HomeMy WebLinkAboutAgenda Report - August 2, 2005 B-01 SMAGENDA ITEM
CITY OF LODI
COUNCIL COMMUNICATION
AGENDA TITLE: PCE/TCE Water Rate Increase Issues
MEETING DATE: August 2, 2005 (Special Meeting)
PREPARED BY: Public Works Director
RECOMMENDED ACTION: That the City Council review and discuss issues related to the
proposed PCE/TCE water rate increase and provide staff direction
as appropriate.
BACKGROUND INFORMATION: The proposed PCE/TCE water rate increase is generating
significant public discussion. In the interest of providing additional
information to both the Council and the public, staff is preparing
supplemental information to that presented at the previous Council
meeting. The additional information will focus on:
• The PCE/TCE cleanup program
• Financial factors supporting the rate increase
• Additional public information to be provided in the form of a "Frequently Asked Questions"
information sheet
FISCAL IMPACT:
FUNDING AVAILABLE
RCPipmf
CRateincrease—Shirtadeeve.doe
Not applicable.
Not applicable.
zo*;ik
Richard C. Prima, Jr. Z�
Public Works Director
APPROVED: /Zark,-9 ,-2
Blair Kind�-City Manager
712712005
=I
PCEITCE DECISION TREE
I?,- C-�_ , 05"
Can clean up costs be avoided? Is doing nothing an option? Are there other Public
Agencies with jurisdiction or expertise that are better suited to perform the work at no
cost to Lodi?
i
NO
I
Are there grants?
NO
I
Can others pay?
(Explored to the maximum extent feasible)
I
NO
YES Can the City Pay the Clean Up Costs with Existing NO
Funds? I
What are the impacts to services and If the City cannot pay, where should the
future costs? money come from? — water, sewer,
combination
(water)
The City budget was cut this year already.
29 positions are vacant, including 8 police
and fire positions. The General Fund is $5
million short from where it should be. It will
cost an additional $3 million a year to clean
up PCEfTCE and lead to the elimination or
reductions in programs and services the
City is now paying for — such as water and
sewer pipe replacement programs, services
for library, parks, police and fire, etc.
YES
Should the money be borrowed?
Pure pay -as -you -go? NO
I
Modified
pay -as-) I
More expensive due to Is this the most gradual rate
interest and fees. increase possible?
(yes) I
City of Lodi
Funding of PCEITCE Groundwater
Rernediation
AuguA 2005
City of Lodi staff
BARTLE WELLS ASSOCIATES
/V\ All -In Costs of PCE/TCE
Net cost of implementing remediation plan is
estimated to be $45.7 million and includes
capital, operating, legal expenses, and
settlements due to other parties less
settlement revenues due to the City
m Above costs include pay back of p2st
expenses (total $12.2 million, which includes
$1.9 million of expenses owed to the sewer
utility)
2
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Confidential - A tforn eylClien t PHviledged
Rate Increase Alternatives 3
• Three rate alternatives were considered:
- Pure rate funding on a pay-as-you-go
annual basis
- Modified smooth pay-as-you-go, use of cash
and reserve from rate increases
- Long-term financing, use of cash from rate
increases plus revenue bonds
• BWA recommends the modified pay-as-you-go
alternative
- Minimizes iong-term costs
Minimizes annual rate increases
- Provides pred ictable rates 01
4
Recommended Alternative
a Use cash from settlements and rate increases
(no borrowing)
* Re -pay accrued expenses
* Increases are phased -in
* Rates for 3 -bedroom home
- January 1, 2006 add $3.50
($30.33/month)
- July 1, 2006 add $3.50 ($33.83/month)
- July 1, 2007 add $3.50 ($37.33/month)
- Adjustment each July I to account for
changes in Consumer Price Index
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Confidendat - AaomeylClient PKWIedged
EVA
V
Rate Survey
Lodi Water Rate Survey
What is The Problem?
m PCE and TCE are harmful
5
M
• They are in the soil (which means vapors
can enter buildings)
• They are in the groundwater at levels
greatly exceeding drinking water standards
• The City's water system is interconnected,
so if contaminated water is drawn into a
City well, it will be spread throughout the
*� ity. (some wells are showing traces)
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Est. Monthly Bill
Agency
Current
City of Lathrop
$48.92
City of Escalon
33.18
City of Manteca
31.35
City of Stockton
29.90
City of Tracy
26.85
City,of Lodi
26.83
City of Ripon
19.87
What is The Problem?
