Cotati City Council
Agenda Staff Report
Item type: REGULAR AGENDA (ACTION)
To: City Council
Subject: REVIEW PROPOSED SONOMA WATER TRANSMISSION
SYSTEM BUDGET FOR FISCAL YEAR 2026-2027 AND
PROVIDE DIRECTION TO CITY'S WATER ADVISORY
COMMITTEE MEMBER
Date: March 10, 2026
Written by: Craig Scott, Director of Public Works/City Engineer Recommendation
It is recommended the City Council adopt a motion providing direction to the City’s Water Advisory Committee Member to endorse the proposed Sonoma Water Fiscal Year 2026-2027 Water Transmission System Budget
Background
Sonoma Water has a Technical Advisory Committee (TAC) comprised of staff from the prime water contractors (specific cities and water districts that purchase water from Sonoma Water, as named in the Restructured Agreement for Water Supply), and a Water Advisory Committee (WAC) comprised of designated elected officials from these same prime water contractors.
At the TAC meeting on March 2, 2026, Sonoma Water presented the attached proposed budget for the TAC consideration and recommendation to the WAC. The TAC unanimously approved the proposed budget. At the prior joint WAC/TAC special meeting on February 9, 2026, the WAC Chair set April 6, 2026, as the special meeting date to have the WAC vote on the proposed FY 26/27 Water Agency water transmission system budget.
Analysis/Discussion
The proposed Budget package prepared by Sonoma Water is attached and contains a summary, table of contents and budget detail sheet. In January, the Technical Advisory Committee (TAC) formed a Budget Subcommittee, and the Committee met with Sonoma Water staff over the past six weeks to review the proposed budget. The Committee met several times and sent questions to Sonoma Water Staff. The questions and the response are include as an attachment to this Staff Report. These questions were responded to and helped guide several iterations of the proposed Budget package. A summary of the changes made from the initial January 22, 2026, draft, are on page vi of the attached Budget package. Of the three distinct changes made to the initial Draft of the budget, one was prompted by a question from the Committee (computation of O&M rates) and the other two were further refinements to the Budget made by Sonoma Water staff resulting in an estimate of increased revenue resulting in a reduction of the proposed rates. An example of a change made by Sonoma Water staff is the added revenue of $300k to the Common Facilities from the Warm Strings Dam Hydropower Retrofit Project which is expected to be operational at the end of Quarter 3 and results in a lowering of the proposed rates.
In accordance with the Restructured Agreement for Water Supply (the wholesale water supply agreement for the prime water contractors, including Cotati), the City’s wholesale water rate is tied to the Petaluma Aqueduct rate. The proposed overall increase to the wholesale water rate for FY 26/27 is 8.97 percent (compared to 10.76 percent for the current year). A table showing prior rate increases back to FY2007/08, is on page 3 of the attachment. Based on the Restructured Agreement for Water Supply, the rates are to be based on the lower of the prior 12- month average or 3-year average. The projected water deliveries for use in the FY26/27 budget, is the 12-month average of 41,776 Acre-Feet (AF).
The water rate is comprised of four groupings of charges as follows: 1) Operations and Maintenance, 2) Aqueduct Facilities Capital Charges, 3) Storage Facilities Capital Charge, and 4) Common Facilities Capital Charge. Page 7 of the attached budget shows the proposed water rate for the aqueducts and broken down by these groups. The rate groupings are each described below.
Operations and Maintenance
This charge consists of a base O&M charge and four sub-charges that together make up the “Total O&M Charge”. The base O&M charge would increase by $76.89/AF (7.47%) due to cost increases for maintenance equipment, permitting costs, SCADA system contributions, utilities, staff labor costs tied to negotiated labor agreements, and other expenditure increases. A summary of the O&M fund changes for FY26/27 compared to the FY25/26 adopted budget is shown on page xii, and changes to the O&M rate, revenues and expenditures are shown on pages xii and xiii of the attached documents.
The four sub-funds within the Total O&M Charge are as follows:
1. Water Management Planning. This sub-fund decreased by $1.94/AF. This sub-charge is used primarily to fund the Urban Water Management Plan and the annual water supply and demand assessment. The plan is required by the State for years ending in zero and five. Using $50k in fund balance. The rate decrease is due to reduced needs due to the 5-year cycle of the Urban Water Management Plan partially offset by lower use of fund balance.
