The City’s Water Enterprise Fund pays for wholesale water purchases from the Metropolitan Water District of Southern California (MET), the Municipal Water District of Orange County (MWDOC), and Orange County Water District (OCWD).  The City also pays a replenishment assessment to OCWD for its groundwater supply.

Ordinance No. 2890 adopted by the City Council on March 27, 2018 amended Section 14.12.010 of the Garden Grove Municipal Code to establish updated water rates and charges.  Section 14.12.010.E provides for automatic pass-through adjustment for wholesale water purchase cost increases or decreases.  Subsection E.1. 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.”

Allowing cost increases in wholesale water purchase to be passed through to the rate payers allows the City to recoup the cost for water delivery and meet the covenant requirements imposed by the outstanding water bonds. 

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 of rate change. 

MET, MWDOC and OCWD have adopted their rate and fee adjustments for FY 2021-22.  As a result, and in accordance with Ordinance 2890, the City will pass the increase in wholesale water purchase to its water customers.

Below is a calculation on the Commodity Delivery Charge 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.  Increase in imported water due to the PFAS/PFOA regulation is not part of this pass-through cost increase.

Based on the above calculation, the Commodity Delivery Charge will increase by $0.30 per billing unit, or 100 cubic feet, in Fiscal Year 2021-22 from the rate established on March 27, 2018 for Commodity Delivery Charge.  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 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 CCF of water use), or $1.50 on each bi-monthly bill.  The new rate will take effect on January 1, 2022.

Notice of Change in Water Commodity Delivery Charges will be mailed to all City water customers on or before November 23, 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 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, 2022.