Item 11 - Public Hearing for Proposed San Diego County Water Authority Pass-Through Water Rates

DATE:

TO:

FROM:

CONTACT:

SUBJECT:

Summary:

AGENDA RE PQ RT City of Poway

CITY COUNCIL
December 3, 2024
Honorable Mayor and Members of the City Council
Craig Schmollinger, Director of Finance
Craig Schmollinger, Director of Finance �
(858) 668-4411 or [email protected]
Public Hearing for Proposed San Diego County Water Authority Pass-Through Water Rates
The San Diego County Water Authority (SDCWA) recently approved a rate increase totaling 13.52% to Poway which takes effect in January 2025. This increase is more than double the 6% annual SDCWA rate increase built into the 2025 water rates adopted by the City Council on November 2, 2021. The new SDCWA rates trigger the need for an additional water rate increase to pass-through the new SDCWA costs to ratepayers. The Water Fund cannot absorb the projected $1.27 million in additional costs resulting from the increased SDCWA rates. To ensure the ongoing financial sustainability of the water enterprise system staff is recommending the new SDCWA rates be passed through to ratepayers beginning in January 2025 when they take effect. To be clear, staff would not be recommending additional rate changes for January 2025 were it not for the increased rates adopted by the SDCWA.

On October 15, 2024, the City set the December 3, 2024 public hearing date for a proposed SDCWA pass-through rate increase for water services. The California Constitution, Article XIIID, Section 6, states that local governments must hold a Majority-Protest Public Hearing and notify property owners at least 45 days in advance of the public hearing related to the proposed SDCWA pass-through water rates. The notice (Attachment B) was mailed to 14,180 property owners with municipal water service on October 8, 2024, at least 45 days prior to the public hearing. Under the law, if written protests against the proposed rate increases are presented by a majority of property owners (i.e. more than 7,090 property owners), the increases shall not be approved. If a majority protest does not exist, Council may elect to approve the proposed pass-through rates at the conclusion of the public hearing.

As of November 25, 2024 a total of 49 protests were filed with the City Clerk. A summary of the protests filed with the city is shown in Attachment D. The actual protests are on file with the City Clerk's Office.

REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
1 of 17
December 3, 2024, Item #11
December 3, 2024, Item #11
Recommended
Action:

It
is
recommended
the
City
Council
take
public
input,
close
the
public
hearing,
and
adopt
the
resolution
with
the
SDCWA
pass-through
water
rates
if
a majority
protest
does
not
exist.

Discussion: After
a
review
of
water
purchase
cost
projections,
new
rate
increases
are
needed
to
ensure
the
financial
sustainability
of
the
water
enterprise
system.

The
October
15,
2024
Agenda
Report
explained
why
the
SDCWA
pass-through
rate
increases
were
necessary
. As
such,
this
Agenda
Report
will
briefly
summarize
the
information
contained
in
that
Agenda
Report.

The
October
15,
2024
Agenda
Report
has
been
included
as
a
courtesy
(Attachment
C)
for
those
that
did
not
have
the
opportunity
of
attending
the
meeting
or
reading
that
staff
report.

Proposed
San
Diego
County
Pass
-T
hrough
Water
Rates
The
SDCWA
recently approved
a rate
increase
totaling

13.52%
to
Poway
which
takes
effect
in
January
2025.

This
increase
is
more
than
double
the
6%
annual
SDCWA
rate
increase
built
into
the
2025
water
rates
adopted
by
the
City
Council
on
November
2,
2021
. The
new
SDCWA
rates
triggered
the
need
for
an
additional
water
rate
increase
to
pass-through
the
new
SDCWA
costs
to
ratepayers.

The
Water
Fund
cannot
absorb
the
projected
$1.27
million
in
additional
costs
resulting
from
the
increased
SDCWA
rates.

Proposed
rate
increases
to
pass-through
this
large
increase
from
SDCWA
to
Poway
customers
is
less
than
the

13.52%
increase
from
SDCWA.

This
is
accommodated
through
previously
approved
rates
for
January
1,
2025
implementation
(6%
SDCWA
increase
included),
and
other
factors
in
providing
on-demand
water
services.

This
helps
reduce
the
cost
of
service
passed
on
to
Poway
customers
from
the
SDCWA's

13.52%
increase
to
Poway
(i.e.
maintenance
and
operations,
water
treatment,
and
staff
cost
examples).

To
be
clear,
staff
would
not
be
recommending
additional
rate
changes
for
January
2025
were
it
not
for
the
increased
rates
adopted
by
the
SDCWA.

Imported
Water
:

Imported
water
represents
roughly
60%
of
water
operating
costs.

