Water Rate Outcome

On Monday night, the City Council voted to increase water rates at the recommended rates. They will phase the increases in over a three year period, for the Distribution and Customer Charge portion and add the full cost of water from Metropolitan Water District. That likely means most people will see added costs of between 8% and 25% over the next three years.

In addition, the Council added some provisions to avoid penalizing water customers who actually conserve. If Pasadena does not use water in the higher cost tiers from MWD, those costs will not be passed on to customers.

The Chamber is working with PWP to organize informational meetings to help business customers conserve water and reduce costs.  Look for information tihs summer.

Paul

U.S. News and World Report Money Guide Available

U.S. News and World Report’s Money Guide is out.  There’s some very useful information about investing, retirement planning, where to live when you retire (San Luis Obispo makes the top ten) and getting ahead of the recession.

It contains some fascinating information:

Where are the best states to start a business in the U.S.?  Washington, Colorado, Virginia, Texas and Nevada (right next door and happy to lure California companies away). What do they have that California lacks? How about low or non-existent taxes? Very supportive regulations and easy processes,  inexpensive and well educated labor, technological innovation…

Where are growing employment opportunities: In specialized health-related fields and science.

Matthew Bandyk opines that perhaps small businesses don’t need a federal bailout but rather some changes to the tax code so it’s easier to make a profit.  He talks about home office deductions, communication devices used for business – small things that could make profitability easier and hasten a return of capital to the local market and boost the local economy.

Mortimer B. Zuckerman opines about where the Federal stimulus is going awry (too much money on social program, not enough for those shovel-ready programs… ).

It’s all at www.usnews.com.  Some thought-provoking reading.

Paul

Pasadena Chamber of Commerce letter to City Council on water rate increases

Here is the text of a letter to the Pasadena City Council regarding the substantial water rate increase proposed by Pasadena Water and Power.  (Rate increases that are being used to add to reserves, build up the capital reserve and then compensate for increased water costs from the Metropolitan Water District.  Be aware, only a small portion of these increases cover the added cost of water.)

June 19, 2009

Mayor Bill Bogaard

Pasadena City Council

100 North Garfield Avenue

Pasadena, CA 91109

Dear Mayor Bogaard and Council Members,

The Board of Directors of the Pasadena Chamber of Commerce reiterates its concerns about the current proposal to increase the cost of water service to customers over the next two years. As you are aware, our concerns fall into these areas: 1.) the potentially devastating impacts dramatic increases in water cost could have on your business and residential customers who are already suffering the effects of our stagnating economy; 2.) the lack of serious efforts by the Pasadena Water Department to reduce its own internal expenses before imposing substantial increases on customers; 3.) only a fraction of the proposed increases are the result of additional costs of purchased water from the Metropolitan Water District; 4.) the inequities in rate increases that impose penalty costs on customers who do not waste water; and 5.) the fact that the proposed rates are designed to increase revenue and will not result in water conservation.

We do recognize that neighboring communities are raising their water rates as a result of the MWD increases. However, those communities are really just recouping the additional costs, so none is raising rates to an extent, and over as short period of time, as Pasadena’s proposed increases. South Pasadena, for example, is raising its rates by about 5% on July 1^st and then by an average of 13% until July, 2012. California American Water is seeking increases for its customers that average $17 per month. Alhambra will raise its rates by about 15% per year for the next five years. Burbank is raising its rates by 8.5% per year for the next four years and Glendale plans a 7.7% increase. It should also be noted that each of these are starting at an average rate lower than Pasadena’s, according to the Redoak cost of service study data. Five years from now, none of our neighboring communities will have experienced increases equaling Pasadena, and their customers will still pay lower overall water rates, on average.

We have examined the Cost of Service Study performed for the Water Department by Redoak. Interestingly, that study recommends against imposing new pricing tiers and suggests that would further create inequities within and between customer classes. It is also interesting to note that the study shows Pasadena commercial customers pay much more than commercial customers in nearby cities, as much as 50% more than their counterparts in Burbank, Los Angeles and Glendale while our residential customers pay somewhat less than those in other cities, indicating that in Pasadena commercial customers significantly subsidize the water rates for residential uses.

Again, the Chamber of Commerce makes these recommendations:

The Chamber Board of Directors would prefer to see any immediate increases strictly limited to an amount that only recovers increases in the cost of water from the Metropolitan Water District. Other costs could be recovered through efficiencies within the water department or by postponing or foregoing some capital projects and an entire rate restructuring performed in conjunction with budget-based billing for water service.

If the Council is unwilling to take a harsh stance to contain departmental costs, it is the recommendation of the Board that the increases be reduced by half each year and phased in over a four year period. We also find it appropriate to reward those who have conserved water by exempting anyone who has saved 10% from 2006 use levels from tier 4 and 5 pricing levels.

