CITY OF SEBASTOPOL CITY COUNCIL
AGENDA ITEM REPORT FOR MEETING OF: May 21, 2024
=========================================================================================== To: Honorable Mayor and City Councilmembers
From: Don Schwartz, City Manager
Subject: Water and Wastewater Rates Discussion and Approval of Contract Amendment =========================================================================================== RECOMMENDATIONS:
It is recommended that Council receive additional information as requested, provide further direction to staff regarding the water rates, and authorize the City Manager to approve a contract amendment to the Professional Services Agreement with Raftelis for public outreach support not-to-exceed $20,000.
EXECUTIVE SUMMARY:
Staff presented to Council the draft Financial Plan and Cost of Service Study in a slide presentation format at the April 23, 2024 meeting. Since then, many questions arose from Council and the public regarding the proposed water rates.
The purpose of adding this to the May 21st agenda is to provide an opportunity for staff and the Council to consider the many questions that have been raised about the rates approved on April 23, and for Council to give direction to Staff on appropriate next steps. Whether the ultimate decision is to continue with the increases as approved on April 23, or to reassess those increases, making that decision earlier rather than later serves the Council, staff, and the community.
Options for consideration to ensure Council concerns have been addressed:
1. Discuss current rate proposal and concerns from Council and community and continue 218 process.
2. Consider suspension of 218 process based on current rate proposal.
3. Consider request that alternative rate proposals be presented to the Council, with impacts to the City from each alternative outlined.
4. Consider creation of a Council Ad Hoc Committee to support whatever direction is given by Council, including for example to participate in review of the rate structure and to give recommendations to Council and community.
5. Depending on outcome of agenda item and direction to staff, determine additional funding needed, request and consider recommendations from staff, and make final decision.
In addition to the above, it is apparent that additional public outreach support is needed by the City’s consultant, Raftelis. Staff is requesting approval of a contract amendment to the Raftelis contract, for an amount not-toexceed $20,000 to provide this needed support as this is not part of their current contract. Raftelis has been providing out-of-scope tasks but is unable to continue without approval of a contract amendment.
BACKGROUND:
The Council was presented with a proposal for water and wastewater increases at two meetings. The first was on October 3, 2023, and the second was on April 23, 2024. Council direction to staff on October 3, 2023. was to complete a cost allocation study (also referred to as “G&A allocation study”) and to provide answers to a series of questions before returning to Council with a new proposal for water and wastewater rate increases. The cost allocation study was completed and accepted by Council on February 20, 2024.
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On April 23, 2024, when the Council was presented with the new water and wastewater rate increase proposal, Council approved the proposal, with one Councilmember voting against the rate increase proposal. The proposal approved by a majority of the Council was for selection of Option 1 for water, Option 2 for wastewater, and deferral of payment to the General Fund for the wastewater loan and zero interest.
DISCUSSION:
Despite the majority Council approval on April 23, many questions and concerns were raised by Council during that discussion, and many more have been forwarded to Staff in the weeks following the April 23 meeting. At last count, Council questions (which have been shared by staff with all Councilmembers) were nearing 30 total. Staff has attempted to answer the questions and still working on a few that are taking a little more time to research. In addition to Council questions, members of the public have raised a variety of questions about the recommended rate increases and staff has provided answers to those as well.
The questions raised by Council and the public cover a wide array of topics, but in general focus on identifying the facts and data that justify the proposed tiered rate model, the initial first year increase for each tier, the amount of the increase at each tier in future years, plans to educate and inform the public about the rate increases as well as provide the public with resources to conserve water in order to reduce their bills to a manageable level, and the implications of this potential savings approach for projected revenues from the increases and an easy method for members of the public to use to determine what their bills would be based on the projected rates. Many questions have been raised that need to be answered in order to provide facts and data to the Council and the public so that any water and wastewater increases can be received with confidence and understanding by all affected.
City staff mailed the Proposition 218 protest hearing information on May 3, 2024. The City Council will consider adopting the recommendations at a public hearing scheduled for Tuesday, June 18, at 6:00 p.m. at the Youth Annex on Morris Street when the protest vote period ends. As with all City Council meetings, the public is encouraged to attend and be heard. Between now and then City resources will be expended on efforts to move forward with the proposed rate increases.
STAFF ANALYSIS:
Staff will present this item to provide discussion of the items for Council consideration. Staff is attaching a copy of the draft Financial Report and Cost of Service Study, and Frequently Asked Questions to provide context and information for this discussion. City staff understands that raising rates will be a challenge but the City needs to stabilize the reliability of our systems and our finances so that future increases will be smaller and more predictable. It is our intention that the attachment and responses address the concerns of the Council and community.
COMMUNITY OUTREACH:
This item has been noticed in accordance with the Ralph M. Brown Act and was available for public viewing and review at least 72 hours prior to the scheduled meeting date.
FISCAL IMPACT:
A. With Council’s approval, the Raftelis contract will be increased by $20,000 with $10,000 coming from the Water Fund account no. 500-4402-4210; and $10,000 from the Wastewater Fund account no. 510-4402- 4210. There are sufficient funds in the adopted FY 2023-24 budget to accommodate this increase in both funds.
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B: Fiscal Impact of Options:
The water and sewer systems are at risk of failure. We have seen failures already happen on a small scale. Larger failures are possible no matter what action the Council takes. The risks of failures, and failures of greater impact, increase without approval of higher rates. While higher rates are unfortunate, the proposed rates are generally in line with neighboring jurisdictions. Alternatively, the Council can continue to provide support from the General Fund, for which it has already declared a fiscal emergency and approved delaying re-payment of a $1.1 million loan to the sewer fund for four years.
In April staff provided the Council with two options for each fund. Option 1 represents our recommendation to create a path toward operational and fiscal sustainability. It is not elaborate and reflects staff sensitivity to the impact of higher rates. Option 2 represents a minimum requirement that would result in a higher-risk path. Any funding below that proposed in Option 2 would create what staff consider an unreasonable level of risk to the systems. The Council chose Option 1 for the water fund and Option 2 for the sewer fund.
Using Option 2 for discussion purposes, the water and sewer funds need to increase their revenues on average $3M per year, or about $250k per month above current levels. The revenue increases for both Water and Wastewater funds over the next three (3) years required for operating, capital, and reserve funding with an approximation of the breakdown as:
• $7.7M to cover operating deficits
• $0.7M to fund essential capital projects
• $0.8M to build reserves to a sufficient level, including high enough reserves to obtain debt to replace Well 4, which is showing signs of failure and may not be able to produce water until it is replaced.
The rates that reflect Council’s direction from April 23 are attached and include a comparison with other cities (Attachment 3). The challenges we face now have been created over several years. For example, the prior rate study did not sufficiently estimate operating expenses. We do not have a Master Plan for either system, which is a standard tool to better understand the needs and vulnerabilities. We have taken on debt without adjusting rates to pay for it. We have not adequately tracked and reported gaps between revenues and expenses. We have not conducted cost allocation studies to better assess the allocation of water and sewer expenses to the General Fund; while we do not know the results of studies that have not been conducted, we recognize that not completing them has raised understandable concerns among some of our residents.
We have committed to several future actions to ensure the stability of these funds, the sustainability of our systems, and increase public confidence in our financial management practices. These include completing the Master Plans noted above, reporting regularly on the revenues and expenses for each fund, and completing cost allocation studies at least every three years.
Should the Council decide to delay raising rates, the financial implications will be problematic. The extent of the problem depends on what the Council decides to do. For example, raising rates at lower levels or more slowly over time will increase risks of system failures unless supported by the General Fund, either directly or through loans. Suspending the current Proposition 218 process and developing alternative proposals will likely take at least several months before new rates could become effective. During that time the General Fund will be supporting both water and sewer funds.
The duration of additional analyses depends in part on the desired scope. Keeping current revenue targets – which staff highly recommends be considered a minimum requirement – and assessing options for allocating costs in a different fashion (such as with a flat rate structure rather than tiered rates) could likely be completed Agenda Item Number 9 Agenda Item Number 9
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more quickly than analyzing different revenue targets and then options for allocating costs. Additional work will require appropriations of funds and costs would depend on the scope of work.
Should the Council decide to pursue alternatives, we request that you provide direction on what staff should consider. We also recommend that the Council identify its intent regarding the use of the General Fund – would the Council anticipate General Fund support to be a subsidy to the water and sewer funds and thus not re-paid? Or would it consider General Fund support to be a loan? If a loan, what are the expectations regarding repayments? Understanding the connection between the water and sewer funds and the General Fund is important for these funds, and also so that we can properly prepare the General Fund budget. On March 19, the Council received a report with projections showing that without a change in course (reduced expenses or increased revenues) the General Fund will run out of money in about three years. The fiscal emergency could become more severe.
OPTIONS:
Council has the following options to consider:
1. Move forward with the rates as approved by the Council majority on April 23, 2024; and
2. Approve a budget amendment of $20,000 for Raftelis to conduct public outreach and education; budget amendment will be split between the Water operations fund and the Wastewater Operations funds.
3. Direct staff to reduce the rates to a different amount less than what was approved on April 23, 2024 (note that approving a lesser amount will not require another Prop. 218 noticing process) and continue with the public hearing on June 18, 2024. One version of this approach would be to reduce rates for the Water Fund to those identified as Option 1
4. Direct staff to reassess the rates and rescind the Prop. 218 notice, present new option(s) and new schedule for rate adoption, and provide information on impacts to the General Fund for further financial support of and loans to the Water and Wastewater funds.
ATTACHMENTS:
1. Draft Financial Plan and Cost of Service Study
2. Frequently asked questions (FAQ)
3. Comparison of Rates to nearby cities
4. Amendment to Professional Services Agreement with Raftelis APPROVALS:
Department Head Approval: Approval Date: 5/16/24
CEQA Determination (Planning): Approval Date: 5/15/24
The proposed action is not a project under the California Environmental Quality Act (CEQA) Administrative Services (Financial) Approval Date: 5/15/24 Costs authorized in City Approved Budget: Yes ☐ No ☐ N/A Account Code (f applicable) 500-4402-4210 and 510-4402-4210 City Attorney Approval: Approval Date: 5/15/24
City Manager Approval: Approval Date: 5/16/24
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CITY OF SEBASTOPOL
Water and Wastewater
Rate Study
DRAFT REPORT / MAY 15, 2024
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445 South Figueroa Street, Suite 1925, Los Angeles, CA 90071 www.raftelis.com
May 15, 2024
Ms. Ana Kwong
Administrative Services Director
City of Sebastopol
7120 Bodega Avenue
Sebastopol, CA 95472
Subject: Water and Wastewater Rate Study Report – DRAFT Dear Ms. Kwong:
Raftelis is pleased to provide this Water and Wastewater Rate Study report for the City of Sebastopol (City). The Study, including the long-range financial plans and rate design, addresses the current financial challenges within the Enterprise funds and establishes water and wastewater rates that are fair and align with California’s Proposition 218 requirement. The major objectives of the study include the following: Develop financial plans for the water and wastewater enterprises to build back to financial sufficiency, meet operation and maintenance costs, ensure sufficient funding for capital replacement and refurbishment (R&R) needs, and improve the overall financial health of the enterprises Perform a cost-of-service analysis to ensure fair and reasonable allocations of costs to user classes Review the current rate structure for the water and wastewater enterprises and propose alternatives that better align with the City’s policy goals and community values Prepare a five-year schedule of rates for water and wastewater Document the technical work in a rate study report to serve as part of the City’s administrative record The report summarizes the key findings and recommendations related to developing the financial plans for the water and wastewater enterprises and developing the updated water and wastewater rates. We thank you and other City staff for the support provided during this study.
Sincerely,
Kevin Kostiuk Theresa Jurotich, P.E. (KS, WA), PMP
Senior Manager Manager
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City of Sebastopol / Water and Wastewater Rate Study - DRAFT i Contents
1. Executive Summary ..................................................................... 1
1.1. Background ................................................................................................................1
1.2. Process .......................................................................................................................1
1.3. Proposed Water Financial Plan.................................................................................2
1.4. Proposed Water Rates............................................................................................... 4
1.5. Proposed Wastewater Financial Plan.......................................................................7
1.6. Proposed Wastewater Rates .....................................................................................10
2. Rate Setting Methodology.......................................................... 13
3. Key Inputs and Assumptions ..................................................... 15
3.1. Current Water Rates ..................................................................................................15
3.2. Current Wastewater Rates.........................................................................................15
3.3. Projected Service Connections ................................................................................16
3.3.1. Water......................................................................................................................... 16
3.3.2. Wastewater ............................................................................................................... 16
3.4. Water Use Assumptions............................................................................................17
3.5. Wastewater Flow Assumptions ................................................................................18
3.6. Water and Wastewater Financial Plan Assumptions ..............................................18
4. Water Financial Plan .................................................................. 20
4.1. Current Rate Revenue ............................................................................................... 20
4.1.1. Calculated Water Rate Revenues.............................................................................. 20
4.1.2. Other Revenues ........................................................................................................ 21
4.2. Operations and Maintenance Expenses...................................................................22
4.2.1. Total Operations and Maintenance Budget................................................................ 22
4.2.2. Capital Improvement Plan ......................................................................................... 22
4.2.3. Existing and Proposed Debt Service ......................................................................... 23
4.3. Reserve Targets .........................................................................................................23
4.4. Status Quo Financial Plan.........................................................................................24
4.5. Proposed Financial Plan and Revenue Adjustments..............................................25
5. Water Cost-of-Service Analysis.................................................. 29
5.1. Revenue Requirement Determination ......................................................................29 Agenda Item Number 9 Agenda Item Number 9
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5.2. Functionalization of Net Revenue Requirement......................................................30
5.3. Allocation of Functionalized Net Revenue Requirements to Cost Components ..31
5.3.1. Peaking Factors ........................................................................................................ 32
5.3.2. Operating and Capital Allocation ............................................................................... 34
5.4. Derivation of Units of Service ...................................................................................35
5.4.1. Equivalent Meters...................................................................................................... 35
5.4.2. Unit Costs of Service................................................................................................. 36
6. Proposed Water Rates and Charges .......................................... 38
6.1. Proposed Bi-Monthly Service Charge ......................................................................38
6.2. Volumetric Rates........................................................................................................39
7. Wastewater Financial Plan ........................................................ 41
7.1. Current Rate Revenue ............................................................................................... 41
7.1.1. Calculated Wastewater Rate Revenues .................................................................... 41
7.1.2. Other Revenues ........................................................................................................ 42
7.2. Operations and Maintenance Expenses - Wastewater............................................42
7.2.1. Total Operations and Maintenance Budget................................................................ 43
7.2.2. Capital Improvement Plan ......................................................................................... 43
7.2.3. Existing and Proposed Debt Service ......................................................................... 43
7.3. Reserve Targets .........................................................................................................44
7.4. Status Quo Wastewater Financial Plan ....................................................................44
7.5. Proposed Financial Plan and Revenue Adjustments..............................................46
8. Wastewater Cost-of-Service Analysis........................................ 50
8.1. Revenue Requirement Determination ......................................................................50
8.2. Functionalization of Net Revenue Requirement......................................................51
8.3. Allocation of Functionalized Net Revenue Requirements to Cost Components ..51
8.3.1. Operating and Capital Allocation ............................................................................... 51
8.4. Derivation of Units of Service ...................................................................................52
8.4.1. Equivalent Meters...................................................................................................... 52
8.4.2. Unit Costs of Service................................................................................................. 53
9. Wastewater Rates...................................................................... 54
9.1. Wastewater Test Year Rate Derivation.....................................................................54
9.2. Proposed 5-Year Wastewater Rate Schedule ..........................................................54 Agenda Item Number 9 Agenda Item Number 9
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10. Customer Impact Analysis ................................................... 55
10.1.Water...........................................................................................................................55
10.2.Wastewater.................................................................................................................57
10.3.Combined....................................................................................................................57 Agenda Item Number 9 Agenda Item Number 9
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City of Sebastopol / Water and Wastewater Rate Study - DRAFT iv Tables
Table 1-1: Proposed Water Revenue Adjustments................................................................................... 2 Table 1-2: Proposed Changes to the Water Rate Structure ..................................................................... 5 Table 1-3: Proposed Five-Year Water Rate Schedule, Fixed Charges, $/Bi-Mo....................................... 5 Table 1-4: Proposed Five-Year Water Rate Schedule, Volume Charges, $/kgal ...................................... 5 Table 1-5: Proposed Wastewater Revenue Adjustments ......................................................................... 8 Table 1-6: Proposed Five-Year Wastewater Rate Schedule .................................................................. 10 Table 3-1: Current Water Rate Structure................................................................................................ 15 Table 3-2: Current Wastewater Rates.................................................................................................... 16 Table 3-3: Projected Number of Water Meters ....................................................................................... 16 Table 3-4: Projected Wastewater Meters ............................................................................................... 17 Table 3-5: Account Growth and Water Use Assumptions....................................................................... 17 Table 3-6: Projected Wastewater Flows, kgal ........................................................................................ 18 Table 3-7: Inflationary Assumptions ....................................................................................................... 19 Table 4-1: Projected Fixed Charge Revenues Under Current Rates ...................................................... 21 Table 4-2: Projected Volume Charge Revenue Under Current Rates..................................................... 21 Table 4-3: Projected Other Water Enterprise Revenues......................................................................... 22 Table 4-4: Summary of Projected Water Operations and Maintenance Expenses.................................. 22 Table 4-5: Projected Capital Improvement Projects ............................................................................... 23 Table 4-6: Existing Debt Service............................................................................................................ 23 Table 4-7: Proposed Debt Service ......................................................................................................... 23 Table 4-8: Status Quo Summary Water Cashflow.................................................................................. 24 Table 4-9: Proposed Revenue Adjustments........................................................................................... 25 Table 4-10: Water Operating Cashflow .................................................................................................. 26 Table 5-1: Revenue Requirement Determination, FY 2024.................................................................... 30 Table 5-2: Functionalization of Net O&M................................................................................................ 30 Table 5-3: Functionalization of Net Capital............................................................................................. 31 Table 5-4: Proposed Changes to the Water Rate Structure ................................................................... 32 Table 5-5: Projected Water Use by Class and Tier, Test Year ............................................................... 32 Table 5-6: Water System Peaking Factors............................................................................................. 33 Table 5-7: Max Day and Max Hour Capacity Factors by Class............................................................... 34 Table 5-8: Allocation of Functions to Cost Components......................................................................... 34 Table 5-9: Allocation of Net Operation & Maintenance to Cost Components.......................................... 35 Table 5-10: Allocation of Capital-Related Expenses to Cost Components ............................................. 35 Table 5-11: Equivalent Meters ............................................................................................................... 36 Agenda Item Number 9 Agenda Item Number 9
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City of Sebastopol / Water and Wastewater Rate Study - DRAFT v Table 5-12: Units of Service................................................................................................................... 36 Table 5-13: Total Adjusted Cost-of-Service and Units of Service ........................................................... 37 Table 6-1: Bi-Monthly Service Charge Derivation, Test Year ................................................................. 38 Table 6-2: Proposed Bi-Monthly Fixed Water Service Charge................................................................ 39 Table 6-3: Volumetric Rate Calculation.................................................................................................. 39 Table 6-4: Test Year Volumetric Rate Derivation ................................................................................... 40 Table 6-5: Proposed 5-Year Water Volumetric Rate Schedule............................................................... 40 Table 7-1: Projected Fixed Charge Revenues Under Current Wastewater Rates................................... 42 Table 7-2: Projected Volume Charge Revenue Under Current Wastewater Rates................................. 42 Table 7-3: Projected Other Wastewater Enterprise Revenues, Status Quo............................................ 42 Table 7-4: Summary of Projected Wastewater Operations and Maintenance Expenses ........................ 43 Table 7-5: Projected Wastewater Capital Improvement Projects............................................................ 43 Table 7-6: Existing Debt Service............................................................................................................ 44 Table 7-7: Wastewater Cashflow, Status Quo........................................................................................ 45 Table 7-8: Proposed Revenue Adjustments........................................................................................... 46 Table 7-9: Wastewater Operating Cashflow........................................................................................... 47 Table 8-1: Revenue Requirement Determination ................................................................................... 50 Table 8-2: Functionalization of Net O&M................................................................................................ 51 Table 8-3: Functionalization of Net Capital............................................................................................. 51 Table 8-4: Allocation of Functions to Cost Components......................................................................... 52 Table 8-5: Allocation of Net Wastewater Operation & Maintenance to Cost Components ...................... 52 Table 8-6: Allocation of Wastewater Capital-Related Expenses to Cost Components............................ 52 Table 8-7: Equivalent Meters ................................................................................................................. 53 Table 8-8: Units of Service..................................................................................................................... 53 Table 8-9: Total Wastewater Unit Costs of Service ................................................................................ 53 Table 9-1: Wastewater Fixed Charge Derivation, Test Year................................................................... 54 Table 9-2: Proposed 5-Year Wastewater Rate Schedule ....................................................................... 54 Figures
Figure 1-1: Proposed Water Financial Plan.............................................................................................. 3 Figure 1-2: Projected Water Reserve Balances ....................................................................................... 3 Figure 1-3: Water Capital Financing Plan, Inflated Dollars ....................................................................... 4 Figure 1-4: Sample Single Family Water Bill Comparison ........................................................................ 6 Figure 1-5: Sample Commercial Water Bill Comparison........................................................................... 6 Agenda Item Number 9 Agenda Item Number 9
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City of Sebastopol / Water and Wastewater Rate Study - DRAFT vi Figure 1-6: Sample Irrigation Water Bill Comparison................................................................................ 7 Figure 1-7: Proposed Wastewater Financial Plan..................................................................................... 8 Figure 1-8: Projected Wastewater Reserve Balances .............................................................................. 9 Figure 1-9: Wastewater Capital Financing Plan, Inflated Dollars.............................................................. 9 Figure 1-10: Sample Single Family Wastewater Bill Comparison........................................................... 10 Figure 1-11: Example Commercial Bi-Monthly Wastewater Bills ............................................................ 11 Figure 1-12: Sample Combined Water & Wastewater Single Family Bill ................................................ 11 Figure 1-13: Combined Commercial Water and Wastewater Bill, FY 2024-25........................................ 12 Figure 3-1: Water Use by Customer Class, FY 2021-22......................................................................... 18 Figure 4-1: Reserve Balances Under the Status Quo............................................................................. 25 Figure 4-2: Proposed Operating Financial Plan...................................................................................... 27 Figure 4-3: Projected Capital Plan and Funding Sources....................................................................... 28 Figure 4-4: Projected Reserve Balance.................................................................................................. 28 Figure 7-1: Wastewater Reserve Balances Under the Status Quo ......................................................... 45 Figure 7-2: Proposed Wastewater Operating Financial Plan .................................................................. 48 Figure 7-3: Projected Wastewater Capital Plan and Funding Sources ................................................... 48 Figure 7-4: Projected Wastewater Reserve Balance .............................................................................. 49 Figure 10-1: Single Family Residential Bi-Monthly Bills, FY 2024-25 ..................................................... 55 Figure 10-2: Commercial Bi-Monthly Bills, FY 2024-25 .......................................................................... 56 Figure 10-3: Irrigation Bi-Monthly Bills, FY 2024-25 ............................................................................... 56 Figure 10-4: Typical Single Family Bi-Monthly Wastewater Bill .............................................................. 57 Figure 10-5: Example Commercial Bi-Monthly Wastewater Bills ............................................................ 57 Figure 10-6: Combined Single Family Water and Wastewater Bill, FY 2024-25 ..................................... 58 Figure 10-7: Combined Commercial Water and Wastewater Bill, FY 2024-25........................................ 58 Appendices
Appendix A: Water O&M Allocation
Appendix B: Wastewater O&M Allocation
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City of Sebastopol / Water and Wastewater Rate Study - DRAFT 1
1. Executive Summary
1.1. Background
In 2023 the City of Sebastopol (City) contracted with Raftelis Financial Consultants (Raftelis) to conduct a Water and Wastewater Rate Study including updated ten-year financial plans, cost-of-service analyses, and updated five-year schedules of water and wastewater rates. Given the current distressed state of both enterprises and that master plans are scheduled to be completed in the next five years, this report focuses on the first five years of the financial plans, the cost-of-service analyses, and the resulting water and wastewater rates. This Executive Summary describes the rate study process, methodology, and recommendations for the City’s water and wastewater rates. The City’s last rate study was in 2019 and projected rates through FY 2023-24. The City wishes to establish fair and equitable rates that: Meet the City’s water and wastewater enterprise fiscal needs for operation and maintenance costs, capital replacement and refurbishment (R&R) costs to maintain the system, reserve goals, and to improve the financial health of each enterprise, and
Prepare a five-year schedule of water and wastewater rates that align with Proposition 218 The City’s water enterprise serves the City of Sebastopol. The enterprise provides potable water service to a population of over 7,300 people in the City through almost 3,000 connections. On an annual basis, the City delivers approximately 825 acre-feet (AF) of potable water.
