SCHEDULED ITEM
E-1
TO: HONORABLE MAYOR AND MEMBERS OF CITY COUNCIL
HONORABLE CHAIRPERSON AND MEMBERS OF THE AZUSA UTILITY BOARD FROM: TIKAN SINGH, GENERAL MANAGER
DATE: JULY 27, 2026
SUBJECT: PUBLIC HEARING FOR WATER RATE ADJUSTMENTS EFFECTIVE AUGUST 1, 2026, WITH ANNUAL ADJUSTMENTS EACH JULY 1 THROUGH JULY 1, 2030,
INCLUDING THE COMMODITY DROUGHT RATE SCHEDULE, THE
REPLACEMENT WATER COST ADJUSTMENT FACTOR, AND APPROVE JOINT RESOLUTION NO. 2026-C47 ADOPTING WATER RATES AND AMENDING THE AZUSA LIGHT & WATER’S WATER RATE SCHEDULE.
BACKGROUND:
On March 24, 2025, the Azusa Utility Board authorized Staff to conduct an updated cost-of-service study to ensure that the water rates provide sufficient resources to meet the Utility’s annual operating costs, debt obligations, and short and long-term financial needs, including the Capital Improvement Program, and account for water conservation consistent with cost-of-service principles. Based on that authorization, Staff contracted with the financial consulting firm, Utility Financial Solutions, LLC (“UFS”), to prepare the Cost-of-Service Study (or “Rate Study”) that supports the recommended update to water rates, as summarized in this staff report.
Ratepayer water consumption patterns have changed due to a combination of conservation efforts, weather conditions, including atmospheric river events, and state-mandated water use efficiency measures. Water sales continue to shrink; in the last few years, the water sales of 5,725,921 and 5,865,562 CCF in 2023 and 2024, respectively, were the lowest in a decade. Unfortunately, lower water sales translate into lower-than-forecasted revenues. Azusa Light & Water is facing lower revenues, higher purchased water costs, higher operating costs, and continued capital project costs. All these factors require an updated cost-of-service analysis. The study investigates options for the water fund to maintain the water fund reserve policy, complete future capital infrastructure projects, including the Aspan Well rehabilitation, and meet future revenue requirements.
At the Joint Utility Board and City Council Meeting of May 26, 2026, Staff recommended that the City Council and Utility Board implement a 16% rate increase effective August 1, 2026, with additional annual adjustments of 16% effective July 1, 2027, and 2028, and 4% effective July 1, 2029, and 2030.
This rate increase with annual adjustments is considered necessary to fully fund all operating expenses, Water Rate Adjustment
July 27, 2026
planned capital projects, debt service obligations, and meet a cash reserve minimum through FY 2030/31.
Staff also recommended the approval of a joint resolution to document the procedures the City and Utility Board will follow to consider approval of the proposed update to water rates, including providing the notice of public hearing, and considering comments, protests, or objections from property owners and customers at the hearing in accordance with legal requirements under Proposition 218 and Assembly Bill 2257. Lastly, it was recommended that the Council and Board authorize staff to mail the public hearing notice, which includes the proposed updates to water rates as supported by the Rate Study, and authorize staff to print and mail the 45-day advance notice of the public hearing to be held July 27, 2026 (at the regular Utility Board meeting time and place, as a joint public hearing concurrently with a special meeting of the City Council).
RECOMMENDATIONS:
Staff recommends that the Utility Board take the following actions:
1) Open the Public Hearing, receive Public Testimony, consider the Written Objections, close the Public Hearing, and tally Written Protests to determine if there is a majority protest; and 2) Approve the proposed water rate adjustment to increase revenues by 16% in FY 2026/27, 16% in FY 2027/28, 16% in FY 2028/29, and 4% annually in FY 2029/30 through FY 2030/31; and 3) Approve the Commodity Drought Schedule and the Replacement Water Cost Adjustment Factor; and
4) Approve Joint Resolution 2026-C47, amending Azusa Light & Water’s Water Rate Schedule.
