REPORT TO THE CITY COUNCIL
November 20, 2014
FROM: THOMAS C. ESQUEDA, Director
Department of Public Utilities
SUBJECT
Title
Receive report of findings and summary of discussions from the Recharge Fresno Community Forums and direct City staff to initiate the Proposition 218 hearing process for proposed changes to the schedule of rates, fees, and charges for public water service and setting the public hearing for February 5, 2015, at 5:00 p.m.
Body
RECOMMENDATION
The Administration recommends that the City Council receive the findings and summary of discussions from the Recharge Fresno Community Forums and authorize Department staff to initiate the Proposition 218 hearing process for proposed changes to the schedule of rates, fees, and charges for public service.
EXECUTIVE SUMMARY
On July 31, 2014, the City Council rescinded the Water Division's four-year schedule of rates, fees, and charges, which had been previously approved by City Council in August 2013 and in effect since September 2013.
Upon rescinding the Water Division's four-year schedule of rates, fees, and charges, the City Council directed Department of Public Utilities staff to initiate a participatory roundtable process. The purpose of the roundtable process was to foster and undertake serious discussions relative to all project issues, including regional water issues, the scope of city projects, alternatives for financing capital costs, alternatives to the City's current policy on water, and an evaluation of subsidy options for low or fixed income ratepayers. City staff was also directed to prepare findings and a summary of the discussions from the participatory roundtables. Meeting minutes from the roundtables are attached to this report (Attachment 1), and the following pages summarize findings from the discussions. Finally, the City Council directed staff to develop a five-year rate plan to replace the previously adopted four-year rate plan, and delay enactment of the new five-year schedule of rates, fees, and charges until at least six (6) months following the City Council's rescission of the previously adopted rates.
Based on comments received from the public during the participatory roundtable process, the Department of Public Utilities has developed a new, five-year capital plan totaling approximately $429 million. The new five-year capital plan includes funding for groundwater recharge facilities, pipeline and well rehabilitation and replacement, raw water conveyance facilities, surface water treatment facilities, and finished water distribution facilities. The Department of Public Utilities retained a rate consultant to design a five-year schedule of rates, fees, and charges to recover the Water Division's forecasted capital, operations and maintenance expenditures. Table 1 summarizes the major issues considered by City staff in re-evaluating the proposed rate plan as directed by the City Council and modifications made to the rate plan. Further issues raised during the Community Forums and evaluated by staff are summarized in the following pages.
TABLE 1 - Comparison of 2013 Original Rate Plan to 2014 Modified Rate Plan |
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2013 Original Plan |
2014 Modified Plan |
Term of the rate plan |
4 years |
5 years |
Cost of Capital |
$442.2 million(1) |
$429.1 million |
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Intentional Groundwater Recharge |
$7.1 m |
$6.4m |
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Raw Water Supply |
$30 m |
$98.4m |
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Surface Water Treatment |
$196.6 m |
$186.4m |
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Finished Water Distribution |
$49.6 m |
$55.4m |
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Rehab/Replacement |
$126.2m |
$82.5 m |
Size of the Southeast SWTP |
80 mgd with expansion capacity to 110 mgd |
56 mgd with expansion to 80 mgd |
Average Monthly Rates |
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Year 0 |
$24.49 |
$24.49 |
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Year 1 |
$33.28 |
$28.30 |
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Year 2 |
$41.42 |
$34.12 |
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Year 3 |
$44.70 |
$39.62 |
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Year 4 |
$48.34 |
$47.26 |
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Year 5 |
$52.26(1) |
$52.18 |
Financing Mechanism |
Paygo, ratepayer-backed bonds, State-backed low-interest loans |
Paygo, ratepayer-backed bonds, State-backed low interest loans |
Tiered Rates |
No |
No but recommended for evaluation in next 5-year rate plan |
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(1) The 2013 plan was a 4-year plan with a capital cost of $410 million. To compare the original 4-year rate plan with the new 5-year rate plan, and fifth year of capital costs, as well as construction escalation, were added to the original 4-year plan so the two plans can be compared on a common five-year basis. |
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Much of the debate over the last year has been focused on whether to move forward with the Southeast Surface Water Treatment Plant ("SESWTP"). It is understandable that the SESWTP has been the primary focus of attention because the SESWTP is the single largest cost item in the capital plan; and, therefore, given its amount it is assumed to be the cause of the entire rate increase. However, it is important to note that when reviewing the overall rate, more than 2/3 of the rate is required to recover the costs for day to day operations, maintenance, and existing debt service payments. In other words, even without the capital program, the City's water rates need to be increased to recover normal and routine annual cost increases for electricity, chemicals, personnel, fuel, operating reserves, and similar. This is described in more detail below.
The Administration recommends that the City Council receive the findings and summary of discussions from the Recharge Fresno Community Forums and authorize Department staff to initiate the Proposition 218 hearing process for proposed changes to the schedule of rates, fees, and charges for public service.
BACKGROUND
On July 31, 2014, the City Council rescinded the Water Division's four-year schedule of rates, fees, and charges, which had been previously approved by City Council in August 2013 and in effect since September 2013. The City Council directed staff to develop a five-year rate plan to replace the previously adopted four-year rate plan, and delay enactment of a new five-year schedule of rates, fees, and charges until at least February 1, 2015. Further, the City Council directed staff to initiate a participatory roundtable process to foster and undertake serious discussions relative to all project issues. The following pages include:
· A description of the public's participation in the development of the recommended rate plan, including the most recent participatory roundtable process ("Recharge Fresno Community Forums");
· Findings from the additional analysis of options and issues requested by members of the public during the Community Forums and various community meetings;
· Responses to specific questions and statements made by Measure W proponents;
· A description of the Revised Capital Rate Plan;
· A description of the Proposed Water Rates;
· A summary of recently adopted State legislation affecting the City's water plan; and
· The schedule for the rate adoption process.