When
imported
water
costs
increase,
this
impacts
City
of
Poway
water
rates
. The
calculated
SDCWA
rate
and
charge
increase
to
the
City
is

13.52%
for
calendar
year
2025;
however
proposed
pass-through
rates
to
Poway
customers
are
less
than
this
large
increase
to
Poway
from
the
SDCWA
as
described
further
below.

As
illustrated
in
Table
1 later
in
the
report,
the
average
customer
will
see
an
increase
of
just
over
3%
on
their
bi
monthly
bills
as
a
result
of
the
SDCWA
pass-through
rate
increases
. In
an
effort
to
help
mitigate
impacts
to
member
agencies,
SDCWA
took
several
actions
to
reduce
the
increases
to
rates
including
applying
grant
funding
of
$19.7
million,
delaying
capital
expenses
of
$7
million,
and
trimming
operating
costs
by
$2
million.

Their
rate
increase
was
driven
by
an
average
rate
and
charge
increase
of
11 %
from
the
Metropolitan
Water
District
(MWD),
one
of
SDCWA
water
suppliers,
along
with
wholesale
costs
from
operating
the
Claude
"Bud"
Lewis
Desalination
Plant.

Additionally,
the
impacts
of
both
the
Rainbow
and
Fallbrook
Municipal
Water
District's
detaching
from
SDCWA
has
resulted
in
an
increase
in
SDCWA
costs
being
spread
among
the
remaining
23 member
agencies
that
continue
to
receive
water
from
the
SDCWA.

The
SDCWA
also
has
declining
water
sales
to
those
remaining
23 member
agencies
which
results
in
less
water
sold
to
spread
SDCWA
costs.

The
SDCWA
projected
their
2 of
17 December 3, 2024, Item #11
water sales downward by 20% and 15% from previous adopted figures for Fiscal Years 2024 and 2025, respectively (source: SDCWA Staff Report for Fiscal Years 2024 & 2025 Mid-Term Budget, June 19, 2024). The result is an increase in costs spread among less units of water sold for the remaining SDCWA member agencies, including Poway.

Since Poway's water rates are comprised of several factors (i.e. maintenance and operation of the water system, water treatment costs, and staffing costs), the actual pass-through rate increases to customers will be less than the 7.52% differential between the SDCWA rates the City anticipated in the rate model and the actual SDCWA rates which take effect in January 2025. The recommended water pass-through rate adjustments to recover the increased SDCWA wholesale water increases result in a uniform increase in water use (commodity) rates to City customers of $0.32 per billing unit (1 unit= 100-cubic feet= 748 gallons).

Estimated Residential Impacts:

Table 1 below shows the estimated impact to residential customers who have a¾" water meter and use 29 units of water over one bimonthly billing period (every two months).

Table 1: Estimated Residential Impacts (Water)
Approved Proposed
Existing Jan. 2025 Jan.2025
Revenue Increase (%) N/A 8% 3.2%2
Estimated Water Bill1 $269.90 $293.41 $302.73
Impact($) N/A $23.51 $9.32

1. Assumes the average residential customer has a¾" meter and uses 29 units of water bimonthly.

2. Proposed rate increase impact for the average residential customer.

As the table shows, the average residential customer would be paying $9.32 more per bimonthly billing period for water in January 2025 with the proposed rate adjustment. This impact reflects the difference between the already approved January 2025 rates with the proposed pass-through wholesale water rate adjustment.

Community Outreach
To help the community understand the impacts of the proposed pass-through rate increases, staff updated the residential bill estimator tool (https://poway.org/175/Rates-Fees). This will help evaluate how the proposed increases impact their specific usage patterns. This tool, as well as information specifically about the majority-protest public hearing, and proposed rates, are posted to the homepage of the City's website and the Water and Sewer Services section of the Finance Department webpage.

Timeline
The following graphic shows the proposed rate cycle for the potential rate adjustment.

Set Public Hearing: Mail 218 Notice: Public Hearing: Rates Effective:

October 15, 2024 By October 18, 2024 December 3, 2024 January 1, 2025 3 of 17
December 3, 2024, Item #11
Environmental Review:

This project is exempt from the California Environmental Quality Act (CEQA) per State CEQA Guidelines Section 15273(a): modification, structuring, restructuring, or approval of rates, tolls, fares, or other charges by public agencies.

Fiscal Impact:

Based on the information contained in this staff report, sufficient revenues will be generated from the recommended water revenue increases to fund significant increased costs for water purchases from the SDCWA. For 2025 it is estimated approximately $1.27M in additional water revenues will be generated to offset new SDCWA costs if the proposed rates are adopted at the public hearing.

Safe reliable water delivered on demand to an average residential ratepayer costs approximately one penny per gallon.

