HomeMy WebLinkAbout75E - PH - WATER SHORTAGE PENALTIESREQUEST FOR
COUNCIL ACTION
lei III C9916111ZM 10 i,1 :441111ki [rlJ-, 1114
AUGUST 4, 2015
TITLE:
PUBLIC HEARING — RESOLUTION TO
ADOPT PENALTIES FOR
NONCOMPLIANCE WITH WATER
CONSERVATION TARGETS DURING
PHASE 2 WATER SHORTAGE PERIOD
77!;C PLAN NOS. 6--,G�1yH�; 5, 2; 5, 6F}
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CITY MANAGER
RECOMMENDED ACTION
CLERK OF COUNCIL USE ONLY:
_W•:• •,
❑ As Recommended
❑ As Amended
❑ Ordinance on let Reading
❑ Ordinance on 2 "d Reading
❑ Implementing Resolution
❑ Set Public Hearing For
CONTINUED TO
FILE NUMBER
Adopt a resolution establishing a penalty rate of $4.65 per hundred cubic feet on water use above
the mandated reduction level of 12 percent set in the June 2, 2015, Phase 2 Water Supply
Shortage declaration.
Background
The state of California continues to experience severe drought conditions. On April 1, 2015, the
Governor issued an executive order to cities and towns across California to cut water use. The
State has since required that the City of Santa Ana reduce its water use by 12 percent as
compared to 2013 or face fines of up to $10,000 per day.
On May 19, 2015, Council amended and updated the City's water conservation ordinance to
incorporate newly adopted State regulations prohibiting water wasting. Examples of water
wasting activities include not fixing broken water pipes, over - irrigation, and washing down
driveways and sidewalks. The revised ordinance allowed for enforcement of water wasting
prohibitions by fines of up to $500.
On June 2, 2015, City Council adopted a resolution declaring a Phase 2 Water Supply Shortage,
pursuant to Santa Ana Municipal Code (SAMC) Section 39 -105, enacting various water
conservation measures and use restrictions. The most notable use restriction of the Phase 2
Water Supply Shortage is a requirement for all water users to reduce their consumption by 12
percent as compared to their 2013 consumption as required by the State of California Drought
Emergency Water Conservation regulations. The City has mailed notification letters to all of its
water customers informing them of the new Phase 2 restrictions, including personalized
illustration of their individual 12 percent conservation targets. While allowed in the conservation
ordinance, no specific enforcement measures were prescribed with this action.
75E -1
Resolution— Adoption of Penalties for Noncompliance
With Phase 2 Water Conservation Targets
August 4, 2015
Page 2
Enforcement
Upon declaring the Phase 2 Water Supply Shortage, Council directed staff to formulate suitable
enforcement measures. Staff worked with a consultant, Black & Veatch (B &V), to analyze and
develop alternatives for a water consumption penalty. Staff recommends implementing a penalty
rate of $4.65 per hundred cubic feet (hcf) on water use above the 12 percent reduction level.
Penalty applies to exceedances only
The recommended penalty rate applies only to water consumed in excess of the 12 percent
reduction target, as required by the Phase 2 Water Supply Shortage. There is no impact on
customers who meet their conservation targets.
Notice of first violation
No penalty will be incurred for the first violation. Customers whose water use exceeds the
required 12 percent reduction will receive an initial warning notice on their utility bill. However,
the proposed penalty would be applied on the second and subsequent violation(s) until such time
that Council declares the Phase 2 Water Supply Shortage to be ended.
Relief from compliance
In accordance with SAMC Section 39 -105, at the discretion of the Executive Director of Public
Works Agency, customers who can demonstrate extenuating circumstances in their ability to
reach the 12 percent water use reduction, such as business growth, significant increase in
household size, and/or other relevant factors may be granted exception from the penalty.
STRATEGIC PLAN ALIGNMENT
Approval of this item supports the City's efforts to meet Goal #6 Community Facilities &
Infrastructure, Objective #1 (establish and maintain a Community Investment Plan for all City
assets), Strategy H (complete waterlwaste water rate study to ensure adequate resources to
capture critical long -term capital needs); Goal #5 Community Health, Livability, Engagement &
Sustainability, Objective #2 (expand opportunities for conservation and environmental
sustainability); and, Objective #6 (focus projects and programs on improving the health and
wellness of all residents), Strategy F (incorporate health and wellness into all applicable policies
and plans).
