HomeMy WebLinkAboutStaff Report 2302-0944Item No. 2.Page 1 of 15
Finance Committee
Staff Report
From: Kiely Nose, Assistant City Manager
Report Type: Action Item
Lead Department: Utilities
Meeting Date: March 7, 2023
Report #: 2302-0944
TITLE
The Utilities Advisory Commission and Staff Request That the Finance Committee Recommend
the City Council Adopt a Resolution Approving the FY 2024 Wastewater Collection Utility
Financial Plan Including Proposed Reserve Transfers and Increasing Wastewater Rates by
Amending Rate Schedules S-1 (Residential Wastewater Collection and Disposal), S-2
(Commercial Wastewater Collection and Disposal), S-6 (Restaurant Wastewater Collection and
Disposal) and S-7 (Commercial Wastewater Collection and Disposal – Industrial Discharger)
RECOMMENDATION
The Utilities Advisory Commission (UAC) and staff request that the Finance Committee
recommend that the City Council:
1. Adopt a resolution (Attachment A):
a. Approving the Fiscal Year (FY) 2024 Wastewater Collection Financial Plan (Linked
Document); and
b. Approving a transfer of up to $3.178 million from the Capital Improvement
Program Reserve to the Operations Reserve in FY 2023; and
c. Approving a transfer of up to $342,000 from the Rate Stabilization Reserve to
the Operations Reserve in FY 2023; and
d. Increasing Wastewater Collection Utility Rates Via the Amendment of Rate
Schedules S-1 (Residential Wastewater Collection and Disposal), S-2
(Commercial Wastewater Collection and Disposal), S-6 (Restaurant Wastewater
Collection and Disposal) and S-7 (Commercial Wastewater Collection and
Disposal – Industrial Discharger) (Attachment B).
EXECUTIVE SUMMARY
The FY 2024 Wastewater Collection Utility Financial Plan includes projections of the utility’s costs
and revenues through FY 2028. The Financial Plan projects costs to rise over the forecast horizon
due to increasing treatment costs related to capital improvements and operational costs at the
Item No. 2.Page 2 of 15
Regional Water Quality Control Plant (RWQCP), as well as increasing collection system
operational and Capital Improvement Program (CIP) costs.
Staff recommends accelerating the rate of main replacements, from 1 mile to 2.5 miles per year
beginning in FY 2026. This acceleration will allow the Wastewater Collection Utility to replace the
last main no more than approximately 8 years beyond its anticipated 100-year life expectancy.
The Financial Plan also includes three alternative scenarios based upon feedback from the UAC1
and the Finance Committee.2 Staff’s recommendation attempts to minimize rate impacts while
also prudently managing the City’s infrastructure and maintaining an acceptable level of risk.
Staff proposes a 9% overall revenue increase in FY 2024, 9% annual rate increases in FY 2025 and
FY 2026, 8% in FY 2027 and 5% in FY 2028, to cover current and projected costs.
BACKGROUND
Every year staff presents the UAC with Financial Plans for the Electric, Gas, Water, and
Wastewater Collection Utilities. The Financial Plans recommend rate adjustments if necessary to
maintain the financial health of these enterprises. These Financial Plans include a comprehensive
overview of the operations of each enterprise, both retrospective and prospective, and are
intended to be a reference for UAC, Finance Committee, and Council members as they review
the budget and staff’s rate recommendations. Each Financial Plan also contains a set of Reserves
Management Practices describing the reserves for each utility and the management practices for
those reserves.
The City’s sewer system collects wastewater from Palo Alto residents and delivers it to the
RWQCP for treatment. The City of Palo Alto runs the RWQCP, which also treats wastewater for
five other partner agencies (Stanford, East Palo Alto Sanitary District, Los Altos Hills, Los Altos,
and Mountain View). Some of the wastewater for certain partner agencies is also transported
across the City’s wastewater collection system.
