Resolution No. 8698
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RESOLUTION NO. 8698
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A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF
VERNON AMENDING RESOLUTION NO. 7781 WHICH
ESTABLISHED RATES FOR THE SALE OF WATER IN THE CITY
OF VERNON IN ACCORDANCE WITH THE VERNON CITY CODE
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WHEREAS, Vernon City Code Section 25.1 provides that, except
as otherwise provided in Chapter 25 of the Vernon City Code, the rates
for the sale of water in the City are to be set by resolution; and
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WHEREAS, on June 6, 2001, the City Council of the City of
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Vernon adopted Resolution No. 7781, which established the rates for the
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sale of water in accordance with the Vernon City Code; and
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WHEREAS, in accordance with Resolution No. 7781, the existing
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reclaimed water rate is $1.00 per 100 cubic feet; and
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WHEREAS, Vernon City Code Section 25.9 authorizes the City
Council to establish charges for water and water service not otherwise
provided for based upon charges in Chapter 25 of the Vernon City Code;
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and
WHEREAS, by letter dated March 10, 2005, Bruce V.
Malkenhorst, City Administrator/City Clerk recommended that a new rate
be established for reclaimed water to reflect the actual cost to
purchase and distribute the water and maintain the system; and
WHEREAS, no interested party has filed a written request for
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mailed notice of a meeting on new or increased fees or service
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charges; and
WHEREAS, on March 16, 2005, the City Council of the City of
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Vernon held a public meeting on the consideration of the reclaimed
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water rate increase during which any and all oral or written
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1 presentations could be made in accordance with Government Code Section
2 66016; and
3 WHEREAS, the City Council of the City of Vernon wishes to
4 establish new reclaimed water rates for the sale of reclaimed water in
5 accordance with the Vernon City Code.
6 NOW, THEREFORE, BE IT RESOLVED BY THE CITY COUNCIL OF THE
7 CITY OF VERNON AS FOLLOWS:
8 SECTION 1: The City Council of the City of Vernon hereby
9 finds and determines that the recitals contained hereinabove are true
10 and correct.
11 SECTION 2: The City Council of the City of Vernon hereby
12 amends Resolution No. 7781 in order to establish new rates for the
13 sale of reclaimed water in the City of Vernon effective April 1, 2005,
14 pursuant to Vernon City Code Section 25.9, by amending paragraph 10
15 and adding paragraph 11 to Exhibit A as follows:
16 10. Water Rates per 100 Cubic Feet of Reclaimed Water
17 (V.C.C. Sec. 25.9) (each person, firm or corporation except the
18 Malburg Generating Station):
19 Reclaimed water: $0.865/100 cubic feet
20 11. Water Rates per 100 Cubic Feet of Reclaimed Water
21 (V.C.C. Sec. 25.9) (Malburg Generating Station until January 1, 2019):
22 Reclaimed water: $0.480/100 cubic feet.
23 SECTION 3: Any provisions contained in Resolution Nos. 7781
24 not consistent with or in conflict with this resolution are hereby
25 repealed. In all other respects, Resolution No. 7781 shall remain in
26 full force and effect.
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SECTION 4:
The City Clerk of the City of Vernon shall
2 certify to the passage of this resolution, and thereupon and
3 thereafter the same shall be in full force and effect.
4 APPROVED AND ADOPTED this 16th day of March, 2005.
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ATTEST:
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BRUCE V. MALKENHORST, City Clerk
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. , Lt:-t.v'-!./'
,-L~BURG, Mayor
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1 STATE OF CALIFORNIA
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COUNTY OF LOS ANGELES
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I, BRUCE V. MALKENHORST, City Clerk of the City of Vernon, do
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hereby certify that the foregoing Resolution, being Resolution No.
8698, was duly adopted by the City Council of the City of Vernon at a
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regular meeting of the City Council duly held on Wednesday, March 16,
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2005, and thereafter was duly signed by the Mayor of the City of
Vernon.
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13 (SEAL)
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BRUCE V. MALKENHORST, City Clerk
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SUPPORTING
DOCUMENTS
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COMMUNITY SERVICES & WATER DEPARTMENT ?
