DEPARTMENT:
Finance
DEPARTMENT HEAD:
Ben Gorzell, Chief Financial Officer
COUNCIL DISTRICTS IMPACTED:
City Wide
SUBJECT:
San Antonio Water System (SAWS) Rate Adjustments
SUMMARY:
SAWS is requesting a rate adjustment of 7.5% for the average residential customer and adjustments to certain other fees and charges effective January 1, 2016. In addition, SAWS is requesting that City Council approve rate adjustments for the calendar year beginning January 1, 2017 in an amount not to exceed 7.9% for the average residential customer. These proposed adjustments to rates are for the water supply, wastewater and water delivery core businesses within SAWS. SAWS will also be requesting pre-approved adjustments specifically for the water supply fee only for the calendar years 2018 through 2020. These pre-approved water supply fee adjustments are required in order to reach “financial closure” on the Vista Ridge project. Similar to the 2017 rate adjustment requests, the adjustments to the water supply fee are in relation to the average residential customer and are not to exceed 1.3% for 2018, 4.5% for 2019 and 9.9% for 2020.
BACKGROUND INFORMATION:
As part of the development of the SAWS multi-year financial plan for 2016 through 2020, SAWS is requesting that City Council approve rate adjustments as outlined in the table below. The rate adjustment percentages are based on the impact to the average residential customer (assumes a monthly consumption of 7,092 gallons of water and 5,668 gallons of wastewater).
The 2016 rate adjustments will be effective January 1, 2016. All pre-approved rate adjustments for 2017 through 2020 are subject to a review by the Public Utilities Office. If the Public Utilities Office agrees with SAWS’ request and the request does not exceed the pre-approved amounts, the rates will go into effect automatically on January 1st of each respective calendar year without further City Council action. While no further City Council action will be required if the rate adjustment in any respective calendar year is within the pre-approved amounts, representatives of SAWS and City staff will brief the City Council in B-Session prior to the implementation of any such rate adjustment.
2016 Rate Adjustments
The projected 2016 rate adjustments are needed to:
1. Provide funds to begin operation of the brackish groundwater desalination plant in late 2016;
2. Monitor the construction of the Vista Ridge pipeline and well fields and begin design of the necessary improvements to SAWS water delivery infrastructure in order to be able to integrate the Vista Ridge water beginning in 2019;
3. Adhere to SAWS’ commitments under of the Consent Decree with the Environmental Project Agency (EPA) related to sanitary sewer overflows;
4. Construct infrastructure to provide a redundant water source to the city’s military installations;
5. Make required infrastructure improvements in connection with the City’s bond program and other capital requirements; and
6. Improve SAWS financial metrics in order to support and maintain SAWS’ strong bond credit ratings.
The 2016 rate adjustments will support a capital improvement program totaling $235.6 million which includes $92.5 million associated with infrastructure improvements required under the EPA Consent Decree, $28.5 million to design the Vista Ridge integration improvements and acquire some of the related easements, $23.2 million for phase 2 of SAWS service center relocation project, $48.4 million for water and sewer main replacements and $25.4 million for other production and treatment facility improvements.
In 2016, operating expenses are expected to increase $3.1 million or 1.2% from 2015 to $268.9 million primarily as a result of bringing the desal plant online in the last quarter of the year which is expected to add $2.7 million to operating expenses in 2016.
Adjustments to other fees and charges for 2016 include:
1. Recycled Water Rates - In order to prevent the differential between potable water rates and recycled water from increasing, SAWS is requesting an increase in recycled water rates of 9.6%.
2. Fireline Charges - Fireline charges for dedicated fire suppression service have not been adjusted since 1994. In order to recover the cost of providing that service, SAWS is requesting an increase in Fireline charges of 8.6%.
3. Sewer Surchages - Sewer surcharges have not been adjusted since 2003. In order to fully recover the cost of treating highly concentrated sewage, SAWS is requesting an increase in the sewer surcharge of 11.7%.
4. Special Services fees - changes as outlined in Appendix A are requested.
5. Laboratory fees - changes as outlined in Appendix B are requested.
2017 Rate Adjustments
The projected 2017 rate adjustments are needed to:
1. Provide funds for a full year operation of the brackish groundwater desalination plant;
2. Construct necessary improvements to SAWS water delivery infrastructure in order to be able to integrate the Vista Ridge water beginning in 2019;
3. Adhere to SAWS’ commitments under the Consent Decree with the Environmental Project Agency (EPA) related to sanitary sewer overflows;
4. Construct infrastructure to provide a redundant water source to the city’s military installations;
5. Make required infrastructure improvements in connection with the City’s bond program and other capital requirements;
6. Fund projected increases in operating costs;
7. Finalize the integration of the District Special Project (former BexarMet) including converting DSP customers to SAWS schedule of rates and charges; and
8. Further improve SAWS financial metrics in order to support and maintain SAWS’ strong bond credit ratings.
2018 through 2020 Water Supply Fee Rate Adjustments
On October 30, 2014, City Council approved the execution of the Water Transmission and Purchase Agreement with Abengoa Vista Ridge (AVR). The Agreement is separated into three distinct phases. The “development” phase commenced on November 4, 2014, and concludes upon satisfaction of certain contractual requirements, the most significant of which is when AVR obtains permanent construction financing for the project. These events are referred to as “financial closure” and its occurrence results in the conclusion of the “development” phase and commencement of the “construction” phase of the project by AVR. This “construction” phase is scheduled to last 42 months and its conclusion will result in the commencement of the aforementioned 30-year “operational” phase, during which period SAWS is obligated to pay for Project Water (up to 50,000 acre-feet annually) made available to it by AVR.
The Attorney General of the state of Texas will require SAWS to begin accounting for the obligations under the agreement with AVR once “financial closure” has been achieved. This means that SAWS must have sufficient rates already in place or pre-approved to fully account for its financial obligations under the agreement with AVR. AVR currently expects to reach “financial closure” during the 2nd quarter of 2016. In addition to the rate adjustments requested for 2016 and 2017, SAWS is requesting pre-approved rate adjustments to the water supply fee for 2018 through 2020 in order to demonstrate to the Attorney General that SAWS has sufficient rates to account for its obligations to AVR. These pre-approved rate adjustments are based on conservative estimates of the final unit cost of the water and assume that no Vista Ridge water is sold to other communities along the Vista Ridge pipeline route. Should SAWS enter into agreements to sell a portion of the Vista Ridge water, the rate adjustments required will be reduced.
ISSUE:
SAWS is seeking to make certain adjustments to its rates and charges for the period 2016 through 2020.
ALTERNATIVES:
This is a briefing for informational purposes only.
RECOMMENDATION:
This is a briefing for informational purposes only.