ENVIRONMENTAL IMPACT
There is no environmental impact associated with this action.
75E -2
Resolution — Adoption of Penalties for Noncompliance
With Phase 2 Water Conservation Targets
August 4, 2015
Page 3
FISCAL IMPACT
Revenue collected from the penalty rate will be deposited in the Water Conservation Penalty
Account (No. 06017002- 53731) in accordance with State requirements that such monies be
segregated in a water stewardship fund and restricted for use only on water conservation related
expenses,
F d Mousavlohr
Executive Director
Public Works Agency
FMMS
APPROVED Fps TO FUNDS AND ACCOUNTS
Executive Director
Finance & Management Services Agency
Exhibits: 1. Black & Veatch Memorandum, ,tune 12, 2015
2. Resolution
75E -3
BLACK &VEATCH
Building a world of difference
MEMORANDUM
City of Santa Ana
Water & Wastewater Rate Studies
Subject : Development of Water Drought Rates
To: Nabil Saba
From: Ann Bui, Black & Veatch
B &V 175203
B &V File Number A4
Date 12 June 2015
In accordance with your May 14, 2015 request to Black & Veatch, Corporation (Black & Veatch), we
hereby submit this Technical Memorandum (TM) describing the work conducted in support of the
development of the proposed Drought Rates. This TM serves as an addendum to the 2014 Water
Financial Plan, Rate Study /Rehabilitation & Replacement Program Report (2014 Water Study Report)
and uses the same methodologies endorsed by the American Water Works Association (AWWA) M-
1 Manual.
Disclaimer
In conducting our study, we reviewed the books, records, agreements, and customer sales and
financial projections of the Water Enterprise as we deemed necessary to express our opinion of the
operating results and projections. While we consider such books, records, documents, and
projections to be reliable, Black & Veatch has not verified the accuracy of these documents.
The projections set forth in this technical memorandum below are intended as "forward- looking
statements ". In formulating these projections, Black & Veatch has made certain assumptions with
respect to conditions, events, and circumstances that may occur in the future. The methodology
utilized in performing the analyses follows generally accepted practices for such projections. Such
assumptions and methodologies are reasonable and appropriate for the purpose for which they are
used. While we believe the assumptions are reasonable and the projection methodology valid,
actual results may differ materially from those projected, as influenced by the conditions, events,
and circumstances that actually occur. Such factors may include the City's ability to execute the
capital improvement program as scheduled and within budget, regional climate and weather
conditions affecting the demand for water, and adverse legislative, regulatory or legal decisions
(including environmental laws and regulations) affecting the ability of any of the enterprise's ability
to manage the system and meet water quality, waste discharge, and / or other regulatory or
environmental requirements.
Background
With the water supply outlook becoming less promising, water wholesaler Metropolitan Water
District of Southern California (MWD) has implemented a three -stage allocation to customers like
the City of Santa Ana (City). The Water Supply Allocation Plan (WSAP) imposes surcharges on
agencies that exceed delivery limits at a WSAP Level 3 Regional Shortage Level. To meet its
anticipated water use reduction target associated with that action, the City may in turn need to
implement a water allocation for its water customers.
Exhibit 1
75E -4
MEMORANDUM
Page 2
B &V 175203
B &V File A4
12 June 2015
As allowed in the City's Municipal Code under Section 39 -112 (2) Water Shortage Contingency Plan,
the City of Santa Ana can implement a water allocation methodology per customer account and a
schedule of surcharges or penalties for exceeding the water allocation. Any customer that uses
water in excess of the allocation will be subject to a surcharge or penalty for each billing unit of
water in excess of the allocation. The surcharge or penalty for excess water usage will be in addition
to any other remedy or penalty that may be imposed for violation of this section of the Municipal
Code. Such surcharge or penalty must comply with the requirements of Proposition 218.
Drought Allocation Approach
Under the Governor's emergency drought restrictions mandate, the City is being required to reduce
its current consumption levels by 12 percent over the same period calendar year 2013. At the
direction of the City, Black & Veatch examined the City's revenue requirements for FY16 and
adjusted the projected water sales to meet the Governor's mandated cutback of 12 percent.
In orderto meet the 12 percent cutback level, Black & Veatch reviewed the consumption levels of
the City's customer classes. Table 1 summarizes the levels of reduction that are expected by
customer class.
