City Council
259 N. Wilma Avenue
Ripon, CA 95366
MEMO
To: Honorable City Council
From: Christiana Giedd, Associate Civil Engineer
Date: 12/12/2023
Subject: Utility Rate Study - Enterprise Funds Year 4 Update RECOMMENDED ACTION:
Staff is recommending the City Council approve implementing the February 1, 2024 rate increases for the water (2%), sewer (4%) and garbage (4%) enterprise funds that were originally approved in the 2020 5-Year Rate Study.
BACKGROUND:
The City uses “enterprise funds” to account for the financial activities of the water, sewer, and garbage services provided to the residents and businesses located in Ripon. Each enterprise fund is an independent budget that operates much like a private business enterprise. Each fund collects the revenue from the utility customers to fund the operations of the utility service along with the replacement of capital items.
In accordance with Proposition 218, in 2020, the property owners within the City limits approved rate increases of the water, sewer, and garbage enterprise funds to take effect February 1st of years 2021-2025, as summarized in Table 1.
Table 1 - 2020 5-Year Rate Study Proposed Rate Increases Utility 2021 2022 2023 2024 2025
Water 2% 2% 2% 2% 2%
Sewer 4% 4% 4% 4% 4%
Garbage 5% 5% 5% 4% 4%
Total 3.5% 3.5% 3.5% 3% 3%
The City Council has directed staff to bring back each year prior to February 1st, a financial evaluation of each enterprise fund to determine if the full rate increase that was initially approved is necessary for each enterprise fund.
DISCUSSION:
The rate increases included in the 2020 5-Year Rate Study were implemented for the first three years of the 2020 5-Year Rate Study, as proposed. Tom Pavletic with Municipal Financial Services (MFS) has prepared the financial evaluation for the February 1, 2024 enterprise fund rate adjustments, which is attached. Below is a summary of the current projected financials for each of the enterprise funds evaluated as compared to the 2020 5-Year Rate Study:
Water Fund: The operating expenses have increased significantly from what was initially projected in the 2020 5-Year Rate Study. In Fiscal Year 2022-23, the operating expenses increased 6 percent above what was initially projected and in Fiscal Year 2023-24, it was a 15 percent increase. These increases are largely a result of inflation.
As a result, the operating balance at the end of the 5-year rate study period is projected to be $740,000, which is $670,000 lower than what was initially projected. All recommended transfers to the Water Enterprise Capital Fund are projected to be made over the 5-year rate study period.
Sewer Fund: The Sewer Fund continues to operate near the 2020 5-Year Rate Study projected cash flow. Operating expenses have experienced an increase, like the Water Fund, but these increases were offset by additional revenue from commercial and industrial accounts.
The operating balance at the end of the 5-year rate study period is projected to be $740,000, which is $160,000 higher than what was initially projected. All recommended transfers to the Sewer Enterprise Capital Fund, including for future wastewater treatment plant expansion, are projected to be made over the 5-year rate study period. Garbage Fund: The Garbage Fund has experienced a significant increase in operating expenses largely a result of unanticipated regulatory requirements. For Fiscal Years 2023-24 and 2024-25, operating expenses have increased $190,000 (8%) and $290,000 (12%) from what was projected in the 5-Year Rate Study, respectively.
As a result, the operating balance at the end of the 5-year rate study period is projected to be $110,000, which is $630,000 lower than what was initially projected. At the end of the 5-Year Rate Study, only $740,000 of the originally projected $1,400,000 is projected to be transferred to the Garbage Enterprise Capital Fund.
Even though the operating balance is lower than the recommended target balance, this fund has no debt, which allows the City to maintain a lower balance without conflicting with any bond requirements, but in the long term, this will need to be addressed along with the regulatory increases and lower than anticipated capital transfers.
Staff is recommending the City Council approve implementing the full rate increases approved in the 2020 5-Year Rate Study for February 1, 2024. The combination of water (2%), sewer (4%) and garbage (4%) rate increases have an overall effect of a 3.0% utility rate increase on the monthly bill of an average single-family customer.
The graph below shows a single-family monthly bill with the approved 2024 rate increases included.
Figure 1 – Evaluation of Single-Family Monthly Bills
The average monthly bill projected for a single-family customer will increase from $115.76 to $119.38, a total of $3.62 a month.
City Council has also directed staff to begin tracking the regulatory expenses associated with each enterprise fund. For Fiscal Year 2022-23, staff has estimated the expense associated with complying with the various regulatory requirements from the State of California and compared to the previous fiscal year, as shown in the table below:
Table 2 – Regulatory Expense Summary
Utility FY2021-22
Expense
FY2022-23
Expense
FY2021-22
Single Family
Monthly Bill
% of
Total
Monthly
Bill
FY2022-23
Single Family
Monthly Bill
% of
Total
Monthly
Bill
Water $100,700 $139,700 $1.66 1.5% $2.30 2.0%
Sewer $117,500 $92,990 $1.94 1.7% $1.53 1.3%
Garbage $115,000 $130,770 $1.90 1.7% $2.16 1.9%
Total $333,200 $363,460 $5.50 4.9% $5.99 5.2%
In Fiscal Year 2022-23, the average single-family customer paid an estimated $5.99 per month due to regulatory expenses, which equates to 5.2 percent of an average resident’s utility bill.
Attachments:
1. TM_prelim_d2-1_2024_rate_review_kw