ADMINISTRATIVE COMMITTEE
1 - 5.	DEVELOP RECOMMENDATION TO THE BOARD REGARDING ITEMS TO BE CONSIDERED ON THE APRIL 16, 2012 BOARD MEETING THAT ARE RELATED TO ESTABLISHMENT OF WATER USE FEE COLLECTION MECHANISM
Meeting Date:		April 9, 2012	Budgeted:
From:		David J. Stoldt,	Program/
		General Manager	Line Item No.:
Prepared By:		David J. Stoldt	Cost Estimate:
General Counsel Approval: N/A
Committee Recommendation:
CEQA Compliance: N/A

SUMMARY: At its February 23, 2012 meeting, the Board directed staff to implement a Proposition 218 process for the development of water fees and charges, including the hiring of a rate consultant and the development of the necessary ordinances, resolutions, and notices for implementation thereof.

Five sets of material are attached as exhibits, and are to be reviewed and/or acted upon as follows:

A. Review the draft Water Rate Study (Exhibit 1-A) [NOTE: This report has been delayed and may not appear as an exhibit. If not available by the meeting, no action shall be taken.]

B. First reading of Ordinance No. 152 (Exhibit 2-A)

C. Review alternate draft Resolutions for the method of collection of the proposed Water Use Fee (Exhibit 3-A and Exhibit 3-B)

D. Resolution 2012-03 – Proposition 218 Process Implementation (Exhibit 4-A)

E. Proposition 218 Hearing Notice (Exhibit 5-A)

RECOMMENDATION:

The General Manager recommends the following:

A. The committee should review and discuss the draft Water Rate Study and recommend the Board adopt it at their April 16, 2012 meeting, subject to any revisions suggested by the committee, staff, and the rate consultant. [NOTE: This report has been delayed. If not available by the meeting, no action shall be taken.]

B. The committee should recommend that at its April 16, 2012 meeting the Board approve the first reading of Ordinance No. 152 and refer it to second reading on June 12, 2012. This recommendation will note that it is made without regard to “Section Five: Table of Annual Water Use Fees by Parcel Use Category” which is to be prepared once a final rate study is available.

C. The committee should review and discuss the alternate draft Resolutions for the method of collection of the proposed Water Use Fee, but take no action nor make a recommendation. Both will return to this committee at a future meeting for determining a recommendation to the Board at its June 12, 2012 meeting.

D. The committee should recommend that at its April 16, 2012 meeting the Board approve Resolution 2012-03 – Proposition 218 Process Implementation

E. The committee should recommend that at its April 16, 2012 meeting the Board approve Proposition 218 Hearing Notice. This recommendation will note that it is made without regard to the table of Annual Water Use Fees by Parcel Use Category, which is to be prepared once a final rate study is available.

BACKGROUND:

The Monterey Peninsula community has expressed a strong desire for construction and operation of new water supply, implementable by December 31, 2016 in order to meet the restrictions on unlawful diversions from the Carmel River as mandated the State Water Resources Control Board Order 95-10 and the Cease and Desist Order.

The proposed regional water supply solution includes a portfolio of three projects: A single scalable desalination facility, a Groundwater Replenishment project (GWR), and completion of Aquifer Storage and Recovery (ASR.) Of these, GWR and ASR have a public ownership component and the disposition of desalination is presently unknown, but it is expected that Cal-Am will submit an application to the California Public Utilities Commission (CPUC) April 23, 2012 that will indicate a privately owned and operated desal plant.

These projects will cost money.

The costs of water supply capital projects will add costs to the District’s budget, over and above existing resources. The largest source of revenue in the District’s budget has traditionally been the District’s “User Fee”, which through a recent CPUC decision, the District’s ability to collect has been impaired, further exacerbating the revenue shortage.

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. At its February 23, 2012 meeting, the Board directed staff to implement a Proposition 218 process for the development of water fees and charges, including the hiring of a rate consultant and the development of the necessary ordinances, resolutions, and notices for implementation thereof.

The District’s draft Capital Improvement Plan (CIP) for the next two fiscal years identifies $2,958,644 of project expenditures for FY 2012-13. Of these, $2,848,771 are related to water supply projects and $109,873 are related to the Mitigation Program. The two highest priority projects are completion of Water Project 1 (Aquifer Storage and Recovery Phase 1) and the District’s 50% pay-as-you-go portion of costs of Groundwater Replenishment. The FY 2012-13 estimate for costs related to these two projects is $1,921,715. The overall direct capital costs for FY2013-14 are $3,331,570 under the CIP.

The District has embarked on the path of seeking to raise $3.7 million directly from properties within the District that are Cal-Am customers.

The District proposes to reduce expenditures for its other activities where possible, including mitigation and conservation, but without disrupting legally mandated requirements or leaving grant-funded or reimbursed programs unserved.