The City provides wastewater collection services, conveying the wastewater to a subregional treatment facility. The City’s wastewater enterprise serves most of the City of Sebastopol. The City provides wastewater collection services to approximately 2,700 connections. 1.2. Process Raftelis developed water and wastewater financial plans for the City by working with City staff to refine inputs and assumptions. The financial plans show the total revenue adjustments needed to meet capital investment, operational expenses, debt service, and rebuild reserves during the five-year rate-setting period.
Raftelis worked with City staff to refine inputs and provide revenue adjustment scenarios for the City Council’s consideration. After developing the financial plans, Raftelis performed cost-of-service analyses and rate design to determine the water and wastewater rates based on the selected financial plan. The selected financial plan was based on a specific staffing plan, capital improvement projects, and loan payment plan selected by the City Council at a public meeting on April 23, 2024.
The current water rate consists of a bi-monthly service charge based on meter size and a uniform volumetric rate for all customers. Based on discussions with City staff, Raftelis has developed a new water rate structure incorporating tiered rates for single-family customers and separate uniform rates for commercial and irrigation customers.
The current wastewater rate structure consists of a bi-monthly service charge based on meter size and a volumetric rate. The different meter charges are currently based on safe operating capacity. The average winter water use is used for residential customers and actual bi-monthly water use is used for all other Agenda Item Number 9 Agenda Item Number 9
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City of Sebastopol / Water and Wastewater Rate Study - DRAFT 2 customers to determine the volumetric charges for customers. Raftelis recommends maintaining this approach. Raftelis proposes using winter average use by meter size instead of safe operating capacity to differentiate fixed wastewater charges, as this is a better indicator of the relative wastewater flow generated at each meter size.
1.3. Proposed Water Financial Plan
Raftelis, with the assistance of City staff, conducted a status quo cash flow analysis to evaluate whether existing water rates can adequately fund the City’s various water-related expenses over the study period. The analysis projected annual revenues, operation and maintenance expenses, debt service payments, and capital expenditures through FY 2033-34. Raftelis projects that with no rate increases over the study period, the water enterprise will be operating in a deficit each year and run out of reserves in the first year. This projected outcome demonstrates a clear need for water revenue adjustments to meet annual operating, maintenance, and capital renewal and replacement projects and rebuild reserve levels. Raftelis worked with City staff to develop the following proposed revenue adjustments over the five-year study period (see Table 1-1). The proposed water revenue adjustments were developed to ensure the water operating fund has sufficient funds to cover annual expenses and build reserves to minimum levels by the end of FY 2025-26. Meeting this minimum will be important when obtaining debt for capital projects. The operating reserve minimum is 25 percent of annual operating expenses, including debt service. The City does not have a separate capital reserve. The total operating reserve represents a minimum level of cash on hand. Given the current water enterprise financial status, Raftelis recommends that reserve levels be reviewed during the next rate study. Table 1-1: Proposed Water Revenue Adjustments Key factors influencing the need for proposed revenue adjustments include: Current water rates are insufficient to cover annual operating and maintenance expenses. The water operating fund needs to become self-sufficient and meet operating reserves to help manage short-term cashflow and have funds for emergencies. Obtaining debt financing will be very difficult given the water enterprise's status. Rating agencies will want to see a clear path towards revenue sufficiency.
Figure 1-1 shows the proposed five-year financial plan. Status Quo revenue is shown by the light blue line.
Projected revenue is shown by the black line. Annual expenditures are shown by the columns. The yellow bars above the axis ($0 line) show the net cash used to build up the reserves and the bars below the axis show any withdrawals from reserves to fund costs. Current rates are insufficient to cover annual operating and maintenance expenses and capital-related expenditures. Therefore, revenue adjustments are required to generate sufficient revenue to cover annual operating and maintenance costs, cash-funded capital projects, and cash reserve funding over the study period.
Fiscal Year
Revenue
Adjustment
FY 2024-25 50.0%
FY 2025-26 16.0%
FY 2026-27 1.5%
FY 2027-28 1.5%
FY 2028-29 1.5%
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City of Sebastopol / Water and Wastewater Rate Study - DRAFT 3 Figure 1-1: Proposed Water Financial Plan
Figure 1-2 shows projected reserve balance over the rate-setting period relative to the City’s minimum reserve level under the proposed financial plan. Reserves are built up the first three years, in part due to using a loan to fund the Well #4 replacement project, and then drawn down in FY 2027-28 to help cover larger than average capital expenditures in that year. However, the overall balance is growing each year thereafter.
Figure 1-2: Projected Water Reserve Balances
Figure 1-3 shows the proposed water capital financing plan over the rate-setting period. The proposed financial plan assumes that the Well #4 replacement project will be debt financed with external borrowing. -$1.0
$0.0
$1.0
$2.0
$3.0
$4.0
$5.0
$6.0
FY 2024-25 FY 2025-26 FY 2026-27 FY 2027-28 FY 2028-29 Millions Water Financial Plan
Expenses Debt Service Net Cash
Rate Funded Capital Current Revenue Proposed Revenue
$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
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City Council Meeting Packet for May 21, 2024
City of Sebastopol / Water and Wastewater Rate Study - DRAFT 4 Figure 1-3: Water Capital Financing Plan, Inflated Dollars
1.4. Proposed Water Rates
The City’s existing water rate structure consists of a fixed bi-monthly charge (based on meter size) and variable volume rate (per thousand gallons (kgal) of water delivered). Due to City staff concerns regarding the equity of a single uniform volumetric rate and overall guiding principles of financial stability, affordability of service, and equity, Raftelis examined the FY 2021-22 billing data at the customer class level using the customer classes identified in the data. Upon review of the billing data, Raftelis worked closely with City staff to evaluate potential changes to the existing water rate structure. The following changes are proposed: Single Family Residential Tiers: Raftelis proposes that the City introduce a three-tiered rate structure for customers identified as Residential in the billing database. Tier 1 will be defined as the first 7 units of water (kgal) in a two-month period (i.e., bi-monthly), which represents use up to the lowest average water use per billing period during the winter months. Winter use approximates essential indoor water use—for cooking, drinking, and sanitation, and not outdoor irrigation. Over an entire year, 55 percent of residential billed usage falls between 0 - 7 kgal. Tier 2 will include use greater than Tier 1, up to 16 kgal per billing period, which is based on the highest average water use per billing period during the summer months. This tier is designed to approximate water used for outdoor irrigation.
Approximately 25 percent of annual residential usage falls between 8 – 16 kgal. Tier 3 will include all use greater than Tier 2, which is approximately 20 percent residential usage. Single family residential is a homogenous customer class, which has similar indoor needs for health and sanitation, similar outdoor irrigation needs, and similar seasonality in these demand patterns. It is therefore appropriate to tier this class of like customers. The three-tier structure will provide lower cost water in the first tier and higher costs in the second and third tiers. This will promote affordability of service for lower to average use residential customers while including a conservation price signal between the tiers. The proposed monthly allotments for residential customers are shown below in Table 1-2. All Other Classes: Raftelis recommends that all other customer classes be billed a uniform rate by class. Based on the billing data, two distinct classes are identified: Commercial (which also includes Apartments, Non-Profit, and Government as identified in the billing data) and Irrigation. Non- $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
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City Council Meeting Packet for May 21, 2024
City of Sebastopol / Water and Wastewater Rate Study - DRAFT 5 residential classes have highly varying demand patterns based on the type of business or seasonal transient effects. For this reason a uniform rate by class is proposed.
While single family residential and non-single family customers will have different billing structures, all customers will pay roughly the same average rate.
Table 1-2: Proposed Changes to the Water Rate Structure Table 1-3 and Table 1-4 show the proposed five-year water rate schedule through FY 2028-29 for fixed charges and volume charges, respectively. Proposed FY 2024-25 rates are calculated based on the results of the cost-of-service analysis and the overall revenue adjustment for that year. Proposed rates beginning in FY 2025-26 are calculated by increasing the prior year's proposed rates by the proposed annual revenue adjustments. The City bills customers for service every two months (bi-monthly). Water volume charges (water use) are billed in units of one thousand gallons (kgal).
Table 1-3: Proposed Five-Year Water Rate Schedule, Fixed Charges, $/Bi-Mo.
Table 1-4: Proposed Five-Year Water Rate Schedule, Volume Charges, $/kgal Figure 1-4 shows the bill comparison for a single family customer on a 5/8”x3/4” meter at a range of billed usage levels for FY 2024-25. The single family class has a typical water usage of 9 kgal per billing period. Figure 1-5 shows the bill comparison for a commercial customer on a 5/8”x3/4" meter at a range of billed usage for FY 2024-25.
Description
Current Bi-Monthly
Allotment
Proposed Bi-Monthly
Allotment
Single Family Residential
Tier 1 N/A Uniform 0 - 7 kgal
Tier 2 N/A Uniform 8 - 16 kgal
Tier 3 N/A Uniform > 16 kgal
All Other Classes Single Uniform Rate Uniform by Class
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 on a 1" meter for fire service are charged the 3/4" rate.
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
Agenda Item Number 9 Agenda Item Number 9
City Council Meeting Packet for May 21, 2024
City of Sebastopol / Water and Wastewater Rate Study - DRAFT 6 Figure 1-4: Sample Single Family Water Bill Comparison
Figure 1-5: Sample Commercial Water Bill Comparison
Very Low - 2
kgal Low - 5 kgal Medium - 9kgal High - 13 kgal Very High - 21kgal Current Bill $58.37 $71.93 $90.01 $108.09 $144.25
FY 2024-25 $85.06 $101.50 $126.44 $154.40 $223.92
$0.00
$50.00
$100.00
$150.00
$200.00
$250.00
Single Family Water Bi-Monthly Bill, 5/8"x3/4"
Current Bill FY 2024-25
Low - 2 kgal Medium - 9 kgal High - 27 kgal
Current Bill $58.37 $90.01 $171.37
FY 2024-25 $86.16 $128.37 $236.91
$0.00
$50.00
$100.00
$150.00
$200.00
$250.00
Commercial Water Bi-Monthly Bill, 5/8"x3/4"
Current Bill FY 2024-25
Agenda Item Number 9 Agenda Item Number 9
City Council Meeting Packet for May 21, 2024
City of Sebastopol / Water and Wastewater Rate Study - DRAFT 7 Figure 1-6 shows a bill comparison for an irrigation customer on a 1.5" meter at a range of billed usage for FY 2024-25. Figure 1-6: Sample Irrigation Water Bill Comparison
1.5. Proposed Wastewater Financial Plan
With the assistance of City staff, Raftelis conducted a Status Quo cash flow analysis to evaluate whether existing wastewater rates can adequately fund the City’s collection-system and treatment expenses over the ten-year study period. The analysis projected annual revenues, operation and maintenance expenses, debt service payments, and capital expenditures through FY 2033-34. Raftelis projects that with no rate increases over the study period, the City’s wastewater enterprise will continue running in a deficit position each year. This demonstrates a clear need for wastewater revenue adjustments during the rate-setting period to cover annual operating and maintenance costs, debt service, cash-funded capital projects, and cash reserves. Raftelis worked with City staff to develop the following proposed wastewater revenue adjustments over the five-year rate-setting period (Table 1-5). The proposed revenue adjustments were selected to build the wastewater operating fund back to revenue sufficiency to cover annual expenses, and to eventually build reserves to minimum levels within five years.
Low Medium High
Current Bill $209.33 $390.13 $616.13
FY 2024-25 $352.31 $786.71 $1,329.71
$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 FY 2024-25
Agenda Item Number 9 Agenda Item Number 9
City Council Meeting Packet for May 21, 2024
City of Sebastopol / Water and Wastewater Rate Study - DRAFT 8 Table 1-5: Proposed Wastewater Revenue Adjustments
Key factors influencing the need for proposed wastewater revenue adjustments include: The wastewater enterprise is expected to be in deficit of approximately $1.1 million by the end of the current fiscal year, FY 2023-24, which will be treated as a loan from the City’s General Fund and repaid over time. Revenues are insufficient to cover annual operating and maintenance costs, much less capital-related costs. Need to return the wastewater enterprise to a self-sufficient enterprise. Need to build up reserves to a minimum level for working capital and mitigate system risk. Figure 1-7 shows the proposed wastewater financial plan. Status Quo revenue is shown by the light blue line.
Projected revenue is shown by the black line. Annual expenditures are shown by the columns. Expenses include repayment starting in FY 2026-27 of the estimated $1.1 million borrowed from the General Fund, presuming a 5-year payback and 3 percent interest rate. The yellow bar represents net cash. If the yellow bar is below the axis, this indicates that reserves are being drawn upon to cover expenses. If the yellow bar is above the axis, it indicates that revenue is being added to reserves. In FY 2028-29 a very small draw on reserves is projected. Current rates are not sufficient to cover annual operating and maintenance expenses nor capital- related expenditures. Figure 1-7: Proposed Wastewater Financial Plan Fiscal Year
Revenue
Adjustment
FY 2024-25 50.0%
FY 2025-26 11.0%
FY 2026-27 9.0%
FY 2027-28 9.0%
FY 2028-29 9.0%
-$1.0
$0.0
$1.0
$2.0
$3.0
$4.0
$5.0
$6.0
$7.0
$8.0
FY 2024-25 FY 2025-26 FY 2026-27 FY 2027-28 FY 2028-29 Millions Wastewater Financial Plan
Expenses Debt Service Net Cash
Rate Funded Current Revenue Proposed Revenue
Agenda Item Number 9 Agenda Item Number 9
City Council Meeting Packet for May 21, 2024
City of Sebastopol / Water and Wastewater Rate Study - DRAFT 9 Figure 1-8 shows projected wastewater reserve balances over the rate-setting period relative to the minimum reserve level under the proposed financial plan. The overall balance grows in the first four years, then slightly decreases due to a larger capital plan in the fifth year but is maintained above the minimum balance. Figure 1-8: Projected Wastewater Reserve Balances Figure 1-9 shows the proposed wastewater capital financing plan over the rate-setting period. The proposed wastewater financial plan assumes that all capital projects over the study period will be cash-funded through rate revenue.
Figure 1-9: Wastewater Capital Financing Plan, Inflated Dollars $0.38
$0.86 $0.97
$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
$0.0
$0.2
$0.8
$0.4
$1.3
$0.0
$0.2
$0.4
$0.6
$0.8
$1.0
$1.2
$1.4
FY 2024-25 FY 2025-26 FY 2026-27 FY 2027-28 FY 2028-29 Millions Wastewater CIP Funding
Rate Funded Total CIP
Agenda Item Number 9 Agenda Item Number 9
City Council Meeting Packet for May 21, 2024
City of Sebastopol / Water and Wastewater Rate Study - DRAFT 10
1.6. Proposed Wastewater Rates
Table 1-6 shows the proposed five-year wastewater rate schedule through FY 2028-29. No structural changes are proposed for wastewater service. Customers will still be charged a fixed bi-monthly service charge based on meter size and a volumetric rate based on average winter use for residential customers or billed water use for all other customers. However, the fixed charge has been updated to reflect winter average use by meter size instead of safe operating capacity to differentiate fixed wastewater charges, as this is a better indicator of the relative wastewater flow generated at each meter size. Proposed FY 2024-25 rates are calculated based on the results of the cost-of-service analysis, including proposed updates to the rate differentials at each meter size, and the overall revenue adjustment for that year. Proposed rates beginning in FY 2025-26 are calculated by increasing the prior year's proposed rates by the proposed annual revenue adjustments.
Table 1-6: Proposed Five-Year Wastewater Rate Schedule
Figure 1-10 shows the bill comparison for a single-family customer on a 5/8”x3/4” meter with a typical winter water use of 6 kgal.
