City of Santa Monica
California

Staff Report
2029

State of the Water Fund Report and 2017 Water Rate Adjustment

Information

Department:Public Works, Water ResourcesSponsors:
Category:09. Public Hearings

Recommended Action

Recommended Action

Staff recommends that the City Council:

1.              Suspend the 9% water rate increase authorized by Council to go into effect on January 1, 2017 and authorize a 5% increase to be in effect until December 31, 2017; and

2.              Authorize the budget changes as outlined in the Financial Impacts & Budget Actions section of the report.

Staff Report Body

Executive Summary

This report recommends the City Council adopt a 5% water rate increase for 2017 instead of the previously approved 9% increase. This recommendation is based on a proposed rightsizing of the Water Fund’s capital program which provides for a better than expected five-year Water Fund balance projection and also an increased investment in the City’s water main replacement capital program to provide a 100-year replacement schedule ($4M per year) as recommended in the 2014 Sustainable Water Master Plan, instead of a 200-year replacement schedule ($2M per year) as currently budgeted.

 

On February 24, 2015 (Attachment A), Council approved a series of five annual 9% water rate increases for the period of March 1, 2015 through December 31, 2019 to go into effect automatically unless suspended by Council for all or part of each increase.  The first 9% increase went into effect on March 1, 2015.  On February 23, 2016 (Attachment B), due to better than expected financial results in Fiscal Year 2014-15, Council approved a 5% increase for calendar year 2016, partially suspending the scheduled 9% increase.  Based upon review of Water Fund performance for Fiscal Year 2015-16, revenues were $2.2M greater than anticipated; and expenditures were $16.8M less than anticipated, leaving the Water Fund with a $41.3M fund balance. 

 

The recommended rate adjustment would be sufficient to allow the City to fund necessary operating and capital programs; to deliver potable water to Santa Monica customers reliably, safely and sustainably in compliance with federal and state regulations; and stay on track to achieve water self-sufficiency as planned by 2020.  The recommended 5% water rate increase for 2017 instead of the previously approved 9% increase would be effective for calendar year 2017 on bills issued on or about March 1, 2017 to February 28, 2018, with up to 9% increases authorized for 2018 and 2019 pending annual evaluation by Council and staff.  Proposed and current water and fire line service rates are listed in Attachment C.  Council may take action to adjust future rates at the next annual review.

 

Background

On February 24, 2015, Council approved the following schedule of water rate increases via resolution subject to an annual State of the Water Fund review analyzing fiscal performance and projected fund balances over a five-year period:

 

Calendar Year

2015, effective March 1, 2015

2016, effective January 1, 2016

2017 effective January 1, 2017

2018 effective January 1, 2018

2019 effective January 1, 2019

Maximum Authorized Increase

9%

9%

9%

9%

9%

Actual Increase Adopted by Council based upon review of Water Fund performance

9%

5%

 

 

 

 

Rate increases go into effect automatically on an annual basis unless suspended all or in part by Council.  On February 23, 2016, based on an improved financial outlook, Council partially suspended the full 9% increase and approved a 5% increase. 

 

For financial stability, the Water Fund strives to maintain a $7 million minimum reserve balance with revenues sufficient to cover all operating and capital expenditures while meeting various water-related requirements and goals including:

 

·              20% reduction in water use versus 2013 levels mandated by the State from May 5, 2015 through May 2016 and Stage 2 Water Supply Shortage conditions adopted by Council on August 12, 2014 in accordance with the City’s Water Shortage Response Plan (Attachment D);

·              Meeting a State-required 123 gallon per capita per day usage standard per the Water Conservation Act of 2009 also known as SBx7-7;

·              Federal & State water quality and treatment requirements;

·              Achieving Santa Monica's goal of 100% water self-sufficiency by 2020;

·              Managing Santa Monica basin groundwater contamination and utilizing groundwater resources in a sustainable manner; and

·              Maintenance and construction of water treatment and distribution systems including facilities, meters, pipelines, pump stations, reservoirs and well fields for reliable and efficient delivery of potable water for customer use.

 

Rate increases may be deferred or lowered should revenues be greater than anticipated or expenditures be less than expected, while maintaining a $7 million minimum reserve Water Fund balance. 

 

Any 2017 rate increase would go into effect for water consumption beginning on January 1, 2017, effective on water bills prepared on or after March 1, 2017 as water meters are read approximately every two months (e.g. a bill issued for a meter read on March 1, 2017 would reflect water usage from January 1 to February 28, 2017).