The Wastewater Collection Utility has two main costs: the costs of operating the collection
system and Palo Alto’s share of the cost of running the RWQCP.3 Both cost components have
been increasing and are expected to continue to increase. The RWQCP has been in operation
since 1934. Aging equipment, new regulatory requirements, and the movement to full
sustainability will require rehabilitation, replacement and new processes. Palo Alto has seen
increases in operational costs in recent years, and debt service for the plant is expected to
increase substantially in coming years as a major rehabilitation and replacement plan adopted in
1 UAC Staff Report #14610, October 12, 2022 and UAC Staff Report #13879, April 6, 2022.
2 Finance Committee Staff Report #14611, November 29, 2022
3 The costs associated with the RWQCP are shared among Palo Alto and the partner agencies based primarily on
wastewater flows and the composition of the wastewater each agency sends to the treatment plant. Palo Alto’s
share varies from year to year but is roughly one third of the total cost.
Item No. 2.Page 3 of 15
2012 (Long Range Facilities Plan) is implemented. Rehabilitation and replacement of plant
equipment that has been in use for over 40 years is necessary to ensure the city can provide
wastewater treatment safely and in compliance with regulatory requirements for the discharge
of treated wastewater 24 hours a day. Collection system costs are also increasing. This is primarily
driven by increases in collection system capital costs. Over the last few years, main replacement
costs have been increasing for utilities due to economic activity in the Bay Area causing
construction cost inflation. Staff assumes future CIP spending to increase by about 5.4% annually,
which will significantly increase CIP costs over the forecast period. Staff also recommends an
accelerated CIP program to increase the sewer main replacement rate from 1 mile to 2.5 miles
per year (or from 2 miles to 5 miles per project constructed every other year) to fulfil the goal of
replacing pipes near their life expectancy. There are 138 miles of original sewer mains to be
replaced or rehabilitated and most of these are vitrified clay pipe originally installed between
1950 and 1970. Staff’s experience suggests that pipe can last around 100 years in Palo Alto’s
underground condition. This financial plan proposes to begin the accelerated CIP replacement
rate in FY 2026, with alternative scenarios starting FY 2028, FY 2030, or FY 2034. Other
operational costs have also greatly increased (e.g., salaries and benefits and administrative
overhead).
This Financial Plan projects revenue reductions due to COVID-19 primarily from the Restaurant
and Commercial customer classes. Non-residential revenue declined in FY 2022 by 11% relative
to FY 2020 levels (prior to the pandemic), despite the 3% rate increase that was effective
September 1, 2021. This is equivalent to a 4% reduction in FY 2022 sales revenue relative to FY
2020 sales revenue. Staff projects a linear recovery through FY 2025.
DISCUSSION
Staff completes an annual assessment of the financial position of the City’s wastewater collection
utility to ensure adequate revenue to fund operations, in compliance with the cost of service
requirements set forth in the California Constitution (Proposition 218). This includes making long-
term projections of market conditions, the physical condition of the system, and other factors
that could affect utility costs, and setting rates adequate to recover these costs. The rates
proposed in this Financial Plan were developed based on the 2021 Cost of Service and Rate Study
completed by Raftelis Financial Consultants, Inc., the “City of Palo Alto 2021 Wastewater COS
Report.”4
4 A cost of service study is a study using industry-standard techniques to determine how the costs of running the
utility should be recovered from its customers. Charges to each customer are set in proportion to the cost of
serving that customer.
Item No. 2.Page 4 of 15
Proposed Actions
1. Approve the Fiscal Year 2024 Wastewater Collection Financial Plan; and
2. Approve a transfer of up to $3.178 million from the Capital Improvement Program
Reserve to the Operations Reserve in FY 2023; and
3. Approve a transfer of up to $342,000 transfer from the Rate Stabilization Reserve to the
Operations Reserve in FY 2023; and
4. Increase Water Collection Utility Rates Via the Amendment of Rate Schedules S-1
(Residential Wastewater Collection and Disposal), S-2 (Commercial Wastewater
Collection and Disposal), S-6 (Restaurant Wastewater Collection and Disposal) and S-7
(Commercial Wastewater Collection and Disposal – Industrial Discharger); and
The FY 2024 Wastewater Collection Financial Plan describes these proposed actions in detail.