OFFICE MEMORANDUM
TO: Bruce V. Malkenhorst, City Administrator
FROM: Samuel Kevin Wilso.trlirector of Community Services & Water
DATE: February 23, 2005
SUBJECT: RECYCLED WATER RATES
The Community Services & Water Department has conducted a recycled water rate study,
which is attached hereto. The City will begin distributing recycled water to its customer's base in the
near future. Preparations are being made to deliver recycled water to the Malburg Generating Station
in April 2005. The study has concluded that the existing rate of$I.00 per 100 cubic feet should be
adjusted to reflect the actual cost to purchase and distribute the water and maintain the system. City
staff considered three scenarios which are outlined in the report. City staff is recommending that
scenario three be utilized. This scenario passes all cost savings to the City associated with the use of
recycled water into the recycled water rate. However, this scenario cannot be implemented until the
recycled water system is fully built out and additional water beyond the Malburg Station needs can be
provided by Central Basin Municipal Water District. Until such time, the Malburg Generating Station
will be a substantial new customer utilizing, approximately 1200 acre feet or 10% of our current water
volume sales. As such the City must acquire water to serve this facility. It is staff's opinion that the
purchase of the water should not impact the current potable rate for customers. Therefore, the
Malburg Generating Station should be based on the cost associated with acquiring the additional water
as outlined in Scenario 1 of the rate study. The Malburg Generating Station project did fund the
capital improvement to deliver the water to the site and therefore, a credit is appropriate based on the
Malburg Generating Station investment a credit of $214.34 per acre foot or $0.492 per cubic feet.
Therefore, it is recommended that a new recycled water community rate be established at
$0.865 per 100 cubic feet for all customers except the Malburg Generating Station. The Malburg
Generating Station rate shall be $.972 with a credit of $0.492 for a net rate of $0.480 until January 1,
2019 to repay the capital investment made by the project for the recycled water system.
SKW/as/ca
Enclosure
c: City Attorney
RECYCLED WATER RATE STUDY
The Community Services & Water Department has reviewed the costs to determine a rate for
recycled water.
This report contains three scenarios in determining a rate for recycled water.
SCENARIO 1
Scenario 1 is an increase in water consumption beyond the City's current deliveries. For
example, the Malburg Generating Station will become operational and will require an additional 1200
acre feet of water to be delivered to the site. The Energy Commission has required the Malburg
Generating Station to utilize recycled water. In this case, existing consumers should not be required to
absorb any additional cost to provide additional water for this facility. Therefore the Malburg Generating
Station should be required to pay all costs for delivering recycled water to the site.
SCENARIO 2
Under this scenario the City would deliver recycled water to an existing customer in the City. In
this case, potable customers would be responsible to pay for all costs associated with the delivery of
potable water to their sites, while recycled water customers would pay all costs associated with the
delivery of recycled water to their sites. The potable customers would not subsidize the recycled water
customers. The actual cost of recycled water is greater than the City's current blended water cost.
However, the low overhead cost associated with the recycled water system makes it competitive with the
potable commodity rate.
SCENARIO 3
Under this scenario potable water users would be subsidizing the recycled water rates. In this
case, potable water rates would be held to their current rates, however any cost savings realized by
purchasing the lower cost recycled water versus purchasing higher cost MWD water would be utilized to
subsidize the recycled rates. If the City were to utilize 1500 acre feet of recycled water the City could
potentially save approximately $189,000 by purchasing recycled water versus MWD water. Any net
savings would be utilized to lower the cost of recycled water.
SCENARIO 1 - New Water Customers Requiriu2 Recvcled Water
A new large volume customer could substantially impact water rates. The cost for the City to
produce water from its wells utilizing City owned rights is substantially less costly than purchasing MWD
water, leasing water rights and pumping well water or purchasing recycled water. The cost of each water
supply is shown in Attachment No. 1 and only reflects the cost of the water and does not take into account
overhead, depreciation, etc. needed to collectively cover all costs encumbered by the Water Department.
Attachment No.2 reflects the recycled water costs from Central Basin based on the amount of water
purchased. It is anticipated that the Malburg Generating station will utilize 1200 acre-feet annually.
Under this scenario a new customer should be responsible for the increased cost of supplying it
with water, rather than requiring all customers to pay increased rates in order to provide water to a single
consumer.