Public Notification:

The California Constitution, Article XIIID, Section 6, states that local governments must hold a Majority Protest Public Hearing and notify property owners at least 45 days in advance of the public hearing related to proposed SDCWA water, pass-through rates. The notice (Attachment B) was mailed on October 17, 2024, more than 45 days prior to the public hearing.

A Notice of Public Hearing was published in the Poway News Chieftain on November 21, 2024 and November 28, 2024.

As of November 25, a total of 49 protests were filed with the City Clerk.

Attachments:

A. Resolution Establishing Water Service Charges and Rates B. Notice of Public Hearing
C. October 15, 2024 Staff Report
D. Summary of Protests Received
Reviewed/Approved By:

Assistant City Manager
4 of 17
Reviewed By:

Alan Fenstermacher
City Attorney
Approved By:
c~
City Manager
December 3, 2024, Item #11
RESOLUTION NO. 24-

A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF

POWAY, CALIFORNIA, ESTABLISHING WATER SERVICE
CHARGES AND RATES PER SECTION 13.11.120 OF THE

POWAY MUNICIPAL CODE
WHEREAS, the City of Poway provides water services to residents of Poway; WHEREAS, the California Constitution Article XIII D §6(a)(2) requires local governments hold a majority-protest public hearing and notify rate payers not less than 45 days in advance of the public hearing before increasing water rates and charges; WHEREAS, the city is proposing an adjustment to water rates as a pass-through of large increase in purchased water costs from the San Diego County Water Authority, to be effective from January 1, 2025 forward if approved;
WHEREAS, the City Council of the City of Poway held a duly noticed public hearing on December 3, 2024, pursuant to the provisions of Article XIIID of the California Constitution and the Proposition 218 Omnibus Implementation Act;
WHEREAS, the City Council received a final tabulation of all written protests received by the City Clerk at the December 3, 2024, Proposition 218 hearing; and WHEREAS, the City Council considered all written protests and heard oral arguments to the proposed rate structure changes and rates and charges at the public hearing.

NOW, THEREFORE, BE IT RESOLVED by the City Council of the City of Poway as follows:

SECTION 1: That the above recitations are true and correct; SECTION 2: The City Council hereby finds that no majority protest for the water rates and charges were received;
SECTION 3: The City Council hereby establishes and approves the San Diego County Water Authority pass-through water rates and charges for water, effective January 1, 2025, as set forth in the Notice of Public Hearing (Attachment B), for all water used on or after January 1, 2025. Any water rates or fees associated with water service, including raw water, not addressed within the Notice of Public Hearing shall remain in full force and effect as previously adopted; SECTION 4. That the setting of such charges and rates is statutorily and categorically exempt from the requirements of CEQA, pursuant to Section 21080(b )(8) of the Public Resources Code, and Title 14 of the California Code of Regulations, Sections 15273(a) and 15307; SECTION 5. This Resolution shall take effect immediately. 5 of 17 ATTACHMENT A
December 3, 2024, Item #11
Resolution
No
. 24-
Page
2 PASSED,

APPROVED
AND

ADOPTED
at
a
Regular
Meeting
of
the
City
Council
of
the
City
of
Poway,
California
on
the
3rd
day
of
December,
2024
by
the
following
vote,
to
wit:

AYES
:

NOES: ABSTAINED
:

ABSENT
:

DISQUALIFIED:

Steve
Vaus,
Mayor
ATTEST: Carrie
Gallagher,
City
Clerk
6 of
17 December 3, 2024, Item #11
The San Diego County Water Authority (SDCWA) recently approved a rate increase totaling 13.52% to Poway, which takes effect in January 2025. This increase is more than double the 6% annual SDCWA rate increase built into the 2025 water rates adopted by the City Council on November 2, 2021.

The new SDCWA rates trigger the need for an additional water rate increase to pass-through the new SDCWA costs to ratepayers. The Water Fund cannot absorb the projected $1.27 million in additional costs resulting from the increased SDCWA rates.

To ensure the ongoing financial sustainability of the water enterprise system staff is recommending the new SDCWA rates be passed through to ratepayers beginning in January 2025 when they take effect. Staff would not be recommending additional rate changes for January 2025 were it not for the increased rates adopted by the SDCWA. Since Poway's water rates are comprised of several factors (including maintenance and operation of the water system, water treatment costs, and staffing costs), the actual pass-through rate increases to customers will be less than the 7.52% differential between the SDCWA rates the City anticipated in the rate model and the actual SDCWA rates which take effect in January 2025. The average customer will see an increase of just over 3% on their bi-monthly bills as a result of the SDCWA pass-through rate increases.