-fable 1: Drought Reduction Levels by Customer Class
['] Includes Multi - Family Residential, Government, Commercial, Industrial, Institutional, and Schools
Single - family residential customers have a high potential for water reduction since approximately 50
to 60 percent of water usage is associated with outdoor irrigation. Non - residential customers
typically have separate indoor and outdoor meters, and so, the ability to reduce indoor consumptive
use is more limited. Irrigation accounts have the greatest ability to reduce usage in times of drought.
Implementation of the Table 1 target reduction levels will follow the procedures outline in the City's
Phase 2 Water Supply Shortage resolution. Table 2 summarizes the change in total consumption in
hundred cubic feet (hcf) due to drought.
75E -5
MEMORANDUM
Page 3
B &V 175203
B &V File A4
12 June 2015
Table 2: Change in Total NN ater Usage
6,263,314
5,345,000
4,688,409
4,266,700
2,857,248
2,653,300
659,135
643,100
1,238,037
1,059,300
_ 566,277
359,600
• , • 12,044
11,200
The customers allocation for each billing period will be calculated on each bill based on the above
targets. The lower percentage reduction for commercial customers takes into consideration the
limited ability of commercial customers to reduce interior use without potentially impacting health
and safety and / or significant process changes. Many commercial customers also have irrigation
only meters where they will be asked to reduce usage by a greater amount to meet the City target.
Process water is exempt from reduction targets. Process water, defined consistently with and
pursuant to the California Department of Water Resources' definition, means water used by
industrial water users for producing a product or product content, or water used for research and
development. Process water includes, but is not limited to; the continuous manufacturing
processes, water used fortesting, cleaning and maintaining equipment. Water used to cool
machinery or buildings used in the manufacturing process or necessary to maintain product quality
or chemical characteristics for product manufacturing or control rooms, data centers, laboratories,
clean rooms and other industrial facility units that are integral to the manufacturing or research and
development process shall be considered process water. Water used in the manufacturing process
that is necessary for complying with local, State and federal health and safety laws, and is not
incidental water, shall be considered process water. Process water does not include incidental,
commercial or institutional water uses.
Surcharge for Exceeding Allocation Targets
As allowed by the City's Municipal Code, the City can assess a surcharge for usage that exceeds
allocation levels. This surcharge is applied only to the amount of usage in excess of the pre-
determined allocation. The basis for the surcharge amount can include, but may not necessarily be
limited to, the following:
1. The surcharge the City will have to pay M WD and /or the State for exceeding its allocation.
The surcharge can be calculated the exact same way that the MWD will calculate any City
surcharge, thus passing to the customer any surcharges it may have caused the City. Should
the City not incur any surcharges (other customers used less than their allocations), funds
collected from surcharge may be refunded to the customers, retained and used for the
75E -6
MEMORANDUM
Page 4
B &V 175203
B &V File A4
12 June 2015
implementation of water conservation programs for the customer class the surcharge was
collected from, or used to mitigate future rate adjustments.
2. The additional cost of purchased water that may result due to non - compliance with the
cutbacks.
Any surcharges must comply with Proposition 218 requirements.
Proposed Drought- Driven Revenue Adjustments
In developing the proposed drought rate options for the City, Black & Veatch assumes that the City
will be required to reduce its groundwater supply by 12 percent and that the Orange County Water
District (OCWD) will limit the City's ability to draw from groundwater resources. The City plans to
limit groundwater pumping to 70 percent of total consumption and supplement the remaining
water via purchases from MWD. Applying the targeted reductions outline in Table 1, the City needs
to adjust its rates in order to recover the lost revenue due to the water use curtailment. Table 2
illustrates the revenue requirements for the Water Utility as a result of drought. Note that the City
already has a 2.8 percent revenue increase planned for fiscal year (FY) 16. The impact of the
mandated reductions is an additional increase of 4.2 percent, which allows the City to recover
sufficient revenue to meet operational requirements.
Proposed Drought Rates
There are several different options available to apply the drought surcharge to the existing rate
structure.
1. The City could apply the increase to the commodity charge in an equally manner to all
customers (excluding recycled water customers). This means that all commodity rates
would increase 4.2 percent above the proposed July 2015 rates. For example, on July 1"
2015, the Tier 1 rate will be $2.79 /hcf. Applying the 4.2 percent surcharge, this rate
becomes $2.91 /hcf.
