Pasadena Water and Power
Public Hearing Date
Water Capital Improvement Charge
Pasadena City Council Meeting
November 16, 2015
Agenda Item #13
Recommendation
Pasadena Water and Power
1. Find that the Capital Improvement Charge (“CIC”)
formula is exempt from the California Environmental
Quality Act (“CEQA”)
2. Set the date of January 11, 2016 for a Public Hearing to:
a. Approve the implementation of the CIC formula as defined
in the Water Rate Ordinance to recover capital
improvement costs of the water distribution system. Based
on the current Fiscal Year (“FY”) 2016 Water Fund CIP
budget, this would result in a system average increase of
$0.45 per billing unit to the CIC effective 1/18/2016
b. Authorize implementation of the CIC formula for FY 2017
upon adoption of the CIP budget
2
Water Rate Components
Pasadena Water and Power
Water Rate Components
Distribution and Customer (D&C) Charge
• fixed charge
• generates revenues to recover maintenance and operations
costs
• Includes Fire Protection Surcharge which covers the cost of
fire hydrant replacements and upgrades that are not directly
related to new development
Commodity Charge
• volumetric charge
• generates revenues to cover the costs of actual water
• both groundwater and purchased water
SYSTEM AVERAGE RATE*
Per Billing Unit
$6.00
CIC
$0.64
$5.00
$4.00
Commodity
$2.20
$3.00
Purchased Water Adjustment Charge (PWAC)
• volumetric charge
• mechanism to recover the increased cost of water
purchased from the Metropolitan Water District (“MWD”)
• Also applied to increased groundwater production costs
$2.00
D&C
$1.92
$1.00
Capital Improvement Charge (CIC)
• 100% volumetric charge
• generates revenues dedicated to capital improvements
as approved in the Water Distribution System Master
Plan
• Revenues also cover the debt service of bonds issued
for investment in the water infrastructure.
$-
Current
$4.76
Proposed
$5.21
* System average rate based on 9.6 million billing units of sales
3
Proposed
CIC
Increase
$0.45
Water Fund Capital Funding Sources
Pasadena Water and Power
Bond
Funds
and Paygo
CIC
Debt
Service
Capital
Expenditure
NonCIC
CIC Rate provides pay-go funding for
annual capital expenditures for longterm infrastructure
CIC Rate provides funding for debt
service on revenue bonds issued to
fund capital expenditures for long-term
infrastructure
Bond
Funds,
Pay-go
and
outside
sources
Non-CIC projects are funded by D&C
revenues, customer requested
projects, cash reserves, revenue
bonds and outside sources
Debt
Service
Non-CIC Debt Service for debt issued
prior to approval of the Water System
Master Plan
4
Water Capital Projects Funded by the CIC
Pasadena Water and Power
• Water Master Plan approved by City Council in 2002
• CIC formula and rate approved as part of funding plan for Master Plan
• Formula provides for annual adjustments based on adopted budget
Project Types Included
Distribution main replacements
Project Types Not Included
Meters and Services – customer requested
Fire protection system improvements Water Telemetry System (SCADA)
Well and Booster Pump Switchgear
Upgrades
Facility Security Systems
Recycled Water construction costs
Reservoir Improvements
Water IRP update
Permanent infrastructure
expansion/replacement
Customer Billing System replacement
Radio replacements
Vehicle replacements
5
Capital Improvement Charge History
