1. Water Rates Public Hearing
May 13, 2019 Item #15

2. Recommendation
Find that the Public Hearing for the recommended adjustments to the water rates is exempt from CEQA;
Open a Public Hearing to receive public comment on recommended adjustments to the water rates;
Direct the City Clerk to report on the written comments received from the public;
Close the Public Hearing;
Approve the aforementioned recommended adjustments to the water rates; and
Direct the City Attorney to prepare an amendment to the Water Rate Ordinance implementing the changes proposed.

3. Factors Influencing Water Rates Adjustments
Court Settlement to eliminate rate differential between customers inside and outside Pasadena
Insufficient Revenues to meet Expenses
No adjustment to D&C since FY2012
No adjustment to CIC since FY2016
No adjustment to Commodity since FY2017

4. Distribution & Customer (33%)
Water Rate Components
CURRENT
SYSTEM AVERAGE RATE
Commodity Charge
Volumetric charge that covers costs of purchased water, costs related to producing groundwater supplies, water treatment and water operations
Distribution & Customer (D&C)
Fixed charge that covers operations and maintenance costs
Capital Improvement (CIC)
Volumetric charge that covers capital improvements and investments
Commodity (47%)
$2.406
Distribution & Customer (33%)
$1.685
CIC (20%)
$1.005
Talking Points:
Cost of Service
Revenue Requirements
Meter Connection Size
Prop 218
$5.096 per Billing Unit
Billing Unit = 748 gallons

5. Area a / Area B Rate Litigation Settlement
Proposed Rate Adjustments
EFFECTIVE JUNE 1, 2019
Area a / Area B Rate Litigation Settlement

6. Area A and Area B

7. Area A + B Effective 6/1/2019 AREA A Settlement Terms AREA A+B AREA B
Inside the City Limits
Approximately 31,700 PWP water customers
Area A water rates
Settlement Terms
AREA A+B
Total service territory
Same water rates for all customers
Effective 6/1/2019
AREA B
Outside the City Limits
Approximately 6,500 PWP water customers
Area B water rates

8. Area A + B Effective 6/1/2019 Sample Bill Impact – Area A
Sample Bill Impact – Area B
Meter
Size
Number of Customers
Average Use
Average Monthly Bill
$ Change
% Change
5/8” – 3/4"
17,000
11 BU
$48.48
+ $1.48
+ 3.1% 1”
10,000
17 BU
$81.68
+ $2.47
+ 3.0%
1½”
2,000
32 BU
$160.52
+ $5.91
+ 3.7%
The staff recommendation is to eliminate the Area B differential from all rate components, although the CIC differential was specifically challenged in this litigation
Staff is not confident that the CIC differential can be properly documented with bona fide costs
About 17% of Pasadena water customers are located in Area B, roughly 6500 of the total 38,200 water services
The rate action to remove the differential would re-allocate the revenue that is generated from the differential to ALL PWP customers
The revenue requirement is “real,” so this action would essentially change “who” pays it
These charts show the impact for primarily residential customers both inside and outside the City limits
85% of Area A customers are residential, and over 90% of Area B customers are residential
For these customer groups, Area A (inside City) would see an average increase between 3-4%
Area B (outside City) would see a decrease of about 17%, mostly because they are a much smaller number of customers
This action would not generate new revenue for PWP – it is just a redistribution of the revenue generated from the differential (about $1.8 million annually)
After this action, the rate components would be the same for all customers, whether inside or outside of the City
Area B customers would still be identified separately because other components of the bill (taxes, etc.) are different for customers outside the City limits
Meter
Size
Number of Customers
Average Use
Average Monthly Bill
$ Change
% Change
5/8” – 3/4"
4,000
11 BU
$60.24
- $10.29
- 17.1% 1”
2,000
17 BU
101.54
- $17.39
1½”
300
32 BU
$199.25
- $32.82
- 16.5%
BU = billing unit (equivalent to 748 gallons)

9. Proposed Rate Adjustments
EFFECTIVE AUGUST 1, 2019 AND JULY 1, 2020
1. DISCONTINUE SEASONAL RATES 2. D&C CHARGE INCREASES 3. COMMODITY CHARGE INCREASES

10. Background: Cost of Service
Internal Cost of Service study completed 2018
Revenue from existing water rates are insufficient to cover operating costs
Increases in cost of labor, materials, purchased water, and water treatment
Insufficient pay-go funding for infrastructure investment
Service/ Rate
FY 2019
(Budget in $ millions)
FY 2020
(Projection in $ millions)
FY 2021
Revenue Required
Rate Revenue
+/-
D&C
$23.6
$19.0
($4.6)
$24.4
($5.4)
$25.1
($6.1)
Commodity
$26.3
$27.7
$1.4
$27.3
$27.8
$0.5
$28.4
$27.9
($0.5)
Total
$49.9
$46.7
($3.2)
$51.7
$46.8
($4.9)
$53.5
$46.9
($6.6)