Figure 1-10: Sample Single Family Wastewater Bill Comparison Figure 1-11 shows commercial bi-monthly wastewater bills at low, medium, and high water use levels.
Charge Current 7/1/2024 7/1/2025 7/1/2026 7/1/2027 7/1/2028 Meter Size, $/bi-mo
5/8x3/4" & 3/4" $76.61 $95.25 $105.73 $115.25 $125.63 $136.94 1" $127.97 $258.35 $286.77 $312.58 $340.72 $371.39
1.5" $254.86 $657.20 $729.50 $795.16 $866.73 $944.74
2" $408.03 $841.02 $933.54 $1,017.56 $1,109.15 $1,208.98 3" $893.44 $2,093.81 $2,324.13 $2,533.31 $2,761.31 $3,009.83 4" $1,276.06 $6,307.17 $7,000.96 $7,631.05 $8,317.85 $9,066.46 Volume, $/kgal $10.31 $15.47 $17.18 $18.73 $20.42 $22.26 Note: Single family on a 1" meter for fire service are charged the 3/4" rate. $138.47
$188.07
$0.00
$50.00
$100.00
$150.00
$200.00
$250.00
$300.00
Current FY 2024-25
Wastewater Bi-Monthly Bill, Winter Typical
6 kgal, 5/8"x3/4"
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City Council Meeting Packet for May 21, 2024
City of Sebastopol / Water and Wastewater Rate Study - DRAFT 11 Figure 1-11: Example Commercial Bi-Monthly Wastewater Bills Figure 1-12 shows the combined bill comparison for a typical single-family customer, using the winter average of 6 kgal per billing period. Figure 1-12: Sample Combined Water & Wastewater Single Family Bill Figure 1-13 shows the combined commercial water and wastewater bill at a medium usage of 9 kgal. $0.00
$100.00
$200.00
$300.00
$400.00
$500.00
$600.00
2 kgal 9 kgal 27 kgal
Wastewater Bi-Monthly Bill, Commercial,
5/8"x3/4"
Current FY 2024-25
$90.01
$126.44
$138.47
$188.07
$228.48
$314.51
$0.00
$50.00
$100.00
$150.00
$200.00
$250.00
$300.00
$350.00
Current FY2024-25
Combined Bi-monthly Bill, Typical Single Family,
5/8x3/4" (water = 9 kgal, sewer = 6 kgal)
Water Wastewater
Agenda Item Number 9 Agenda Item Number 9
City Council Meeting Packet for May 21, 2024
City of Sebastopol / Water and Wastewater Rate Study - DRAFT 12 Figure 1-13: Combined Commercial Water and Wastewater Bill, FY 2024-25 $90.01
$128.37
$169.40
$234.48
$259.41
$362.85
$0.00
$50.00
$100.00
$150.00
$200.00
$250.00
$300.00
$350.00
$400.00
Current FY2024-25
Combined Bi-monthly Bill, Commercial, 5/8x3/4" (9 kgal) Water Wastewater
Agenda Item Number 9 Agenda Item Number 9
City Council Meeting Packet for May 21, 2024
City of Sebastopol / Water and Wastewater Rate Study - DRAFT 13
2. Rate Setting Methodology
This study was conducted using industry-standard principles outlined by the American Water Works Association (AWWA) Manual M1 and Water Environment Federation (WEF) Manual of Practice No. 27. The process and approach Raftelis used in the study to determine water and wastewater rates was informed by the City’s policy objectives, the current water and wastewater systems and rates, and the legal requirements in California (namely, Proposition 218). The resulting financial plans, cost of service analyses, and rate design process follows five key steps, outlined below, to determine proposed rates that fulfill the City’s objectives, meet industry standards, and align with relevant regulations. 1. Financial Plan - Projections: The first step is to develop a multi-year financial plan that projects the City’s revenues, expenses, capital project financing, annual debt service, and reserve funding. The financial plan is used to determine multi-year revenue adjustments, which allow the City to recover adequate revenues to fund expenses and reserves each year. 2. Financial Plan - Revenue Requirement Determination: After completing the financial plan, the rate- making process begins by determining the revenue requirement for the test year. The test year for this study is FY 2023-24 which runs from July 1, 2023 through June 30, 2024. The revenue requirement should sufficiently fund the City’s operating costs, annual debt service (including coverage requirements), capital expenditures, and reserve funding as projected based on the annual budget estimates.
3. Cost-of Service-Analysis: The annual cost of providing water/wastewater service, or the revenue requirement, is then distributed to customer classes commensurate with their use of and burden on the water/wastewater system. A cost-of-service analysis involves the following steps:
a. Functionalize costs – the different components of the revenue requirement are categorized into functions such as supply, transmission/collection, storage, customer service, etc. b. Allocate to cost causation components – the functionalized costs are then allocated to cost causation components such as supply, base delivery, peaking, etc. for water and collection, customer service, etc. for wastewater.
c. Develop unit costs – unit costs for each cost causation component are determined using units of service, such as total use, peaking units, equivalent meters, number of customers, etc., for each component.
d. Distribute cost components – the cost components are allocated to each customer class using the unit costs in proportion to their units of service (demand and burden on the system). A water cost-of-service analysis also considers both the average water demand and peak demand using the best available data. Peaking costs are incurred during periods of peak consumption, most often coinciding with summer water use. Additional capacity-related costs are associated with designing, constructing, operating, maintaining, and replacing facilities to meet peak demand.
Peaking imposes additional costs on a water utility and is used to determine the cost burden on peaking-related facilities such as storage and distribution infrastructure. 4. Rate Design: After allocating the revenue requirement to each customer class, the project team designs and calculates rates. Rates do more than simply recover costs; within the legal framework and industry standards, properly designed rates should support and optimize the City’s policy objectives.
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City Council Meeting Packet for May 21, 2024
City of Sebastopol / Water and Wastewater Rate Study - DRAFT 14 Rates also act as a public information tool in communicating these policy objectives to customers.
This process also includes a rate impact analysis and sample customer bill impacts. 5. Report Preparation and Rate Adoption: The final step in a rate study is to develop the report in conjunction with the rate adoption process. The report documents the study results and presents the methodologies, rationale, justifications, and calculations used to determine the proposed rates. Values shown in report tables and figures are rounded to the digit shown. Therefore, any manual reproduction of the calculations shown may not match the precise results displayed in the report.
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City of Sebastopol / Water and Wastewater Rate Study - DRAFT 15
3. Key Inputs and Assumptions
Raftelis developed a water and wastewater rate model in Microsoft Excel to project financial and rate calculations over a ten-year study period through FY 2033-34. The City’s fiscal year spans from July 1 through June 30. Projections in future years are generally made based on budgeted FY 2023-24 data using the key assumptions outlined below. All assumptions were discussed with and reviewed by City staff to ensure that the City’s unique characteristics were incorporated. Note that most table values shown throughout this report are rounded to the last digit shown and, therefore, may not calculate precisely to the values shown.
3.1. Current Water Rates
Table 3-1 shows the current adopted water rates developed during the prior rate study. Customers are currently subject to two charges: 1) bi-monthly Fixed Meter Charges and 2) Volume Charges per one thousand gallons (kgal) of water delivered, which is the same for all classes. The City recently switched from metering in hundred cubic feet (ccf)1 to kgal, so the table shows the equivalent volumetric charge on a $/ccf and $/kgal basis.
Table 3-1: Current Water Rate Structure
3.2. Current Wastewater Rates
Table 3-2 shows the current adopted wastewater rates. Customers are charged a bi-monthly service charge based on meter size and a volumetric rate based on average winter use for residential customers or billed water use for all other customers. The proposed rates presented in this report maintain a fixed charge by meter but adjust the differentiating ratios based on winter water use (a proxy for wastewater generation) rather than hydraulic capacity, which represents the potential water demand of water through the meter. This approach is more representative of wastewater generation patterns and in Raftelis’ professional judgment a fairer approach between meter classes.
1 One ccf is approximately 748 gallons. One kgal is 1,000 gallons.
Charge Type Unit Rate
Bi-Monthly Charge, $/mo
5/8"x3/4" $49.33
3/4" $49.33
1" $82.41
1.5" $164.13
2" $262.77
3" $575.37
4" $821.78
Volumetric Rate
$/ccf $3.38
$/kgal $4.52
Hydrant Flat Fee, $/mo $36.00
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City Council Meeting Packet for May 21, 2024
City of Sebastopol / Water and Wastewater Rate Study - DRAFT 16 Table 3-2: Current Wastewater Rates
3.3. Projected Service Connections
3.3.1. Water
Table 3-3 shows the actual number of potable water accounts by meter size for FY 2021-22 and the projected number of accounts through the rate-setting period. Based on discussions with City staff, the total number of residential accounts is projected to increase at 0.5 percent per year. Other customer types are presumed to stay flat. The number of accounts is used to forecast the amount of fixed revenue the City will receive from the monthly meter charges and the annual water use. FY 2021-22 metered connection data was the most recent complete year available at the time the rate study was initiated.
Table 3-3: Projected Number of Water Meters
3.3.2. Wastewater
Table 3-4 shows the current and projected wastewater meters. The number of smaller meter sizes, most common for residential customers, are projected to increase at 0.5 percent per year. The number of other meter sizes are presumed to stay flat. The FY 2021-22 metered connection data was the most recent complete year available at the time the rate study was initiated.
Charge Type Unit Rate
Bi-Monthly Charge, $/mo
5/8"x3/4" $76.61
3/4" $76.61
1" $127.97
1.5" $254.86
2" $408.03
3" $893.44
4" $1,276.06
Volumetric Rate
$/ccf $7.71
$/kgal $10.31
Meter Size FY2021-22 FY2022-23 FY2023-24 FY2024-25 FY2025-26 FY2026-27 FY2027-28 FY2028-29 5/8"x3/4" 2,547 2,559 2,570 2,582 2,593 2,605 2,617 2,629 3/4" 53 53 54 54 54 54 55 55
1" 207 208 208 209 209 210 210 211
1.5" 82 82 82 82 82 83 83 83
2" 58 58 58 58 58 58 58 58
3" 10 10 10 10 10 10 10 10
4" 3 3 3 3 3 3 3 3
Construction 10 10 10 10 10 10 10 10
Total 2,970 2,982 2,995 3,008 3,020 3,033 3,046 3,059
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City Council Meeting Packet for May 21, 2024
City of Sebastopol / Water and Wastewater Rate Study - DRAFT 17 Table 3-4: Projected Wastewater Meters
3.4. Water Use Assumptions
FY 2021-22 water use data was the most recent complete year available at the time the rate study was initiated. Projected water use presumes that customers within each customer class continue to use water similarly to recent, historical water use on an average per account basis. Water utilities across California have experienced significant declines in per capita water use in the past decade with periods of multi-year drought and record or near record winters. Throughout the state, water service providers are being conservative in their per capita projections so as not to overestimate rebounds in customer demands and therefore over- estimate rate revenues.
Account growth is applied to the number of accounts for each class to determine the water sales each year.
Assumptions of account growth and resulting water sales are shown in Table 3-5. The “Year-to-Year Change” line shows that fiscal year’s consumption in relation to the previous fiscal year. Since account growth is only anticipated for residential customers, overall water sales are projected to increase at slightly less than the residential account growth.
Table 3-5: Account Growth and Water Use Assumptions
Figure 3-1 shows the percent of total use in FY 2021-22 for the different customer classes.
Meter Size FY2021-22 FY2022-23 FY2023-24 FY2024-25 FY2025-26 FY2026-27 FY2027-28 FY2028-29 5/8"x3/4" 2,493 2,505 2,518 2,531 2,543 2,556 2,569 2,582 3/4" 24 24 24 24 24 25 25 25
1" 100 101 101 102 102 103 103 104
1.5" 52 52 52 52 52 52 52 52
2" 44 44 44 44 44 44 44 44
3" 8 8 8 8 8 8 8 8
4" 3 3 3 3 3 3 3 3
Total 2,724 2,737 2,750 2,763 2,777 2,790 2,803 2,817
FY2022-23 FY2023-24 FY2024-25 FY2025-26 FY2026-27 FY2027-28 FY2028-29 Account Growth
Residential 0.5% 0.5% 0.5% 0.5% 0.5% 0.5% 0.5%
Non-Residential 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
Water Sold (kgal) 268,311 269,193 270,080 270,972 271,867 272,768 273,673 Year-to-Year Change 0.3% 0.3% 0.3% 0.3% 0.3% 0.3%
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City Council Meeting Packet for May 21, 2024
City of Sebastopol / Water and Wastewater Rate Study - DRAFT 18 Figure 3-1: Water Use by Customer Class, FY 2021-22
3.5. Wastewater Flow Assumptions
Table 3-6 shows the projected wastewater flows. Flow for residential customers is based on the average winter water use. Flow for other customers equals water use.
Table 3-6: Projected Wastewater Flows, kgal
3.6. Water and Wastewater Financial Plan Assumptions
Inflationary assumptions shown in Table 3-7 were used to project O&M expenses beyond FY 2023-24. To ensure that future costs are reasonably projected, Raftelis worked with the City to generate assumptions regarding inflationary factors as shown in Table 3-7. The inflationary factors shown in Table 3-7 were then applied to the FY 2023-24 budgeted cost estimates to develop the FY 2024-25 and subsequent year estimates. Factors for FY 2029-30 through FY 2033-34 are the same as FY 2028-29. These inflationary assumptions are not applied to FY 2023-24, where Raftelis used the budgeted numbers provided by the City. Subregional represents the wastewater treatment costs incurred by the City for treating water at Santa Rosa Water’s Laguna Wastewater Treatment Plant and is applied to wastewater treatment costs. 52%
22%
13%
8%
4%
Water Use by Customer Class, FY2021-22
Residential
Commercial
Apartment
Irrigation
Government
FY2021-22 FY2022-23 FY2023-24 FY2024-25 FY2025-26 FY2026-27 FY2027-28 FY2028-29 Residential 69,194 69,540 69,888 70,237 70,588 70,941 71,296 71,652 Non-Residential 84,302 84,302 84,302 84,302 84,302 84,302 84,302 84,302 Total 153,496 153,842 154,190 154,539 154,891 155,244 155,598 155,955 Agenda Item Number 9 Agenda Item Number 9
City Council Meeting Packet for May 21, 2024
City of Sebastopol / Water and Wastewater Rate Study - DRAFT 19 Table 3-7: Inflationary Assumptions
Interest earnings on cash reserves are projected, assuming a 3.5 percent annual interest rate.
FY2024-25 FY2025-26 FY2026-27 FY2027-28 FY2028-29
General 3.0% 3.0% 3.0% 3.0% 3.0%
Salary 3.0% 3.0% 3.0% 3.0% 3.0%
Benefits 7.0% 7.0% 7.0% 5.0% 6.0%
Utilities 10.0% 10.0% 7.0% 7.0% 5.0%
Subregional 6.0% 6.0% 6.0% 6.0% 6.0%
Capital 6.0% 6.0% 6.0% 6.0% 6.0%
Agenda Item Number 9 Agenda Item Number 9
City Council Meeting Packet for May 21, 2024
City of Sebastopol / Water and Wastewater Rate Study - DRAFT 20
4. Water Financial Plan
This section describes the assumptions used in projecting water enterprise operating and capital expenses as well as reserve coverage requirements for the ten-year study period (FY 2025 – FY 2034) plus the current fiscal year. These assumptions determine the overall revenue adjustments and the total amount of revenue required from rates. The revenue covers operating and maintenance (O&M), capital expenses, and reserve funding. Revenue adjustments represent the average rate increase for the City as a whole; rate changes for individual customers depend on the cost-of-service analysis described in the following chapter. Financial plan assumptions were provided by and discussed in detail with City staff. The assumptions shown in Table 3-7 were incorporated into the financial plan. To develop the financial plan, Raftelis projected annual expenses and revenues, modeled reserve balances, added planned capital expenditures, and debt coverage. While the water operating fund currently has outstanding debt, according to City staff, the water fund does not have to meet debt coverage ratios associated with this debt. However, the City is planning to debt finance the Well 4 replacement project, which will likely have a minimum coverage requirement which requires the enterprise to generate a minimum amount of net revenues (gross revenues, less operating expenses) relative to the amount of annual debt service. This section of the report provides a discussion of projected revenue, O&M expenses, the CIP, reserve funding under existing rates, and the revenue adjustments needed to achieve fiscal sustainability.
4.1. Current Rate Revenue
The City’s revenues consist of rate revenues, interest earnings on cash reserves, and other miscellaneous revenues. The rate revenue projections shown below assume that the current FY 2023-24 (Table 3-1) rates are effective throughout the study period and, therefore, represent estimated revenues in the absence of any rate increase. This status quo scenario provides a baseline from which Raftelis evaluates the need for revenue adjustments.
4.1.1. Calculated Water Rate Revenues
Raftelis projected water rate revenues from fixed meter charges and volume charges for FY 2023-24 through FY 2033-34 based on current FY 2023-24 water rates, the projected number of water meters, and projected annual water use.
The City collects a fixed bi-monthly service charge from its customers based on meter size, as shown in Table 4-1. Fixed charge revenues are calculated by meter size in each year as follows based on current FY 2023-24 water rates and projected number of meters (Table 3-3) 2 . Annual Fixed Charge Revenue for 5/8”x3/4” meter = [FY 2023-24 fixed bi-monthly rate 5/8”x3/4” meter] × [Number of 5/8”x3/4” connections] × [6 Bills per year]
2 The example is shown for a 5/8”x3/4” meter. The same formula is applied for each meter size.
Agenda Item Number 9 Agenda Item Number 9
City Council Meeting Packet for May 21, 2024
City of Sebastopol / Water and Wastewater Rate Study - DRAFT 21 Table 4-1: Projected Fixed Charge Revenues Under Current Rates Table 4-2 shows projected volume charge revenues under current rates over the rate-setting period. Volume charge revenues are calculated by customer class in each year as follows based on current FY 2023-24 water rates3 and projected water use (Table 3-5).
Annual Volume Charge Revenue = [ FY 2023-24 rate per unit (kgal)] × [Annual Water Use] Table 4-2: Projected Volume Charge Revenue Under Current Rates
4.1.2. Other Revenues
Table 4-3 shows all other revenues over the rate-setting period. All FY 2023-24 other revenues are based on the City’s FY 2023-24 budget. Additional revenues from FY 2024-25 through FY 2033-34 were projected by Raftelis. New service fees, water meter sales, and penalties are forecast to increase similarly to the overall increase in the number of meters. Insurance claim costs are presumed to increase at 1.5 percent per year.
Interest revenue is estimated beginning in FY 2024-25 based on estimated beginning fund balances, revenues and expenses, and the assumed interest rate. Since the fund is in a deficit under the status quo, no interest revenue is earned. The other items remain flat.
3 The City’s existing water rate structure consists of a single, uniform water use rate for all classes and all units of water consumed.
Meter Size FY2023-24 FY2024-25 FY2025-26 FY2026-27 FY2027-28 FY2028-29 5/8"x3/4" $760,686 $764,124 $767,579 $771,051 $774,541 $778,048 3/4" $15,838 $15,914 $15,991 $16,068 $16,145 $16,223
1" $102,894 $103,166 $103,439 $103,714 $103,990 $104,268
1.5" $80,959 $81,064 $81,169 $81,274 $81,380 $81,487
2" $91,602 $91,682 $91,762 $91,842 $91,923 $92,004
3" $34,695 $34,782 $34,870 $34,958 $35,047 $35,135
4" $14,891 $14,941 $14,991 $15,041 $15,092 $15,142
Construction $2,160 $2,160 $2,160 $2,160 $2,160 $2,160
Total $1,103,725 $1,107,832 $1,111,960 $1,116,109 $1,120,278 $1,124,468 Customer Class FY2023-24 FY2024-25 FY2025-26 FY2026-27 FY2027-28 FY2027-29 Residential $637,278 $640,464 $643,666 $646,885 $650,119 $653,370 Apartment $164,327 $165,148 $165,974 $166,804 $167,638 $168,476 Commercial $264,653 $264,653 $264,653 $264,653 $264,653 $264,653 Irrigation $99,669 $99,669 $99,669 $99,669 $99,669 $99,669 Government $50,481 $50,481 $50,481 $50,481 $50,481 $50,481 Total $1,216,408 $1,220,416 $1,224,444 $1,228,492 $1,232,560 $1,236,649 Agenda Item Number 9 Agenda Item Number 9
City Council Meeting Packet for May 21, 2024
City of Sebastopol / Water and Wastewater Rate Study - DRAFT 22 Table 4-3: Projected Other Water Enterprise Revenues
4.2. Operations and Maintenance Expenses
The City’s expenses include operations and maintenance expenses, capital expenses, and transfers to the general fund to pay a share of debt service payments for shared facilities. This section discusses the details of each of these expenses. 4.2.1. Total Operations and Maintenance Budget The City provided Raftelis with its water enterprise budget and projected general and administration costs for FY 2023-24. The City also provided the general and administration costs for FY 2024-25 based on a revised capital allocation plan. Sebastopol City Council had previously directed staff to complete the City’s General and Administrative cost allocation study (also known as G&A Allocation Study) to properly distribute the costs of overhead among City functions. The G&A Allocation Study was accepted by Council at their February 20, 2024 meeting and results in a decrease of allocation to the water and wastewater enterprise funds effective July 1, 2024. To project the City’s O&M expenses in future years, Raftelis used the escalation percentages shown in Table 3-7 to project future expenses. A summary of the budgeted and projected O&M expenses over the rate-setting period is shown in Table 4-4. Approximately 68 percent of general and admin (G&A) costs are for finance, engineering, and public works.