As a best practice, almost all water agencies (20 out of 23) in San Diego County have pass-through provisions in their adopted rate schedules allowing them to automatically pass on any increases in SDCWA rates to customer. Poway does not. As a result -and in compliance with Proposition 218 -enclosed in this notice are the proposed pass-through rate adjustments for 2025. If the SDCWA didn't more than double the anticipated 6% annual increase in water purchase costs for 2025, Poway would not need to pass these costs on to water customers through the recommended adjustments.
7 of 17 ATTACHMENT B

NOTICE OF PUBLIC MEETING
Tuesday, December 3, 2024 at 7 p.m.

City Council Chambers
13325 Civic Center Drive, Poway
On Tuesday, December 3, 2024 at 7 p.m. the
Poway City Council will consider adopting
proposed changes to water charges. If
adopted, the rate adjustments will become
effective January 1 of 2025 and reflected on
bimonthly bill statements in March or April.

The City bills for water service bimonthly
(every two months) based on consumption
during the two months prior to the billing
date.

All interested persons are invited to
appear at the meeting to give oral or
written testimony on the proposed rate
adjustments. Rate protests must be
submitted in writing ahead of the council
meeting. City Council meetings are open
for in-person participation or viewing online.

Visit poway.org/councilmeetings for more
information.

Details on the written protest process are
located on the back page of this notice.

December 3, 2024, Item #11
Proposed
Pass
-Through
Changes
to
Water
Rates
The
City
of
Poway
provides
safe,
reliable
water
on
demand
to
its
customers
and
purchases
nearly
100
percent
of
its
water
from
SDCWA.

Purchased
water
represents
almost
60 %
of
City
water
operating
costs.

When
imported
water
costs
increase,
as
with
the

13.52 %
increase
in
2025,
this
significantly
impacts
City
water
rates
, which
are
passed
on
to
customers. The
current
adopted
water
rate
structure
assumed
SDCWA
annual
rate
increases
at
6%.

Actual
City
water
purchase
costs
for
2022,
2023
and
2024
have
been
in
close
alignment
with
City
projections
and
budgeted
figures
. However
, for
2025
the
cost
to
purchase
imported
water
has
increased
by
over
double
what
was
anticipated
in
the
adopted
water
rates
. The
SDCWA
adopted
rates
on
July
25,
2024
represent
a 13.52
%
increase
to
Poway
for
2025,
which
equates
to
an
additional
cost
of
$1.27
million.

The
City
cannot
absorb
these
large
increased
costs
for
wholesale
water
purchase.

To
help
ensure
the
financial
sustainability
of
the
water
enterprise,
to
ensure
legally
binding
debt
services
bond
covenants
are
met,
and
to
meet
Financial
Policy
m
inimum
reserve
requirements,
the
City
is
proposing
pass-through
adjustments
in
potable
water
rates
effective
on
January
1,
2025
.
•
For
additional
information
on
how
your
rates
have
been
calculated,
please
refer
to
the
staff
report
on
October
15,
2024
titled
"Set
Public
Hearing
for
Proposed
San
Diego
County
Water
Authority
Pass-Through
Water
Rates
for
2025
Implementation."

CURRENT
&

PROPOSED
PASS
-THROUGH
WATER
RATES
Single
Family
Residential
Tier
1: 1-20
Units

6.00 6.40

6.72 Tier
2: 21-56
Units

7.00 7.46

7.78 Tier
3: 57+
Units

9.73 10
.37

10.69 Multi-family
Residential

6.15 6.56

6.88 Landscape
Irrigation

8.53 9.09

9.41 Non-residential

6.54 6.97

7.29 City
Potable
Usage

6.54 6.97

7.29 1 unit
=
7 48
gallons
Any
water
rates
or
fees
associated
with
water
service,
including
raw
water
, not
addressed
with
in
this
notice
shall
remain
in
full
force
and
effect
as
previously
adopted
by
the
Poway
City
Council.

December 3, 2024, Item #11
Proposed
Pass
-Through
Rate
Change
Pro
tests
As
part
of
the
pass-through
rate
setting
process,
on
December
3,
2024,
the
City
of
Poway
will
conduct
a public
hearing
on
the
proposed
changes
to
rates
and
will
consider
all
oral
and
written
protests
to
the
proposed
pass-through
changes.

Oral
comments
at
the
public
hearing
will
not
qualify
as
formal
protests
unless
accompan
ied
by
a written
protest.

Only
one
written
protest
will
be
counted
per
identified
parcel.

While
email
is
not
an
official
rate
protest
mechanism
under
Cal
ifornia
law,
the
City
Counci
l values
resident
input
and
will
read
all
email
correspondence
regarding
rates
.

Written
protests
must
include
:

A
description
of
the
property,
such
as
the
address
or
assesso
r's parc~I
number;
and
The
name
and
signature
of
the
customer
subm
itting
the
protest.

