In the 2010 Office of City Auditor rate review, $383 million was anticipated to be generated by the multiyear rate increases and $739 million would be generated from the base rates during the period 2011 through 2016 (1). Actual revenues generated since 2011 have not been as high as forecast. Actual revenue collected during 2011—2014 was $47 million lower than projected in the original multiyear rate case.The audit also reported that because revenue from the higher rates hasn't brought in as much as planned, less money has been available for other water projects unrelated to SDS.
In 2010, it was projected that 78% of the new revenue from rate increases would be used by SDS and the remainder would be available for use by the general water system. As of the 2012 rate case, the percentage of SDS cost to be financed using long term debt had started to change and more of the capital costs were planned to be cash funded. Given the projected sales volumes, revenue forecasts, and reduced program costs, rate increases were reduced from the initial projections. Ultimately, the multiyear increases were implemented as two years of 12% increases followed by two years of 10% increases, rather than six years of 12% increases as originally envisioned. However, since the 2012 rate case, revenues have not met projections and more cash has been used on SDS, leaving less available for other parts of the water system.
The Water service requires an Operating and Maintenance (O&M) increase of $4.1 million to assess the distribution system and repair critical infrastructure. Additional drivers of Water O&M increases in 2016 are the initial phase of the Southern Delivery System (SDS) coming into service and ongoing maintenance and replacement costs to the overall Water system, which have purposely been reduced due to SDS construction and revenue shortfalls. The Revenue Requirement has been offset by use of cash on hand of $5.5 million in 2016 as compared to $11.7 million in 2015 due to Water cash levels continuing to deteriorate due to multiple years of lower than expected Water revenue.To read the entire 500+ page rate case, click here. Rates changes will become effective January 1 if approved by City Council, which doubles as the Utilities Board.