The Chamber Board finds it difficult to accept any increase beyond the cost of water when the department itself has clearly not done anything to reduce its costs. Employee reductions claimed by the department have turned out to instead merely an accounting trick, moving some employees to the power department, a clever clerical deception.

Recognizing that commercial water customers pay significantly higher rates to subsidize residential users, the Chamber Board recommends restructuring the rates so that each customer class pays its fair share of all costs evenly. We have concerns about the amount of the “hook up” charge imposed by Pasadena that again weighs much more heavily on commercial customers than residential. Some neighboring water companies impose no such fee, while those that do charge significantly less than Pasadena.

Finally, the Board suggests that the department use billing and collections technology to discern water wasters and impose higher costs on those customers who are actually incurring the additional costs by wasting the commodity. It should be a simple matter to discern who is using significantly high amounts of water and then audit those accounts. That focus should be on both residential and commercial customers. For commercial customers, there are about 300 customers who will fall in the tier 4 and tier 5 pricing categories.  It will be a simple matter to check the bills and audit those customers.  For the more than 3000 residential customers in those pricing tiers, it may take more work, but it is a safe assumption that most of those are using water unnecessarily and should pay the higher price, if they fail to conserve water at the 10% level.

It is also clear from the Redoak cost of service study commissioned by PWP that many of the assertions made by department staff justifying the additional 25% charged to customers outside of Pasadena are inaccurate. Those inaccuracies could lead to a successful Proposition 218 challenge. For example, despite staff assertions to the contrary, the study makes no claim that there are additional costs to deliver water to customers outside Pasadena, nor does it offer any justification for the additional charges, beyond the claim that Pasadena owns the commodity and can charge more for it. Also, left out of the discussion is any mention that those customers outside Pasadena have been paying for infrastructure and water for as long and at higher rates than those within the city limits, thereby having an equal “ownership” stake in the company. This distinction could possibly undermine the assertions that the additional charges are warranted and legal. There is also no mention of the fact that these customers already pay a dividend of nearly 8% as their portion of the transfer to the general fund. In order to ensure the premium paid by those outside Pasadena withstands a Proposition 218 challenge, the Chamber recommends reducing that 25% premium by the amount of the general fund transfer to 17%.

One of the challenges in examining these rate increases is the disturbing lack of consistency in the staff reports. It has been asserted that these additional charges are the result of increases in the cost of water that must be bought from MWD, but on even a cursory examination, the department is using higher fees to increase its reserves and capital projects fund. The department claims its rates will be competitive with surrounding municipalities, yet the Redoak study shows that Pasadena’s commercial customers pay significantly more than commercial customers of any other local water utility. The department claims to have reduced its workforce when in fact it has only moved those employees to the power side of the company. Finally, we note that the amount Pasadena Water Company staff assert is the “penalty pricing” level imposed by MWD is different in these reports than what has been published by MWD. Pasadena Water claims the added costs is $1600 per unit, but MWDs staff and board reports put the penalty amount at $1468 per unit, 10% lower than department figures. All of these inconsistencies warrant a very close examination by the council before any rate increase, especially one so substantial and potentially devastating.

Please listen to your constituents, both commercial and residential, and reduce the amount of the water cost increases by either charging only as much as the increased costs from MWD or by extending the phase in period of these increases to at least four years, not the two years recommended by the department.

Thank you,

Paul Little

President and Chief Executive Officer

Cc: M. Beck, M. Jomsky, Chamber Board

Advice on corporate policies for social media

Some companies are developing policies for employee use of social media such as blogs, Facebook, LinkedIn, Twitter and others.

Here’s a link to some of the current thinking on the subject from an HR professional at About.com who has worked to develop policies for companies:

http://humanresources.about.com/od/policysamplesb/a/blogging_policy.htm

Paul

Los Angeles Business Journal published Chamber op-ed on water rate hikes

Getting Soaked

The proposal to raise water prices in Pasadena fails to consider impact on heavy commercial users.

By PAUL LITTLE

There is no doubt Southern California is faced with a dwindling supply of water. As a result, local water companies are taking actions to stabilize finances while providing less of the commodity.

In Pasadena, our Water and Power Department is proposing significant increases to the cost of water to stabilize its financial position. The increases would add 10 percent to 30 percent to most commercial customers’ bills and 10 percent to 20 percent to residential bills. Another increase will be imposed July 1, 2010.

Understandably, this proposal has created unease among many in the business community in Pasadena.

For one thing, these increases are coming in the midst of a very severe economic downturn that has many businesses taking dramatic steps to maintain operations. Many businesses as well as residents have had to make difficult decisions to maintain their financial viability. A dramatic increase in water costs may have far-reaching negative impacts on our local economy.