The
City
Council
will
receive
a final
tabulation
of
all
written
protests
received
by
the
City
Clerk
. Written
protests
must
be
received
by
the
City
Clerk's
office
no
later
than
12 p.m
. December
3,
2024
or
can
be
submitted
in
writing
in
the
Council
Chambers
before
the
public
hearing
is
closed.

If
a majority
of
the
affected
customers
do
not
file
written
protests
of
the
proposed
rate
changes,
the
Council
will
then
consider
and
may
adopt
the
rate
changes
described
in
this
notice
. If
a majority
of
affected
customers
file
written
protests
,
the
City
Council
will
not
adopt
the
proposed
rate
adjustments
and
the
City
will
reconsider
the
rate
structure
and
rates
.

How
were
pass-thro
ugh r
ates
de
termined?
The
City
utilized
a
third-party
rate
consultant
as
utility
experts
in
water
rate
setting
who
leads
a
cost
of
service
study
update
in
partnership
with
staff.

The
study
designs
a
legally
compliant
rate
framework
that
recovers
water
costs
across
different
customer
classes
. These
studies
are
typically
updated
every
four
to
six
years
to
ensure
the
rate
design
remains
fair
and
equitable.

The
most
recent
study
was
performed
in
December
2019
and
updated
in
late
2021
for
rates
that
went
into
effect
beginning
in
January
2022
. The
current
review
involved
an
update
based
on
the
large

13.52%
increase
in
costs
to
the
City
from
the
SDCWA,
which
is
more
than
double
what
the
rate
structure
anticipated
for
purchased
water
costs
and
equates
to
$1.27
million
in
additional
costs
to
Poway
for
2025
.
9 of
17 For
rates
information
and
links
to
resources
quoted
in
this
notice,
scan
this
QR
code
or
visit:
poway.org/rates
-fees
.

December 3, 2024, Item #11
City of Poway
PO Box 789
Poway, CA 92074-0789

DATED MATERIAL

DO NOT DELAY DELIVERY
Important information about
your WATER account!
The City of Poway is mailing this notice to you because you are a water customer responsible for payment of water fees, or you are the owner of record for a property that receives water service. This notice describes proposed pass-through adjustments to water rates and provides notice of the upcoming public hearing at which these proposed changes will be considered by the Poway City Council. If you have any questions regarding this notice, please call (858) 668-4401. 10 of 17
DATE:

TO:

FROM:

CONTACT:

SUBJECT:

Summary:

AG EN DA REPORT City of Poway
October 15, 2024
Honorable Mayor and Members of the City Council
Craig Schmollinger, Director of Finance @
Craig Schmollinger, Director of Finance
(858) 668-4411 or [email protected]

CITY COUNCIL
Set Public Hearing for Proposed San Diego County Water Authority Pass-Through Water Rates for 2025 Implementation
The San Diego County Water Authority (SDCWA) recently approved a rate increase totaling 13.52% to Poway which takes effect in January 2025. This increase is more than double the 6% annual SDCWA rate increase built into the 2025 water rates adopted by the City Council on November 2, 2021. The new SDCWA rates trigger the need for an additional water rate increase to pass-through the new SDCWA costs to ratepayers. The Water Fund cannot absorb the projected $1.27 milllon in additional costs resulting from the increased SDCWA rates. To ensure the ongoing financial sustainability of the water enterprise system staff is recommending the new SDCWA rates be passed through to ratepayers beginning in January 2025 when they take effect. To be clear, staff would not be recommending additional rate changes for January 2025 were it not for the increased rates adopted by the SDCWA. This staff report recommends setting the public hearing date on December 3, 2024 for proposed SDCWA water pass-through rate increases for water rates.

The City relies almost exclusively on the SDCWA for its raw water supply and therefore does not have a choice in accepting rate adjustments from the wholesale water provider. These increased costs were adopted by the SDCWA on July 25, 2024 and will go into effect in January 2025. While Poway's four year rates anticipated increases in the cost to purchase water of 6% per year, the new SDCWA increases to Poway are 13.52% which is well beyond what the rate model projected. City rates cannot absorb these large increased costs for wholesale water purchases, Since Poway's water rates are comprised of several factors (i.e. maintenance and operation of the water system, water treatment costs, and staffing costs), the actual pass-through rate increases to customers will be less than the

7.52% differential between the SDCWA rates the City anticipated in the rate model and the actual SDCWA rates which take effect in January 2025. As illustrated in Table 1 later in the report, the average customer will see an increase of just over 3% on their bi-monthly bills as a result of the SDCWA pass through rate increases. As a best practice, almost all water agencies (20 out of 23) in San Diego County have a pass-through provision in their adopted rate schedules allowing them to automatically pass on any increases in SDCWA rates to customers. Poway does not currently have a pass-through provision which is why slaff is bringing this item forward and recommending the City initiate the Proposition 218 process to incorporate the SDCWA rate increases into the City's water rates when they take effect in January 2025.