ANALYSIS:
The City and the Utility Board, acting through Azusa Light & Water (ALW), are committed to providing high-quality water service with the lowest possible financial impact on customers while maintaining a reliable, sustainable system. To meet this commitment, ALW evaluated its infrastructure, operations, and financial needs through a comprehensive cost-of-service study.
Several key factors are driving the need for updated water rates:
Reduced Water Sales: Water consumption has declined in recent years due to long-term conservation efforts and increased precipitation. Water sales of 5,725,921 and 5,865,562 CCF in 2023 and 2024, respectively, were the lowest in a decade. While conservation benefits the environment, it also reduces revenue. As a result, reduced water sales continue to affect the Water Fund’s ability to recover the costs of operating, maintaining, and investing in the system.
Regulatory Requirements for Water Use Reductions: The State has implemented long-term water use efficiency standards through Senate Bill 606 (SB 606), Assembly Bill 1668 (AB 1668), and Assembly Bill 1572 (AB 1572). These regulations require water agencies to reduce potable water use, implement efficiency targets, and comply with additional reporting and planning requirements. These mandates continue to impact water sales and require additional resources to ensure compliance.
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July 27, 2026
Increased Water Supply Costs / Purchased Water Costs: The projected cost of purchased wholesale water is expected to increase due to rising Metropolitan Water District of Southern California (“MWD”) rates and regional water supply charges. The increases include additional charges for supply rates, system access rates, treatment surcharges, readiness-to-serve charges, and capacity charges. Consequently, these rates continue to increase the cost of maintaining access to supplemental and regional wholesale water supplies necessary to support system reliability and respond to changes in weather patterns, emergency response, and operation challenges, including the threat of Golden Mussel infestation.
Aging Infrastructure and System Reliability Needs: Much of ALW’s water system infrastructure is decades old, leading to increased maintenance and more frequent system leaks. Ongoing investment is required to replace aging pipelines, maintain facilities, and ensure reliable service.
Investment in Infrastructure and Water Resources: To sustain the water system and accommodate future growth, the Water Division has established a program to replace aging infrastructure and develop additional water resources. The cost to complete critical infrastructure projects has increased significantly due to inflation, supply chain constraints, and rising material and construction costs.
Critical Capital Improvement Projects include:
1) The Aspan Well Rehabilitation and Groundwater Treatment project will revitalize an inactive well within Azusa. The new groundwater treatment plant will enhance local water supplies and improve water quality in the aquifer. This project will enhance drought resilience by supplying
2.5 million gallons per day.
2) The South Reservoir development project is a new 4-million-gallon water storage tank that will improve system reliability, increase operational and emergency water storage capacity, and support long-term water supply resiliency. The reservoir will be earthquake-resistant and built to provide approximately 100 years of service to the community. 3) The Water Pipeline replacement program will replace aging and leaking pipelines throughout the system on an ongoing basis to improve system reliability, reduce water loss, and address infrastructure throughout the community. The ongoing annual replacements are projected to begin in year three.
4) Golden Mussel Mitigation – An invasive species that threatens water system operations.
Preparing mitigation efforts, evaluating a new treated supply of water to address the threat of Golden Mussel infestation, which can impact water system operations. This project will help maintain reliable water delivery and protect critical infrastructure. 5) Capital Outlay (Vehicles/Trucks/Equipment)- Replace aging 1990’s and early 2000’s fleet vehicles and equipment necessary to support daily operations, system maintenance, reliability, and emergency response activities.
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Water Utility Users Tax Suspension: In addition, the proposed rates reflect a transition away from the existing in-city Water Utility Users Tax (“UUT”) structure toward a cost-based General Fund Transfer methodology. Effective on the date of the recommended update to water rates, the UUT will be suspended and will not be charged to in-city customers of City water services. Under the updated water rate structure, the City’s costs previously funded through the UUT will be covered by water rates based on the City’s cost of service. This approach allocates identified City support and infrastructure-related costs through the water rate structure on a proportionate basis, while discontinuing the collection of the separate Water UUT, currently imposed only on in-city customers.
