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  Item # 4.       
Meeting Date: 01/15/2014  
Requested by: Shirley Seng Submitted By: Shirley Seng, Water
Department: Water  

Information
SUBJECT:
PUBLIC HEARING:  RESOLUTION NO. (R)14-06, AUTHORIZING AND APPROVING INCREASES IN WATER RATES, FEES AND CHARGES FOR THE TOWN OF ORO VALLEY WATER UTILITY
RECOMMENDATION:
The Water Utility Commission voted unanimously on October 14, 2013, to recommend that Council approve the proposed increase in water rates, fees and charges.  Staff also recommends approval.

The recommendation includes the following:
  • A change in the rate structure to a uniform rate (no tiered rates) for commercial and master-metered multifamily customers.
  • No changes in the rate structure for residential and irrigation customers (the tiered rate structure would remain in place).
  • A slight increase in the commodity rate for the tiered rates and the uniform rate.
  • Increases to fees and charges for new development design review and inspection fees.
  • Increase in the late fees to 1% of the outstanding balance or $5.00, whichever is greater.
  • No increase in the reclaimed water rate.
  • No increase in the groundwater preservation fees.
  • No increase in the monthly base rates.
EXECUTIVE SUMMARY:
The Oro Valley Water Utility contracted with CH2M HILL to perform a cost of service study and water rates analysis in order to determine the cost of providing service to the Water Utility's customers, calculate the system revenue requirements, and develop water rates that would equitably recover these costs from the various customer classes over a 5-year period.

The results of the cost of service study indicated that the single family residential and irrigation customer classes were not generating revenue sufficient to meet the cost of providing them with service.  It also indicated that the commercial and master-metered multifamily customer classes were generating revenue in excess of the cost to provide them service.  The reclaimed customer class is generating sufficient revenue to meet its operating costs.  Based on these results, it was recommended that the water rates be restructured with a rate design based upon the cost of providing service to each customer class.  It is important to make this change in the rate structure at this time so there is the appropriate balance between all customer classes with respect to cost of service and to avoid any future imbalances.

The proposed rate restructuring maintains the tiered rate structure for residential and irrigation customer classifications, and eliminates the tiered rate structure for commercial and master-metered multifamily customer classifications.  As a result, commercial and multifamily customers would have a uniform rate with no tiers.  An increase is recommended for the uniform rate for commercial and multifamily classifications, as well as for all four tiers of the residential and irrigation classifications. 

There are no proposed increases for the reclaimed water rate, the groundwater preservation fee or the monthly base rates.  Increases are recommended for cost recovery for new development design review and construction inspection fees.  In addition, a change to late fees is also recommended. The proposed rate restructuring and service fee increases meet the revenue requirements for FY 2013-14.
BACKGROUND OR DETAILED INFORMATION:
Based on the results of the cost of service study, the Water Utility is recommending a change in the rate structure to a more equitable structure for commercial and multifamily customers, while maintaining the existing tiered rate structure for residential and irrigation customers.  The fundamental principle used in developing an equitable rate structure is to distribute costs so that each user classification pays for its proportionate share of the total system costs.  If the tiered rate structure were to remain in place for commercial and multifamily customers additional revenues would be collected that would exceed the cost of service for commercial and multifamily.  Implementing this rate structure change at this time will avoid this situation and will balance both rates and revenues with respect to actual cost of service for each customer classification.  The following describes the proposed rate structures for the various customer classifications.     
 
For residential customers, indoor water usage and landscape irrigation are billed on the same meter.  Therefore, all water use will continue to be billed on a tiered rate basis for the residential classification. 

For the irrigation classification, all customers will continue to pay a tiered rate for outdoor watering of landscaped areas.   Irrigation classification customers are primarily businesses (commercial), apartments (multifamily) or homeowners associations that have landscaped areas. 

Commercial and multifamily customers typically have 2 or more meters.  These customers are businesses and apartment complexes that use a separate irrigation meter for the outdoor watering of landscaped and/or common areas.  Consequently, outdoor water use will continue to be billed on a tiered rate basis through their irrigation meter. A separate meter is also installed in commercial buildings and multifamily residences for indoor water use, which will be billed on the uniform rate basis through their commercial meter.

The proposed water rates include minor increases in the tiered commodity rates for residential and irrigation customer classes, as well as an increase in the uniform rate for commercial and master-metered multifamily classes.  The proposed increases for commercial and master-metered multifamily customer classes will transition from tiered rates to a uniform rate that is equal to the residential Tier 1 commodity rate.  Both the tiered rate structure and the uniform structure will have slight increases.  As a result of the proposed changes, the average residential customer using 8,000 gallons of water per month will experience an increase of $0.23 or a 0.6% increase in their monthly water bill.  A commercial customer with a 2-inch meter using 50,000 gallons will experience a $1.50 or a 0.6% monthly increase.  However, due to the change from a tiered rate structure to a uniform rate structure, the majority of commercial customers that use 60,000 gallons of water or more will experience a slight reduction on their monthly water bill.  Appendix D of the attached Oro Valley Water Utility Water Rates Analysis Report includes projected monthly billings based on water usage, meter size and customer classification. 

The potable water turf rate will be equal to the proposed uniform commodity rate for commercial customers.  The construction water rate will also increase and will be equal to $1.00 more than the proposed Tier 4 commodity rate for residential customers.  There is no proposed increase for the reclaimed water rate for this year.  There are also no proposed increases to the groundwater preservation fees or the monthly base rates.

Increases are proposed for New Development Hydraulic & Design Review Fees and New Development Construction Inspection Fees.  The proposed fee increases will recover the costs the utility bears for providing these services.  The proposed increase in the Late Payment Fee will be $5.00 or 1% of the outstanding balance, whichever is greater.

Exhibit A of the resolution attachment includes all water rates, groundwater preservation fees, and the proposed new service fees for New Development Hydraulic & Design Review Fees, New Development Construction Inspection Fees and the Late Payment Fee.
FISCAL IMPACT:
Adoption of the proposed water rates will change the rates structure to a uniform rate for commercial and master-metered multifamily customer classifications.  The tiered rate structure will remain for residential and irrigation customers.  This is based on the cost of service study which indicates that residential and irrigation customers are not generating sufficient revenues to meet the cost of providing them with service.  If the tiered rate structure were to continue for commercial and multifamily customers this would result in additional revenues from commercial and multifamily customers that would exceed their actual cost of service. 

A slight increase in both the tiered rates and the uniform rate will occur.  The proposed rate changes and increases will meet revenue requirements and will be revenue neutral.  Adoption of the fees associated with new development plan review and construction inspection will recover the costs associated with providing those services.

All proposed rates, fees and charges are designed to maintain the financial stability and fiscal health of the Town's Water Utility.  There is no significant increase in projected revenues due specifically to the rate increases and/or the changes in rate structure, since these changes are designed to be revenue neutral.
SUGGESTED MOTION:
I MOVE to (approve or deny) Resolution No. (R)14-06, authorizing and approving increases in water rates, fees and charges for the Town of Oro Valley Water Utility.
Attachments
(R)14-06 Water Rate Increase 2013-14
Exhibit A - Rate Sheet
Other Fees and Charges
OVWU Water Rates Analysis


    

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