The Malburg Generating Station will be a substantial new customer to the City water system. If
they were to utilize potable water, the City would either be required to purchase MWD water or increase
well production. In either case the additional water cost would be considerably higher than that currently
being produced. See Attachment No.3 for the City's current blended water cost. Therefore, it would be
desirable to set a rate such that the Malburg Generating Station would be responsible for all costs
associated with providing water to the facility. In this case, recycled water will be provided to the plant.
The cost for the City to provide water to the plant is shown in Attachment No.5. Given the fact that the
Malburg Generating Station funded all capital improvements to provide the plant with recycled water, the
City could reduce the rates such that they do not reflect the capital cost.
Therefore, the rate should either be set at:
$0.972 per 100 cubic feet* which does not include a credit for capital improvements, or
$0.480 per 100 cubic feet* which includes a credit of $214.34 per acre foot for the capital
improvement investment.
* If Central Basin extends their system such that the Hollydale Pump Station is no longer necessary, a
reduction of $70 per acre foot or $0.161 per 100 cubic feet could be provided on the rate. Additionally
rates are based on current costs and assumes 1200 acre feet of water to be consumed by Malburg
Generating Station annually.
Under this scenario the commodity rates would be:
Potable Commodity Rate
Recycled Commodity Rate
$1.027
$0.972
SCENARIO 2
Under Scenario 2 the City will supply recycled water to its existing customer base. In this case
potable customers would be responsible to pay for the cost to supply potable water, while recycled
customers would be required to cover all costs to supply recycled water. All customers would continue to
be required to pay the square footage charge for fire related services. Under this scenario the use of
recycled water will offset the need to purchase imported MWD water, thereby decreasing the cost of
providing potable water to its customers. See Attachment Nos. 3 and 5 for blended water cost for potable
water. The cost ofthe water itself will be reduced from $288.57 per acre-foot to $272.26 per acre-foot.
This will result in a savings of$189,210.00 to potable customers. It is assumed that all other costs going
to the potable rate including overhead, supplies, capital costs, depreciation, etc. will remain. The current
potable water rate is $1.027 per 100 cubic feet. The savings would be applied against the commodity
non-labor costs of the City commodity charge. The City's current formula for calculating the commodity
charge is:
Commodity Charge = (0.5x - 0.632v + z)
A
x = Commodity Labor Costs
y = Projected Construction Related Revenues
z = Commodity Non-Labor Costs
A = Projected Water Sales in 100 cubic feet
Utilizing the costs from the City's last rate study and reducing the amount ofMWD water
purchased and water sales by 1500 acre feet:
x = $922,118.46
x. = Commodity Labor Cost - Commodity Labor Cost assigned to recycled water
x. = $922,118.46 - $22,987 = $899,131.46
y == $141,000
z = $4,728,338.10
z. = Commodity Non-Labor Cost less Reduction in MWD Water Purchases
z. = $4,728,338.10 - $467 (1500) = $4,027,838.10
A = 11,400 af -1500 af= 9900 afx 435.6 = 4,312,440.00
Commodity Charge = (.5)899131.46 - .632(141000) + 4027838.10
4312440.00
= 1.018 per 100 cubic feet
Given the existing rate was 1.027 per 100 cubic feet the total savings to potable customers would
be:
($1.027 - $1.018)4312440 = $38,811.96
The recycled water rate would be $0.926 per 100 cubic feet. See Attachment No.5 for
calculation. The recycled water rate could be reduced by $0.161 if the City were no longer required to
pay for the operation cost of the Hollydale Pump Station when Central Basin extends the recycled water
line, resulting in a recycled water rate of $0.811 or approximately 80% of the potable rate of $1.0 18,
under this scenario the commodity rates would be:
Potable Commodity Rate
Recycled Commodity Rate
$1.018
$0.926
SCENARIO 3
Under this scenario the recycled water customers would be slightly subsidized by the potable
water customers. In this case it is assumed that 1500 acre feet of recycled water will be served to
Vernon's existing customer base in lieu of potable water and 1200 acre-feet delivered to the Malburg
Generating Station. The cost of water to the City will be reduced because it can purchase recycled water
at a cost of $340.86 per acre foot instead ofMWD water at a rate of $467 per acre feet. See Attachment
No.1. All savings realized would gq into the recycled water rate. The potable rate would remain
unaffected and be maintained at its current rate of $1.027 per 100 cubic feet.
