council DATE: March 11, 2024 FROM: Matthew Bronson, City Manager
PREPARED BY: Nick Szamet, Administrative Services Director SUBJECT: Utility Rate Implementation
RECOMMENDATION
Receive information on the City’s utility rate implementation and approve the application of updated rates for usage prospective to the effective dates for utility rate increases beginning with the February 1, 2024 effective date.
BACKGROUND
On February 26, 2024, Council requested a report on the timing of implementing rate increases for City water and wastewater services in response to public comment. Staff has reviewed the rate increase implementation and determined that it followed the City’s standing operating practice for billing done for previous rate increases. The City, like most cities in San Luis Obispo County, operates on a bi-monthly billing schedule with different parts of its covered areas being read during alternating months. This means that a resident’s current bill represents their usage during the prior two months.
Staff surveyed additional municipalities within the county to understand how rate increases are implemented in neighboring jurisdictions. Many municipalities implement updated rates on the effective date of those rates, charging for past consumption, similar to the City’s current practice of rate implementation. However, some municipalities apply updated rates only on consumption prospective to the effective date and others prorate charges manually. Long term, implementation of automated meters would enable the City to transition from bi-monthly billings to monthly billings; thereby allowing staff to have point in time data rather than cumulative reads. Implementation of automated meter upgrades is part of the Water Fund capital improvement program, however, funding for these upgrades is based on the adopted water rate structure which may be delayed due to the potential initiative to repeal the City’s water and wastewater rate structure.
Despite the City’s previous approach of billing for a new rate structure based on prior usage, members of the public provided comments on February 26 that residents were unaware that their first billing under the new water and wastewater rate structure effective on February 1 would be based on usage prior to February 1. There also have been communication discrepancies at the staff level about the application of the effective date of the increased rate structure which have been shared publicly.
Given this situation and in the interest of responding to resident concerns, staff recommends the Council approve applying the updated rates usage prospective to the effective dates listed in the rate structure beginning with February 1, 2024. Under this approach, this first billing would appear on the April bill for the months of February and March for North Grover Beach residents. Staff has analyzed the scope of a related credit adjustment for the current February billing for North Grover Beach, which applied the updated rates and was based on consumption in December and Staff Report: Utility Rate Implementation Page 2
March 11, 2024
January. Staff estimates that applying the previous rates to this billing cycle will result in a credit of approximately $26 per account or $54,779 total. For customers in South Grover Beach, whose billing will occur in March for January and February usage, staff recommends the billing be prorated applying the prior rates for January consumption and the updated rates for February consumption. This is estimated to cost an additional $37,226. Combined, staff estimates these changes will result in a combined decrease of $92,004 in revenue this fiscal year for both the Water and Wastewater funds.
It should also be noted that there was an oversight in the implementation of new wastewater rates for residential customers which led to underbilling because those customers were billed the rates in place before February 1, 2024. Should Council direct staff to apply the recommended credit, this oversight will not impact billing adjustments. Staff appreciates and understands the need to increase communication of future rate increases going forward. With the implementation of the City’s new utility billing system currently underway, staff will have additional tools available to make residents aware of changes based on a variety of mediums such as text messages, email, or traditional paper-based notifications.
FISCAL IMPACT
Staff estimates that a credit adjustment will result in an average of $26 credited per account for a total estimated cost of $92,004 to the Water and Wastewater Funds. Given these are being applied to recent and prospective billings, this action will have no material effect on the cash position of the Water or Wastewater Funds.
ALTERNATIVES
The Council has the following alternatives to consider:
1. Receive information on the City’s utility rate implementation and approve the application of updated rates for usage prospective to the effective dates for utility rates increases beginning with the February 1, 2024 effective date; or
2. Do not approve the application of updated rates prospective to the effective dates for utility rate increases beginning with the February 1, 2024 effective date; or
3. Provide staff with alternate direction.
PUBLIC NOTIFICATION
The agenda was posted in accordance with the Brown Act.