 

Discussion

 

Fiscal Year 2015-16 Financial Performance

In considering whether to suspend all or part of the scheduled 9% rate adjustment for calendar year 2017, staff analyzed the FY 2015-16 actual performance of the Water Fund.  As indicated in the Five-Year Water Fund Balance Projection tables (Attachment E), the Water Fund ended Fiscal Year 2015-16 with a fund balance of $41,350,436. 

 

The Water Fund ended the year $19M better than expected due to modestly higher than expected revenues and significantly lower than expected capital and operating expenditures. 

 

·         Revenues - Usage reductions for Fiscal Year 2015-16 were exhibited by all customer classes compared to the prior fiscal year, including Commercial (-6%), Multi-Family Residential (-7%), Institutional including City accounts (-13%) and Single Family Residential (-14%).  Although usage was down compared to the prior year, actual usage exceeded projected usage, resulting in actual revenues exceeding budgeted revenues by $2.2 million due to higher than expected water sales and meter/service line installs.

 

·         Expenditures - a higher than normal expenditure budget was planned for FY 2015-16 to make investments in an ambitious $13.4M capital project schedule and implementing an accelerated $5M conservation program as prescribed in the City's 2015 Water Shortage Response Plan to meet mandated water use reductions.  Due to lower than expected actual expenditures, a $16.8M surplus was realized as follows:

 

o       Capital Expenditures - $9.8M surplus - several project budgets were deferred or continued to FY 2016-17 pending bids or completion of design work.

 

o       Water Conservation Rebate and Plumbing Fixture Direct Install Programs - $3.7M surplus -  a plumbing fixture replacement contract for low income housing was deferred due to permitting issues and $3M in rebate funding and other water conservation measures will be continued into FY 2016-17 to encourage further efficiencies in residential and commercial landscape and plumbing fixture water usage.

 

o       Charnock Well Field Operations (11375 Westminster Avenue) - $1M surplus - progress made in groundwater pollution plume clean-up of MTBE and other volatile organic compounds has reduced the need for granular activated carbon filter media change outs to a bi-weekly frequency, resulting in $859K in savings.  Lower than expected contractor and operating supplies costs offset higher than expected energy costs accounting for the remainder of the savings.

 

o       Arcadia Water Treatment Plant Operations (1228 S. Bundy Drive) - $913K surplus - lower than expected costs were observed for electricity and water treatment chemicals along with deferral of membrane, cartridge filter and filter media change outs.  Reverse osmosis membranes, which are used as part of the City’s water filtration process, require replacement every 5 to 6 years and are scheduled to begin in spring 2017 at an estimated cost of $1.2M.

 

o       Metropolitan Water District (MWD) imported water purchases - $688K surplus - the City purchased 2,809 acre-feet of MWD water in FY 2015-16--the lowest amount in 20+ years.  Two Charnock wells were shut down for repairs at various periods from April to June 2016 requiring the purchase of an additional 430 acre-feet of MWD water to replace lost local production; otherwise this surplus would have been higher.

 

Water Self-Sufficiency by 2020

Original Conditions

The Sustainable Water Master Plan (SWMP) (Attachment F) was developed by staff in response to City Council direction in March 2011 to become water self-sufficient by 2020.  After various study sessions, Council approved the SWMP on October 28, 2014.  Water supply and demand conditions at the time (Fiscal Year 2012-13 data formed the basis for the analysis) led to the development of the following chart as included in the SWMP:

 

In 2013, water demand in Santa Monica was 14,078 Acre-Feet (AF).  Projections for future demand included an analysis of water demand in improved economic conditions.  Applying regression analysis techniques and population growth estimates looking forward, demand was projected to increase to 15,490 AF by the year 2020. Given the groundwater production capability at the time of 9,000 AF, the “gap” between local production and total demand was calculated as the difference of 6,490 AF (stated as 6,500 AF).  With an aggressive conservation program reducing demand by approximately 1,440 AF and the potential development of approximately 5,000 AF of new local groundwater, the 6,500 AF gap could be addressed.

 

Current Conditions / Updated Gap Projection

During Fiscal Year 2015-16, with California mired in a prolonged drought, the State Water Board enacted mandatory conservation measures requiring all water agencies in the State to reduce water levels by 20%.  Preceding this action by the State, Santa Monica enacted Stage 2 of its own Water Shortage Response Plan, which already had required a 20% reduction in use.

