Frequently Asked Questions from Claremont Customers

Transcription

1 Frequently Asked Questions from Claremont Customers Why are Golden State s rates higher in Claremont than the neighboring communities of Rancho Cucamonga, Upland or La Verne? Golden State's rates reflect the total cost to provide the service and maintain the infrastructure. We only recover our operating expenses on a dollar-for-dollar basis and earn a "rate of return" on capital investments that help pay financing costs. The California Public Utilities Commission (CPUC) must approve this rate. Below is a summary of several factors that cause differences in rates across communities: What makes the Claremont system unique? The Claremont system is an older system than most neighboring communities, having been established in The city is built out and does not benefit from developer infrastructure investments associated with new communities. The result is that greater infrastructure investments are needed in Claremont compared to some neighboring jurisdictions. Additionally, the area has higher usage and demand for water service than surrounding communities. GSWC must be prepared to supply water based upon peak resident demand at any time. Finally, GSWC must purchase and import approximately 36 percent of water for resident consumption. Claremont water bills and water usage GSWC bills include a monthly service charge plus an amount based upon consumption, and minor surcharges related to other water issues. Customers with a 5/8 inch meter pay a monthly service charge of $15.45 and customers with a 1 inch meter pay $ The service charge is based on the water delivery capacity for each individual service connection, not the cost of the meter. Additionally, customers are charged for water consumption at the following levels: $3.273 dollars for the first 13 ccf (hundred cubic feet or approximately 748 gallons); $3.706 for the next 8 ccf; and $4.204 per ccf for water above 21 ccf. Here is a breakdown of Claremont s water usage in the city and corresponding charges: Fifty-nine (59) percent of Claremont customers use 20 ccf (14,960 gallons) or less and pay approximately $90 per month (5/8 inch) or $115 per month (1 inch).

2 Eighty-two (82) percent of all customers use less than 30 ccf (22,440 gallons), which means that most customers pay up to $134 per month (5/8 inch) or $159 per month (1 inch) for water in Claremont. Revenue Sources More than ninety-nine (99) percent of GSWC revenues come specifically from rates. This is an important fact because, regardless of who operates the system, with the exception of a purveyor choosing to minimize, defer or delay system investments, infrastructure and operational expenses will be comparable. A significant difference between private and municipal water purveyor rates is that municipal providers can offset their expenses by supplementing income from other revenue streams. In Region III, many public providers use property taxes and service fees to supplement their revenue. Public providers use a service fee structure that charges customers anytime a service is required to their home. For example, customers can be charged anywhere from $5,000 - $15,000 to hook up a water meter to a new home. Why water system rate comparisons don t paint a clear picture: With respect to neighboring water systems, the truth is that there is no perfect apples to apples comparison. It is difficult to compare water districts to municipally owned water systems, or investorowned water providers. For example, although some municipal water districts collect property taxes to offset fixed charges, it is not the case of Cucamonga Valley Water District. Every water system and community is unique. As a reference, please see the presentation at the end of this document, authored by Christian Aldinger, CPA with Peasley, Aldinger & O Bymachow that was presented to the California Water Association in 2009, and provides an independent perspective and corresponding facts. For the most part, rates established by any provider are designed to capture the cost associated with operating and maintaining the water system to meet the customers demand. However, these costs vary and some providers are able to generate revenues beyond water service that offset costs. Cucamonga Valley Water District Cucamonga Valley Water District (CVWD) customers pay a monthly service charge plus a consumption charge. CVWD s rates are bimonthly, but calculated on a monthly basis their service charge is $12.25 (5/8 inch) and $20.46 (1 inch). Based upon average usage, while GSWC rates are higher than CVWD, they are not three times higher. Moreover, there are significant differences between the water systems that account for the rate differential:

