City Council
November 18th, 2025
2025 Water Rate Study Report
Study Session
1 Agenda
1) Introduction
2) Background
3) Rate Setting Process
4) Financial Planning
5) Cost of Service & Rate Design
6) INRAC Comments
7) Discussion/Questions
2 Introduction – Fullerton Water Enterprise
22.3 square mile service area
144,000 customers
32,144 service connections/meters
4 main pressure zones
12 sub-zones
41 Water Division personnel
15 reservoirs (67.5-million-gallon
capacity)
14 booster pump stations
8 active groundwater wells
7 import water connections
430 miles of pipelines
3 2025 Water Rate Study Background
• 2019 Rate Study Summary:
• Simplified customer classes
• Directly linked water supply costs to volumetric rates and tiers • Developed formula-based approach to water supply cost pass-through adjustments • Since 2019 Rate Study:
• Completed Master Plan & Asset Management Plan
Rate Plan FY 2020 FY 2021 FY 2022 FY 2023 FY 2024
2019 Rate Study Plan 15.0% 14.0% 11.0% 5.0% 4.0%
5/8” & 3/4” Fixed Charge $26.07 $29.72 $32.99 $34.64 $36.02 Tier 1 rate up to 12.8 KGALs $2.28 $2.60 $2.96 $3.26 $3.58 Average SF Res Bill at 8.6 KGALs $45.68 $52.08 $58.45 $62.68 $66.81 4 The Rate Setting Process
5 Revenue Sufficiency
• Policies & targets
• System investment needs and funding
• Sustainable operations
Defensible Allocation Methods
• Industry accepted approaches
• Inter and intra class equity
• Correct and appropriate units of service
Equitable & Sustainable Rates
• Balance affordability and financial objectives
• Revenue stability
• Following Proposition 218 guidance
How
Much?
From
Whom?
How to
Collect?
Financial
Plan
Cost of
Service
Rate
Design
Public Comment & Protest Vote
Public has 45 days to submit protest votes, followed by vote count during public hearing
If no majority protest, City Council votes whether to adopt rates
City Council Vote to Issue Public Notification
Successful vote allows notification of proposed fees to be sent to ratepayers
Transmittal of public notification begins the public
comment period
Rates Proportional to Cost of Service
Revenue collected from rates cannot exceed the cost to
provide service
Rates charged to a given customer must be proportional
to the costs imposed on the system
Prop 218 Overview
6 Eliminates ability to set rates based on affordability, conservation and other policy objectives.
Every analysis must be based on data, cost-causation and proportionality.
Recent Prop 218 Developments
7 Increased Scrutiny on Tiered Rates:
• Coziahr v Otay Water District
• Challenged the use of assumed peaking factors by customer class • Challenged the recovery of capacity-related costs in tiers • Emphasized focus on cost-based differences in rates for each tier • Pushed the need for data to inform factors and cost allocations Financial Planning
Revenue Requirements: Rate Increase Drivers
• Cost Increases
• Inflation increased capital & operating costs (see below) • California Construction Cost Index increased by 44% from Jan. 1, 2021 • Estimating approximately a 27% increase in water purchase costs from in 2024 to 2027 Construction Materials:
Increased over 45%
9 Construction Machinery:
Increased over 36%
Water Pipes & Fittings:
Peaked at 140% increase, now up 96%
10 Addressing a Range of Infrastructure Needs
11 Financial Planning
Where do we go from here?