 

As a result, and following aggressive investment in conservation programs and enforcement, total water deliveries dropped to 11,348 acre-feet in Fiscal Year 2015-16.       Of this amount, 2,809 acre-feet (25% of water sales) of imported water was purchased from Metropolitan Water District, with the remainder sourced locally from Santa Monica Basin groundwater.  Although the State has backed off from its 20% mandatory reductions and in its place has requested water agencies to “self-certify” water supplies through the year 2019, Santa Monica remains in Stage 2 of its Water Shortage Response Plan, which sets a 20 percent conservation mandate. Santa Monica has certified that sufficient water exists to meet demands through 2019, principally because the Metropolitan Water District certified adequate supplies to meet the demands of its member agencies.  Accounting for the drop in water demand due to successful conservation efforts, and assuming a slight (2%) increase in demand this year and holding through 2020, the future year forecast of water supply and demand conditions is displayed below. With the drop in demand projecting to 11,575 AF at the year 2020, and given the existing local groundwater production of 9,000 AF, the gap can be restated now as 2,575 AF to be achieved by 2020.

 

Actions to Date

Groundwater treatment capacity at the Arcadia Treatment Plant meets the pumping capacities of existing wells, with limited spare capacity.  As initially calculated to meet water self-sufficiency, an additional 5,000 AF of local groundwater supply was required.  Accordingly, additional well production would require additional treatment capacity; in initially seeking to develop an additional 5,000 AF per year as envisioned in the original plan, it was necessary to investigate the feasibility of additional treatment capacity.  Toward this end, a pilot study for a proposed new treatment facility in the Olympic sub-basin has recently been concluded.  The pilot study addressed the removal of contaminants specific to the Olympic sub-basin (Tetrachloroethylene (PCE), Trichloroethene (TCE), and 1,4-Dioxane), identified an appropriate treatment train for the constituents of concern (greensand filtration, reverse osmosis and advanced oxidation), and developed a preliminary cost estimate for the project (approximately $70M, not including direct owners costs). The Olympic Treatment Plant (OTP) would be located at the City Yards to take advantage of existing City-owned land and to remain in close proximity to existing Olympic sub-basin wells.  The creation of additional treatment capacity separate and apart from the Arcadia facility would also create redundancy and independence in the event of an interruption in service at Arcadia.  Furthermore, site planning and initial layout considerations have been made in close coordination with the ongoing City Yards master planning efforts.    

 

The final recommendation of constructing the OTP has not been made.  While the pilot testing process was necessary in order to fully inform the final design of the OTP, additional analyses are underway, which will serve to best inform the threshold decision of whether to proceed with construction of the full-scale OTP.  Presently, a sustainable yield analysis of the entire Santa Monica groundwater basin is underway.  The results of the study, to be completed in spring 2017, will identify the sustainable yield of the basin.  As defined in California’s Sustainable Groundwater Management Act of 2014, sustainable yield means the maximum quantity of water – calculated over a base period representative of long term conditions in the basin and including any temporary surplus – that can be withdrawn annually from a groundwater supply without causing an undesirable result.

 

The findings of the study, specifically the yield available from the Olympic subbasin, and the adjacent Coastal subbasin, will be considered in making the final recommendation. Furthermore, pending the findings of the sustainable yield analysis, exploratory wells will better define the quality characteristics of the water available to the OTP and refine the final design criteria and cost estimates.  Additionally, in order to ensure the best use of available funding, the feasibility of expanding and/or enhancing the existing Arcadia Water Treatment facility will be addressed as an alternative to construction of a new plant at the City Yards.  This analysis of the alternative siting of the OTP will also be completed in spring 2017. 

 

Also completed over the last year was the drilling of an exploratory bore hole immediately north of City Hall.  The drilling operation met multiple objectives.  It was an opportunity to explore and characterize the subsurface conditions in a part of the City where no wells currently exist and in doing so further supported basin-wide sustainability efforts, and it also served to provide an assessment of the potential for a water supply well to serve the proposed City Services Building.

