ITEM:

GENERAL MANAGER’S REPORT

 

 

12.

UPDATE ON ALTERNATIVE COLLECTION MECHANISM FOR RATES, CHARGES, AND USER FEES

 

Meeting Date:

January 23, 2012

Budgeted: 

 N/A

 

From:

David J. Stoldt,

Program/

N/A

 

General Manager

Line Item No.:

 

Prepared By:

David J. Stoldt

Cost Estimate:

N/A

 

General Counsel Review:  N/A

Committee Recommendation: N/A

CEQA Compliance:  N/A

 

SUMMARY: On October 11, 2011, the Water Supply Planning Committee recommended the Board direct the General Manager and Administrative Services Division Manager to examine alternate approaches to secure the collection of the User Fee going forward and report back at a future meeting.  At its October 17, 2011 Board Meeting, the Board made such direction under Item 5 “CONSIDER AUTHORIZATION FOR STAFF TO EXAMINE ALTERNATIVE APPROACHES TO ESTABLISH / INCREASE USER FEE TO FUND WATER SUPPLY PROJECT PLANNING AND IMPLEMENTATION.”  This item reports back on progress.

 

DISCUSSION: The largest source of revenue in the District’s budget has traditionally been the District’s “User Fee”, which currently accounts for approximately 46% of MPWMD’s overall budget.  Through a recent CPUC decision, the District’s ability to collect its User Fee has been impaired.  Failure to reinstate the User Fee will result in the District suspending environmental and water supply development programs and possible lay-offs and/or furloughs.

 

Going forward, the User Fee is the District’s single mechanism for any of its river mitigation programs, its ASR water supply project, or any other capital project it may choose to do to support its mission.  Other MPWMD revenue sources include certain property tax allocations, connection charges, permit fees, reimbursements from other entities, and interest earnings, plus temporary borrowing from a line of credit and use of previously funded reserves. In addition to these funding sources, past MPWMD budgets have also included grant funding from the State of California, and other miscellaneous revenues.

 

MPWMD has collected a User Fee from California American Water (“Cal-Am”) customers and other water system customers continuously since 1983. The District has adopted 14 ordinances since then, modifying and adopting the User Fee at different levels for different purposes.  This fee is allocated based on actual water use.  It is shown on Cal-Am water bills and also on bills from the Seaside Municipal Water System and the Pebble Beach Reclamation Project.  The User Fee has been expressed as a percentage of meter and water charges.  The User Fee was set at 8.325% of a customer’s water bill when it was suspended.

Currently the District has an interim agreement in place with Cal-Am that provides $1,559,988 through the end of this fiscal year, to fund reduced mitigation work.  The agreement is not sufficient to fund the District’s traditional mitigation work, and the District has expended reserves to make up the difference.

 

The User Fee presently raises funds to partially defray MPWMD expenses incurred for its comprehensive Mitigation Program, as adopted for the Water Allocation Program Environmental Impact Report in November 1990. The Mitigation Program is designed to lessen the environmental impacts that community water use and Cal-Am’s operations have on the Carmel River and Seaside Groundwater Basins, including impacts to the steelhead and red-legged frog which are listed as threatened species under the federal Endangered Species Act. Only a portion of the Cal-Am user fee, set at 7.125% of the meter and water charges, offsets the District’s cost of mitigation activities; the remaining portion (1.2%) defrays MPWMD’s Aquifer Storage and Recovery (“ASR”) costs, thus enabling excess winter flows from the Carmel River to be diverted and stored in the Seaside Groundwater Basin for use during the summer months in accord with guidelines set by federal and state fisheries agencies. 

 

For calendar year 2011, the amount budgeted for the MPWMD comprehensive Mitigation Program was $3.7 million and 16 staff.

 

CPUC Decision D.11-03-035 rejected the All-Party Settlement Agreement that included in it continued collection of a User Fee. The District has taken three procedural approaches to attempt to restore the collection of the User Fee or otherwise collect a similar amount through a surcharge. The approaches include: (a) Application for Rehearing was filed in April 2011 which might result in reinstating the fee, (b) an Amended Application of Cal-Am to the CPUC was filed in August which might result in collecting the desired amounts through a surcharge, and (c) a Petition to Modify was filed in October, which might result in a reinstatement of the all-party Settlement Agreement. All three approaches only address the amounts budgeted for mitigation and ASR in the previously existing User Fee and do not provide a significant legal basis to guarantee that the User Fee would not become subject to CPUC regulation again in the future.

 

With the outcome of the District’s efforts to restore the User Fee at the CPUC still unknown, an alternative collection mechanism is a necessary fall-back position.  Further, the District has identified several water supply projects which it would like to implement. In order to perform feasibility analysis, EIRs, and eventual design and construction, a secure funding source must be identified. Should the District desire to utilize borrowing for capital projects in the future, a secure funding source is a prerequisite.  What the District needs is to have greater control over its User Fee in order to ensure a secure funding source for its activities.  Therefore it is desirable to examine ways to better secure our control over collection of the User Fee going forward.

 

Staff has evaluated alternative approaches including: (a) obtaining clear legal authority to collect the fee as a pass-through on the Cal-Am bills, either through a validation proceeding or a challenge of the CPUC decision in court, an outside legal opinion, or a legislative action; (b) examine other third party collection mechanisms, such as contracting with the County to have the Assessor collect it through the semi-annual property tax billing process; or (c) billing directly.

The most secure alternative to collection on the Cal-Am bills is to have the County Assessor collect the User Fee on the tax rolls.  This is presently done for water service from the Castroville Seawater Intrusion project (CSIP) and for waste water service for Carmel Area Wastewater District.  There are dozens of public agencies throughout California, primarily wastewater service providers that use this mechanism, to bill and collect their revenues.

 

General Counsel has evaluated the District’s Authority to contract with the County to have the Assessor collect the User Fee in this manner and has determined that such authority exists.

 

In order to do so, the next step will be to translate water use to individual parcels.  That can be done in two ways: (a) by “mapping” actual Cal-Am usage data by meter to actual parcel, or (b) by allocating usage by parcel type and category, using industry accepted usage factors.  The second method is most prevalent by wastewater agencies in California who use the concept of “equivalent dwelling units or EDUs” and assigning them based on type of property.  This process will take 1-2 months and will require an expenditure of funds for a consultant to perform a rate study.  At the February Water Supply Planning Committee and Board Meetings, staff will bring an item to advance in this process.

 

A projected timeline for implementation of an alternative collection mechanism is attached as Exhibit 12-A.

 

IMPACT ON STAFF/RESOURCES:  N/A

 

EXHIBITS

12-A    Alternative Collection Mechanism Implementation Timeline

 

 

 

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