Table 4-4: Summary of Projected Water Operations and Maintenance Expenses
4.2.2. Capital Improvement Plan
Table 4-5 shows the City’s plan for water capital improvements over the rate-setting period. The CIP is inflated by 6 percent per year to reflect projected inflationary increases from an uninflated base of FY 2022-23 except for the current year, which is in FY 2023-24 dollars.
FY2023-24 FY2024-25 FY2025-26 FY2026-27 FY2027-28 FY2027-29 Interest Income $35,000 $0 $0 $0 $0 $0
Backflow Inspections $643 $643 $643 $643 $643 $643
New Service Fee $36,460 $36,614 $36,769 $36,925 $37,081 $37,238 Water Meter Sales $8,579 $8,615 $8,652 $8,688 $8,725 $8,762 Penalties $15,013 $15,076 $15,140 $15,204 $15,269 $15,333 Other Charges $0 $0 $0 $0 $0 $0
Insurance Claims $0 $0 $0 $0 $0 $0
Miscellaneous Income $2,145 $2,145 $2,145 $2,145 $2,145 $2,145 Total $97,840 $63,094 $63,349 $63,605 $63,863 $64,122
Line Item FY2023-24 FY2024-25 FY2025-26 FY2026-27 FY2027-28 FY2028-29 Salaries & Benefits $498,327 $564,063 $586,907 $648,049 $671,283 $792,660 Materials, Supplies & Equipment $163,722 $168,633 $173,692 $178,903 $184,270 $189,798 Replacement Program $15,226 $15,734 $16,260 $16,803 $17,364 $17,945 Utilities $272,541 $300,256 $330,828 $354,825 $380,579 $400,745 Capital Outlay $41,647 $42,896 $44,183 $45,509 $46,874 $48,280 Other $365,441 $258,262 $266,032 $274,037 $282,282 $290,776 G&A Allocation $1,363,097 $852,863 $823,801 $882,031 $919,522 $1,011,058 Total $2,720,000 $2,202,707 $2,241,703 $2,400,156 $2,502,175 $2,751,261 Agenda Item Number 9 Agenda Item Number 9
City Council Meeting Packet for May 21, 2024
City of Sebastopol / Water and Wastewater Rate Study - DRAFT 23 Table 4-5: Projected Capital Improvement Projects
4.2.3. Existing and Proposed Debt Service
The water fund has two outstanding debts and pays a portion of general fund debt related to shared facilities, as shown in Table 4-6. According to City staff, the water fund does not have any debt service coverage requirements for these loans.
Table 4-6: Existing Debt Service
The City plans to debt fund the Well 4 replacement project. Based on discussions with City staff, Raftelis has presumed revenue bond-like terms of 5 percent interest, a 30-year term, and a 1.0 percent issuance cost. The modeled debt service is shown in Table 4-7. As the project gets closer to construction, the City should work with its financial advisor to determine the best financing arrangement and timing. Table 4-7: Proposed Debt Service
4.3. Reserve Targets
The City maintains a water operating reserve fund.
Operating Reserve – The Operating Reserve is used primarily to meet ongoing cash flow requirements. The City’s minimum reserve target is set at 25 percent (three months) of water operating and maintenance expenses plus annual debt service. Capital Reserve – The City does not have a capital reserve.
Project FY2023-24 FY2024-25 FY2025-26 FY2026-27 FY2027-28 FY2028-29 Parquet Street Water Line Replacement $530,000 $0 $0 $0 $0 $0 Well 4 Replacement $0 $0 $400,000 $2,600,000 $0 $0
Water System Master Plan Update $0 $120,000 $0 $0 $0 $0 Florence: Water Line Replace South $0 $0 $0 $26,000 $181,500 $0 Florence: Water Line Replace North $0 $0 $0 $56,000 $402,000 $0 Pleasant Hill Rd. Water Line: Mitchell Ct. to Lynch Rd. $0 $0 $0 $0 $300,000 $0 Replacement program-set aside $0 $600,000 $600,000 $600,000 $600,000 $600,000 Total Uninflated $530,000 $720,000 $1,000,000 $3,282,000 $1,483,500 $600,000 Total Inflated $530,000 $808,992 $1,191,016 $4,143,449 $1,985,258 $851,111 Debt FY2023-24 FY2024-25 FY2025-26 FY2026-27 FY2027-28
CREBS $62,048 $0 $0 $0 $0
Well #7 Loan $83,955 $83,954 $83,954 $83,954 $83,955
Infrastructure Lease* $66,109 $66,109 $66,109 $0 $0
TELPA* $168,592 $168,592 $168,592 $168,592 $168,592
Total $380,704 $318,656 $318,656 $252,547 $252,547
* Water Portion
Debt FY2023-24 FY2024-25 FY2025-26 FY2026-27 FY2027-28 FY2028-29 Well 4 Replacement $0 $0 $0 $246,964 $246,964 $246,964
Agenda Item Number 9 Agenda Item Number 9
City Council Meeting Packet for May 21, 2024
City of Sebastopol / Water and Wastewater Rate Study - DRAFT 24 Recommended Operating Reserve – Given the City bills bi-monthly, Raftelis recommends the City eventually move to a 120-day operating reserve once the fund has become self-sufficient by meeting annual operating, debt service, and cash-capital needs as well as the current operating reserve target. We recommend that the City evaluate this policy in the intervening years or as part of the next rate cycle.
Recommended Capital Reserve -- A common reserve target is 100 percent – 150 percent of the annual average 5- year capital improvement program. The City may also want to consider an emergency reserve fund. Given the water fund’s tenuous position, Raftelis recommends implementing a capital reserve and possibly an emergency reserve target once the fund has become self-sufficient by meeting annual operating, debt service, cash-capital needs, and the current operating reserve target. We recommend that the City evaluate this policy in the intervening years or as part of the next rate cycle, once a Water System Master Plan is completed. 4.4. Status Quo Financial Plan To demonstrate the importance of increasing revenue to keep up with costs, Raftelis modeled a ‘status quo’ version of the financial plan. This financial plan scenario examines reserve balances, costs, and revenues. It also assumes that there are no revenue adjustments during the study period to establish a baseline for other model scenarios. Table 4-8 shows a summary cashflow for the water enterprise over the rate-setting period, assuming no rate increases. Without increases existing revenues only recover O&M costs in some years; and even in those years revenues are insufficient to recover debt service and cash funded capital. The water fund balance turns increasingly negative in FY 2024-25 and beyond. Table 4-8: Status Quo Summary Water Cashflow Figure 4-1 shows the projected ending balance versus the target balance. This status quo model shows the need for rate revenue increases since negative ending balances start in FY 2024-25.
Line Item FY2023-24 FY2024-25 FY2025-26 FY2026-27 FY2027-28 FY2028-29 Beginning Balance $1,225,855 $13,123 -$923,731 -$2,273,193 -$6,658,980 -$8,980,099 Revenues
Rate-Based $2,317,972 $2,328,248 $2,336,404 $2,344,600 $2,352,838 $2,361,117 Other $100,000 $65,254 $65,509 $65,765 $66,023 $66,282
Total Revenue $2,417,972 $2,393,502 $2,401,913 $2,410,366 $2,418,861 $2,427,399 O&M $2,720,000 $2,202,707 $2,241,703 $2,400,156 $2,502,175 $2,751,261 Net Revenue -$302,028 $190,794 $160,209 $10,209 -$83,314 -$323,863 Capital-Related Expenses
Debt Service $380,704 $318,656 $318,656 $252,547 $252,547 $252,547 Cash Capital $530,000 $808,992 $1,191,016 $4,143,449 $1,985,258 $851,111 Total Capital Expenses $910,704 $1,127,648 $1,509,672 $4,395,996 $2,237,805 $1,103,659 Annual Surplus/Deficit -$1,212,732 -$936,854 -$1,349,463 -$4,385,787 -$2,321,119 -$1,427,521 Ending Balance $13,123 -$923,731 -$2,273,193 -$6,658,980 -$8,980,099 -$10,407,620 Reserve Target $764,557 $621,706 $631,321 $654,091 $679,247 $740,665 Agenda Item Number 9 Agenda Item Number 9
City Council Meeting Packet for May 21, 2024
City of Sebastopol / Water and Wastewater Rate Study - DRAFT 25 Figure 4-1: Reserve Balances Under the Status Quo
4.5. Proposed Financial Plan and Revenue Adjustments
The proposed revenue adjustments help ensure adequate revenue to fund operating expenses, capital expenditures, and meet reserve minimums. The Financial Plan modeling assumes the first revenue adjustment occurs on July 1, 2024 and on July 1 in subsequent years. The proposed revenue adjustments will enable the City to meet operating costs and to execute the CIP shown in Table 4-5, and achieve current reserve minimums in FY 2025-26. Table 4-9 shows the proposed revenue adjustments for the rate-setting period. Table 4-9: Proposed Revenue Adjustments
Table 4-10 shows the cash flow detail over the rate-setting period for the water operating fund assuming the revenue adjustments shown above. Line 1 shows the projected rate-revenue under existing rates. Line 2 shows the forecast adjusted revenue from the proposed revenue adjustments. Line 5 shows total water fund revenue including non-operating revenues and interest. Line 8 shows total O&M expenses. Line 9 shows net revenues, or revenues less expenses, which is the result of subtracting Line 8 from Line 5. Line 12 shows the projected debt service payments. Line 13 shows the cash-funded capital. Line 14 shows the annual surplus or deficit, which is Line 9 less Line 12 less Line 13. Line 15 shows the enterprise’s operating balance at the start of the fiscal year. The ending fund balance in Line 16 is the beginning balance (Line 14) plus the annual surplus or deficit (Line 14). Line 17 shows the minimum operating reserve level. -$0.92
-$2.27
-$6.66
-$8.98
-$10.41
-$12.0
-$10.0
-$8.0
-$6.0
-$4.0
-$2.0
$0.0
$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
Fiscal Year
Revenue
Adjustment
FY 2024-25 50.0%
FY 2025-26 16.0%
FY 2026-27 1.5%
FY 2027-28 1.5%
FY 2028-29 1.5%
Agenda Item Number 9 Agenda Item Number 9
City Council Meeting Packet for May 21, 2024
City of Sebastopol / Water and Wastewater Rate Study - DRAFT 26 Table 4-10: Water Operating Cashflow
No. Line Item FY2023-24 FY2024-25 FY2025-26 FY2026-27 FY2027-28 FY2028-29 1 Revenue Under Existing Rates $2,317,972 $2,328,248 $2,336,404 $2,344,600 $2,352,838 $2,361,117 2 Additional Rate-Revenue $0 $1,164,124 $1,728,939 $1,796,198 $1,864,840 $1,934,889 Other Revenue
3 Interest $35,000 $4,516 $15,484 $39,222 $44,521 $38,219 4 Miscellaneous $65,000 $65,254 $65,509 $65,765 $66,023 $66,282 5 Total Revenue $2,417,972 $3,562,141 $4,146,335 $4,245,786 $4,328,221 $4,400,507 O&M Expenses
6 Operating Expenditure $1,356,903 $1,349,844 $1,417,902 $1,518,125 $1,582,653 $1,740,203 7 G&A Allocation $1,363,097 $852,863 $823,801 $882,031 $919,522 $1,011,058 8 Total O&M Expenses $2,720,000 $2,202,707 $2,241,703 $2,400,156 $2,502,175 $2,751,261 9 Net Revenue -$302,028 $1,359,434 $1,904,632 $1,845,630 $1,826,046 $1,649,246 Debt Service
10 Existing $380,704 $318,656 $318,656 $252,547 $252,547 $252,547 11 Proposed $0 $0 $0 $246,964 $246,964 $246,964
12 Total Debt Service $380,704 $318,656 $318,656 $499,510 $499,511 $499,511 13 Cash Funded Capital $530,000 $808,992 $1,191,016 $384,603 $1,985,258 $851,111 14 Annual Surplus/Deficit -$1,212,732 $231,786 $394,960 $961,516 -$658,722 $298,623 15 Beginning Balance $1,225,855 $13,123 $244,909 $639,869 $1,601,385 $942,663 16 Ending Balance $13,123 $244,909 $639,869 $1,601,385 $942,663 $1,241,286 17 Minimum Reserve Level $764,557 $621,706 $631,321 $714,986 $740,142 $801,560 Agenda Item Number 9 Agenda Item Number 9
City Council Meeting Packet for May 21, 2024
City of Sebastopol / Water and Wastewater Rate Study - DRAFT 27 Figure 4-2 through Figure 4-4 display the FY 2024-25 through FY 2028-29 Financial Plan in graphical form. Figure 4-2 illustrates the Operating Financial Plan – it compares existing (blue line) and proposed revenues (black line) with projected expenses (stacked columns). The yellow bars above the axis show the net cash used to build up the reserves and the bars below the axis show the withdrawals from reserves to fund costs. Projected revenue from existing rates, if continued unchanged, would not meet future projected total expenses and illustrates the need for revenue adjustments necessary to maintain operations, accomplish the desired CIP, and to eventually meet reserve minimums. Figure 4-2: Proposed Operating Financial Plan Figure 4-3 summarizes the projected CIP and its funding sources: cash funded (rate-based revenue) and debt financing.
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$3.0
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$6.0
FY 2024-25 FY 2025-26 FY 2026-27 FY 2027-28 FY 2028-29 Millions Water Financial Plan
Expenses Debt Service Net Cash
Rate Funded Capital Current Revenue Proposed Revenue
Agenda Item Number 9 Agenda Item Number 9
City Council Meeting Packet for May 21, 2024
City of Sebastopol / Water and Wastewater Rate Study - DRAFT 28 Figure 4-3: Projected Capital Plan and Funding Sources
Figure 4-4 displays the projected total yearly ending balance (teal bars). The black line is the minimum fund balance, which is 25 percent of annual operating and maintenance and debt service costs. As shown, the fund is projected to return to the minimum balance in FY 2025-26. While the outyears show the balance remaining above the minimum reserves, Raftelis recommends the City consider increasing the minimum reserves as discussed in Section 4.3 once the fund has become self-sufficient by meeting annual operating, debt service, and cash-capital needs as well as the current operating reserve minimum. Figure 4-4: Projected Reserve Balance $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
$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
Agenda Item Number 9 Agenda Item Number 9
City Council Meeting Packet for May 21, 2024
City of Sebastopol / Water and Wastewater Rate Study - DRAFT 29
5. Water Cost-of-Service Analysis
A cost-of-service analysis distributes a utility’s revenue requirement (costs) to each customer class. This section explains the details of the cost-of-service analysis conducted for the City for providing water services to customers.
After determining a utility’s revenue requirement, the next step in a cost-of-service analysis is to functionalize its O&M costs to the following functions: Wells – cost of supplying groundwater Storage – cost associated with storing treated water Treatment – cost of treating water to drinking water standards Transmission and Distribution (T&D) – cost associated with pipes, pumps, mains, etc Meters– costs associated with meter maintenance and replacement Customer Service – costs associated with meter reading, billing, and customer service General and Administration (G&A) – general and administrative costs incurred by the City Fire protection – costs associated with public fire hydrants The functionalization of costs allows us to better allocate the costs to the rate components: monthly service charge and volumetric charge.
5.1. Revenue Requirement Determination
Table 5-1 shows the net revenue requirement from rates for FY 2024, the test year. The total revenue requirement shown in Line 6 is equal to operating expenses (Table 4-4), capital expenses (Table 4-5), and debt service (Table 4-6). Other operating revenues, totaled in Line 9, comprise miscellaneous revenues and interest income (Table 4-3), which reduce the total revenue required from rates. The adjustment for cash (Line 10) is subtracted to account for the withdrawal from reserves to help cover revenue requirements. The revenue required from rates is equal to the total revenue requirements less other operating revenues and adjustments (Line 12).
Agenda Item Number 9 Agenda Item Number 9
City Council Meeting Packet for May 21, 2024
City of Sebastopol / Water and Wastewater Rate Study - DRAFT 30 Table 5-1: Revenue Requirement Determination, FY 2024
5.2. Functionalization of Net Revenue Requirement
Functionalizing expenses allows Raftelis to follow the principles of rate setting theory in which the end goal is to allocate the City’s revenue requirements to cost causation components. Table 5-2 shows the resulting functionalization of the City’s O&M expenses (Line 6, Table 5-1) and O&M offsets (Lines 9 and 11, Table 5-1). Raftelis worked with City staff to functionalize the test year O&M line items to the functions listed at the beginning of Section 5 (see Appendix A). O&M offsets are allocated in the same proportion as the total O&M revenue requirements excluding supply costs. Table 5-2: Functionalization of Net O&M Table 5-3 shows the functionalization of net capital costs (Line 12, Table 5-1). The costs are allocated in proportion to the City’s water assets.