 

Closing the Gap

Resiliency and adaptability in light of changing conditions applies to the approach towards self-sufficiency.  Since the development of the original plan to achieve self-sufficiency and closing a 6,500 AF gap in supplies, an extensive, prolonged drought has materially changed the community’s water demands. Recognizing that conservation has already been incorporated into the water supply portfolio resulting in significant savings, achieving self-sufficiency by 2020 now means identifying 2,575 AF of additional supply.  While no new wells have been constructed as yet pending the results of the sustainable yield analysis, additional supply may be realized through the development of projects not previously envisioned nor included in the original supply projections. 

 

In the continuing search for alternate water sources to meet self-sufficiency goals, staff has developed the Sustainable Water Infrastructure Project (SWIP), for which Council approved the environmental documentation on September 27, 2016 (Attachment G).

Briefly, the SWIP leverages the use of existing City infrastructure by linking together three distributed water reuse elements into a single cohesive and comprehensive project. Advanced treated water (runoff, brackish impaired groundwater, and municipal wastewater) produced from the SWIP would be used to meet existing permitted non-potable reuse demands such as landscape irrigation. When properly permitted, a significant portion of the advanced treated water would be utilized for future indirect potable reuse via aquifer recharge. Combined, the three SWIP elements would produce approximately 1,680 acre-feet per year (AFY) of new water.

 

Existing wells, which are presently not used or under-utilized, present an opportunity to increase supply in a more cost efficient and expedient manner than the process involved in creating and permitting new wells.  In the Olympic sub-basin, well SM7 was drilled and completed in 1985.  It was never placed in service as a production well however, due to high levels of volatile organic compounds (VOCs) detected in the well during development.  These contaminants are the same as those being treated in water sourced from nearby wells SM3 and SM4, for which funds are being received by the City from Gillette and Boeing.  Staff is currently reviewing the rehabilitation options for SM7.  Limited pumping data for this well indicates it may be possible to recover up to 300 gallons per minute, which equates to 480 AF per year.

 

Pending the results of the sustainable yield study, the priority for siting and constructing a new well would be in the Olympic or Coastal sub-basins.  At least one additional well, with a production capacity of 500 gallons per minute at a minimum, would provide 800 AF.  A proposed timeline for the projects is presented below.

 

Cumulatively, these projects would provide 2,960 AF of new production, which is just over the revised anticipated gap of 2,575 AF. If these production estimates are met and conservation persists, the City is set to meet self-sufficiency by 2020 without the OTP by very narrow margins. Additional studies and analysis will explore more economical and incremental approaches to cover fluctuating water demands with and without the OTP.

 

Other issues relative to self-sufficiency

Santa Monica is actively moving toward closing the remaining gap to attain water self-sufficiency by 2020.  In support of this effort, various programs and policies are in place or may soon become effective, pending Council approval, which aim to address demand and/or increase supplies.  The development of additional water treatment capacity, the Sustainable Yield Study, and the Sustainable Water Infrastructure Project have been addressed previously in this staff report.  Further discussed herein are conservation programs, development of a Water Neutrality Ordinance, and sustainable management of groundwater resources.

 

Conservation Programs

The SWMP included the expansion of water conservation programs and rebates in addition to the installation of additional groundwater wells, and greywater and rainwater harvesting systems to increase local water supplies.

Faced with the threat of continued drought, uncertain local and imported water supplies and increasing resident and day-time populations, City Council declared a Stage 2 Water Shortage on August 12, 2014, requiring mandatory water allocations and a 20% reduction in water use from 2013 usage. 

The City’s drought response policies and programs build upon the programs and projects outlined in the SWMP. These coordinated efforts are achieving water use reductions while creating a sustainable water portfolio. Since June 2015, citywide water use has been reduced 19.7% compared to 2013 water usage. In FY 2015-16, 75% of Santa Monica’s potable water was sourced from local groundwater with more than 64 days where no imported water was purchased from Metropolitan Water District. Santa Monica also exceeded the State SBx7-7 requirement to reduce water use to 123 gallon per capita per day (gpcd) as noted in the City's 2015 Urban Water Management Plan (Attachment H), using 113 gpcd in calendar year 2015.  FY 2015-16 water sales of 11,348 acre-feet represents an even more impressive 21.5% savings versus the 20-year annual rolling average usage of 14,460 acre-feet from 1996 to 2015 despite increased population and building density. 

Drought Response: Water Use Reduction for FY2015-16

The City’s groundwater is recharged by rain. Only five inches of rain fell in the Santa Monica area during the 2015-2016 rainy season, which was significantly below the 14 inch average for the region and the 30 inches of rain that was anticipated due to El Niño conditions. Even though the state lessened its drought response requirements, Santa Monica continues to take a long-range water management approach to ensure a resilient and healthy water supply portfolio amid the uncertainty of climate change, water supply availability, and water demands.

