City of Gonzales
PUBLIC WORKS / CITY ENGINEER DEPARTMENT
STAFF REPORT
TO: Honorable Mayor Rios and City Council
DATE: September 18, 2023
FROM: Patrick Dobbins, Public Works Director/City Engineer THROUGH: Carmen Gil, City Manager
SUBJECT: Update on Water/Sewer Rate Study
RECOMMENDATION
It is recommended that the City Council receive a follow-up report and presentation on the Water and Sewer Rate Studies and authorize staff to initiate the Proposition 218 Process.
BACKGROUND
At the August 7, 2023 Council meeting, staff and our consultant presented the initial information on the Water and Sewer Rate Study. This staff report is in follow- up to that presentation.
Following accepted best Governance Accounting practices, the city funds the operation and maintenance of the water and sewer systems with the respective utility rates which are separate from the General Fund.
As stated in the staff report for the August 7, 2023 Council meeting, the objectives of the Water and Sewer Rate Studies are to:
• Analyze the existing rate structures to determine if adjustments are needed to adequately fund the city’s current and projected water and sewer operations, maintenance, and capital improvements. • Include costs of anticipated debt obligations used to finance capital improvements (ie, State Revolving Fund loan for the Industrial Wastewater System Project). • Address maintenance of infrastructure by incorporating reasonable projections for facility replacement within the revenue requirements and rate calculations. • Review city financial policies and make recommendations where appropriate with respect to adequate reserves for operations, rate stabilization, and capital improvements. • Affirm the appropriateness of existing user categories and/or develop new or combine categories to simplify rates and ensure equity among users.
• Provide recommended rate structures that comply with Proposition 218 requirements.
AGENDA
ITEM
16 • This includes:
o Using a Five-year projection of capital improvements, utility costs, debt payments and expected revenues.
o Mailing a notice to property owners outlining rate adjustments, holding a public hearing and conducting a mail “protest vote”.
REVIEW & ANALYSIS
Lechowicz & Tseng is the city’s Rate Consultant and over the last nine months, Alison Lechowicz and her staff received and analyzed the following information:
Financial Information
• Annual revenue by customer class for 2020 through 2022 • Water and sewer cash balances as of July 1, 2023
• Updated water and sewer capital improvement plans
• Secured or expected grants or loans for capital projects • Payment schedules for outstanding debt obligations (ie 2006 Bond Debt for the Water and Sewer Systems)
Customer and Usage Information
• Number of residential, commercial, industrial, and lift station customers • Projected new development over the next 10 years to estimate new customers • Large industrial customers use data
• Detailed Billing data by month for the past 3 years
• Example utility bill from a typical customer
• Billing data for customers not included in the City’s billing software (ie, Gonzales School District for sewer use)
The following is an overview of the rate study process:
o Revenue Requirements - Revenue requirements are analyzed via financial plans developed from the Water and Sewer Fund budgets. Based on the best information currently available, the financial plans incorporate projected operation and maintenance costs, capital expenditures, debt service, and growth to estimate annual revenue requirements. The plans serve as a roadmap for funding the City’s future operating and capital programs while maintaining long-term fiscal stability. o Cost of Service Allocation - The cost of service process builds on the financial plan analysis and assigns water and sewer system costs to functional cost components: metering and customer service, base, and extra for water, and customer service, flow, BOD, and TSS for sewer. o Rate Design - Rate design involves developing a rate structure that proportionately recovers costs from customers. Final rate recommendations are designed to (a) fund the utilities’ short- and longterm costs of providing service; (b) proportionately allocate costs to all customers and customer classes; and (c) comply with the substantive requirements of Proposition 218.
The rates developed in this report were based on the information gathered from City budgets, audits, and input from staff. The cost allocations are based on American Water Works Association methodologies and industry standard practice. The proposed rates are based on the reasonable cost of providing service and are proportional to the benefits received by each customer.
Based on Lechowicz & Tseng’s analysis of the provided information and input from City staff they are recommending changes to the City’s rate structure. The following sections describe those changes.
WATER FEES - The city’s water rates are comprised of a monthly meter fee plus the amount of water used (aka consumed). The amount of water consumed is measured in units of hundred cubic feet (ccf) One hundred cubic feet equals 748 gallons. The current and proposed water rates under normal water year conditions are provided in the following table. We are recommending annual seven percent increases. It is recommended that the City eliminate its tiered consumption rate structure and implement a single rate for all customers at all levels of use.
It is also recommended that the City adopt drought rates. The City does not currently have a schedule of drought rates. The proposed drought rates would only be implemented during a water shortage emergency. Under drought conditions, the meter charges would remain the same, but the consumption fee would increase according to the level of water cutback. The increased consumption fee is intended to make the water utility financially whole despite a decline in water sales during a drought.
