DATE: March 24, 2025
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: Nate Cruz, Finance Director
Andrew Brozyna, Public Works Director
Zaheed Danish, Public Works Maintenance Manager
DEPARTMENT: Finance, Public Works
SUBJECT: REVIEW OF PROJECTED WATER RATES FOR FY 2025-2026 TO FY 2029-2030 AND POLICY DIRECTION FOR RATE
NOTIFICATION UNDER PROPOSITION 218 AND AB 2257
RECOMMENDATION
It is recommended that the Estero Municipal Improvement District (EMID) Board of Directors take the following actions by Minute Order:
1. Accept this report regarding Water Rates based upon the attached Draft Water Rate Study Update Results Memo dated March 19, 2025, prepared by Bartle Wells Associates (BWA); and
2. Approve the water rate setting procedures included in this staff report as Attachment 2 – Rate Setting Procedures which incorporate and implement the requirements contained in Proposition 218 and the procedures by which property owners are required to exhaust administrative remedies and record principles as set forth in Government Code section 53759.1 and 53759.2 (AB 2257); and
3. 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 2, 2025, regarding Water Rates for a 5-year period of FY 2025-2026 to FY 2029-2030.
EXECUTIVE SUMMARY
The EMID water enterprise service rates remain below average compared to other agencies on the Bay Area Peninsula. As of July 1, 2024, the Operating Reserve balance was $11,194,614 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, components are nearing the end of their expected service life and the need for additional funding for infrastructure improvements has been identified.
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 BWA. The recommended water rates will provide sufficient revenue for necessary maintenance, operations, and capital improvements for the five-year period of FY 2025-2026 to 2029-2030.
Adopting a multi-year rate plan offers several advantages. These include predictability in rate adjustments, ensuring revenue stability through a long-term structure, improving operational efficiency, and certainty for ratepayers that minimizes protest . Although adoption of 5–year rates is recommended, it is further recommended that rates be reviewed annually to ensure they remain aligned with the cost of service.
Included below is a snapshot of Table 7 from Appendix C of the BWA Water Rate Study Update Results Memo (Attachment 1) This table shows the proposed water rates for FY 2025-2026 to FY 2029-2030 and a projection of future water rates necessary to support the operation. 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 and projects the impact into the future.
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 rates reflect the following:
•FY 2025-2026 – 3% volumetric rate increase and a 8.5% meter charge increase.
The average bill for a single-family home would increase by 5% which is equal to $4.05 per month.
•FY 2026-2027- 3.2% volumetric rate increase and a 8% meter charge increase The average bill for a single-family home would increase by 5% which is equal to $4.26 a month per month.
•FY 2027-2028 – 3.8% volumetric rate increase and a 7% meter charge increase The average bill for a single-family home would increase by 5% which is equal to $4.51 per month.
•FY 2028-2029 – 3.6% volumetric rate increase and a 7.1% meter charge increase. The average bill for a single-family home would increase by 5% which is equal to $4.71 per month.
•FY 2029-2030 – 3.6% volumetric rate increase and a 7% meter charge increase.
The average bill for a single-family home would increase by 5% which is equal to $4.94 per month.
Table 7City of Foster City / Estero Municipal Improvement DistrictProposed Water Rates - Two Tier Hybrid Model Current Rates FY2026 FY2027 FY2028 FY2029 FY2030 FY2031 FY2032 FY2033 FY2034 FY2035 Monthly Meter Charge3/4" $28.85 $31.30 $33.80 $36.15 $38.70 $41.40 $43.05 $44.75 $46.55 $48.40 $50.351" 48.08 52.17 56.33 60.25 64.50 69.00 71.75 74.58 77.58 80.67 83.921-1/2" 115.40 125.20 135.20 144.60 154.80 165.60 172.20 179.00 186.20 193.60 201.402" 153.87 166.93 180.27 192.80 206.40 220.80 229.60 238.67 248.27 258.13 268.533" 336.58 365.17 394.33 421.75 451.50 483.00 502.25 522.08 543.08 564.67 587.424" 605.85 657.30 709.80 759.15 812.70 869.40 904.05 939.75 977.55 1,016.40 1,057.356" 1,346.33 1,460.67 1,577.33 1,687.00 1,806.00 1,932.00 2,009.00 2,088.33 2,172.33 2,258.67 2,349.678" or greater 2,308.00 2,504.00 2,704.00 2,892.00 3,096.00 3,312.00 3,444.00 3,580.00 3,724.00 3,872.00 4,028.00 Conservation-Based Water Rate Model (based on bi-monthly allotments)*Single Family ResidentialTier 1 0-20 per ccf 6.60 6.80 7.02 7.29 