As part of the Stage 2 Water Supply Shortage, water use allowances and penalties have been implemented in addition to expanded landscape rebates, turn-key toilet installations, home and business water consultations, and a comprehensive outreach and marketing plan. To date, 75% of all water customers are within their water use allowance and are consistently near or at the number each month. The City’s public landscape and facilities operations have cut water use by 23%. Penalties focused on high water users and have been effective at encouraging these customers to reduce their water use. By the end of September 2016, staff issued 629 penalties to the highest water wasters and water usage among that group has been reduced by 8% as a result. 

The City’s significant investments in water conservation have helped to achieve this reduction, but it is uncertain how much of this is due to behavioral changes versus permanent water-efficiency measures.  Although significant reductions in water use among all customer sectors have been made, water demand has increased in Santa Monica by 6% in Q1 of FY 2016-17 compared to Q1 of FY 2015-16.  With the lifting of the statewide mandatory targets in May 2016 it is anticipated that this trend may continue. Therefore, staff is redoubling efforts to promote the need for continued conservation. A new marketing campaign started in early July 2016 including social media, bus ads, street banners, banners at parks, targeted outreach to high-water use customers, landscape workshops for professionals, participation in the EPA’s Sprinkler Spruce Up summer marketing campaign, outreach to City employees, and outreach through Santa Monica Tourism and Travel, the Chamber of Commerce and the business districts.

In FY 2015-16, more than 400 landscape rebates were issued whereby 596,065 square feet of lawn were removed, and 10,000 water-saving products and plumbing fixture rebates were provided to residents and businesses. There are over 280 properties enrolled in the landscape rebate program this fiscal year that are projected to remove more than 200,000 square feet of lawn.

Water Conservation Programs

Drought Response Programs

Total

2014-2016

Giveaways: showerheads, aerators, etc.

2,501

Landscape Consultations

494

Water Use Consultations

272

Water Use Allowance Citations

629

Water School

156

Water Waste Complaints

889

Water Waste Warning Letters

786

Water Waste Citations

14

 

 

 

 

 

 

 

 

 

SWMP - Water Conservation Programs

Actuals
2014 to 2016

Target Amount
by 2020

Percent
Complete

Toilet Rebates Single Family

391

3,568

11%

Toilet Rebates Multi Family

1,666

4,000

42%

Toilet Rebates Commercial

437

200

219%

Toilet Direct Install

1,340

5,496

24%

Clothes Washer Rebates Residential

242

1,424

17%

Controllers Single Family

80

1,920

4%

Urinals Commercial

18

548

3%

Laminar Flow Devices Commercial

125

664

19%

Dry Pump Rebates Commercial – no customers have applied for this rebate.

0

40

0%

Connectionless Food Steamer Commercial – no customers have applied for this rebate.

0

2

0%

Conductivity Controller Commercial – no customers have applied for this rebate.

0

2

0%

Faucet Aerators Commercial – no customers have applied for this rebate.

0

158

0%

Coin-op Washers Rebates – this program is launching in 2017.

0

45

0%

St John's Medical Facility – this program has been declined by client and is no longer available.

0

N/A

0%

SMMUSD Audits/Retrofits

7

16

44%

WaterSmart Software Participants

5,924

6,000

99%

Lawn Removed (square feet)

596,065

1,100,000

54%

 

To assist Santa Monica in achieving additional water savings, the City is planning to invest $3M in FY 2016-17 in a robust suite of residential, commercial and institutional water conservation programs including landscape, turf removal, appliance and plumbing fixture rebates, water consultations and plumbing fixture direct installs and giveaways pending budget approval.  Program details may be found online at: smgov.net/water.

 

Water Neutrality Ordinance

To address future water demand from development, staff is developing a Water Neutrality ordinance which would require new development projects to implement or fund water savings offsets to mitigate any additional projected water usage related to the new development.  The Office of Sustainability and the Environment (OSE) and a stakeholder committee are studying various program, financial and legal issues.  Staff anticipates returning to Council with a proposed ordinance in February 2017. 

 

Groundwater Management. 