Description of Public Participation in the Development of the Recommended Rate Plan
During Fiscal Year 2010, Mayor Swearengin and the Fresno City Council appointed a Utility Advisory Commission ("UAC") who were tasked with determining a 5-year plan for Fiscal Years 2012 - 2016 while taking into account the critical importance of recommending a sound financial plan that protects both the integrity of the utility system and the rate payers. The UAC was an all-volunteer group of nine (9) citizens who conducted meetings that were open to the public from October 2009 to March 2011 (18 months). During that period of time, the UAC evaluated each utility operated by the City, assessed its financial position and service levels, and reviewed detailed recommendations being made by City staff for a new rate plan. In 2011, the UAC concluded its work and delivered its recommendations to the Administration and to the City Council. Their recommendations included moving forward with the SESWTP, as well as the other capital projects included in the original rate plan. City staff then spent another two years, between 2011 and 2013, continuing to engage the public on the City's overall water plan through numerous presentations to community groups, as well as to state and federal technical experts.
In 2013, after a year of public meetings conducted by the Utility Advisory Commission and another two years of public presentations by staff on the City's proposed water plan, the Administration recommended adoption of a 4-year rate plan that included funding for an 80 million gallons per day ("mgd") surface water treatment plant in Southeast Fresno with capacity to expand to 110 mgd; additional recharge basins; a canal for raw water supply to the surface water treatment plant; pipeline to deliver treated water to customers; and a rehabilitation and replacement program for aging infrastructure. In August 2013, the 4-year rate plan was approved by the City Council.
The Council's actions were challenged by a group of residents seeking to qualify an initiative measure (Measure W) to repeal the City's 2013 utility rates. After litigation, a settlement was reached between the City and the Measure W proponents. The City Council rescinded the 2013 utility rates, fees, and charges and directed staff to initiate a participatory roundtable process to foster and undertake serious discussions relative to all project issues, including regional water issues, the scope of City projects, capital project financing alternatives, charges for new development, and the feasibility of low- or fixed-income subsidies.
During the participatory roundtable process, the City publicized, sponsored, televised, and hosted a dedicated website (www.rechargefresno.org <http://www.rechargefresno.org>) for a series of four (4) community forum meetings and one (1) Water Utility Financing Summit. The community forum meetings allowed City leaders, water system ratepayers, taxpayers, taxpayer organizations, initiative proponents, water resource experts, media (radio, television, and print), and other interested parties to review and discuss the City's water supply system strengths, weaknesses, threats, and opportunities. Detailed minutes of the four (4) community forum meetings and the one (1) Water Utility Financing Summit are attached (Attachment 1). The meetings covered the following subjects.
· Community Forum #1: Fresno's Water Supply Issues and Needs - Monday, September 29, 2014, 6:00 p.m. to 8:30 p.m. at Hoover High School. The purpose of the first community forum was to discuss regional water issues and provide information on the City's overall water system. 145 members of the public attended. Panelists included:
o Brock Buche, the City of Fresno Supervising Professional Engineer, Dept of Public Utilities
o Jon Traum, U.S. Geological Survey
o Gary Serrato, Fresno Irrigation District
o Laura Whitehouse, Citizen, Chairperson, Utility Advisory Commission
o Martin McIntyre, San Luis Water District
o Ernie Taylor, California Department of Water Resources
o Dr. John Suen, Faculty, California State University, Fresno
· Community Forum #2: Solutions: Fresno's Water Future - Monday, October 13, 2014, 6:00 p.m. to 8:30 p.m. at Oraze Elementary School. The purpose of the second community forum was to discuss possible solutions to the City's water challenges. Suggestions made by participants included increasing conservation, adding recharge basins, desalination, limiting growth, adopting an annual water budget agreed to by surrounding jurisdictions, recycling water, and securing state grant funds. 139 members of the public attended. Panelists included:
o Laura Whitehouse, Chairperson, Utility Advisory Commission
o Martin McIntyre, San Luis Water District
o David Orth, Kings River Conservation District
o Kassy Chauhan, California State Water Resources Control Board
o Alan Hofmann, Fresno Metropolitan Flood Control District
o Brock Buche, City of Fresno Supervising Professional Engineer, Dept of Public Utilities
o Gary Serrato, Fresno Irrigation District
o Ron Jacobsma, Friant Water Users Authority
· Community Forum #3: Paying for Fresno's Water Needs - Monday, October 27, 2014, 6:00 p.m. to 8:30 p.m. at Rutherford B. Gaston Middle School. The purpose of the third community forum was to discuss options for paying for the City's water infrastructure, including cash (pay-as-you-go, or PAYGO, developer fees, grants, loans and bonds. 127 members of the public attended. Panelists included:
o Gladys Deniz, Member, Utility Advisory Commission
o Jeff Roberts, Granville Homes
o Doug Vagim, Measure W Proponent
o Tommy Esqueda, Director, Dept of Public Utilities, City of Fresno
o Martin McIntyre, San Luis Water District
o Tim Thiesen, Fresno Taxpayers Association
o Kassy Chauhan, California State Water Resources Control Board
o Martin McIntyre, San Luis Water District
o Gary Serrato, Fresno Irrigation District