For another, the department’s proposal is an all-or-nothing proposition. At this time, there is no consideration given to anything but maintaining the water department’s bottom line. As Water and Power General Manager Phyllis Currie told our City Council, the proposal is intended to stabilize the department’s finances by increasing the price of the commodity and adjusting pricing tiers to lower water use levels.

The Pasadena Chamber of Commerce is recommending instead that any increases be phased in over at least four years so that the economy has time to rebound before the full impact of substantial increases in water costs hit our businesses. Alternatively, the chamber would recommend lowering the percentage increase or maintaining the current billing categories and reserving high pricing tiers for those who are demonstrated to be wasting water, not just using large amounts in their normal course of business.

Issue of fairness

Is it fair, for example, that a hospital that has lowered its water consumption by implementing conservation measures yet still must use a significant amount of water for its normal operations be charged at the same rate as a resident who waters his lawn daily during the afternoon and refill his swimming pool weekly? The hospital is required to wash bedding at least daily, maintain very high levels of cleanliness and provide for patient comfort. The other is clearly wasting the resource and should pay a higher rate.

Also, increases could be offset by departmental efficiencies. The general impression is that government is wasteful and ultraprotective of its bureaucracy. I served on the Pasadena City Council for 12 years and I know the vast majority of municipal employees are hard working and dedicated. That said, our water department is seeking an increase to maintain its budget at present levels without instituting savings to offset the cost increases. Costs could be reduced further or perhaps costs in other departments could be cut to help mitigate the increased cost of water.

Finally, Pasadena’s commercial water customers are paying a disproportionate amount of the proposed increases, especially when departmental reports indicate residential customers waste water at a disproportionately high level.

Most, if not all, commercial customers have implemented conservation measures and may already have reached the department’s targeted 10 percent reduction level. Commercial customers are unable to recoup additional costs associated with this significant increase, so they likely will have to reduce costs in other areas. This could mean work force reductions, temporary or permanent closures, curtailment of services or restriction in operating hours. Those measures could impact our community in lost jobs, lost opportunities to do business and decreased revenues to the city.

It seems logical, if water conservation is a goal, that significant increases should target those who are wasting water, whether commercial or residential. Increases then should be adjusted so that those customers who are wasting water are responsible for paying the costs in the highest rate tiers, not simply the largest users of water. Just because a customer uses a large amount of water does not mean they waste the resource.

Likewise, those customers who have reduced their water usage by the requested 10 percent from 2006 levels should be rewarded with exemption from charges in the highest ranges. Those costs could be shifted to those customers who are shown to be wasting water – away from the hospital, golf course, university or laundry that must consume water to operate.

The bottom line is that the current state of the economy, and the impacts being felt by important businesses in Pasadena, as well as our residential community, requires that a thorough and comprehensive public evaluation of the proposed increases be undertaken before these hikes are implemented. That review should take into account potential consequences to the local employment base and economy, as well as the water department and city finances.

Likewise, significant weight should be given to the impact these increases may have on some of the cornerstone institutions and businesses in our community as well as our employment and revenue base.

Paul Little is the president and chief executive of the Pasadena Chamber of Commerce.

Honestly, if the Water Department had come forward with a proposal that showed a real effort to save money, and only wanted to get customers to pay for the added water costs, there probably wouldn’t be any controversy. The problem is their using the excuse that water costs are going up to pad the department’s reserves and enhance the capital budget.

Now, about the personnel shell game where the Water Department claims to have trimmed employees but really only moved them into the Power Department so we pay for them in our electric rates instead of our water rates.

It is crystal clear there is not a water conservation element to the substantial increase in customer bills.

Every time the staff reports on the rate hikes, more slips out that indicates the department really only needs a portion of the increase to offset the added cost of water.

Paul

Board letter to Council on Water Cost Increases

This letter was sent to the Pasadena City Council from the Chamber regarding the significant water rate increase proposed by PWP.

June 2, 2009

Mayor Bill Bogaard

Pasadena City Council

100 North Garfield Avenue

Pasadena, CA 91109

Dear Mayor Bogaard and Pasadena City Council,

The Board of Directors of the Pasadena Chamber of Commerce at its meeting of May 26, 2009 formally chose to express concern about the significant increase in the cost of water service proposed by the City of Pasadena.

The Chamber Board is very concerned that water costs for commercial customers will rise by 10% to 30% on July 1, 2009, with additional increases proposed for July 1, 2010. Residential customers may see an increase of 10% to 20% over the same period, with a second increase in 2010.

The Board and staff of the Chamber have heard a significant level of unease that has been expressed by Chamber membership over the recent spate of cost increases imposed by the City of Pasadena, especially the proposed hike in the cost of water.

