Item No.
TO: HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL
FROM: OFFICE OF THE CITY MANAGER
BY: MATTHEW BAUMGARDNER, P.E., DIRECTOR OF PUBLIC
WORKS/ CITY ENGINEER
DATE: FEBRUARY 25, 2025
SUBJECT: UPDATE ON THE CITY OF DOWNEY WATER SYSTEM
EXECUTIVE SUMMARY
Following the recent power outage in the City and the wildfires in Los Angeles County, the City Council requested an update on the overall condition of the City’s water system at its meeting of January 14, 2025. This informational update provides background on the water system, including the groundwater wells and water mains that distribute water to all customers; the staffing and emergency planning in place to maintain the system; and the current operational costs to produce sufficient water to meet demand each year. The analysis will look at the costs the system is facing over the coming years as it relates to emergency preparation, upgrading and maintaining the system, and emerging water quality standards. As a result, it will introduce the discussion for a rate increase to keep the water fund balance in a position to address these issues to address key vulnerabilities over the next several years.
RECOMMENDATION
That the City Council:
1. Receive and file an update on the city’s water system; and
2. Direct staff to proceed with conducting a Water Rate analysis and returning to a future City Council meeting with rate increase options for consideration to adequately fund the water system operations and its Capital Improvement Program.
BACKGROUND
The City of Downey’s water system serves approximately 20,000 residential and commercial customers by extracting groundwater from 20 active wells dispersed throughout the City. The demand on the system on an average day is 13,000 gallons per minute (gpm). This can be met by operating 9 of the 20 wells.
Downey’s water is unique in that it does not require any sort of disinfection and currently does not need to be treated. As a result, it can be pumped from the ground and directly put into the distribution system and delivered to customers. Once the water is pumped
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2 from the wells, it is delivered to customers through a system of approximately 258 miles of water mains. Service connections that tap into the water mains bring water to the individual customers. The system is maintained by 19 full-time field employees. An additional 9 administrative and engineering staff members focus on the planning, engineering, regulatory compliance, and customer service needed to keep the system functioning at its highest level.
Over the last 10 years, the various costs associated with delivering water to customers and maintaining the system has grown from approximately $13 million to $17 million on an annual basis. At the same time, expenditures have gone up steadily due to inflationary increases in costs related to labor, materials, electricity, and the assessment we pay each year to the Water Replenishment District for pumping groundwater. During this time, revenues from water sales have gone down from $18 million to approximately $17 million each year, mainly as a result of reduced usage from conservation. As a result, the difference between annual revenues and expenses have gone from approximately $5 million each year down to zero. Each year, excess funds available beyond operational costs are added to the unrestricted fund balance to be used on construction projects, which are incorporated into the Capital Improvement Program (CIP) to provide for necessary system replacements and upgrades. In previous years, an excess amount up to $5 million was able to support annual improvements to the system without significant reduction to the unrestricted reserve balance. However, over the last few years, this excess amount has been approaching zero and the balance has been reduced to keep up with necessary upgrades to the system. Coming into Fiscal Year (FY) 2024-2025, the water fund had an unrestricted fund balance of approximately $6.3 million. The FY 2024- 2025 CIP projects, focusing on various water improvements and well rehabilitations, will reduce the fund balance to approximately $3 million by the end of the fiscal year.
ANALYSIS
Emergency Preparedness for the Water System
One of the key elements to ensuring delivery of water to customers is electrical power, which is needed to drive the pumps that extract groundwater from the City’s 20 active wells. Power is delivered to the City and its wells by Southern California Edison (SCE) and is broken into three separate service areas. Historically, outages in multiple service areas have not occurred in Downey. If there are outages, they typically affect just one service area. Groundwater wells that are interrupted due to power loss in one area can be supplemented by wells that remain operational in the other two areas.
The power outage that occurred on December 24, 2024 struck around 1:00 p.m. and affected 2 of the 3 power service areas. As a result, there were not sufficient wells running to maintain optimal water pressure of 65 pounds per square inch (PSI) in the overall system. Many customers in the City experienced little to no pressure until approximately 4:00 p.m. that day. The primary concern with a complete system power outage is how will
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3 the City provide adequate water pressure for fire suppression purposes if all the water wells are inoperable.
As previously stated, the average daily water demand is approximately 13,000 gpm, which can be met by operating 9 of the wells. During the Christmas Eve outage, staff was able to bring the pressure back throughout the system by turning additional wells on in the unaffected SCE service areas and putting a couple more wells on existing City-owned back-up generators in the impacted zones. This allowed the water to be back at a normal pressure of 65 PSI within a three-hour period despite the SCE electrical power remaining out in portions of the two service areas for several hours. As SCE returned power to different sections of these areas, staff was able to bring more wells back online and was able to take wells off of back-up generation.