No. Line Item Operating Capital Total
Expenses
1 Operating Expenditure $1,356,903 $1,356,903
2 G&A Allocation $1,363,097 $1,363,097
3 Existing Debt Service $380,704 $380,704
4 Proposed Debt Service $0 $0
5 Rate Funded Capital Projects $530,000 $530,000
6 Subtotal $2,720,000 $910,704 $3,630,704
Less: Offsets
7 Interest Revenue $35,000 $35,000
8 Misc. Revenue $65,000 $65,000
9 Subtotal $65,000 $35,000 $100,000
Less: Adjustments
10 Adjustment for Cash Balance $1,212,732 $1,212,732
11 Subtotal $1,212,732 $0 $1,212,732
12 Net Revenue Requirement from Rates $1,442,268 $875,704 $2,317,972 Function O&M O&M Offsets Net O&M
Wells $506,864 -$238,101 $268,762
Storage $92,779 -$43,583 $49,195
Meters $23,621 -$11,096 $12,525
Customer Service $14,367 -$6,749 $7,618
Public Fire $110,100 -$51,720 $58,380
T&D $351,354 -$165,050 $186,304
Treatment $307,748 -$144,566 $163,182
General & Admin $1,313,168 -$616,867 $696,302
Total $2,720,000 -$1,277,732 $1,442,268
Agenda Item Number 9 Agenda Item Number 9
City Council Meeting Packet for May 21, 2024
City of Sebastopol / Water and Wastewater Rate Study - DRAFT 31 Table 5-3: Functionalization of Net Capital
5.3. Allocation of Functionalized Net Revenue
Requirements to Cost Components
After functionalizing the net revenue requirements, the next step is to allocate the functionalized net revenue requirements to the following cost causation components. Base – fixed costs associated with providing service under average demand conditions Peaking (Max Day and Peak Hour) – costs associated with meeting demand in excess of average use Equivalent Meters – costs associated with meter maintenance and replacement Customer Service – the costs associated with meter reading, billing, and customer service Public Fire – costs associated with system fireflow and public fire hydrants General and Administration (G&A) – general and administrative costs incurred by the City
5.3.1. Proposed Water Rate Structure Modifications
Raftelis worked closely with City staff to evaluate potential changes to the existing water rate structure. All proposed water rates presented in subsequent sections incorporate the following recommended revisions to the existing water rate structure. Single Family Residential Tiers: Raftelis proposes that the City introduce a three-tiered rate structure for customers identified as Residential in the billing database. Tier 1 will be defined as the first 7 units (kgal) of water in a two-month period (i.e., bi-monthly), which represents use up to the lowest average water use per billing period during the winter months. Winter use approximates essential indoor water use—for cooking, drinking, and sanitation, and not outdoor irrigation. Over an entire year, 55 percent of residential billed usage falls between 0 - 7 kgal. Tier 2 will include use greater than Tier 1, up to 16 kgal per billing period, which is based on the highest average water use per billing period during the summer months. This tier is designed to approximate water used for outdoor irrigation by Residential users in the City’s service area. Approximately 25 percent of annual residential usage falls between 8 – 16 kgal. Tier 3 will include all use greater than Tier 2, which is approximately 20 percent residential usage. Single Family Residential is a homogenous customer class, which has similar indoor needs for health and sanitation, similar outdoor irrigation needs, and similar seasonality in these demand patterns. It is therefore appropriate to tier this class of like customers. The three-tier structure will provide lower cost water in the first tier and higher costs in the second and third tiers. This type of structure promotes affordability of service for lower to average use residential customers while including a conservation price signal between the tiers. It also ensures fairness in rates between those Function Asset Capital-Related
Wells $598,483 $150,525
Storage $368,517 $92,686
Meters $0 $0
Customer Service $7,684 $1,933
Public Fire $0 $0
T&D $970,131 $243,998
Treatment $1,320,938 $332,230
General & Admin $216,028 $54,333
Total $3,481,782 $875,704
Agenda Item Number 9 Agenda Item Number 9
City Council Meeting Packet for May 21, 2024
City of Sebastopol / Water and Wastewater Rate Study - DRAFT 32 customers that impose higher peak demands on the water system and those who do not. The proposed monthly allotments for residential customers are shown below in Table 5-4. All Other Classes: Raftelis recommends that all other customer classes be billed a uniform rate by class. Based on the billing data, two distinct classes are identified: Commercial (which also includes Apartments, Non-Profit, and Government as identified in the billing data) and Irrigation. Non- residential classes have highly varying demand patterns based on the type of business or seasonal transient effects. For this reason a uniform rate by class is an industry standard and proposed in this study. Table 5-4: Proposed Changes to the Water Rate Structure Table 5-5 shows estimated water use by class and tier under the proposed structure. All projections are based on detailed account-level analysis of FY 2021-22 actual water use (the most recent complete year of billing data available at the time this study commenced). Raftelis projects that approximately 52 percent of all water use is by Single Family Residential customers, 39 percent by Commercial classified users, and the remaining 9 percent of use by the Irrigation class (dedicated landscape irrigation connections). Table 5-5: Projected Water Use by Class and Tier, Test Year
5.3.2. Peaking Factors
Peaking costs are computed for a maximum day and peak hour using best available data. The maximum day (max day) demand is the maximum amount of water used in a single day in a year. The peak hour demand is the maximum amount of water used in a single hour on the maximum day. Different facilities, such as storage, distribution, and treatment facilities (and the O&M costs associated with those facilities), are designed to meet peak hour and max day demands, respectively. Therefore, extra capacity4 costs include the 4 The terms extra capacity, peaking and capacity costs are used interchangeably.
Description
Current Bi-Monthly
Allotment
Proposed Bi-Monthly
Allotment
Single Family Residential
Tier 1 N/A Uniform 0 - 7 kgal
Tier 2 N/A Uniform 8 - 16 kgal
Tier 3 N/A Uniform > 16 kgal
All Other Classes Single Uniform Rate Uniform by Class
Description Max Bi-Month
(kgal)
Residential
Tier 1: 0 - 7 kgal 76,890
Tier 2: 8 - 16 kgal 35,935
Tier 3: > 16 kgal 28,206
Other Classes
Commercial 106,106
Irrigation 22,057
Total 269,193
Agenda Item Number 9 Agenda Item Number 9
City Council Meeting Packet for May 21, 2024
City of Sebastopol / Water and Wastewater Rate Study - DRAFT 33 O&M and capital costs associated with meeting peak customer demand. This method is consistent with the AWWA Manual M1 and is widely used in the water industry to perform cost-of-service analyses.
Table 5-6 shows the system-wide peaking factors used to derive the cost component allocation bases for base and peaking costs. Base costs represent average daily demand during the year, which is normalized to a factor of 1.00 (Column B, Line 1). The max day and peak hour factors come from the prior rate study. The allocation bases (Columns C, D, and E) are calculated using the equations outlined below the table. Table 5-6: Water System Peaking Factors The max day allocations are calculated as follows: Base Delivery: B1 / B2 x 100% = C2 Max Day: 100% - C2 = D2
The max hour allocations are calculated as follows: Base Delivery: B1 / B3 x 100% = C3 Max Day: (B2 – B1) / B3 x 100% = D3
Max Hour: 100% - C3 – D3 = E3
The max day and max hour peaking factors for each customer class and tier are shown in Table 5-7. The peaking calculations attribute peaking costs to specific customer classes and tiers based on actual water use patterns. Raftelis estimated Max Day (Column C) and Max Hour (Column D) factors based on actual FY 2021-22 water use5. The Max Day factor is the Max Bi-Monthly kgal (Column A) for a tier or class divided by the Average Bi-Monthly kgal (Column B) for that same tier or class. This ratio becomes the proxy for the max day factor. The Max Hour factor is the max day ratio (Column C) multiplied proportionally by the ratio of the system max hour to max day (Table 5-6). 5 As mentioned previously, FY 2021-22 represents the most recent complete fiscal year of data available at the start of the study.
Cost Component Demand Factor Base Max Day Max Hour Total No. (A) (B) (C) (D) (E) (F)
1 Base 1.00 100% 100%
2 Max Day 1.21 83% 17% 100%
3 Max Hour 2.79 36% 8% 57% 100%
Agenda Item Number 9 Agenda Item Number 9
City Council Meeting Packet for May 21, 2024
City of Sebastopol / Water and Wastewater Rate Study - DRAFT 34 Table 5-7: Max Day and Max Hour Capacity Factors by Class
5.3.3. Operating and Capital Allocation
Table 5-8 shows the system functions, the rationale for allocating each function to the various cost components, and the percentage allocation to each component. Most functions have a one-to-one relationship with a cost component. All others are allocated based on either the max day or max hour basis. Table 5-8: Allocation of Functions to Cost Components Table 5-9 shows the detailed net operating costs by cost component (Table 5-2) allocated to the cost components using the allocations shown in Table 5-8. General and administrative (G&A) costs are re- allocated like total O&M. Adding the subtotal (Line 9) and reallocating G&A (Line 11) results in the Adjusted Net O&M.
Customer Max Bi-Month Average Bi-Month Max Day Max Hour Class (kgal) (kgal)
(A) (B) (C) (D)
Single Family
Tier 1: 0 - 7 kgal 7,211 6,321 1.14 2.63
Tier 2: 8 - 16 kgal 5,144 3,114 1.65 3.81
Tier 3: > 16 kgal 5,637 2,200 2.56 5.91
Commercial (1) 11,706 8,811 1.33 3.07
Irrigation 5,429 1,838 2.95 6.80
(1) Includes Apartment, Commercial, Government, and Non-Profit as identified in the billing database.
Function Allocation Basis Base Max Day Max Hour Meter Customer Public Fire
Protection
General &
Admin Total
Wells Max Day 83% 17% 100%
Storage Max Day 83% 17% 100%
Meters Meters 100% 100%
Customer Service Customer Service 100% 100%
Public Fire Public Fire 100% 100%
T&D Max Hour 36% 8% 57% 100%
Treatment Max Day 83% 17% 0% 100%
General & Admin General & Admin 100% 100%
Agenda Item Number 9 Agenda Item Number 9
City Council Meeting Packet for May 21, 2024
City of Sebastopol / Water and Wastewater Rate Study - DRAFT 35 Table 5-9: Allocation of Net Operation & Maintenance to Cost Components Table 5-10 shows the allocation of capital-related revenue requirement (Table 5-2, Capital-Related column) to the capital cost component.
Table 5-10: Allocation of Capital-Related Expenses to Cost Components
5.4. Derivation of Units of Service
5.4.1. Equivalent Meters
Equivalent meters (EMs) are used to allocate meter-related costs. Larger meters can impose greater demands on the system and are more expensive to install, maintain, and replace than smaller meters. This study uses a hydraulic capacity (capacity) ratio to calculate equivalent meters. The capacity ratio is based on meter hydraulic capacity and is calculated to represent the potential demand on the water system compared to the base meter size. A ratio of hydraulic capacity is calculated by dividing the capacity of a meter at a given size by the base meter capacity using the maximum safe operating flow rates in gallons per minute (gpm). The base meter used in the study is the 3/4" meter.
Table 5-11 shows the meter capacity and capacity ratio for each meter size. The capacity in gpm is based on the safe operating flow rates provided in the AWWA Manual M1. The capacity ratios (Column C) are No. Function Net O&M Base Max Day Max Hour Meter Customer Public Fire
Protection
General &
Admin
1 Wells $268,762 $222,118 $46,645 $0 $0 $0 $0 $0
2 Storage $49,195 $40,657 $8,538 $0 $0 $0 $0 $0
3 Meters $12,525 $0 $0 $0 $12,525 $0 $0 $0
4 Customer Service $7,618 $0 $0 $0 $0 $7,618 $0 $0
5 Public Fire $58,380 $0 $0 $0 $0 $0 $58,380 $0
6 T&D $186,304 $66,776 $14,023 $105,505 $0 $0 $0 $0
7 Treatment $163,182 $134,861 $28,321 $0 $0 $0 $0 $0
8 G&A $696,302 $0 $0 $0 $0 $0 $0 $696,302
9 Net O&M $1,442,268 $464,412 $97,526 $105,505 $12,525 $7,618 $58,380 $696,302 10 % Allocation w/o G&A 62% 13% 14% 2% 1% 8%
11 Reallocate G&A $433,493 $91,033 $98,481 $11,691 $7,111 $54,493 -$696,302 12 Adjusted Net O&M $897,904 $188,560 $203,987 $24,216 $14,729 $112,873 $0 No. Function
Net CapitalRelated Base Max Day Max Hour Meter CustomerPublic Fire Protection
General &
Admin
1 Wells $150,525 $124,401 $26,124 $0 $0 $0 $0 $0
2 Storage $92,686 $76,600 $16,086 $0 $0 $0 $0 $0
3 Meters $0 $0 $0 $0 $0 $0 $0 $0
4 Customer Service $1,933 $0 $0 $0 $0 $1,933 $0 $0
5 Public Fire $0 $0 $0 $0 $0 $0 $0 $0
6 T&D $243,998 $87,454 $18,365 $138,178 $0 $0 $0 $0
7 Treatment $332,230 $274,570 $57,660 $0 $0 $0 $0 $0
8 G&A $54,333 $0 $0 $0 $0 $0 $0 $54,333
9 Net Capital $875,704 $563,025 $118,235 $138,178 $0 $1,933 $0 $54,333 10 % Allocation w/o G&A 69% 14% 17% 0% 0% 0%
11 Reallocate G&A $37,244 $7,821 $9,140 $0 $128 $0 -$54,333 12 Adjusted Net Capital-Related $600,269 $126,056 $147,318 $0 $2,060 $0 $0 Agenda Item Number 9 Agenda Item Number 9
City Council Meeting Packet for May 21, 2024
City of Sebastopol / Water and Wastewater Rate Study - DRAFT 36 calculated by dividing the capacity in gpm (Column B) for each meter size (Column A) by the capacity in gpm for the 3/4" meter (Column B, Line 2). Meter counts (Column D) at each size are multiplied by the capacity ratio (Column C) to arrive at the total number of equivalent meters, shown in Column E. For example, there are 58, 2” meters in the water system; and those 58, 2” meters are equivalent to the system demands of 310, 3/4” meters.
Table 5-11: Equivalent Meters
5.4.2. Unit Costs of Service
Raftelis calculated unit costs for each cost component by assessing the total water demand, peak water demands (max day and peak hour), meter count, or equivalent meters. Table 5-12 shows the units of service for the water system. The Max Day Capacity Factor (Column C) and the Peak Hour Capacity Factor (Column F) are the demand factors shown in Table 5-7, Column B. Max Day Total Capacity (Column D) is the Average Day Use (Column B) multiplied by the Max Day Capacity Factor (Column C). Max Day Extra Capacity (Column E) is the difference between the Max Day Total Capacity (Column D) and the Average Day (Column B). Peak Hour Total Capacity (Column G) is the Average Day (Column B) multiplied by the Peak Hour Capacity Factor (Column F). Peak Hour Extra Capacity (Column H) is the difference between the Peak Hour Total Capacity (Column G) and the Max Day Total Capacity (Column D).
Table 5-12: Units of Service
Table 5-13 shows the total adjusted cost of service and resulting unit costs of service. The total shown in Line 3 and again in Line 6 match the total from the net revenue requirements, Table 5-1. Line 5 shows public fire allocated to meters since public fire is a fixed cost of the system. Part of the peaking costs and base costs are reallocated to meters as these costs are largely fixed and related to the capacity of the water system. Larger No.
Meter Size
(inches)
AWWA Operating
Capacity Ratio
Total
Meters
Total Equivalent
Meters
(A) (B) (C) (D) (E)
1 5/8"x3/4" 30 1.00 2,570 2,570
2 3/4" 30 1.00 54 54
3 1" 50 1.67 208 347
4 1.5" 100 3.33 82 274
5 2" 160 5.33 58 310
6 3" 350 11.67 10 117
7 4" 630 21.00 3 63
8 Total 2,985 3,735
No. Customer Class
Tier
Width
(kgal)
Annual
Use (kgal)
Average
Day (kgal)
Capacity
Factor
Total
Capacity
Extra
Capacity
Capacity
Factor
Total
Capacity
Extra
Capacity
Equivalent
Meters
Number of
Meters
(A) (B) (C) (D) (E) (F) (G) (H) (I) (J)
1 Residential 2,350 2,303
2 Tier 1 7.0 76,890 211 1.14 240 30 2.63 554 314
3 Tier 2 9.0 35,935 98 1.65 163 64 3.81 375 212
4 Tier 3 >16 28,206 77 2.56 198 121 5.91 457 259
5 Commercial(1) 106,106 291 1.33 387 96 3.07 891 505 1,141 666 6 Irrigation 22,057 60 2.95 178 118 6.80 411 233 244 16 7 Total 269,193 738 1,166 428 2,688 1,522 3,735 2,985
(1) Includes Apartment, Commercial, Government, and Non-Profit as identified in the billing database.
Max Day Requirements Peak Hour Requirements
Agenda Item Number 9 Agenda Item Number 9
City Council Meeting Packet for May 21, 2024
City of Sebastopol / Water and Wastewater Rate Study - DRAFT 37 meters have greater potential to peak on the water system and have higher daily demands, on average.
Reallocating these shares of base and peak components to the meter component ensures a higher degree of revenue stability, allowing the percentage of rate-based revenue from fixed charges to be maintained at historic levels. The portion of the base, max day, and max hour costs allocated to the meter component are shown in Line 6. Line 7 shows the adjusted cost of service. Line 11 is the adjusted cost of service (Line 7) for each component divided by that component’s units of service (Line 9).
Table 5-13: Total Adjusted Cost-of-Service and Units of Service No. Line Item Base Max Day Max Hour Meter Customer
Public Fire
Protection
General &
Admin Total
1 Net Operating Expenses $897,904 $188,560 $203,987 $24,216 $14,729 $112,873 $0 $1,442,268 2 Net Capital Expenses $600,269 $126,056 $147,318 $0 $2,060 $0 $0 $875,704 3 Subtotal Cost of Service $1,498,173 $314,616 $351,305 $24,216 $16,790 $112,873 $0 $2,317,972 4 Allocation of Public Fire to Meter $112,873 -$112,873 5 Allocate Peak and Base Cost to Meter Capacity -$749,087 -$94,385 -$105,392 $948,863 6 Total Cost of Service $749,087 $220,231 $245,914 $1,085,951 $16,790 $0 $0 $2,317,972 7 Units 269,193 428 1,522 3,735 2,985
kgal kgal/day kgal/day Eq. Mtr. / yr No. Mtrs/yr
8 Unit Cost $2.78 $514.20 $161.54 $290.75 $5.62
Agenda Item Number 9 Agenda Item Number 9
City Council Meeting Packet for May 21, 2024
City of Sebastopol / Water and Wastewater Rate Study - DRAFT 38
6. Proposed Water Rates and
Charges
The City’s water service fees are comprised of two parts: (1) a bi-monthly service charge and (2) a volumetric charge. The bi-monthly service charge is a fixed charge based on the size of the meter serving a property. The bi-monthly service charge has been calculated to recover the City’s fixed costs, such as the costs of billing and collection, customer service, meter reading, meter maintenance, and a share of capacity-related costs. The volumetric charge has been calculated to recover the balance of remaining costs.
6.1. Proposed Bi-Monthly Service Charge
From the calculations in Table 5-13, the proposed fixed bi-monthly service charges are determined for each meter size. Table 6-1 shows the derivation of the bi-monthly service charge. The Billing Charge component (Column B) is equal to the unit rate in Line 8, Customer column of Table 5-13 divided by 6 billing periods per year. As the cost of issuing a bill does not vary by meter size, it remains constant for all meter sizes. The Meter Charge component (Column C) is the Meters unit rate shown in Line 8, Table 5-13, divided by 6 because there are six bi-monthly billing periods in a year. For meters larger than 3/4", this unit rate is multiplied by the meter ratio (Table 5-11, Column C) to derive the meter capacity cost associated with those larger meter sizes. The total test year bi-monthly service charge (Column D) is the sum of Columns B and C.
Table 6-1: Bi-Monthly Service Charge Derivation, Test Year The test year bi-monthly charges are then multiplied by the revenue adjustments shown in Table 4-9 to derive the proposed charges for the five-year rate setting period. The current, test year, and proposed fixed charges are shown in Table 6-2. The charges for FY 2024-25 are the test year charges multiplied by the revenue adjustment. The subsequent years are the prior year charges multiplied by the applicable revenue adjustment.
All rates are rounded up to the nearest whole penny.
No.
Meter
Size
Billing
Charge
Meter
Charge
Total BiMonthly
(A) (B) (C) (D)
1 5/8"x3/4" $0.94 $48.46 $49.40
2 3/4" $0.94 $48.46 $49.40
3 1" $0.94 $80.76 $81.71
4 1.5" $0.94 $161.53 $162.47
5 2" $0.94 $258.45 $259.39
6 3" $0.94 $565.35 $566.29
7 4" $0.94 $1,017.63 $1,018.58
Agenda Item Number 9 Agenda Item Number 9
City Council Meeting Packet for May 21, 2024
City of Sebastopol / Water and Wastewater Rate Study - DRAFT 39 Table 6-2: Proposed Bi-Monthly Fixed Water Service Charge
6.2. Volumetric Rates
The volumetric rate is comprised of two components: base costs and peaking costs. Base costs are applied uniformly to all customer classes as the rates cover the cost of providing water during average conditions. The base unit costs are shown in Table 5-13, Line 8, Base column.
Peaking unit rates vary by customer class and tier based on peak water use characteristics. They capture the differences in max day and max hour demands the different classes and tiers place on the system, which incur different costs. The individual class/tier peaking rates are developed by taking the total unit cost for Max Day and Max Hour by customer class and tier (Line 8, Table 5-13) and multiplying it by the extra capacity units for each class/tier shown in Table 5-12. That total amount is shown in Table 6-3, Column B. That allocated cost is divided by the annual use (Column C) to obtain the peaking unit cost for each customer class/tier. Table 6-4 shows the derivation of the volumetric charge for each customer class/tier. The total is the sum of the peaking and base components.