Concerns being expressed very strongly by Chamber members are (followed by the pertinent recommendation by the Chamber Board):

• These increases are coming in the midst of a very severe economic downturn. Many businesses, and residents, have to make difficult decisions to maintain their financial viability. Added costs for City services, especially the dramatic increase in water costs, may have far reaching negative impacts on Chamber members and the local economy.
  • The Chamber Board recommends cushioning the water rate impacts by phasing the increases in over a four year period, rather than the two years currently being proposed. That would provide some time for the economy to begin to grow again, and for businesses to get back on their feet before having to cope with the entirety of the increases proposed by the water department. If that were not deemed appropriate, the Chamber would recommend mitigating the potentially negative consequences of the increase by lowering the percentage increase.

• The Board also expressed concern that the Pasadena Water Department needs to demonstrate efficiencies and cost reductions before asking for a rate increase. Businesses in Pasadena, throughout Los Angeles County, our state and nation are forced to reduce budgets, many by 20% or more. Pasadena Water Department is seeking an increase to maintain its budget at present levels without demonstrating to its customers that a thorough evaluation of department operations has resulted in cost savings.
  • The Chamber Board recommends the City Council ask for significant reductions in operating costs from the Water Department before imposing these increases on customers. The Chamber Board reasons that a thorough and exacting surgical evaluation of the operations of the Water Company could result in significant cost savings that have no impact on vital services or the supply of water for Pasadena Water Company customers.  While it is clear there have been efforts to reduce costs, both within the Water Department and the City, the Chamber Board would like to see a significant effort made to reduce costs further. It is also suggested that the City look at reducing some costs, or eliminating costly processes in other departments to help mitigate the increased cost of water for commercial customers.

• Pasadena Water Department’s commercial customers are paying a disproportionate amount of the proposed increases, especially when departmental reports indicate that residential customers may waste water at a disproportionately high level compared to businesses.  Pasadena Water’s larger customers will pay significantly more for water while likely being unable to make substantial savings as they already have implemented conservation measures and may have already reached the 10% reduction level targeted by the water company. The commercial customers are unable to recoup the additional costs associated with this significant increase in water costs, so likely will have to reduce costs in other areas. This could mean workforce reductions, temporary or permanent closures, curtailment of some services or restriction in operating hours. Those measures could impact our community in lost jobs for residents, lost opportunities to do business and decreased revenues to the City.
  • The Chamber Board recommends the increases be adjusted so that those customers who are wasting water are responsible for paying the costs in the highest rate tiers, not simply the largest users of water. Simply because a customer uses a large amount of water does not mean they waste the resource.  In fact, most of the large commercial water customers are running very efficient operations, but their operation may be dependent on using significant amounts of water. The Board also recommends that those customers who have reduced their water usage by the requested 10% from 2006 levels be rewarded by being exempt from charges in the tier 4 and tier 5 range and that those costs be shifted to those customers who are shown to be wasting the resource.

• An examination of budget-based water rates has been ordered by the Council and will be considered for implementation next year.
  • The Chamber Board recommends that the City Council consider all rate adjustments together at one time, and forego the current proposal in favor of a comprehensive program that adjusts rates to achieve real conservation and that places the cost for wasting water on those who are known to be ignoring conservation measures.

The Board of Directors of the Pasadena Chamber of Commerce considered the water increases carefully.  After a lengthy discussion and debate, the Board unanimously approved expressing the above concerns about the proposal to increase the cost of water.

The Chamber Board recommends very strongly that the City Council reconsider the proposal to increase costs of water for commercial and residential customers. This cost increase was proposed by the Department to stabilize its income for the future, according to the report to the Council made by Phyllis Currie, Director of the Water and Power Department. The Chamber Board feels that the current state of the economy, and the impacts being felt by important businesses here in Pasadena, as well as our residential community, requires that a very thorough and comprehensive public evaluation of the water increases be undertaken before these hikes are implemented.  The Chamber Board recommends that review take into account economic conditions and potential consequences to the local employment base and economy, as well as Water Department and City finances.

While it is very likely the department has made some operational efficiencies to reduce costs, the Chamber Board also strongly suggests the department be induced to make significant cuts in its own operational budget that could mitigate some of the cost increases being proposed by the Department.

During its deliberations, the Chamber Board was very mindful of the challenges faced by all businesses, including the Pasadena Water Department and the City of Pasadena, as well as the effect the economy is having on the residents of Pasadena. We all know the City Council and city staff are aware of the impact the recession has had on local businesses and residents and we are all concerned about the prospect of rising costs. The Chamber Board is urging the Council and senior level staff to bring that concern into the deliberations of the proposed increase to the cost of water and give significant weight to the impact these increases may have on some of the cornerstone institutions and businesses in our community as well as our employment and revenue base.

Thank you for your consideration.

Sincerely,

Paul Little

Paul Little

President and Chief Executive Officer

Pasadena Chamber of Commerce

865 East Del Mar Boulevard

Pasadena, CA 91101

626-795-3355

Cc: M. Beck, Chamber Board of Directors, M. Jomsky