3 CVWD receives ninety-two (92) percent of its revenue from water sales and meter charges. Water fees, investment costs, non-operating revenues, capital contributions and transfers from funds recover the balance 1. CVWD is a newer system compared to the Claremont System. Since 2002, CVWD received over $79 million in Capital Contributions which are developer funded projects due to growth in their service area 2. During that same period, CVWD s customer base grew by 7,088 connections 3 resulting in an average capital investment per customer of approximately $11,200 per connection. Upland CVWD s water-funded capital improvement budget for FY 2012 is approximately $30.8 million 4. This demonstrates that although CVWD had growth in their service area, there is still a need to address infrastructure. Since 1990 CVWD has grown by 68% from 32,567 water connections to 49,306 connections 5. Upland s bi-monthly meter charge for a 1 inch meter is $28 compared to GSWC s bi-monthly charge of $ Upland s water rates are $1.16/HCF (0-19 units), $1.38/HCF (20-79 units), and $1.61/HCF (over 79 units) as compared to the GSWC tier of $3.273/HCF (0-13 units), $3.706/HCF (14-21 units), and 4.204/HCF (over 22 units). The City of Upland has significant competitive advantages that allow for lower customer water rates: The City has water rights in three basins (Six Basins, Cucamonga Basin and Chino Basin) Access to the lowest cost water by virtue of its ownership in San Antonio Water Company (SAWCO) and its twenty-three (23) percent ownership of the Water Facilities Authority plant. o The City is able to purchase water from SAWCO at a rate of 0.42/hcf ($182.95/acre foot) up to the full entitlement. Additional water is a multiplier of the entitlement at a rate of $1.07/hcf ($466/acre foot) 6. In addition to purchasing water from SAWCO, Upland can purchase water from the Water Facilities Authority at a rate of $581/acre foot for the authority members 7 which are substantially less than the Three Valleys Municipal Water District (TVWMD) rate GSWC is charged. In fact, Upland s access to low cost water enables it to generate $5 million in sales outside the City 8, including some to GSWC to serve Claremont. Upland s out-of-city rate of $1.61/hcf ($701.31/acre foot) is less than TVMWD s rate. 1 CVWD Comprehensive Annual Financial Report Fiscal Year ended June 30, CVWD Comprehensive Annual Financial Reports Fiscal Year ended June 30, 2002 June 30, CVWD Comprehensive Annual Financial Report Fiscal Year ended June 30, CVWD Annual Operating and Capital Improvement Budget for the Fiscal Year ending June 30, CVWD Comprehensive Annual Financial Reports Fiscal Year ended June 30, 1990 June 30, San Antonio Water Company rate sheet effective May 1, 2005 and posted on website as of 2/22/ Monte Vista Water District FYE 2012 Budget Section 5B-2 8 City of Upland California Annual Budget Fiscal Year , Page 12

4 Regarding capital investment, it is difficult to glean the investments made over the past three years. The Capital Improvement Projects list (page ) from Upland s Annual Fiscal Budget shows a number of projects (WT-xxxx) that were budgeted in FY 2009 but deferred to FY To make a fair comparison, it is necessary to their capital investments since Although Upland is a larger city (almost twice the population), since 1997 on a yearly basis, Upland s average daily per capita usage was approximately 50 gpcd less than Claremont which is about 1.7 million gallons per day. To continue to meet the customer demand, Claremont requires a different infrastructure. 9 LaVerne The City of LaVerne s rates are based on the location of the customer s home. This rate model charges customers at higher elevations more than customers at lower elevations. For a 1 inch meter, the bimonthly charge for a La Verne customer would be $36.40 while the bi-monthly charge for GSWC would be 77.20, which is two times. For La Verne, the commodity charge depends on which zone the customer resides in - ranging from $2.69/1000 gals in Zone I (south of the intersection of Mills and Moreno) to $3.54/1000 gals in Zone VI(north of Padua and Fuller Drive). Since La Verne uses 1,000 gals versus GSWC 100 cu ft, the water from La Verne ranges from $ /gal to $ /gal as compared to GSWC tiered water rate of $ /gal, $ /gal, and $0.0056/gal respectively for tiers I, II, and II. Since 2002, LaVerne customers use approximately 2,700 af per year less than Claremont, or 2.7 million gallons less, per day 10. This is important because of the California Department of Public Health design requirements for public water systems as it relates to meeting customer demands. To meet the Claremont customer s demand and CDPH requirements 11, Claremont requires a different infrastructure. Regarding capital investments, to make a fair comparison, it is necessary to see their capital investments since After reviewing the factors of these neighboring water systems, it is clear that there are a number of variables associated with the rate making process for a water utility such that it is difficult to make an apples to apples comparison. With Claremont already paying more than our neighboring cities, why is another rate increase needed? The increase over 2012 will be approximately 17.6 percent or about $11 dollars for customers with a 5/8 inch meter and $24 dollars for customers with a 1-inch meter based on the average customer usage of 13 ccf and 26 ccf respectively. The current average rate for customers with a 5/8 inch meter is $ GSWC 2010 UWMP page 3-6 and Upland s 2010 UWMP page La Verne s 2010 Urban Water Management Plan (Page 32) and GSWC Claremont Urban Water Management Plan (Page 3-3). 11 Title 22 of the California Code of Regulations Chapter 16 California Waterworks Standards