PROPOSED WATER RATES – NORMAL WATER YEAR
PROPOSED
Fiscal Year Current 2023/24 2024/25 2025/26 2026/27 2027/28 Effective Date July 1, 2023 Jan 1, 2024 Jan 1, 2025 Jan 1, 2026 Jan 1, 2027 Jan 1, 2028
FIXED METER CHARGE
Meter Size +7% +7% +7% +7%
5/8" $22.12 $23.06 $24.68 $26.40 $28.25 $30.22
1" $23.50 $23.50 $24.68 $26.40 $28.25 $30.22
1-1/2" $24.86 $46.12 $49.36 $52.80 $56.50 $60.44
2" $26.26 $73.79 $78.98 $84.48 $90.40 $96.70
2-1/2" $27.28 $110.69 $118.46 $126.72 $135.60 $145.06
3" $29.12 $147.58 $157.95 $168.96 $180.80 $193.41
4" $30.53 $230.60 $246.80 $264.00 $282.50 $302.20
6" $31.94 $461.20 $493.60 $528.00 $565.00 $604.40
CONSUMPTION FEES ($/ccf)
Residential/Commercial
0 - 25 ccf $2.27 $2.41 $2.58 $2.76 $2.95 $3.16
26 - 30 ccf $2.35 $2.41 $2.58 $2.76 $2.95 $3.16
31 - 49 ccf $2.56 $2.41 $2.58 $2.76 $2.95 $3.16
50+ ccf $2.84 $2.41 $2.58 $2.76 $2.95 $3.16
Industrial
All use $2.27 $2.41 $2.58 $2.76 $2.95 $3.16
1 - One unit = 100 Cubic Feet (ccf) = 748 gallons
PROPOSED DROUGHT CONSUMPTION FEES
PROPOSED
Fiscal Year 2023/24 2024/25 2025/26 2026/27 2027/28
Effective Date Jan 1, 2024 Jan 1, 2025 Jan 1, 2026 Jan 1, 2027 Jan 1, 2028 CONSUMPTION FEES ($/ccf for all customers at all levels of use) Normal Water Year $2.41 $2.58 $2.76 $2.95 $3.16
10% Water Cutback $2.61 $2.79 $2.98 $3.19 $3.42
25% Water Cutback $3.00 $3.21 $3.43 $3.67 $3.93
40% Water Cutback $3.58 $3.83 $4.10 $4.39 $4.69
1 - One unit = 100 Cubic Feet (ccf) = 748 gallons
SEWER RATES – The current and proposed sewer rates are in the following table.
PROPOSED
Fiscal Year Current 2023/24 2024/25 2025/26 2026/27 2027/28 Effective Date July 1, 2023 Jan 1, 2024 Jan 1, 2025 Jan 1, 2026 Jan 1, 2027 Jan 1, 2028 FIXED CHARGE PER MONTH ($/account)
+20% +20% +6% +6%
Residential $31.77 $38.83 $46.60 $55.92 $59.28 $62.84
Commercial $15.18 $10.57 $12.68 $15.22 $16.13 $17.10
Industrial $312.62 $10.57 $12.68 $15.22 $16.13 $17.10
Schools $0.91 $1.04 $1.24 $1.49 $1.58 $1.67
COMMERCIAL & INDUSTRIAL VOLUME RATE ($/ccf) (in addition to fixed charge) $/ccf $2.40 $3.39 $4.06 $4.87 $5.16 $5.47
Note: Schools are billed annually rather than monthly based on reported average daily attendance (ADA) PROPOSITION 218 PROCESS - The City must follow the procedural requirements of Proposition 218 for all utility rate increases. These requirements include:
1. Noticing Requirement – The City must mail a notice of the proposed rate increases to all affected property owners or ratepayers. The notice must specify the amount of the fee, the basis upon which it was calculated, the reason for the fee, and the date/time/location of a public rate hearing at which the proposed rates will be considered/adopted.
2. Public Hearing – The City must hold a public hearing prior to adopting the proposed rate increases. The public hearing must be held not less than 45 days after the required notices are mailed.
3. Rate Increases Subject to Majority Protest – At the public hearing, the proposed rate increases are subject to majority protest. If more than 50% of affected property owners or ratepayers submit written protests against the proposed rate increases, the increases cannot be adopted.
To follow the process mandated by Proposition 218, the schedule to consider and adopt new rates is:
August 7, 2023 Information Meeting #1 with Industrial Facilities Initial rate recommendations at City Council meeting
September 18, 2023 Information Meeting #2 with Industrial Facilities Present Draft Rate Study recommendations at City Council meeting September 29, 2023 Mail Prop 218 notice of rate hearing to customers and property owners October - November 2023 45-day Prop 218 waiting period; conduct ratepayer outreach November 20, 2023 City Council meeting for Proposition 218 hearing January 1, 2024 New rates take effect absent a majority protest The presentation that staff and consultant will make at the Council meeting is attached for your reference.
How Recommendation Supports the Vision
Gonzales will continue to be a safe, clean, family-friendly community, diverse in its heritage, and committed to working collaboratively to preserve and retain its small town charm.
Explain: Completing the rate study and adjusting rates to adequately fund the operations and maintenance of each system is fundamental to maintaining a safe and clean community for all residents and businesses.
Explain how the Recommendation Directly Implements the Mission The City Council and Staff of the City of Gonzales will realize our Vision by providing the leadership, commitment and resources necessary to provide excellent services that enhance the quality of life of our diverse community. X Yes ____ No____ N/A
Explain: The recommended rate structures will be based on the cost of service and State requirements.
City services will be delivered in a cost-effective, respectful and friendly manner to insure the safety and well being of the residents and the promotion of business, recreational, housing and employment opportunities in an environmentally sustainable manner. X Yes ____No ___ N/A Explain: See Vision explanation above.
Strong fiscal policies allow us to provide appropriate infrastructure for:
• Public Safety Yes X No N/A
• Housing X Yes No N/A
• Recreation Yes X No N/A
• Environment Yes X No N/A
• Education Yes X No N/A
Explain: See Vision above.
ALTERNATIVES
Alternatives include directing staff to adjust the water and/or sewer rates.
BUDGET IMPACT
There is no budget impact to this evening’s presentation.
CONCLUSIONS
It is recommended that the City Council receive a follow-up report and presentation on the Water and Sewer Rate Studies and authorize staff to initiate the Proposition 218 Process.
Attachments:
1. Presentation
2. Draft Water/Sewer Rate Study
3. Proposition 218 Notice to Property Owners and Utility Customers