Table 6-3: Volumetric Rate Calculation
Meter Size Current Test Year 7/1/2024 7/1/2025 7/1/2026 7/1/2027 7/1/2028 Revenue Adjustment 50.0% 16.0% 1.5% 1.5% 1.5%
5/8"x3/4" & 3/4" $49.33 $49.40 $74.10 $85.96 $87.25 $88.56 $89.89 1" $82.41 $81.71 $122.57 $142.19 $144.33 $146.50 $148.70
1.5" $164.13 $162.47 $243.71 $282.71 $286.96 $291.27 $295.64 2" $262.77 $259.39 $389.09 $451.35 $458.13 $465.01 $471.99 3" $575.37 $566.29 $849.44 $985.36 $1,000.15 $1,015.16 $1,030.39 4" $821.78 $1,018.58 $1,527.87 $1,772.33 $1,798.92 $1,825.91 $1,853.30 Note: Single family on a 1" meter for fire service are charged the 3/4" rate.
No. Class
Peaking
Cost
Annual Use
(kgal)
Peak Unit
Cost
(A) (B) (C) (D)
1 Residential
2 Tier 1: 0 - 7 kgal $65,926 76,890 $0.86
3 Tier 2: 8 - 16 kgal $67,299 35,935 $1.87
4 Tier 3: > 16 kgal $103,841 28,206 $3.68
5 Commercial $130,883 106,106 $1.23
6 Irrigation $98,196 22,057 $4.45
Total $466,145 269,193
Agenda Item Number 9 Agenda Item Number 9
City Council Meeting Packet for May 21, 2024
City of Sebastopol / Water and Wastewater Rate Study - DRAFT 40 Table 6-4: Test Year Volumetric Rate Derivation
The test year volumetric charges are then multiplied by the revenue adjustments shown in Table 4-9 to derive the proposed volumetric charges for the five-year rate setting period. The proposed volumetric charges are shown in Table 6-5. All rates are rounded up to the nearest whole penny.
Table 6-5: Proposed 5-Year Water Volumetric Rate Schedule Customer Class
Water
Use
Peaking
Component Base
Total
Volumetric
Rate
Residential
Tier 1: 0 - 7 kgal 76,890 $0.86 $2.78 $3.65
Tier 2: 8 - 16 kgal 35,935 $1.87 $2.78 $4.66
Tier 3: > 16 kgal 28,206 $3.68 $2.78 $6.47
Commercial 106,106 $1.23 $2.78 $4.02
Irrigation 22,057 $4.45 $2.78 $7.24
Customer Class Current Test Year 7/1/2024 7/1/2025 7/1/2026 7/1/2027 7/1/2028 Revenue Adjustment 50.0% 16.0% 1.5% 1.5% 1.5%
Residential
Tier 1: 0 - 7 kgal $4.52 $3.65 $5.48 $6.36 $6.46 $6.56 $6.66 Tier 2: 8 - 16 kgal $4.52 $4.66 $6.99 $8.11 $8.24 $8.37 $8.50 Tier 3: > 16 kgal $4.52 $6.47 $9.71 $11.27 $11.44 $11.62 $11.80 Commercial $4.52 $4.02 $6.03 $7.00 $7.11 $7.22 $7.33
Irrigation $4.52 $7.24 $10.86 $12.60 $12.79 $12.99 $13.19 Agenda Item Number 9 Agenda Item Number 9
City Council Meeting Packet for May 21, 2024
City of Sebastopol / Water and Wastewater Rate Study - DRAFT 41
7. Wastewater Financial Plan
This section describes the assumptions used in projecting wastewater enterprise operating and capital expenses as well as reserve coverage requirements for the ten-year study period (FY 2024-25 – FY 2033-34) plus the current fiscal year. These assumptions determine the overall revenue adjustments and the total amount of revenue required from rates. The revenue covers operating and maintenance (O&M) and capital expenses, as well as reserve funding. Revenue adjustments represent the average rate increase for the City as a whole; rate changes for individual customers will depend on the cost-of-service analysis described in the following chapter. Financial plan assumptions were provided by and discussed in detail with City staff. The assumptions shown in Table 3-7 were incorporated into the financial plan. To develop the financial plan, Raftelis projected annual expenses and revenues and modeled cash reserve balances. The City is not anticipating financing any wastewater capital improvements. While the wastewater operating fund pays its share of general fund debt for shared facilities, the wastewater fund does not have to meet debt coverage ratios associated with this general fund debt. This section of the report provides a discussion of projected revenue, O&M expenses, the CIP, and reserve funding under existing rates and the revenue adjustments needed to return the fund to fiscal sustainability.
7.1. Current Rate Revenue
The City’s revenues consist of rate revenues, interest earnings on cash reserves, and other miscellaneous revenues. The rate revenue projections shown below assume that current FY 2023-24 (Table 3-2) rates are effective throughout the study period; and, therefore, represent estimated revenues in the absence of any revenue adjustments. This status quo scenario provides a baseline from which Raftelis evaluates the need for revenue adjustments.
7.1.1. Calculated Wastewater Rate Revenues
Raftelis projected wastewater rate revenues from fixed bi-monthly charges and volumetric charges for FY 2023-24 through FY 2033-34 based on current wastewater rates, the projected number of meters, projected average winter water use (residential), and projected annual metered water (non-residential). The City collects fixed bi-monthly charges from its customers based on the number and size of meters. Table 7-1 shows projected fixed charge revenues under current rates over the study period. Fixed charge revenues are calculated as shown below. Annual Fixed Charge Revenue for 5/8”x3/4” meter = [FY 2023-24 fixed bi-monthly rate 5/8”x3/4” meter] × [Number of 5/8”x3/4” connections] × [6 Bills per year]
Agenda Item Number 9 Agenda Item Number 9
City Council Meeting Packet for May 21, 2024
City of Sebastopol / Water and Wastewater Rate Study - DRAFT 42 Table 7-1: Projected Fixed Charge Revenues Under Current Wastewater Rates Table 7-2 shows projected Volume charge revenues under current rates over the study period. Volume charge revenues are calculated for each year as follows based on current wastewater rates (Table 3-2) and projected water use (Table 3-5).
Residential Annual Volume Charge Revenue = [ FY 2023-24 rate per unit] × [Winter Average Water Use] × 6 Non-Residential Annual Volume Charge Revenue = [ FY 2023-24 rate per unit] × [Annual Water Use] Table 7-2: Projected Volume Charge Revenue Under Current Wastewater Rates
7.1.2. Other Revenues
Table 7-3 shows all other revenues over the rate-setting period. All FY 2023-24 other revenues are based on the City’s FY 2023-24 budget. Additional revenues from FY 2024-25 through FY 2033-34 were projected by Raftelis. Penalties are forecast to increase similarly to the overall increase in the number of meters. Insurance claims increase based on general inflation. Interest revenue is estimated beginning in FY 2024-25 based on estimated beginning fund balances, revenues and expenses, and the assumed interest rate. Since the fund is in a deficit under the status quo, no interest revenue is earned.
Table 7-3: Projected Other Wastewater Enterprise Revenues, Status Quo
7.2. Operations and Maintenance Expenses - Wastewater
The City’s expenses include operations and maintenance expenses, capital expenses, and debt service payments. This section discusses the details of each of these expenses.
Meter Size FY2023-24 FY2024-25 FY2025-26 FY2026-27 FY2027-28 FY2028-29 5/8"x3/4" $1,157,420 $1,163,207 $1,169,023 $1,174,869 $1,180,743 $1,186,647 3/4" $11,142 $11,198 $11,254 $11,310 $11,367 $11,424
1" $77,552 $77,939 $78,329 $78,721 $79,114 $79,510
1.5" $79,516 $79,516 $79,516 $79,516 $79,516 $79,516
2" $107,720 $107,720 $107,720 $107,720 $107,720 $107,720 3" $42,885 $42,885 $42,885 $42,885 $42,885 $42,885
4" $22,969 $22,969 $22,969 $22,969 $22,969 $22,969
Total $1,499,205 $1,505,436 $1,511,697 $1,517,990 $1,524,315 $1,530,671 Customer Class FY2023-24 FY2024-25 FY2025-26 FY2026-27 FY2027-28 FY2028-29 Residential $720,366 $723,968 $727,588 $731,225 $734,882 $738,556 Non-Residential $868,945 $868,945 $868,945 $868,945 $868,945 $868,945 Total $1,589,311 $1,592,913 $1,596,533 $1,600,171 $1,603,827 $1,607,501 Line Item FY2023-24 FY2024-25 FY2025-26 FY2026-27 FY2027-28 FY2028-29 Interest Income $7,400 $0 $0 $0 $0 $0
Penalties $2,500 $2,512 $2,524 $2,536 $2,548 $2,561
Insurance Claims $8,600 $8,729 $8,860 $8,993 $9,128 $9,265 Miscellaneous Income $1,000 $1,000 $1,000 $1,000 $1,000 $1,000 Total $19,500 $12,241 $12,384 $12,529 $12,676 $12,825
Agenda Item Number 9 Agenda Item Number 9
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City of Sebastopol / Water and Wastewater Rate Study - DRAFT 43
7.2.1. Total Operations and Maintenance Budget
The City provided Raftelis with its wastewater enterprise budget for FY 2023-24. The City also provided the general and administration costs for FY 2024-25 based on a revised capital allocation plan. To project the City’s O&M expenses in future years, Raftelis used the escalation percentages shown in Table 3-7 to project future expenses. A summary of the budgeted and projected O&M during the rate-setting period is shown in Table 7-4. Approximately 62 percent of general and administrative costs are for finance, engineering, and public works.
Table 7-4: Summary of Projected Wastewater Operations and Maintenance Expenses
7.2.2. Capital Improvement Plan
Table 7-5 shows the City’s plan for water capital improvements over the rate-setting period. The CIP is inflated by 6 percent per year to reflect projected inflationary increases from an uninflated base of FY 2022-23 except for the current year, which is in FY 2023-24 dollars.
Table 7-5: Projected Wastewater Capital Improvement Projects
7.2.3. Existing and Proposed Debt Service
The wastewater fund pays a portion of general fund debt related to shared facilities, as shown in Table 7-6. According to City staff, the wastewater fund does not have any debt service requirements for these loans. The City plans to use cash to fund capital projects over the study period. Therefore, no proposed debt service is modeled.
Line Item FY2023-24 FY2024-25 FY2025-26 FY2026-27 FY2027-28 FY2028-29 Salaries & Benefits $454,982 $519,529 $541,155 $601,051 $622,944 $647,713 Materials, Supplies & Equipment $126,129 $129,913 $133,810 $137,824 $141,959 $146,218 Subregional Contract Services $1,821,822 $2,280,000 $2,416,800 $2,561,808 $2,715,516 $2,878,447 Utilities $64,137 $70,543 $77,606 $83,162 $89,123 $93,803 Capital Outlay $43,380 $44,681 $46,022 $47,403 $48,825 $50,289 Other $245,144 $121,696 $125,347 $129,107 $132,980 $136,970 G&A Allocation $1,113,046 $908,935 $1,045,651 $1,114,391 $1,174,171 $1,237,427 Total $3,868,640 $4,075,296 $4,386,390 $4,674,746 $4,925,518 $5,190,867 Project FY2023-24 FY2024-25 FY2025-26 FY2026-27 FY2027-28 FY2028-29 Zimpher Creek Sewer Relocation Part 1 - Cover Lane Rerouting $0 $32,000 $1,000 $222,000 $0 $0 Zimpher Creek Sewer Relocation Part 2 - West End $0 $0 $0 $115,200 $1,000 $604,500 Zimpher Creek Sewer Relocation Part 3 - Repairs at East End $0 $0 $0 $0 $31,000 $31,000 Parquet Street Sewer Line Replacement $530,000 $0 $0 $0 $0 $0 Ives Park Project Path Project (Sewer access road) $12,000 $0 $0 $0 $0 $0 Sewer System Master Plan Update $0 $0 $132,000 $0 $0 $0 Replacement Program Set-aside $0 $0 $0 $300,000 $300,000 $300,000 Total Uninflated $542,000 $32,000 $133,000 $637,200 $332,000 $935,500 Total Inflated $542,000 $35,955 $158,405 $804,450 $444,291 $1,327,025 Agenda Item Number 9 Agenda Item Number 9
City Council Meeting Packet for May 21, 2024
City of Sebastopol / Water and Wastewater Rate Study - DRAFT 44 Table 7-6: Existing Debt Service
7.3. Reserve Targets
The City maintains a wastewater operating reserve fund.
Operating Reserve – The Operating Reserve is used primarily to meet ongoing cash flow requirements. The City’s minimum reserve target is set at 25 percent (three months) of water operating and maintenance expenses plus annual debt service.
Capital Reserve – The City does not have a capital reserve.
Recommended Operating Reserve – Given the City bills bi-monthly, Raftelis recommends the City eventually move to a 120-day operating reserve once the fund has become self-sufficient by meeting annual operating, debt service, and cash-capital needs as well as the current operating reserve target. We recommend that the City evaluate this policy in the intervening years or as part of the next rate cycle.
Recommended Capital Reserve -- A common reserve target is 100 percent – 150 percent of the annual average 5- year capital improvement program. The City may also want to consider an emergency reserve fund as well.
Given the wastewater fund’s tenuous position, Raftelis recommends implementing a capital reserve and possibly an emergency reserve target once the fund has become self-sufficient by meeting annual operating, debt service, and cash-capital needs, as well as the current operating reserve target. We recommend that the City evaluate this policy in the intervening years or as part of the next rate cycle once a Wastewater System Master Plan is completed. 7.4. Status Quo Wastewater Financial Plan To demonstrate the importance of increasing revenue to keep up with costs, Raftelis modeled a ‘status quo’ version of the financial plan. This financial plan scenario examines reserve balances, costs, and revenues. It also assumes that there are no rate-related revenue increases during the study period to establish a baseline for other model scenarios. Table 7-7 shows a summary cashflow for the wastewater enterprise over the rate- setting period. Total revenues are less than annual operating and maintenance (O&M) expenses each year and net revenues become increasingly negative. This negative cash flow is before debt service and cash funded capital. The wastewater fund balance becomes negative in the current fiscal year and is projected to become increasingly negative absence revenue increases.
Debt FY2023-24 FY2024-25 FY2025-26 FY2026-27 FY2027-28 FY2028-29 Infrastructure Lease* $58,768 $58,769 $58,768 $0 $0 $0
TELPA* $119,888 $119,888 $119,888 $119,888 $119,888 $119,888 Total $178,656 $178,657 $178,656 $119,888 $119,888 $119,888 * Wastewater Portion
Agenda Item Number 9 Agenda Item Number 9
City Council Meeting Packet for May 21, 2024
City of Sebastopol / Water and Wastewater Rate Study - DRAFT 45 Table 7-7: Wastewater Cashflow, Status Quo
Figure 7-1, shows the projected ending balance versus the minimum balance. This status quo model shows the need for rate revenue increases since negative balances start in FY 2023-24.
Figure 7-1: Wastewater Reserve Balances Under the Status Quo Line Item FY2023-24 FY2024-25 FY2025-26 FY2026-27 FY2027-28 FY2028-29 Beginning Balance $392,668 -$1,088,612 -$3,012,877 -$5,230,517 -$8,386,708 -$12,402,347 Revenues
Rate-Based $3,088,516 $3,098,349 $3,108,230 $3,118,161 $3,128,142 $3,138,172 Other $19,500 $12,241 $12,384 $12,529 $12,676 $12,825
Total Revenue $3,108,016 $3,110,590 $3,120,614 $3,130,690 $3,140,818 $3,150,998 O&M $3,868,640 $4,075,296 $4,386,390 $4,674,746 $4,925,518 $5,190,867 Net Revenues -$760,624 -$964,707 -$1,265,776 -$1,544,055 -$1,784,700 -$2,039,869 Capital-Related
Debt Service $178,656 $178,657 $178,656 $119,888 $119,888 $119,888 Cash Capital $542,000 $780,902 $773,208 $1,492,248 $2,111,051 $709,260 Total Capital-Related $720,656 $959,559 $951,864 $1,612,136 $2,230,939 $829,147 Annual Surplus/Deficit -$1,481,280 -$1,924,265 -$2,217,640 -$3,156,191 -$4,015,639 -$2,869,017 Ending Balance -$1,088,612 -$3,012,877 -$5,230,517 -$8,386,708 -$12,402,347 -$15,271,364 Reserve Target $997,963 $1,048,920 $1,125,628 $1,182,238 $1,244,073 $1,309,501 -$3.01
-$5.23
-$8.39
-$12.40
-$15.27
-$18.0
-$16.0
-$14.0
-$12.0
-$10.0
-$8.0
-$6.0
-$4.0
-$2.0
$0.0
$2.0
$4.0
FY 2024-25 FY 2025-26 FY 2026-27 FY 2027-28 FY 2028-29 Millions Reserve Balance
Ending Balance Minimum Balance Alert Balance
Agenda Item Number 9 Agenda Item Number 9
City Council Meeting Packet for May 21, 2024
City of Sebastopol / Water and Wastewater Rate Study - DRAFT 46
7.5. Proposed Financial Plan and Revenue Adjustments
Given the projected deficit shown in Table 7-7, and per the direction of City staff, Raftelis has modeled a transfer from the General Fund into the wastewater fund to bring the projected ending balance for FY 2023- 24 to $0. From this starting point, Raftelis has projected proposed revenue adjustments. The proposed revenue adjustments help ensure adequate revenue to fund operating expenses, capital expenditures, meet reserve minimums, and repay the General Fund. The Financial Plan modeling assumes the first revenue adjustment occurs on July 1, 2024 and the subsequent adjustments start on July 1. The proposed revenue adjustments would enable the City to meet operating costs, capital improvement projects, general fund repayment, and eventually meet reserve minimums. Table 7-8 shows the proposed wastewater revenue adjustments for the rate-setting period.
Table 7-8: Proposed Revenue Adjustments
Table 7-9, on the following page, shows the cash flow detail over the rate-setting period for the wastewater operating fund assuming the revenue adjustments shown above and a General Fund transfer of approximately $1.1 million. Line 1 shows the projected rate-revenue under existing rates. Line 2 shows the forecast adjusted revenue from the proposed revenue adjustments. Line 3 shows the projected general fund transfer. Line 6 shows total wastewater fund revenue including non-operating revenues and interest. Line 9 shows total O&M expenses. Line 10 shows net revenues, or revenues less expenses, which is the result of subtracting Line 9 from Line 6. Line 13 shows the projected debt service payments. Line 14 shows the cash-funded capital.
Line 15 shows the projected repayments to the general fund presuming a 3-year grace period, no interest, and a 5-year payback. Line 16 shows the annual surplus or deficit, which is Line 10 less Line 13 less Line 14 less Line 15. Line 17 shows the enterprise’s operating balance at the start of the fiscal year. The ending fund balance in Line 18 is the beginning balance (Line 17) plus the annual surplus or deficit (Line 16). Line 19 shows the minimum operating reserve level.
Fiscal Year
Revenue
Adjustment
FY 2024-25 50.0%
FY 2025-26 11.0%
FY 2026-27 9.0%
FY 2027-28 9.0%
FY 2028-29 9.0%
Agenda Item Number 9 Agenda Item Number 9
City Council Meeting Packet for May 21, 2024
City of Sebastopol / Water and Wastewater Rate Study - DRAFT 47 Table 7-9: Wastewater Operating Cashflow
Figure 7-2 through Figure 7-4 display the FY 2024-25 through FY 2028-29 Financial Plan in graphical form.
Figure 7-2 illustrates the Wastewater Operating Financial Plan – it compares existing (blue line) and proposed revenues (black line) with projected expenses (stacked columns). The yellow bars above the axis show the net cash used to build up the reserves and the bars below the axis show the withdrawals from reserves to fund costs. Projected revenue from existing rates, if continued unchanged, would not meet future projected total expenses and illustrates the need for revenue adjustments necessary to maintain operations, accomplish the desired CIP, and to meet reserve minimums.
