Chapter 14.04 of the Bakersfield Municipal Code establishes the process for setting fees and rates to recover costs for services rendered to the Domestic Water Service Area. California state law (Proposition 218) requires a public hearing in which the public may support or protest a rate increase. Proposition 218 further requires that fees adopted by the City for services rendered do not exceed the reasonable estimated cost for providing the services. Staff has determined the proposed rate increases outlined below do not exceed the cost of services.
As a City Council workshop (July 19, 2017), the Council was informed of a water rate study completed by a consultant and proposed rate increases associated with 1,2,3-Trichloropropane (TCP) water well treatment. The water well treatment for the TCP contaminant will enable the City to comply with the State Water Resources Control Board Division of Drinking Water's newly adopted regulation for a maximum contaminant level (MCL) of five parts per trillion for the synthetic organic chemical TCP.
The City currently estimates the initial capital costs alone for this mandatory remediation project will be approximately $55 million. While the water enterprise has a modest fund balance that has allowed us to order some of the items with longer lead times, the City domestic water enterprise will need to finance the remainder of the project.
This borrowing will require a substantial user rate increase to fund the TCP treatment costs and cover the new debt service payments. In addition to the one-time capital TCP costs, the operation and maintenance will also increase due to the new State mandate. Water rates will also need to rise to cover these additional operating costs.
Staff hired a special water rate consultant (Stantec) to conduct a rate study and determine the necessary rate increases to comply with the new State mandates to cover both the TCP treatment costs and meet the new debt service coverage ratios required to obtain a favorable bond rating. The rate consultant determined that domestic water rates need to rise by approximately 41 percent by July 2019 to comply with the new State requirements.
Based on the special rate consultant's work, staff is recommending the following rate increases:
- First rate increase of 16.0 percent would be effective on October 1, 2017;
- Second rate increase of 13.0 percent would take place in July 2018; and
- Third rate increase of 7.6 percent would take place in July 2019.
The proposed rate increases translate into the typical monthly water bill going from it's current $36.20/month: to $41.98/month, then $47.39/month, and finally $50.89/month. Individual customer water rates will vary based on actual usage. The rate increases can never exceed the City Council approved rates, but they can be lowered. If the City receives proceeds from the current litigation, the future year rate increases may be reduced.
Proposition 218 also requires customers impacted by proposed rate increases to receive a notice of the public hearing 45 days in advance of the public hearing date. In accordance with these requirements, notices were mailed to approximately 42,045 domestic water service area users on July 20, 2017, notifying them of the proposed rate increases. Pursuant to Proposition 218, if written protests against the proposed fee are presented by a majority of the customers and/or property owners that are receiving water service from the City, the City shall not change the annual proposed fee. As of August 25, 2017, the Water Resources Department and City Clerk's Office have received 20 letters and three phone calls protesting or commenting on the fee increase.
Staff recommends City Council approve and adopt the proposed rate increases.