The Rate Setting Process
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The document presents the Santa Clara Valley Water District's annual report on water supply protection and augmentation activities for fiscal year 2016-17. It outlines proposed increases in groundwater production and water charges to fund critical investments, while the financial analysis indicates a projected reduction in water use due to a severe drought, resulting in lower revenue. Recommendations include specific percentage increases for various charges while highlighting staff's careful approach to pricing to ensure effective water resource management.
The Rate Setting Process
- 1. Attachment 1 Page 1 of 13 Staff Report In accordance with the District Act, District staff has prepared an annual report on the Protection and Augmentation of Water Supplies, which was filed with the Clerk of the Board on February 26, 2016. The Report is the 45th annual report on the Santa Clara Valley Water District’s (District) activities in the protection and augmentation of the water supplies. This Report is prepared in accordance with the requirements of the District Act, section 26.5. The Report provides information on water requirements and water supply availability, and financial analysis of the District’s water utility system. The financial analysis includes future capital improvement and maintenance requirements, operating requirements, financing methods and staff’s recommended groundwater production and other water charges by zone for fiscal year 2016–17. The Rate Setting Process According to Section 26.3 of the District Act, proceeds from groundwater production charges can be used for the following purposes: 1. Pay for construction, operation and maintenance of imported water facilities 2. Pay for imported water purchases 3. Pay for constructing, maintaining and operating facilities which will conserve or distribute water including facilities for groundwater recharge, surface distribution, and purification and treatment 4. Pay for debt incurred for purposes 1, 2 and 3. This year, as in past years, staff has carefully evaluated the activities that can be paid for by groundwater production charges. The work of the district is divided into projects. Every project has a project plan which is prepared by the project manager. The project plan is a detailed description of the project including objectives, milestones, and an estimate of resources needed to deliver the project. To ensure compliance with the District Act, each project plan contains a justification as to whether or not groundwater production charges can be used to pay for the activities associated with it. The financial analysis presented in the annual report is based on these project plans. Resolution 99-21 guides staff in the development of the overall pricing structure based on principles established in 1971. The general approach is to charge the recipients of the various benefits for the benefits received. More specifically, pricing is structured to manage surface water, groundwater supplies and recycled water conjunctively to prevent the over use or under use of the groundwater basin. Consequently, staff is very careful to recommend pricing for groundwater production charges, treated water charges, surface water charges and recycled water charges that work in concert to achieve the effective use of available resources. This year’s rate setting process is being conducted consistent with Board Resolutions 99-21, 12-10 and 12-11, as well as Proposition 218’s requirements for property-related fees for water services. As in the past, the Board will continue to hold public hearings and seek input from its advisory committees and the public before rendering a final decision on groundwater production and other water charges for FY 2016–17.
- 2. Attachment 1 Page 2 of 13 Staff Recommendations Exhibit 1 shows the proposed groundwater production charges and other charges for FY 2016– 17. Since the publishing of the District’s Annual Report on the Protection and Augmentation of Water Supplies (PAWS), staff has reduced the operations cost projection for FY 2106-17 by $2.5 million driven mainly by a salary savings adjustment. Consequently, the following staff proposed charges are lower than the proposed maximum charges shown in the published annual PAWS report. Exhibit 1 Summary of Charges (Dollars Per Acre Foot, $/AF) FY 2014–15 FY 2015–16 Proposed FY 2016–17 Zone W-2 (North County) Basic User/Groundwater Production Charge Municipal & Industrial 747.00 894.00 1,072.00 Agricultural 19.14 21.36 23.59 Surface Water Charge Surface Water Master Charge 18.60 22.60 27.46 Total Surface Water, Municipal & Industrial* 765.60 916.60 1,099.46 Total Surface Water, Agricultural* 37.74 43.96 