7.56 7.84 8.17 8.44 8.72 9.01 9.31Tier 2 Over 20 ccf 7.33 7.56 7.79 8.08 8.34 8.59 8.92 9.19 9.46 9.75 10.05Multi-Family Residential (per living unit)Tier 1 0-10 ccf per living unit 6.60 6.80 7.02 7.29 7.56 7.84 8.17 8.44 8.72 9.01 9.31Tier 2 Over 10 ccf per living unit 7.36 7.54 7.77 8.06 8.32 8.57 8.90 9.17 9.44 9.73 10.03Irrigation CustomersTier 1 <=100% of annual budget 6.60 6.80 7.02 7.29 7.56 7.84 8.17 8.44 8.72 9.01 9.31Tier 2 >100% of annual budget 7.80 7.76 8.00 8.29 8.55 8.79 9.12 9.39 9.66 9.95 10.24Commercial and Fire Line CustomersBase Consumption Rate 6.72 6.92 7.14 7.41 7.68 7.96 8.29 8.56 8.83 9.12 9.42 Monthly Fire Meter Charge1-1/2" & below 40.39 43.82 47.32 50.61 54.18 57.96 60.27 62.65 65.17 67.76 70.492" 53.95 58.53 63.21 67.60 72.37 77.42 80.50 83.68 87.05 90.51 94.153" 117.71 127.70 137.90 147.49 157.90 168.91 175.64 182.58 189.92 197.47 205.434" 212.05 230.06 248.43 265.70 284.45 304.29 316.42 328.91 342.14 355.74 370.076" 471.12 511.13 551.95 590.33 631.97 676.06 703.01 730.77 760.16 790.37 822.228" or greater 807.80 876.40 946.40 1,012.20 1,083.60 1,159.20 1,205.40 1,253.00 1,303.40 1,355.20 1,409.80(Minimum charge is equivalent to 1-1/2" meter charge)
TWO TIER HYBRID MODEL
Recommended Rates
*Recommended SFPUC wholesale rate pass through formula: (Additional SFPUC $ Amount Per HCF Above Study) / (0.9) added to each volumetric rate. 0.9 Accounts for 10% Water loss Based upon the EMID Board of Directors' policy direction, the District will mail a notice to all ratepayers by March 31, 2025, in order to comply with the required procedures under Proposition 218 and AB 2257, as summarized below.
The hearing will be held on June 2, 2025, and, if adopted, the new rates will go into effect on July 1, 2025.
BACKGROUND/ANALYSIS
The District provides water service to approximately 8,295 water service and fire protection service accounts/meters. Most of the District’s customers are residential.
The primary drivers for the proposed rates include the following:
•Cost of Wholesale Water from the San Francisco Public Utilities Commission (SFPUC)
The primary driver for the proposed rate increases is 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 $5.67 per hundred cubic feet (hcf, also abbreviated as ccf) in FY 2025 will increase 2.1% to $5.79 in FY 2026, 1% to $5.85 in FY 2027, 1% to $5.91 in FY 2028, 5.2% to $6.22 in FY 2029, and 8% to $6.72 in FY 2030.The proposed water rates are designed to phase in District rate increases over time to avoid sharp increases. Any increases implemented by SFPUC above these values are recommended to be passed through to District customers via Government Code section 53756, as discussed later in this report.
•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. The payment is estimated at $675,000 annually.
Table 9Foster City / Estero Municipal Improvement DistrictProjected Water Rate Impacts Current
2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035
Two Tier Hybrid ModelSingle Family Residential Monthly Rate $81.65 $85.70 $89.96 $94.47 $99.18 $104.12 $108.41 $112.27 $116.31 $120.48 $124.83$ Increase 4.05 4.26 4.51 4.71 4.94 4.29 3.86 4.04 4.17 4.35% Increase 5.0% 5.0% 5.0% 5.0% 5.0% 4.1% 3.6% 3.6% 3.6% 3.6% 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 an assumption of
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 projects over the next 15 years. The proposed rate projections allocate approximately $12 million to the Capital Improvement Account over the next five years to support critical infrastructure projects, including water tank lining, structural retrofitting, and an emergency bypass transmission main. In addition to annual transfers, BWA anticipates the need to secure $4 million in short term debt financing in Fiscal Year 2027- 2028 to provide the necessary cash to fund these improvements. While the specific funding source has not yet been identified, current planning assumptions estimate a 30-year loan at a 6% interest rate with 1.5% transaction costs.
By securing financing instead of immediately raising rates, the EMID can ensure that cash flow needs are met while allowing funds to be replenished over time.
Should staff determine that debt financing is recommended in FY 2027-2028, the recommendation will be presented to the EMID Board for approval. •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 an allowance for additional staff positions that may be needed over the 5-year term to support water enterprise projects subject to Council approval. Annual increases of 2.5% in all other costs (excluding wholesale water purchases) have been assumed to keep revenues in line with operating expenses.