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ATTACHMENT C
Recommended Action:

It is recommended the City Council direct staff to set the public hearing for December 3, 2024 and proceed with the Proposition 218 process which includes mailing the notice of public hearing to ratepayers (Attachment A) pursuant to California law for this proposed wholesale pass-through water rate adjustment.

Discussion:

On November 2, 2021, the City adopted new rate structures and four-year rate increases for water, recycled water, and wastewater rates that are effective for calendar years 2022, 2023, 2024 and 2025.

Actual City water purchase costs for 2022, 2023 and 2024 have been in close alignment with City projections and budgeted figures. However, after a review of projections for wholesale water purchase costs, specifically the new rate increases adopted by the San Diego County Water Authority (SDCWA) that take effect in January 2025, new water pass-through rate increases are needed for 2025, to ensure the financial sustainability of the water enterprise system. This staff report will focus on· what is driving the proposed pass-through rate increases.

Proposed Water Rates:

In November 2021, the City Council adopted four-year water rate increases to cover calendar years 2022, 2023, 2024 and 2025. The final approved increase will take effect in January 2025. The approved rates cover the increasing costs of providing safe, reliable water on demand �o ratepayers. While Poway's four-year rates anticipated increases in the cost to purchase water of 6% per year, the approved SDCWA rate increase of 13.52% for 2025 is more than double what was anticipated in our rate model. The Water Fund cannot absorb these large increased costs for wholesale water purchases. which are projected to result in a $1.27 million revenue shortfall in water purchase costs.

Current City rates cannot absorb these unplanned large increased costs for wholesale water purchases. Out of 23 agencies, the City is one of three retail water providers In San Diego County that does not have a wholesale service pass-through provision authorizing automatic pass-through of these wholesale service cost increases. These industry standard, best practice, pass-through provisions will be incorporated for City Council consideration with the next full cost of service study.

This proposed water pass-through adjustment would be the only pass-through adjustment for the City in 2025 regardless of subsequent hypothetical adjustments from the SDCWA that may be effective in 2025 prior to the completion of the next full cost of service study.

Imported Water:

The lone factor driving the proposed pass-through rate increase is increases to City purchased water costs charged by the SDCWA. San Diego County has a semi-arid climate. Before 1947, the San Diego region relied on rainfall and groundwater to meets its water needs (SDCWA, Urban Water Management Plan 2020). As the economy and population grew, local water resources became insufficient to meet the region's water supply needs and required imported water from hundreds of miles away to support the growth. Much of the region's water is imported from northern California near San Francisco and Sacramento (i.e. the Bay-Delta).

Importing water is very energy and infrastructure intensive. Over time, the cost to transport this water increases as factors like energy prices increase. Investment by SDCWA into regional water supply and infrastructure projects to reduce reliance on imported water and mitigate the effects of natural October 15, 2024, Item #7
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December 3, 2024, Item #11
disasters, such as earthquakes, is also expensive. For example, SDCWA's investment into the Claude "Bud" Lewis Desalination Plant cost close to $1 B, but it gave the region a new drought-proof, locally controlled supply of water.

Imported water represents almost 60% of City water operating costs. When imported water costs increase, this significantly impacts City water rates which are passed on to customers. The SDCWA rate and charge increase to the City is 13.52% for calendar year 2025. Since Poway's water rates are comprised of several factors (i.e. maintenance and operation of the water system, water treatment costs. and staffing costs), the actual pass-through rate increases to customers will be less than the

7.52% differential between the SDCWA races the City anticipated in the rate model and the actual SDCWA rates which take effect in January 2025. As illustrated in Table 1 later in the report, the average customer will see an increase of just over 3% on their bi-monthly bills as a result of the SDCWA pass through rate increases. In an effort to help mitigate impacts to member agencies, SDCWA took several �ctions to reduce the increases to rates including applying grant funding of $19.7 million, delaying capital expenses of $7 million, and trimming operating costs by $2 million. Their rate increase was driven by an average rate and charge increase of 11 % from the Metropolitan Water District (MWD), one of SDCWA water suppliers, along with wholesale costs from operating the Claude "Bud" Lewis Desalination Plant. Additionally, the impacts of both the Rainbow and Fallbrook Municipal Water District's detaching from SDCWA has resulted in an increase in SDCWA costs being spread among the remaining 23 member agencies that continue to receive water from the SDCWA The SDCWA also has declining water sales to those remaining 23 member agencies which results in less water sold to spread SDCWA costs. The SDCWA projected their water sales downward by 20% and 15% from previo us adopted figures for Fiscal Years 2024 and 2025, respectively (source: SDCWA Staff Report for Fiscal Years 2024 & 2025 Mid-Term Budget, June 19, 2024). The result is an increase in costs spread among less units of water sold for the remaining SDCWA member agencies, including Poway.