51.05 Treated Water Charges Contract Surcharge 100.00 100.00 100.00 Total Treated Water Contract Charge** 847.00 994.00 1,172.00 Non-Contract Surcharge 150.00 200.00 200.00 Total Treated Water Non-Contract Charge*** 897.00 1,094.00 1,272.00 Zone W-5 (South County) Basic User/Groundwater Production Charge Municipal & Industrial 319.00 356.00 393.00 Agricultural 19.14 21.36 23.59 Surface Water Charge Surface Water Master Charge 18.60 22.60 27.46 Total Surface Water, Municipal & Industrial* 337.60 378.60 420.46 Total Surface Water, Agricultural* 37.74 43.96 51.05 Recycled Water Charges Municipal & Industrial 299.00 336.00 373.00 Agricultural 42.94 45.16 47.38 *Note: The total surface water charge is the sum of the basic user charge (which equals the groundwater production charge) plus the water master charge **Note: The total treated water contract charge is the sum of the basic user charge (which equals the groundwater production charge) plus the contract surcharge ***Note: The total treated water non- contract charge is the sum of the basic user charge (which equals the groundwater production charge) plus the non- contract surcharge Dollars Per Acre Foot
- 3. Attachment 1 Page 3 of 13 The proposed increases in water charges are necessary to pay for critical investments in water supply infrastructure, imported water supply reliability and for future supplies, most notably purified water. Additionally, due to the continued historic drought, a lower projected water use has reduced the revenue projection by $33M versus the prior year projection. Given the financial needs summarized above, staff proposes a 19.9% increase in the North County (Zone W-2) Municipal and Industrial groundwater production charge from $894/AF to $1,072/AF. Staff recommends maintaining the treated water surcharge at $100/AF, and the non- contract treated water surcharge at $200/AF. The proposal equates to a monthly bill increase for the average household of $6.13 or about 20 cents a day. In the South County (Zone W-5), staff proposes a 10.4% increase in the M&I groundwater production charge from $356/AF to $393/AF. The proposal equates to a monthly bill increase for the average household of $1.27 or about 4 cents per day. Staff recommends a 10.4% increase in the agricultural groundwater production charge in both zones from $21.36/AF to $23.59/AF. The staff recommendation equates to a $0.37 increase per month per acre for an agricultural water user who pumps 2 acre-feet per acre per year. Staff recommends a 21.5% increase to the surface water master charge from $22.60/AF to $27.46/AF to bring revenues in line with costs related to managing, operating and billing for surface water diversions. This increase results in a 19.9% increase in the overall North County municipal and industrial surface water charge and 11.1% increase in the overall South County municipal and industrial surface water charge. The overall agricultural surface water charge in either zone would increase by 16.1%. Due to the severity of the drought, the water district suspended nearly all raw surface water deliveries in 2014. For recycled water, staff recommends increasing the M&I charge by 11.0% to $373/AF. For agricultural recycled water, staff recommends a 4.9% increase to $47.38/AF. The increase maximizes cost recovery while concurrently providing an economic incentive to use recycled water. This pricing is consistent with the provisions of the “Wholesale-Retailer Agreement for Supply of Recycled Water Between Santa Clara Valley Water District and City of Gilroy.” Staff recommends setting the State Water Project Tax at $33 million for FY 2016–17. This translates to a property tax bill for the average single family residence of roughly $55.00 per year. The District incurs an annual indebtedness to the State of California pursuant to its Water Supply Contract dated November 20, 1961. Such indebtedness is proportional to the District’s allocation of water from the State Water Project and pays for construction, maintenance and operation of state water project infrastructure and facilities. Staff anticipates that the District’s contractual indebtedness to the State under the State Water Supply Contract for FY 2016–17 will be at least $34 million. Staff’s recommendation regarding the State Water Project tax is consistent with the District’s past practice and with the approach of other water districts and agencies that maintain State water supply contracts. The water district understands the seriousness of increasing rates, so staff is careful to be cost- effective in providing a clean, reliable water supply. If drought conditions improve or if alternate funding sources are found, the Board may choose to adopt an increase that is lower than the staff proposal.