11. PWP Actions Taken Permanently eliminated 8 positions in FY 2018
Balancing staff for long-term vs. short-term projects
Seeking maximum funding from State and Federal sources
Reassessing capital projects
Applications for possible grants
Managing impacts from MWD rate increases
Average annual increase of 3.2%
Prudent use of cash reserves

12. Distribution & Customer
No Seasonal Rates 8/1/2019
Eliminate Seasonal Commodity Rates
Current Rate Structure:
Summer: APR – SEP
Winter: OCT – MAR
No new money for PWP
CURRENT
SYSTEM AVERAGE RATE
Commodity
$2.406
Distribution & Customer
$1.685
CIC
$1.005
Season
Block1
Block2
Block3
Block4
Summer $ $ $ $
Winter $ $ $ $
8/1/2019 $ $ $ $
$5.096 per Billing Unit
Billing Unit = 748 gallons

13. Distribution & Customer
Rate Increases 8/1/19 & 7/1/20
Increasing cost of labor and materials
Insufficient funding for capital infrastructure
Adjust D&C Rate #1
↑ 5.7% on 8/1/2019
Adjust D&C Rate #2
↑ 5.8% on 7/1/2020
Adjust Commodity
↑ 0.7% on 7/1/2020
PROPOSED
SYSTEM AVERAGE RATE
Commodity
8/1/19: $2.406
7/1/20: $2.442
Distribution & Customer
8/1/19: $1.974
7/1/20: $2.288
Commodity
$2.406
The staff proposal for the Distribution and Customer Charge:
Adjustments for two consecutive years for the system average rates:
About 5.7% effective 8/1/2019
Generates about $3.4 million each year of new revenue (for a full year)
First adjustment on 8/1/19 so will collect for 11 months (about $3.1 million)
Allows the bills for the settlement actions to go through a complete billing cycle
A second adjustment of 5.8% effective 7/1/2020 (for FY2021)
Generates about $3.7 million each year of new revenue
After both adjustments, the actual revenues will be about $1 million above projected revenue requirements, which is a margin of about 4%
If the projections hold, these funds would provide funding for capital investment
Certain costs may increase beyond the projections, so it is uncertain whether even this very small margin will be created
Similarly, the Commodity cost of service analysis indicated that within the three year planning period, a modest increase is needed to essentially “break even” and meet the revenue requirements.
MWD’s already approved increases are included in these projections
Approximately 3.4% for FY2019
Approximately 2.6% for FY 2020
Certain other charges actually decreased, including the Water Stewardship Rate and Readiness to Serve Charge
Relatively modest increases
Pasadena buys about 17-18,000 acre feet of MWD water annually
Staff is proposing a very modest increase of about 0.7% effective 7/1/2020, which would ensure that revenues from the Commodity charge meet with revenue requirements through FY2021
Distribution & Customer
$1.685
CIC
$1.005
$5.735 per Billing Unit
Billing Unit = 748 gallons

14. Cumulative Bill Impacts – Area A
Meter Size
No. of Customers
Avg. Monthly Usage
Monthly Billing
June 1, 2019
August 1, 2019
July 1, 2020
Cumulative Impact
New Monthly Billing
$ Change
% Change
5/8” & 3/4”
16,996 11
$48.47
$1.48
3.1%
$2.69
5.4%
$3.89
7.4%
$8.06
16.6%
$56.53 1”
10,012 17
$81.58
$2.57
3.2%
$5.28
6.3%
$7.25
8.1%
$15.10
18.5%
$96.68
1 ½”
1,935 32
$160.32
$6.11
3.8%
$10.80
6.5%
$14.77
8.4%
$31.68
19.8%
$192.00 2”
1,641 59
$315.41
$9.56
3.0%
$26.10
8.0%
$33.61
9.6%
$69.27
22.0%
$384.68

15. Historical Water Rate Adjustments
No D&C Increases since 2012
MWD rate increases passed-through Commodity charge
CIC adjusted based on formula (CapEx and debt service)
D&C
Commodity
CIC
Effective
$0.300
$0.120 -
FY 2012
FY 2013
$0.100
FY 2014
FY 2015
$0.050
$0.340
FY 2016
$0.020
FY 2017
FY 2018
FY 2019

16. Other Utilities’ Water Rates
BU = billing unit (equivalent to 748 gallons)

17. Customer Outreach Water Rates Public Hearing Notice
Water Rates Community Meetings
4/11/2019 Robinson Park Recreational Center
4/25/2019 PCC Community Education Center
Large Commercial Customer Group
4/24/2019 Caltech Athenaeum
City website homepage and PWPweb.com
Including links to detailed information
PWP Website with Water Rate Calculator
Social Media posts

