DATE: March 25, 2024
TO: President and Members of the Estero Municipal Improvement District (EMID) Board of Directors
VIA: Stefan Chatwin, District Manager
Marlene Subhashini, Assistance District Manager
FROM: Andrew Brozyna, Public Works Director/City Engineer Edmund Suen, Finance Director
Zaheed Danish, Public Works Maintenance Manager
DEPARTMENT: Public Works, Finance
SUBJECT: REVIEW OF PROJECTED WATER RATES FOR FY 2024-2025
AND POLICY DIRECTION FOR RATE NOTIFICATION UNDER
PROPOSITION 218
RECOMMENDATION
It is recommended that the Estero Municipal Improvement District (EMID) Board of Directors accept this report regarding Water Rates based upon the attached Draft Water Rate Study Update Results Memo dated March 1, 2024, prepared by Bartle Wells Associates (BWA) and by Minute Order provide direction on the issuance of a notice to all rate payers under the requirements of Proposition 218 for a public hearing to be held on June 3, 2024 regarding Water Rates for FY 2024-2025.
EXECUTIVE SUMMARY
The EMID water enterprise is in good financial shape; its water service rates remain below the average rates compared to other agencies on the Bay Area Peninsula, and it is debt free. As of July 1, 2023, the Operating Reserve balance was $9,617,989, to be used in case of an operational emergency or to smooth any “rate shocks” to water customers. However, as much of EMID’s infrastructure is in its fifth decade in service, some of its components are nearing the end of their expected service life. In Fiscal Year 2019- 2020, the District completed a 20-year master plan study which identified
and prioritized projects for a 20-year time horizon. The costs for recommended projects have been incorporated into the 10-year Water Enterprise projections and the rate model developed by consultant Bartle Wells Associates (BWA). The recommended water rates would provide sufficient revenue for necessary maintenance, operations, and capital improvements for the five-year period including FY 2024-2025. Included below is a snapshot of Table 7 from Appendix C of the BWA Water Rate Study Updates Results Memo (Attachment 1). This table shows the proposed water rates for FY 2024- 2025 and a projection of future water rates necessary to support the operation. As seen in the table, water bills are composed of two components, a fixed monthly charge based on meter size, plus a water consumption charge based on each customer’s metered water use. The fixed monthly charge corresponds to the District’s fixed costs to provide water delivery to customers, based upon the size of the meter.
Included below is Table 9 from Attachment 1, which provides more information about how the proposed new rates impact ratepayers in FY 2024-2025 and projects the impact into the future. The primary driver for the proposed rate increases is to smooth District rate increases due to projected increases in the San Francisco Public Utilities Commission (SFPUC) wholesale water rate. The proposed water rates are designed to cover District operating and capital costs and maintain the operating fund above the 25% target reserve level. The recommended rate reflects increases of 4.5% for fixed Table 7City of Foster City / Estero Municipal Improvement DistrictProposed Water Rates - Two Tier Hybrid Model Current Rates FY2025 FY2026 FY2027 FY2028 FY2029 FY2030 FY2031 FY2032 FY2033 FY2034 Monthly Meter Charge3/4" $27.60 $28.85 $30.15 $31.50 $32.90 $34.40 $35.80 $37.25 $38.75 $40.30 $41.901" 46.00 48.08 50.25 52.50 54.83 57.33 59.67 62.08 64.58 67.17 69.831-1/2" 110.40 115.40 120.60 126.00 131.60 137.60 143.20 149.00 155.00 161.20 167.602" 147.20 153.87 160.80 168.00 175.47 183.47 190.93 198.67 206.67 214.93 223.473" 322.00 336.58 351.75 367.50 383.83 401.33 417.67 434.58 452.08 470.17 488.834" 579.60 605.85 633.15 661.50 690.90 722.40 751.80 782.25 813.75 846.30 879.906" 1,288.00 1,346.33 1,407.00 1,470.00 1,535.33 1,605.33 1,670.67 1,738.33 1,808.33 1,880.67 1,955.338" or greater 2,208.00 2,308.00 2,412.00 2,520.00 2,632.00 2,752.00 2,864.00 2,980.00 3,100.00 3,224.00 3,352.00 Conservation-Based Water Rate Model (based on bi-monthly allotments)Single Family ResidentialTier 1 0-20 per ccf 6.36 6.60 6.85 7.11 7.38 7.66 7.96 8.18 8.41 8.66 8.90Tier 2 Over 20 ccf 7.01 7.33 7.60 7.84 8.09 8.36 8.67 8.89 9.12 9.36 9.60Multi-Family Residential (per living unit)Tier 1 0-10 ccf per living unit 6.36 6.60 6.85 7.11 7.38 7.66 7.96 8.18 8.41 8.66 8.90Tier 2 Over 10 ccf per living unit 7.09 7.36 7.64 7.88 8.13 8.40 8.71 8.93 9.16 9.40 9.64Irrigation CustomersTier 1 <=100% of annual budget 6.36 6.60 6.85 7.11 7.38 7.66 7.96 8.18 8.41 8.66 8.90Tier 2 >100% of annual budget 7.22 7.80 8.08 8.31 8.55 8.82 9.13 9.35 9.58 9.81 10.05Commercial and Fire Line CustomersBase Consumption Rate 6.47 6.72 6.98 7.23 7.50 7.77 8.08 8.30 8.53 8.77 9.02 Monthly Fire Meter Charge3/4" 38.64 40.39 42.21 44.10 46.06 48.16 50.12 52.15 54.25 56.42 58.661" 38.64 40.39 42.21 44.10 46.06 48.16 50.12 52.15 54.25 56.42 58.661-1/2" 38.64 40.39 42.21 44.10 46.06 48.16 50.12 52.15 54.25 56.42 58.662" 51.61 53.95 56.38 58.91 61.52 64.33 66.95 69.66 72.46 75.36 78.353" 112.61 117.71 123.01 128.52 134.23 140.35 146.06 151.98 158.10 164.42 170.954" 202.86 212.05 221.60 231.53 241.82 252.84 263.13 273.79 284.81 296.21 307.976" 450.71 471.12 492.35 514.40 537.26 561.75 584.61 608.29 632.79 658.10 684.238" or greater 772.80 807.80 844.20 882.00 921.20 963.20 1,002.40 1,043.00 1,085.00 1,128.40 1,173.20(Minimum charge is equivalent to 1-1/2" meter charge)
TWO TIER HYBRID MODEL
Recommended Rates
charges and 3.8% for variable charges. The average bill for a single-family home would increase by 4% or $3.17 per month.
Based upon the EMID Board of Directors’ policy direction, the District will mail a notice to all ratepayers prior to the April 19, 2024, statutory deadline for a public hearing as required by Proposition 218. The hearing will be held on June 3, 2024, and, if adopted, the new rates will go into effect on July 1, 2024.
BACKGROUND/ANALYSIS
The District provides water service to approximately 8,285 water service and fire protection service accounts/meters. Most of the District’s customers are residential.
The primary drivers for the proposed FY 2024-2025 rates include the following:
•Cost of Wholesale Water from the SFPUC. The primary driver for the proposed rate increases is to smooth District rate increases due to projected increases in the SFPUC wholesale water rate. The SFPUC, the sole source of water supply for the District, is projecting the current rate of $5.21 per hundred cubic feet (ccf) in FY 2024 will increase to $5.55 in FY 2025. The proposed water rates are designed to phase in District rate increases over time to avoid sharp increases.
•Bay Area Water Supply and Conservation Agency (BAWSCA) Surcharge.
The District will continue to make annual payments to BAWSCA for capital improvement costs associated with the $4.8 billion Water System Improvement Project (WSIP) to upgrade the Hetch Hetchy Water System. The bond surcharge for each BAWSCA agency is typically a fixed annual amount that is adopted each fiscal year by the BAWSCA Board to ensure collection of necessary revenue to pay that year’s obligated debt service. For FY 2024-2025, the payment will be $601,416.
Table 9
Foster City / Estero Municipal Improvement District
Projected Water Rate Impacts
Current
2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034
Two Tier Hybrid Model
Single Family Residential Monthly Rate $78.48 $81.65 $84.95 $88.38 $91.94 $95.68 $99.48 $102.69 $106.03 $109.58 $113.10 $ Increase 3.17 3.30 3.43 3.56 3.74 3.80 3.21 3.34 3.55 3.52 % Increase 4.0% 4.0% 4.0% 4.0% 4.1% 4.0% 3.2% 3.3% 3.3% 3.2% Based on Single Family Residential Use of 8 ccf
Fiscal Year Ending June 30 Extended Year ProjectionProjected Water Bills •System Water Losses. Water utilities incur real losses from pipeline leakage and apparent losses when customer water consumption is not properly measured or billed. The current water rates are calculated with 10.0% water loss based on the Water Division’s records. The proposed water rates are designed to cover the water loss and fund projects, such as water meter replacements, that reduce water loss.
•Capital Funding. EMID's strategy for funding long-term capital water improvements calls for an annual transfer from water operating revenues to the City's Capital Improvement Fund to fund those projects over the next 15 years.
The proposed rate projections include a capital set aside of $1,000,000 annually through the ten-year term.
•Conservation Costs. District staff is recommending that the EMID Board of Directors continue to allocate $200,000 annually to the Water Sustainability Rebate Program to encourage voluntary water conservation efforts and provide funding for the District water leakage detection and repair program. •Operational Costs. BWA projections for operations and maintenance costs assume 4.0% annual increases in personnel costs and 2.5% annual increases in all other costs (excluding wholesale water purchases) to keep revenues in line with operating expenses.
