In 2007, a consultant developed the City's Water Financial Plan, which focused on identifying revenue requirement projections, assessing capital facilities and infrastructure plans, classifying costs, and developing a rate structure and rate design. Two recent events highlight the City’s need for the development of a new water rate study. In 2015, a court case involving the City of San Juan Capistrano held that San Juan's tiered water rate structure violated Proposition 218, a statewide ballot measure that requires municipalities to set property-related fees such as water service fees to no more than the cost of providing service.  In addition, City water revenues have been impacted due to conservation efforts in response to State regulations and drought conditions. A new water rate study is needed to ensure Proposition 218 compliance and revenue stability. 

SAWPA developed the Proposition 84 Drought Response Program using grant funds from the California Department of Water Resources to reduce water demand through retail agencies. Among other project types, this program consists of funding the investigation and possible implementation of conservation-based water rate structures. To meet eligibility requirements, the City must present the findings and recommendations from the water rate study for City Council’s consideration by March 31, 2017. Per the cooperative agreement, the City will receive grant funds in two phases: Phase 1, up to $107,515, for the water rate study and City Council presentation; and, Phase 2, up to $107,515 for the implementation of the conservation-based water rate structure. 

This study will be funded from the Water Enterprise Fund. There is no impact to the General Fund. The City of Garden Grove’s financial responsibility towards the study will not exceed $107,515 for Phase 1 and $107,515 for Phase 2. Funds have been allocated in the FY15/16 Water Enterprise budget and the remainder will be allocated in the upcoming fiscal year.   

It is recommended that the City Council:

• Approve the attached Cooperative Agreement with SAWPA for Water Rate Study Grant Funding; and

• Authorize the City Manager to execute the Cooperative Agreement.

By:     Katie Victoria, Senior Administrative Analyst