Staff proposes to adjust wastewater rates as shown in Table 1 below, effective July 1, 2023. The
proposed adjustments will increase the system average rate by 9%. These proposed rate changes
are included in the amended rate schedules (Attachment B). Residential customers pay a monthly
fixed service charge while commercial customers (other than restaurants) are billed monthly
based on average winter water usage for the months of January, February and March, applied in
the following July. This closely approximates non- irrigation water consumption, which
represents sewer use. Restaurant customers are charged based on monthly water usage as they
generally lack irrigation but are charged higher rates due to higher grease and oil discharges
necessitating additional treatment costs. Currently there are no customers on the S-7 (Industrial)
rate schedule; however, CPAU continues to maintain the S-7 rate schedule in case of future need.
Table 1: Current and Proposed Wastewater Collection Charges
ChangeCurrent
(as of 7/1/2022)
Proposed
(effective 7/1/2023)$%
Monthly Service Charges ($/Month)
S-1 (Residential)Service Charge $ 44.62 $ 48.64 $ 4.02 9.0%
Water Quantity Rates ($/CCF)
S-2
(Commercial)
Quantity Rates 8.33 9.08 0.75 9.0%
S-6 (Restaurant)Quantity Rates 12.43 13.55 1.12 9.0%
Item No. 2.Page 5 of 15
FY 2024 Financial Plan’s Projected Rate Adjustments for the Next Five Fiscal Years
Table 2 shows the projected rate adjustments included in the Wastewater Collection Utility
Financial Plans and their impact on a residential wastewater bill.
Table 2: Projected Rate Adjustments and Residential Bill Impact, FY 2024 to FY 2028
FY 2024 FY 2025 FY 2026 FY 2027 FY 2028
Wastewater Collection Utility 9%9%9%8%5%
Estimated Bill Impact for
Residential Customers ($/mo) (1)$4.02 $4.38 $4.78 $4.63 $3.13
Estimated Monthly Bill $48.64 $53.02 $57.79 $62.41 $65.53
(1) estimated impact on residential wastewater monthly bill, which is currently $44.62
As noted above, one of the main drivers for the increase in the Wastewater Collection Utility’s
costs (and therefore rates) over the next several years is the cost for wastewater treatment,
which is projected to increase by an average of 6.2% annually from FY 2022 to FY 2028 as the City
makes several upgrades to the RWQCP. Increases to capital expenses begin in FY 2024 with the
Joint Intercepting Sewer Rehabilitation construction, funded on a pay-as-you-go basis. Additional
debt service payments begin in FY 2025 for the Primary Sedimentation Tank, in FY 2028, for the
construction of an Outfall Line, Lab/Technical Services building, and Operations building remodel,
and in 2029 for Secondary Treatment Upgrades and Headworks.
Staff projects Wastewater Collection operations and CIP costs (excluding costs associated with
treatment) to increase by approximately 3.7% annually from FY 2022 to FY 2028; operations costs
are projected to grow an average of 1.4% annually over the same time period. The Wastewater
Collection Utility undertakes a larger main replacement project every other year. A project is
scheduled to begin in the current year (instead of FY 2024) because of coordination with Caltrans
to limit or avoid digging into newly paved street on El Camino Real. The next project is scheduled
for FY 2026. Undertaking a larger main replacement project every other year allows staff to
continue replacing wastewater mains that are in poor condition, while easing scheduling
difficulties for inspection coverage due to shared staffing across water, wastewater, gas, and
large development services projects. Over the last few years, main replacement costs have been
increasing for utilities due to economic activity in the Bay Area causing construction cost inflation.
