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1 DATE: June 3, 2024
TO: Mayor and Members of the City Council President and Members of the Estero Municipal Improvement District (EMID) Board of Directors
VIA: Stefan Chatwin, City/District Manager
Marlene Subhashini, Assistant City/District Manager
FROM: Andrew Brozyna, Public Works Director/City/District Engineer DEPARTMENT: Public Works
SUBJECT: PUBLIC HEARING AND RESOLUTIONS ESTABLISHING WATER RATES FOR FISCAL YEAR 2024-2025
RECOMMENDATION
It is recommended that the City Council of the City of Foster City (Council) and Board of Directors of the Estero Municipal Improvement District (EMID):
1. Open the Public Hearing to receive comments on proposed Water Rates for Fiscal Year 2024-2025; and
2.After considering the staff report and the public testimony and determining that a majority protest does not exist, adopt the attached resolution amending the Master Fees and Service Charges Schedule establishing new Water Rates effective July 1, 2024.
EXECUTIVE SUMMARY
On March 25, 2024, the Council/EMID Board held a Budget Study Session to consider an analysis of proposed water rates for FY 2024-2025 conducted by EMID's rate consultant, Bartle Wells Associates (BWA). Pursuant to direction received from the Council/EMID Board at that meeting, staff prepared a public hearing notice of the proposed adoption of maximum new water rates for FY 2024-2025.
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1 In conformance with Proposition 218, a public hearing notice with the proposed rates was mailed to all record property owners and customers of record on April 19, 2024.
BWA recommends that EMID implement a 3.8% volumetric rate increase and a 4.5% meter charge increase for Rate Year 2024-2025 Water Rates.
The proposed water rates provide adequate revenue for operations, capital expenditures and transfers, account for water loss, and maintain the operating fund balance at or above target levels. A significant driver for the proposed rate increases is to smooth EMID rate adjustments caused by projected increases in the San Francisco Public Utilities Commission (SFPUC) wholesale water rates and to provide necessary revenue for the maintenance, operation and capital costs associated with the water distribution enterprise over a five-year term.
BACKGROUND
EMID provides water service to a population of approximately 36,500. Over 80% of all water accounts utilize the smallest meter size (3/4”) which is typically associated with single family residential accounts. There are approximately 8,256 water accounts, including both water service and private fire protection service accounts.
Water bills are composed of a fixed monthly charge for water system availability that is based upon the water meter size for domestic accounts and the fire line size for fire line accounts, and a consumption charge calculated on the metered water use based on the cost of the water that is delivered to the account.
On March 25, 2024, the Council/EMID Board held a Budget Study Session regarding water rates for FY 2024-2025. At the Budget Study Session, the Council/EMID Board considered information developed by EMID's rate consultant, BWA. Based upon that analysis, the Council/EMID Board directed staff to prepare a Proposition 218 notice for an adjustment of water rates for FY 2024-2025 per the consultant’s analysis. Pursuant to that direction and in conformance with Proposition 218, staff prepared a public hearing notice that included the proposed water rates. EMID mailed the public hearing notice with the proposed rates by April 19, 2024. As required, this notice described the proposed increases to water rates for FY 2024-2025.
ANALYSIS
BWA recommends that EMID implement a 3.8% volumetric rate increase and a 4.5% meter charge increase for Rate Year 2024-2025 Water Rates.
The proposed rates will provide adequate revenue for operations, capital expenditures and transfers, account for water loss, and maintain the operating fund balance at or above target levels.
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1 •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. EMID’s projected operating expenditures are anticipated to increase over the next five years by 22%. •Capital Funding: EMID’s strategy for funding long-term capital water improvements calls for a transfer of $1,000,000 per year from water operating revenues to the City’s Capital Improvement Fund over the next fifteen (15) years. •Conservation Costs: The rate model includes an allocation of $200,000 to the Water Sustainability Rebate Program for FY 2024-2025 to continue supporting voluntary water conservation efforts. The FY 2024-2025 conservation budget includes an additional $50,000, which will be drawn from reserves typically collected from “tier 2” rates that are set aside for this purpose. EMID has a two- tiered model for its residential customers where higher levels of water consumption are subject to higher water rates based on a proportionate share of conservation program costs.
Table 7 from the BWA analysis provides a comparison of current water rates to proposed rates.