Additionally, the District expects to have Cal-Am directly pay a greater share of the Mitigation Program expenses on a recurring basis, approximately $1.6 million each year until the mitigation activities are no longer required by law or can be transitioned.

This would allow the District to allocate the full $3.7 million to costs directly related to water supply – approximately $2.5 million directly to capital projects, and the remainder allocable to the staff, supplies, and services related to the water supply, water resource planning, and water demand functions of the District.

The District will hear and act on the following items:

A) Rate Study: The District’s rate consultant Bartle Wells Associates has developed a method of allocation of the $3.7 million revenue requirement on an annual water use fee basis of 30% allocation to meter equivalents and 70% allocation to water consumption. This is consistent with the California Urban Water Conservation Council’s best management practices in their 2009 Memorandum of Understanding Regarding Urban Water Conservation in California.

Meter equivalents are commonly used by utilities as a proxy for the maximum day demand of various customer types. Many water agencies in California use meter equivalents as a basis for fixed charges and system capacity or connection fees. As the MPWMD manages surface and groundwater sources within the Monterey Peninsula to serve customers, Bartle Wells Associates finds it appropriate to use meter equivalents as the basis for MPWMD’s water use fee.

Water consumption can be allocated within type of use categories such as those utilized by other agencies such as MRWPCA or CAWD.

The American Water Works Association (AWWA) Manual M1 states that both fixed and variable fees are a valid method of cost recovery. Fixed charges should be used to recover costs that will be the same regardless of the amount of water used. Variable charges should be used to recover costs that increase with the amount of water used.

B) Ordinance No. 152: This ordinance (Exhibit 2-A) will determine the allocation of fees and charges (annual water use fee) to properties within the District based on water usage by parcel type and meter equivalent.

Directors are strongly encouraged to read the “Findings” which precede the Ordinance.

Key aspects of the Ordinance include:

The Ordinance authorizes an annual water use fee to be collected from properties in the District that are also Cal-Am customers. The fee varies by type of parcel use and by meter size. The Ordinance does not state the aggregate amount to be collected. Nor does it authorize a collection method, which, if approved, will be done via Board resolution at its June 12^th meeting.

This fee is to be assessed only against Cal-Am main system users and exempts the Hidden Hills, Bishop, Ambler, and Toro Cal-Am sub-units. This is because the water supply projects envisioned to be supported by this annual fee will provide present beneficial water use only to customers connected to the main system. Cal-Am has not traditionally collected the prior User Fee from those sub-units. However, the District reserves the right to do so in the future. Seaside municipal also does not directly benefit from the proposed projects, but will continue to remit the existing User Fee to which it has been subject as a water distribution system. The Reclamation Project remains subject to the surcharge it has traditionally paid.

The fees are being raised for water supply activities, but may be used for a variety of purposes related to service to Cal-Am water users as identified in Section 3 of the Ordinance.

The Ordinance does not include recovery of the costs of billing, nor does it provide for discounts for early payment, or increased costs for periodic payment plans.

The Ordinance envisions that the method of collection could be changed in the future by resolution, without the need to modify the Ordinance.

Section 5 of the Ordinance details the proposed fees by type of parcel use and by meter size.

An appeal process has been created for property owners who believe they have been billed in error. Examples might include, but are not limited to a meter that is not active, a meter for fire suppression, no Cal-Am connection, wrong meter size, meter located on property provides service to another property, and so forth. The claim process starts with the General Manager, but does allow for an administrative appeal to the Board to be heard within 90 days of the receipt of the appeal.

The Ordinance allows the District to assess penalties for non-payment, as well as a lien on the property for unpaid balances plus penalties.

C) Resolutions for the method of collection of the proposed Water Use Fee: There are two alternative resolutions for the actual fee collection mechanism: Alternative A (Exhibit 3-A) is for bills sent directly by the District or through a third-party mailing house: Alternative B (Exhibit 3-B) is for use of the semi-annual County Assessor’s bill, similar to what is the current practice for Carmel Area Wastewater District and the water recipients under the Castroville Seawater intrusion Project. The actual mechanism for collection will not be determined by the board until its June 12, 2012 meeting.

D) Resolution 2012-03 – Proposition 218 Process Implementation: This is the District’s “Roadmap” resolution that describes the manner in which the District will conduct its Proposition 218 protest hearing process.

E) Proposition 218 Hearing Notice: The notice will be distributed to all record owners of property within the District. As presented in the packet (Exhibit 5-A) it is on legal sized paper, but it is expected to be tri-folded for mailing as a single piece. The hearing will be scheduled for June 12, 2012.

EXHIBITS

1-A Water Rate Study

2-A Ordinance No. 152

3-A Draft Resolution for direct billing method of collection of the proposed Water Use Fee

3-B Draft Resolution for collection of the proposed Water Use Fee on the County Assessor’s bill

4-A Resolution 2012-03 – Proposition 218 Process Implementation

5-A Proposition 218 Hearing Notice

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