ITEM:		ACTION ITEM
12.	DISCUSS BASELINE FOR WATER SUPPLY CHARGE AND CONSIDER POLICY FOR SUNSET BASED ON USER FEE PERFORMANCE
Meeting Date:			October 19, 2020	Budgeted:	N/A
From:			David J. Stoldt	Program/	N/A
			General Manager	Line Item No.:
Prepared By:			David J. Stoldt	Cost Estimate:
General Counsel Approval: N/A
Committee Recommendation: N/A
CEQA Compliance: This action does not constitute a project as defined by the California Environmental Quality Act Guidelines Section 15378.

DISCUSSION: On January 25, 2016 the California Supreme Court filed its opinion in the suit the District brought against the California Public Utilities Commission (CPUC), determining the CPUC should reinstate the District’s User Fee. After protracted discussions with the CPUC and Cal-Am, the Use Fee was finally reinstated in July 2017.

District Ordinance No. 152 which established the Water Supply Charge states in its Section 10.C(b) that the District shall not collect a Water Supply Charge “to the extent alternative funds are available via a charge collected on the California American Water Company bill.”

At its April 2016 meeting, the District Board approved a plan that encompassed collecting both charges for at least 3 years. This was done for 4 key reasons: (i) the User Fee would primarily fund programs already in Cal-Am surcharges (District conservation and river mitigation), so there is little or unknown “surplus” revenue; (ii) the Monterey Peninsula Taxpayers Association lawsuit over the Water Supply Charge remained unresolved at that time, hence that revenue remained at risk; (iii) there were still large near-term expenditures required on water supply projects; and (iv) Cal-Am had a recent history of significant revenue undercollection, so the viability of the User Fee was at risk until the CPUC rules on a more stable rate design, and the predictability of the User Fee revenue was better known. Collection of the User Fee began in July 2017, hence full collection of both was slated to continue through June 2020, although payment from Cal-Am is usually approximately 45 days in arrears. In its budget deliberations this year, the Board determined collection of both fees is warranted in FY 2020-21 due to ongoing water supply project needs.

To establish a baseline for available surplus User Fee, it is first necessary to determine what the previous Conservation Surcharge and Mitigation Program Surcharge expenses are now being covered by the User Fee.

The previous Conservation Surcharge was used to fund 1 ½ positions in the Water Demand Division and all of the equipment given away to residents (showerheads, aerators, etc.) For the 2020-21 budget year that amount is $341,728.

The previous Mitigation Program Surcharge was used to fund all of the activities of the District’s mitigation cost center. For the 2020-21 budget year that amount is $6,190,750, but approximately $2,514,700 is reimbursed from grants or others, leaving a net of $3,676,050.

Hence, the total of District FY 2020-21 expenses that would previously have been funded through separate surcharges before the User Fee was reinstated is $4,017,778.

The District adopted a budget for FY 2020-21 with the expectation of $4,250,000 in User Fee revenue. Therefore, there is just over $200,000 of “excess” relative to pre-reinstatement conditions. The “excess” could be used to sunset a portion of the Water Supply Charge, but must also be viewed in the context of other competing needs such as other District cost centers, setting of reserves for pension, OPEB, capital replacement, and so forth. Further, the process for adjusting the Water Supply Charge is cumbersome, so minor annual adjustments are not very workable. Certainly, as Cal-Am rates rise, the District’s User Fee revenues will rise, creating greater flexibility.

RECOMMENDATION: The Board is encouraged to adopt a policy that if User Fee collections in a fiscal year exceed the budget, then the excess will be applied in the following fiscal year budget in the following priority: First, to repay reserves used for water supply project costs; Second, to deposit into a sinking fund to pay off the Mechanic’s Bank loan; Third, to build a fund that can be used to offset and sunset the Water Supply Charge.

EXHIBITS

12-A Sample Cal-Am Bills Before and After Reinstatement of User Fee

12-B Three-Year History of User Fee Collections

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