City of
Sebastopol
City Council Meeting
Rate Studies Presentation
April 23, 2024
Agenda
2 Utility Financial Plan Options
Study Results
• Water Rates
• Wastewater Rates
Bill Impacts and Bill Comparisons
Next Steps
Key Points on Proposed Utility Rates
3 Proposed three-tier water use rate alternative for Single Family Residential Customers- improves affordability at low-to average use and provides a conservation price signal Maintaining approximately 50% fixed cost revenue recovery provides the City with revenue stability.
Wastewater fixed charges are differentiated by wastewater flow patterns at each meter size to improve fairness and better align with how costs are incurred between wastewater users Tiered water use rates, along with updated wastewater rates, moderates impacts to Single Family Residential customers with combined utility service (Greater than 75% of the customer base) 4 Nearby Utility Comparison –
Combined Water and Wastewater Service
Agency Water (1) Wastewater (2) Total Monthly Bill
(FY 2024-2025)
Rohnert Park(3) $55.28 $51.62 $106.90
Windsor(3) $29.93 $78.91 $108.84
Sebastopol (Current) $45.01 $69.24 $114.24
Santa Rosa $46.62 $75.77 $122.39
Petaluma $51.05 $79.26 $130.31
Cloverdale $79.18 $57.06 $136.24
Cotati $50.10 $90.54 $140.64
Sebastopol Option 2 $57.77 $94.04 $151.80
Sebastopol Option 1 (Staff Recommended) $63.22 $103.45 $166.67 Healdsburg $82.28 $110.33 $192.61
St. Helena $115.27 $134.49 $249.76
Calistoga $161.08 $132.80 $293.88
1) Average water use of 4,500 gallons per month
2) Average winter water use of 3,000 gallons per month
3) Rohnert Park and Windsor are currently conducting rate studies Rate Study Terms
• Financial Plan: How much money is needed each year to provide safe drinking water and to collect and treat wastewater
• Cost of Service: How utility costs are divided between classes of customers based on who is responsible for paying for what
• Rate Design: How different users pay for the cost to serve their water and wastewater service
• Fixed Charge: Charge that is the same each billing period and does not vary by the amount of water or wastewater used
• Variable Charge: Charge that varies by the amount of water or wastewater used • CIP: Capital Improvement Plan for reinvestment in utility infrastructure • Revenue Increase – the amount of revenue the water or wastewater fund require to be financially sustainable, this is different than a rate increase 5 Rate Study Terms (Continued)
• Customer Class / Rate Class: customer types based on land use, demand patterns, and/or connection size
• SFR: Single Family Residential customer class
• Irrigation: customers with a metered connection dedicated to outdoor landscaping
• Commercial: All connections not classified as SFR or Irrigation providing domestic water service
• Proposition 218: California’s legal framework for developing, adopting, and implementing utility rates
6 7
Establishing Rates
Data + Principles Guide Our Work
Data drives the
rate study process
04 Rate Setting Framework
Identify financial goals, pricing objectives, and
alternative rate structures for evaluation
01 02
03 05
Financial Plan
Evaluate operating and capital costs; conduct cash
flow and scenario analysis
Rate Design
Conduct cost of service and evaluate rate alternatives; conduct rate calculations and customer impact analyses
Study Documentation
Provide documentation and study report;
Review of rates by legal counsel
Rate Adoption
Send notice to customers
and host a public hearing
9 Affordability of Service and Conservation
Allow customers to have more control over their bill and an incentive to conserve Financial Stability