It is likely that this trend will continue in the short term. Staff has not observed any dip in
Item No. 2.Page 6 of 15
construction costs although more information will be known once the Utilities Department issues
more construction bids.5
Figure 1 and 2 below illustrate the increase in the Wastewater Collection Utility’s costs. RWQCP
costs for the Wastewater Collection Utility are included in “Treatment,” while “Capital” and
“Operations” include only collection system costs. 33% of the increase from FY 2018 to FY 2028
is due to treatment cost increases, 29% is due to increases in operations costs, and collection
capital costs are responsible for 39% of the increase from FY 2018 to FY 2028. Note that
treatment costs increase an additional 28% from FY 2028 to FY 2029 due to debt service coming
online for the Secondary Treatment Upgrades and Headworks.
Figure 1: FY 2018 and FY 2028 Costs ($ Millions)
5 As an additional reference, the California Construction Cost index increased from 2.8% in December 2020 to
13.4% in December 2021 and then decreased to 9.3% in December 2022. See:
https://www.dgs.ca.gov/RESD/Resources/Page-Content/Real-Estate-Services-Division-Resources-List-Folder/DGS-
California-Construction-Cost-Index-CCCI
Item No. 2.Page 7 of 15
Figure 2: Percentage of Cost Increase from FY 2018 to FY 2028 Attributed to Treatment, and
Operations Costs
To promote rate stability and provide continuity in collection system CIP expenditure levels, this
plan continues the steady annual capital program contribution to the CIP Reserve. The CIP
Reserve will then absorb annual spending fluctuations, reducing the impact on the Operations
Reserve. Figure 3 below shows the projected CIP Reserve balances and Figure 4 below shows
year-end reserve balance levels for each reserve from FY 2023 projected through FY 2028.
Because the Sanitary Sewer Replacement project budgeted for construction in FY 2024 is now
scheduled to move up to FY 2023 to minimize street repavement on El Camino Real, this will draw
down the CIP Reserve in FY 2023 to zero and slowly replenish the reserve throughout the forecast
period so that by FY 2027 the reserve remains within the guideline range as shown in Figure 3.
Item No. 2.Page 8 of 15
Figure 3: Projected Capital Reserve Balances, FY 2023 to FY 2028
Figure 4: Wastewater Collection Utility Year-End Reserve Levels, FY 2022 to FY 2028
Item No. 2.Page 9 of 15
Table 3: Operations, Rate Stabilization and CIP Reserves Starting and Ending Balances,
Revenues, Transfers To/(From) Reserves, Expenses, Capital Program Contribution To/(From)
Reserves, and Operations Reserve Guideline Levels for FY 2023 to FY 2028 ($000)
* Planned CIP (item 12) is reflected as an expense in the CIP Reserve and does not include CIP
funded through Reappropriations or Commitments reserves. This Financial Plan utilizes $8.345
million for Planned CIP from the CIP Reserve in FY 2023; this total includes $3.75 million (item 9)
and $1.417 million (item 7) as well as $3.178 million from the CIP Reserve. Staff requests Council
approval to transfer $3.178 million from the CIP Reserve to the Operations Reserve in FY 2023.
