The City of Long Beach Water Department (LBWD or Department) maintains a system of water, sewer, and recycled water infrastructure that provides services to nearly 470,000 Long Beach residents. LBWD receives its potable water supply from two main sources: groundwater produced from the Central Groundwater Basin, regulated by the Water Replenishment District of Southern California (WRD), and purchases from the Metropolitan Water District of Southern California (MWD).
The prior water and sewer rates were developed in 1996 and updated annually across the board to account for rising operating and capital costs. LBWD engaged Raftelis to conduct a cost-of-service and rate design study for its water and sewer services and develop an administrative record that demonstrates a nexus between LBWD’s costs and rates to meet the requirements of Proposition 218.
Raftelis collaborated with LBWD staff to develop the rate design framework for water, recycled water, and sewer rates based on the policy priorities such as promoting conservation, being easy to administer and for customers to understand, and providing affordability for essential use. The current three-tier inclining rate structure for residential customers achieves most of these pricing objectives. LBWD meets the needs of its customers through a diverse portfolio of water resources, including local groundwater combined with imported supplies. To better align residential usage tiers with available water supply, Raftelis proposed to define tier breakpoints by water supply source.
The LBWD Board of Water Commissioners (Board) commits to continue the Exemption Program to provide affordability for essential water use for eligible customers in need in conjunction with the City of Long Beach Utility Users Tax Exemption Program. To continue to support the Exemption Program, Raftelis and LBWD staff recommended to use non-rate revenue such as rental income as qualified funding sources.
Raftelis conducted a detailed and vigorous cost-of-service analysis for water, recycled water, and sewer services and rate calculations demonstrating the nexus and proportionality between the costs and the rates to ensure compliance with Proposition 218. To help communicate with customers about the drivers and rationale behind the proposed rates, the water quantity rates include several cost-based rate components, including water supply costs, delivery, peaking, conservation and revenue offsets. To facilitate informed decisions by policy makers, sensitivity and customer impact analyses were conducted for all customer classes at various usage levels receiving water, recycled water, and sewer services. Raftelis developed an Excel-based, non-proprietary financial plan and rate model documenting all of the data and assumptions used in the study. The rate model presents the results of the study in a series of tables and charts that allows the Department to quickly review the impacts of different rates alternatives, so that policy makers can make informed decisions.
At the end of the study, Raftelis presented the results to the Board in a workshop illustrating the nexus between the costs and rates to ensure that the proposed water, recycled water, and sewer rate structures complied with Proposition 218 requirements. As part of the study, Raftelis developed the cost-of-service and rate study report to be used as an administrative record. The report highlighted the major issues and decisions made during the course of the study and discussed and explained the cost-of-service analysis and methodology used to develop the final rates. The explanation of the methodology found within the report demonstrates that the rates: are equitable, reflect the Department’s policies and values, and are driven by the Department’s revenue requirements. The final report was submitted to the LBWD, the Long Beach Board of Water Commissioners conducted a public hearing to consider the proposed changes outlined in the Proposition 218 legal notice, and the City Council adopted an ordinance approving the new rate structure.
Raftelis also conducted a miscellaneous fee study for Long Beach Water Department (LBWD). Miscellaneous fees are an undervalued source of revenue for LBWD, as these have not been updated for almost 30 years. California Proposition 26 was adopted in 2010 to regulate fees from public agencies. The Raftelis study safeguards LBWD by ensuring that the new fee structure is compliant with Proposition 26. Prior to fee development, Raftelis performed an extensive data collection process, including staff interviews, on-site meetings, and review of detailed asset rosters. Through direct engagement with LBWD staff, Raftelis calculated an accurate cost of service, and even identified outdated fees to remove from the schedule. Each fee includes fully burdened staff hours, materials, transportation costs, and specialty equipment. Raftelis developed a flexible excel model to accurately update the miscellaneous fees and demonstrated a working version of the model to staff. The model is designed with user-friendly fee calculators for meter-related and non-meter-related fees. It also includes revenue summaries that allow staff to compare current and updated fee revenues. LBWD staff have been engaged in the entire process from data collection to model testing. This ensures a high degree of staff ownership of the new fee structure and empower staff to update future fee adjustments directly in the model.