Due to the substantial increase in water purchase costs from SDCWA, wholesale costs to the City have increased beyond the projected 6% annual cost increase for calendar year 2025 by $1.27 million. As a result of this significantly higher increase in wholesale water purchase costs beyond the 6% SDCWA rate increases included in the adopted rate structure. staff is recommending an adjustment to pass through SDCWA water rate increases to recover these higher than anticipated costs which help ensure the ongoing financial stability of the water enterprise.

The City retained Raftelis Financial Consultants (Raftelis) in 2021 as utility rate experts in the water and sewer rate setting field for over 30-years. Raftelis provided a Water Rate Model and recommendations resulting in the noted water rate adjustments for calendar years 2022, 2023, 2024 and 2025. In May 2024, the City again retained Raftelis to provide a limited-scope update to the noted Water Rate Model based on the large wholesale water rate increases the SDCWA adopted for 2025.

Raftells completed its analysis with the results included in a pass-through technical memorandum (Attachment B). The recommended water pass-through rate adjustments to recover the increased SDCWA wholesale water increases result in a uniform increase in water use (commodity) rates to City customers of $0.32 per billing unit (1 unit= 100-cubic feet= 748 gallons).

Table 1 below shows the estimated impact to residential customers who have a¾" water meter and use 29 units of water over one bimonthly billing period (every two months).

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Table 1: Estimated bimonthly Residential Impacts of Wholesale Water Rate Pass Through - - - -
Debt Funding Option
Revenue Increase(%)
Estimated Water Bill'
Impact (Sl
- - - -
Existing
NIA
$269.90
NIA
- - -
Ap-proved i - Pro"posel --I
Jan.2025 Jan.2025
8% 3.2%2
$293.41 $302.73
$23.51 $9.32

1. Assumes the average residential customer has a¼" meter and uses 29 units of water bimonthly.

2. Propos�d rate Increase impact for the average residential customer.

Community Outreach:

To help the community understand the impacts of the proposed pass-through rate Increases, staff updated the residential bill estimator tool Chttps://poway.org/175/Rates-Feesl. This will help evaluate how the proposed increases impact their specific usage patterns. This tool, as well as information specifically about the majority-protest public hearing, and proposed rates. will be posted to the homepage of the City's website and the Water and Sewer Services section of the Finance Department webpage. This information will also actively communicated to the public via the Poway Today e newsletter.

Timeline:

The following graphic shows the proposed rate cycle for the potential rate adjustment.

Set Pu,blic t-tearing:

October l S, 2024 It
Mail 218 Notice:

By October 18, 2024
Public Hearing:

December 3, 2024
Rates Effective:

January 1, 2025
EnvjronmentaJ Revjew:

This action Is not subject to review under the California Environmental Quality Act (CEQA).

Fiscal Impact:

There is no direct fiscal impact associated with this staff report because it only sets the public hearing.

However, based on the information contained in this staff report and the analysis completed by Raftelis, there will be insufficient revenues to fund water purchase costs without passing through the recently adopted SDCWA rate increases to ratepayers. Without the pass through, it is estimated the City will collect approximately $1.27 million less than needed to cover water purchase costs. Tapping into the Water Fund Reserves to cover this shortfall is not an option, as we are required to maintain the reserves at certain levels as a provision of the bond covenants for the water revenue bonds issued to pay for the Water Infrastructure Improvement Program.

Safe reliable water delivered on demand to an average residential ratepayer costs approximately one penny per gallon.

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pµblic Notification:

The California Constitution, Article XIIID, Section 6, states that local governments must hold a Majority Protest Public Hearing and notify property owners at least 45 days in advance of the public hearing related to proposed water, recycled water, and wastewater rates. The notice (Attachment A) will be mailed at least 45 days prior to the public hearing, or on or before October 18, 2024. The public hearing will take place as follows:

Attachments:

Tuesday, December 3, 2024 at 7:00 p.m.

City of Poway Council Chambers
13325 Civic Center Drive
Poway, CA 92064
A. Notice of Public Hearing: Proposed Pass-Through Water Rates B. Raftelis Water Rate Technical Memo
Reviewed/Approved By:
�_Vv-
Wendy �erman
Assistant City Manager
Reviewed By:

Alan Fenstermacher
City Attorney Citv Manager
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Date
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10/24/2024
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Last Name
Krafton
Anderson
Pearce
Monk
Higbee
Garland
Parada
May
Palladino
McCormack
Soliman
Springett
Monk
Geidner
Pere
Bagley
Scott
Rubacky
Rubacky
Matthies
Paige
Baumann
Belasco
Grimmer
Carruthers
Fetsch
Carter
Carter
Steinmetz
Steinmetz
Stewart
Palmer-Gillum
Daughety
Poe
Runge
Runge
Springett
Lance
Quaglietta
Zoltan
Rumrill
Cook
Cook
Cabri-Rumrill
First Name Address No.