As can be seen in Attachment No.4 the City will save approximately $189,210.00 by purchasing
recycled water in lieu ofMWD water. However, the cost of water is only a component in the commodity
rate structure. Personnel will continue to be needed to maintain the Water Departments' assets including
system maintenance, meter reading, providing operational control of the system, water sampling, etc.
Fixed costs and overhead will all remain, yet the amount of customers paying for these fixed costs will be
reduced by 1500 acre feet. Therefore as established in Scenario 2 the total savings produced by utilizing
recycled water in lieu ofMWD water is only $38,811.96. Rather than these savings going to lower the
potable customers this scenario would contemplate holding the potable commodity rate firm at $1.027 per
100 cubic feet and redirect the savings to lower the cost of recycled water.
Sufficient funds must be collected to cover all costs. Therefore, the potable and water rates
should be established to cover all costs (see Scenario 2 and Attachment No.5).
Potable Potable Recycled
water water acre-feet rate
acre-feet
Total Costs = [(10099.5 x 1.018) + (1500 x 0.9260](435.6) = 5,083,578.76
To calculate recycled rate holding potable rate at $1.027
Potable Potable Recycled
water water acre rate
acre-feet feet
Total Costs = [(10099.5 x 1.018) + (1500 x z](435.6) = 5,083,578.76
Recycled Rate = z = 0.865
Check of Savings
(1.027-1.018)(10099.5)(435.6) """ (0.926-0.865)(1500)(435.6)
39,594 """ 39,857
Recycled water rate may be further reduced by 0.161 if City is no longer responsible for
Hollydale operation costs.
Potable Commodity Rate
Recycled Commodity Rate
$1.027
$0.865
CLOSING DISCUSSION
These rates are calculated using the City's best estimate. Under Scenarios 2 and 3 a distribution
system would have to be constructed throughout the City to deliver water to recycled water customers.
The cost of this distribution could be significantly different than the cost to deliver water to the Malburg
Generating Station. A pump station mayor may not be needed to deliver water to the customer base.
Additionally if Central Basin extends their backbone system through Commerce and Montebello to a new
sanitation district cOnnection, the City by contract with Central Basin would not be required to pay the
operating cost for the Hollydale Pump Station which would yield significant savings to Vernon recycled
water customers.
With this stated, until a distribution network is laid out in Vernon, the true capital costs cannot be
calculated and therefore the rates presented in this report could significantly change.
ATTACHMENT NO.1
Cost of Water Comparison
Well Water
Pump Assessment
Pumping 0 & M
$128.25
$ 93.00
$221.25 per acre foot
Leased Well Water
Lease Cost
Pump Assessment
Pumping 0 & M
$150.00
$128.25
$ 93.00
$371.25 per acre foot
MWD Water
CBMWD Tier 1 Rate
$467.00 per acre foot
Recycled Water (1200 acre feet purchased)
Pump Station Annual Cost $118.86
Pump Station Operation Cost $ 70.00
Pipeline Annual Cost $167.39
USBR Grant ($71.50)
Recycled Commodity Charge $273.75
Central Basin Rebate ($200.00)
$358.50 per acre foot
Recycled Water (2700 acre feet purchased)
Pump Station Annual Cost $118.86
Pump Station Operation Cost $ 70.00
Pipeline Annual Cost $167.39
USBR Grant ($71.50)
Recycled Commodity Charge $253.11
Central Basin Rebate ($200.00)
$340.86 per acre foot
Recycled Water Cost
ATTACHMENT NO.2
Based on 1200 acre-feet a year to supply Malburg Generating Station.
Volume
Acre-Feet
Per Month
0-25
25-50
50-100
100+
Quantity
in Acre-Feet
Rate
per Acre-
Foot
$299
$278
$258
$237
Total
$7475
$6950
$12900
$0
$27325
Based on Malburg Generating Station consuming 1200 acre-feet per year and other City customers
consuming 1500 acre-feet per year.