· Community Forum #4: Summary and City of Fresno Next Steps - Monday, November 10, 2014, 6:00 p.m. to 8:30 p.m. at Fresno City Hall. The purpose of the fourth community forum was to summarize the information covered at the first three sessions and present preliminary recommendations from City staff to the Administration. 142 members of the public attended. Panelists included
o Kassy Chauhan, California State Water Resources Control Board
o Martin McIntyre, San Luis Water District
o Gary Serrato, Fresno Irrigation District
o Brock Buche, City of Fresno Supervising Professional Engineer, Dept of Public Utilities
o Mike Lima, Comptroller, City of Fresno
o Tom Pavletic, Municipal Financial Services, Rate Design Consultant
· Water Utility Financing Summit - Monday, October 20, 2014, 10:30 a.m. to 4:00 p.m. at the Center for Irrigation Technology on the campus of the California State University at Fresno. The purpose of the Water Utility Financing Summit was to provide a small group of stakeholders, experts, and Measure W proponents with an opportunity to discuss in detail the various funding mechanisms available for the City's water program. Participants included:
o Stephanie Babb, Greater Fresno Apartment Association
o Ryan Cogdill, Howard Jarvis Taxpayers Association
o Gladys Deniz, Utility Advisory Committee
o Jason Duke, Fresno Unified School District
o Rachel Eslick, Fresno Chamber of Commerce
o David Herb, local advocate
o Alfonso Hernandez, La Tapatia
o Randy Hergenroeder, Busseto Foods
o George Hostetter, Fresno Bee
o Myrna Lewis, La Tapatia
o Leland Parnagian, Fowler Packing and Economic Development Corp. board
o Michael Prandini, Building Industry Association
o Tim Thiesen, Fresno Taxpayers Association
o Doug Vagim, Measure W Proponent
o Steve Wayte, Measure W Proponent
o Laura Whitehouse, Utility Advisory Commission
o Nick Yovino, Utility Advisory Commission
o John Ziese, State Water Resources Control Board
Findings from the Additional Analysis of Options and Issues Requested by Members of the Public
Over the last three months during the additional "due diligence" phase of the proposed water program, the City has received numerous comments and questions from residents through the Community Forums, meetings with other community groups and interested stakeholders, and through email and telephone. Responses have been provided in detail in the attached "Frequently Asked Questions" document (Attachment 2), but the majority of the questions raised related to four major issues that are extremely important and warrant a careful and detailed response:
(1) What is the City's current water situation and do we really have a need for the proposed infrastructure?
It is important to note that more than 2/3 of the water rates, and the associated water bill, is required to recover the costs for normal and customary day-to-day operations, maintenance, mandated operating reserves, and existing debt service payments.
The City's water supply comes from two major sources: groundwater pumped from the aquifer below the City and "surface water" from the San Joaquin and Kings Rivers. There are three significant threats to our water supply that must be addressed: 80 years of groundwater over drafting; contamination of City wells resulting in a loss of even more groundwater supply; and a lack of infrastructure to store, treat, and use the surface water needed to address the City's groundwater challenges.
The proposed surface water treatment facility is needed to mitigate decades in which the community has been over drafting the groundwater aquifer. In fact, over the last 80 years, the City's groundwater dropped over 100 feet. Currently, the City is over drafting the groundwater aquifer by 40,000 acre feet per year ("AFY"), even with recharge and conservation.
In addition, the City currently has 80 wells that are impacted by TCP, of which 47 wells are at or above the expected regulatory limit. Those 47 wells represent almost 80 mgd of production capacity that will either require wellhead treatment or abandonment. Further, there are another 26 wells with a production capacity over 30 mgd that are close to being removed from service because the groundwater elevation has declined to a point where drilling any deeper is not cost effective, and a new well will be required in a new location.
Combining the City's annual over drafting and the potential loss of well production from contamination and declining groundwater levels, the City needs approximately 150,000 AFY of water to correct the City's groundwater problems.
Fortunately, ratepayers have purchased rights to 180,000 acre feet of surface water that is stored behind Pine Flat and Friant dams. The City's surface water can be used to meet annual water demand, which will allow groundwater to be recharged over time. However, the lack of adequate infrastructure results in approximately 110,000 AFY of water never being used to benefit our ratepayers during a normal year. The construction of a new surface water treatment facility will not only reduce the reliance on groundwater, it will allow the ratepayers to take advantage of the surface water supplies which are already purchased.
It is unfortunate that there remains a belief in the community that the practice of over drafting groundwater is somehow acceptable, and that the public health risks associated with TCP and other contaminants do not require action. To emphasize the need to address groundwater issues in the State, on September 14, 2014, the Governor of California signed into law three bills that are collectively referred to as the Sustainable Groundwater Management Act (the Act). The Act recognizes that excessive groundwater extraction can cause overdraft, failed wells, deteriorated water quality, environmental damage, and irreversible land subsidence - all conditions that exist in the City of Fresno and all of which require corrective action immediately.
(2) Is the proposed water infrastructure needed for our current population or is it being built to prompt and subsidize new development in Southeast Fresno?