A significant driver for the proposed rate increases is to smooth EMID rate adjustments due to projected increases in the SFPUC wholesale water rates and to provide 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
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1 necessary revenue for the maintenance, operation and capital costs associated with the water distribution enterprise over a five-year term. SFPUC rates are identified to increase by 8.8% from $5.21 to $5.67/ centum cubic feet (ccf) for the next year. Although this increase is $0.12 higher per ccf than originally projected in the BWA study, the additional cost is absorbed via the operating fund without a need to update the rate recommendation.
Additionally, for each unit of water purchased, EMID pays a surcharge to the Bay Area Water Supply and Conservation Agency (BAWSCA) for the $4.8 billion Hetch Hetchy Reservoir Water System Improvement Project (WSIP). The overall WSIP is at or near completion, however, SFPUC operating costs and debt service are projected to increase over the next five years.
The Council/EMID Board has implemented a long-term rate smoothing model that considers long-range projections for wholesale water rates and significant capital improvements and maintains rate increases at no greater than 10% per year. The proposed FY 2024-2025 rates were prepared using a 15-year model, which has proven to be successful in dampening rate spikes.
Table 9 - Projected Water Rate Impacts provides projections for future rate impacts for single family ratepayers in FY 2024-2025 and into the future. However, only the rates for FY 2024-2025 are being adopted at this time.
Rate Survey
BWA surveyed communities along the San Francisco Peninsula to compare EMID’s typical residential monthly water bill with neighboring communities. Since it is unknown what the comparator agencies are proposing for FY 2024-2025, EMID compared its FY 2023-2024 monthly residential water bills for a single-family customer to the FY 2023- 2024 rates for the neighboring agencies. For FY 2023-2024, the average water bill for the region is $106.08 per month and the District’s FY 2023-2024 average residential water bill is $78.48 per month, or about 26% less than the current average of neighboring communities. The results of the survey are summarized in the BWA report on page 13.
Public Notice
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 3 3
1 Article XIII D, Section 3(a), added to the Constitution by Proposition 218, allows agencies to adopt property-related fees, like water rates, if they issue a notice of public hearing to all ratepayers no less than forty-five (45) days prior to the date of the public hearing.
Attachment 3 is the Mailing Transaction Receipt for the Notice of Public Hearing that was prepared and mailed out by April 19, 2024, to property owners of record and non- owner account holders for the 8,256 water accounts served by EMID. The rate notice establishes the highest rate that EMID is permitted to adopt at this Public Hearing.
EMID may adopt rates lower than the rates included in the Proposition 218 public hearing notice, but it may not adopt rates higher than those in the public hearing notice.
Per the requirements of Proposition 218, if more than a majority of parcels receiving water services protest any proposed rate increase, the Council/EMID Board may not implement the increases. The City Clerk/District Secretary may only count the submitted written protests. As of May 21, 2024, the City/District had received three (3) written protests. Protests may be submitted up to the close of the Public Hearing. A final number of protests will be reported at the Council/EMID Board meeting, and if there is not a majority protest, then the Council/EMID Board may adopt the noticed rates.
Public Notices for this meeting were advertised in compliance with applicable State statutes and local ordinances. All ratepayers were notified of the proposed rate increases by mail. If the Council/EMID Board approves the proposed rates, no further notices will be sent to ratepayers other than a note on the bills indicating that rates were approved and will be effective on July 1, 2024, and that more information can be found on the City/District’s website or by calling the City/District.
CALIFORNIA ENVIRONMENTAL QUALITY ACT
•CEQA Guidelines Section 15273 – Rates, Tolls, Fares, and Charges •Exempt per General Rule, Section 15061 (b) (3)
FISCAL IMPACT
Proposed water rates for FY 2024-2025 will sufficiently cover the projected system expenditures while adhering to budget policy objectives established by the Council/EMID Board related to enterprise funds. All fiscal impacts for the water system are borne by water system customers. There is no General Fund impact.
Staff prepared the attached resolutions to incorporate the rate changes into the Master Fees and Service Charge Schedule. The proposed rates are based upon the data that was reviewed by, and direction received from, the Council/EMID Board at its March 25, 2024 meeting.
CITY COUNCIL VISION, MISSION, AND VALUE/PRIORITY AREA
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1 Facilities and Infrastructure
ATTACHMENTS:
Attachment 1 - City Resolution
Attachment 2 - EMID Resolution
Exhibit A - Bartle Wells Associates Water and Wastewater Rate Study Analysis Exhibit B - Prop 218 Notice for FY 2024-2025
Attachment 3 - Mailing Transaction Receipt