Pipe Replacement Ramp Up Scenario –
Recommended Action
13 • Ramping up to 7 miles of pipe replacement per year by 2030 o Assumes 3 miles of pipe replacement in FY26 and FY27, 5 miles in FY28, 6 miles in FY29, and 7 miles each year after.
o Distributes key non-pipe projects over the five- and ten-year CIP o Still Includes $2.5 million per year in AMI implementation funding Recommended Action
14*Rate plan does not include pass-thru rate increases
Fiscal Year FY 25 FY 26 FY 27 FY 28 FY 29 FY 30
Rate Increase Date 4/1/25 4/1/26 4/1/27 4/1/28 4/1/29 4/1/30 Rate Increase* 5.0% 12.0% 12.0% 12.0% 7.0%
Miles of Pipe
Replaced 3 3 5.0 6.0 7.0 7.0
Financial Planning
Consequences of inaction
0% Rate Increase Scenario
16 FY 2026 FY 2027 FY 2028 FY 2029 FY 2030 FY 2031
Rate Increase 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
*Fund balances quickly go negative with
scheduled improvements required by
master plan
Water Main Break Impacts
17 • Over 50% of pipelines are older than 50 years old (past the expected useful life) • One of the highest rates of water main breaks in Orange County • Repair of failed pipes is significantly more expensive than “proactive” replacing of aging pipes
• Water main break costs averaging $6,000 per event, with the largest breakage events costing up to approximately $150,000
• Water main breaks disrupt service to all customers
• Repair shutdowns can affect over 1,000 customers for 5 - 8 hours • Unsettling to residential customers
• Economic impact on businesses
The costs do not go away if investments are not made and actions are not taken 18September 7, 2025
Cost of Service
& Rate Design
Rate Structure Cost Allocation Categories
Account Costs
Driven by the cost of managing
accounts
• Administration
• Billing
• Account management
Utility Costs
Driven by the size of the utility
infrastructure
• Operations
• Maintenance
• Capital
Commodity Costs
Driven by the volume of water sold
• Water Purchases
• Pumping Electricity
• Conservation Program
Fixed Account Charge Fixed Utility ChargeWater Usage Charge $31.6 million
60% 20
$1.5 million
3%
$19.9 million
37%
Current Tiered Water Usage Rates
OCWD & Pumped Water Costs
(75% of Water Supply)
MWD
Costs
MWD Costs
Tier 1 Tier 2 Tier 3
Unit Cost
of Water
($/AF)
Volume (AF)
Volume (AF)
Conservation
Costs
21 Current and Proposed Single Family Water Usage Rates 22 Current (2026) Tiered Residential Volumetric Rates
Tier Rate
(per TGAL)
Single Family
Monthly Allocation
Multi-Family
Monthly Allocation
1 $3.58 12,800 gal. 5,100 gal.
2 $6.90 20,200 gal. 6,700 gal.
3 $7.42 All Add. Usage
Proposed (2027) Tiered Single Family Residential Volumetric Rate Scenarios Recommended Scenario INRAC Requested
3-tier Rates
($ per TGAL)
SF - Monthly
Allocation
MF - Monthly
Allocation
2-tier Rates
($ per TGAL)
SF - Monthly
Allocation
MF - Monthly
Allocation
$3.80 11,900 gal. 5,000 gal. $3.83 11,900 gal. 5,000 gal. $6.99 17,800 gal. 7,800 gal.