This question seems to lie at the heart of most of the concerns and questions expressed by proponents of Measure W and participants at the Recharge Fresno community forums. Because the new surface water treatment plant is physically located in southeast Fresno near the City's Southeast Growth Area ("SEGA"), some have taken that to mean the surface water treatment plant is being proposed to support the build out of SEGA. However, City staff selected the site for the proposed SESWTP primarily because of its close proximity to the Kings River. Additionally, the site selected for withdrawing water from the Kings River is located at a point where the Kings River and Friant-Kern Canal intersect, making it the most logical and cost effective location for the pipeline to serve the new surface water treatment plant.
As explained above, the surface water treatment plant is needed to recharge the City's groundwater and provide for a sustainable water supply for existing residents. As the population grows, new development is triggered. That new development is required to pay for the capital costs associated with extending water/sewer infrastructure and hooking up to the water system. State law prohibits one user group from subsidizing another user group's rates. Therefore, it is illegal for existing ratepayers to subsidize new development. The Administration acknowledges that new development must pay its own way, and there is an existing development fee schedule in place for new connections to the City's public water system. Accordingly, the Administration is directing the Department of Public Utilities to initiate a development fee study to ensure that new development will continue to pay its fair share of the costs to develop, improve, operate, and maintain the City's public water system. Upon completion of the development fee study, the Administration will present recommendations to the City Council for consideration.
(3) What is the best, most cost effective way to recharge the City's groundwater?
Once it is established that the City must, in fact, recharge its groundwater because of decades of over drafting, well contamination, and a new state law that is now regulating groundwater usage, the next logical question is "What is the best, most cost effective way to recharge the City's groundwater?" During the additional due diligence phase, staff was asked by the public to re-examine other mechanisms available to recharge the aquifer besides surface water treatment facilities, including:
· Conservation - This is an important part of balancing Fresno's water supply, and the City has already significantly reduced water demand through conservation. From 2008 to 2013, the citizens of Fresno reduced water consumption from 320 gallons per person per day to 240 gallons per person per day. It was originally planned that the City would achieve 240 gallons per person per day in 2020. However, conservation alone cannot solve Fresno's water challenges and would not fulfill the requirements in the state's new groundwater legislation.
· Additional Recharge Basins - To achieve the same amount of recharge made possible with the Surface Water Treatment Plant, the City would need to acquire through direct purchase or eminent domain approximately 2,000 acres of land with suitable soils, and then construct additional conveyance facilities to deliver water to the new recharge basins. The land, conveyance facilities, construction, and operating costs are estimated at $300 million. The Surface Water Treatment Plant in the modified rate plan is $186 million, making it a more cost effective option to replenish groundwater than relying on additional recharge basins.
· Desalination, Rainwater Harvesting, Cloud Seeding - These options are not cost-effective or, in some cases, infeasible at this time.
· Grey Water - Grey water systems are gaining popularity as a potential water supply source around the country. However, there remain concerns with grey water systems in the areas of protecting public health and creating public nuisances such as vector attraction. Accordingly, close coordination with state and county public health agencies will be required to implement these programs successfully. While grey water systems can reduce water demands, given that these programs are generally offered on a voluntary basis, the degree of water reduction is insufficient to meet the City's immediate needs to comply with new state laws.
(4) What is the most cost effective and equitable way to pay for the City's water needs?
The City has historically paid for water infrastructure through a combination of "pay as you go" (PAYGO), state-backed low-interest loans, and bonds backed by monthly user fees (or rates) and is again proposing the same approach with the 2014 water rate plan. There seems to be broad agreement on using PAYGO and state-backed low-interest loans as they are available to pay for and finance needed infrastructure improvements. However, there has been some debate on using bonds backed by user fees. Measure W proponents have repeatedly suggested that a parcel-based tax system would be a better way to finance water infrastructure improvements. City staff convened a day-long Water Utility Financing Summit (meeting minutes attached as Attachment 1) to discuss this approach versus a user-fee system for financing and concluded, first of all, that regardless of whether the financing mechanism was parcel-based or user-based, the price to build the surface water treatment plant would remain the same: $186.4 million.
Secondly, staff concluded that the user-based mechanism is the most efficient and effective means to finance the infrastructure because it reduces administrative costs (parcel-based collection systems require the County of Fresno collect and disperse funds to the City, which adds a layer of government overhead to the process and increases costs); is less vulnerable to legal challenges (the Howard Jarvis Taxpayers Association commented at the Financing Summit that various forms of parcel-based taxes for water infrastructure would be litigation targets without creating a nexus between the amount of the charge and the level of benefit provided); and encourages water conservation (user-based mechanisms only require users to pay for what they use, thereby incentivizing conservation). As further validation that a parcel-based tax system is an inferior collection mechanism, City staff and consultants surveyed other cities throughout the state to try to find any that choose a parcel-based tax system for water infrastructure and found none.
Some have expressed concern about issuing debt to pay for the proposed capital plan and instead pay cash for all proposed infrastructure. However, a cash only financing plan would result in the first year rate increase changing from 15.6 percent to 100 percent. In the fourth year of a rate plan that relied exclusively on cash financing, rates in the City of Fresno would increase by 245 percent. The City's current rate plan is based on a balanced financing strategy that uses a combination of cash, revenue debt, and low-interest state loans to keep annual rate increases at or below 20 percent each year to aid with water affordability.