- 4. Attachment 1 Page 4 of 13 Projections Exhibit 2 shows actual and projected District-managed water use. FY 2014–15 water usage came in at roughly 237,000 AF. The water usage for FY 2015–16 is budgeted at 229,000 AF but the actual could be as low as 205,000 AF based on year-to-date water usage. This reduction is due to the water district Board’s call for a 30 percent water use at its March 25, 2015 board meeting, staff’s effort to promote water conservation in the community, and the community’s attempt to meet the target. For FY 2016–17, total District-managed water use is projected at 205,000 AF, which is flat to the FY 2015-16 estimated actual, roughly 34,000 AF lower than projected last year, and represents a 28 percent reduction relative to calendar year 2013. Water use is projected to ramp up to 253,000 AF by FY 2025-26. Exhibit 2 District-managed Water Use Projection (1,000’s AF) Exhibit 3 shows key financial indicators with staff’s recommendation projected to FY 2020-21. The debt service coverage ratio, which is a ratio of revenue less operations expenses divided by annual debt service, is targeted at 2.0 or better which helps to ensure financial stability and continued high credit ratings keeping cost to borrow low. 0 50 100 150 200 250 300 350 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 Acre-feet(1,000s) Actuals FY 15 Estimate Projection Treated Water Wet Spring Wet Spring Drought/Recession 278KAF 266KAF 250KAF 251KAF 285KAF 304KAF 302KAF 274KAF275KAF 285KAF $150 $50 $50Non-contract TW surcharge ($/AF) $100$100 $50 $75 $150$60$50 current FY 16 est. 28% reduction Historic Drought 237KAF 229KAF 239KAF 249KAF 260KAF 260KAF $200 205KAF 217KAF 227KAF 239KAF Prior Year Projection
- 5. Attachment 1 Page 5 of 13 Exhibit 3 5 Year Charge and Financial Indicator Projection A portion of the projected increases in the groundwater production charge are driven by the capital improvement program as shown in Exhibit 4. Over $2.1 billion in capital investments, primarily to repair and rehabilitate aging infrastructure, are planned for the next 10 years. FY 2016–17 operations and operating project costs are projected to decrease by 7.1% versus the FY 2015–16 adjusted budget, due primarily to the reduction in drought response costs relative to the prior year. On a longer term basis, operating outlays are projected to increase an average of 6.4% per year for the next 10 years due to estimated investments to solve the statewide issue of the Bay Delta, and new operations costs related to the expansion of purified water facilities. Debt service is projected to rise from $27.3 million in FY 2016–17 to $124.5 million in FY 2025– 26 as a result of periodic debt issuances to fund the capital program. Exhibit 4 Cost Projection by Cost Center ($M) Projected Base Case 2015–16 2016–17 2017–18 2018–19 2019–20 2020–21 No. County (W-2) M&I GWP charge ($/AF) $894 $1,072 $1,251 $1,445 $1,654 $1,829 Y-Y Growth % 19.7% 19.9% 16.7% 15.5% 14.5% 10.6% So. County (W-5) M&I GWP charge ($/AF) $356 $393 $418 $441 $463 $485 Y-Y Growth % 11.6% 10.4% 6.4% 5.5% 5.0% 4.8% Ag GWP charge ($/AF) $21.36 $23.59 $25.09 $26.47 $27.79 $29.11 Y-Y Growth % 11.6% 10.4% 6.4% 5.5% 5.0% 4.8% Operating & Capital Reserve $18,415 $34,962 $39,634 $42,526 $51,669 $57,880 Supplemental Water Supply Reserve ($K) $12,763 $14,277 $14,677 $15,077 $15,477 $15,877 Sr. Lien Debt Svc Cov Ratio (1.25 min) 1.71 2.00 2.00 2.00 2.10 2.08 South County (Deficit)/Reserves ($K) $6,822 $2,747 $2,323 $2,505 $3,629 $3,890 - 100 200 300 400 500 600 700 800 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 Millions$ Fiscal Year Capital DebtService SupportSvcs Water Treatment and T&D E-2.3 Raw Water T&D E- 2.2 Source of Supply E- 2.1 235 241 368 360 448 646 693 607 518 593 555535 479