2. Watershed Planning and Restoration. This sub-charge is used primarily to fund activities required for the implementation of the Biological Opinion. This sub-charge would increase by $49,71/AF (108.7%) which is on top of an 14.1% increase in FY25/26. The rate increase is primarily a result of costs associated with the new Biological Opinion, including Estuary Enhancement, Eel Grass & eDNA monitoring, Dry Creek small scale restoration, Hydrologic Index work, CEQA petitions, and the upper river steelhead migration study and a decrease in the use of fund balance.
3. Recycled Water & Local Supply. This sub-charge is used primarily for funding recycled water and local supply projects. Fiscal Year 2026/27 rate is decreased from $0.14/AF to $0/AF by using fund balance.
4. Water Conservation. This sub-charge is used for funding regional water conservation efforts, such as regional media ads and supporting the regional Sonoma-Marin Water Saving Partnership. This sub-charge is to increase by $8.3/AF (13%) following a 7% increase the prior year. The increased expenditures is primarily associated with negotiated labor rates and outreach programs.
Summaries of the major expenses in each of these sub-funds can be found on pages xiii through xv of the attached Proposed Sonoma Water FY 26/27 Transmission System Budget.
Aqueduct Facilities Capital Charge
A discretionary charge is added by the water Contractors to build fund balance for future aqueduct capital projects and to provide rate stabilization. The Contractors on the Petaluma Aqueduct, Cotati, Rohnert Park and Petaluma, decided to maintain the charge at $10/AF.
Storage Facilities Capital Charge
FY25/26 rate is $50.09 and is to decrease by $4.29/AF (8.6%). The rate is calculated by dividing the annual debt service and reserve requirements by water deliveries. Total Debt service is lower than previous year due to issuance costs tied to the 2026 Bonds for capital projects in the Storage Fund were paid in FY2025/26. The decrease is partially offset by a decrease in budgeted water deliveries.
Common Facilities Capital Charge
The FY25/26 rate is $196.36 and is to decrease by $13.51 (6.9%). The rate is based on revenue requirement for debt service divided by water deliveries. The total debt service is lower than the previous year as issuance costs tied to the 2026 Bonds for capital projects in the Common Fund were paid in FY25/26. The decrease was partially offset by a decrease in budgeted water deliveries.
Petaluma Aqueduct Bond/Loan Charge
This was a new charge in FY25/26 of $15.66/AF to Cotati, Rohnert Park and Petaluma. Petaluma Aqueduct pays an additional revenue bond charge for the bonds associated with Ely BPS Flood Control and Electrical Upgrade and Wilfred Booster Station Projects. The rate is based on revenue requirement for debt service divided by water deliveries.
Financial Considerations
Approval of the budget is expected to result in an increase of 8.97% to the wholesale rate of water that the City purchases from Sonoma Water. Purchases from Sonoma Water account for
32.2% of the City’s total water operating expenses. This follows a 10.76% rate increase for 2025/26. The City’s 5-Year rate model included 12% and 6% increases for Sonoma Water purchases for the FYs 25/26 and 26/27, respectively, which compare to actual percent increases of 10.76% and 8.97%, respectively.
The estimated impact to the City’s water utility budget, however, assumes the City well usage follows historical average which has been 40% of total water supply and, due to equipment failures, FY24/25 well use was only 29 % of total water supply and the City purchased significantly more water from Sonoma Water that year and strained the water utility budget.
Well water is estimated to be a third of the cost per AF than purchased from Sonoma Water. To prevent or make scenarios like what happened in FY 24/25 less likely, the City’s goal is to evaluate its equipment and be proactive in timely maintenance and replacement of this equipment. The current Renewal and Replacement Master Plan effort is expected to be completed by the end of this year and will provide an inventory of equipment and their renewal and replacement needs for each of the City’s well sites. These recommendations are to be included in future City budgets and its five-year CIP.
Environmental Issues
Council action on this item is exempt from the California Environmental Quality Act (CEQA) because it does not constitute a project as defined by CEQA Guidelines Section 15378.