Capital Projects and Reserves
The CIP Reserve aims to stabilize uneven annual funding associated with ongoing CIP projects
including sanitary sewer main replacements that are scheduled to occur every other year and is
a source for one-time or immediately needed projects. In June 2021 Council approved consistent
annual funding from the Operations to the CIP Reserve. The attached Financial Plan projects that
rate funding is needed to cover $8.345 million of planned CIP in FY 2023. This figure is the portion
of planned CIP in FY 2023 that will not be paid for through funds collected in prior years (the FY
2023 capital budget, less funds available in the Reappropriations and Commitments Reserves)
shown in line 12 of Table 3. The $8.345 million will be funded by the capital program contribution
of $3.75 million plus $1.417 million in one-time funds from the Operations Reserve (lines 9 and
2023 2024 2025 2026 2027 2028
Starting Balance
(1)Ope rati ons 4,252 3,049 4,315 3,586 3,693 5,805
(2)Rate Stabili zation 342 -----
(3)CIP 3,178 0 916 3,665 849 5,853
Revenues
(4)Total Revenue 21,859 23,896 26,164 28,435 30,648 32,177
Transfers
(5)Ope rati ons (1,075)--(700)--
(6)Rate Stabili zation (342)-----
(7)CIP 1,417 --700 --
Capital Program Contribution
(8)Ope rati ons (3,750)(2,333)(7,100)(7,313)(7,725)(7,957)
(9)CIP 3,750 2,333 7,100 7,313 7,725 7,957
Expenses
(10)Total Expense s (w/o CIP and De bt)(18,108)(20,168)(19,794)(20,315)(20,812)(22,541)
(11)De bt Service (129)(129)----
(12)Planned CIP (8,345)(1,418)(4,351)(10,828)(2,722)(11,917)
Ending Balance
(1)+(4)+(5)+(8)+(10)+(11)Ope rati ons 3,049 4,315 3,586 3,693 5,805 7,484
(2)+(6)Rate Stabili zation ------
(3)+(7)+(9)+(12)CIP 0 916 3,665 849 5,853 1,893
Operations Re serve Guideline Levels
(13)Minimum Gui de line Level 2,998 3,336 3,254 3,339 3,421 3,705
(14)Max imum Gui de line Level 7,495 8,341 8,134 8,349 8,553 9,264
Fi scal Year
Item No. 2.Page 10 of 15
7 from Table 3), together with $3.178 million from the CIP Reserve. Withdrawals from the CIP
Reserve for use on capital projects require Council action.6 The attached Financial Plan therefore
requests Council approval to transfer up to $3.178 million from the CIP Reserve to the Operations
Reserve.
Wastewater Bill Comparison with Surrounding Cities
The monthly equivalent sewer bill for a Palo Alto resident is $44.62 under current rates, 28%
lower than the average neighboring community. Table 4 shows the monthly sewer bills at current
rates for residential customers compared to what they would be in surrounding communities.
These communities are the same six cities that Palo Alto compares itself to in the annual budget
across Water, Wastewater, Gas, and Electric utilities.
Table 4: Residential Monthly Equivalent Sewer Bill Comparison ($) at Current Rates
Neighboring Communities
Palo Alto
Menlo
Park
Redwood
City
Santa
Clara
Mountain
View Los Altos Hayward
44.62 106.67 89.28 46.82 50.10 42.05 38.58
If Council adopts the proposed wastewater rate change, and assuming other agencies do not
change their sewer rates, Palo Alto’s residential rates would remain 26% lower than the current
average neighboring community. Furthermore, under the attached Financial Plan, Palo Alto’s
residential monthly bills would rise to $65.56 per month in FY 2028 which is only 5% above the
current neighboring community average of $62.25 per month. Staff has no information at this
time as to whether or when the surrounding communities are planning wastewater rate changes.
However, as most agencies are also requiring renovations to their respective treatment plants,
increases at other agencies are likely. Note that as partners in the RWQCP, Mountain View and
Los Altos will be affected by similar treatment cost increases as Palo Alto.
Table 5 shows the monthly sewer bills for Commercial and Restaurant customers. Palo Alto is less
competitive with surrounding cities with regards to commercial sewer rates but is not the most
expensive jurisdiction. Palo Alto’s commercial bills are 7% higher than the neighboring
community average while Palo Alto’s restaurant bills are 12% below the neighboring community
average. Table 5 assumes 14 units of water for general commercial and 56 units of water for
restaurants.
6 See Appendix C, Wastewater Collection Utility Reserves Management Practices Section 5(b).
Item No. 2.Page 11 of 15
Table 5: Non-Residential Monthly Equivalent Sewer Bill Comparison ($)
Neighboring Communities
Palo Alto
Menlo
Park
Redwood
City
Santa
Clara
Mountain
View Los Altos Hayward
General
Commercial
116.62
144.34
117.74
75.74
156.66
72.23
87.92
Restaurant
696.08
1,216.88
1,128.40 718.48
718.48
288.90
660.80
Changes from Prior Financial Forecasts
Table 6 compares the projected overall rate changes in the current Financial Plan with the
projected rate changes in the FY 2022 and FY 2023 Financial Plans. The current plan recommends
accelerating the rate of main replacement which increases rates necessary to cover rising costs
and maintain adequate reserves for both the Operations and CIP reserves.