- 6. Attachment 1 Page 6 of 13 Exhibit 5 shows the groundwater production charge projection for the next 10 years and assumes a continuation of the level of service provided in FY 2015–16 and funding of the preliminary FY 2017-2026 Capital Improvement Program (CIP). Note that there are initiatives and potential uncertainties that could result in the identification of additional capital or operations projects that are not reflected in projection. Exhibit 5 10 Year Groundwater Charge Projection Exhibit 6 shows a comparison of the adjusted proposed groundwater production and treated water charges relative to the anticipated increases for the following similar agencies: Metropolitan Water District, Orange County Water District, San Diego County Water Authority, San Francisco PUC (Hetch Hetchy), and Zone 7 . 747 894 1,072 1,251 1,445 1,654 1,829 1,996 2,128 2,202 2,268 2,332 319 356 393 418 441 463 485 507 530 554 579 604 420 435 475 520 520 520 569 622 680 215 230 255 275 275 275 285 295 305 0 200 400 600 800 1000 1200 1400 1600 1800 2000 2200 2400 2600 2800 3000 $/Acre-Foot Fiscal Year Groundwater Production Charges SouthCounty M&I (Zone W5) NorthCounty M&I (Zone W-2) Adjusted Proposal SouthCounty Agricultural GroundwaterProductionCharge TW Surcharge SFPUCTreatedWater w/ BAWSCAsurcharge
- 7. Attachment 1 Page 7 of 13 Exhibit 6 Anticipated FY 2016–17 Water Charge Increases for Similar Agencies Exhibit 7 shows a comparison of the average monthly bill for several of the District’s retail customers (e.g. SJWC, City of Santa Clara, City of Morgan Hill, and City of Gilroy) relative to the District’s perennial list of retail agency comparators across the state. SCVWD retailer rates shown include the SCVWD proposed adjusted increase for FY 2016-17. North County and South County well owner rates are also shown, which exclude pumping costs (e.g. electricity) and well maintenance costs. Exhibit 7 Retail Agency Benchmarks % inc. % inc. % inc. Projection '13 to '14 '14 to '15 '15 to '16 FY 16 FY 173 SCVWD North W-2 (Groundwater prdctn per AF) 9% 10% 20% $894 19.9% SCVWD North W-2 (Treated Water per AF) 8% 9% 17% $994 17.9% SCVWD South W-5 (Groundwater prdctn per AF) 3% 5% 12% $356 10.4% Metropolitan WD (Untreated Water per AF)1 3% -1% 1% $706 7.8% Metropolitan WD (Treated Water per AF)1 6% 3% 1% $1,054 1.9% Orange County WD (Groundwater per AF) 4% 7% 10% $322 TBD San Diego County WA (Treated Water per AF)1 4% 3% 6% $1,519 TBD San Francisco PUC (Treated Water per AF)2 -2% 17% 25% $1,817 7.0% Zone 7 (Treated Water per AF)1 3% 3% 37% $1,372 -7.0% 1) MWD, SDCWA and Zone 7 rates based on calendar year (i.e. 2017 rate would be effective on 1/1/2017) 2) SFPUC rates include BAWSCA bond surcharge estimate of $183/AF 3) SCVWD FY 17 projection includes staff proposed adjustments to proposed maximum $13.53 $23.20 $30.94 $35.31 $36.92 $39.34 $42.33 $53.31 $54.23 $63.47 $63.59 $66.51 $66.87 $68.31 $68.53 $82.03 $83.18 $94.14 $101.94 $112.08 $133.90 $139.63 $- $20.00 $40.00 $60.00 $80.00 $100.00 $120.00 $140.00 $160.00 South County M&I well owner Bakersfield Riverside Gilroy North County M&I well owner Sacramento Morgan Hill Hollister Napa Newport Beach Alameda (EBMUD) Livermore (Cal Water/Zone 7) Mill Valley (Marin MWD) LosAngeles Santa Clara San Diego LongBeach (Golden State) San Jose (SJWC) San Carlos (Cal Water) San Francisco Santa Barbara Palo Alto Meterand volumetric charges only as of January, 2016 (unless otherwise noted) Monthly billing for 5/8” meterand 1,500 cubic feet usage