The City must meet water and wastewater system financial obligations from its own rate revenues; the utility enterprises should be sustainable over time Equitability
Fairness in rates between existing customers based on their use of the systems; and fairness between current and future users
9 Guiding Principles
10 Financial Plans
11 CAPITAL PROJECT FUNDING
Funding Mix
(Cash vs. Debt)
Debt
Covenants
ANNUAL CASH FLOW
FISCAL POLICIES AND TARGETS
Cash
Reserves
Debt Service
Coverage
FINANCIAL PLAN
INPUTS
• Customer connections
• Billed water use
• Revenues
• Operating expenses
• Capital plan
• Beginning cash position
ANNUAL REVENUE
REQUIREMENTS
Financial Plan Elements
12 Inflationary Pressures Supply and Treatment Costs Cash Reserves Future Borrowing Terms &
Assumptions
Baseline Water
Sales Estimates
Long-Range Financial Plan Drivers
Capital Reinvestment
13 Aging Water and
Sewer
Infrastructure
Reserves Policy Discussion
14 • Maintain a minimum Operating Reserve level of 25% (Operating expenses plus debt service), which represents 90 days of cash • 90 days of cash is considered the lowest threshold allowed for future access to credit
• Considering the bi-monthly billing cycle, a higher minimum should be explored in the next rate cycle
This Recommendation:
Aims to be a starting point for getting the enterprise
funds back on track
Helps to mitigate otherwise higher rate increases
15 Enterprise Fund Cash and Cash Flows
FY 2023-24 Water Wastewater
Revenue $2,417,972 $3,107,820
Operations & Maintenance Expenses $2,720,000 $3,868,640 Net Revenue -$302,028 -$760,820
Debt Service $380,704 $178,656
Cash-Funded Capital $530,000 $542,000
Net Cashflow -$1,212,732 -$1,481,476
July 1, 2023 Beginning Cash Balance $1,225,855 $392,668 June 30, 2024 Projected Ending Cash Balance $13,123 -$1,088,808 Financial Plan Options
• Option 1: Baseline
› Best engineering judgment
› Staff-preferred option
› CIP is minimum but based on best
engineering judgment at current
– Future Master Plan studies will better
inform long-term CIP
› Staffing increase is needed based on
best Public Works judgment
› Wastewater: Pays back GF loan and
meets or works towards minimum
25% operating reserve
• Option 2: Lower Service Level
› Minimum service levels
› CIP is at an even lower level than
Option 1 but “can live with” for now
but still includes master plan.
› No staffing addition in year 5 but “can
live with” for now
› Wastewater: Pays back GF loan and
meets or works towards minimum
25% operating reserve
› Increases risks of system failures
and more frequent service
interruptions
16 Water Baseline
Option 1
17 $0.24
$0.0
$0.2
$0.4
$0.6
$0.8
$1.0
$1.2
$1.4
$1.6
$1.8
FY 2024-25 FY 2025-26 FY 2026-27 FY 2027-28 FY 2028-29
Millions
Reserve Balance
Ending Balance Minimum Balance Alert Balance
Fiscal Year Revenue
Adjustment
*Planned
Bonds
FY 2024-25 50.0% $0
FY 2025-26 16.0% $0
FY 2026-27 1.5% $3,758,846
FY 2027-28 1.5% $0
FY 2028-29 1.5% $0
*Presumes debt is issued for the Well #4
replacement project. $0.8
$1.2
$4.1
$2.0
$0.9
$0.0
$0.5
$1.0
$1.5
$2.0
$2.5
$3.0
$3.5
$4.0
$4.5
FY 2024-25 FY 2025-26 FY 2026-27 FY 2027-28 FY 2028-29
Millions
Water CIP Funding
Rate Funded Capital Debt Funded Capital
Total CIP Average CIP Excluding Well 4
Water Lower Service Level Option 2
18 Fiscal Year Revenue
Adjustment
Planned
Bonds
FY 2024-25 37.0% $0
FY 2025-26 4.0% $0
FY 2026-27 4.0% $3,758,846
FY 2027-28 3.5% $0
FY 2028-29 3.5% $0
$0.0
$0.2
$0.4
$0.6
$0.8
$1.0
$1.2
$1.4
$1.6
$1.8
$2.0
FY 2024-25 FY 2025-26 FY 2026-27 FY 2027-28 FY 2028-29
Millions
Reserve Balance
Ending Balance Minimum Balance Alert Balance
Presumes debt is issued for the Well #4 replacement project.