$7.01 All Add. Usage$7.52 All Add. Usage
Current and Proposed Water Usage Rates
23 *Non-Residential rates
reflected weighted average of
tiered rates
All Non-Residential Volumetric Rates
Current Rate
($ per TGAL)
Proposed Rate
($ per TGAL)
$4.45 $4.62
OCWD & Pumped Water Costs
(75% of Water Supply)
MWD Costs (25% of water supply)
Uniform Rate
Average
Unit Cost
of Water
($/AF)
Total Volume (AF) Conservation
Costs
Fixed Charges: Account Charge vs Meter Equivalencies
Account Costs: Fixed charge across
all accounts
Utility Costs: Fixed charge that
scales with meter size
• Meter equivalency schedule
represents share of capacity in the
system
• Fixed charges recover costs
associated with distribution system
and other infrastructure costs
Meter Size
Capacity
(GPM)
Meter Equivalency
Schedule (1)
5/8" & 3/4" 30 1.00
1" 50 1.67
1 1/2" 100 3.33
2" 160 5.33
3" 320 10.67
4" 500 16.67
6" 1,000 33.33
8" 1,600 53.33
10" 2,400 80.00
12" 3,375 112.50
(1) Source: Table B-1, Appendix B, AWWA M1 Manual, 7th Ed. 24 Current and Proposed Fixed Charges
25 Current Proposed FY 2027
Meter Size Monthly Rate Monthly Rate
5/8” & 3/4” $36.02 $36.65
1" $57.07 $58.35
1 1/2" $109.70 $112.59
2" $172.84 $177.68
3" $341.24 $351.25
4" $530.67 $546.53
6" $1,056.90 $1,088.95
8" $1,688.36 $1,739.86
10" $2,530.31 $2,607.73
12" $3,556.45 $3,665.45
Residential Monthly Water Bill Impacts
April 1, 2026
Single Family Residential Bill Impacts
26 Example Residential Bill Forecast
Note: Does not include future pass-through rate increases from source of supply costs. 27 A typical SoCal Edison residential customer pays $193 every month for energy.
Single Family Residential Monthly Bills Current Scenario Proposed Year FY 26 4/1/26 4/1/27 4/1/28 4/1/29 4/1/30
Low Volume - 4.6 TGAL/month, 5/8“ meter $52.64
Recommended $54.13 $60.65 $67.91 $76.05 $81.36
INRAC $54.27 $60.78 $68.05 $76.24 $81.59
Average Volume – 9.3 TGAL/month, 5/8“
meter $69.25
Recommended $71.99 $80.67 $90.33 $101.15 $108.19
INRAC $72.27 $80.95 $90.61 $101.52 $108.66
High Volume – 18.6 TGAL/month, 5/8“
meter $121.62
Recommended $128.70 $144.21 $161.49 $180.83 $193.46
INRAC $129.19 $144.70 $161.98 $181.51 $194.25
Example Commercial Bill Forecast
Note: Does not include future pass-through rate increases from source of supply costs. 28 Commercial Bi-monthly Bills Current Proposed
Year FY 26 4/1/26 4/1/27 4/1/28 4/1/29 4/1/30
Low Volume – 14.9 TGAL/month, 1“ meter $123.25 $127.19 $142.38 $159.61 $178.68 $191.28 Medium Volume – 259 TGAL/month, 3“ meter $1,491 $1,548 $1,732 $1,943 $2,174 $2,328 High Volume – 2,162 TGAL/month, 10“ meter $12,150 $12,596 $14,098 $15,811 $17,695 $18,946 29 Example Bill – Recommended Action
$86.26
$73.30
$257.31
*A $6 increase bi-monthly
Bill Comparisons based
on Recommended Action
Comparison of Local Monthly Water Bills
Recommended Rate Plan
31*Bills reflective of a Residential customer with a 5/8” meter consuming 9.3 tgals/month *
Residential Bill Comparison in FY 2028
Recommended Rate Plan
32 *Bills reflective of a Residential customer with a 5/8” meter consuming 9.3 tgals/month **All 2028 rate forecasts based on most current rate plans published by the utility Schedule
33 Proposed Schedule:
• July 21, 2025 – 1st INRAC Meeting Presentation
• August 18, 2025 – 2nd INRAC Meeting Presentation
• October 20, 2025 – 3rd INRAC Meeting Presentation
• November 18, 2025 – City Council Rate Study Session
• December 2, 2026 – City Council Meeting to Vote on Issuing Public Notifications • February 3, 2026 – Public Hearing and City Council Vote to Adopt Rates • April 1, 2026 – Implement New Water Rates
INRAC Comments
34 INRAC Representative:
Chair Greg Sebourn, PLS
INRAC Members:
Chair Greg Sebourn, PLS
Vice Chair Kari Thune
Benjamin Molina
Gregory Sarvas
Munish Bharadwaja
Mark Klingsberg
Chuck Sargeant
Discussion/Questions