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The City maintains a significant number of facilities necessary to deliver water to your home or business. Much of the system has been in service for 50 to 70 years or more. The system is valued at $480 million today. The City has prepared a 20-year capital improvement plan to prioritize system improvements and replacements needed to maintain a high level of service and avoid the disruptions and large costs associated with failing infrastructure. The plan recommended $9.3 million in improvements annually over the next five years. Staff have worked hard to defer and re-prioritize items to reduce critical needs to $3 million per year since 2011 but the system is old and complex. It is not responsible to continue to invest at this deficit level. The proposed rates include a phased increase from $3 million per year to $6 million by the end of the study period in 2022. Some planned investments in the near term include:
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The previous Water Cost of Service Rate Analysis Study was performed in 2011 and resulted in five years of fixed rate increases followed by no increases from 2015 through 2017. During the last three years those rates did not recover the actual cost to provide water service. The rates need to be restructured to more appropriately reflect water system costs that do not vary with the volume of water provided.
We would be forced to reduce our investment in necessary capital improvements in the distribution system and other areas. This would lead to more frequent infrastructure failures, water service interruptions, water loss, street damage, and property damage. The end result would be higher operating costs, thereby reducing the funds now slated for infrastructure investments.
Many costs associated with the water system are fixed costs that are incurred whether customers consume water or not. For example, meters must be read, bills must be sent out, the water must be tested and treated and the pressurized system maintained to ensure water is available 24/7, including emergency repairs to water pipes that occur between 70 and 110 times per year. Customers have fire protection around the clock.
While we have had a fixed service charge for single-family residential customers since 2011, it included three units of water and reflected the price of three units. It was not a true mechanism for covering fixed costs. Most water agencies include a fixed service charge and one or more tiers of quantity charges. They typically have different rates for residential, commercial, and irrigation customers. Inclining tiered rates for single-family residential customers are important to pass on the cost of meeting peak summer demands (e.g., running three treatment plants simultaneously instead of the one treatment plant needed during winter, installing larger diameter pipes, ensuring sufficient treatment, pumping and tank storage capacity).
A structural change to the billing rates is required to reflect fixed costs that are incurred irrespective of volume of water consumed. The cost of providing 24/7 service, including fire protection, cannot be sustained when low users, those using <3 units, are charged $11 per month, which is less than the $22 cost of providing service. It is necessary that the costs incurred to ensure a reliable, available system are reflected in the rates charged to each customer. A high user of 12 units per month will pay the proportionate monthly cost, $72 (up from $67), for their service and quantity of water used. Customers that use lower quantities of water still pay less than customers who use higher quantities of water.
Due to the wide variety of usage patterns among these customers, it is extremely difficult to develop equitable tiers for these classes. Unlike residential customers that typically double or triple their water use in the summer, commercial customers tend closer to a steady pattern of use. Multi-family, commercial, and irrigation accounts will retain a single quantity charge structure, but they will also now pay a fixed service charge based on the size of their meter, the capacity that is provided to their property.
The City reads more than 25,000 water meters to generate bills. It takes five staff members approximately 20 8-hour days to read all those meters. If we billed every month, our five staff members would only read meters. Instead, we bill bimonthly (every two months) and use our meter-reading staff to perform essential work like meter repair, meter replacement, maintenance, and service calls during the days they are not reading meters. If we did bill monthly, we would need to add five more staff members to complete the same amount of work, thereby increasing our operating costs. Our ongoing Automated Meter Reading (AMR) program is slowly replacing manual read meters with electronic devices that can be read from a vehicle driving through the neighborhood. As this program progresses, we may eventually be able to convert to monthly reads without adding staff or compromising the time staff spend on other essential maintenance activities.
New development pays a capacity fee based on the size of their water service to "buy in" to the existing system. For example, a new single-family home pays $6,296 to connect to the water system. Funds collected from new development are used for system-wide capital improvements. For 2014-2016 the City has been collecting about $0.75 to $1 million per year from new development. Those fees are used to offset the amount ratepayers contributed for capital improvements. New development is required to pay for and install infrastructure required to serve their project. For example, if a new or larger water main is required to supply a new subdivision, the City does not pay for it out of capital improvement funds. The new development pays all costs. The $3 million, increasing to $6 million, in annual capital improvements supported by the rates are not used to benefit new development.
Water supply (22%) and labor (29%) that is available 24 hours per day 7 days per week combine to represent more than half of annual operating costs. The cost for equipment, machinery, pumps, and supplies is the next largest component. Chemicals used for water treatment are a significant fixed cost. View details in Water Rates - Breakdown of Each Dollar Spent (PDF).
The Water Division has minimized the use of consultants and contractors by using existing staff to perform work at a reduced cost. Additionally, water sampling and monitoring requirements are more stringent than they were last decade. The City refinanced the 2007 Water Revenue Bonds in January 2016 to take advantage of low interest rates and reduced debt service payments by more than $400,000 per year. Automated Meter Read (AMR) installations that continue to be installed in-house reduce the time required to read meters.
The Water Division has 62 full time equivalent employees. While the water system grows and duties increase, the Division strives to work as efficiently as possible to keep rates low. The requirements for sampling and monitoring your drinking water become more stringent every year. The City needs to remain competitive in the market for knowledgeable and certified operators for the system that delivers a safe, reliable supply of drinking water to your home or business.
Single-Family Residential: With the initial proposed December 2017 rate increase, the City would remain one of the lowest cost water providers in the region for single-family residential customers. All agencies are delivering a similar service, although they vary by size and system age. As shown in the chart, Typical Monthly Water Costs for Single-Family Residential Graph (PDF), monthly water costs for a Napa household using 8,000 gallons per month would remain among the lowest in the Bay Area and well below the regional average.