Water Revenue Increase Comparisons
19 FY 2025 FY 2026 FY 2027 FY 2028 FY 2029
Sebastopol – Baseline Option 50% 16% 1.5% 1.5% 1.5%
Sebastopol – Lower Service Option 37% 4% 4% 3.5% 3.5%
Healdsburg 21% 20% 13% 12% 12%
St Helena 28% 8% 8% 8% 8%
Calistoga 50% 12% 10% 6% 6%
Cloverdale 12% 12% - - -
City of Sonoma 5% 5% 5% 5% 5%
Rohnert Park 5% 5% 5% - -
Santa Rosa 4% - - - -
Windsor Study in Progress
Wastewater Baseline Option 1
20 Fiscal Year Revenue
Adjustment
GF
Loan
Repayment
FY 2024-25 65.0%
FY 2025-26 14.0%
FY 2026-27 11.0% $237,746
FY 2027-28 11.0% $237,746
FY 2028-29 2.0% $237,746
$0.09
$0.61 $0.62 $0.48
$0.0
$0.2
$0.4
$0.6
$0.8
$1.0
$1.2
$1.4
$1.6
$1.8
FY 2024-25 FY 2025-26 FY 2026-27 FY 2027-28 FY 2028-29
Millions
Reserve Balance
Ending Balance Minimum Balance Alert Balance
Presumes a ~$1.1M loan from the general fund, repaid over 5 years, with 3% interest, starting in FY2026-27 ($237,746/yr).
If 0% interest, could reduce the FY2027-28 revenue adjustment from 11% to 10%.
Wastewater Lower Service Level Option 2
21 $0.37
$0.85
$0.75
$0.0
$0.2
$0.4
$0.6
$0.8
$1.0
$1.2
$1.4
$1.6
FY 2024-25 FY 2025-26 FY 2026-27 FY 2027-28 FY 2028-29
Millions
Reserve Balance
Ending Balance Minimum Balance Alert Balance
Presumes a ~$1.1M loan from the general fund, repaid over 5 years, with 3% interest, starting in FY2026-27 ($237,746/yr).
If 0% interest, could reduce the FY2028-29 revenue adjustment from 10% to 9%.
Fiscal Year Revenue
Adjustment
GF
Loan
Repayment
FY 2024-25 50.0%
FY 2025-26 11.0%
FY 2026-27 10.0% $237,746
FY 2027-28 10.0% $237,746
FY 2028-29 10.0% $237,746
Wastewater Revenue Increase Comparisons
22 FY 2025 FY 2026 FY 2027 FY 2028 FY 2029
Sebastopol – Baseline Option 65% 14% 11% 11% 2%
Sebastopol – Lower Service Option 50% 11% 10% 10% 10%
Healdsburg 18% 18% 15% 9% 5%
St Helena 50% 4% 4% 4% 4%
Calistoga 35% 25% 3% 3% 3%
Cloverdale 10% 10% -
City of Sonoma - - - - -
Rohnert Park Study in Progress
Santa Rosa 2% - - - -
Windsor Study in Progress
Why We Need Immediate, Large Increases
• Current rate revenue does not
meet Operating needs (O&M +
Debt Service costs):
› Water requires > 25% increase
› Wastewater requires >30%
increase
• Even higher increases are needed
to meet capital spending and
minimum reserves
• Water minimum reserve must be
met before going for debt funding
• Wastewater needs to be able to
repay General Fund borrowing
• Need additional staff to improve
maintenance and save money on
more costly, emergency repairs
23 Why Option 1 is Staff’s Recommendation
• Immediately addresses the operating deficit
• Provides funding for necessary capital expenditures on aging infrastructure
• Provides funding for preventative maintenance to reduce system failures and emergency repairs
• Reduces financial risk and systems risk
• Establishes self-sustaining enterprise funds
24 25
Cost of Service and
Rate Design
Water
Financial Plan
26 Cost of Service
Financial Plan vs. Cost of Service
Financial Plan vs. Cost of Service
Fixed & Variable Revenue Recovery -
Water
• Currently 48% fixed and 52%
variable
• No proposed changes to fixed
revenue recovery to ensure
revenue stability
› Rates designed to keep the
percentage of revenue from fixed
charges the same
27 Current Share of Water Rate Revenues
Water Use
Charges
Fixed Water
Charges
Single Family Residential