No. Line Item FY2023-24 FY2024-25 FY2025-26 FY2026-27 FY2027-28 FY2028-29 1 Revenue Under Existing Rates $3,088,516 $3,098,349 $3,108,230 $3,118,161 $3,128,142 $3,138,172 2 Additional Rate-Revenue $0 $1,549,174 $2,066,973 $2,540,834 $3,059,906 $3,628,428 Other Revenue
3 General Fund Transfer $1,088,808 $0 $0 $0 $0 $0
4 Interest $7,400 $6,595 $21,684 $32,014 $43,231 $52,201 5 Miscellaneous $12,100 $12,241 $12,384 $12,529 $12,676 $12,825 6 Total Revenue $4,196,824 $4,666,359 $5,209,272 $5,703,538 $6,243,955 $6,831,627 O&M Expenses
7 Operating Expenditure $2,755,594 $3,166,361 $3,340,739 $3,560,355 $3,751,347 $3,953,440 8 G&A Allocation $1,113,046 $908,935 $1,045,651 $1,114,391 $1,174,171 $1,237,427 9 Total O&M Expenses $3,868,640 $4,075,296 $4,386,390 $4,674,746 $4,925,518 $5,190,867 10 Net Revenue $328,184 $591,062 $822,882 $1,028,792 $1,318,437 $1,640,760 Debt Service
11 Existing $178,656 $178,657 $178,656 $119,888 $119,888 $119,888 12 Proposed $0 $0 $0 $0 $0 $0
13 Total Debt Service $178,656 $178,657 $178,656 $119,888 $119,888 $119,888 14 Cash Funded Capital $542,000 $35,955 $158,405 $804,450 $444,291 $1,327,025 15 General Fund Repayment $0 $0 $0 $0 $217,762 $217,762 16 Annual Surplus/Deficit -$392,472 $376,451 $485,820 $104,454 $536,497 -$23,914 17 Beginning Balance $392,668 $196 $376,647 $862,467 $966,921 $1,503,418 18 Ending Balance $196 $376,647 $862,467 $966,921 $1,503,418 $1,479,503 19 Minimum Reserve Level $997,963 $1,048,920 $1,125,628 $1,182,238 $1,297,767 $1,363,196 Agenda Item Number 9 Agenda Item Number 9
City Council Meeting Packet for May 21, 2024
City of Sebastopol / Water and Wastewater Rate Study - DRAFT 48 Figure 7-2: Proposed Wastewater Operating Financial Plan Figure 7-3 summarizes the projected CIP, which is projected to be funded with cash.
Figure 7-3: Projected Wastewater Capital Plan and Funding Sources Figure 7-4 displays the projected total wastewater reserve yearly ending balance (teal bars). The black line is the minimum fund balance, which is 25 percent of annual operating and maintenance and debt service costs.
As shown, the fund is projected to return to the minimum balance in FY 2027-28. Raftelis recommends the City increase the minimum reserves as discussed in Section 7.3 once the fund has become self-sufficient by meeting annual operating, debt service, and cash-capital needs as well as the current operating reserve minimum.
-$1.0
$0.0
$1.0
$2.0
$3.0
$4.0
$5.0
$6.0
$7.0
$8.0
FY 2024-25 FY 2025-26 FY 2026-27 FY 2027-28 FY 2028-29 Millions Wastewater Financial Plan
Expenses Debt Service Net Cash
Rate Funded Current Revenue Proposed Revenue
$0.0
$0.2
$0.8
$0.4
$1.3
$0.0
$0.2
$0.4
$0.6
$0.8
$1.0
$1.2
$1.4
FY 2024-25 FY 2025-26 FY 2026-27 FY 2027-28 FY 2028-29 Millions Wastewater CIP Funding
Rate Funded Total CIP
Agenda Item Number 9 Agenda Item Number 9
City Council Meeting Packet for May 21, 2024
City of Sebastopol / Water and Wastewater Rate Study - DRAFT 49 Figure 7-4: Projected Wastewater Reserve Balance
$0.38
$0.86 $0.97
$0.0
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$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
Agenda Item Number 9 Agenda Item Number 9
City Council Meeting Packet for May 21, 2024
City of Sebastopol / Water and Wastewater Rate Study - DRAFT 50
8. Wastewater Cost-of-Service
Analysis
A cost-of-service analysis distributes a utility’s revenue requirement (costs) to each customer class. This section explains the details of the cost-of-service analysis conducted for the City for its wastewater system services to customers.
After determining a utility’s revenue requirement, the next step in a cost-of-service analysis is to functionalize its O&M costs to the following functions: Collection – cost of collecting wastewater and transporting it to the wastewater treatment plant Treatment – Subregional cost of treating the wastewater Customer – costs associated with billing and customer service General and Administration (G&A) – general and administrative costs incurred by the City The functionalization of costs allows us to better allocate the functionalized costs to the rate components.
8.1. Revenue Requirement Determination
Table 8-1 shows the net revenue requirement from rates for FY 2023-24, the test year. The total revenue requirement shown in Line 5 is equal to operating expenses (Table 7-4), capital expenses (Table 7-5), and debt service (Table 7-6). Other operating revenues, totaled in Line 9, comprise the estimated transfer in from the general fund to have the enterprise have a zero balance at the start of FY 2024-25, miscellaneous revenues and interest income, which reduce the total revenue required from rates. The adjustment for cash (Line 10) is subtracted to account for the withdrawal from reserves. The revenue required from rates is equal to the total revenue requirements less other operating revenues and adjustments.
Table 8-1: Revenue Requirement Determination
No. Line Item Operating Capital Total
Expenses
1 Operating Expenditure $2,755,594 $2,755,594
2 G&A Allocation $1,113,046 $1,113,046
3 Existing Debt Service $178,656 $178,656
4 Rate Funded Capital Projects $542,000 $542,000
5 Subtotal $3,868,640 $720,656 $4,589,296
Less: Offsets
6 Transfer from General Fund $1,088,808 $1,088,808
7 Interest Revenue $7,400 $7,400
8 Misc. Revenue $12,100 $12,100
9 Subtotal $1,100,908 $7,400 $1,108,308
Less: Adjustments
10 Adjustment for Cash Balance $392,472 $392,472
11 Subtotal $392,472 $0 $392,472
12 Net Revenue Requirement from Rates $2,375,260 $713,256 $3,088,516 Agenda Item Number 9 Agenda Item Number 9
City Council Meeting Packet for May 21, 2024
City of Sebastopol / Water and Wastewater Rate Study - DRAFT 51
8.2. Functionalization of Net Revenue Requirement
Functionalizing expenses allows Raftelis to follow the principles of rate setting theory in which the end goal is to allocate the City’s revenue requirements to cost causation components. Table 8-2 shows the resulting functionalization of the City’s O&M expenses (Line 5,Table 8-1) and O&M offsets (Lines 6 and 8,Table 8-1). Raftelis worked with City staff to functionalize the test year O&M line items to the functions listed at the beginning of Section 8 (see Appendix B). O&M offsets are allocated the same as the total O&M revenue requirements.
Table 8-2: Functionalization of Net O&M
Table 8-3 shows the functionalization of net capital costs (Line 12,Table 8-1). The costs are allocated in proportion to the City’s wastewater assets.
Table 8-3: Functionalization of Net Capital
8.3. Allocation of Functionalized Net Revenue
Requirements to Cost Components
After functionalizing the net revenue requirements, the next step is to allocate the functionalized net revenue requirements to the following cost components: Variable – costs associated with meeting the flow of wastewater through the collection system Fixed – the costs associated with billing, customer service, and other fixed costs
8.3.1. Operating and Capital Allocation
Table 8-4 shows the system functions, the rationale for allocating each function to the various cost components, and the percentage allocation to each component.
Function O&M O&M Offsets Net O&M
Collection $480,557 -$185,506 $295,052
Customer Service $4,665 -$1,801 $2,864
Sub-regional $1,821,822 -$703,263 $1,118,559
General & Admin $1,561,596 -$602,810 $958,786
Total $3,868,640 -$1,493,380 $2,375,260
Function Asset Capital-Related
Collection $2,905,831 $704,036
Customer Service $0 $0
Subregional $0 $0
General & Admin $38,055 $9,220
Total $2,943,886 $713,256
Agenda Item Number 9 Agenda Item Number 9
City Council Meeting Packet for May 21, 2024
City of Sebastopol / Water and Wastewater Rate Study - DRAFT 52 Table 8-4: Allocation of Functions to Cost Components
Table 8-5 shows the detailed net operating costs by cost component (Table 8-2) allocated to the cost components using the allocations shown in Table 8-4. Table 8-5: Allocation of Net Wastewater Operation & Maintenance to Cost Components Table 8-6 shows the allocation of capital-related revenue requirement (Table 8-3) to the components. Table 8-6: Allocation of Wastewater Capital-Related Expenses to Cost Components
8.4. Derivation of Units of Service
8.4.1. Equivalent Meters
The City bills each wastewater customer based on meter size. Raftelis proposes using winter average use by meter size instead of safe operating capacity to differentiate fixed wastewater charges, as this is a better indicator of the relative wastewater flow generated at each meter size. To put these meters on an equivalent basis, Raftelis calculated the winter average usage at each meter size as shown in Table 8-7. The winter average usage in kgal comes from the billing data. The ratios (Column C) are calculated by dividing the winter average (Column B) for each meter size (Column A) by the winter average for the 5/8”x3/4” & 3/4" meters (Column B, Line 1). Meter counts (Column D) at each size are multiplied by the ratio (Column C) to arrive at the total number of equivalent meters, shown in Column E. For example, there are 52, 1.5” meters in the wastewater system; and those 52, 1.5” meters are equivalent to the winter average demands of 359, 3/4” meters.
Function Allocation Basis Variable Fixed Total
Collection Flow & Customer 100% 0% 100%
Customer Service Customer 0% 100% 100%
Sub-regional Flow 100% 0% 100%
General & Admin General & Admin 0% 100% 100%
Function Net O&M Variable Fixed
Collection $295,052 $295,052 $0
Customer Service $2,864 $0 $2,864
Sub-regional $1,118,559 $1,118,559 $0
General & Admin $958,786 $0 $958,786
Net O&M $2,375,260 $1,413,610 $961,650
Function Net Capital Variable Fixed
Collection $704,036 $704,036 $0
Customer Service $0 $0 $0
Sub-regional $0 $0 $0
General & Admin $9,220 $0 $9,220
Net O&M $713,256 $704,036 $9,220
Agenda Item Number 9 Agenda Item Number 9
City Council Meeting Packet for May 21, 2024
City of Sebastopol / Water and Wastewater Rate Study - DRAFT 53 Table 8-7: Equivalent Meters
8.4.2. Unit Costs of Service
Raftelis calculated unit costs for each cost component by assessing the average winter annualized water use for residential customers, annual metered water use for non-residential customers, and equivalent meters. Table 8-8 shows the units of service for the wastewater collection system.
Table 8-8: Units of Service
Table 8-9 shows the total unit costs of service. The Net Operating Expenses shown in the first line matches the total allocated to Flow and Customer from Table 8-5. The Net Capital Expenses shown in Line 2 matches Table 8-6. To maintain a similar amount of fixed cost recovery, which helps with revenue stability, a portion of the Variable costs have been allocated to Fixed (Line 4) for revenue stability and that most costs of the system do not vary with flow. Line 5 is the adjusted cost of service. This line is divided by the units (Line 6), which repeats the wastewater flow and accounts from Table 8-8, to determine the unit costs shown in Line 7.
Table 8-9: Total Wastewater Unit Costs of Service
No.
Meter Size
(inches)
Winter Average
(kgal) Ratio
Total
Meters
Total Equivalent
Meters
(A) (B) (C) (D) (E)
1 5/8x3/4" & 3/4" 7.9 1.00 2,542 2,542
2 1" 21.4 2.71 101 274
3 1.5" 54.5 6.90 52 359
4 2" 69.8 8.83 44 389
5 3" 173.7 21.98 8 176
6 4" 523.2 66.22 3 199
7 Total 2,750 3,938
Annual Flow (kgal) Equivalent Meters
154,190 3,938
No. Line Item Variable Fixed Total
1 Net Operating Expenses $1,413,610 $961,650 $2,375,260 2 Net Capital Expenses $704,036 $9,220 $713,256
3 Subtotal Cost of Service $2,117,647 $970,870 $3,088,516 4 Volumetric to Fixed -$529,412 $529,412 $0
5 Total Cost of Service $1,588,235 $1,500,281 $3,088,516 6 Units 154,190 3,938
kgal EMs
7 Unit Cost $10.30 $380.98
Agenda Item Number 9 Agenda Item Number 9
City Council Meeting Packet for May 21, 2024
City of Sebastopol / Water and Wastewater Rate Study - DRAFT 54
9. Wastewater Rates
9.1. Wastewater Test Year Rate Derivation
Raftelis has calculated wastewater rates for the test year. Table 9-1 shows the derivation of the test year wastewater fixed charge. The equivalent meter unit rate from Table 8-9 is applied to the 5/8”x3/4” & 3/4" meter sizes (base meter). The charge for other meter sizes is the base meter charge multiplied by the corresponding winter average meter ratios (Table 8-7).
Table 9-1: Wastewater Fixed Charge Derivation, Test Year The test year volumetric charge is the unit rate shown in Table 8-9. 9.2. Proposed 5-Year Wastewater Rate Schedule Table 9-2 shows the current, test year, and proposed 5-year schedule of wastewater rates. Rates for FY 2024- 25 are the test year unit rates multiplied by the revenue adjustment for FY 2024-25 (Table 7-8). Each subsequent year is the prior year unit rate multiplied by the revenue adjustment for that year. All rates are rounded up to the nearest whole penny.
Table 9-2: Proposed 5-Year Wastewater Rate Schedule
Meter Size Ratio $/bi-mo
5/8x3/4" & 3/4" 1.00 $63.50
1" 2.71 $172.23
1.5" 6.90 $438.13
2" 8.83 $560.68
3" 21.98 $1,395.87
4" 66.22 $4,204.78
Charge Current Test Year 7/1/2024 7/1/2025 7/1/2026 7/1/2027 7/1/2028 Revenue Adjustment 50.0% 11.0% 9.0% 9.0% 9.0%
Meter Size, $/bi-mo
5/8x3/4" & 3/4" $76.61 $63.50 $95.25 $105.73 $115.25 $125.63 $136.94 1" $127.97 $172.23 $258.35 $286.77 $312.58 $340.72 $371.39
1.5" $254.86 $438.13 $657.20 $729.50 $795.16 $866.73 $944.74 2" $408.03 $560.68 $841.02 $933.54 $1,017.56 $1,109.15 $1,208.98 3" $893.44 $1,395.87 $2,093.81 $2,324.13 $2,533.31 $2,761.31 $3,009.83 4" $1,276.06 $4,204.78 $6,307.17 $7,000.96 $7,631.05 $8,317.85 $9,066.46 Volume, $/kgal $10.31 $10.31 $15.47 $17.18 $18.73 $20.42 $22.26 Note: Single family on a 1" meter for fire service are charged the 3/4" rate.
Agenda Item Number 9 Agenda Item Number 9
City Council Meeting Packet for May 21, 2024
City of Sebastopol / Water and Wastewater Rate Study - DRAFT 55
10. Customer Impact Analysis
10.1. Water
Figure 10-1 shows a comparison of a 5/8”x3/4” single-family bill at different usage levels for the proposed FY 2024-25 rates versus the current rates.
Figure 10-1: Single Family Residential Bi-Monthly Bills, FY 2024-25 Figure 10-2 shows a comparison of a 5/8”x3/4” commercial bill at different usage levels for the proposed FY 2024-25 rates versus the current rates.
Very Low - 2
kgal Low - 5 kgal Medium - 9kgal High - 13 kgal Very High - 21kgal Current Bill $58.37 $71.93 $90.01 $108.09 $144.25
FY 2024-25 $85.06 $101.50 $126.44 $154.40 $223.92
$0.00
$50.00
$100.00
$150.00
$200.00
$250.00
Single Family Water Bi-Monthly Bill, 5/8"x3/4"
Current Bill FY 2024-25
Agenda Item Number 9 Agenda Item Number 9
City Council Meeting Packet for May 21, 2024
City of Sebastopol / Water and Wastewater Rate Study - DRAFT 56 Figure 10-2: Commercial Bi-Monthly Bills, FY 2024-25
Figure 10-3 shows a comparison of a 1.5” irrigation bill at different usage levels for the proposed FY 2024-25 rates versus the current rates.
Figure 10-3: Irrigation Bi-Monthly Bills, FY 2024-25
Low - 2 kgal Medium - 9 kgal High - 27 kgal
Current Bill $58.37 $90.01 $171.37
FY 2024-25 $86.16 $128.37 $236.91
$0.00
$50.00
$100.00
$150.00
$200.00
$250.00
Commercial Water Bi-Monthly Bill, 5/8"x3/4"
Current Bill FY 2024-25
Low Medium High
Current Bill $209.33 $390.13 $616.13
FY 2024-25 $352.31 $786.71 $1,329.71
$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 FY 2024-25
Agenda Item Number 9 Agenda Item Number 9
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City of Sebastopol / Water and Wastewater Rate Study - DRAFT 57
10.2. Wastewater
Figure 10- shows a bill comparison for a single family residential wastewater customer, using the typical winter water use for the customer class of 6 kgal and a 5/8”x3/4” meter.
Figure 10-4: Typical Single Family Bi-Monthly Wastewater Bill Figure 10-5 shows commercial bi-monthly wastewater bills at low, medium, and high water use levels.
Figure 10-5: Example Commercial Bi-Monthly Wastewater Bills
10.3. Combined Bill – Water and Wastewater Service
Figure 10-6 shows the combined water and wastewater bill for a 5/8”x3/4” single family residential customer typical water use and winter average water use levels.
