HomeMy WebLinkAboutD-1.1. Water Cost of Service Study Results and Authorization to Mail Notice of Public Hearing Oct. 23,2023SCHEDULED ITEM D-1
TO: HONORABLE CHAIRPERSON AND MEMBERS OF THE AZUSA UTILITY BOARD
FROM: TIKAN SINGH, GENERAL MANAGER
DATE: AUGUST 28, 2023
SUBJECT: WATER COST OF SERVICE STUDY RESULTS AND AUTHORIZATION TO MAIL
NOTICE OF PUBLIC HEARING TO BE HELD OCTOBER 23, 2023, FOR WATER
RATE ADJUSTMENT
BACKGROUND:
On November 28, 2022, the Azusa Utility Board authorized Utility Financial Solutions (UFS) to prepare
a cost-of-service study for the Water Utility to ensure that the water rates provide sufficient resources to
meet the Utility’s annual operating costs, debt obligation, and short and long-term financial needs
including the Capital Improvement Program, and account for water conservation consistent with cost-of-
service principles.
Due to the State mandated water conservation and drought conditions resulting in decreased sales,
increased water supply costs, materials inflation, and aging infrastructure issues, rate adjustments are
necessary to fund the forecasted budget deficits.
In order to address the anticipated revenue shortfalls, Staff recommends the Utility Board implement a
rate increase of 15% in FY 2023/24, 9% in FY 24/25, and 4% annually in FY 2025/26 through FY 2027/28.
These are considered necessary to fully fund all the operating expenses, planned capital projects, and debt
service obligations, and meet cash reserve requirements through FY 2027/28.
This report also recommends approval of the attached public hearing notice, which includes UFS’s
proposed water rate changes, and authorization to print and mail the 45-day advance notice of the public
hearing to be held October 23, 2023 (at the regular Utility Board meeting time and place) for consideration
of the proposed water rate changes.
RECOMMENDATION:
Staff recommends that the Utility Board take the following action:
1)Approve the attached public hearing notice of the proposed water rate adjustment to increase
revenues by 15% in FY 2023/24, 9% in FY 24/25, and 4% annually in FY 2025/26 through FY
2027/28; and
2)Authorize Staff to print and mail the Notice of Public Hearing to all water customers 45 days
before the public hearing to be held October 23, 2023, at the regular Utility Board meeting time
and place.
Approved
Utility Board
08/28/2023
Water Rate Adjustment
August 28, 2023
Page 2
ANALYSIS:
The proposed water rate adjustments are necessary due to the following:
Decreased Sales: Water conservation has been at the forefront over the last two decades. The Governor
and the State Water Resources Control Board have mandated conservation across California. In Fiscal
Year 2021, ALW’s water sales accounted for 6.7 Million CCF (1 CCF = 100 cubic feet). Last Fiscal Year,
conservation and the abundance of rainfall decreased sales to 5.7 Million CCF – reducing the Division’s
revenue significantly. Conservation measures are very well intended yet negatively impact the Division’s
revenues.
Increased Water Supply Costs: The Main San Gabriel Basin Water Master implemented a five-year
stormwater augmentation plan using a Resource Development Assessment (RDA) to purchase water for
groundwater recharge. This assessment is placed on each acre-foot of water produced from the basin. In
2017, the RDA was $40 an acre-foot, and today the RDA is $175 an acre-foot, accounting for a $3.1
million total dollar assessment, i.e., over a 400 percent increase.
California has seen unprecedented long-term drought conditions requiring Azusa Light & Water to
purchase wholesale water. Three times in this decade, Azusa Light & Water has purchased imported
supplemental raw water from Upper San Gabriel Municipal Water District to recharge the aquifer and
supply water to the treatment plant. Each purchase was about $3 million.
Aging Infrastructure: In 2018, the Water Division repaired 291 water main leaks. In 2022, there were
409 water main leaks. ALW has three times the average leak rate than the national average. ALW’s water
system is aging, with most pipelines dating back to the pre-1950s. Consequently, resulting in a
significantly higher number of leaks.