Proposed Water Use Rate Structure Modifications
28 TIER 1 TIER 2 TIER 3
Average winter
water use
Water use
beyond Tier 2
Peak summer use for
Single Family
customers
0 - 7 kgal 8 – 16 kgal > 16 kgal
1 kgal = 1,000 gallons (approximately 20 bathtubs)
Current Structure
(Uniform)
Proposed Single Family Residential
Water Use Rates (Baseline Option 1)
29 Current FY 2023-24 Rate
Water Use Charges ($/kgal)
Uniform Rate (All Units) $4.52
FY 2024-25 Rate
Water Use Charges ($/kgal)
Tier 1 (0-7 kgal) $5.48
Tier 2 (8-16 kgal) $6.99
Tier 3 (>16 kgal) $9.71
Proposed Non-Residential
Water Use Rates (Baseline Option 1)
30 Current FY 2023-24 Rate
Water Use Charges ($/kgal)
Commercial $4.52
Irrigation $4.52
Customer Classes are defined and charged based on their demand characteristics FY 2024-25 Rate
Water Use Charges ($/kgal)
Commercial $6.03
Irrigation $10.86
Water Use Rate Comparison ($/kgal) –
Year One
Customer Class Baseline
Option 1
Lower Service
Option 2
Residential
Tier 1: 0 – 7 kgal $5.48 $5.01
Tier 2: 8 – 16 kgal $6.99 $6.39
Tier 3: > 16 kgal $9.71 $8.87
Commercial $6.03 $5.51
Irrigation $10.86 $9.92
31 Five-Year Schedule of Water Rates –
Baseline Option
Rate Schedule - Fixed Bi-Monthly
Meter Size Current 7/1/2024 7/1/2025 7/1/2026 7/1/2027 7/1/2028 5/8"x3/4" & 3/4" $49.33 $74.10 $85.96 $87.25 $88.56 $89.89 1" $82.41 $122.57 $142.19 $144.33 $146.50 $148.70
1.5" $164.13 $243.71 $282.71 $286.96 $291.27 $295.64
2" $262.77 $389.09 $451.35 $458.13 $465.01 $471.99
3" $575.37 $849.44 $985.36 $1,000.15 $1,015.16 $1,030.39 4" $821.78 $1,527.87 $1,772.33 $1,798.92 $1,825.91 $1,853.30 Note: Single family with 1” meters for fire service are charged at the ¾” rate.
Rate Schedule – Water Use ($/kgal)
Customer Class Current 7/1/2024 7/1/2025 7/1/2026 7/1/2027 7/1/2028 Residential
Tier 1: 0 - 7 kgal $4.52 $5.48 $6.36 $6.46 $6.56 $6.66
Tier 2: 8 - 16 kgal $4.52 $6.99 $8.11 $8.24 $8.37 $8.50 Tier 3: > 16 kgal $4.52 $9.71 $11.27 $11.44 $11.62 $11.80 Commercial $4.52 $6.03 $7.00 $7.11 $7.22 $7.33
Irrigation $4.52 $10.86 $12.60 $12.79 $12.99 $13.19
Single Family Water Bill Impact – Year
One
33 Very Low Low Medium High Very High
Current Bill $58.37 $71.93 $90.01 $108.09 $144.25
Baseline Option 1 $85.06 $101.50 $126.44 $154.40 $223.92 Lower Service Level Option 2 $77.70 $92.73 $115.53 $141.09 $204.61 $0.00
$50.00
$100.00
$150.00
$200.00
$250.00
Single Family Water Bi-Monthly Bill, 5/8"x3/4"
Current Bill Baseline Option 1 Lower Service Level Option 2 Commercial Water Bill Impact – Year One
34 Low Medium High
Current Bill $58.37 $90.01 $171.37
Baseline Option 1 $86.16 $128.37 $236.91
Lower Service Level Option 2 $78.70 $117.27 $216.45
$0.00
$50.00
$100.00
$150.00
$200.00
$250.00
Commercial Water Bi-Monthly Bill, 5/8"x3/4"
Current Bill Baseline Option 1 Lower Service Level Option 2 Irrigation Water Bill Impact – Year One
35 Low Medium High
Current Bill $209.33 $390.13 $616.13
Baseline Option 1 $352.31 $786.71 $1,329.71
Lower Service Level Option 2 $321.79 $718.59 $1,214.59
$0.00
$200.00
$400.00
$600.00
$800.00
$1,000.00
$1,200.00
$1,400.00
Irrigation Water Bi-Monthly Bill, 1.5"
Current Bill Baseline Option 1 Lower Service Level Option 2 36 Cost of Service and
Rate Design
Wastewater
Wastewater Cost Of Service Analysis
37 Fixed & Variable Revenue Recovery -
Wastewater
• Currently 48% fixed and 52%