5 and $ for customers with a 1-inch meter. Under Golden State's proposed filing for 2013, those bills would increase to $70.48 for customers with a 5/8 inch meter and $ for customers with a 1- inch meter. Fees and surcharges for the current year and 2013 are taken into account in these figures which include 1.5% for CPUC fees as well as 5.5% Claremont Utility Tax. If approved, the new rates would allow us to invest more than $10.6 million in local capital improvements for our Claremont customers. Projects proposed include various upgrades to plants, such as installing a new chlorine building, seismic upgrades, and replacing a well. We also plan to install nearly six miles of new distribution pipeline, primarily to reduce leaks and enhance fire protection. We know that customers have questions about rates and worry about proposed rate increases associated with system investments. We want people to know that we do everything possible to minimize rate increases while at the same time ensuring we can provide quality, reliable service. GSWC s rates are based solely on the cost to provide the service and maintain the infrastructure. There is no profit on expenses and GSWC is prohibited from establishing reserves to make infrastructure investments. Accordingly, water costs and investment plans are fully transparent as part of the ratemaking process. Each jurisdiction must make a similar determination in order to establish its own rates. As part of the rate making process, GSWC must assess each of its water systems, and propose a scope of investment that will meet customer s demand in that community. GSWC is proposing to invest $10.6 million in the Claremont system from GSWC follows a proactive philosophy and commitment to ongoing preventive maintenance for every water system we serve, to ensure we can protect the resource from its source to the customer, as well as prevent more costly repairs that come when needed maintenance is deferred. Delaying infrastructure investment can be more costly to a community in the long run. The rate filing for is being vetted by the CPUC and they will make a final determination based upon input from customers and the Division of Ratepayer Advocates (DRA). The CPUC ratemaking process is an 18-month effort designed to ensure customers are heard, have influence and ultimately have access to reliable, quality water. Please see the recent report by the American Water Works Association 12 for more details on the state of our nation s infrastructure. Why are some customers paying more for their water service if they have been following conservation guidelines? The need to conserve water is universal and not limited to GSWC, and the mechanisms that incentivize water use conservation were also not created by GSWC. To ensure that customers only pay for the cost 12

