In March 2023, the City Council approved the hiring of a consulting firm, FG Solutions, to develop a five-year water financial plan to study the Water Enterprise’s financial condition and make recommendations for maintaining the financial stability to the Water Enterprise Fund. The study and analysis shows that expenditures are projected to significantly exceed revenues. This will result in the City spending reserves to pay for capital replacement and improvement projects. Without the proposed adjustments in water rates and charges, available reserves will be depleted in one to two years.

The current financial condition has caused the Water Enterprise to postpone and delay needed capital replacements and improvement projects. Revenue increases are also necessary to ensure that the Water Enterprise meets and its bond covenants. The study concludes that to properly maintain the system’s aging infrastructure, and enable the Water Enterprise Fund to reach financial stability, rate adjustments are necessary.

The ordinance further makes a minor clarification to the provisions relating to meter failures.

1. Evaluating existing policies and procedures affecting water rates.
2. Evaluating adequacy of projected revenues under existing rates to meet projected revenue requirements.
3. Developing a sound financial plan for covering a five-year study for ongoing operations, planned capital improvements and complying with federal and state mandates. Developing a suitable schedule of water rates that produce revenues adequate to meet financial needs and business principles adopted by the City Council.

The study concludes that additional funds are needed to meet the minimum financial, regulatory, operational, public health and safety, and moral obligations entrusted to the City by the community. Upon the last year of the five-year implementation period, the proposed rate adjustment will amend the bi-monthly service charge for 5/8 x 3/4 meters (typical residential meter size) from $33.85 to $43.68, the capital improvements charge from $7.00 to $9.20, and a usage charge of $3.26 to $4.27 per unit of water use up to a maximum use of 33 units. This would result in the water portion of the bill increasing from $112.57 to $146.81 for the average residential customer (22 units) on a bi-monthly bill over the course of five years. Private fire service rates will also be adjusted for all meter sizes from 1.5” to 10”.  These proposed rates will replace the existing private fire service rates and are shown on the attached draft Ordinance. 

As a result of the Water Rate Study, the City is proposing the adoption of automatic annual adjustments to the first three water rate components (1. Minimum charge based on meter size, 2. Capital improvement charge, and 3. Commodity charge) and the fire service rate over a five-year period. The City is also proposing to re-adopt the automatic adjustments to the commodity delivery charge for water usage to pass future increases or decreases in wholesale water charges to customers for a five-year period. 

These water rate components would be adjusted after the next regularly scheduled meter reading, following the date on which the City’s ordinance establishing the rates becomes effective on January 11, 2024. Subsequent scheduled rate increases will become effective on January 1 of each year, commencing January 1, 2025, without further action by the City Council. However, a 30-day notice will be provided to each customer prior to each increase for the commodity charge. The proposed rates are contained in the attached draft Ordinance.

The total fee charged is calculated based upon the funds required by the City to maintain and operate the City’s water system, repay bond indebtedness, and to comply with new and existing regulations imposed by state and federal agencies.  

The basic procedure for increasing water rates is as follows:

a) A Public Hearing is held on the matter.  Notice of Public Hearing on the water rate increase was given 45 days in advance of the Public Hearing to the record owners of each identified piece of real property within the Water Enterprise pursuant to Proposition 218;

b) Property owners within the Water Enterprise boundaries have the right to file a written protest against the increase; and

c) If more than a simple majority of the total number of property owners file protests against the water rate increase, then the increase may not be instituted (the total number of parcels is 37,600).

Clarification to Provision Regarding Charges After Meter Failures 

If a meter is found to have operated improperly during any period, the City calculates the charge based on the average daily consumption for the property according to the the same season in the previous year when the meter was operating properly. The ordinance revises section 14.12.050 of the Code to state this policy clearly.

The proposed authorization for future water rate adjustments will allow the Water Enterprise to continue to meet its financial obligations and to carry out its capital improvement and replacement programs.

• Hold a Public Hearing to hear testimony and receive written protests from property owners regarding the proposed authorization for future adjustments to water rates and charges; and 

• In the absence of a majority protest, introduce and pass to second reading the attached Ordinance implementing future adjustments and making corresponding organizational and clarifying changes to Garden Grove Municipal Code Section 14.12.010 and 14.12.030. 
  
  

By: Samuel Kim, P.E., Deputy Public Works Director/ Water Services Manager