Table 6: Proposed/Projected Wastewater Rate Changes for FY 2024 to FY 2028
Projection FY
2024
FY
2025
FY
2026
FY
2027
FY
2028
Current Plan (FY 2024)9%9%9%8%5%
FY 2023 Financial Plan 5%5%5%5%N/A
FY 2022 Financial Plan 5%5%5%N/A N/A
Alternative Scenarios
The attached Financial Plan includes staff’s recommendation along with three alternative rate
trajectories (A, B and C) summarized in Table 7 and 8 below. These alternatives show the impact
of a longer transition from 1 mile to 2.5 miles per year of main replacement (or 5-miles per
Sanitary Sewer Replacement or SSR) over longer time periods in order to lessen the impact on
sewer rates. The more that wastewater assets are operated past their useful life the greater the
likelihood of substantial pipe failures resulting in additional repair and maintenance costs,
sanitary sewer overflows, sinkholes, or other catastrophic impacts. The anticipated useful life of
wastewater mains is estimated at approximately 100 years and the proposed rate increase would
set the City on track to replace the last main approximately 8 years after the end of its expected
Item No. 2.Page 12 of 15
useful life (or 108 years). To replace mains within the 100-year lifespan, rate increases were
projected to be more than desired by the UAC (e.g., more than 15% in FY 2024).
Alternatives A, B and C in the table below provide lower rate increases but would further increase
the duration these assets are operated past their estimated useful life. Staff’s recommendation
attempts to minimize rate impacts while also prudently managing the City’s infrastructure and
maintaining an acceptable level of risk.
Table 7: Recommendation and Alternate Scenarios for Wastewater Rate Changes
Rate Scenarios Fiscal Year of
First 5-mile
SSR
Construction
FY
2024
FY
2025
FY
2026
FY
2027
FY
2028
Age of Last
Remaining
Sewer Main
Replaced
Recommendation FY 2026 9%9%9%8%5%108 years
Alternative A FY 2028 9%8%6%6%6%110 years
Alternative B FY 2034 7%7%5%5%5%114 years
Alternative C Later than FY
2034
5%5%5%5%5%> 114 years
Table 8: Projected Residential Bill Impact and Estimated Monthly Bill, FY 2024 to FY 2028
FY 2024 FY 2025 FY 2026 FY 2027 FY 2028
Recommendation $4.02 $4.38 $4.77 $4.62 $3.12
Alternative A 4.02 3.89 3.15 3.34 3.54
Alternative B 3.12 3.34 2.55 2.68 2.82
Estimated Bill
Impact for
Residential
Customers ($/mo)
(1)
Alternative C 2.23 2.34 2.46 2.58 2.71
Recommendation 48.64 53.02 57.79 62.41 65.53
Alternative A 48.64 52.53 55.68 59.02 62.56
Alternative B 47.74 51.08 53.63 56.31 59.13
Estimated Monthly
Bill ($)
Alternative C 46.85 49.19 51.65 54.23 56.94
Item No. 2.Page 13 of 15
(1) estimated impact on residential wastewater monthly bill, which is currently $44.62
NEXT STEPS
The City Council will consider the proposed Financial Plans and amended rate schedules with the
FY 2024 budget, expected in June, at which time the public hearing required by Article XIIID of
the State Constitution will be held. If Council approves the proposed rate increases, they will
become effective July 1, 2023. Assuming the UAC and the Finance Committee support the
proposed rate adjustments, staff will send notification of the potential rate increases to
customers as required by Article XIIID of the State Constitution (added by Proposition 218)
expected in April 2023. If the UAC recommends one of the alternative scenarios for wastewater
rate changes, staff will describe the UAC’s recommendation to the Finance Committee in March.