6 of providing the service, including fixed costs that are not variable based upon usage, balancing mechanisms called the Water Revenue Adjustment Mechanism (WRAM) and Modified Cost Balancing Account (MCBA) have been established. Here s how it works. Overall rates are based upon the best possible estimates of customer usage, fixed costs and infrastructure investments. Rates are designed to reflect these levels. In instances where customers use more water than forecasted, GSWC does not keep the excess revenue beyond what has been approved by the California Public Utilities Commission and returns the difference by providing customers with a sur-credit or refund. In instances where customers use less water than the amount forecast, GSWC first identifies, through the MCBA, the cost savings derived from reduced pumping costs and lower than expected purchase costs. It then reconciles that figure with the difference between our forecast and actual revenues. The result is a WRAM surcharge, offset by the return from MCBA that ensures the company can cover expenses so customers can have as much water as they want on demand. In most cases, customers save money by conserving when one considers what their bill would have been at the higher usage level even with the WRAM adjustment. Take the example of a customer who had an average monthly usage of 20 Ccf (14,960 gallons) and was able to reduce by 20 percent, down to 16 Ccf per month (11,968 gallons). The savings from reducing the 4 Ccf will far outweigh the amount of WRAM/MCBA surcharges on the customer s bill (the savings will vary by ratemaking area). Critics call Golden State Water Company monopoly because consumers can t choose their water provider. Why is that? While we are the only provider, GSWC does not operate like a monopoly. Our rates are regulated in what is an in-depth and fully transparent ratemaking process. The DRA provides a deeper, more thorough level of review than exists in public water agencies and we are not able to set rates of our own choosing. As we have said earlier, customers are only charged the cost to provide water service and maintain the infrastructure, with a CPUC approved rate of return to support the cost of infrastructure investments. These costs would be comparable to any provider and are based specifically on the unique characteristics of the system. Quoting from company press releases -"For more than 57 consecutive years, American States Water Company shareholders have received an increase in their aggregate annual dividend." Why is Golden State requesting a rate increase while recording record profits? As a publicly traded company and Investor Owned Utility, American States Water Company provides information as required by federal law. These disclosures reflect transparency as well as the fact that the company is well managed and financially responsible. However, as it relates to GSWC California

7 ratepayers, we only recover the expenses related to water service on a dollar-for-dollar basis, plus a CPUC-approved rate of return to help finance infrastructure improvements. Reported earnings of American States Water Company are a result of the operations of several entities, not just GSWC. The company also owns American States Utility Services, Bear Valley Electric Service; and it completed the sale of Chaparral City Water Company, which impacted earnings in GSWC s contribution to net income is primarily a result of its investment in capital improvements to continue providing customers access to reliable, high quality water that meets drinking water standards. We ve spent approximately $75 million annually on capital improvements in the last three years and more than $20 million on the Claremont system since To finance these improvements, we must borrow money and issue stock. Just as a municipality must pay bondholders for a return on their investment, we must pay lending institutions principle and interest, and shareholders a return on their investment. Shareholders provide an important source of capital that allows Golden State to make needed system investments for the benefit of our customers. Being a profitable company ensures a lower investment cost and a solid funding source for infrastructure replacement. Tiered pricing to promote conservation was implemented in the years of drought with the intent that it would be removed if California responded and the drought was deemed over. Why are tiered rates still in place? Tiered pricing is intended not just to address drought conditions but also seeks to achieve state and local water conservation targets. California has established a goal of twenty (20) percent per capita reduction by the year 2020 and the City of Claremont has established an even more aggressive goal of a forty (40) percent per capita reduction. Claremont has currently achieved an 18 percent reduction. According to a February 28, 2012, report from the California Department of Water Resources, snow surveyors confirmed that California's mountain snowpack holds far less water than normal for this time of year. Manual and electronic readings show that statewide, snowpack water content is only 30 percent of historic readings for the date. That is a mere 26 percent of the average April 1 measurement, when the snowpack is normally at its peak before it begins to melt with rising spring temperatures. Given that California experienced its most recent statewide drought from , these survey results are a sign that our water supplies remain limited and can drop to drought-like levels very quickly. Our data shows that imported water accounts for thirty-six (36) percent of Claremont s supply. This rate has historically been higher, but due to increasing rates from Metropolitan Water District of Southern California (MWD), GSWC has optimized groundwater usage in Claremont. For context, if MWD s recent rate increase request is approved, their rates will have increased by one hundred (100) percent since These increases impact all water agencies, including GSWC, that purchase water from Met member agencies. # # #