Proposed Water Rate FAQ
- Why is the water rate increase being proposed today? The last, full adjustment to water rates occurred in 2009, which included adjustments to the meter charge, commodity charge, and other components of the rate. Adjustments were also approved in 2012, 2013, and 2015, but only with respect to the commodity rate.
- How is the water rate calculated? As a municipality, the City follows the “Cash Needs” approach in developing its water rates. Basically, the cost of operating the water system divided by the amount of water sold determines the water rate. La Verne’s rate structure includes both a fixed meter charge and the commodity rate.
- What is a meter charge? The meter charge is a fixed, bi-monthly charge based upon the size of the water meter. Revenue generated from the meter charge is intended to cover the water system’s fixed operating costs. It is referred to as the “minimum service charge” on the bill.
- What is the commodity charge? The commodity charge, also referred to as the unit charge, represents the amount of water consumed during the billing period. Each unit represents 1,000 gallons of water. For example, the average customer consumes 36 unit of water, which equals 36,000 gallons of water. This charge is simply referred to as “Water Consumption” on a customer’s bill.
- What are the water system’s fixed operating costs? Simply stated, fixed operating costs are those activities and expenses that will be incurred regardless of the amount of water produced or sold. These expenses include such things as personnel, insurances, permit fees, utilities, equipment rental, taxes, assessments from agencies the City buys water from, and other miscellaneous items. In total, these fixed costs are approximately $3.5 million for fiscal year 2017/18.
- What are the water system’s variable costs? The majority of the water system’s expenditures are variable in nature; i.e. the expense is generally related to the amount of water produced. This would include wholesale water purchases (which represent the bulk of the water system’s budget), purchased power, contractual maintenance, engineering, chemicals, construction materials, and a variety of smaller, assorted items.
- I understand the meter charge is increasing 40%, why so high? As noted in question #1, the meter charge is expected to generate sufficient revenues to cover the water system’s fixed operating costs. At current levels, the meter charge only generates about 63% of the revenue necessary. The new rates will cover close to 90% of the fixed operating costs. It should also be noted that the 40% increase translates into a $5 to $7 monthly increase for 92% of the water system’s customers.
- How much is the commodity rate increasing? The water commodity or unit rate is proposed to increase $0.27 per thousand gallons for the base water rate. This is roughly an 8% increase over the current base water rate.
- What happens to the commodity rate if the meter charge was left unchanged? If the meter charges were to remain at their current levels, the commodity rate would have to increase $0.66 per thousand gallons to generate sufficient revenue needed to operate the water system. This would also increase the risk of revenue shortfalls (or surpluses) due to the highly variable nature of water sales.
- What is a fire service charge? The fire service charge is for buildings that have fire suppression systems and are connected to the City’s water system, generally only commercial and industrial properties. If you are charged this, it is shown as a separate line on your bill. The fee is assessed for ensuring the availability of adequate water pressures and volume to support the fire suppression system.
- What is an “Added Unit” charge? The added unit charge is assessed on accounts such as apartment complexes and commercial accounts with more than one store. The demand from these “added units” can place additional stresses on the water system. It also limits the number of actual, metered connections to the pipe.
- Why was the public notice mailed so early? State law requires that a public notice of the rate adjustment be provided no less than 45 days prior to the scheduled hearing. State law also specifies the information that must be included in the notice.
- Are water rates being increased to “balance” the City’s general budget? The City’s water system is an independent and restricted fund known as an enterprise fund. It is a self-supporting operation that uses a separate accounting and financial reporting system. As an enterprise fund, state law prohibits a city from using its enterprise funds to support general city services.
- What is the General Fund Support Transfer? Nearly all general City operations from police to finance provide some level of support to the water fund. The water division pays for these services through the General Fund Support Transfer. Examples of services provided include: the street division repairs the roadway following water division repairs that impact the street; the police department provides 24 hour emergency dispatch services for the water division; and the finance department provides payroll, accounting, and financial reporting services.
- If I’m an average customer, how much will my total bill increase? Close to ninety-two percent of the City’s customers are served by a 1” or smaller meter and an average customer uses 36 units of water every two months. This average customer will see an overall increase of $24.32 each bill (every two months), which is a 15.7% increase.
- Water sales were slowed by the recent water shortage, is this causing the increase? Water sales were indeed lower due to mandatory water conservation; however, reduced water sales have little, if anything, to do with this increase. This increase reflects the cost of doing business during the coming year and water availability is expected to be normal. The recent water conservation was imposed upon the City by the state and limits were thus imposed upon our customers. This rate increase was scheduled for last year, but postponed to ease the burden of conservation and excess use penalties upon our customers.
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