The City of San Diego's water department recently proposed large rate increases for commercial property through 2019. The increased rates are currently being reviewed, but San Diego businesses will feel the impact should they be implemented.
Public Utilities Department Rate Increase Proposal Factsheet
The Public Utilities Department is proposing a series of water rate increases. These increases will have to be approved by City Council and, until they are, nothing is official. The proposed increases are:
• 9.8 % beginning January 1, 2016
• 6.9 % beginning July 1, 2016
• 6.9 % beginning July 1, 2017
• 5.0 % beginning July 1, 2018
• 7.0 % beginning July 1, 2019
The percentages represent the overall amount of increase to the Public Utilities Department. Each customer’s exact increase will vary depending on customer class and amount of water used. A single-family customer using 12 HCF a month will see their bill go from $70.81 a month to $77.27 a month.
The Public Utilities Department conducted an extensive Cost of Service Study to determine the amount of the proposed rate increases. The Study:
• Determined the Public Utilities’ revenue requirements to purchase and deliver water to our customers;
• Reviewed financial requirements for the upcoming five years;
• Recommended water rate increases through 2019.
The reasons for the proposed rate increases are:
• Increased cost of water sold to us by the County Water Authority;
• To help pay for the new desalination plant in Carlsbad;
• To help pay for the Pure Water Program;
• To make up the difference in the budget due to decreased water sales because of the water use restrictions mandated by the State because of the drought.
The Public Utilities Department will appear before the City Council’s Environment Committee on August 5 to present the proposed rates. The Committee will be asked to forward the rates to the full City Council. If they do so, the City Council will be asked to approve a Notice that will be mailed to every customer explaining the proposed rate increases and allowing customers to protest the proposed rates.
The Notice, which is required under Proposition 218, must be mailed at least 45 days prior to the City Council approving the proposed rates. The Council will be asked at its November 17 meeting to approve the new rates. If they do so the first increase will go into effect January 1.
In addition to the rate increases for potable water, the Department is asking that the recycled water rate go from 80 cents and HCF (748 gallons) to $1.73 per HCF. This increase will pay for the ongoing costs of operating the system as the recycled water rate has not gone up since 2001. There are no planned increases in Wastewater rates.
Office properties will pass the increased costs though to their tenants annually, resulting in higher common area maintenance fees in 2016 and beyond. The magnitude of these increases depends on your lease's Base Year for operating expense calculations. Unfortunately, landlords do not classify government mandated utilities rates as "controllable" expenses, and even if your lease has a cap on operating expense increases, the proposed water rate increases will effect your future occupancy cost.
Industrial, retail, medical office and R&D (that means you Life Science/Biotech tenants) properties which have tenants on triple-net (NNN) leases pass increased operating expense costs through to their tenants directly. Tenants with this type of lease have greater exposure to volatile fluctuation in building maintenance costs, property insurance and property taxes than their traditional office counterparts. The industries which consume greater amounts of water, craft breweries for instance, will see a hike in their occupancy costs as soon as the rate increases are implemented.
At the time this was written, no rate increase has been approved. San Diego's business community still has the opportunity to make its voice heard.
The Ocean company is a commercial tenant advisory serving the business community of San Diego. We specialize in facility negotiations, forensic lease audit and project management for our neighbors.