Prudent management of the local groundwater resources is critically important in addressing Santa Monica’s drive towards water independence.  Local groundwater has been part of the City’s water supply for nearly 100 years and sensible stewardship and oversight have allowed the City to withstand recurring droughts and contamination events in recent years.  Challenges faced include increased urbanization and industrial land use changes, with the potential of these changes to result in groundwater degradation as seen over the last twenty years, as well as climate change challenges affecting groundwater recharge, sea level rise, and rising temperatures which have typically been coupled with a rise in water demand.  The City is presently addressing groundwater management issues on two fronts: evaluation of alternatives to impose a temporary moratorium on the drilling of private wells until the results of the Sustainable Yield Analysis are completed, and the development of a basin-wide, multi-jurisdictional approach to basin management in compliance with the 2014 Sustainable Groundwater Management Act (SGMA).

 

Regulation of Private Wells

The City’s groundwater sources must be protected against overdraft and contamination so that the City may continue to provide the necessary volume of potable water to its citizens within the health and welfare guidelines promulgated by the various State and federal regulatory agencies.  Neither State law nor current City ordinances prohibit an individual property owner from constructing a private well for irrigation purposes on their property.  Only a drilling permit from the Los Angeles County Health Department is required to construct a well.   No City ordinance currently exists which requires any person or land owner wanting to construct a private well within the City to notify the City, or provide and information about that well and groundwater withdrawal from the well to the City.

 

On January 24, 2012, Santa Monica adopted a resolution declaring its recognition for the fundamental rights of natural communities and ecosystems to exist, thrive and evolve.  The Sustainable Bill of Rights (SBoR) was prepared as a Resolution that supports sustainable rights and commits to further exploration of how best to protect these rights and achieve community sustainability goals. On April 9, 2013 Council adopted a Sustainability Rights Ordinance that codified the rights outlined in the SBoR into the City’s municipal code.  These rights include:

·         Recognizing the right of the people of Santa Monica to clean, affordable, and accessible water from sustainable sources for human consumption, cooking, and sanitary purposes;

·         Recognizing the fundamental rights of natural communities and ecosystems to exist, thrive, and evolve; and

·         Effectuating these rights by modifying local law and policy as needed to better protect and sustain, for future and current generations, the natural environment upon which we all depend.

 

The City’s established goal of water self-sufficiency by 2020 is bolstered by the SBoR, which emphasizes the City’s responsibility to ensure its groundwater resources remain at heathy levels and continue to thrive, and furthermore defines the community’s right to water from sustainable sources. 

 

Given the City’s experience with past contamination events, current drought conditions, and required compliance with newly enacted state groundwater management law, staff is evaluating alternatives to impose a temporary moratorium on the drilling of private wells until the results of the Sustainable Yield Analysis are completed. Specifically, City staff are working with Los Angeles County staff to temporarily suspend the County issuance of well permits to property owners in Santa Monica.  Following completion of the Sustainable Yield Analysis and additional assessment of local groundwater resources, staff will report back to Council in November 2017 as part of the State of the Water Fund report with a more substantive discussion of future regulatory actions which may be considered by the City relative to the continued regulation of private wells.  

 

Sustainable Groundwater Management Act

The 2014 Sustainable Groundwater Management Act (SGMA) gives local agencies the authority to manage groundwater in a sustainable manner and allows for limited state intervention when necessary to protect groundwater resources. The SGMA requires the creation of Groundwater Sustainability Agencies (GSAs) to develop and implement local plans allowing 20 years to achieve sustainability. The SGMA provides a state framework to regulate groundwater for the first time in California history. Specifically, the SGMA:

·         Establishes a definition of sustainable groundwater management;

·         Establishes a framework for local agencies to develop plans and implement strategies to sustainably manage groundwater resources;

·         Prioritizes basins with the greatest problems (ranked as high- and medium-priority); and

·         Sets a 20-year timeline for implementation.

 

The SGMA includes provisions to promote engagement by interested parties in the formation of a GSA and development and implementation of a Groundwater Sustainability Plan. GSAs must identify key parties and maintain records that spell out plans on how to include their interests in GSA operations and Groundwater Sustainability Plan development. The Act requires the GSA to provide this information to the California Department of Water Resources. The GSA is the primary agency responsible for achieving sustainability within the timeframe.

 

Groundwater Sustainability Plans must include a physical description of the basin, including groundwater levels, groundwater quality, subsidence, information on groundwater-surface water interaction, data on historical and projected water demands and supplies, monitoring and management provisions, and a description of how the plan will affect other plans, including city and county general plans.

