ADMINISTRATIVE COMMITTEE
2.	CONSIDER APPROVAL OF FUNDING FOR RATE STUDY CONSULTANT FOR ALTERNATIVE USER FEE COLLECTION MECHANISM
Meeting Date:		February 13, 2012	Budgeted:	Yes
From:		David J. Stoldt, General Manager	Program/	Protect Environmental Quality
			Line Item No.:	Program 2-6
Prepared By:		David J. Stoldt	Cost Estimate:	Not to exceed $ 50,000
General Counsel Approval: N/A
Committee Recommendation: The Administrative Committee reviewed this item on February 13, 2012 and recommended ____________by a vote of __ (yes) to __(no).
CEQA Compliance: N/A

SUMMARY: On October 11, 2011, the Water Supply Planning Committee recommended the Board direct the General Manager and Administrative Services Division Manager to examine alternate approaches to secure the collection of the User Fee going forward and report back at a future meeting. At its October 17, 2011 Board Meeting, the Board made such direction under Item 5 “Consider Authorization for Staff to Examine Alternative Approaches to Establish / Increase User Fee to Fund Water Supply Project Planning and Implementation.” This item was discussed in an update at the January 23, 2012 Board meeting and a schedule for implementation was provided. An updated schedule is attached as Exhibit 2-A.

The current request is to approve authorization to expend up to $50,000 over the next two months to retain a Consultant to provide assistance with preparation of a rate study which will provide support for the Proposition 218 hearing process and provide public documentation and support for the allocation of certain District costs to parcels. The Consultant will allocate water usage by parcel type and category, using industry accepted usage factors, a method prevalent to wastewater agencies in California who use the concept of “equivalent dwelling units or EDUs” and assigning them based on type of property.

It is expected that the Consultant contract will be much less than the not to exceed requested amount. However, $53,000 is available in the General Manager’s current budget for consultants.

RECOMMENDATION: It is expected that the Administrative Services Division Manager will issue a Request for Proposals from several identified consultants and contract with one on a sole-source basis. Staff recommends that the General Manager be authorized to enter into an agreement for services with the selected consultant for a not-to-exceed amount of $50,000.

The Administrative Committee considered this item at its February 13, 2012 meeting and recommended ______. If adopted with the Consent Calendar, the General Manager would be authorized to enter into an agreement with the described entity.

BACKGROUND: The largest source of revenue in the District’s budget has traditionally been the District’s “User Fee”, which currently accounts for approximately 46% of MPWMD’s overall budget. Through a recent CPUC decision, the District’s ability to collect its User Fee has been impaired. Failure to reinstate the User Fee will result in the District suspending environmental and water supply development programs and possible lay-offs and/or furloughs.

Going forward, the User Fee is the District’s single mechanism for any of its river mitigation programs, its ASR water supply project, or any other capital project it may choose to do to support its mission. Other MPWMD revenue sources include certain property tax allocations, connection charges, permit fees, reimbursements from other entities, and interest earnings, plus temporary borrowing from a line of credit and use of previously funded reserves. In addition to these funding sources, past MPWMD budgets have also included grant funding from the State of California, and other miscellaneous revenues.

MPWMD has collected a User Fee from California American Water (“Cal-Am”) customers and other water system customers continuously since 1983. The District has adopted 14 ordinances since then, modifying and adopting the User Fee at different levels for different purposes. This fee is allocated based on actual water use. It is shown on Cal-Am water bills and also on bills from the Seaside Municipal Water System and the Pebble Beach Reclamation Project. The User Fee has been expressed as a percentage of meter and water charges. The User Fee was set at 8.325% of a customer’s water bill when it was suspended.

Currently the District has an interim agreement in place with Cal-Am that provides $1,559,988 through the end of this fiscal year, to fund reduced mitigation work. The agreement is not sufficient to fund the District’s traditional mitigation work, and the District has expended reserves to make up the difference.

The User Fee was used to raise funds to partially defray MPWMD expenses incurred for its comprehensive Mitigation Program, as adopted for the Water Allocation Program Environmental Impact Report in November 1990. The Mitigation Program is designed to lessen the environmental impacts that community water use and Cal-Am’s operations have on the Carmel River and Seaside Groundwater Basins, including impacts to the steelhead and red-legged frog which are listed as threatened species under the federal Endangered Species Act. Only a portion of the Cal-Am user fee, set at 7.125% of the meter and water charges, offsets the District’s cost of mitigation activities; the remaining portion (1.2%) defrays MPWMD’s Aquifer Storage and Recovery (“ASR”) costs, thus enabling excess winter flows from the Carmel River to be diverted and stored in the Seaside Groundwater Basin for use during the summer months in accord with guidelines set by federal and state fisheries agencies.

For calendar year 2011, the amount budgeted for the MPWMD comprehensive Mitigation Program was $3.7 million and 16 staff. However, past collections of the User Fee have significantly been lower than budgeted, as shown in the table below:

	Actual FY 2008/09	Actual FY 2009/10	Actual FY 2010/11
User Fees Budgeted	$3,670,000	$3,700,000	$3,700,000
Mitigation & ASR Expenditures	3,048,127	2,986,610	3,748,055
User Fee Revenue	2,299,054	2,491,568	2,663,108
Shortfall to Expenditures	(749,073)	(495,042)	(1,084,947)
Shortfall to Budget	(1,370,946)	(1,206,432)	(1,036,892)

This has been due to an under-collection of revenues by Cal-Am due to a poor economy, wet weather, and conservation induced by a tiered rate structure. Hence, a more secure revenue collection method that is not subject to fluctuations in Cal-Am revenue is desirable.

CPUC Decision D.11-03-035 rejected the All-Party Settlement Agreement that included in it continued collection of a User Fee. The District has taken three procedural approaches to attempt to restore the collection of the User Fee or otherwise collect a similar amount through a surcharge. The approaches include: (a) Application for Rehearing was filed in April 2011 which might result in reinstating the fee, (b) an Amended Application of Cal-Am to the CPUC was filed in August which might result in collecting the desired amounts through a surcharge, and (c) a Petition to Modify was filed in October, which might result in a reinstatement of the all-party Settlement Agreement. All three approaches only address the amounts budgeted for mitigation and ASR in the previously existing User Fee and do not provide a significant legal basis to guarantee that the User Fee would not become subject to CPUC regulation again in the future.

With the outcome of the District’s efforts to restore the User Fee at the CPUC still unknown, an alternative collection mechanism is a necessary fall-back position. Further, the District has identified several water supply projects which it would like to implement. In order to perform feasibility analysis, EIRs, and eventual design and construction, a secure funding source must be identified. Should the District desire to utilize borrowing for capital projects in the future, a secure funding source is a prerequisite.

The District needs to have greater control over its User Fee in order to ensure a secure funding source for its activities.

EXHIBIT

2-A Implementation Timeline

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