City Council
259 N. Wilma Avenue
Ripon, CA 95366
MEMO
To: Honorable City Council
From: Christiana Giedd, Associate Civil Engineer
Date: 12/10/2024
Subject: Utility Rate Study - Enterprise Funds Year 5 Update RECOMMENDED ACTION:
Staff is recommending the City Council approve implementing the February 1, 2025 rate increases for the water (2%), sewer (4%) and garbage (4%) enterprise funds that were originally recommended in the 2020 5-Year Utility Rate Study report and approved in 2020 by property owners within Ripon city limits in accordance with Proposition 218.
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 2020, Tom Pavletic with Municipal Financial Services (MFS) prepared a 5-Year Utility Rate study (5-Year Rate Study) that evaluated the operating revenue and capital replacement needs of the water, sewer, and garbage enterprise funds. This study recommended maximum water, sewer, and garbage rate increases as summarized in the table below.
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%
In accordance with Proposition 218, the property owners within the Ripon city limits approved these maximum rate increases to take effect February 1st of each year shown.
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. The rate increases included in the 5-Year Rate Study were implemented for the first four years, as proposed.
DISCUSSION:
The annual financial evaluation to determine if a full rate increase is needed depends largely on two metrics – fund target balance and capital transfers. Minimum fund balances are maintained in each enterprise fund in order to ensure reserve funds are available if a short-term deficit situation presents itself and also to meet minimum bond coverage requirements, if the enterprise fund has any debt. Capital transfers are necessary for the future replacement of capital items such as pump stations, water wells, and other equipment.
MFS has prepared the financial evaluation for the February 1, 2025 enterprise fund rate adjustments, which is attached. This evaluation tracks the actual finances of each enterprise over the first four years of the 5-Year Rate Study and shows the budgeted finances for the fifth year.
Below is a summary of the updated financials for each of the enterprise funds as compared to the 5-Year Rate Study:
Water Fund: Actual expenses are projected to increase over what was projected in the 5- Year Rate Study period as a result of higher than anticipated inflation. The study projected $12.86 million of expenses over the 5 years, while actual expenses (including those projected for the current fiscal year) are now projected to be $13.54 million.
The increase in expenses have been offset by an increase in revenue from increased water usage, which has allowed the projected transfers to be made to the Water Enterprise Capital account. The 5-Year Rate Study projected a total of $5.5 million would be transferred to this account over the 5 years, while actual transfers (including the transfer projected for the current fiscal year) are now projected to be $5.66 million, 2.9 percent higher than projected.
Staff is recommending implementing the 2% annual rate increase on Feb 1, 2025, as was included in the 2020 5-Year Rate Study.
Sewer Fund: Actual expenses are projected to increase over what was projected in the 5- Year Rate Study period as a result of higher than anticipated inflation. The study projected $6.42 million of expenses over the 5 years, while actual expenses (including those projected for the current fiscal year) are now projected to be $6.83 million.
The increase in expenses, which has been partially offset by increases in commercial and industrial revenue, resulted in lower than projected transfers to the Sewer Enterprise Capital account. The 5-Year Rate Study projected a total of $3.41 million would be transferred to this account over the 5 years, while actual transfers (including the transfer projected for the current fiscal year) are now projected to be $3.19 million, 5.5 percent less than projected.
Staff is recommending implementing the 4% annual rate increase on Feb 1, 2025, as was included in the 2020 5-Year Rate Study.
Garbage Fund: Actual expenses are projected to increase over what was projected in the 5-Year Rate Study period as a result of higher than anticipated inflation and unanticipated State regulatory requirements. The study projected $10.85 million of expenses over the 5 years, while actual expenses (including those projected for the current fiscal year) were $11.96 million.
The increase in expenses resulted in two impacts to the Garbage Fund – (1) lower than projected transfers to the Garbage Enterprise Capital account and (2) the Garbage Fund target balance has not been met.