 

The 50-square mile Santa Monica Basin is currently non-adjudicated and underlies Santa Monica and portions of Los Angeles.  The City is in discussions with neighboring agencies including the Los Angeles Department of Water and Power and the City of Beverly Hills, to establish cooperative agreements relative to the creation of a Groundwater Sustainability Agency to manage demand and ensure water is utilized in a sustainable manner throughout the basin.  In accordance with SGMA requirements, formation of a GSA for the Santa Monica Basin is required by June 2017 and adoption of a Groundwater Sustainability Plan by is required by 2022. 

 

Recommendation

Due to an improved financial outlook, staff recommends Council partially suspend part of the 9% water rate increase authorized by Council and authorize a 5% increase.  Comparing rates with nine other Southern California providers (Attachment I), Santa Monica's tiered rate structure currently offers close to the lowest, if not the lowest, rates in the region for the average user.  For a single family residence using the City average of 24 HCF (17,952 gallons) over a two-month period, a 5% increase would raise a bi-monthly water bill by $4.06 from $83.08 to $87.14, which works out to less than a half-cent ($0.00485) per gallon.  Burbank offers the next-best pricing at $95.

 

Water Main Replacement Program and Capital Expenditures – due to staffing limitations, the City has expended only an average of $2M on water main replacements over the past 15 years.  Currently, water main replacement is budgeted in FY 2016-17 at $4.4M, while FY 2017-18 to FY 2019-20 are budgeted at $2M per year.  $2M provides for replacement of approximately one mile per year.  As the City’s water main system consists of 205 miles of pipeline, the current budget provides for a 205-year replacement schedule, approximately double the 100-year replacement schedule recommended in the City of Santa Monica’s 2014 Sustainable Water Master Plan.  Deferral of water main replacements may lead to breakages due to corrosion and other causes resulting in property damage and water loss similar to those recently experienced at UCLA and other locations throughout Southern California.  

 

The 5% increase would fund an additional $2M per year for water main replacements and one new FTE Civil Engineer ($180K per year) required to address the increased workload associated with the enhanced main replacement program.  This would increase the total water main replacement budget to $4M per year, which would fund two miles annually to achieve a 100-year replacement schedule.  As indicated in Figure 1 below, 4% of the City’s water main system (8 miles) is at or over 100 years old. 

 

Figure 1 - Age Distribution of Water System Pipelines

To partially offset the increased water main replacement costs, staff have identified $3.4M in FY 2016-17 capital projects which may be reduced, eliminated or deferred, including:

 

·         Water Resources facility improvement projects related to the City Yards Master Plan (deferred until onset of construction) - $1.5M

·         Water main and valve replacement projects that cannot be completed in FY 2016-17 at current staff levels - $1M

·         Construction projects where funding is no longer required (California Incline, Expo and Charnock Well Field booster pumps) - $470K

·         Technology projects to be deferred or with budget savings that may be returned to the Water Fund (advanced metering infrastructure, software systems database reporting, water systems control hardware/software) - $330K

·         Sustainability projects including groundwater management interagency memorandum of understanding development (work now to be completed by City staff) and Urban Water Management Plan closeout (plan accepted by the State) - $155K.

 

A 5% rate increase would provide sufficient funding to maintain safe and reliable water deliveries for Santa Monica customers at a reasonable cost and continue investments in infrastructure and progress towards water self-sufficiency by 2020 while meeting Federal and State regulations and Council-mandated water usage restrictions.  This adjustment would also provide the Water Fund the financial stability to allow for fluctuations in water usage, take action to combat elongated drought conditions, address unforeseen operating and capital requirements, meet or exceed bonding capital requirements at the end of the five-year rate analysis period and, ideally, avoid future rate shocks in the subsequent five-year rate period (FY 2019-20 to FY 2024-25).  Despite having a larger than normal $41.3M Water Fund balance primarily due to the one-time infusion of $33.4M in Charnock Well Field MTBE settlement funds at the end of FY 2012-13, it is anticipated that significant investments in capital ($31M) and conservation ($18M) programs will cause expenses to outpace revenues in each of the next few years.  As indicated in Attachment E, with a 5% rate increase for 2017, the Water Fund is projected to drop to a minimum fund balance of $7.6M in FY 2019-20, just above the required $7M reserve level. 