Table 3 below summarizes the District’s projected costs which are anticipated to increase over the next five years between 2.1% and 6.6% annually.
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. The cost to EMID of providing the Water/Wastewater Rate Assistance Program (W/WRAP) discount is paid by non-rate sources of revenue such as fines and penalties, to maintain compliance with California Proposition 218. Therefore, water rates are unaffected by the costs of the program.
The cost of the W/WRAP, based on current enrollment of 34 customers, is $6,120 per year for the Water Enterprise. Through the first eight months of FY 2024, revenue from delinquent payments totaled $27,000, 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 policy goal of the rate smoothing model is to maintain revenue increases at no greater than 10% per year. The proposed FY 2025-2026 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. “Pass Through” for Water Use Rates
A significant driver for the proposed water use rate increases is projected increases in the SFPUC wholesale water rate. Government Code section 53756 allows EMID to “pass through” changes to the wholesale cost to its customers. It is proposed that EMID implement a “pass-through” adjustment whereby changes by SFPUC to its rates in excess of the estimated increases will be reflected in EMID’s retail water rates for water during the rate period. EMID customers will be notified of any such pass-through adjustments at least 30 days prior to the change in rates (on or after each July 1 of the 5-year period). The rate model includes an escalator estimating SFPUC water use charges, and the pass through provision would only be implemented if the wholesale rate increase was in excess of the estimate. If the rate comes in lower than anticipated, the additional proceeds would be transferred to reserves to help smooth rates in the future.
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 2025-2026, 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 2024-2025, the average monthly water bill for the region (based on 8 hcf of water for monthly usage) is $116.09 per month and the District’s average monthly residential water bill is $81.65 per month, or about 30% less than the current average of neighboring communities. Since the proposed increase is also less than the FY 2025 average, it is likely that EMID customers will continue to pay lower than average water bills.
Public Hearing Notification
As identified in the second Recommended Action, staff has prepared the Rate Setting Procedures (Attachment 2) to document the process that EMID will follow leading up to and during the public hearing to consider approval of the updated water rates. Those Rate Setting Procedures are summarized below.
In past rate setting years, EMID has followed the provisions of Proposition 218 to provide rate payers with information regarding the public hearing to set rates.
Proposition 218, approved in 1996, established a process for public notification when increasing property related fees or charges, including water and wastewater rates. The notification requires a minimum 45-day period for review and opportunity to protest in writing prior to the close of the public hearing. If written protests are received by a majority of affected parcels prior to the close of the public hearing, then the rate change may not be implemented.
In addition to ongoing compliance with the requirements of Proposition 218, the Rate Setting Procedures also incorporate the optional requirements under AB 2257(Government Code sections 53759.1 and 53759.2, effective January 1, 2025, AB 2257). Under AB 2257, EMID is authorized to establish a supplemental process intended to provide an opportunity for property owners to submit a written objection regarding a new or increased water rate to EMID's attention early in the rate consideration process. Accordingly, this provides an opportunity for EMID to address or resolve any objections before the EMID Board makes a final decision on whether to adopt a proposed rate pursuant to Proposition 218. Unlike written protests under Proposition 218, written objections under AB 2257 must specify the grounds for alleging the proposed rates do not comply with Proposition 218, among other requirements.
Since written objections are required to provide more detail and be submitted earlier than written protests, written objections will also serve as written protests; however, written protests will not serve as written objections.
Instituting AB 2257 prohibits a person or entity from bringing a judicial action or proceeding alleging noncompliance with Proposition 218 (Article XIII D of the California Constitution) for those water rates, unless that person or entity has timely submitted to EMID a written objection to that rate that specifies the grounds for alleging noncompliance with Proposition 218.
Based on the Boards’ direction, staff will prepare a notice that will be mailed to all ratepayers on or before March 31, 2025, in compliance with the provisions of Proposition 218 and AB 2257. Written objections must be received by EMID by May 15, 2025. EMID staff will consider each timely written objection and provide a written response that will be published with the agenda for the public hearing of June 2, 2025.
Written protests must be received by the close of the public hearing.
A public hearing on and adoption of the proposed rates will be agendized for the June 2, 2025 EMID Board of Directors regular meeting in conjunction with the FY 2025-2026 Annual Budget Public Hearing. If adopted, the new rates will become effective July 1, 2025. It the opinion of District staff that conservative assumptions have been employed in the creation of the attached rate models and that the rates proposed herein are the maximum rates that would be recommended. 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.
CEQA
Not Applicable
FISCAL IMPACT
There is no impact to receiving this report and authorizing the preparation of the Proposition 218 Notice, including information about AB 2257. Rate revenue provides all funding for the water distribution service costs in the EMID service area. 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 19, 2025
Attachment 2 – Rate Setting Procedures