2019 Water Rate Adjustment City Council Meeting Good evening Mayor and Council members. Tonight I am here requesting Council to authorize a previously approved 9% water rate increase for calendar year 2019. City Council Meeting January 8. 2019

Current Five Year Rate Summary (2015-2019) Calendar  Year 2015 2016 2017 2018 2019 Actual Increase 9% 5% 9% recommended Council Action on February 24, 2015 adopted a 9% rate increase. Council will recall that in February of 2015, a 5 year water rate schedule was adopted for years 2015 to 2019. Rate increases were approved to a 9% maximum per year. Council asked staff to come back each subsequent year with the state of the water fund and an annual rate recommendation. A full 9% increase was implemented in 2015, however Council reduced annual rate adjustments from 9% to 5% for calendar years 2016, 2017 and 2018 due to better than expected financial performance and rescheduled capital projects.

Water Rate Overview Staff recommends 9% rate increase for 2019 Begin funding water self-sufficiency projects as presented on November 2018 Council Meeting (e.g. design of treatment facilities and new well) Maintain 100 year water main replacement and cover replacement cost escalation Future Five-Year Rate Study Underway (2020-2024) Based on the 2015 rate study and the City’s plan to achieve water self-sufficiency, as presented to council past November, staff recommends that the City Council authorize a previously approved 9% water rate increase for calendar year 2019. This would result in a monthly increase of $4.33 to an average single-family customer. The rate increase would help fund: 1) preliminary design of water treatment plant capacity and efficiency improvements, 2) a new ground water well, and 3) annual water main replacements.

Impact on Rate Payers: Recommended 9% increase for 2019 results in an average monthly increase of $4.33 for single-family customers $10.06 for multi-family customers $21.19 for commercial and customers The staff recommended 9% rate adjustment would equal to: $4 monthly increase for an average single family customers $10 increase for multi-family and $21 average monthly increase for commercial and institutional accounts

Water Fund Performance $34.8M balance at end of FY17/18 $23M expenditure for capital projects and operations $11.8M balance projected at the end of FY18/19 $7M minimum reserve to be maintained This last fiscal year, 2017/18, the ending water fund balance was $34.8M. Expenditures for the year were $23.2 million, approximately $1 million less than anticipated, largely due to landscape rebate conservation program savings, which will be carried over into this fiscal year to help reduce water demand. Overall, the Water Fund operating budget was nearly balanced. Staff is projecting $23M in expenditures for both capital and operating cost, thus anticipating a fund balance to be $11.8M at the end of FY18/19. City of Santa Monica

Planned Capital Projects for FY18/19 and 19/20 This is a summary of an aggressive capital improvement program totaling almost $39M in capital projects over next two years. Over $5M in watermain projects are currently underway as authorized by council in late 2018. Implementing these projects will reduce the water fund reserve. Please note that conservation programs are included in the annual operating budget and not shown above. City of Santa Monica

Water Mains over 100 years old FRANKLIN ARIZONA OCEAN PARK IDAHO GRANT The recommended rate increase will help maintain watermains on a recommended 100 year replacement cycle. Approximately 4% of watermain pipelines in the city are over 100 years old, as shown in red. Staff recommends maintaining the 100 year replacement cycle as it is extremely important to have a reliable and resilient water distribution system. I will share two recent examples where pipelines close to 100 years old have major impacts. No.1 Metropolitan Water District, which supplies imported water for the City, had a pipeline failure in December 2018. The pipeline serves both SM and BH, Santa Monica residents and business were not impacted due to 1) city’s local water production, 2) conservation efforts and 3) resilient infrastructure consisting of reservoirs which provide storage and supplies for unforeseen events. However, Beverly Hills was impacted for nearly a week where everyone was asked to eliminate outdoor water use. It took nearly a week to repair the leaks. A second example is a recent LADWP pipeline break on a 96-year-old water main in a South Los Angeles neighborhood which flooded streets and submerged cars, caused people to evacuate and have no running water during the holidays. And lastly not to forget the 2014 rupture of a 90-year-old main on Sunset Boulevard in Los Angles which flooded UCLA with up to 10 million gallons of water causing major property damage. We want to continue to be on a 100 year replacement cycle to avoid watermain breaks like this. RAYMOND SAN VICENTE 6th 4th

