To: Honorable Mayor and Members of City Council
From: Phil Brun, Utilities Director
Prepared By: Joy Eldredge, Deputy Utilities Director
TITLE:
Title
Water Rates for 2024-2028
LABEL
RECOMMENDED ACTION:
Recommendation
Adopt a resolution Approving Water Rates Over a Five-Year Period (2024-2028), for all Water Rate Customers (Inside City and Outside City) Including Single-Family Residential, Multi-Family Residential, Commercial, Irrigation, Fire Service Charges, Pumped Zone Surcharges, and Treat & Wheel Charges; and Maintaining the Amount of Rateshare Program for Lower Income Customers; and Determining that the actions authorized by this resolution are exempt from CEQA.
Body
DISCUSSION:
Background
The City, through the Water Division of the Utilities Department, provides access to safe, reliable and life sustaining water every second of every day. The City carefully manages the water system in a cost-effective manner, and sets water rates to provide revenue equal to the cost of operating the water system to provide service to customers. The water system includes two local reservoirs and watershed and the State Water Project for water supplies and significant infrastructure to treat, store and convey water to customers. The water system provides health and safety protection to the public, fire protection, and reliability for a resource that is critical for all. The City typically performs a cost of service analysis for the water system every five years to ensure that costs are recovered and allocated equitably to each customer class based on the service provided. The last cost of service analysis was performed in 2017 and the last adjustment to water rates occurred in October 2021.
The recent 2023 cost of service analysis supports the determination that the proposed adjustments to water rates are necessary to ensure the cost of service is recovered. Details of the 2023 rate analysis and reasons for the changes to water rates are described in the Water Cost of Service Rate Study (Attachment 1 - Exhibit A), and the September 19, 2023 staff report to City Council (Attachment 2). The structure of the rates remains the same. They include a fixed service charge for all customer classes in addition to a quantity charge for water used. Tiered rates remain for single family residential customers. An adjustment to the definition of Inside City versus Outside City customer classes has been made such that Inside City is defined as inside the Rural Urban Limit (RUL) line and inside the Sphere of Influence (SOI). This clarification corresponds with completion of the City’s General Plan and reflects the area within the RUL and SOI that the City plans to provide services. Pursuant to Proposition 218 a notice (Attachment 1 - Exhibit B) was sent to all property owners. As shown on page one of Exhibit B, Napa’s water rates are currently among the lowest in the Bay Area. Under the proposed rates they will remain among the lowest and well below average.
Proposed Rates
The proposed rates (Attachment 1 - Exhibit B) are designed to cover inflationary increases to operations and maintenance costs, increased State Water Project costs, as well as support a $100M bond issuance in 2027 to address capital needs. An increase to the pay-as-you-go capital program from the current $6M to $8M per year would be accommodated.
On September 22, 2023 a total of 29,741 Notices of Public Hearing (Attachments 1-Exhibit B) was sent to all account holders and physical addresses pursuant to Proposition 218 and Government Code 53755. As indicated in the Notice, consistent with Proposition 218, an opportunity was provided to submit a written protest to the proposed water rates. If the City receives a written protest from a majority of the account holders (only one protest per parcel is counted) prior to the close of the hearing on November 7, the City may not implement the proposed water rates. A majority equals 12,762 protests. As of November 2, 2023, the City Clerk had received 967 written protests.
If adopted the proposed water rate adjustment will be implemented January 1, 2024 which means customers will receive the first bi-monthly (every two months) bills under the revised rates March 1- April 30, 2024. Treat & Wheel rates are adjusted on July 1 each year of the study period which corresponds to the start of the fiscal year for the Cities of American Canyon and Calistoga.
FINANCIAL IMPACTS:
The adoption of this proposed rate increase is required to address the $6.8M deficit position in the FY24 adopted budget driven by increased operations and maintenance costs, and State Water Project supplies. Proposed rates are necessary to maintain necessary reserve levels, ensure a favorable bond rating is maintained, and increase annual capital investments from $6M to $8M. It is prudent to ensure continued investment in the critical infrastructure and ensure a safe, reliable, water supply system for the City of Napa into the future.
The RateShare program is a $25 discount per bi-monthly bill made available to customers eligible for the PG&E Care Program. The City’s RateShare program is supported by annual revenue from cell tower leases on in-system storage tanks set aside for this purpose. There are currently 1,036 customers enrolled in the program.
CEQA:
City staff recommends that the City Council determine that the Recommended Action described in this Agenda Report is exempt from CEQA pursuant to Sections 15061(b)(3) and 15273 of the Guidelines, which exempts the establishment, modification, restructuring, or approval of rates, tolls, fares, or other charges by public agencies for the purpose meeting operating expenses and obtaining funds for capital projects, necessary to maintain service within existing service areas. Based on staff’s review, there is no indication of unusual circumstances that would create a reasonable possibility that approving the water rates would cause a significant effect on the environment.
DOCUMENTS ATTACHED:
ATCH 1 - Resolution to Adopt Water Rates
EX A - Water Service Cost of Service Report
EX B - Special Notice of Public Hearing
EX C - Treat & Wheel Rates
EX D - CEQA Findings
EX E - Water Service Customer Classes
EX F - Water Fund Reserve Policy
ATCH 2 - Staff Report for Sept 19, 2023 Mtg (w ATCH 3 Presentation only)
NOTIFICATION:
None