Maintaining Financial Stability: Updated rates are necessary to ensure the Water Fund remains financially stable, meets reserve requirements, and complies with bond obligations while continuing to provide safe and reliable water service.
Proposed Rate Adjustments:
The proposed water rates support the various components required to provide safe, reliable, and sustainable water service to the community, including:
The following chart identifies the proposed Meter Charges and Commodity Charges to be effective August 1, 2026, through July 1, 2030. Meter Charges are monthly fixed charges for Standard Meters and Fire Service Meters. The Commodity Charges are based on the volume of water consumed, with one unit equal to one hundred cubic feet (“HCF” or “CCF”) or 748 gallons of water; and the rate at each tier is based on the cost of providing water service at that tier, with users of higher volume of water at higher tiers (e.g. Tier 3) requiring services at greater costs than water use at lower tiers (e.g., Tier 1). The Commodity Charges include Usage Charges per CCF for Tiers 1 through 3.
Account
Services
Meter
Capacity
Capital Groundwater Purchased
Water
Delivery
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July 27, 2026
The following table is the Proposed Rate Adjustments:
*Lifeline Rate as defined in the Light & Water Rules and Regulations, item F, page 6 of the Water Rate Schedule. The lifeline rate subsidy was funded through discretionary revenues. This approach allowed Azusa Light & Water to provide rate relief to low-income customers without requiring additional funding to be created through utility rates.
The Proposed Rate Adjustment Table refers to “RWCAF” which is the Replacement Water Cost Adjustment Factor. ALW uses a water cost adjustment factor to recover certain variable water supply costs from customers.
Replacement Water Cost Adjustment Factor “RWCAF”:
ALW uses a water cost adjustment factor to capture increases in the cost of purchasing wholesale water such as:
• Resource Development Assessments (“RDA”) Water Purchases for the Main San Gabriel Basin Watermaster (“Watermaster”), Upper San Gabriel Valley Municipal Water District (“USGVMWD”), San Gabriel Valley Municipal Water District (“SGVMWD”) • Main San Gabriel Basin Watermaster Assessments
• Supplemental water purchases
• Replacement water obligation for Watermaster, SGVMWD, USGVMWD • Cyclic Storage Water Purchases
• Reverse Cyclic Storage Water Purchases
Meter Size Current Proposed
August 1, 2026
Proposed
July 1, 2027
Proposed
July 1, 2028
Proposed
July 1, 2029
Proposed
July 1, 2030
Monthly Meter Service Charge
3/4" $ 19.00 $ 22.00 $ 25.50 $ 29.50 $ 32.50 $ 36.00
1" $ 31.20 $ 36.25 $ 43.00 $ 50.00 $ 52.00 $ 54.00
1 1/2" $ 64.50 $ 72.00 $ 80.00 $ 87.00 $ 90.00 $ 92.00
2" $ 96.80 $ 108.00 $ 118.00 $ 130.00 $ 133.00 $ 136.00 3" $ 188.80 $ 211.00 $ 229.00 $ 250.00 $ 225.00 $ 261.00 4" $ 301.70 $ 338.00 $ 366.00 $ 400.00 $ 408.00 $ 418.00 6" $ 586.60 $ 657.00 $ 757.00 $ 875.00 $ 900.00 $ 940.00 8" $ 943.60 $ 1,100.00 $ 1,400.00 $ 1,800.00 $ 1,900.00 $ 2,040.00 10" $ 2,473.80 $ 2,473.80 $ 2,473.80 $ 2,473.80 $ 2,473.80 $ 2,473.80 12" $ 3,585.00 $ 4,178.11 $ 4,178.11 $ 4,317.04 $ 4,317.04 $ 4,628.60 Lifeline Rate* $ 16.80 $ 19.80 $ 23.30 $ 27.30 $ 30.30 $ 33.80 Monthly Fire Service Charge