Measure W proponents have suggested the City's Federal Community Development Block Grant (CDBG) funds could be a source of financing water infrastructure. While the City does currently receive CDBG funds to finance important programs, projects, and services in economically disadvantaged areas of the community, there is a greater demand for programs, projects, and services than there are CDBG funds. The City's annual allocation of CDBG funding averages about $6 million per year which is totally insufficient to fund the proposed capital plan. If CDBG funds were to be reallocated to the water project, the City would be forced to eliminate the hot meals program for low-income seniors and parks programs for children in low-income neighborhoods.
Recognizing that there are residents in the community that are on low- and fixed-incomes, staff reviewed state and national standards to assess the affordability of water in the City of Fresno. At both the state and national level, one standard that is commonly used is 1.5 to 2 percent of median household income in the community. So, with the median household income in the City of Fresno ranging from $40,000 per year to $43,000 per year over the last several years, an affordable water bill would range from $50 per month to $72 per month. During the public participation process, staff reviewed and evaluated the legal and technical feasibility of offering subsidies to low- and fixed-income residents in the community to assist with water affordability. However, in accordance with the California Constitution, it will not be possible to use ratepayer funds to provide subsidies to low- and fixed-income residents, and such subsidies would require an alternate source of funds such as the General Fund. This assessment was confirmed in conversations with the Howard Jarvis Taxpayers Association. The Administration would be pleased to work with the City Council and public to develop a low income subsidy program with non-ratepayer funds during the next budget cycle.
Lastly, Measure W proponents have suggested the City could offer the PACE program to finance water conservation measures on private property. The PACE Program can be used to fund water conservation projects on private property in the City of Fresno. Under the PACE Program, individual property owners can contact the designated PACE agency to install water conservation measures, and the costs of the water conservation measures can be repaid to the agency under a long-term loan that is secured with a lien on the private property. However, the PACE program cannot be used to finance large-scale, water utility upgrades. It is intended to help individual property owners improve water efficiency at their homes or businesses.
Responses to Specific Statements made by Measure W Proponents
In addition to the four, broader issues addressed above, there are several other statements that have been made consistently by Measure W proponents in media interviews and during community
forums. Because there is a significant amount of misinformation and misunderstanding being circulated about the City's water plan, the Administration believes it is important to address each of these statements and provide accurate information for the City Council and the public.
· Statement: The U.S. Geological Survey has indicated the City does not have a problem with groundwater over drafting.
This statement is false. In fact, at the first Community Forum on September 29, Jon Traum of the U.S. Geological Survey commented that the Tulare Basin, the basin in which the City of Fresno sits, is declining by 1.5 million AFY. Mr. Traum indicated that this is the equivalent of losing one and a half Pine Flat Reservoirs every year. More recently, satellite imagery collected and processed by NASA, clearly illustrates the severity and geographic extent of groundwater losses in the Central Valley of California. The NASA satellite imagery was presented for public view at all of the Community Forums.
· Statement: An 80 MGD surface water treatment plant is too big and unnecessary.
This statement is inaccurate. Combining the City's annual over drafting and the potential loss of well production from contamination and declining groundwater levels, the City needs approximately 150,000 AFY of water to correct the City's groundwater problems. In fact, City staff believe that anything less than an 80 mgd surface water treatment plant will be rejected by the State as being insufficient to address the City's ground water challenges, particularly with the passage of the Sustainable Groundwater Management Act.
· Statement: The City has a small surface water treatment plant that isn't operational. Therefore, the Southeast Surface Water Treatment Plant isn't needed.
This statement is inaccurate. The small facility, completed in November 2013, can treat approximately 4 million gallons of water a day. This facility also includes a 3 million gallon storage tank and booster pump station that has power and is fully functional. The water treatment facility is fully functional but is not currently operating while the Fresno Irrigation District (FID) conducts annual canal maintenance - with canals providing water to the facility. When FID resumes water deliveries, the plant will be placed into service to deliver water to the community.
· Statement: The City could expand the Northeast Surface Water Treatment Plant for rate increases of 3% to 5% per year and do away with the need for the Southeast Surface Water Treatment Plant.
This statement is both false and inaccurate. While it is accurate that the Northeast Surface Water Treatment Plant (NESWTP) could be expanded from 30 mgd to 60 mgd, it is not accurate that the cost would result in rate increases of just 3% to 5% per year. Additional surface water capacity will cost the same regardless of where it is built: between $2.30 and $2.60 per gallon. Building the additional capacity in Southeast Fresno is the more prudent
path because (1) it is closer to the source of surface water most likely to be treated at the facility and (2) it builds needed redundancy into the City's overall water system to have both a Northeast and a SESWTP.
Suggesting that expanding from 30 mgd to 60 mgd at the NESWTP will resolve the need to add the SESWTP is inaccurate. As indicated above, the City currently requires 150,000 AFY to address its groundwater problem given the over drafting and well contamination issues. City staff believes the State will reject plans by the City to build anything less than an 80 mgd plant given the size of the problem that needs to be addressed.
· Statement: The City should not build a surface water treatment plant because during drought years, there would be no water for the City to store, treat and use.
This statement is inaccurate. We have and pay for access to surface water supplies. The City has surface water entitlements totaling 180,000 acre feet per year during a normal year. The amount of surface water available annually to Fresno fluctuates, but even in an extremely dry year like this year, the City of Fresno was allocated 65,000 AFY. For perspective, it is estimated that the City's water demand in 2014 will be approximately 130,000 acre-feet, and so our 2014 allocation would have met half of our water demand - which is groundwater we could have preserved.