2. Alternatively, the City could apply the surcharge to only the portion of water that excess the
net reduction targets outlined in Table 1. Under this option, the surcharge is as follows:
a. Revenue shortfall due to mandatory reductions= $5,943,600 (From Table 3.
Drought Line 5 — Current Plan Line 5 — Drought Line 3)
b. Required volume reduction = 1,946,264 hcf (From Table 2)
c. Surcharge for non - compliance = $5,943,600/1,946,264 hcf = $3.07 /hcf
3. Should the City wish to recover the revenue shortfall as a fixed charge, then one option
would be to simply charge the fee as a per bill cost.
a. Revenue shortfall = $5,943,600
b. Total bills issued in FY 15/16 = 267,762
c. Charge per bill = $5,943,600/267,762 = $22.31/bill
75E -7
MEMORANDUM
Page 5
B &V 175203
B &V File A4
12 June 2015
Table 3: Comparison of Revenue Requirements under Current Plan and Drought
75E -8
Revenue
1
Revenue from Existing Rates
49,784,800
45,397,100
Year Months Effective Rate Adj
,..
2
FY 14/15 4 2.8%
1,394,000
1,271,100
3
FY 15/16 12/4 2.9%17%
1,433,000
1,306,700
4
Increased Revenue Due to Adjustments
_ 4827,000
2,577,800
5
Total Rate Revenue
52,611,800
47,974,900
6
Other Operating Revenue
1,529,400,
1,528,400
7
Interest Income
252,800
230,200
8
Total Other Revenue
1,781,200
1,758,600
9
Total Revenue
$54,393,000
$49,733,500
Revenue Requirements
10
O &M Expenses
25,391,700
23,555,800
11
Water Purchase
20,056,800
21,892,700
12
Routine Capital Outlay
3,298,400
3,298,400
Debt Service
13
Existing Debt
1,575,100
1,575,100
14
Proposed Debt
1,171,500
1,171,500
15
Total Debt Service
2,746,600
2,746,600
Transfers
16
Transfer to Fund 66 - Water CIP
7,350,000
7,350,000
17
Transfer to NPDES Fund
1,578,400
1,439,200
18
Total Transfers
8,928,400
8,789,200
19
Total Revenue Requirements
$60,421,900
$60,282,700
Operating Fund Balance
20
Net Cash Balance
(6,028,900)
(10,549,200)
21
Beginning Fund Balance
28,296,500
28,296,500
22
Net Cumulative Working Capital Balance
$22,267,600
$17,747,300
Target Reserve (25% of O &M) + $11VI Emergency
23
Fund
12,206,500
12,206,500
75E -8
MEMORANDUM Page 6
B &V 175203
B &V File A4
12 June 2015
4. For each of the above options, the City may also wish to charge cost recovery for the State's
fine for non - compliance. As of this date, the State is considering a $10,000 /day fine for non-
compliance with the required cutbacks.
Table 5 summarizes the surcharge options above.
fable 5: Summar'N of Drought Surcharge Options
$2.79 /hd Plus $0.12 /hcf Plus $3.07 /hcf
$3.36 /hcf Plus $0.14 /hcf Plus $3.07 /hcf
Applied to
Applied to all only units
above
usage reduction
level
75E -9
$22.31/bill Plus $1.88 /hcf
Plus $1.88 /hcf
Applied to
Applied to only units
every bill above
reduction level
jxs 07/2212015
RESOLUTION NO. 2015 -XXX
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF
SANTA ANA ADOPTING PENALTIES FOR
NONCOMPLIANCE WITH WATER CONSERVATION
TARGETS DURING PHASE 2 WATER SHORTAGE PERIOD
BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF SANTA ANA AS
FOLLOWS:
Section 1. The City Council of the City of Santa Ana hereby finds, determines
and declares as follows:
A. On April 1, 2015, Governor Jerry Brown issued an executive order to cities
and towns across California to cut water use by 25% as part of a
sweeping set of mandatory drought restrictions, the first in state history.
B. On April 1, 2015, State water officials measured the lowest April 1
snowpack in more than 60 years of record - keeping in the Sierra Nevada.
C. On April 14, 2015, the Governing Board of the Metropolitan Water District
( "MWD ") took action to reduce water deliveries to its member agencies,
including the City of Santa Ana, effective July 1, 2015.
