Tonight: Brentwood City Council to Hold Public Hearing on Water Rate Increase

Tonight, the Brentwood City Council will hold a public hearing to discuss the idea of increasing water rates.  If protests do not exceed 10,225 from interested parties, it’s being recommended by City Staff to move forward with accepting the approval of the rate study which will then raise rates.

Currently, the city is in the third year of a five year rate study that was approved in 2013 and set water rates through June 2018.

The city is recommended revenue adjustment is a 6% increase in 2016 and 2017 to standard rates, over the 3% adjustment already in place per the existing rate structure. Standard rates assume“non-drought” conditions and an optional Drought Surcharge is proposed during times of conservation.

Adopting two year rate adjustments:

• Implements a 9% increase over the next two years
• An average customer will experience a $6.00 per month increase (over the 2 years)
• Keeps Water Fund from negative cash balance of $8.8 Million by June 2018

The City says even with the adjustment, it will be competitive in the region. The City says without approval, the city will see some of the following impacts:

Impacts if City continues without recommended rate adjustments

• Negative cash flow balance of almost $9.0 M by June 2018
• Would not address “new normal” usage patterns due to conservation
• City would not meet debt coverage obligations and risks credit rating impacts
• Increases risk of City’s ability to provide on-going water delivery to existing and future customers
• Would delay delivery of critical capital infrastructure projects
• Requires greater future rate adjustments

Drought Surcharge Implementation

The Rate Study proposes a Drought Surcharge in times of conservation to compensate for  revenue loss and to fund conservation programs. A Drought Surcharge conforms to Proposition  218 legal requirements and would replace rebates and penalties to incentivize conservation.  A surcharge  amount is calculated through the Rate Study, though is not automatically implemented without a separate action by the Council, which may be taken at this time or in the future as drought conditions may require.

Benefits of a Drought Surcharge:

• Provides the City Council with financial options during a mandated conservation effort due to drought conditions
• Sets a surcharge in place that is Proposition 218 compliant
• Promotes conservation and lower rates for low usage versus higher costs with high usage
• Mitigates revenue loss due to conservation
• A Drought Surcharge provides Council an independent choice(s) regardless of State actions or mandates when a drought is in effect

Stage II – Implementation Impacts

• Mandatory 20% conservation
• Mitigates an assumed $3.6 M annual revenue loss
• Adds $1.38 per each unit of water used
• Average customer experiences an increase of $4.75 per month (over the 2 years) with reduced usage

Stage III – Implementation Impacts

• Mandatory 35% conservation
• Mitigates an assumed $5.6 M annual revenue loss
• Adds $2.32 per each unit of water used
• Average customer experiences an increase of $1.45 per month (over the 2 years) with reduced usage 28% Water Conservation Mandate

In early February the State officially extended mandatory water conservation through October 2016. The State Water Resources Control Board has revised the City’s conservation mandate to 28%.  The City’s Water Conservation Ordinance is proposed to be revised  accordingly.

Staff Recommendations and Next Steps

At this time staff recommends the following actions:

• Hold the public hearing.
• In the absence of a majority protest, adopt the proposed Water Rate Study and implement a 6% revenue increase for each Fiscal Year 2015/16 through 2017/18, over the 3% previously approved (2013).
• Implement Stage II or III Drought Surcharge for the duration of the State mandated conservation requirements.
• Revise the Water Conservation Ordinance to require 28% conservation for residential and non-residential customers and 35% for irrigation accounts.
• Further revise the Water Conservation Ordinance to eliminate penalties should a Drought Surcharge be implemented.
• Implement the revised rates as of June 1, 2016

Should a Drought Surcharge be implemented, attached Water Conservation Ordinance A is recommended for adoption, which reduces conservation requirements to 28%. In the event the

Council chooses not to implement a Drought Surcharge, Water Conservation Ordinance B is recommended, which reduces conservation by 28%, in addition to setting Winter and Summer average usage thresholds and continues monetary penalties.

Fiscal Impact

User revenues in the Water fund (user fees and meter charges) in the current fiscal year are projected to decline by over 17% from 2 years ago, while the majority of the operating costs of providing water (e.g. treatment plant and infrastructure maintenance costs) are fixed. The proposed revenue adjustment in “non-drought” conditions would allow the Water Enterprise to recover lost revenues, help ensure that revenues are sufficient to cover expenses and maintain compliance with bond covenants.

The projected cash balance of the Water Enterprise in “non-drought” conditions” is approximately $1,975,594 as of June 30, 2018 with adoption of the proposed rate adjustment.

Absent the adoption of the proposed rate adjustment and any drought surcharge, with continued conservation at close to 30% from 2013 usage, the projected cash balance would fall to (- $1,901,349) by June 30, 2017 and (-$8,813,880) by June 30, 2018.

Among other things, Water Enterprise at this negative balance would inhibit the ability to provide adequate daily operations and jeopardize existing bond payments, as well as the ability to qualify for future financing. In addition, the annual debt coverage required by bond covenants would not be met.

With the implementation of the 9% revenue adjustment, during Stage III conservation, the addition of a Stage II Drought Surcharge projects a Water Enterprise cash balance of $1,290,123 at June 30, 2018. The addition of a Stage III Drought Surcharge projects a cash balance of $6,084,373 by June 30, 2018., which meets expenses and is close to reaching reserve target for long term enterprise stability.  With the 9% rate adjustment and addition of either a Stage II or Stage III Drought Surcharge the  annual debt coverage required by bond covenants would be met

If you go:
Brentwood City Council Meeting
7:00 PM
150 City Park Way, Brentwood CA

Information pulled from City Staff Report: Click here for more information