Recommended 9% Increase to Support Water Self-Sufficiency $6M/year - Water Main Replacement; Cost Escalation - increase of $2M to maintain the recommended 100-year replacement schedule. $3.18M - Preliminary Design for the Arcadia Treatment Capacity Expansion and Enhancement Project $3.58M - New Groundwater Resiliency Well The staff recommendation for the 9% increase will mainly support the following: No 1. Recent Water Main Replacement Cost Escalation – increase in Capital budget from $4M to $6M per year based on an updated construction cost information, to maintain the recommended 100-year replacement schedule. Maintaining a $4 million per year budget would increase the replacement cycle from 100 years to approximately 160 or even to 190 years. Staff recommends staying on a 100-year replacement cycle to maintain operational reliably. And not be of the prior examples. No. 2 Additional capacity improvements, which include Preliminary Design for the Arcadia Treatment Capacity Expansion and Enhancement Project, budgeted at $3.2 million. The design would upgrade equipment at the treatment plant to accommodate increased groundwater production and new technologies. The design would also incorporate a new process to increase overall plant efficiency to 90% or greater. This is Component 2, Alternative Water Supplies of the updated Sustainable Water Master Plan presented to Council in November of last year. And No. 3 New Groundwater Well, where $3.6M is budged for the acquisition of a new groundwater well to enhance resiliency. Also limit future exposure to imported water. City of Santa Monica

This table shows current water rates for agencies in southern California. Santa Monica is the 4th on the left, we are amongst the lowest right now. The green bar shows what a 9% increase would mean. With the proposed increase, the water rates will continue to be in the lower middle range, compared to Southern California water agencies and significantly lower than other nearby agencies, including Los Angeles, Beverly Hills and Culver City. These changes would take effect on water bills starting March 1st or later based on water use starting January 1st, 2019 City of Santa Monica

Alternatives to 9% Rate Increase Rate increase of 5% or 7% would result in falling below minimum reserve levels starting in FY21/22 Suspension of annual water main projects for two years to maintain minimum reserve levels Staff considered alternatives to the 9% rate increase. A 5% or 7% increase would result in significant reductions and/or delays in the annual water main replacements and the City’s goal for water self-sufficiency. A 5% rate increase would leave the fund balance at $2.1million in FY21-22 compared to $8.4 with a 9% rate increase. It is important to point out that $7 million is the recommended minimum reserve level. The difference between the 5% and 9% is approximately $6.3 million, which almost equals to the funding for two self-sufficiency projects approved by Council on November 27, 2018. A full suspension of the 2019 rate increase, meaning 0% increase, would lead to lowered revenue resulting in the need for significant reductions and/or delays in the annual water main replacements and the City’s goal for water self-sufficiency. City of Santa Monica

Next Steps Ongoing Five Year Rate Study for 2020-2024 Public Outreach Plan Engage Task Force on the Environment in Feb 2019 Study Session with City Council in April/May 2019 Prop 218 Notice in August 2019 City Council to Adopt 2020-2024 Rate Plan in October 2019 This is the 5th and final year of the 2015 rate study. A new water/wastewater rate study is currently underway to set water and sewer bill rates for calendar years 2020–2024. As part of the rate study, funding options will be developed for Council’s approval with input from the public and advisory groups to meet the City’s water and wastewater revenue requirements. Staff will return to Council by mid-2019 for a study session on water/wastewater rates following public input. A public hearing for adoption of rates for calendar years 2020 to 2024 is to be held in in October 2019. And to close this presentation … Maintaining safe and reliable drinking water supply is not only essential, but an investment now in the system which would be less expensive in the long run; than deferring maintenance and continuing to rely on imported water supplies. In November of 2018 staff came to council with an updated sustainable water master plan, which is now being implemented. Central to this long-range strategy is the Council’s commitment to achieve water self-sufficiency through increased conservation and more efficient use of local water sources. Authorization of this previously approved rate increase will help implement council policy. City of Santa Monica

Recommended Action Authorize a 9% water rate increase to go into effect on January 1, 2019 for bills issued on or about March 1st, 2019. This concludes my presentation; thank you and we are available for questions.

Thank you. Questions?