AgdaPkt 2003-08-11 - Laserfiche WebLink

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9•A Reasons for Rate Increases The rate increases will enable the City to meet its projected annual operating and capital revenue requirements through 2011 / C). Chart 1 shows City expenses by category for the next 10 years. Chart 2 breaks down tht increase in annual costs from 2002/03 - 2011/12 by component. The rate increases are needed for a number of reasons including: • About 61% of total projected cost increases through 2011 /12 are due to an increase in wholesale water costs. Chart 3 shows Wholesale water rates from the SFPUC are projected to increase 41% over the next two years and almost triple by 2011 /12 in order to provide financing payments for $3 to $4 billion of capital improvements to the Hetch Hetchy water system. These rate increases, along with additional water purchases for growth, are projected to increase the City's operating expenses by about $8.8 million through 2011/12. Water costs would be substantially higher without the recycling project since wholesale recycled water costs less than potable water. • The water enterprise will incur additional costs for debt service payments needed to finance the recycled water project. The $3.1 million in new annual debt service payments account for about 21 % of total cost increases through 2011/12. • Operating and maintenance costs for the new recycled water system are projected to phase in to $300,000 and escalate at the annual rate of 3% thereafter, accounting for about 2.5% of total new expenses over the financial planning horizon. • Expenditures for an active conservation program are projected at $500,000 per year beginning 2003/04 and escalate at the annual rate of 3% thereafter. These costs account for about 3.0% of total water enterprise cost increases through 2011/12. • Cost inflation is projected to increase general operating expenses by $1.8 million, accounting for about 12.6% of total enterprise cost increases through 2011/12. Projected Rate Implementation and Impacts The required rate increases will be applied to the existing rate structure according the City Council's guiding principles for the water enterprise. This will result in rate impacts that vary based on customer class and consumption. Chart 4 provides a good indication of the order -of- magnitude impacts that will be faced by an average single family residence using 22 ccf of water in a bi- monthly billing period. Financial Impacts of a Drought Without a reliable alternative source of supply and an active conservation program, the City could face an extreme financial burden from a drought. Droughts typically result in: a. higher wholesale water costs due to increased drought rates, and b. revenue shortfalls due to a decrease in water sales. The total financial impact of a moderate drought coupled with an attainable level of conservation is estimated at $8 - $12 million per year, assuming construction of the recommended recycling project coupled with passive conservation. The City can further reduce its financial exposure to drought by implementing a more aggressive active conservation program. Water Financing Plan ES -6 02/24/03