Pasadena Water and Power
Date
Average
Rate Per
Billing
Unit
Adjustment
Sales
Volumes
(Million
Billing
Units)
Approximate
Revenues ($
Millions)
4/2003
CIC charge adopted
$0.20
16.1
$3.2
7/2004
Increased by approximately 22¢
$0.42
14.7
$6.2
7/2006
Increased by approximately 12¢
$0.54
16.0
$8.6
8/2007
Increased by approximately 12¢
$0.64
15.4
$9.9
FY 2016
Current Rate
$0.64
9.6
$6.1
FY 2016
Proposed Rate
$1.09
9.6
$10.5
This Table is showing the history of rate increases to the Capital
Improvement Charge. Established in FY2003 with an initial $0.20/billing unit,
the charge has not been adjusted since July 2007
6
Water Sales (million BU/year)
Pasadena Water and Power
18
16
14
12
10
8
6
4
7
Next 12 mo
2015
2014
2013
Last 12 mo
Fiscal Year
2012
2011
2010
2009
2008
2007
2006
2005
2004
0
2003
2
CIC Rate Performance
Five-year historic and Three-year projected
Pasadena Water and Power
Actual Results: CIC Formula was not utilized
8
Projected Using CIC Formula
Proposed CIC Formula-based Rate Adjustment
Pasadena Water and Power
Formula
Component
CE
Description
Amount
5-year average CIC Capital Expenditure
$10.9
A
5-year average Cash Funded CIP (30% of CE)
$3.3
B
5-year average Debt Funded CIP (70% of CE)
$7.6
DS
5-year average CIC Related Debt Service
$7.2
WS
Water Sales in Billing Units
9.6
FTR
Funding Target Ratio
(A)/(A+B)
$3.3 million / ($3.3 million + $7.6 million) = 30%
CIC Formula
Capital Improvement Charge per Billing Unit
((FTR x CE) + DS) / WS
((30% x $10.9 million)+$7.2 million) / 9.6 million BU = $1.09 per BU
9
Sample Bill Impact on Monthly Charges
(no reduction of water usage)
Pasadena Water and Power
5
Existing
Monthly
Charges
$27.19
Impact of
Proposed
Increase
$2.09
Revised
Monthly
Charges
$29.28
3/4"
12
$46.95
$5.01
$51.96
10.7%
1"
25
$101.80
$10.45
$112.25
10.3%
1 1/2"
100
$389.65
$41.78
$431.43
10.7%
2"
125
$518.99
$52.23
$571.22
10.1%
3”
300
$1,251.03
$125.34
$1,376.37
10.0%
4"
600
$2,334.85
$250.68
$2,585.53
10.7%
6"
1,400
$5,017.95
$584.92
$5,602.87
11.7%
8"
2,400
$9,075.38
$1,002.72
$10,078.10
11.0%
Meter
Size
Monthly
Usage
5/8"
10
% Change
7.7%
Bill Impact with 25% Reduced Usage
Pasadena Water and Power
Bill Comparisons Based on Reduced Water Consumption
Monthly Usage
(in billing units)
Historical Usage
Reduced Usage
12
9
$36.50
Existing Monthly Bill
$46.95
Impact of CIC Increase
$5.04
$3.78
Revised Monthly Bill
$51.99
$40.28
% Change
10.7%
(14.2%)
11
Other Agency Water Rate Actions
Pasadena Water and Power
Agency Name
Rate Action
When Effective
Riverside
Customer charge
Pending January 2016
Anaheim
Customer charge
Pending February 2016
Glendale
Drought surcharge
Spring 2015
Irvine Ranch Water
District
Multi-year rate action
from cost of service
update
Beginning July 2015
LADWP
Four-year rate plan, cost
of service update
Pending - Approved by
Board October 2015, to
be effective April 2016
Santa Monica
Five annual consecutive
increases
Annual beginning
January 2014
Santa Margarita Water
District
Rate action of cost of
service update
January 2016
12
City Council Actions That Could Reduce CIC Rate
Pasadena Water and Power
1. Reduce level of capital improvement budget
 More “deferred maintenance”
 May result in more water main breaks and higher water losses
 Higher future rate increases
2. Authorize additional debt issuance



Maintains higher level of capital investment