If the Finance Committee recommends one of the alternative scenarios for wastewater rate
changes, or any other recommendation in March, staff will bring the Finance Committee
recommendation to the City Council in June or return to the Finance Committee in April with
revised rate scenarios, as directed by the Finance Committee. Staff plans to include the Finance
Committee’s recommended rate scenario for wastewater rate changes in the notification of
potential rate increases to customers as required by Article XIIID of the State Constitution
expected in April 2023.
RESOURCE IMPACT
Staff projects normal year revenues for the Wastewater Collection Utility to increase by
approximately 9% ($1.8 million) in FY 2024 as a result of the proposed rate changes. See the FY
2024 Wastewater Collection Utility Financial Plan for a more comprehensive overview of
projected cost and revenue changes for the next five years. The FY 2024 Budget is being
developed concurrent with these rates and depending on final rates, adjustments to the budget
may be necessary at a later time.
POLICY IMPLICATIONS
The proposed wastewater rate adjustments are consistent with Council-adopted Reserve
Management Practices that are part of the Financial Plans. Staff developed the wastewater rate
adjustments using a cost of service study and methodology that was completed in compliance
with the cost of service requirements of Proposition 218 in 2021 (Raftelis Financial Consultants,
Inc. completed a cost of service (COS) study for the Wastewater Collection Utility in 2021 City of
Palo Alto 2021 Wastewater COS Report).
Item No. 2.Page 14 of 15
STAKEHOLDER ENGAGEMENT
At the Utilities Advisory Commission (UAC) April 2022 meeting, staff presented the need to
increase the rate of sewer main replacement from 1 mile per year to 2.5 miles per year in order
to replace the remaining 138 miles of sewer mains scheduled for replacement before they exceed
their expected life (Staff Report #13879). UAC Commissioners expressed support for increasing
the rate of sewer main replacement to 2.5 miles per year (See UAC Meeting Minutes of April 6,
2022 Special Meeting).
At the UAC’s October 12, 2022 meeting, staff presented three alternative approaches to
accelerate the sanitary sewer main replacement (Staff Report #14610 and UAC meeting minutes).
One Commissioner stated that immediately moving to 2.5 miles/year in FY 2024 funded through
pay-as-you-go financing or SRF loan is reasonable while two Commissioners opposed the
immediate move to 2.5 miles per year in FY 2024 alternatives. Three Commissioners supported
transitioning to 2.5 miles per year over four years (beginning in FY 2026). One Commissioner
questioned whether transitioning to 2.5 miles per year slowly by 2034 to keep rates low may also
be acceptable.
Additionally, staff brought this item to the Finance Committee for discussion on November 29,
2022 (Staff Report #14611 and Finance Committee summary meeting minutes). Staff presented
a series of alternative rate trajectories that included the proposal from this Financial Plan, a more
accelerated time frame for reaching the 2.5 miles per year of main replacement by FY 2024
through higher rate increases or debt financing and a 5% annual rate increase. Finance
Committee members expressed a preference to see the rate trajectory in the main proposal in
the attached Financial Plan with additional scenarios that showed the transition to 2.5 miles per
year of main replacement over 6 years (by 2028) instead of 4 years (by 2026) and with fewer
years of 9% increases. The attached Financial Plan includes three alternative scenarios in
response to the Finance Committee’s feedback.
At the Utilities Advisory Commission (UAC) March 1, 2023 meeting, staff will present the attached
Financial Plan. Staff will share the UAC vote on the motion to the Finance Committee. Staff, the
UAC, and the Finance Committee’s recommendation on the FY 2024 wastewater rate increases
will be presented to City Council in June during the budget adoption process.
ENVIRONMENTAL REVIEW
The Finance Committee’s review and recommendation to Council on the proposed FY 2024
Wastewater Collection Financial Plan and rate adjustments do not meet the definition of a
project, pursuant to Section 21065 of the California Environmental Quality Act, thus no
environmental review is required.
Item No. 2.Page 15 of 15
ATTACHMENTS
Attachment A - Wastewater FY24 Resolution
Attachment B - Wastewater FY24 Rate Schedules
APPROVED BY:
Dean Batchelor, Director Utilities
Report #: 2302-0944