As a result of legislation passed by Congress in 2018 under the American Water Infrastructure Act, all community water systems are required to submit an emergency response plan (ERP) to the Environmental Protection Agency every five years. As part of the City of Downey ERP, measures for supplying adequate water to meet firefighting and customer demands include back-up generation through rental units with contracted generator companies or other methods such as opening up emergency connections that exist with the Metropolitan Water District (MWD). In the case of opening up emergency connections, this is only considered in situations where there could be a prolonged power interruption that could last multiple days and in which back-up generation could not provide sufficient power to wells to meet an average demand of 13,000 gpm. As stated previously, historically, the City has not had widespread power outages in all three service areas and a case has not existed in which staff has had to open up these connections.
Staff has always been able to compensate for impacted wells by turning on wells in unaffected areas.
The event on December 24, 2024 tested the vulnerability of the system. While staff was able to return normal water pressure throughout the system within three hours, planning for emergency fires suppression needs during the water pressure loss period is of utmost importance. Staff has come up with measures to deal with the potential for rare and prolonged events that could impact all three SCE service areas in the City, which is being addressed by the following measures:
• Deploying mobile generator units at 9 of the key wells dispersed throughout the City.
o This will ensure adequate supply at all times during an interruption of power to meet average daily water demand and maintain normal pressure in the system.
o To date, staff has secured and installed 8 rental units to provide back-up.
• Examining emergency connections, such as with (MWD) to ensure they would be operational in a prolonged event, such as an earthquake.
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4 o Since they have not been opened in the past, staff is working with MWD to make sure operational protocols are in place to open the connections in an emergency.
• Reviewing options with the Downey Fire Department (DFD) on providing firefighting supply in the event that pressure is too low.
o Staff met with Downey’s Fire Chief to line out all of the locations and options for accessing alternate sources of water available throughout the City.
These include access to:
Reclaimed water hydrants located at five separate locations in the City.
Adjacent City and LA County fire hydrants
Lake water at Wilderness Park
Lake water at Rio Hondo Golf Club
Water Reservoir at City Utility Yard
o In the event that City fire hydrants have little to no pressure, DFD staff would first utilize either reclaimed water hydrants located around town or they would access adjacent City or LA County fire hydrants in a water shuttle operation. If those are not operational, DFD staff could pump water from reservoirs located at Wilderness Park, Rio Hondo Golf Club, or the City Utility Yard using fire apparatus and equipment therein. As a result, protocols are in place to protect the community by providing water for firefighting purposes should a power outage occur resulting in a loss of communitywide water pressure.
• Exploring grant funding available through the Federal Emergency Management Agency (FEMA) to install permanent back-up generators at 9 well sites.
o Staff reached out to the California Governor’s Office of Emergency Services (CalOES), who oversees Hazardous Mitigation Grants on behalf of FEMA, to see if there are available grant funds from FEMA to put towards the purchase and installation of permanent generators.
o CalOES informed the City that a new funding opportunity would be opening up soon related to the recent wildfire disaster declaration and that the project to install nine generators in Downey would be recommended to FEMA once they have gathered enough applications from other water agencies planning back-up generation for their water system. This could happen in the next 3 to 10 months, as they have until January 2026 to group the applications together for funding and send them to FEMA.
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5 o The total grant application is $4 million for a CIP project that would allow the City to install permanent back-up generation at nine well sites to ensure power is not interrupted and that water demand can be met in an emergency. FEMA will conduct a review of the grant application once it receives the recommendation from CalOES. This review period will take approximately 12 months.
o The City should receive a decision on the grant application from FEMA between July 2026 and January 2027.
Water System Financial Outlook
As previously stated, the water system currently generates approximately $17 million in annual revenues and currently manages to keep operational expenditures within this amount each year. Any excess funds are added to the water fund balance, which is available in future years for CIP water system projects. These excess funds were once closer to $5 million each year, but in recent years, the excess amount has been significantly diminished. The City has significant capital project needs, and without programmed surpluses to fund these projects, the water fund is likely to be depleted in the near future. The water fund balance is projected to end FY 2024-2025 with approximately $4 million in available unrestricted funds, which is a $2 million reduction from the prior year.
The City has a need to add significant funds to address the following estimated costs to address system needs and vulnerabilities:
• Existing CIP program to upgrade water mains, hydrants, meters, equipment, and rehabilitating active wells and downhole pumps (approximately $6 million a year).