Investment in Infrastructure and Water Resources: To sustain the water system and accommodate
future growth, the Water Division has established a program to replace aging infrastructure and develop
additional water resources.
Critical Capital Improvement Projects include:
1) Aspan Well Rehabilitation and Treatment project that will revitalize an inactive well within Azusa.
The new groundwater treatment plant will enhance local water supplies and improve water quality in the
aquifer. This project will aid drought resiliency by supplying 2.5 million gallons daily.
2) South Reservoir development project is a new 4 Million Gallon tank that will be earthquake resilient,
built to provide 100 years of service for the community.
3) Pipeline replacement program will start replacing aging and leaking pipelines throughout the system
on an ongoing basis.
Inflation in Material Pricing: The rising cost of materials, fuel, equipment, chemicals, and supplies
continues to increase. In 2022, the prices of materials, labor, energy, and special supplies, grew at an
unprecedented level, predominately because of the pandemic, inflation, and supply chain issues. As a
result, the Water Division was forced to request a budget amendment to keep up with the increased
operating costs.
Debt Obligation: The Water fund bond debt service ratio requirement is 1.25. Based on the current
projections and the existing rate structure, the bond debt service ratio will drop below the required
Water Rate Adjustment
August 28, 2023
Page 3
threshold, resulting in an event of default and a credit rating downgrade.
Reserve Balance Obligation: The Utility Board set the minimum unrestricted cash reserve target for the
Water fund at $19 million. Currently, the Water Division’s reserve balance is above the minimum required
reserve level. However, with the needed CIP investments and other financial factors, the Water reserve
fund balance will not be sufficient to meet the required $19 million threshold in the near future.
Proposed Rate Adjustments: The following are the proposed usage and meter charges with the rate
adjustments:
Rates Current Year 1 Year 2 Year 3 Year 4 Year 5
Monthly Facilities Charge
Meter Size
3/4" $ 15.75 $ 18.25 $ 18.60 $ 19.00 $ 19.40 $ 19.80
1" 25.71 30.00 30.60 31.20 31.80 32.40
1 1/2" 50.53 62.00 63.20 64.50 65.80 67.10
2" 80.32 93.00 94.90 96.80 98.70 100.70
3" 159.75 185.00 186.90 188.80 190.70 192.60
4" 249.12 290.00 295.80 301.70 307.70 313.90
6" 497.35 575.00 580.80 586.60 592.50 598.40
8" 795.22 925.00 934.30 943.60 953.00 962.50
10" 2,086.02 2,425.00 2,449.30 2,473.80 2,498.50 2,523.50
12" Special Zone 3,049.00 3,536.84 3,572.20 3,607.90 3,644.00 3,680.40
Lifeline Rate 13.55 16.05 16.40 16.70 17.00 17.30
Fire Service
1" Fire Service $ 4.27 $ 5.00 $ 5.10 $ 5.20 $ 5.30 $ 5.40
2" Fire Service 11.70 13.60 13.90 14.20 14.50 14.80
3" Fire Service 24.55 28.50 29.10 29.70 30.30 30.90
4" Fire Service 48.21 56.00 57.10 58.20 59.40 60.60
6" Fire Service 109.05 127.00 129.50 132.10 134.70 137.40
8" Fire Service 190.17 220.00 231.00 242.60 254.70 267.40
10" Fire Service 298.33 350.00 367.50 385.90 405.20 425.50
12" Fire Service 404.45 475.00 498.80 523.70 549.90 577.40
Usage Charge Per CCF
Tier 1 $ 1.14 $ 1.96 $ 2.20 $ 2.30 $ 2.41 $ 2.53
Tier 2 1.86 2.91 3.26 3.42 3.58 3.75
Tier 3 2.34 3.32 3.73 3.91 4.09 4.29
12" Special Zone 2.20 3.14 3.53 3.69 3.87 4.05
Golf Course 1.85 3.10 3.48 3.64 3.82 4.00
RWCAF:
All Commodity $ 0.62 $ - $ - $ - $ - $ -
Revenue from Rate $ 22,811,025 $ 26,232,678 $ 28,593,620 $ 29,737,364 $ 30,926,859 $ 32,163,889
Change from Previous 15.0% 9.0% 4.0% 4.0% 4.0%
Water Rate Adjustment
August 28, 2023
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The following is the proposed Commodity Drought Rate Schedule:
Financial Projection Summary: The Water fund has a minimum unrestricted cash reserve target of $19
million and a debt service ratio requirement of 1.25. The following table is the summary financial
projection without any rate changes. Cash balances and the debt coverage ratio fall below the
requirements and to critical levels over the years.