D. Because of the action taken by the MWD, beginning July 1, 2015, the
City's water deliveries will be reduced by 15 %.
E. The MWD action also includes heavy surcharges for member agencies
that exceed their allocations. The surcharge will be roughly four times the
normal price of an acre foot of water for use beyond the allocated amount.
F. The State of California's Drought Emergency Water Conservation
regulations provide that the City of Santa Ana must reduce its monthly
total potable water production by 12 %, using 2013 as the base year.
G. On May 19, 2015, the City Council adopted a Water Conservation
Ordinance (Ord. No. NS -2877) pursuant to Water Code §§ 375, et seq.
which provided further guidance as to the different types of water
conservation requirements and restrictions that correspond to the different
water shortage levels.
Resolution No. 2015 -xxx
Page 1 of 4
75E -10
jxs 07122!2015
H. On June 2, 2015, the City Council, as the governing body of the City of
Santa Ana Water Resources Division, a water distributor, declared that
water shortage emergency conditions prevail within the area served by the
City and, pursuant to Santa Ana Municipal Code section 39 -105 and
Water Code sections 350 and 353, the City Council declared a Phase 2
Water Supply Shortage and ordered that water customers must reduce
their monthly total potable water consumption by 12 %, using 2013 as the
base year.
Section 2. Pursuant to Santa Ana Municipal Code sections 39 -111 and 39 -112
and consistent with California Water Code sections 375 and 377, and for the reasons
set forth herein, the City Council declares that water customers that do not reduce their
monthly total potable water consumption by 12 %, using 2013 as the base year, will be
subject to a penalty of $4.65 per hundred cubic feet (HCF) for water used in excess of
the customer's conservation target. This volumetric penalty will be assessed only on
water use beyond the conservation target. Relief from compliance from Phase 2 water
use curtailment provisions shall be available upon proper showing under Santa Ana
Municipal Code Section 39 -113.
Section 3. The sole purpose of the penalty /fine is to compel water users to
comply with enacted water conservation use restrictions as required by both the City's
and State's emergency drought regulations.
Section 4. All monies collected from the established volumetric penalties are
restricted and will only be used in water conservation related expenses.
Section 5. The administrative appeal procedures that shall govern the
imposition, enforcement, collection and administrative review of the volumetric penalties
imposed for failure to comply with water curtailment shall be those procedures
contained in Chapter 3 of the Santa Ana Municipal Code.
Section 6. The penalties in this resolution shall remain in effect until the supply
of water available for distribution within such area has been replenished or augmented,
at which time the City Council will declare an end to the water shortage emergency by
resolution.
Section 7. All customers are urged to reduce water usage by following water
conservation practices inside and outside the home.
Section 8. Business owners are encouraged to take steps to improve their
water use processes.
Section 9. The City encourages infrastructure upgrades to the water system
involving (1) technology which provides up -to -date use information and trends to
Resolution No. 2015 -xxx
Page 2 of 4
75E -11
jxs 07122/2015
residents and business owners through a web -based customer engagement system,
and (2) leak detection systems which allow early detection of water leaks to minimize
waste and conserve water.
Section 10. The City Council agrees to support actions which deal with the
current drought conditions and calls for increased awareness and extraordinary
conservation of our precious resource.
Section 11. This Resolution shall take effect immediately upon its adoption by
the City Council, and the Clerk of the Council shall attest to and certify the vote adopting
this Resolution.
ADOPTED this 4th day of August, 2015.
APPROVED AS TO FORM:
Sonia R. Carvalho, City Attorney
M
Jose Sandoval,
Chief Assistant City Attorney
AYES Councilmembers
NOES: Councilmembers
ABSTAIN: Councilmembers
NOT PRESENT: Councilmembers
Miguel A. Pulido
Mayor
75E -12
Resolution No. 2015 -xxx
Page 3 of 4
jxs 07/22/2015
CERTIFICATE OF ATTESTATION AND ORIGINALITY
I, MARIA D. HUIZAR, Clerk of the Council do hereby attest to and certify the attached
Resolution No 2015 -XXX to be the original resolution adopted by the City Council of the
City of Santa Ana on June 2, 2015.
Date
Clerk of the Council
City of Santa Ana
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Resolution No. 2015 -xxx
Page 4 of 4
75E -14