The City’s Water Enterprise Fund pays commodity charges to MET and MWDOC for its imported water supply.  The City also pays a replenishment assessment to the Orange County Water District (OCWD) for its groundwater supply.

Ordinance No. 2890 adopted by the City Council on March 27, 2018, provides for automatic pass-through adjustment for purchased water cost.  Section E.1. of the ordinance states that “The commodity delivery charge shall be automatically adjusted to reflect adopted increases or decreases in wholesale charges for water established by other public agencies from which the City of Garden Grove purchases water to the extent such increases or decreases are not reflected in the schedule of charges then in effect.  Any such automatic adjustments shall be implemented through adjustment of the commodity adjustment charge.”

This pass-through increase allows the City to maintain its water infrastructure system in order to continue to provide water, and ensure that the Water Enterprise Fund remains solvent. 

The analysis below provides for the basis of the pass-through rate adjustment.  Notice of the rate adjustment will be provided to all City water customers at least thirty (30) days prior to the effective date. 

MET, MWDOC and OCWD have adopted their rate and fee adjustments for FY 2020-21.  As a result, and in accordance with Ordinance 2890, the City will pass the increase in water commodity delivery charge to its water customers.

Below is a calculation on the water commodity rate change.  All data used in the calculation are derived from a recent study performed by FG Solutions, including water supply estimates and cost estimates for both groundwater and imported water.

Based on the above calculation, the Commodity Delivery Charge will increase by $0.05 per billing unit, or 100 cubic feet, in Fiscal Year 2020-21.  The adjustment reflects the actual cost increase of wholesale water the City has to incur to continue to provide water to its residents.  The City is authorized to automatically adjust the Commodity Delivery Charge component based upon actual increases incurred by the City for acquiring groundwater and imported water. 

Below is a comparison of the current and proposed new rate for both Tier 1 and Tier 2 residential customers:

Under this adjustment, the average residential customer’s water bill will increase by approximately $0.75 per month (assuming a 5/8 x 3/4-inch meter and 15 HCF of water use), or $1.50 on each bi-monthly bill.  The new rate will take effect on January 1, 2021.

The proposed water commodity rate increase has no impact to the General Fund.  The rate change is a pass-through adjustment to offset increase from wholesale suppliers from which the City acquires its water supply.  When calculating the pass-through cost increase, the amount of imported water has been kept at the previous level, despite the increase due to two wells currently being shut down to comply with the State’s regulation on Perfluorooctanoic acid (PFOA) and Perfluorooctanesulfonic acid (PFOS) notification level. 

The proposed rate increase will allow for the Water Enterprise Fund to continue meeting its financial obligations and carry out its capital improvement and replacement programs.

It is recommended that the City Council:

• Review the Water Commodity Adjustment Calculation regarding the automatic pass-through adjustment to the Commodity Delivery Charges effective January 1, 2021.