$138.47
$188.07
$0.00
$50.00
$100.00
$150.00
$200.00
$250.00
$300.00
Current FY 2024-25
Wastewater Bi-Monthly Bill, Winter Typical
6 kgal, 5/8"x3/4"
$0.00
$100.00
$200.00
$300.00
$400.00
$500.00
$600.00
2 kgal 9 kgal 27 kgal
Wastewater Bi-Monthly Bill, Commercial,
5/8"x3/4"
Current FY 2024-25
Agenda Item Number 9 Agenda Item Number 9
City Council Meeting Packet for May 21, 2024
City of Sebastopol / Water and Wastewater Rate Study - DRAFT 58 Figure 10-6: Combined Single Family Water and Wastewater Bill, FY 2024-25 Figure 10-7 shows the combined commercial water and wastewater bill at a medium usage of 9 kgal. Figure 10-7: Combined Commercial Water and Wastewater Bill, FY 2024-25 $90.01
$126.44
$138.47
$188.07
$228.48
$314.51
$0.00
$50.00
$100.00
$150.00
$200.00
$250.00
$300.00
$350.00
Current FY2024-25
Combined Bi-monthly Bill, Typical Single Family,
5/8x3/4" (water = 9 kgal, sewer = 6 kgal)
Water Wastewater
$90.01
$128.37
$169.40
$234.48
$259.41
$362.85
$0.00
$50.00
$100.00
$150.00
$200.00
$250.00
$300.00
$350.00
$400.00
Current FY2024-25
Combined Bi-monthly Bill, Commercial, 5/8x3/4" (9 kgal) Water Wastewater
Agenda Item Number 9 Agenda Item Number 9
City Council Meeting Packet for May 21, 2024
City of Sebastopol / Water and Wastewater Rate Study - Draft 60 Operating Expenditure Wells Storage Meters
Customer
Service Public Fire T&D Treatment G&A Total
4010 - Salaries - Full Time 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 100.0% 100.0% 4011 - Salaries - Part Time 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 100.0% 100.0% 4012 - Overtime 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 100.0% 100.0% 4013 - Standby 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 100.0% 100.0% 4017 - Salaries - COVID-19 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 100.0% 100.0% 4019 - WC- 4850/Temp Disb 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 100.0% 100.0% 4023 - One Time Payment 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 100.0% 100.0% 4100 - Employee Benefits 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 100.0% 100.0% 4101 - Health in Lieu 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 100.0% 100.0% 4102 - Uniform Allowance 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 100.0% 100.0% 4105 - Medicare & Fica 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 100.0% 100.0% 4110 - CalPERS Employer Rate 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 100.0% 100.0% 4130 - Health Insurance 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 100.0% 100.0% 4150 - Dental Insurance 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 100.0% 100.0% 4151 - Vision Insurance 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 100.0% 100.0% 4181 - Long Term Disability Insurance 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 100.0% 100.0% 4182 - Short Term Disability Insurance 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 100.0% 100.0% 4183 - EAP (Employee Asst Prog) 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 100.0% 100.0% 4184 - Life Insurance 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 100.0% 100.0% 4210 - Professional Contract Services 71.9% 7.3% 0.0% 0.0% 0.0% 16.3% 4.6% 0.0% 100.0% 4211 - Banking Fees 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 100.0% 100.0% 4301 - Bad Debt Expense 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 100.0% 100.0% 4302 - Loss due to theft 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 100.0% 100.0% 4310 - Office Supplies 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 100.0% 100.0% 4330 - Misc Supplies & Services 17.8% 5.9% 5.9% 8.3% 0.0% 5.9% 56.3% 0.0% 100.0% 4332 - Janitorial & Safety Supplies 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 100.0% 100.0% 4340 - Postage & Printing 0.0% 0.0% 0.0% 100.0% 0.0% 0.0% 0.0% 0.0% 100.0% 4351 - Computer Equip (under $10 K) 50.0% 0.0% 0.0% 0.0% 0.0% 50.0% 0.0% 0.0% 100.0% 4361 - Meter Replacement Program 0.0% 0.0% 100.0% 0.0% 0.0% 0.0% 0.0% 0.0% 100.0% 4365 - Fire Hydrant Replacement Program 0.0% 0.0% 0.0% 0.0% 100.0% 0.0% 0.0% 0.0% 100.0% 4366 - Backflow Prevention Program 0.0% 0.0% 100.0% 0.0% 0.0% 0.0% 0.0% 0.0% 100.0% 4370 - Equipment(under $10K) 50.0% 0.0% 0.0% 0.0% 0.0% 50.0% 0.0% 0.0% 100.0% 4380 - Vehicle Maintenance 25.0% 25.0% 25.0% 0.0% 0.0% 25.0% 0.0% 0.0% 100.0% 4510 - Conference & Training 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 100.0% 100.0% 4515 - Meetings & Travel 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 100.0% 100.0% 4710 - Utilities - Gas & Electric 50.0% 0.0% 0.0% 0.0% 0.0% 50.0% 0.0% 0.0% 100.0% 4750 - Telecommunications 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 100.0% 100.0% 4996 - Allocated Liability Insurance 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 100.0% 100.0% 4997 - Allocated Wrkrs Comp Insurance 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 100.0% 100.0% 5100 - Capital Outlay 17.2% 10.6% 0.0% 0.2% 0.0% 27.9% 37.9% 6.2% 100.0% G&A Allocation
10 - City Council 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 100.0% 100.0% 11 - City Manager 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 100.0% 100.0% 12 - City Attorney 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 100.0% 100.0% 13 - Assistant City Manager/City Clerk 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 100.0% 100.0% 14 - Administrative Services (Finance) 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 100.0% 100.0% 21 - Planning 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 100.0% 100.0% 22 - Building 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 100.0% 100.0% 23 - Engineering 17.2% 10.6% 0.0% 0.2% 0.0% 27.9% 37.9% 6.2% 100.0% 31 - Fire & Prevention 0.0% 0.0% 0.0% 0.0% 100.0% 0.0% 0.0% 0.0% 100.0% 41 - Public Works 17.2% 10.6% 0.0% 0.2% 0.0% 27.9% 37.9% 6.2% 100.0% 00 - Non Departmental 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 100.0% 100.0% Agenda Item Number 9 Agenda Item Number 9
City Council Meeting Packet for May 21, 2024
City of Sebastopol / Water and Wastewater Rate Study - Draft 62 Operating Expenditure Collection Lift Station
Customer
Service
SubregionalGeneral &
Admin Total
4010 - Salaries - Full Time 0.0% 0.0% 0.0% 0.0% 100.0% 100.0% 4012 - Overtime 0.0% 0.0% 0.0% 0.0% 100.0% 100.0%
4013 - Standby 0.0% 0.0% 0.0% 0.0% 100.0% 100.0%
4017 - Salaries - COVID-19 0.0% 0.0% 0.0% 0.0% 100.0% 100.0% 4019 - WC- 4850/Temp Disb 0.0% 0.0% 0.0% 0.0% 100.0% 100.0% 4023 - One Time Payment 0.0% 0.0% 0.0% 0.0% 100.0% 100.0% 4100 - Employee Benefits 0.0% 0.0% 0.0% 0.0% 100.0% 100.0% 4101 - Health in Lieu 0.0% 0.0% 0.0% 0.0% 100.0% 100.0% 4102 - Uniform Allowance 0.0% 0.0% 0.0% 0.0% 100.0% 100.0% 4105 - Medicare & Fica 0.0% 0.0% 0.0% 0.0% 100.0% 100.0% 4110 - CalPERS Employer Rate 0.0% 0.0% 0.0% 0.0% 100.0% 100.0% 4130 - Health Insurance 0.0% 0.0% 0.0% 0.0% 100.0% 100.0% 4150 - Dental Insurance 0.0% 0.0% 0.0% 0.0% 100.0% 100.0% 4151 - Vision Insurance 0.0% 0.0% 0.0% 0.0% 100.0% 100.0% 4181 - Long Term Disability Insurance 0.0% 0.0% 0.0% 0.0% 100.0% 100.0% 4182 - Short Term Disability Insurance 0.0% 0.0% 0.0% 0.0% 100.0% 100.0% 4183 - EAP (Employee Asst Prog) 0.0% 0.0% 0.0% 0.0% 100.0% 100.0% 4184 - Life Insurance 0.0% 0.0% 0.0% 0.0% 100.0% 100.0% 4210 - Professional Contract Services 0.0% 0.0% 0.0% 0.0% 100.0% 100.0% 4210 - Subregional Contract Services 0.0% 0.0% 0.0% 100.0% 0.0% 100.0% 4211 - Banking Fees 0.0% 0.0% 0.0% 0.0% 100.0% 100.0%
4227 - Sewer Lateral Grant Program 0.0% 0.0% 0.0% 0.0% 100.0% 100.0% 4301 - Bad Debt Expense 0.0% 0.0% 0.0% 0.0% 100.0% 100.0% 4302 - Loss due to theft 0.0% 0.0% 0.0% 0.0% 100.0% 100.0% 4330 - Misc Supplies & Services 0.0% 0.0% 0.0% 0.0% 100.0% 100.0% 4332 - Janitorial & Safety Supplies 0.0% 0.0% 0.0% 0.0% 100.0% 100.0% 4351 - Computer Equip (under $10 K) 0.0% 0.0% 0.0% 0.0% 100.0% 100.0% 4360 - Conservation Rebate Program 0.0% 0.0% 0.0% 0.0% 100.0% 100.0% 4370 - Equipment(under $10K) 0.0% 0.0% 0.0% 0.0% 100.0% 100.0% 4380 - Vehicle Maintenance 50.0% 0.0% 50.0% 0.0% 0.0% 100.0% 4510 - Conference & Training 0.0% 0.0% 0.0% 0.0% 100.0% 100.0% 4515 - Meetings & Travel 0.0% 0.0% 0.0% 0.0% 100.0% 100.0% 4710 - Utilities - Gas & Electric 100.0% 0.0% 0.0% 0.0% 0.0% 100.0% 4711 - Utilities - City Bill 0.0% 0.0% 0.0% 0.0% 100.0% 100.0% 4750 - Telecommunications 0.0% 0.0% 100.0% 0.0% 0.0% 100.0% 4996 - Allocated Liability Insurance 0.0% 0.0% 0.0% 0.0% 100.0% 100.0% 4997 - Allocated Wrkrs Comp Insurance 0.0% 0.0% 0.0% 0.0% 100.0% 100.0% 5100 - Capital Outlay 98.7% 0.0% 0.0% 0.0% 1.3% 100.0%
G&A Allocation
10 - City Council 0.0% 0.0% 0.0% 0.0% 100.0% 100.0%
11 - City Manager 0.0% 0.0% 0.0% 0.0% 100.0% 100.0%
12 - City Attorney 0.0% 0.0% 0.0% 0.0% 100.0% 100.0%
13 - Assistant City Manager/City Clerk 0.0% 0.0% 0.0% 0.0% 100.0% 100.0% 14 - Administrative Services (Finance) 0.0% 0.0% 0.0% 0.0% 100.0% 100.0% 21 - Planning 0.0% 0.0% 0.0% 0.0% 100.0% 100.0%
22 - Building 0.0% 0.0% 0.0% 0.0% 100.0% 100.0%
23 - Engineering 98.7% 0.0% 0.0% 0.0% 1.3% 100.0%
41 - Public Works 98.7% 0.0% 0.0% 0.0% 1.3% 100.0%
00 - Non Departmental 0.0% 0.0% 0.0% 0.0% 100.0% 100.0% Agenda Item Number 9 Agenda Item Number 9
City Council Meeting Packet for May 21, 2024
Attachment 2
Frequently Asked Questions (FAQ)
Proposed Water and Sewer Rate Increases
Revised: 5/15/2024
(Note: This FAQ will be updated and revised as new information is available and new questions added, and will be posted on the City’s website.)
How will this impact me?
The proposed rate changes will increase your water and sewer bill. The impact will vary depending on how much water and sewer service you use, your meter size, and whether you are a residential, commercial, or irrigation customer. For a typical single-family household, we project the bi-monthly bill for water and sewer will increase by about $86 (or $43 per month) in the first year, and then continue to increase in smaller increments over four additional years. The typical residential customer uses 5,000 gallons of water per month and a winter water use (for determining sewer bill) of 2,500 gallons per month.
To understand how this will impact your specific bill, please refer to the “Rate Calculator” that can be found on the City’s website.
How do the proposed “tiered” water rates work?
For single-family residential customers only, we are proposing to change that so the cost per 1,000 gallons will be in three ‘tiers.’ Tiered water rates reward customers who use less water by charging the least amount per 1,000 gallons for use in the first tier, and increasingly more as customers use more water and move into higher tiers. Tiered rates are the most common way to charge for water in California.
The lowest tier corresponds to an amount of water sufficient to meet typical indoor household needs— cooking, drinking, and sanitation at the lowest possible rate. Each subsequent tier charges a higher rate and is designed to send a price signal to households when using water for outdoor irrigation.
It’s important to note that as a customer uses more water, their use “moves through the tiers,” meaning that even if their water use moves into the second or third tier, they still receive that first tier of water at the lowest rate.
Why do you need to raise my water and sewer rates?
We've used our reserves over the last five years to keep rates down. This benefited our community as we weathered COVID and economic uncertainty. However, that resulted in the revenue from rates being below our operating costs. This is not sustainable. Additionally, with lower rates we have not invested enough in maintaining our systems. Many parts of our systems are at or near the end of their useful life.
This increases the risk of failures that could result in residents not having water or sewer service for several days. We have had minor disruptions and hope to prevent major problems by replacing the aging parts of the systems and improving maintenance. We need to raise rates to cover the costs of replacing our aging system.
What happens if rates are not raised?
We would not have sufficient revenues to operate our water and sewer systems properly and the City would have to continue to support the water and sewer funds through the General Fund. We would also need to defer capital investments to our system that leaves our existing systems vulnerable to catastrophic failures and jeopardizing public health.
What are you doing to help people who can’t afford rate increases? We recognize that affordability is an issue for our customers with low incomes. The City offers, on a case by case basis, a flexible payment plan that is worked out with you individually. Contact the City’s Utility Billing at (707) 823-7863 to discuss your needs.
Agenda Item Number 9 Agenda Item Number 9
City Council Meeting Packet for May 21, 2024
Attachment 2
How is the City of Sebastopol’s water and sewer services funded and what do they pay for? The City’s water and sewer services are paid for through customers’ water and sewer service rates and charges. The water and sewer funds are intended to be fully self-supporting and pay for operations and maintenance, debt coverage (loans), cash reserves, and capital improvements.
What is the process that the City used to determine the proposed rate changes? The City is required to undertake independent rate studies at least every five years to ensure the rates customers are charged reflect the true cost of providing our services. The last rate study for water and sewer rates was completed in 2019, and a new one was required. The new independent rate study found that rate increases are warranted. A more detailed response can be found in the Prop. 218 notice that customers received and is also attached at the back of this FAQ for easy reference.
What is the Proposition 218 process, and how are written protests calculated? In November 1996, California voters passed Proposition 218, the “Right to Vote on Taxes Act”. Prop. 218 requires voter approval prior to imposition or increase of general taxes, assessments, including water and sewer service rates and charges. Specific features of Prop. 218 for water and sewer service charges:
• Requires the City put charges and user fees out to a vote prior to an increase. In most cases, the vote will require individual notices be mailed to affected property owners or customers. A formal protest hearing is also required to move forward with the increase. • Requires fees charged to property owners and customers may not exceed the cost of providing the service.
• Property owners or customers have the right to protest the proposed water and/or wastewater rates. The protest must be in writing, and must be submitted by either the property owner or a utility customer. Detailed information regarding the voting process can be found in the Prop. 218 Notice.
• At the conclusion of the Public Hearing scheduled on June 18, 2024, the City Council will consider adopting the proposed changes as follows:
o 1) If fewer than a majority of affected parcels file a written protest, the City Council will consider adjusting water and/or wastewater rates as proposed. o 2) If a majority (50% +1) of affected parcels submit protests against the water or wastewater rates before the conclusion of the Public Hearing, the City is prohibited by law from increasing water and/or wastewater rates at this time.
Who approves rate changes?
The City Council approves rate changes in the manner as described in the Prop. 218 process.
Who is impacted by changing from a Fixed Rate to a Tiered Rate structure? All single-family residential customers will be changing to a Tiered Rate structure. Commercial customers, irrigation customers, and multi-family customers (such as those in an apartment), will continue to pay a Fixed Rate structure. For single-family residential customers, we are proposing to change that so the cost per 1,000 gallons will be in three ‘tiers.’ The first tier will cost less per 1,000 gallons. This ensures that essential water use—what you use inside your home for cooking, drinking, and sanitation – is charged at the lowest possible rate.
Is revenue from water and sewer rates used to fund non-water projects or programs? No. Water revenues can only be used for water services and projects and sewer revenues can only be used for wastewater services and projects.
Agenda Item Number 9 Agenda Item Number 9
City Council Meeting Packet for May 21, 2024
Attachment 2
When would the new rates begin?
If approved by City Council at the conclusion of the public hearing on June 18, 2024, the rates would become effective on July 1, 2024.
Why does the city bill for water every two months instead of monthly like my other bills? The City bills every two months to save administrative and operating costs. Monthly billing would increase the City’s costs by approximately $106,000 per year.
Why are water and sewer rate increase studies from other jurisdictions more detailed? The Financial Plan slides presentation from the Council of 4/23/24 is not the detailed Financial Plan report. The report is being prepared given Council’s direction on the options selected and will be posted to the website. The Financial Plan report will be just as detailed as the ones prepared by nearby jurisdictions.
How will reduced water use triggered by drought and by increased rates affect the projected revenue?
In October 2023, the City adopted Ordinance 1149 for a Water Shortage Contingency Plan. The Plan provides for drought responses and measures to be undertaken depending on the severity of the drought.
The water shortage contingency plan can be used as a basis for future water shortage contingency plan adjustments should it be necessary to make a specific declaration for a water conservation stage and adjust rates to account for the reduction in revenue due to a drought. As for the current Financial Plan, the projected revenues were estimated conservatively to take into account potential reduced water use that may be triggered by the higher rates as well as the tiered rates.
Given the resulting new water rates from the Council decision on 4/23/24, how much of the total needed would be collected each year for each fund under the proposed tiered rate schedule? For Water fund (Option 1 selected), revenues collected will need to increase each year by the following percentages:
For the Wastewater fund (Option 2 selected), revenues collected will need to increase each year by the following percentages:
Agenda Item Number 9 Agenda Item Number 9
City Council Meeting Packet for May 21, 2024
Attachment 2
Given that the Council chose option 1 for water and option 2 for wastewater, plus delayed the payment start date for the general fund loan, what are the resulting new water rates? The proposed water rates are the same as what was presented to Council on 4/23/24. However, the new proposed wastewater rates are different than what was presented based on Council’s direction on the delayed payment start date for general fund loan to Wastewater. The new proposed wastewater rates are shown below and also on the Prop. 218 notice:
Proposed 5-Year Wastewater Rate Schedule
What is the total dollar amount we would need in today’s dollars, to cover our deficit and to have sufficient reserves, in order to stabilize the water and sewer funds? Revenues are approximately $1.2 million less than expenses for the Water Fund and approximately $1.5 million less than expenses for the Wastewater Fund.
Did the tiered proposal take into consideration potential reductions in water use by customers trying to reduce their bills (and resulting reductions in revenue collected from ratepayers)? Yes. The proposed revenue adjustments were estimated conservatively to take this into account.
What is the “average residential user” for purposes of water and wastewater rates and how much water is that user consuming and what category does that user fall into for wastewater fee purposes?
Based on the analysis of existing customers, the average residential user uses 5,000 gallons per month.
The average winter use (for determining sewer billing) is 2,500 gallons per month.
Are there resources we can make available to residents to help them reduce water use in order to reduce the impact of the new rates?
Administrative Services has a Water Conservation page related to the BayRen program (Bay Area Regional Energy Network). This is a program for water efficient upgrades. The water conservation link is found here https://www.cityofsebastopol.gov/water-conservation-program/ What is the expected increased cost to the City (as a ratepayer) from the resulting new rates approved by the Council?
The financial impact of the utility rate adjustments for FY 2024-25 is approximately $214,000. This is a significant change from approximately $96,000 currently budgeted in FY 2023-24. The need for this adjustment arose from findings during the meter replacement project. It was revealed that several city properties were equipped with meters of incorrect sizes, and sewer charges had not been properly applied. These errors date back over 9 years ago and only came to light with the recent meter project.
Agenda Item Number 9 Agenda Item Number 9
City Council Meeting Packet for May 21, 2024
Attachment 2
How does Sebastopol’s rates compare to other communities in the region? Sebastopol’s rates as proposed in the draft Financial Plan dated 5/15/24 is shown below in comparison to nearby cities.
Agency Water (1) Wastewater (2)
Total Monthly Bill
(FY 2024-2025)
Rohnert Park $55.28 $51.62 $106.90
Windsor $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 (Proposed) $63.22 $94.04 $157.26
Healdsburg $82.28 $110.33 $192.61
St. Helena $115.27 $134.49 $249.76
Calistoga $161.08 $132.80 $293.88
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City Council Meeting Packet for May 21, 2024
Attachment 3
Comparison Rates with Nearby Agencies
Proposed Sebastopol Rates from Draft Financial Plan report dated 5/15/24 Agency Water (1) Wastewater (2)
Total Monthly Bill
(FY 2024-2025)
Rohnert Park $55.28 $51.62 $106.90
Windsor $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 (Proposed) $63.22 $94.04 $157.26
Healdsburg $82.28 $110.33 $192.61
St. Helena $115.27 $134.49 $249.76
Calistoga $161.08 $132.80 $293.88
Agenda Item Number 9 Agenda Item Number 9
City Council Meeting Packet for May 21, 2024
FIRST AMENDMENT
TO AGREEMENT
BETWEEN
THE CITY OF SEBASTOPOL
AND RAFTELIS
THIS FIRST AMENDMENT to Agreement between the City of Sebastopol and Raftelis is made and entered into made and entered into on May 22, 2024, by and between the City of Sebastopol, a municipal corporation, hereinafter referred to as the City, and Raftelis, hereinafter referred to as the Consultant.
RECITALS
WHEREAS, the City and the Contractor have entered into an Agreement wherein the Consultant shall furnish professional services in connection with the project described as Utility Rate Study; and
WHEREAS, agreement was effective May 12, 2023; and
WHEREAS, the City and Consultant desire to amend the Agreement; and WHEREAS, the City and Consultant agree to amend the scope of work to authorize additional services and compensation as follows:
Scope of Work: Education and Public Outreach
Compensation: Not to Exceed $20,000 in additional compensation for additional services; and
WHEREAS, the Amendment is necessary and proper to ensure the City provides clear and transparent information and answers to questions related to the Utility Rate Study.
NOW, THEREFORE, the City and the Consultant agree that the Agreement be amended effective May 22, 2024; and
Further, except as herein amended, all terms and conditions of the Agreement shall remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have accepted, made, and executed this Amendment to Original Agreement upon the terms, conditions, and provisions above stated, the day and year first above written.
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City Council Meeting Packet for May 21, 2024
Consultant: City:
By: _____________________________ By: _____________________ Name: ___________________________ Name: Don Schwartz
Title:_____________________________ Title: City Manager Approved as to Form:
By: ________________________________
Name: Larry McLaughlin
Title: City Attorney
Agenda Item Number 9 Agenda Item Number 9
City Council Meeting Packet for May 21, 2024