variable
• No proposed changes to fixed
revenue recovery to ensure
revenue stability
› Rates designed to keep the
percentage of revenue from fixed
charges the same
38 Current Share of Wastewater Rate Revenues
Wastewater Flow
Charges
Fixed Wastewater
Charges
Proposed Rate Structure Modifications
• Currently fixed charges are
differentiated by the size and
capacity of the water meter
• Proposed fixed charges will be
differentiated based on actual
wastewater flow patterns at each
meter size
• This proposal will improve fairness
and better align with how costs are
incurred between wastewater
users
39 Meter Size Current
Ratio
Proposed
Ratio
5/8”x3/4” & 3/4" 1.00 1.00
1” 1.37 2.71
1.5” 3.33 6.90
2” 5.33 8.83
3” 11.67 21.98
4” 21.00 66.22
Five-Year Schedule of Wastewater Rates –
Baseline Option 1
Fixed Bi-Monthly Charge
Meter Size Current 7/1/2024 7/1/2025 7/1/2026 7/1/2027 7/1/2028 5/8x3/4" & 3/4" $76.61 $104.78 $119.45 $132.59 $147.18 $150.13 1" $127.97 $284.18 $323.97 $359.61 $399.17 $407.16
1.5" $254.86 $722.92 $824.13 $914.79 $1,015.42 $1,035.73 2" $408.03 $925.13 $1,054.65 $1,170.67 $1,299.45 $1,325.44 3" $893.44 $2,303.19 $2,625.64 $2,914.47 $3,235.07 $3,299.78 4" $1,276.06 $6,937.89 $7,909.20 $8,779.22 $9,744.94 $9,939.84 Volumetric Rate, $/kgal
Current 7/1/2024 7/1/2025 7/1/2026 7/1/2027 7/1/2028
All Customer Classes $10.31 $17.02 $19.41 $21.55 $23.93 $24.41 Single Family Average Wastewater Bill –
Year One
41 $138.47
$206.90 $188.07
$0.00
$50.00
$100.00
$150.00
$200.00
$250.00
$300.00
Current Baseline Option 1 Lower Service Level
Option 2
Wastewater Bi-Monthly Bill, Winter Average
6 kgal, 5/8"x3/4"
Single Family Combined Bill, FY 2024-25
42 $90.01 $126.44 $115.53
$138.47
$206.90
$188.07
$228.48
$333.34
$303.60
$0.00
$50.00
$100.00
$150.00
$200.00
$250.00
$300.00
$350.00
$400.00
Current Baseline Option 1 Lower Service Level Option 2
Combined Bi-monthly Bill, Typical Single Family,
5/8x3/4" (water = 9 kgal, sewer = 6 kgal)
Water Wastewater
43 Next Steps
Rate Study Next Steps
44 Request Council
approve starting
the Prop 218
process
April 23 City
Council
Meeting
1 2 3 4 5
Notice Postmark
date by
May 3
45 Day protest
period
May 3 through
June 18
Hold Public
Hearing to
receive public
comments,
count protests,
and consider
adoption of
water and
wastewater
rates
June 18 City
Council
Meeting
Year One Rate
Implementation
July 1, 2024
Suggested Motion
45 • Move to
› Accept the Staff recommended Water Baseline financial plan and associated rates › Accept the Staff recommended Wastewater Baseline financial plan and associated rates › Direct Staff to proceed with Proposition 218 notification and rate implementation processes › Schedule a Public Hearing for June 18, 2024
• Or,
› Accept the alternative Water Lower Service Level financial plan and associated rates › Accept the alternative Wastewater Lower Service Level financial plan and associated rates › Direct Staff to proceed with Proposition 218 notification and rate implementation processes › Schedule a Public Hearing for June 18, 2024
• Or,
› Direct staff to return with alternative rate proposals. Note that doing so will affect the schedule for the public hearing date.
Thank you
Contacts:
Kevin Kostiuk / [email protected]
Melissa Elliott / [email protected]
Theresa Jurotich / [email protected]
46