1" Fire Service $ 5.20 $ 6.20 $ 7.20 $ 8.20 $ 9.20 $ 10.20 2" Fire Service $ 13.90 $ 15.00 $ 17.00 $ 18.00 $ 19.00 $ 20.00 3" Fire Service $ 29.10 $ 32.00 $ 36.00 $ 40.00 $ 42.00 $ 43.00 4" Fire Service $ 57.10 $ 62.00 $ 70.00 $ 79.00 $ 82.00 $ 85.00 6" Fire Service $ 129.50 $ 140.00 $ 170.00 $ 205.00 $ 215.00 $ 225.00 8" Fire Service $ 231.00 $ 260.00 $ 331.20 $ 413.60 $ 437.60 $ 462.40 10" Fire Service $ 367.50 $ 415.00 $ 656.00 $ 719.00 $ 766.00 $ 815.00 12" Fire Service $ 523.70 $ 575.00 $ 636.00 $ 822.00 $ 876.00 $ 932.00 Usage Charge Per CCF
Tier I $ 2.30 $ 2.92 $ 3.43 $ 4.01 $ 4.13 $ 4.22
Tier 2 $ 3.42 $ 4.24 $ 4.97 $ 5.82 $ 5.99 $ 6.12
Tier 3 $ 3.91 $ 4.82 $ 5.66 $ 6.62 $ 6.81 $ 6.96
12” Meter $ 3.14 $ 4.07 $ 4.07 $ 4.21 $ 4.21 $ 4.51
Golf Course $ 3.64 Golf Course billed on Tiered Usage Charge per CCF above RWCAF
All Commodity $ 0.22 $ - $ - $ - $ - $ -
Change from Previous 16.0% 16.0% 16.0% 4.0% 4.0%
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July 27, 2026
The RWCAF is designed to capture wholesale water costs imposed on ALW through Resource Development Assessments (RDA) for Water Master, USGVMWD, and SGVMWD, supplemental water purchases, replacement water obligations, and cyclic storage water purchases. When ALW extracts more water from the basin than its adjudicated share, ALW incurs additional costs to replenish the aquifer. In addition, to reduce the impact of price increases, ALW may purchase additional imported water when available and store it in ALW’s cyclic storage for future use. ALW may also implement reverse cyclic storage, purchase water from the State Water Project at current prices, and defer delivery for the future.
The proposed rates effective 8/1/2026 include the estimated RWCAF costs for the four categories referenced above through FY2026, which are allocated to water rates at approximately $0.842 per CCF (including $0.618 from FY2025 and $0.22 from FY2026). The proposed rates, effective thereafter and each July 1 from 2027 through 2030, will be subject to an additional passthrough of the City’s RWCAF costs, which will be calculated and proportionately allocated in accordance with the Rate Study.
The following is the proposed Commodity Drought Rate Schedule:
The purpose of the Commodity Drought Rate Schedule is to adjust commodity water rates if the ALW General Manager makes a written determination that the projected use of ALW water (and corresponding projected water sales) will be at least 5% less than the FY forecast CCF levels (henceforth “Baseline Sales”). This Schedule allows ALW to ensure that the water utility collects sufficient revenues to cover its expenses during periods of lower water sales. ALW proposes a four-phase Commodity Drought Rate Schedule, with Commodity Charges varying by the Drought Phase declared by the ALW General Manager, with a Phase 1 Declaration based on at least 5% less water use than the Baseline Sales, Phase 2 at least 10%, Phase 3 at least 15%, and Phase 4 at least 20%. The ALW General Manager will determine whether the Commodity Drought Rate is based on an implementation of the Water Shortage Contingency Plan (Resolution No. 2026-UB-04), or based on a determination of actual water use over a twelve-month period compared to projected use set forth in the rate study. The City will mail a written notice to all Rate Table 2 - Proposed Commodity Drought Rate Schedule Commodity Charges Tier Proposed
August 1, 2026
Proposed
July 1, 2027