- 8. Attachment 1 Page 8 of 13 Cost of Service The cost of service analyses for FY 2016–17 is shown in Exhibit 8 for North County and Exhibit 9 for South County. The exhibits are laid out in a format that follows six industry standard rate making steps. 1. Identify utility pricing objectives and constraints 2. Identify revenue requirements 3. Allocate costs to customer classes 4. Reduce costs by revenue offsets or non-rate related funding sources 5. Develop unit costs by customer class or net revenue requirements by customer class 6. Develop unit rates by customer class Step 2 includes identifying and segregating Water Utility Fund costs from Watershed and Administrative Funds and allocating Water Utility costs between zones W-2 (North) and W-5 (South) according to benefit provided. Step 3 involves allocating costs by customer class either directly or based on water usage. Steps 4 and 5 result in unit costs by customer class after applying non-rate related offsets. Step 6 includes two adjustments. The first adjustment is the application of fungible revenue, in this case 1% ad valorem property taxes, to offset the costs of agricultural water in accordance with Board Resolution 99-21. For FY 2016-17, staff is proposing a $1.2M transfer of 1% ad valorem property taxes from the General Fund and $1.2M from the Watershed Stream Stewardship Fund as sources for this adjustment also known as the “Open Space Credit.” The second adjustment involves reallocating a portion of the cost of treated water (or recycled water in the case of South County) to groundwater and surface water users. Treated and recycled water offsets the need to pump groundwater and therefore increases the volume of stored groundwater and improves reliability. The reallocation of a portion of the treated water cost for example represents the value of treated water to groundwater and surface water users and facilitates a pricing structure that prevents the over use of the groundwater basin. Preventing over use not only preserves groundwater for use in times of drought, but also prevents land subsidence or sinking of the land, which can cause serious infrastructure issues. Another aspect of the second adjustment is related to setting the basic user charge for surface water equal to the groundwater production charge. Surface water use is effectively in-lieu groundwater use permitted by the District to help preserve the groundwater basin. As such, the costs related to preserving the groundwater basin provide value to surface water users because it makes available District surface water, which otherwise would only be used for groundwater recharge. Similarly, the costs related to providing surface water benefit groundwater users because surface water usage helps preserve the groundwater basin. The second adjustment reallocates costs between surface water and groundwater customers in order to set the basic user charge for surface water equal to the groundwater production charge in recognition of this conjunctive use relationship, and in accordance with board policy. A 2015 study was conducted by Raftelis Financial Consultants, Inc (RFC) that confirms the reasonableness of such an adjustment. The report titled “Report Documenting the Reasonableness of the Conjunctive Use Benefit of Surface Water and Recycled Water to Groundwater Customers” documents the support and justification for the water district’s cost of service methodology and can be found on the District’s website.
- 9. Attachment 1 Page 9 of 13 Exhibit 8 Cost of Service North County Zone W-2 ($K) FY '17 Projection ($K) TW Total W-2 M&I AG M&I M&I Ag 1 Operating Outlays 2 Operations/Operating Projects 39,599 401 85,585 679 16 126,281 3 SWP Imported Water Costs 8,698 90 27,009 501 12 36,310 4 Debt Service 6,467 67 20,694 90 2 27,320 5 Total Operating Outlays 54,764 558 133,288 1,270 31 189,911 6 7 Capital & Transfers 8 Operating Transfers Out 571 6 832 14 0 1,422 9 Capital Outlays excl. carryforward 28,069 289 99,039 640 16 128,053 10 Total Capital & Transfers 28,640 295 99,871 654 16 129,476 11 Total Annual Program Costs 83,404 853 233,159 1,924 47 319,387 12 13 Revenue Requirement Offsets 14 Capital Cost Recovery (1,920) (20) (2,799) (46) (1) (4,786) 15 Debt Proceeds (28,058) (289) (98,998) (640) (16) (128,000) 16 Inter-governmental Services (417) (4) (607) (10) (0) (1,039) 17 SWP Property Tax (7,069) (73) (23,468) (400) (10) (31,020) 18 South County Deficit/Reserve 307 3 447 7 0 765 19 Interest Earnings (253) (3) (368) (6) (0) (629) 20 Inter-zone Interest 12 0 18 0 0 31 21 Capital Contributions (1,128) (12) (1,644) (27) (1) (2,811) 22 Other (965) (10) (879) (15) (0) (1,870) 23 Reserve Requirements 15,589 58 56,972 356 3 72,978 24 Adjusted Revenue Requirement (FY 17) 59,504 504 161,832 1,144 22 223,006 25 Adjusted Revenue Requirement (FY 14 adj) 768 (24) (45,897) (234) (10) (45,397) 26 Total Adjusted Revenue Requirement 60,272 479 115,935 910 12 177,609 27 Volume (KAF) 63.1 0.7 92.0 1.5 0.0 157 28 29 Revenue Requirement per AF 955$ 737$ 1,260$ 607$ 341$ 30 31 Adjustments for Agricultural Preservation 32 Allocate WU 1% Ad Valorem Prop Tax 0 (464) - - (11) (475) 33 Transfer GF 1% Ad valorem Prop Tax - - - - - - 34 Transfer WS 1% Ad Valorem Prop Tax - - - - - - 35 Revenue Requirement per AF 955.2$ 23.6$ 1,260$ 607$ 51.0$ 36 37 Adjustments to Facilitate Conjunctive Use 38 Reallocate TW/SW/RW costs 7,371 - (8,111) 739 - (0) 39 Charge per AF 1,072$ 23.6$ 1,172$ 1,099$ 51.0$ 40 Total Revenue ($K) $67,643 $15 $107,825 $1,649 $2 177,134 Zone W-2 GW SW Step2- Identifyrevenue reqmnts Step4- Reduce costsby revenue offsets Step3 - Allocate costs to customerclasses Step5 - Developunitcosts bycustomerclass Step6 - Rate Design
- 10. Attachment 1 Page 10 of 13 Exhibit 9 Cost of Service South County Zone W-5 ($K) FY '17 Projection ($K) Total W-5 M&I AG M&I AG M&I AG 1 Operating Outlays 2 Operations/Operating Projects 8,316 8,445 219 560 192 164 17,897 3 SWP Imported Water Costs - - - - - - - 4 Debt Service - - - - - - - 5 Total Operating Outlays 8,316 8,445 219 560 192 164 17,897 6 7 Capital & Transfers 8 Operating Transfers Out - - - - - - - 9 Capital Outlays excl. carryforward - - - - - - - 10 Total Capital & Transfers - - - - - - - 11 Total Annual Program Costs 8,316 8,445 219 560 192 164 17,897 12 13 Revenue Requirement Offsets 14 Capital Cost Recovery 1,730 1,809 39 102 595 510 4,786 15 Debt Proceeds - - - - - - - 16 Inter-governmental Services (69) (72) (2) (4) - - (146) 17 SWP Property Tax (906) (947) (21) (54) (29) (25) (1,980) 18 South County Deficit/Reserve (350) (366) (8) (21) (11) (10) (765) 19 Interest Earnings - - - - - - - 20 Inter-zone Interest (14) (15) (0) (1) (0) (0) (31) 21 Capital Contributions - - - - - - - 22 Other (80) (84) (1) (2) - - (168) 23 Reserve Requirements - - - - - - - 24 Adjusted Revenue Requirement (FY 17) 8,627 8,770 227 581 747 640 19,593 25 Adjusted Revenue Requirement (FY 14 adj) (467) (1,135) 0 (24) (16) (324) (1,967) 26 Total Adjusted Revenue Requirement 8,160 7,635 227 557 730 316 17,626 27 Volume (KAF) 22.0 23.0 0.5 1.3 0.7 0.6 48 28 29 Revenue Requirement per AF 371$ 332$ 455$ 429$ 1,043$ 527$ 30 31 Adjustments for Agricultural Preservation 32 Allocate WU 1% Ad Valorem Prop Tax - (5,508) - - - - (5,508) 33 Transfer GF 1% Ad valorem Prop Tax - (1,181) - - - - (1,181) 34 Transfer WS 1% Ad Valorem Prop Tax - (403) - (491) - (288) (1,182) 35 Revenue Requirement per AF 371$ 23.6$ 455$ 51.0$ 1,043$ 47.4$ 36 37 Adjustments to Facilitate Conjunctive Use 38 Reallocate TW/SW/RW costs 486 - (17) - (469) - (0) 39 Charge per AF 393$ 23.6$ 420$ 51$ 373$ 47.4$ 40 Total Revenue ($K) $8,646 $542 $210 $66 $261 $28 9,755 Zone W-5 GW SW RW Step2- Identifyrevenue reqmnts Step4- Reduce costsby revenue offsets Step5 - Developunitcosts bycustomerclass Step3 - Allocate costs to customerclasses Step6 - Rate Design
