Agenda Item
City Council
Item #: 10.2. 3/14/2023 File #: 23-0070
TO: Honorable Mayor and Members of the City Council
THRU: Tom Kisela, Interim City Manager
FROM: Christopher Cash, Public Works Director
1. SUBJECT
Public Hearing to consider amending and revising the Master Schedule of Fees and Charges to adopt new Water and Sewer Rates. Resolution Nos. 11436 and 11437.
2. SUMMARY
The City has completed a water and sewer rate study that concluded rate adjustments are needed over the next five years to sustain the water and sewer system. The study, conducted by Raftelis Financial Consultants, Inc., included: (1) the development of a financial plan and proposed revenue adjustments for the water and sewer enterprise to ensure financial sufficiency, adequate reserves, and funding for capital improvements, (2) a cost of service analysis for each enterprise, (3) the development of fair and equitable water and sewer rates compliant with the requirement of Proposition 218 that fairly and equitably recover costs from all customer classes, and (4) an update of the City’swater and sewer rate models to incorporate the resulting cost analysis of items 1, 2, and
3. 3. RECOMMENDED ACTION
1. Adopt Resolution No. 11436. A Resolution of the City Council of the City of Orange amending and revising the Master Schedule of Fees and Charges for sewer rates.
2. Adopt Resolution No. 11437. A Resolution of the City Council of the City of Orange amending and revising the Master Schedule of Fees and Charges for water rates.
3. Receive and file the Water and Sewer Rate Study conducted by Raftelis Financial Consultants, Inc.
4. FISCAL IMPACT
Implementation of the recommended water and sewer rates will result in additional revenues as follows:
FY 22-23 FY 23-24 FY 24-25 FY 25-26 FY 26-27
Fund 600 (Water) $711,621 $4,151,802 $6,379,542 $8,261,287 $9,968,877 Fund 220 (Sewer) $60,646 $369,940 $577,531 $712,860 $824,151 Fund 520 $27,462 $167,518 $261,521 $322,801 $373,197
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Item #: 10.2. 3/14/2023 File #: 23-0070
(Sewer Construction)
5. STRATEGIC PLAN GOALS
Goal 1: Provide for a safe community
b: Provide and maintain infrastructure necessary to ensure the safety of the public.
Goal 2: Be a fiscally healthy community
d: Effectively manage and develop City assets.
Goal 4: Provide outstanding public service
b: Provide facilities and services to meet customer expectations.
6. DISCUSSION AND BACKGROUND
The City routinely sets water and sanitation rates in 5-year increments. The last rate plan was set in 2017 with the final planned increase effective January 1, 2022. In late 2021, the City retained Raftelis Financial Consultants, Inc. (Raftelis) to conduct a new rate study for the water and sewer enterprises. As part of the study, a financial plan was developed to ensure that our water and sewer funds have adequate funding for operations, capital improvements, and reserves per City policy.
The major objectives of the study include (1) the development of a financial plan and proposed revenue adjustments for the water and sewer enterprises to ensure financial sufficiency, adequate reserves and funding for capital improvements, (2) a cost of service analysis for each enterprise, (3) the development of fair and equitable water and sewer rates compliant with the requirement of Proposition 218 that fairly and equitably recover costs from all customer classes, and (4) an update of the City’swater and sewer rate models to incorporate the resulting cost analysis of items 1, 2, and
3. The rate study must comply with Proposition 218, which stipulates that the increase cannot exceed the reasonable cost of providing services. It also requires the City to provide a public hearing notice to all property owners in its service area at least 45 days prior to the item being heard by the City Council. To comply with Proposition 218’snoticing requirements, the notice has been distributed to impacted property owners on or before January 27, 2023. A draft rate proposal is included in the notice.
The draft rate plan is proposing revenue adjustments for the water enterprise as follows:
· 7% effective April 1, 2023,
· 6% effective January 1, 2024,
· 4% effective January 1, 2025,
· 4% effective January 1, 2026
· 3% effective January 1, 2027.
Revenue adjustments for the sewer enterprise are being proposed as follows:
· 5% effective April 1, 2023
· 5% effective January 1, 2024
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Item #: 10.2. 3/14/2023 File #: 23-0070
· 3% effective January 1, 2025
· 2% effective January 1, 2026
· 2% effective January 1, 2027.
Significant factors that have influenced the proposed increases are reductions in water consumption due to State mandated conservation, inflation, PFAS groundwater contamination and the associated increase in imported water. We have also seen significant long-term increases in construction costs which have impacted expenditures from the current rate plan. The proposed rate generates revenue to cover the projected O&M and capital expenses over the course of the rate plan.
PROPOSED WATER RATES
The City currently has a fixed charge and a variable charge structure for each customer class that together comprise the water rate for consumers.