m PCE and TCE are harmful
5
M
• They are in the soil (which means vapors
can enter buildings)
• They are in the groundwater at levels
greatly exceeding drinking water standards
• The City's water system is interconnected,
so if contaminated water is drawn into a
City well, it will be spread throughout the
*� ity. (some wells are showing traces)
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Confidential - AttorneylClient Priviledged
7
What is the Clean up?
n Soil Vapor Extraction (SVE) — vacuum
fans remove vapors from. soil above
groundwater via special wells; vapors
removed from air with carbon or other
methods
0 "Sparging" — Injection of air bubbles .
or ozone in groundwater to trap vapor
and carry to PCE to the soil above
where it is removed by SVE
8
What is the Clean up?
Groundwater Extraction — pumping
groundwater containing PCE and
removing from the water with carbon
or other methods
• Ongoing monitoring and reporting
• SVE/Sparge could run for five years
m Groundwater extraction will take 30
*- years
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Confidential - A norneylChent P)Ivdedged
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Confidential - AuorneylClient Priviledged
12
Other Factors in Recommended
Rate Increase.
• Water Enterprise should not rely on
General Fund for support
• Account for PCE costs in separate
"sub -fund 19
a Maintain combined minimum 15%
reserve in operating, capital and
cleanup funds (should be higher)
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Confidential - AttorneylClient Priviledged
7
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14
Water
FUnd Balances
Witho Rate lw%Orfs§s
$6.000,000
SA.aea.aue
tIm"
($Z.ODO.mm
(P.DOO."
($6.00DA00i
25"
INS ZOOS 2007
IOU mm 2010
7
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. Confidential - A ttorneylClient P)-iviledged
15
"Frequently Asked Questions"
I) Wha(7 Another Incmase?7 Why???
The City is proposing to Increase water rates to pay the cost of cleaning up contaminated
groundwater. Lodi must clean up its groundwater for severaf reasons. One, the
City needs to ensure that its citizens have a reliable dean safe source of drinking
water. Two, the obligation to clean up the water has been imposed upon the City by
the Central VaRey Water Resources Control Board, a state agency. Three, the City
through legal settlements has promised to clean the groundwater.
2) What's with this groundwater contamination business? We were told this would
not cost the City anything?
The grou ndwater supply for Lodi has been contaminated by PCE/TCE. These are
chemicals used in some dry cleaning and various industrial operations.
In order to defray the cost of dean up, the City sued businesses, prop" owners and
insurance companies to recover costs associated with removal and treatment. The
City will receive over $18 million in settlement money from other parties (and hopes
to recover more). Due to court decisions, bankrupicies, insurance exclusions,
closed businesses, deceased responsible parties, etc; the amounts recovered will
be substantially short of full cost. Based on current estimates, an additional $45
million is needed,
16:
"Frequently Asked Questions"
3) 45 M1111orrIll Why so much?
This cost is total for the whole cleanup program — one-time costs for design. equipment,
materials and installation; technical and legal expenses; plus ongoing operations
and maintenance for an estimated 30 years. The area to be cleaned up Is very
larae: extending from Tumor Road to south of Keftleman Lane (two miles long) and
is nearly a mile wide. The contamination is in soil and groundwater over two
hundred feet deep. Clean up costs include drilling specialized wells, Installing
extraction, treatment and monitoring equipment, electricity to operate the systems
and professional fees related to design, reporting, and accounting.
4) Does this Include paying back the money the City borrowed ftm Lehman to
pursue the lidgation?
No, that issue has been settled. The City borrowed about $15 million over the course of the
litigation and with Interest the total owed was about $32.9 million as of last year.
The City negotiated a settlernent with ft lender and paid $7.9 million of the
principle and none of the Interest to close this loan. However, the City is proposing
to replenish the money used from Its own Internal accounts in the Water and
Wastewater Funds.