 

It is important to note that fluctuating conditions in water usage, customer behavior, policies & regulations, weather patterns, unforeseen repair costs, groundwater supplies & pollution content and other considerations make Water Fund financial predictions somewhat of a challenge.  A modest 5% swing in water usage could lead to a +/- $5M change to the Water Fund balance over five years.  Just two years ago, based on available data, Santa Monica had a 2014 usage level of 13,987 acre-feet with a twenty-year previous average of 14,460 acre-feet.  With the implementation of a mandatory 20% reduction in water usage versus 2013 levels and the corresponding anticipated loss of revenue, financial projections had the Water Fund dropping to lower than $1M despite a $33.4M infusion of MTBE settlement funds, 5 years of planned 9% rate increases and a planned, but no longer needed $10M bond issue in 2018.  With revised revenue estimates, a leaner capital program and lower than expected operating costs, the Water Fund's financial outlook has improved enough to justify a lower rate increase while meeting all water-related requirements and goals.

 

Alternatives

0% Increase (full suspension of 9% rate increase)

A 0% increase for 2017, with the existing $2M annual water main replacement capital budget unchanged and no additional staffing, would cause the Water Fund to drop to an estimated $6.9M in FY 2019-20, slightly below the $7M minimum recommended reserve level.  Also, as this would keep the City on a 205-year replacement schedule instead of the recommended 100-year schedule, this option is not recommended due to the risk of increased frequency of water line breakages. 

 

3% Increase (partial suspension of 9% rate increase) with Partial Water Main Capital Program and Staffing Enhancements

With a 3% increase in 2017, the Water Fund could fund a new Civil Engineer FTE and increase the water main replacement capital budget by $1.2M per year to $3.2M annually beginning in FY 2017-18, enough to fund 1.5 miles of water main per year (136-year replacement schedule) with a projected fund balance of $7.4M at the end of FY 2019-20.  The average single family residential water bill (24 HCF) would increase from $83.08 to $85.64 per bi-monthly billing period, a $2.56 increase.  This increase would be sufficient to fund planned operations, but is not preferable because it would not meet the 100-year recommended water main replacement schedule.

 

Task Force on the Environment and Water Advisory Committee Actions

The State of the Water Fund update was presented to the Task Force on the Environment on October 24, 2016.  Although no formal position was taken by the Task Force, significant discussion focused on strong support for a rate adjustment which would support full funding for infrastructure maintenance at a level which would return the water main replacement cycle to a 100-year period.  Similarly, the same support was received upon presenting the State of the Water Fund update to the Water Advisory Committee on November 1, 2016. Both groups voiced support for the 5% recommendation.

 

Financial Impacts and Budget Actions

FY 2015/16 water sales ended the year approximately $1.6 million greater than budget.  As noted earlier, although usage was down compared to the prior year, actual usage exceeded projected usage, resulting in actual revenues exceeding budgeted revenues by $2.2 million.  Based on this and that the State has eased mandatory statewide conservation guidelines and the City remains at Stage 2 of its Water Shortage Response Plan, staff now projects an additional 2% increase in water sales for FY 2016/17.  The increased revenues generated by this increased water usage will be partially offset by the reduction of the rate increase from 9% to 5% resulting in a net revenue increase for the year of approximately $1,130,000.  Staff will monitor revenues and any changes will be reflected in the FY 2016/17 Midyear Report.

 

The following Water Fund FY 2016-17 Capital Improvement Program account budgets will be reduced by the following amounts:

                                                                                                               

Account Number              Reduction

C250136.589000 – Water Main Replacement                                          ($805,841)             

C250162.589000 – Water Resources Tenant Improve                            ($1,500,000)             

C250388.589000 – Auto Meter Reading Pilot Prog                            ($58,335)             

C257064.589000 – Expo Water Betterments                                          ($200,000)             

C258020.589000 – Water Systems Data Integration                            ($132,000)             

C259015.589000 – SCADA Systems Upgrade                                           ($122,294)             

C259035.589000 – Booster Pump Charnock                                          ($19,292)             

C259040.589000 – Valve Study/Replacement                                          ($186,238)             

C259077.589000 – Sustainable Urban Water Master                            ($5,000)             

C259078.589000 – Groundwater Management Plan                            ($150,000)             

C259096.589000 – Calif Incline Construction                                          ($250,000)

Total                                                                                                                              ($3,429,000)

 

Meeting History

Nov 22, 2016 5:30 PM  City Council Regular Meeting
draft Draft