FPUD revises tiered rate structure, changes increase effective date to Jan. 1

Fallbrook Public Utility District customers will have a revised tiered water rate structure, and water and sewer rate increases will become effective Jan. 1 instead of July 1.

Separate votes were taken on the rate changes. The vote to change the effective date from July 1 to Jan. 1 was 4-0 with Milt Davies absent. A 3-1 vote, with Archie McPhee in opposition, approved the new tiered rate structure which changes the first tier from 85 percent of the base rate to 90 percent of the base rate while retaining the third tier at 110 percent of the base rate.

“I think their choice is certainly consistent with the philosophy of tiered rates,” said FPUD general manager Brian Brady.

Prior to the implementation of the three-tiered system for 2008-09, Tier 1 water was charged at 85 percent of the base rate and Tier 2 supply was charged the base rate. In an effort to encourage conservation Tier 3 was implemented which charged 110 percent of the base rate with the possibility of an even higher percentage of the base rate should mandatory cuts be imposed. The estimate at the time was that the Tier 3 rate would impact 20 percent of non-agricultural water sales. Although state law prevents a water district from providing discounts to certain populations such as senior citizens or low-income residents, an agency can give discount incentives for water conservation and can establish a baseline usage amount.

At FPUD’s May 2013 meeting, the board had a non-voting discussion item about the possibility of modifying FPUD’s tiered rate structure and monthly operations charge. The FPUD board indicated a desire to have district staff conduct studies during 2013-14.

The 2012-13 usage data indicated that Tier 3 rates accounted for 10 percent of domestic sales, 19 percent of large-lot domestic sales, 0 percent of commercial sales, and 1 percent of multi-family sales. Tier 2 accounted for 65 percent of domestic sales, 75 percent of large-lot domestic sales, 57 percent of commercial sales, and 14 percent of multi-family sales. Tier 1 rates were paid for 25 percent of domestic, 6 percent of large-lot domestic, 43 percent of commercial, and 85 percent of multi-family purchases.

The proposal requested for study at the May 2013 meeting was to change Tier 1 to 90 percent of the base and Tier 3 to 115 percent of the base. The calculations for changing the rates did not involve altering FPUD policy that the district recover 75 to 80 percent of fixed costs through a monthly operations charge with water sales markup accounting for the remaining 20 to 25 percent (the goal of the operations charge for fixed costs is to avoid penalizing customers for saving water and thus reducing revenue to the district), and the analysis also evaluated changing the monthly operations charge to 85 percent of fixed costs with 15 percent to be covered by sales markups.

FPUD approved its 2013-14 budget in June 2013. The budget assumed that 28 percent of the water would be sold at the Tier 1 level, 55 percent would be sold at Tier 2 rates, and 17 percent would be sold under Tier 3. For the first six months of 2013-14 FPUD sold 4,110 acre-feet to municipal and industrial customers, which was nearly identical to the amount budgeted, but Tier 1 sales were less than budgeted while Tier 3 sales exceeded the budgeted amount. The 837 acre-feet of Tier 1 sales comprised 20.4 percent of the total, Tier 2 usage accounted for 56.4 percent of sales, and Tier 3 rates were charged for 23.2 percent of sales.

FPUD staff did not address the monthly operations charge in the five options it provided to the board regarding tiered rates, all of which changed rate increases to the beginning of the calendar year rather than the beginning of the fiscal year and kept the third tier at 110 percent of the base rate. Three of the five options maintained the existing 85 percent base rate for Tier 1, including one which did not give all M&I customers a Tier 1 baseline regardless of usage and one which gave customers the first five 1,000-gallon billing units at Tier 1 and one which gave customers the first 10 units at Tier 1. The option adopted which changes Tier 1 to 90 percent of the base rate also gives all customers five units at Tier 1 regardless of usage. The fifth option would have changed the Tier 1 rate to 90 percent while giving all customers 10 units at Tier 1.

The policy to sell the first five units at Tier 1 regardless of usage shifts approximately 525 acre-feet annually from Tier 2 to Tier 1 rates. The adjustment in the Tier 1 percentage changes the Tier 1 rate from $4.29 to $4.48 per unit while lowering the Tier 2 rate from $4.94 to $4.93 and the Tier 3 rate from $5.44 to $5.43.

Although the Metropolitan Water District of Southern California and the San Diego County Water Authority both change their wholesale rates effective Jan. 1, FPUD has coordinated its water rate changes with fiscal years. The change will allow FPUD rates to be better coordinated with the cost of water purchased and will also coordinate FPUD’s rate increases with the Jan. 1 effective date of the Rainbow Municipal Water District, which is FPUD’s partner in the North County Joint Powers Authority.