18. PWPweb.com/ProposedWaterRateAdjustments
Next Steps
PWPweb.com/ProposedWaterRateAdjustments
Date
Action Item
5/13/2019
Public Hearing and 1st Reading of Water Rate Ordinance
5/20/2019
2nd Reading of Water Rate Ordinance
6/01/2019
Implement elimination of Area A/B rate differentials
8/01/2019
Implement elimination of seasonal Commodity differentials
Implement increase to the D&C charge
7/01/2020
Implement increases to the D&C and Commodity charge

19. THANK YOU

20. Background: Litigation
Date
Action
JUL 2014
Class action lawsuit filed on behalf of “Area B” customers
Alleged Distribution & Customer Charge and Commodity Charge rate differentials charged to customers outside City limits was not compliant with Proposition 218
DEC 2017
City Council approved settlement negotiations
OCT 2018
Final settlement language approved by Court:
City Council must consider eliminating rate differential charged to Area B customers, effective within one year of approved settlement
No retroactive application of elimination (No refund)
FEB 2019
Staff presented Water Rate adjustments recommendation to Municipal Services Committee
MAR 2019
City Council set Public Hearing Date
The class action litigation was filed back in July 2014 by PWP water customers located outside of the City limits, or “Area B”
Alleged that the 25% differential on the Commodity and D&C rates violated prop 218 “cost of service” principles
Litigation addressed only the differential charged on the Commodity and D&C rates, and did not include the differential on the CIC
Settlement terms were presented in December 2017, which was preliminarily approved by the Court in June 2018
Notice of the settlement was mailed to all class action participants last September, and the final settlement was approved by the court in October 2018
Just a reminder to the members of the Committee of the basic terms of the settlement:
Within one year of the approved settlement (which would be October 2019), the City Council must consider rate revisions to eliminate the differential charged to Area B customers
There is no retroactive application of the elimination, meaning no refund will be made to those customers
If differentials are developed in future rate making, they must be based on documented “bona fide” higher costs to serve the group of customers on who they are charged
Rate differentials cannot be based solely on a customer’s location inside or outside of the City limits

21. Sample – 3/4“ Residential Area A
Current Bi-monthly Bill
Distribution & Customer Charge
3/4” Meter (includes FPS)
$35.02
Bi-monthly Usage
18 BU
Block 1:
$22.32
Block 2:
$5.98
Block 3: -
Commodity Charge
$28.30
CIC
$17.74
Total Water Service
$81.06
Bi-monthly Bill Effective 6/01/2019
Distribution & Customer Charge
3/4” Meter
$35.96
Bi-monthly Usage
18 BU
Block 1:
$22.80
Block 2:
$6.14
Block 3: -
Commodity Charge
$28.94
CIC
$18.58
Total Water Service
$83.48
$2.42 Increase (3.0%)
BU = billing unit (equivalent to 748 gallons)

22. Sample – 3/4“ Residential Area A
Bi-monthly Bill Effective 6/01/2019
Distribution & Customer Charge
3/4” Meter
$35.96
Bi-monthly Usage
18 BU
Block 1:
$22.80
Block 2:
$6.14
Block 3: -
Commodity Charge
$28.94
CIC
$18.58
Total Water Service
$83.48
Bi-monthly Bill Effective 8/01/2019
Distribution & Customer Charge
3/4” Meter
$42.34
Bi-monthly Usage
18 BU
Block 1:
$22.60
Block 2:
$6.08
Block 3: -
Commodity Charge
$28.68
CIC
$18.10
Total Water Service
$89.12
$5.64 Increase (6.8%)
BU = billing unit (equivalent to 748 gallons)

23. Sample – 3/4“ Residential Area A
Bi-monthly Bill Effective 8/01/2019
Distribution & Customer Charge
3/4” Meter
$42.34
Bi-monthly Usage
18 BU
Block 1:
$22.60
Block 2:
$6.08
Block 3: -
Commodity Charge
$28.68
CIC
$18.10
Total Water Service
$89.12
Bi-monthly Bill Effective 7/01/2020
Distribution & Customer Charge
3/4” Meter
$49.32
Bi-monthly Usage
18 BU
Block 1:
$23.18
Block 2:
$6.15
Block 3: -
Commodity Charge
$29.33
CIC
$18.10
Total Water Service
$96.75
$7.63 Increase (8.6%)
BU = billing unit (equivalent to 748 gallons)

24. Fiscal Impact
If approved, the proposed adjustments will generate an estimated $7.3 million over the next 3 years
Effective Date
D&C Charge
Commodity Charge
Seasonal Rate Change
System Average, %
Additional Revenue
6/1/2019 -
N/A
8/1/2019
$3.4M
5.7%
7/1/2020
$3.8M
$0.5M
6.5%
$3.9M
Total
$6.8M $0
12.2%
$7.3M