Irrigation district for Rancho Santa Fe and Solana Beach considers raising water rates to compensate for low demand

The Santa Fe Irrigation District is considering raising rates by 9 percent, to generate enough revenue to cover expenses in a time when demand for water is at its lowest in nearly 40 years.

At its Sept. 17 board meeting, the board of directors heard the district’s proposal to modify rates so that all San Diego County Water Authority and Metropolitan Water District fixed charges are applied to customers on a fixed bi-monthly basis. The slightly higher fixed charges will result in more revenue stability for SFID.

The district is also looking to establish a wholesale water cost increase and to establish drought rates.

Jeanne Deaver, administrative services manager, said drought rates are a helpful tool to mitigate losses already seen because of drought and mandated cutbacks.

Deaver said the district is at a critical point and stretched financially. Demand is lower than normal, and water costs have increased.

“Sales are down 40 percent this fiscal year as a result of the drought reduction,” Deaver said. “While we’re pleased that customers have responded to the cutbacks, we’re facing financial difficulty. We haven’t had demands this low since 1977.”

After six years of financial stress and district cutbacks, the tools to mitigate losses have been exhausted, she said.

“Additional cuts are no longer possible,” Deaver said. “To ensure the financial health of the district will require a substantial rate increase.”

SFID Manager Mike Bardin said the district plans to reallocate the costs of water, change to a tiered-user system and implement increases to fixed costs.

“If you are a big water user, you get more commodities cost, and if you lose less water, you’re getting more fixed costs,” Bardin said, noting everything will be based on cost of service principles and proven methodologies.

To just do a 9 percent increase across the board is “capricious and arbitrary” and would never stand up in a court of law, Bardin said.

At its Sept. 17 meeting, the board had a workshop going through the details of the cost of service study, which is required by law to consider a rate increase as per Proposition 218.

Proposition 218 protects taxpayers by limiting the methods that local governments can use to create or increase fees or charges — SFID is essentially required to “show their work” behind opting for a rate increase.

The district hired Raftelis Financial Consultants to perform the rate study, and consultant Steve Gagnon presented the study to the board.

At its next meetings in October and November, the board will continue to review cost of service report and rate proposals and schedule a public hearing for the rate increase. The rate proposal will be mailed to district members on Dec. 4 with an opportunity for public comment through Jan. 20. The public hearing is tentatively scheduled for Jan. 21.

The rate increase would become effective Feb. 1, 2016.

The board went through a “Rates 101” presentation to learn about how the cost of service is allocated to each user class of customers. The volumetric rate includes supply, base/delivery costs, conservation and extra capacity or “peaking costs,” the costs associated with water to customers that goes above and beyond the average daily demand.

The fixed charge by meter size on every bill includes meter maintenance, customer service as well as extra capacity costs (the use class “peaks” when it uses more water than the average demand. So if more water is used, the rate is higher).

The supply cost to each customer goes by use, and conservation costs are distributed to the highest volume users, Gagnon said.

For the bulk of SFID customers, those who have 5/8-inch or 3/4-inch water meters, the monthly bill’s fixed cost will increase from $31.40 to $69.31. Those with one-inch meters, like many Rancho Santa Fe customers, will see the fixed rate increase from $47.86 to $110.67. Bigger users with 4- and 8-inch meters will increase to $1,049 (from $418) and $3,338 (from $1,323) respectively.

For volumetric rates, the water supply costs will be allocated to each customer class in propoprtion with water use. Within the single-family class, the most economic water will be allocated and each successive tier’s water needs are filled using more expensive water sources.

The district will establish new tiers of users: Tier 1 includes users of 15 HCF (hundred cubic feet), which equates to indoor use for three people per home bi-monthly. Tier 2 is 37 HCF, Tier 3 is 165 HCF and Tier 4 is equal to or above 165 HCF.

Those who use more will pay more compared with the current rates and those who use less will pay less. Using the average use among all SFID users of 120 HCF, under the old rates that would cost $493 and under the new rates, $533.

On the average multi-family bill, customers will see an increase of about $13 bi-monthly. The impact on bi-monthly irrigation bill for the average user will be up 11 percent and the average non-residential bi-monthly bill will increase by about $16. The bills will also be higher due to the fixed charges increasing.

“This is where I don’t agree,” said board director Marlene King, who believes the Tier 2 cutoff of 37 is too low and it should be more around 80 or 90 HCF. “In 2013, 47 percent used more than 75 units — that’s almost half our customers.”

Director Greg Gruzdowich agreed that this was the “fuzziest” part of the study — he didn’t want it to be seen as arbitrary, and said it could represent a public relations nightmare if people feel that they are carrying the burden of the costs.

“We don’t have an average customer,” Gruzdowich countered, noting the district is bi-modal, with very high-use customers and very low-use customers. “That’s why this whole analysis sits funny with me. We’re not a homogenous district and it shouldn’t be targeting a rate structure that’s homogenous.”

“I don’t want it to look like Obamacare for water when it’s all done,” he said. “Water rates for a lot of users will go down, but basically a small percentage will shoulder the burden, which I think is philosophically wrong.”

Gagnon said that the allocation part of the cost study is where the district has the most leeway. The board will have more opportunity to weigh in on the cost of service study at its next meeting on Oct. 1.