Fixed Charges: The fixed charge is a bi-monthly service charge based on the potential capacity demand that every individual service can place on the City’swater system. The potential capacity demand is reflected by the size of the line serving the customer’sproperty. The larger the line, the greater the water capacity demand. The charge remains the same (fixed) for each two-month billing period of service. The City also charges a fixed private fire service charge to customers with private fire service connections.
Variable Charges: The variable charges are based on the number of units of water delivered to a property during a billing period (every two months). A unit of water is one hundred cubic feet (hcf) which is equal to 748 gallons. Variable charges include a tiered rate for both single family and condo customer classes (a single line serving a single dwelling unit) and a different tiered rate for multi- family customer classes (a single line serving multiple dwelling units), and an elevation charge for Zone 4 and 5 customers, to cover costs associated with pumping water to higher elevations. Lastly, the City passes through its wholesale water purchase costs through a volumetric pass-through rate.
As customers are billed bi-monthly, the tables below reflect the proposed bi-monthly rates.
Bi-monthly Fixed Charge
Meter Size Current Rate Apr 1, 2023 Jan 1, 2024 Jan 1, 2025 Jan 1, 2026 Jan 1, 2027 5/8" or 3/4" $32.05 $34.00 $36.04 $37.48 $38.98 $40.15
1" $48.96 $52.75 $55.92 $58.16 $60.49 $62.30
1 1/2" $91.24 $99.63 $105.61 $109.83 $114.22 $117.65
2" $141.98 $155.88 $165.23 $171.84 $178.71 $184.07
3" $260.38 $287.13 $304.36 $316.53 $329.19 $339.07
4" $429.51 $474.63 $503.11 $523.23 $544.16 $560.48
6" $852.35 $943.39 $999.99 $1,039.99 $1,081.59 $1,114.04 8" $2,036.29 $2,255.89 $2,391.24 $2,486.89 $2,586.37 $2,663.96 10" $3,220.23 $3,568.40 $3,782.50 $3,933.80 $4,091.15 $4,213.88 Bi-monthly Private Fire Service Charge
Fire Service SizeCurrent RateApr 1, 2023 Jan 1, 2024 Jan 1, 2025 Jan 1, 2026 Jan 1, 2027 5/8" or 3/4" $0.00 $0.23 $0.24 $0.25 $0.26 $0.27
1" $0.00 $0.48 $0.51 $0.53 $0.55 $0.57
1 1/2" $0.00 $1.41 $1.49 $1.55 $1.61 $1.66
2" $0.00 $2.97 $3.15 $3.28 $3.41 $3.51
3" $0.00 $8.62 $9.14 $9.51 $9.89 $10.19
4" $40.97 $18.38 $19.48 $20.26 $21.07 $21.70
6" $119.01 $53.38 $56.58 $58.84 $61.19 $63.03
8" $253.61 $113.75 $120.58 $125.40 $130.42 $134.33
10" $456.08 $204.56 $216.83 $225.50 $234.52 $241.56
12" $0.00 $330.42 $350.25 $364.26 $378.83 $390.19
16" $0.00 $704.13 $746.38 $776.24 $807.29 $831.51
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Item #: 10.2. 3/14/2023 File #: 23-0070
Fire Service SizeCurrent RateApr 1, 2023 Jan 1, 2024 Jan 1, 2025 Jan 1, 2026 Jan 1, 2027 5/8" or 3/4" $0.00 $0.23 $0.24 $0.25 $0.26 $0.27
1" $0.00 $0.48 $0.51 $0.53 $0.55 $0.57
1 1/2" $0.00 $1.41 $1.49 $1.55 $1.61 $1.66
2" $0.00 $2.97 $3.15 $3.28 $3.41 $3.51
3" $0.00 $8.62 $9.14 $9.51 $9.89 $10.19
4" $40.97 $18.38 $19.48 $20.26 $21.07 $21.70
6" $119.01 $53.38 $56.58 $58.84 $61.19 $63.03
8" $253.61 $113.75 $120.58 $125.40 $130.42 $134.33
10" $456.08 $204.56 $216.83 $225.50 $234.52 $241.56
12" $0.00 $330.42 $350.25 $364.26 $378.83 $390.19
16" $0.00 $704.13 $746.38 $776.24 $807.29 $831.51
Bi-monthly Variable Charge ($/hcf)
Volumetric RateCurrent RateApr 1, 2023 Jan 1, 2024 Jan 1, 2025 Jan 1, 2026 Jan 1, 2027 Single Family & Condo
Tier 1 (0-23 hcf) $2.87 $3.08 $3.26 $3.39 $3.53 $3.64
Tier 2 (24-42 hcf) $2.95 $3.20 $3.39 $3.53 $3.67 $3.78
Tier 3 (43+ hcf) $3.05 $3.37 $3.57 $3.71 $3.86 $3.98
Multi-Family
Tier 1 (0-15 hcf) $2.87 $3.07 $3.25 $3.38 $3.52 $3.63
Tier 2 (16-19 hcf) $2.91 $3.14 $3.33 $3.46 $3.60 $3.71
Tier 3 (20+ hcf) $2.96 $3.20 $3.39 $3.53 $3.67 $3.78
Commercial $2.94 $3.20 $3.39 $3.53 $3.67 $3.78
Agriculture $2.93 $3.30 $3.50 $3.64 $3.79 $3.90
Construction $2.93 $3.30 $3.50 $3.64 $3.79 $3.90
Elevation Pumping Charge ($/hcf)
Pumping ZoneCurrent RateApr 1, 2023 Jan 1, 2024 Jan 1, 2025 Jan 1, 2026 Jan 1, 2027 Zone 4 $0.26 $0.22 $0.23 $0.24 $0.25 $0.26
Zone 5 $0.68 $0.56 $0.59 $0.61 $0.63 $0.65
Pass-through charge:
A significant portion of the City’s water rates are influenced by our wholesale imported water purveyor, Metropolitan Water District of Orange County and our groundwater replenishment agency, the Orange County Water District. Since the City has no control over the charges from these agencies, it is recommended to continue with a pass-through charge.