- 11. Attachment 1 Page 11 of 13 Open Space Credit The District Act limits agricultural groundwater production charges to a maximum of 25 percent of the M&I groundwater production charges. Current board policy adds an “open space” credit to agricultural revenues. The purpose of the credit is to preserve the open space benefits provided by agricultural lands by keeping agricultural groundwater production charges low. To the extent that Proposition 218 applies to the groundwater production charge, it requires that costs to end users be proportional such that one class of users is not subsidizing another. The recommended agricultural groundwater production charge for FY 2016–17 is $23.59 per acre foot, which is 6 percent of the proposed M&I groundwater production charge in South County. To comply with the current agricultural groundwater production charge setting policy, staff recommends the open space credit received by South County be $7.9 million in FY 2016-17 (funded by 1 percent ad valorem property taxes). This includes an adjustment that reconciles FY 2013–14 actuals against what was projected. The $7.9 million is comprised of a $4.2 million transfer from North County Water Utility 1% ad valorem property taxes, a $1.3 million contribution from South County Water Utility 1% ad valorem property taxes, a $1.2 million transfer of 1% ad valorem property taxes from the General Fund and $1.2 million from the Watershed Stream Stewardship Fund. As shown in Exhibit 10, the Open Space Credit is projected to grow to over $15.2 million by FY 2025-26. Exhibit 10 Open Space Credit Trend - 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 9,000 10,000 11,000 12,000 13,000 14,000 15,000 16,000 17,000 $K Fiscal Year South County Property Taxes Transfer North County 1% Prop Taxes Transfer General Fund 1% Prop Taxes Transfer Watersheds Property Taxes
- 12. Attachment 1 Page 12 of 13 Components of Groundwater Production Charge Increase The proposed groundwater production charge increases are comprised of two components: First, a planned increase for FY 2016-17 as part of long-range planning to pay for critical investments in water supply infrastructure, imported water supply reliability and for future supplies, most notably purified water; and second, a drought component. The drought component is driven by increased drought related operations costs mainly to secure additional water supplies, and lower projected water use, which has reduced the revenue projection by $33M versus the prior year projection. As mentioned earlier, since publishing the District’s Annual Report on the Protection and Augmentation of Water Supplies (PAWS), staff has reduced the operations cost projection for FY 2106-17 by $2.5 million driven mainly by a salary savings adjustment. Consequently, the drought component has been adjusted accordingly, and the total proposed increases shown in the exhibit are lower than the proposed maximum charges shown in the published annual PAWS report. Exhibit 11 Components of Groundwater Production Charge Increase North County South County GW Production Charge Increase Components FY 17 Planned Increase 12.8% 5.9% Drought Component 10.8% 5.9% Total % Increase 23.6% 11.8% Monthly Bill Increase* FY 17 Planned Increase $3.93 $0.72 Drought Component $3.34 $0.72 Total Increase $7.27 $1.44 7.1% 19.9% 4.5% 10.4% $6.13 $2.20 $0.55 $1.27
- 13. Attachment 1 Page 13 of 13 Hearings and Meetings Schedule Exhibit 12 presents the schedule for the annual groundwater production charge setting process. Exhibit 12 Hearings and Meetings Schedule – 2016 Date Hearing/Meeting December 8 Board Workshop: Planning for FY 17 Groundwater Production Charges January 12 Board Meeting on Preliminary Groundwater Production Charge Analysis February 26 Mail notice of public hearing and file PAWS report March 16 Water Retailers Meeting April 4 Agricultural Water Advisory Committee Meeting April 5 Landscape Committee Meeting April 12 Open Public Hearing April 13 Water Commission Meeting April 14 Continue Public Hearing in Gilroy (Informational Open House) April 18 Environmental & Water Resources Committee April 26 Conclude Public Hearing May 10 Adopt Budget & Groundwater Production and Other Water Charges