· Statement: The City has modified its original plan to use an open canal to get raw water to the SE Surface Water Treatment Plant and is now proposing to build a pipeline to deliver the raw water. The pipeline is not environmentally cleared and cannot be approved in time to supply the Surface Water Treatment Plant with raw water.
This statement is inaccurate. The original raw water conveyance plan for the SESWTP was to use FID's canal. However, in discussions with environmental and public health regulatory agencies, it was determined that a pipeline was the preferred raw water supply option for the SESWTF. The new pipeline is planned to be constructed in existing public right-of-way, which will require significantly less environmental review than the FID canal option because it has significantly less environmental impact. There would have been environmental review and permitting delays with the canal option, not with the pipeline option (Attachment 3, Letter from State of CA dated 11/7/2014).
· Statement: The City cannot be trusted to bring $400 m of capital projects online.
While the City of Fresno always appreciates healthy skepticism and constructive challenges, we do not believe this is a credible argument for delaying or eliminating the City's planned water infrastructure. The City has successfully delivered nearly $1 billion in capital projects over the past 10-12 years alone. This includes the $100 million expansion of the wastewater treatment facility, $40 million for the expansion of the Northeast Surface Water Treatment facility and $70 million for installation of water meters. In addition, the City has successfully delivered over $175 million in Airport projects, a $15 million Police Regional Training facility, nearly $20 million in new fire stations and improvements to existing fire stations, the $15 million Shaw/Marks grade separation project, the $40 million AAA baseball stadium, nearly $20 million in parks projects and over $175 million in Public Works projects including traffic signals, road construction and curb and gutter installation.
· Statement: The City is "ramming this water plan down our throats" and rushing the process.
While this is a subjective statement, the City disagrees with the representation that this water plan is being rushed in any way. In fact, the City of Fresno staff has been regularly updating the City Council and the public on the status of the aquifer and has steadily worked to develop a long term plan to address the overdraft problem. Known originally as the "Urban Water Management Plan," City staff first began to address this problem in 1986. The long term plan was then updated and approved by the City Council in 1993, 2008, and again in 2010. However, while the plan was regularly updated and approved by previous City Councils, the water rates were not adjusted as needed to actually implement the plan. There were understandable concerns about raising utility rates and, as a result, rates were not raised as they should have been in small and steady increments to build the needed infrastructure and avoid "rate shock." Unfortunately, that delayed the construction of the needed infrastructure and added to the ultimate cost.
Over the last four years, the City has conducted extensive community outreach to explain the groundwater challenge we face and invite public input on the solutions needed to address that challenge, including a year of public meetings conducted by volunteers on the Utility Advisory Commission, followed by two more years of presentations by City staff to the public, and most recently, a six month additional "due diligence" phase and Recharge Fresno community forums that delved deeply into all aspects of the City's water plan.
The steady feedback from the public has been that, while no one likes to pay more money for water, it is time to move forward with the water plan and avoid making the problem even worse and costlier by delaying action yet again.
Revised Capital Investment Plan
In response to direction from the City Council on July 31, 2014, the Department of Public Utilities has subsequently developed a revised capital investment plan to provide a safe, reliable, and sustainable supply of water for the community; enhance water conservation; continue intentional groundwater recharge; repair and replace aging pipelines and wells; comply with the requirements of the recently enacted Sustainable Groundwater Management Act, which is intended to eliminate over drafting of the City's groundwater resources; and comply with soon-to-be-adopted groundwater quality regulations for 1,2,3-trichloropropane (1,2,3-TCP or TCP). Table 2 summarizes the revised capital investment plan.
TABLE 2 - Comparison of 2013 Original Rate Plan to 2014 Modified Rate Plan |
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2013 Original Plan |
2014 Modified Plan |
Term of the rate plan |
4 years |
5 years |
Cost of Capital |
$442.2 million (1) |
$429.1 m |
|
Intentional Groundwater Recharge |
$7.1 m |
$6.4m |
|
Raw Water Supply |
$30 m |
$98.4m |
|
Surface Water Treatment |
$196.6 m |
$186.4m |
|
Finished Water Distribution |
$49.6 m |
$55.4m |
|
Rehab/Replacement |
$126.2m |
$82.5 m |
Size of the Southeast SWTP |
80 mgd with expansion capacity to 110 mgd |
56 mgd with expansion to 80 mgd |
Average Monthly Rates |
|
|
|
Year 0 |
$24.49 |
$24.49 |
|
Year 1 |
$33.28 |
$28.30 |
|
Year 2 |
$41.42 |
$34.12 |
|
Year 3 |
$44.70 |
$39.62 |
|
Year 4 |
$48.34 |
$47.26 |
|
Year 5 |
$52.26(1) |
$52.18 |
Financing Mechanism |
Paygo, ratepayer-backed bonds, State-backed low-interest loans |
Paygo, ratepayer-backed bonds, State-backed low interest loans |
Tiered Rates |
No |
No but recommended for evaluation in next 5-year rate plan |
|
|
|
|
(1) The 2013 plan was a 4-year plan with a capital cost of $410 million. To compare the original 4-year rate plan with the new 5-year rate plan, and fifth year of capital costs, as well as construction escalation, were added to the original 4-year plan so the two plans can be compared on a common five-year basis. |
|
|
|
|
The revised capital investment plan totals $429 million over a five-year period. The revised capital investment plan includes the following categories of projects:
1. Intentional Groundwater Recharge Facilities = $6.4 million
· The City plans to coordinate our recharge endeavors with the Fresno Irrigation District and the Fresno Metropolitan Flood Control District to increase the number and effectiveness of recharge facilities in the community. These efforts will require the acquisition of property to construct recharge basins that will reduce the continuing decline of the groundwater aquifer, which is mandated by the recently enacted Sustainable Groundwater Management Act.