Proposed
July 1, 2028
Proposed
July 1, 2029
Proposed
July 1, 2030
Drought Phase I Level of
Conservation
-5% from Baseline
1 $ 3.13 $ 3.66 $ 4.28 $ 4.40 $ 4.50
2 $ 4.54 $ 5.31 $ 6.20 $ 6.38 $ 6.53
3 $ 5.16 $ 6.04 $ 7.06 $ 7.27 $ 7.43
12” $ 4.36 $ 4.35 $ 4.49 $ 4.49 $ 4.81
Drought Phase II Level
of Conservation
-10% from Baseline
1 $ 3.28 $ 3.85 $ 4.50 $ 4.63 $ 4.73
2 $ 4.76 $ 5.58 $ 6.52 $ 6.71 $ 6.86
3 $ 5.42 $ 6.35 $ 7.42 $ 7.64 $ 7.80
12” $ 4.57 $ 4.57 $ 4.71 $ 4.71 $ 5.05
Drought Phase III Level
of Conservation
-15% from Baseline
1 $ 3.46 $ 4.05 $ 4.74 $ 4.88 $ 4.99
2 $ 5.01 $ 5.88 $ 6.87 $ 7.07 $ 7.23
3 $ 5.70 $ 6.69 $ 7.82 $ 8.05 $ 8.23
12” $ 4.82 $ 4.81 $ 4.97 $ 4.97 $ 5.33
Drought Phase IV Level
of Conservation
-20% from Baseline
1 $ 3.65 $ 4.28 $ 5.01 $ 5.16 $ 5.27
2 $ 5.30 $ 6.21 $ 7.27 $ 7.48 $ 7.65
3 $ 6.03 $ 7.07 $ 8.27 $ 8.51 $ 8.70
12” $ 5.09 $ 5.09 $ 5.26 $ 5.26 $ 5.64
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July 27, 2026
customers at least 30 Days before the effective date of any such adjustment to water rates based on the Commodity Drought Rate Schedule
Financial Projection Summary: The previously approved rate adjustments of 4.0% (planned to be effective July 1, 2027, and July 1, 2028) are insufficient to meet Azusa’s projected revenue requirements over the forecast period. The proposed minimum cash reserve targets an assessment of working capital needs to fund operating expenses, capital improvements, annual debt service payments, utility exposure to risks such as catastrophic events, market risks, fuel cost changes, loss of customers, and power supply expenses. Based on this analysis, UFS is recommending maintaining a minimum debt coverage ratio of
1.40. The following table summarizes the financial projections without any rate changes. Cash balances and the debt coverage ratio fall below the requirements.
The study identifies the need to increase current revenues to maintain minimum cash targets and debt coverage ratios.
The following table summarizes the financial results and projected revenue adjustments. The adjustments present a cash balance that remains steady through 2031 and maintains appropriate debt coverage.
Bill Survey: The table below compares the City of Azusa and neighboring cities and utilities’ average monthly residential water bills (12 CCF).
With the first 2026 adjustment, Azusa’s average monthly water bill would be $67.60 - well below most of the neighboring utilities’ average monthly water bills.
Fiscal
Year
Previously
Approved
Rate
Additional
Rate
Adjustments
Projected Cash
Balances
Proposed
Minimum Cash
Reserve
Debt
Coverage
Ratio
Bond Issues
Including Fees
2027 4.0% 0.0% 27,073,774 $ $ 15,297,191 0.62 $ 25,000,000 2028 4.0% 0.0% 13,862,555 $ $ 17,017,610 0.25
2029 0.0% $ (42,911) $ 17,404,556 0.11
2030 0.0% (15,082,994) $ $ 17,814,191 (0.14)
2031 0.0% (31,201,283) $ $ 18,218,104 (0.37)
Fiscal
Year
Previously
Approved
Rate
Additional
Rate
Adjustments
Projected Cash
Balances
Proposed
Minimum Cash
Reserve
Debt
Coverage
Ratio
Bond Issues
Including Fees
2027 4.0% 12.0% 30,281,683 $ $ 15,297,191 1.65 $ 25,000,000 2028 4.0% 12.0% 23,855,887 $ $ 17,033,619 1.78
2029 16.0% 22,165,547 $ $ 17,433,622 2.87
2030 4.0% 20,915,204 $ $ 17,847,043 2.98
2031 4.0% 20,224,255 $ $ 18,254,894 3.12
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July 27, 2026
*Based on the currently available data.