Garbage Enterprise Capital Transfers: The 5-Year Rate Study projected a total of $1.4 million would be transferred to the Garbage Enterprise Capital account over the 5 years, while actual transfers (including the transfer projected for the current fiscal year) are now projected to be $650,000, 54 percent less than projected.
Garbage Fund Target Balance: The Garbage Fund target balance has not been met because capital transfers were prioritized in order to fund capital needs of the garbage enterprise fund. Since this fund does not have any debt, no bond coverage requirements were violated. This will need to be addressed as part of the next 5-year evaluation of utility rates.
Staff is recommending implementing the 4% annual rate increase on Feb 1, 2025, as was included in the 2020 5-Year Rate Study.
Table 2 below provides a summary of the fiscal year 2024-25 budget for each enterprise fund, with the target ending balance and capital transfer amount shown in the gray highlighted columns.
Table 2 – Enterprise Fund Financial Summary
FY 2023-24 FY 2024-25
Fund Ending
Balance Income Expenses Balance Prior to Transfer Transfer Target Transfer Final Ending
Balance
Target
Ending
Balance
Water $926,513 $3,944,000 ($3,003,063) $1,867,450 ($940,937) ($1,100,000) $926,513 $960,000 Sewer $697,425 $2,134,845 ($1,503,396) $1,328,874 ($631,449) ($750,000) $697,425 $580,000 Garbage $211,230 $2,761,248 ($2,751,229) $221,249 ($10,019) ($280,000) $211,230 $820,000 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 2025 rate increases included.
Figure 1 – Evaluation of Single-Family Monthly Bills
Water - residential 1-inch meter, 16 hcf per month / Sewer - residential / Garbage - residential curbside 1 black + 1 green Established in Resolution 20-55
Prior Implemented Implemented Implemented Implemented Review Monthly Bill FY20 FY21 FY22 FY23 FY24 FY25
Water $47.70 $48.62 $49.54 $50.56 $51.58 $52.60
Sewer $21.50 $22.40 $23.30 $24.20 $25.20 $26.20
Garbage $35.50 $37.20 $39.00 $41.00 $42.60 $44.30
Total $104.70 $108.22 $111.84 $115.76 $119.38 $123.10
Monthly $ ∆ FY20 FY21 FY22 FY23 FY24 FY25
Water $0.80 $0.92 $0.92 $1.02 $1.02 $1.02
Sewer $0.40 $0.90 $0.90 $0.90 $1.00 $1.00
Garbage $1.70 $1.70 $1.80 $2.00 $1.60 $1.70
Total $2.90 $3.52 $3.62 $3.92 $3.62 $3.72
Monthly % ∆ FY20 FY21 FY22 FY23 FY24 FY25
Water 2% 2% 2% 2% 2% 2%
Sewer 2% 4% 4% 4% 4% 4%
Garbage 5% 5% 5% 5% 4% 4%
Total 2.8% 3.5% 3.5% 3.5% 3.0% 3.0%
$48 $49 $50 $51 $52 $53
$22 $22 $23 $24 $25 $26
$36 $37 $39 $41 $43 $44
$105 $108 $112 $116 $119 $123
$0
$20
$40
$60
$80
$100
$120
$140
$160
FY20 FY21 FY22 FY23 FY24 FY25
Garbage Sewer Water
The average monthly bill projected for a single-family customer will increase from $119.38 to $123.10, a total of $3.72 per month.
City Council has also directed staff to begin tracking the regulatory expenses associated with each enterprise fund. For fiscal year 2023-24, 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 3 – Regulatory Expense Summary
Utility FY2023-24
Expense
FY2023-24
Single Family
Monthly Bill
% of Total
Monthly
Bill
Water $178,596 $2.37 4.6%
Sewer $112,834 $1.35 5.4%
Garbage $290,938 $4.68 11.0%
Total $582,368 $8.40 6.7%
In fiscal year 2023-24, the average single-family customer paid an estimated $8.40 per month due to regulatory expenses, which equates to 6.7 percent of an average resident’s utility bill.
Attachments:
1. TM_f1-0_2025_rates_review