2. Raw Water Supply Facilities = $98.4 million
· This project calls for the installation of 18 miles pipeline that will be used to supply surface water allocations from the Kings River and Friant/Kern Canal to the existing 30 mgd NESWTP and the new 80 mgd SESWTP. The original rate plan called for constructing an open canal for the SESWTP, but concerns related to potential contamination and environmental impacts resulted in this recommended change.
3. Surface Water Treatment Facilities = $186.4 million
· The construction of an 80 mgd surface water treatment plant will allow the City to effectively use water allocations already purchased by the ratepayers. More importantly, this facility will allow the City to mitigate the impacts associated with decades of overdrafting of groundwater as well as compliance with the recently enacted Sustainable Groundwater Management Act.
4. Finished Water Distribution Facilities = $55.4 million
· These facilities will connect the treated water produced at the Surface Water Treatment Facility to the existing water delivery system.
5. Pipeline and Well Rehabilitation and Replacement = $82.5 million
· Historically, the Department has not fully funded a capital replacement program. The funding is needed to begin the process of replacing miles existing pipelines, wells, etc., some of which are more than 80 years old.
Rate Increases Required Without Capital Program
Much of the debate over the last year has been focused on whether to move forward with the SESWTP. It is understandable that the SESWTP has been the primary focus of attention because the SESWTP is the single largest cost item in the capital plan. Given its size, it is assumed to be the cause of the entire rate increase. However, it is important to note that when reviewing the overall rate, more than 2/3 of the rate is required to recover the costs for day to day operations, maintenance, and existing debt service payments. In other words, even without the capital program, the City's water rates would need to be increased to recover normal and routine annual cost increases for electricity, chemicals, personnel, fuel, operating reserves, and similar. See table and graph below for distribution of costs for the rate plan.
|
FY 2015 |
FY 2016 |
FY 2017 |
FY 2018 |
FY 2019 |
Rehabilitation/Replacement |
$ 0.88 |
$ 1.82 |
$ 3.89 |
$ 5.62 |
$ 8.45 |
Groundwater Recharge |
$ 0.02 |
$ 0.18 |
$ 0.56 |
$ 0.66 |
$ 0.18 |
Surface Water Treatment Water Supply and Distribution |
$ 0.18 |
$ 0.56 |
$ 2.79 |
$ 7.40 |
$ 9.89 |
O&M and Existing Debt |
$ 27.22 |
$ 31.56 |
$ 32.38 |
$ 33.58 |
$ 33.66 |
Total |
$ 28.30 |
$ 34.12 |
$ 39.62 |
$ 47.26 |
$ 52.18 |
Proposed Water Rates
The Department of Public Utilities retained a rate consultant (Municipal Financial Services) to design a five-year schedule of rates, fees, and charges to recover the Water Division's five-year forecast of capital, operations and maintenance expenditures.
In developing a five-year schedule of rates, fees, and charges, the City must comply with the California Constitution by establishing rates, fees, and charges that recover the actual costs associated with the level, quality, and quantity of service delivered to individual users of the system. Accordingly, the City's proposed five-year schedule of rates, fees, and charges is based on common and well-established cost-of-service principles that promote equity among system users, whereby individual users of the system pay rates, fees and charges that are directly proportional to the level, quality, and quantity of service received by individual users.
During the public participation process, it was suggested that the City consider using parcel-based taxes, in addition to consumption-based user charges, to finance a portion of the Water Division's planned capital, operations, and maintenance expenditures. The Department of Public Utilities evaluated the potential use of a parcel-based tax. Based on the evaluation, the parcel-based tax financing approach was determined to be (1) less cost-effective for revenue collection, (2) legally vulnerable pursuant to Proposition 218 as such an approach is less equitable in distributing the costs of public water service delivery, and (3) less effective for promoting water conservation. Overall, given that a parcel-based tax cannot be directly related to the level, quality, and quantity of service received by individual users of the system, the Department of Public Utilities recommends using consumption-based user charges exclusively to recover the Water Division's five-year forecast of capital, operations and maintenance expenditures. Consumption-based user charges are consistent with cost-of-service principles required by Article XIIID of the California Constitution.
At the direction of the Department of Public Utilities, Municipal Financial Services (MFS) has designed a five-year schedule of rates, fees, and charges consistent with Article XIIID of the California Constitution, whereby it can be demonstrated that the amount of the fees charged for water service do not exceed the actual and proportional cost of the service attributable to the delivery of water. Based on this direction, MFS evaluated the following three rate design options:
a) Uniform quantity charge for all customers classes (residential, non-residential, and irrigation);
b) Uniform quantity charge by customer class; and
c) Two-tier inclining block rates for single-family residential (SFR) customers, with a uniform quantity charge for non-residential and irrigation customer classes.
Based on the quality and quantity of water meter data available to design a new, five-year schedule of water rates, fees, and charges that is consistent with Article XIIID of the California Constitution, the Department of Public Utilities recommends proceeding with a uniform rate for all customer classes.
While tiered rates were identified as a preferred option by some community members during the public participation process and are used by other communities throughout the country, the Department of Public Utilities is concerned that the limited amount of water meter data available will make it difficult to develop tiered rates that can withstand legal challenge at this time. Nevertheless, the Department will evaluate the technical, financial, and legal feasibility of implementing a tiered rate plan at the end of the proposed rate plan (FY 2019).