Water/Wastewater Rate Assistance Program
In Rate Year 2020-2021, the District Board approved an assistance program for customers whose income also qualified them for Pacific Gas and Electric Company’s California Alternate Rates for Energy (CARE) discount program. While it is not possible to know exactly how many households qualify, based upon the number of customers enrolled in the PG&E CARE program, BWA estimates that approximately 227 customers may potentially be eligible for the up to $15 per month discount. As of March 1, 2024, there were twenty five (25) customers enrolled in the program. Participation in the Water/Wastewater Rate Assistance Program (W/WRAP) is supported by non-rate sources of revenue such as fines and penalties, to maintain compliance with California Proposition 218, so water rates are unaffected by participation in the program.
The cost of the W/WRAP, based on current enrollment, is $4,500 per year for the Water Enterprise. The maximum potential cost of a $15/month discount for all estimated 227 eligible customers is $41,000 per year. Through the first eight months of FY 2024, revenue from delinquent water payments totaled $31,000, which is sufficient to fund the program. Staff will continue to monitor the funding sources available for the program.
The W/WRAP is authorized by the EMID Board on an annual basis, and authorization to continue the program will be an action item on the agenda with the consideration of rates in June.
Rate Smoothing
The EMID Board of Directors has implemented a long-term rate smoothing model that takes into consideration the long-range wholesale water rate projections by the SFPUC and significant capital improvements that have a profound impact on rates, such as the WSIP program. The rate smoothing model attempts to maintain revenue increases at no greater than 10% per year. The proposed FY 2024-2025 rates use a 10-year model, which has proven to be successful in dampening the impacts of significant rate increases imposed by the SFPUC on the ratepayers.
Rate Survey
A survey of communities along the San Francisco Peninsula was conducted to compare the District’s typical residential monthly water bill with neighboring communities. The results of the survey are summarized on the Typical Single Family Residential Monthly Water Charges chart in Appendix B of Attachment 1. Since it is unknown what the comparator agencies will be proposing for FY 2024-2025, the District compares its current monthly residential water bills to the current rates of the neighboring agencies. The survey indicates the District's water rates remain among the lowest on the Peninsula. For FY 2023-2024, the average monthly water bill for the region (based on 8 hcf of water for monthly usage) is $106.08 per month and the District’s FY 2023-2024 average monthly residential water bill is $78.48 per month, or about 26% less than the current average of neighboring communities.
Proposition 218 Notification
District staff requests that the EMID Board of Directors review the information prepared by BWA and staff and provide direction regarding water rates for FY 2024-2025. Based on that direction, District staff will prepare a notice that will be mailed to all ratepayers on or before April 19, 2024, in compliance with the provisions of Proposition 218. A public hearing on and adoption of the proposed rates will be agendized for the June 3, 2024 EMID Board of Directors regular meeting in conjunction with the FY 2024-2025 Annual Budget Public Hearing. If adopted, the new rates will become effective July 1, 2024. Between the Public Notice mailing date and the public hearing date, the EMID Board of Directors will receive the FY 2024-2025 Preliminary Annual Budget and Five- Year Financial Plan. Any adjustments that occur based upon EMID Board direction at the Budget Study Session will be incorporated into an updated rate model at the time of the public hearing. However, it is the opinion of District staff that conservative assumptions have been employed in the creation of the attached rate models.
Accordingly, District staff believes that the rates proposed herein are the maximum rates that would be recommended for FY 2024-2025. At the public hearing, the EMID Board would have the option to adopt rates equal to or lower than what is noticed to rate payers under Proposition 218, but it may not increase the rates above what is noticed. Recent case law and EMID experience with wastewater rates have demonstrated that there are a number of advantages to adopting rate plans that set rates for multiple years, so it is anticipated that staff will bring a multi-year recommendation aligned with the wastewater rate setting process for rate year 2025- 2026 and beyond. Under state law, the District may adopt a rate plan that covers a maximum of five years.
CEQA
Not Applicable
FISCAL IMPACT
There is no impact to receiving this report and authorizing the preparation of the Proposition 218 Notice. Further, rate revenue provides all funding for the water distribution service costs in the EMID service area as described in this staff report and its attachment. The costs of these services do not impact the City budget or the General Fund.
CITY COUNCIL VISION, MISSION, AND VALUE/PRIORITY AREA
Facilities and Infrastructure
Innovation and Sustainability
Smart Planning, Development, and the Local Economy
ATTACHMENTS
Attachment 1 – Bartle Wells Associates Water Rate Study Update Results Memo dated March 15, 2024