Fiscal
Year
Projected Rate
Adjustments
Projected Cash
Balances
City Min
Requirement
Debt
Coverage
Ratio
2024 0.0% 16,985,572$ 19,000,000$ 0.92
2025 0.0% 11,278,838 19,000,000 0.93
2026 0.0%4,660,464 19,000,000 0.64
2027 0.0% (3,667,114) 19,000,000 0.33
2028 0.0% (12,988,912) 19,000,000 0.01
Water Rate Adjustment
August 28, 2023
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The study identifies increasing current revenues to maintain minimum cash targets and debt coverage
ratios. The following table is a summary of the financial results detailing the projected revenue
adjustments. This rate track ensures the projected cash balance remains steady through 2028 while also
maintaining appropriate debt coverage.
Bill Survey: ALW is committed to providing customers with safe, reliable, affordable drinking water. The table
below shows a comparison of the City of Azusa and neighboring cities and utilities’ average monthly
residential water bill (13.5 CCF). With the first 2024 adjustment, Azusa’s average use monthly water bill
would be $56.88 - well below most of the neighboring utilities’ average monthly water bills.
Furthermore, after five years of the proposed rate adjustments, the City of Azusa’s average use monthly
water bill of $66.36 will remain competitive and below the current average monthly water bills of the
neighboring utilities.
48.79 56.36 56.88
73.86 77.72 77.79 84.45 86.20
-
10.00
20.00
30.00
40.00
50.00
60.00
70.00
80.00
90.00
100.00
Azusa (Current)Valley County Azusa 2024
Adjustment
San Jose Hills Cal-American Golden State Glendora Covina
Water Average Monthly Bill Comparison
13.5 CCF Average Use
Bill
Water Rate Adjustment
August 28, 2023
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Proposition 218: Proposition 218, Right to Vote on Taxes Act (“Prop 218”), requires mailing of a 45-day
advance notice of public hearing to customers. Therefore, Staff is seeking authorization to print and mail
the attached 45-day advanced notice of the public hearing for a water rate adjustment to be held on October
23, 2023, at the regularly scheduled Utility Board meeting and place.
FISCAL IMPACT:
The proposed 15% revenue increase in FY 2023/24 is projected to result in additional rate revenues of
$3.4 million and a debt coverage ratio of 1.55. Additional rate adjustments, 9% in FY 24/25, and 4%
annually in FY 2025/26 through FY 2027/28 will cover slight projected increases in operating costs and
expenses, fund necessary capital improvement projects, maintain water fund cash reserves in accordance
with AL&W’s policy, and meet the debt coverage requirement of 1.25.
Prepared by: Reviewed and Approved:
Danny Smith Melissa Barbosa
Utilities Admin & Finance Manager Assistant GM Water Operations
Reviewed and Approved:
Tikan Singh
General Manager
Water Rate Adjustment
August 28, 2023
Page 7
Reviewed and Approved:
Sergio Gonzalez
City Manager
Attachments:
1. Azusa Water Report V2 - Draft
2. Draft 45-day Advance Public Hearing Notice