Margarita 12610
Phillip M. & Susan K. 15135
Evangeline C 14625
Annette
Lisa S. 12938
William 14933
Jacqueline 14281
Michelle 15454
Paulett 1S347
Kevin 15704
Samir 13726
Vanessa & Drew 13331
Annette
Joseph 13835
Renaud 15590
Kenneth & Cora 16439
Joseph & Donna 14653
Charles & Gayle 13331
Charles & Gayle 13333
Colleen 13606
Dennis 12807
Koral L 17213
Jay C. 14445
Francine 16823
Linda 14370
Gayle Marie 14321
John 12663
Dianne 12663
Jane 13995
Dennis 13995
Camille 12947
Elaine S. 14670
Jason 16325
Mary & Dennis 14423
Ann E. 12218
Todd E. 12218
Vanessa & Drew 13331
Ian 12361
Anthony 14747
Barbara 17031
Dennis A 14762
Michelle 12956
Neal 12956
Shirley A. 14762
PROP 218 WATER PROTEST LOG
2024
Street Name
(AVE, CT, DR, LN, PL, RD, ST, TRL, WAY) Comments
Roberto Way Invalid Missing Signature
Huntington Gate Dr 321-400-07-00
Fairburn St 323-340-67-00
Invalid Missing Signature/Address; Invalid Submitted as Email Yankton Road Invalid Missing Signature; Invalid Submitted as Email Golden Sunset Court 321-220-12-00
Palisades Drive
Oakstand Ct 278-442-04-00
La Manda Dr
Riparian Rd
Paseo De Las Cumbres 275-270-43-00
Tining Drive Invalid Missing Signature; Invalid Submitted as Email Invalid Missing Signature/Address; Invalid Submitted as Email Otis Place
Garden Rd
Bridlewood Road
Kalpana St.

Red Cloud Ln 323-032-37
Red Cloud Ln 323-032-38
El Mar Avenue 323-312-16-00
Amber Hill Ln 317-720 -50-00
Merlot Pl.

Twin Peaks Road
Avenida Florencia
Silver Heights Road
Twisted Branch Road
Butterwood Ct.

Butterwood Ct. Invalid Duplicate Address #22
Hickory Street
Hickory Street Invalid Duplicate Address #23
Slack St
Buckwood St.

Avenida Florencia
Midland Rd.

Sunrise Court
Sunrise Court Invalid Duplicate Address #28
Tining Drive
Mesa Crest Road
Fairtree Terrace
Cloudcroft Dr.

Poway Mesa Dr
Triumph Drive
Triumph Drive Invalid Duplicate Address #34
Poway Mesa Drive Invalid Duplicate Address #33
December 3, 2024, Item #11
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37 38
39 40
41 42
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47 48
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11/25/2024
11/25/2024
Giulianotti
Leyking
Her
Locquiao
Hess
Cormode
Rowean
Kay
Blain
Jalaty
Chatman
Hayes
Hayes
Hayes
Hayes
Hayes
Hayes
Hayes
Hayes
Benham
Miller
Christina
Lawrence
Lu & Beth Ann
Margie
Roger
Patricia
Susan & William
Donald
Susan
Arthur
Gary & Nancy
lrenle
Charles R
Charles R
Charles R
Charles R
Judith F
Judith F
Judith F
Judith F
Hal
Silke & William
13609
14150
13378
14648
13784
14660
13540
14720
15230
14265
12965
15147
0 0
0 0
15147
0 0
15946
13121
PROP 218 WATER PROTEST LOG
2024
Del Poniente Rd
Arbolitos Dr.

Via Stephen
Plumwood Steet
Sycamore Tree Lane
Plumwood Steet
Cloudcroft Ct
High Valley Rd
Vali Hai Rd
Twin Peaks Rd
Slack Street
Eastvale Rd
Vali Hai Rd 321-080-38
High Valley Rd Invalid not connected to munipcal water service ; 321-080-32 Vali Hai Rd Invalid nat connected to munipcal water service ; 321-090-01 Vali Hai Rd Invalid not connected to munipcal water service; Invalid Duplicate Address; 321-090-01 Eastvale Rd Invalid Duplicate Address #46
High Valley Rd Invalid not connected to munipcal water service; Invalid Duplicate Address; 321-080-32 Vali Hai Rd Invalid not connected to munipcol water service; Invalid Duplicate Address #47; 321-080-38 Cumberland Dr
Wild Flower Ln

Poway City CouncilDecember 3, 2024

Poway City Council
December 3, 2024