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Confidential - AttorneylClient Priidledged
IT
"Frequently Asked Questions"
5) Doesn't this contamination only off*ct part of the town?
No, the City's sole source of water Is from groundwater and the water system Is
interconnected. Any well that becomes contaminated affects the entire system.
Also, the contaminated area is very large — over two miles long and up to a mile wide
— In the center of do City.
6) What about using other City money or grants?
Although our elected olOcIals at all levels ofgavernment have been sympathedc to Lodi's
Situation, no federal or state agency has provided the funds necessary to clean up
Lodi's water supply.
Lodi has looked at other possible sources orrevenue as wall. The other source of funding
that the City considered Is Its discretionary budg*4 the City's General Fund General
Fund revenues come primarily from property and Sales taxes and those are largely
controlled by the State. (That would be the State that teetered on bankruptcy a year
sgo.... and remember, the City only receives about 170 from each dollar you pay In
property taxes and 10 of the sales tax.)
The General Fund provides kr the Police Dopartmen4 Rre Departm*n4 Parks, Economic
Dev*#qpm*r:4 and a variety of other city services. The General Fund budget was
" cut by 7" "' thiscu"n'll
eight "' Me ft".0 a,,dF
._I ea _
,jg,h
Of trGen ond - n. 7
"OM Me r
._"I Fuld.
18
"Frequently Asked Questions"
As for "other City monay'� Me Sewer Fund Is committed to wastewater treatment
upgrades and pipe replacements. The Electric Fund revenue can not be used to
clean up Me ground water Transportation funds am dsdkat*dby law and
cannot be used ibr the clean up.
On* final opffon considered was to eliminate expenditures for the water and
wastewater capital replacement program. This means redirecting revenue from
the Infrastructum replacement charge that Is In the water and Sewer bill to
PC9=Ecl*&nup. fitaking this change stops the replacement of old, leaky pipes
and InGrOSS03 long ftm cosft for water and so*w. This seems counter-
productive given Mat thefteglonal Board determined that the City was partly
liable for the clean up because of its leaky sewers.
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Confidential - AttorneylClient PtIviledged
19
"Frequently Asked Questions"
7) So what does this add to my hill?
Rates for a typical 3-bedroorn home would increase $3.50 per month on
Jan .1, 2006, another $3.50 on July 1, 2006, and a final $3.50 on July
1, N97 ($ 10.50 in total) Increases for odw customers range from
$2.09 for a one-bedrDom apartment to over $30 for a commercial
customer. For the sake of comparison, a case of bottled water costs
between $5 to $6 plus CRV. The full rate table Is available at City Hall or
on the City's website: www.lodi.goy
8) Wow, we'll have fhe highest wafer bills In the Co~?f
Actuany no; most of the other cities are metered, so comparisons can only be
estimated. Using other city's water rates and an assumed monthly use
for a typical Lodi residence, Lodi's current rate is next to the lowest. With
all the planned. increases, it wN be near the high end assuming other
cities do not raise their rates in the next two years. (This comparison is
also on the City's welosite as part of the presentation from our rate
consultant.) While the City cannot speak for there other communities,
one might expect that their water rates will also go up over the next two
years.
20
"Frequently Asked Questions"
9) What was done to minimize the ImPacts Of WOW fAt@ increases?
The proposal is to establish a gradual rate increase spread out over the longest period.of
time possible, 2 years, while avoiding the need to borrow money to pay for the initial
cloanu costs. Whffe the costs offt dean up program are spread over 30 years,
the 42 of the costs are in the first few years.
10) What other w*W rate strwifures where conskller�?
Money could be borrowed from an outside soume, but that would add financing and interest
00615.
Another allemative would be to adjust the rates each year based on actual expenses.
Doina thic would mn 2 larg increaseto bUildup a rmm V the fir5l years
expenses, and then setting e rate u or down each followIng year. With this
alternative rates could easily ggubk & a few years before they could go down.
Many t! has been asked to keep rate increases at smaller, more frequent
=1CMINey can be anticipated. The plan is to reduce the proposed $3.60
Increases in ft hPture once the dean up is in *maintenance' mode and the past
expenses have been paid back. The proposed increase includes provisions for
official reporting of the dean up expenses so this will not be overlooked.
0-
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