Volume
Acre-Feet
Per Month
0-25
25-50
50-100
100+
25
25
50
o
. Average Cost per Acre-Foot $273.25
Quantity
in Acre-Feet
Rate
per Acre-
Foot
$299
$278
$258
$237
25
25
50
o
Average Cost per Acre-Foot $253.11
Total
$7475
$6950
$12900
$0
$56950
ATTACHMENT NO.3
Blended City Water Costs
Type
MWD
City Pumped
Leased Pumped
Cost
$467
$221.25
$371.25
Amount
2577.5
8039
983
11599.4
Blended Cost of Water Per Acre Foot
Cost of Water Per 100 Cubic Feet
1200 acre-feet Recycled Distributed
Recycled Water Cost Per Acre Foot
Cost of Water Per 100 Cubic Feet
2700 acre-feet Recvcled Distributed
Recycled Water Cost Per Acre Foot
Cost of Water Per 100 Cubic Feet
Cost of Water
$1,203,692.50
$1,778,628.75
$364,938.75
$3,347,260.00
= $288.57
= $0.6625
= $358.50
= $0.8230
= $340.86
= $0.7825
ATTACHMENT NO.4
Blended Water Costs Utilizing 1500 Acre Feet of Recycled Water In Lieu ofMWD Water
Assumes 1200 acre-feet will be distributed to Malburg Generating Station annually (see Attachment Nos.
1 and 2).
Type
MWD
Recycled
City Pumped
Leased Pumped
Cost
$467
$340.86
$221.25
$371.25
Amount
1077.5
1500
8039
983
11138.47
Cost of Water
$503,192.50
$511,290.00
$1,778,628.75
$364,938.75
$3,158,050.00
Total Cost Per Acre Foot
Cost Per 100 Cubic Foot
= 272.26 per acre foot
Total Savings to City
$3,347,260.00
$3,158,050.00
$189,210.00
Difference in Blended Cost with and without Recycled Water
$277.91 - $264.01 = $13.90 per acre foot
ATTACHMENT NO.5
Cost for Recycled Water (based on 1200 acre feet of water purchased)
Description
Capital Costs
Hollydale Pump Station!
Pump Station Operation Cost
Vernon Pipeline Extension2
USBR Capital Grant (25%)
Central Basin Commodity Charge
Central Basin Capital Rebate6
Depreciation
Department Overhead Costs
City Overhead Allocation
$1,423,000
$2,004,000
($856,000)
Total
Assumptions
Annual Cost
for 1200 acre-feet
$142,6393
$84,000
$200,8773
($85,803)5
$334,8004
($240,000)4
$24,048
$22,987
$31,363
Unit Cost Per Acre Foot
for 1200 acre-feet
$118.86
$70.00
$167.39
($71.50)
$273.25
($200.00)
$20.04
$19.16
$26.14
$423.34
= $0.972 per 100 cubic feet
1) Hollydale Pump costs are $975,650 construction, $100,000 construction management and
$323,352 design.
2) Vernon Pipeline Extension costs are $1,494,543 construction, $257,097 construction management
and $251,935 design.
3) Pump Station and Pipeline annual costs based on total cost of facility amortized over 14 years at
an interest rate of 5.125% compounded monthly.
4) Annual cost of commodity charge and capital rebate is based upon 1200 acre-feet of recycled
water user per year.
5) U.S. Bureau of Reclamation will provide a grant for 25% of capital cost of constructing Vernon
Pipeline Extension and Hollydale Pump Plant including design and construction management
costs.
6) Central Basin will provide a rebate up to a maximum of $200 per acre-foot for all capital costs.
7) Capital credit for 100 acre-feet per month is $211 by formula; capital credit is capped at $200 per
acre-feet, so $200 per acre-feet was utilized.
8) Depreciation is based on a straight line depreciation for a 50 year life, City assets only (pipeline
within Vernon assumed to be 60% of Vernon pipeline extension cost).
9) Overhead consists of administrative costs, meter reads and maintenance assumes 2% of potable
commodity labor and supply costs to maintain recycled water system.
10) Overhead allocation is equal to 6% of income.
11) Pump Station operating costs consist of electrical cost to operate pumps.
Cost for Recycled Water Based on 2700 Acre-Feet of Water Purchased
The reduction is due to a Central Basin sliding scale on commodity charge
Cost per acre-feet
Cost per acre-feet
= 423.34 - 273.75 = 253.11
= 403.20
= 0.926