Commissioners discuss hikes to Long Beach water rates; vote expected June 22
By Jason Ruiz,2023-06-08
Long Beach Utilities commissioners met again Thursday to discuss a potential rate hike for water, which could be as high as 10% next year as the department deals with declining sales due to customer conservation, increasing costs and an expanding capital investment plan that could, in the long term, increase the city’s supply of less expensive groundwater.
A staff-recommended hike of 10% for water rates next year would amount to a $5.69 monthly increase for the average customer, according to the department. However, an alternate increase of 9% that was requested at the commission’s last meeting would add about $5.13 to the monthly bill.
The commission is expected to set rates for water, sewer and gas at its June 22 meeting, but only water rates are expected to increase in the new fiscal year that begins in October.
“It’s very jarring, but let’s talk about what happens when you decided to forgo a higher rate increase in ’24, you’re more or less kicking the can down the road,” said Brandon Walker, the Utility Department’s director of finance, told commissioners Thursday.
Walker has presented scenarios for rate increases for the upcoming year through 2028, which show that a smaller increase in 2024 would likely require larger increases in the following years in order for the department to get back to its minimum reserve level, which is about $30 million.
A 10% increase could be followed by an 8%, 7%, 6% and 5% increase over the next five years under the department’s current projections, while a 9% increase next year could be followed by increases of 8%, 7%, 7% and 5% increase over the next five years.
The hikes are necessary because the department is projected to receive about $9.3 million less in water sales due to customer conservation efforts and wet weather, but it’s also planning on investing tens of millions in groundwater projects and other repairs.
The department has about $8.9 million in reserves currently and would drop to $4.1 million without a rate increase in October, Walker said. The reserve minimum is the amount of money the department would need to operate for 90 days or make emergency repairs.
Walker said having a healthy reserve allows the department to get better terms on credit that it uses to fund large investments into its network.
The projected increases are also necessary, Walker said, because the department’s costs continue to grow. Pensions, benefits, replacing vehicles, pipes and other materials are getting more expensive and could continue to grow because of inflation.
Even imported water, which the city is trying to reduce its reliance on, is getting more expensive. So while it becomes a smaller piece of the pie of where the city gets its water from, it is expected to become a more costly piece.
“With inflation, inputs are going up, they have to be balanced and borne somewhere, and unfortunately, they’re on the backs of the customers,” Walker said.
If inflation or other costs start to decrease, the projected rate increases for future years could decrease or go away altogether, Walker said.
Commissioners asked if there were ways to minimize the increase for customers for the coming year by transferring funds from more financially healthy arm of the department, like the gas utility, but California law limits how utility revenue can be used, typically tying it to the source of where it was generated.
But commissioners could look at other ways to conserve water utility money.
While the city’s loss of the Measure M lawsuit early last year means the Utilities Department can no longer transfer up to 12% of water and sewer revenue to the city, the department still must pay the city for repairs on any infrastructure that’s impacted by the department’s projects—the amount that the department owes the city is known as the “nexus” amount.
And the utility will owe the city a nexus of a few million dollars because of road work that will be necessary after water pipe maintenance is completed. But rather than that money coming from the water fund, the commission is exploring whether the gas fund could cover the bill.
However, it’s unclear if that would be legal. Details on that are expected to be presented to the commission at the June 22 meeting.
Once the commission approves the proposed budget, it will go to the City Council for final approval, which is expected to happen before the new fiscal year begins in October.
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