The proposed schedule of water rates, fees, and charges developed by the Department of Public Utilities for Proposition 218 process are presented in Attachment 4 to this Council Report.
State Legislation Affecting the City's Water System
On September 14, 2014, the Governor of California signed into law three bills that are collectively referred to as the Sustainable Groundwater Management Act (the Act). The Act recognizes that excessive groundwater extraction can cause overdraft, failed wells, deteriorated water quality, environmental damage, and irreversible land subsidence - all of which require corrective action. The Act also recognizes that sustainable groundwater management depends upon creating more opportunities for robust conjunctive management of surface water and groundwater resources. The Act defines "sustainable groundwater management" as the management and use of groundwater in a manner that can be maintained during the planning and implementation horizon without causing undesirable results, and "sustainable yield" as the maximum quantity of water that can be withdrawn annually from a groundwater supply without causing an undesirable result. For the purposes of the Act, "undesirable result" means (a) chronic lowering of groundwater levels, (b) significant and unreasonable reduction of groundwater storage, and (c) significant and unreasonable degraded water quality, including the migration of contaminant plumes that impair water supplies.
In accordance with the Act, the City of Fresno will be required to comply with the following schedule of events:
a) By June 1, 2016, the State shall adopt regulations for evaluating groundwater sustainability plans and the implementation of groundwater sustainability plans;
b) By June 1, 2016, the State shall adopt regulations for evaluating alternatives plan submitted pursuant to the Act;
c) By January 1, 2017, the City - if it so desires - shall submit an alternative plan pursuant to the Act;
d) By June 30, 2017, a groundwater sustainability agency must be designated for the City of Fresno service area; and
e) By January 31, 2020, all basins designated as high- or medium-priority basins by the State shall be managed under a groundwater sustainability plan.
The City of Fresno is located within Kings Subbasin of the Tulare Lake Hydrologic Region. This aquifer has been identified by the State as a high-priority basin for correcting significant groundwater overdraft conditions. The construction of new raw water supply facilities, surface water treatment facilities, and finished water transmission facilities are needed to address the regulatory requirements that will be mandated by the Sustainable Groundwater Management Act to correct the existing groundwater overdraft conditions.
1,2,3-TCP
In 1999, TCP was added to the list of chemicals known to the State of California to cause cancer. The State is currently developing a maximum contaminant level ("MCL") for TCP, which is expected to be released for public comment in late 2014 or early 2015.
Based on water quality sampling conducted from 2011 through 2014, the presence of TCP has been identified in 80 of the City's groundwater wells at and above the public health goal of 0.0007 parts per billion ("ppb"). The total production of these 80 wells is approximately 138 million gallons per day ("MGD"). If the MCL is set at 0.005 ppb, the notification level, the City could lose use of 47 wells with a production capacity of approximately 76 MGD - about 30 percent of the City's total groundwater production capacity. Wellhead treatment for TCP will require the installation of granulated activated carbon ("GAC") vessels at each well site to reduce the concentration of TCP in the drinking water. The current estimated cost to install new GAC vessels at well sites contaminated with TCP is $170 million for the initial installation, and the City will incur additional long-term costs for GAC removal, replacement and disposal as the GAC becomes spent from TCP removal and new GAC must be installed. The estimated life-cycle cost to provide GAC treatment for TCP removal is in excess of $300 million.
To address a portion of the financial burden associated with installing wellhead treatment for TCP, the City will pursue legal action as it has done in the past with other contamination issues (i.e. DBCP). However, until the necessary legal action can be brought to closure, the City will have to implement an interim water supply source to account for the loss of 47 wells that produce 76 MGD. The construction of new raw water supply facilities, surface water treatment facilities, and finished water transmission facilities are needed to address regulatory requirements that will be mandated by the soon-to-be-adopted water quality standard for 1,2,3-TCP.
Schedule
The proposed schedule is as follows:
· Approval to begin Proposition 218 process and 45-day Public Notice: November 24, 2014;
· Staff mails Proposition 218 Public Notice: December 22, 2014 (Attachment 5);
· City Council conducts mandatory Proposition 218 protest hearing: February 5, 2015;
· City Council adopts new five-year schedule of water rates, fees, and charges: February 5, 2015;
· Utilities Billing and Collection bills new rates: March 7, 2015
The Department of Public Utilities recommends that the City Council authorize Department staff to initiate the Proposition 218 hearing process for proposed changes to the schedule of rates, fees, and charges for public water service.
ENVIRONMENTAL FINDINGS
This is not a "project" for the purposes of CEQA pursuant to CEQA Guidelines § 15378(b)(5), as it is an administrative action that will not result in direct or indirect physical changes to the environment.
LOCAL PREFERENCE
Local preference was not considered because the Resolution does not include a bid or award of a construction or services contract.
FISCAL IMPACT
As this is an enterprise operation, there is no impact to the General Fund. Other fiscal impacts are addressed within the rate tables above.
Attachments:
1. Meeting Minutes, Community Forums and Utility Rate Summit
2. Responses to Frequently Asked Questions
3. Letter from State Water Resources Control Board, November 7, 2014
4. Proposed Changes to Schedule of Rates, Fees and Charges for Public Water Supply
5. Proposed Public Notice for Changes to Schedule of Rates, Fees, and Charges for Public Water Service