Water and wastewater rates may soon increase in Santa Monica — to help prevent the exhaustion of the city’s rapidly declining reserve funds.

The water system reserve fund will be exhausted by the beginning (July 1st) of fiscal year 2009-2010 if water rates are not increased, and the wastewater reserve fund will be depleted by fiscal year 2010-2011 if wastewater rates are not increased, said Gil Borboa, the city’s water resources manager.

This is because “expenses continue to rise,” Borboa said in his presentation to the City Council on water and wastewater rate studies and a five-year plan for revenue enhancement April 22nd.

“Materials get more expensive,” he said. “Fuel gets more expensive. Power gets more expensive. Water gets more expensive — the water that we purchase from Metropolitan [the Metropolitan Water District, (MWD)]. Without a rate increase, we look at depleting our funds by fiscal year ’09-’10.”

In May last year, city staff presented various options for both water and wastewater rate and structure modifications in a study session, but additional information was needed at the time.

City staff presented several options for establishing water and wastewater rates that would build the city’s reserves over the next five years. One included an infusion of several million dollars cash from the methyl tertiary butyl ether (MTBE) settlement funds the city received after its water was contaminated in 1995 by several gas companies.

The City Council unanimously adopted the staff recommendation of establishing increased water and wastewater rates without utilizing any of the settlement funds and is expected to vote on the final staff recommendation on May 13th.

The new rates could be implemented as early as August 1st.

If the council approves the rate changes, residents would see an 11.5 percent increase in their water rates and a 18 percent increase in their wastewater rates in the first year, Borboa said.

Under the city’s current system, an average single-family user pays approximately $119 per year for water and wastewater service.

Under the proposal, the rates would go up to approximately $129 — about an eight percent increase, or just over $9 every other month.

For multi-family unit owners, it would be about a ten percent increase, or about $36 every other month.

Also, under the proposed changes, there will no longer be a bi-monthly fixed service charge.

For residential customers, water rates would be determined by a new four-tier structure, which would replace the existing three-tier structure.

For non-residential customers, a uniform commodity rate would be established. A second tier for non-residential customers would apply at the high end of consumption, in order to provide a strong disincentive for excessive water use, Borboa said.

“In terms of sustainability, I really am very happy with the proposed water rate structure change, which gives much greater incentive to water conservation, which is the direction we absolutely have to go no matter what else we do,” said City Councilman Kevin McKeown.

For wastewater, the bi-monthly service charge will also be eliminated and all of the revenue requirements will be recovered through commodity rates determined for various residential and non-residential customer classes, Borboa said.

The city’s current water rate structure was adopted in 1996.

Since 1999, the city has increased rates annually based on the actual Consumer Price Index (CPI), which measures inflation.

An exception occurred in 2005, when the council approved a six percent increase instead of the CPI increase, Borboa said.

The current wastewater rate structure comprises a fixed service charge plus a commodity charge. It has remained unchanged since 1996, but an annual CPI-based rate increase has been in effect since 2001, Borboa said.

The proposed water and wastewater rate changes are expected to come back before the City Council on May 13th for a vote.