Increased debt service costs
Impacts funding target ratio of pay-go to long-term debt funding
3. Revise formula based on higher projected unit sales
4. Importance of taking current action



Mitigate part of FY 2016 net income reduction
Provide coverage of debt service requirements and some pay-go
Encourage additional conservation
13
Proposed Schedule for CIC Rate Adjustment
Pasadena Water and Power
Date
Action
November 10, 2015
MSC recommendation to set Public Hearing
November 16, 2015
City Council to set Public Hearing Date
November 20, 2015
Notice of Public Hearing mailed per Prop 218
requirement
January 11, 2016
Public Hearing for CIC rate adjustment
January 18, 2016
(soonest thereafter)
New CIC rate becomes effective
14
Revised Draft Schedule:
Water Cost of Service and Rate Redesign
Pasadena Water and Power
Date
Action
March 2016
MSC info item – rate structure discussion
April 2016
City Council – workshop discussion
May and June 2016
Customer outreach and feedback
July 2016
MSC and City Council Action – rate
recommendation and set public hearing
September 2016
Public Hearing and City Council Rate Action
October 2016
Rate action effective
15
Pasadena Water and Power
16
Attachment A - Table A-1
Pasadena Water and Power
Historical Actual/Projected
Forecast
Five-Year Average
FY2011
FY2012
FY2013
FY2014
FY2015*
FY2016
FY2017
FY2018
FY2019
FY2020
Historic
Forecast
Change
12
12.3
13.2
13.8
12.4
9.6
9.9
10.3
10.6
11.0
12.74
10.28
-19%
System Average CIC Rate**
$0.63
$0.64
$0.64
$0.64
$0.64
$1.09
$1.11
$1.11
$1.11
$1.11
$0.64
$1.11
74%
Water Capital Expenditure
CIC CapEx
Non-CIC CapEx
$8.60
$2.90
$7.40
$3.20
$12.30
$2.90
$15.70
$4.80
$7.10
$0.10
$9.80
$5.50
$12.40
$5.80
$11.90
$5.60
$13.20
$4.90
$7.20
$4.90
$10.22
$2.78
$10.90
$5.34
7%
92%
$11.50
$10.60
$15.20
$20.50
$7.20
$15.30
$18.20
$17.50
$18.10
$12.10
$13.00
$16.24
25%
Actual Annual Sales (million BU)
Total Capital Expenditures***
CIC-Funded Capital Expenditures
Pay-go as % of Total CIC
35%
35%
35%
35%
35%
30%
35%
35%
35%
35%
35%
35%
0%
Pay-go CIC CapEx
Bond funded CIC CapEx
Total CIC CapEx
$3.00
$5.60
$8.60
$2.60
$4.80
$7.40
$4.30
$8.00
$12.30
$5.50
$10.20
$15.70
$2.50
$4.60
$7.10
$3.00
$6.90
$9.80
$4.30
$8.00
$12.40
$4.20
$7.70
$11.90
$4.60
$8.60
$13.20
$2.50
$4.70
$7.20
$3.58
$6.64
$10.22
$3.72
$7.18
$10.90
4%
8%
7%
Water System Debt Service
b
CIC Debt Service (DS)
Non-CIC Debt Service (DS)
Total Debt Service
$5.10
$0.90
$6.00
$5.60
$1.00
$6.60
$5.50
$1.00
$6.50
$6.00
$1.10
$7.10
$6.00
$1.10
$7.10
$6.00
$1.10
$7.10
$7.10
$1.30
$8.40
$7.50
$1.30
$8.80
$7.50
$1.30
$8.80
$7.80
$1.40
$9.20
$5.64
$1.02
$6.66
$7.18
$1.28
$8.46
27%
25%
27%
CIC Cash Flow Balance
CIC Revenues
Annual CIC Expense (a+b)
Surplus (Shortfall)****
$7.60
$8.10
($0.50)
$7.90
$8.20
($0.30)
$8.40
$9.80
($1.40)
$8.80
$11.50
($2.70)
$7.90
$8.50
($0.60)
$7.40
$9.00
($1.60)
$11.04
$11.40
($0.36)
$11.48
$11.70
($0.22)
$11.82
$12.10
($0.28)
$12.26
$10.30
$1.96
$8.12
$9.22
($1.10)
$10.80
$10.90
($0.10)
33%
18%
-91%
$2.90
$0.90
$3.80
$3.20
$1.00
$4.20
$2.90
$1.00
$3.90
$4.80
$1.10
$5.90
$0.10
$1.10
$1.20
$5.50
$1.10
$6.60
$5.80
$1.30
$7.10
$5.60
$1.30
$6.90
$4.90
$1.30
$6.20
$4.90
$1.40
$6.30
$2.78
$1.02
$3.80
$5.34
$1.28
$6.62
92%
25%
74%
a
Non-CIC Expenditures (Info only)
Non-CIC CapEx
Non-CIC Debt Service (DS)
Total Non-CIC Expenditures
17