Furthermore, after five years of the proposed rate adjustments, the City of Azusa’s average monthly water bill of $101.84 will remain competitive and below the current average monthly water bills of the neighboring utilities.
*Each utility’s estimated monthly bill is based on current available data throughout the year shown.
The comparison chart.
Proposition 218: In 1996, the California voters approved “Prop 218,” which established requirements for local agencies to approve increases to fees for “property-related services,” including rates for ongoing water services. (California Constitution Article XIII D, Section 6.) Under Prop 218, ALW is required to mail a notice of public hearing to customers (including property owners) at least 45 days prior to the hearing. Staff mailed the Notice to all water customers, including all tenants and property owners, following the Joint meeting on May 26, 2026. The notice provided access to information, including the Rate Study, which documents how ALW calculated the water rates in a manner consistent with the requirements of Prop 218, so that the rates do not exceed the estimated proportionate cost of providing the water service to each class of customers. The notice also informed customers on how to participate in the public hearing, with the right to submit a written protest of the rate increases to the City Clerk, and if the City receives a written protest prior to the close of the public hearing from a majority of customers, the rate increase may not be approved.
Water Rate Adjustment
July 27, 2026
Assembly Bill 2257:
On May 29, 2026, ALW mailed the notice for this public hearing, and ALW identified the deadline of July 13, 2026, for filing written objections. As of that deadline, ALW had received one written objection (5/30/2026, for E. Newburgh Street), and several written protests, all of which are attached to this staff report. In response to the written objection, ALW provides this written response: (1) The revenue generated by the proposed water rates do not exceed ALW’s cost of providing water service to its customers, including transfers to the City’s General Fund to cover the cost of administrative services that support water service (see Rate Study Tables 2, 31, and 32). (2) The Rate Study and this staff report explain the efforts taken by ALW to actively manage expenses to cover escalating costs of providing water service in light of increasing costs that are outside of the control of ALW. (3) ALW has carefully documented the cost of providing water service at each tier of service, and calculated the water rates at each tier accordingly (see Rate Study pages 9, 16-32, and 45-47; Figure 1, and Table 22).
Consistent with AB 2257, ALW also created a webpage to make information relevant to the proposed water rate update available to the public, including a copy of the Joint Resolution, the Notice of Public Hearing, and the Rate Study. All the relevant information was available on the Azusa Light & Water webpage www.azusaca.gov/2325/27162/Proposed-Updates-to-Water-Rates.
Mailing the Notice of Public Hearing:
Staff received authorization to print and mail the 45-day advance notice of the public hearing on a water rate adjustment, to be held on July 27, 2026, at the regularly scheduled Utility Board meeting. Staff mailed the Notice to all water customers, including all tenants and property owners, following the Joint meeting on May 26, 2026. A total of 29,556 notices were mailed out.
FISCAL IMPACT:
The proposed 16% revenue increase in FY 2026/27 is projected to result in additional rate revenues of $4.4 million and a debt coverage ratio of 1.65. Additional rate adjustments, 16% in FY 2027/28 through FY 2030, will cover slight projected increases in operating costs and expenses, fund necessary capital improvement projects, maintain water fund cash reserves in accordance with the UFS study findings, and meet the debt coverage of 1.40.
Water Rate Adjustment
July 27, 2026
Prepared by: Prepared by:
Yesenia Paez Gabriela Enriquez
Senior Management Analyst Management Analyst
Prepared by: Reviewed and Approved:
Danny Smith Melissa Barbosa
Admin & Finance Manager Assistant GM Water Operations
Reviewed and Approved: Reviewed and Approved:
Tikan Singh Sergio Gonzalez
General Manager City Manager
Attachments:
1) Joint Resolution 2026-C47
2) Exhibit A – Azusa Light & Water Rules & Regulations – Revised Water Rate Schedule 3) UFS Study Azusa Water Report (Final)
4) Received Objection & Protest Letters