The cost of water is expected to go up next year for Long Beach utility customers, as the department says customers’ conservation efforts have cut into revenues, which has made it difficult to replenish its reserves.
While rates for sewer and natural gas services are expected to stay the same, water service is almost certainly headed for an increase.
The Utilities Commission was presented with three options Thursday during one of the budget workshops it’s hosting before adopting a budget for the next fiscal year in June.
A 6% increase would raise an average customer’s water bill by about $3.42, while an 8% bump would raise it by $4.57, and a 10% increase would add on about $5.69 per month.
The current average bill for water use in Long Beach is $82, according to department figures.
Department staff is recommending the larger increase because it would lead to smaller increases in each of the next four years, something that department officials believe will be necessary to rebuild the water fund’s reserves, which are projected to fall to about $4.1 million if no increase is authorized by the commission this year.
The department uses the reserves for things like unplanned repairs, and having a larger balance can help it get better financing terms when it borrows money to pay for large projects. The department has set a minimum and maximum threshold for its reserves, with the minimum being nearly $30 million.
Brandon Walker, the department’s director of finance, said he recommended the board adopt the 10% increase, noting that a smaller increase this year would be “kicking the can down the road” to future years.
“It’s a tough situation to be in, but this is not something our agency is uniquely facing,” Walker said.
Commissioner Frank Martinez asked for Walker to come back with an estimate of how a 9% increase would affect the department’s finances.
“I think it’s going to be unavoidable that we’ll have to do an increase, but those double digits are hard to swallow,” Martinez said.
So, what’s contributing to the proposed increase?
Investing in the system
Long Beach gets about 60% of its water from local ground wells, and it has a long-term plan to reduce the amount of more expensive imported water it has to buy to sell to its customers.
Water from the State Water Project and the Colorado River make up about 24% of the department’s non-employee expenses, and those costs are expected to go up. Walker said the Metropolitan Water District is considering an 8% increase for its supplies, which will translate to increased costs for Long Beach customers.
The department has been ramping up its investments to tap into more groundwater, and that’s resulted in the average capital improvement budget jumping from about $20 million per year from 2019-2021 to over $40 million annually from 2022 to this year’s proposed budget.
A plan to spend about $63.5 million in the fiscal year starting in October 2024 includes work on 11 wells, 11 pipeline improvements and work on jumpstations and other infrastructure.
“These are projects that aren’t necessarily going to affect (customers) today, but what our children and grandchildren will pay in the future,” Walker told the commission Thursday.
The proposed projects do not include a $157 million plan that would build a new water treatment plant in Compton that would allow West and North Long Beach to have access to water pumped from the ground.
It’s unclear how the department would pay for that project if it’s approved, but it says it’s pursuing state and federal funds, as well as looking at bonds to help spread the financial hit out across a larger period of time.
A revenue drought
The department has called on customers to conserve water for years as the region has struggled through drought conditions, asking them to reduce the amount of time spent in the shower and even paying some to convert their turf lawns into drought-tolerant gardens.
That has paid off, as customers have used less water—but using less water has resulted in less money for the department. Overall, water sales are expected to be down $9.3 million this year, said Lauren Howland, a spokesperson for the department.
Now, the department is raising rates so it can invest in expanding its capability to pump cheaper groundwater—something that could be confusing for customers.
“We’re certainly going to have a messaging challenge this summer, not only because of that, but because of all the rain we got earlier this year,” Howland said.
Officials throughout the state have struggled with how to balance the knowledge that the recent rains have lifted most of the state out of drought with the understanding that a hot summer is around the corner and that the historic rainfalls seen in the beginning of 2023 likely will not be the norm.
The department is in the process of updating its water shortage contingency plan to align with the state. The plan is expected to be approved in mid-June, and commissioners have already expressed concern with completely rolling back water-use restrictions.
Measure M and inflation
In early 2022, two big events happened that are now affecting the department’s budget. Russia’s invasion of Ukraine sparked resource scarcity across the globe, and the city lost its lawsuit over the Measure M transfers to the general fund.
When the city returned $30.8 million to the Utilities Department, the commission voted to return it to customers in the form of bill credits. It also chose to lower rates to align with the transfers no longer being legal, amounting to about $7 million less being collected from customers.
Walker said the department could have held onto some of those funds to keep in its reserves and that could have reduced the increases that are now being proposed to build it back up.
The department is also being affected by the cost of goods going up. Pipes, electricity and other materials are going up and remaining “sticky” despite reports that inflation is tapering off, Walker said, and it’s contributing to a situation where the department’s expenses are outpacing its revenue.
“We’re getting it from all sides,” Walker said.
The Utilities Commission is meeting June 8 to continue discussing its budget, with a target date of June 22 of adopting the budget. It will then go to the City Council later this year for final approval.