The price of water savings
MCWD considers rate changes, surcharge during drought.
Mammoth Community Water District (MCWD) is considering rate changes proposed by consultant Raftelis Financial Consultants, Inc., including a new water shortage surcharge in times of drought. Changes would become effective April 1 of next year.
MCWD General Manager Pat Hayes said the change in rates is not to help cover the cost of the District’s ongoing lawsuits against Great Basin Unified Air Pollution Control District and the Bureau of Land Management. “In the grand scheme of things, that [lawsuit cost] is not a big number,” he said.
Hayes said the change in rates is also not a direct response to the drought, during which District water users have cut their use by about 30 percent.
Instead, according to Hayes, MCWD typically performs rate studies and considers rate changes every five years as required by Proposition 218. MCWD last enacted rate changes in 2012.
Prop. 218 was passed in 1996 “to ensure that rates and fees are reasonable and proportional to the cost of providing service,” according to the Raftelis final water and wastewater study report.
In 2012, MCWD adopted an annual 2 percent increase in water rates and 1 percent increase in wastewater rates.
“The [new] proposed rates carry on the same increase,” Hayes said. But he said that because of adjustments to census data, “for most of our ratepayers, there’s going to be a slight reduction” in rates the first year, before a slight increase in 2017 through 2021.
According to the Raftelis report, the District’s water service charges have two components: a fixed monthly base service charge, and volumetric water use sales. The base charge increases with meter size, given that larger meter sizes generally consume more water on average. A typical single family home with a 5/8 inch or 3/4 inch meter has a monthly base charge of $14.01.
That number is proposed to go down to $13.89 in 2016, before increasing again 2 percent each year.
The District’s water use sales, charged in dollars per kilogallon (kgal), are determined according to tiers. According to MCWD Finance Manager Jeff Beatty, tier levels are set “based on calculations for conservative indoor water use, conservative outdoor water use, and all use above that.”
Single Family Residential (SFR) Tier 1 would have paid $1.52/kgal in 2016; the new proposed rate is $0.91/kgal. Tier 2, which would have paid $2.54, would now be $2.12, and Raftelis recommended getting rid of SFR’s fourth tier, thereby increasing the Tier 3 rate slightly from $4.47 to $4.66.
Raftelis also proposed Multi-Family Residential (MFR) be restructured from a tiered to a uniform rate, increasing MFR’s monthly base service charge and water use sales.
As the study explains, “While the tiered rate structure was well intended, it has led to the District inadvertently subsidizing outdoor water use, particularly at certain times of year where multi-unit residential complexes have limited occupancy, but ongoing landscaping demands. This allows a property to meet its irrigation requirements with Tier 1 water, creating inequity between MFR users and SFR and Irrigation users.”
Proposed MFR monthly water base service surcharges would increase in 2016 from the $10.64 to $13.89, and increase 2 percent annually thereafter. Meanwhile MFR water commodity rates would increase from the adopted $1.52 to $2.16, and increase 2 percent thereafter.
Wastewater rates will increase by several cents to several dollars, by customer type.
Perhaps the biggest proposed change is a water shortage surcharge that would help MCWD cover deficits resulting from reduced water use during drought. The Los Angeles Department of Water and Power (LADWP) recently adopted a similar measure after L.A. water users cut 10 percent more water than anticipated to meet Governor Jerry Brown’s 25 percent reduction requirement.
According to the L.A. Times, “The 18 billion gallons of unsold water left the utility about $57 million in the hole.”
Beatty explained why water utilities can be so strongly affected by water conservation. “For water or wastewater utilities, fixed costs are the largest part of the budget,” he said. Those costs include “building and maintaining the infrastructure to produce, treat, and deliver water to our customers and [to] collect and treat wastewater remains fixed if we deliver half a million gallons per day or three million gallons per day.”
Water utilities also have “the variable component of cost, primarily energy and treatment cost, [which] is about 5 percent of the total cost,” he said. “MCWD has a rate structure where the largest part of the revenue is fixed. When we have a reduction in water use, the reduction in total revenue is relatively small and we are able to continue to cover the fixed cost of operation. When a water district [like the LADWP] has a larger percentage of revenue variable based on water sales, a decline in water sales has an amplified affect of revenue and total revenue drops below the fixed cost of operation.”
Beatty said that MCWD’s water use revenue is about 13-15 percent of the District’s total revenue budget, so a 30 percent reduction in water sales, as MCWD saw this past year, results in about a 4 percent total revenue reduction.
The Raftelis rate report estimated that MCWD current water use revenue in non-drought years is about $3.5 million. Fixed operation and management costs are about $3.2 million during non-drought years.
The goal of the proposed surcharge, which would only be enacted during drought, “is to maintain the same net revenue as would be expected in non-drought conditions,” the Raftelis report states.
An average SFR would pay an additional surcharge of $1.31 per month during Level 1 restrictions; $2.62 during Level 2; $3.93 during Level 3, and $6.55 during Level 4. MFR would pay the same surcharge.
“The surcharge is essentially a means to keep you on track with the financial needs of the District,” Hayes said. “It’s just a little course correction, if you will.”
The proposed rate changes are available at MCWD’s website. Hayes said the MCWD Board will hold a hearing and consider adopting the new rates at its January 21 meeting.