Government Code Section 53756 authorizes agencies to adopt a schedule of fees or charges authorizing automatic adjustments that pass-through increases in wholesale charges for water and adjustments for inflation, for a period of five (5) years. The number of automatic adjustments (Pass- Through Charges) to account for changes in wholesale water costs will be based directly on the City of Orange Printed on 3/9/2023Page 4 of 6
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Item #: 10.2. 3/14/2023 File #: 23-0070
Through Charges) to account for changes in wholesale water costs will be based directly on the incremental difference in costs that the City will incur from these other agencies as a result of increases or decreases in the amount such agencies charge the City. Any such adjustments will only be made to the extent such increases or decreases are not already reflected in the schedule of charges then in effect. Data documenting the amount of the increase or decrease in water commodity costs and the basis for all adjustment calculations will be made available to the public upon request at the time of any automatic adjustment. The pass-through cost applies only to the volumetric usage charge component of the water used. A notice of at least 30 days will be provided to customers before any such adjustments will take effect. The formula for which the automatic Pass-Through Charge is calculated is as follows:
PROPOSED SEWER RATES
The City’ssewer service currently utilizes a set of bi-monthly fixed rates for its Residential customers (Single Family, Multi-Family, and Condos), and volumetric rate based on bi-monthly water use for its Commercial customers. The following tables show the proposed sewer service rates for the next five years.
Sewer Rate Current Apr 1, 2023 Jan 1, 2024 Jan 1, 2025 Jan 1, 2026 Jan 1, 2027 Bimonthly Fixed Rate for Residential Customers
SFR $15.85 $17.41 $18.28 $18.83 $19.21 $19.59
MFR $9.69 $9.42 $9.89 $10.19 $10.39 $10.60
Condo $9.69 $9.42 $9.89 $10.19 $10.39 $10.60
Commerical Volumetric Rate ($/hcf)
Commercial $0.59 $0.61 $0.64 $0.66 $0.68 $0.69
Capital Rate Current Apr 1, 2023 Jan 1, 2024 Jan 1, 2025 Jan 1, 2026 Jan 1, 2027 Bimonthly Fixed Rate for Residential Customers
SFR $7.15 $7.88 $8.28 $8.53 $8.70 $8.87
MFR $4.37 $4.27 $4.48 $4.61 $4.71 $4.80
Condo $4.37 $4.27 $4.48 $4.61 $4.71 $4.80
Commerical Volumetric Rate ($/hcf)
Commercial $0.27 $0.28 $0.29 $0.30 $0.31 $0.31
Based upon the rate study, the above rate adjustments will bring revenues back in line with expenditures over the next five fiscal years. In addition, it will allow for the water and sewer enterprises fund balance to build towards the operating reserve goal while funding the annual CIP projects.
With the proposed rate adjustments, the City of Orange will continue to have one of the lowest rates in the County while addressing the ongoing maintenance and replacement of critical infrastructure throughout the City. If approved by City Council, the rates will be effective on April 1, 2023. The Finance Department’sUtility Billing Division will implement these rates and utility bills will be prorated during the initial 60-day billing cycling to reflect the current rates and the proposed rates after the rate City of Orange Printed on 3/9/2023Page 5 of 6
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Item #: 10.2. 3/14/2023 File #: 23-0070
during the initial 60-day billing cycling to reflect the current rates and the proposed rates after the rate adjustment.
7. ATTACHMENTS
· Resolution No. 11436
· Resolution No. 11437
· Prop. 218 Notice
· Draft Water and Sewer Rate Study
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