Staff has been completing approximately $3 million worth of work a year over the last couple of years as the unrestricted fund balance has been reduced. However, ideally a CIP annual program would be closer to $6 million to keep up with upgrading water mains and rehabilitating wells.
• Monthly rental costs to provide back-up generation at 9 active well sites (approximately $90,000 a month is currently being paid). Staff is exploring the purchase of used back-up generators to reduce this monthly cost and will begin transitioning from rental units to City-owned units over the next few months. • Costs to design and construct a treatment system to meet new standards for PFAS (approximately $100 million). The PFAS standard for drinking water was established by the EPA in April 2024. When new standards are adopted, water systems like Downey that previously reported PFAS in testing of their water system, have five years to develop treatment systems to meet the newly adopted standard. Considering this, the City has until April 2029 to design and install its treatment system. Federal funding has been awarded to the City to help with this cost. However, the City has yet to receive any such funding to date. Staff is working
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6 with its federal advocacy consultants to gain access to this funding through the Army Corps of Engineers.
• Future costs for maintaining the treatment system once it is operational (approximately $4 million a year).
• General inflationary increases to costs for labor, materials, equipment, and utilities.
Discussion on Rate Increase
The City last implemented a rate increase for water and sewer customers 10 years ago in FY 2015-2016. That was the last year of a five-year rate increase cycle that began in FY 2011-2012. Prior to this, the last rate increase cycle adopted by City Council was in FY 1995-1996. It is customary for cities to conduct rate studies every five years and bring them forward for discussion with their City Council for consideration of whether increases are warranted to cover changes in operational or capital costs. Generally, rate increases occur annually to keep the fund healthy and to keep up with inflation, thereby, avoiding the need for any large rate corrections that might be a shock to residents. While the City has maintained the lowest rates in the region over the last several decades, the upcoming costs described above cause concern for the health of the water fund and for the City to adequately maintain its infrastructure over the next five years. Now is a good opportunity for the City to begin the discussion and evaluation of adjustments to the City current water rate structure. The financial state of the water system is probably the biggest vulnerability staff sees in the next few years. Simply, funds need to be available to keep the system operating effectively and able to address regulatory and emergency operation needs.
As a reference point, the City currently has the lowest rates in the region by a significant amount. In a 2023 study of water agencies in the region conducted by Water Resources Economics, the average two-month water bill for a household in Downey was $52.64.
This compares to 10 other nearby water agencies that had an average two-month bill of $111.23 when averaging them all together. Downey is approximately 24 percent lower than the next lowest agency. It is approximately 111 percent lower than the average of all other agencies and approximately 264 percent lower than the most expensive agency.
While having low rates is not necessarily a bad thing, it can also be an indicator that the City’s rates may be significantly behind what is financially prudent. As a result, staff recommends conducting a rate study to determine the breadth and scope of the City’s operational and infrastructure needs and create a funding plan to address them over the next five years.
Next Steps
As a result of the water rates remaining unadjusted since FY 2015-2016, the water revenues are not in a position to keep up with the growing costs of water system operations. Staff has seen costs increase approximately $4 million annually over the last 10 years, and with inflationary adjustments and rising electricity costs, the annual operational budget will be negative in the near future. During the same ten-year period,
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7 staff has seen revenues drop from $18 million annually and leveling off at $17 million annually over the last few years. In addition to the operational costs, staff is no longer able to rely on surplus funds each year to grow the unrestricted fund balance to allow for needed capital infrastructure improvements. The future Capital Improvement Program needs to keep up with upgrading the aging water system infrastructure, as well as meeting the emergency back-up needs of the system and building and operating a water treatment system to meet newly adopted water quality standards. Given the exposure that Downey and communities in the region have experience as a result of recent emergency situations, it is imperative that the City continue to invest in its infrastructure to maintain the City’s resilience.
Therefore, staff recommends proceeding with a water rate analysis to provide options for a new water system funding plan at a future City Council meeting. At this future meeting, the City Council would be able to consider rate adjustment options and potentially initiate proceedings to notify customers of any proposed increases through the Proposition 218 process. Once the Prop 218 process is initiated by City Council, a 45-day period begins in which ballots are mailed out with the notification providing an opportunity to protest the rate increase. Upon completion of the 45-day period, a public hearing would be held to provide further opportunity for customers to provide input and to complete a tabulation of the ballots. If there is no majority protest to the rate increase, the City Council could move forward with adopting any needed new rates.
CITY COUNCIL PRIORITIES
Fiscal Responsibility
Quality of Life, Safety & Infrastructure
FISCAL IMPACT
None.
ATTACHMENTS
None.