To: Board of Directors, Sonoma County Water Agency
Department or Agency Name(s): Sonoma County Water Agency
Staff Name and Phone Number: Lynne Rosselli, 707-524-3771, Jake Spaulding 707-524-8373, Grant Davis 707-547-1911
Vote Requirement: Majority
Supervisorial District(s): Countywide
Title:
Title
Water Rates for Fiscal Year 2023/2024
End
Recommended Action:
Recommended action
Adopt a Resolution establishing Rates and Charges for the Sonoma County Water Agency’s Water Transmission System for Fiscal Year 2023/2024.
end
Executive Summary:
The Restructured Agreement for Water Supply (Restructured Agreement) between the Sonoma County Water Agency (Sonoma Water) and its eight retail water contractors requires that water rates be sufficient to cover the projected operation, maintenance, infrastructure, and debt service requirements for the next fiscal year. To meet these requirements, staff recommend a budget that results in a 10.56 percent rate increase for Santa Rosa Aqueduct customers, 9.42 percent rate increase for Petaluma Aqueduct customers, and a 10.56 percent increase for Sonoma Aqueduct customers.
The Fiscal Year 2023/2024 rate increase allows Sonoma Water to operate and maintain the Water Transmission System, implement projects required by the Russian River Biological Opinion, construct critical hazard mitigation infrastructure projects, and maintain a prudent reserve. Sonoma Water recognizes the profound impact of natural hazards and the COVID-19 pandemic to many residents, businesses, and our retail water contractors throughout our county and beyond. In response to the far-reaching financial hardships, Sonoma Water made a conscious effort to keep rate increases below 5% in the past five to ten years while continuing to maintain system reliability and public health and safety.
In FY 2023/2024, historically low deliveries combined with increasing costs to maintain aging infrastructure are putting additional pressure on rates. The proposed rate increase is necessary to invest in critical infrastructure improvements, deferred maintenance, drought related water reliability projects, and to remain prepared for natural hazards.
While the cost of water per household is dependent on water use and is difficult to predict, Sonoma Water conservatively estimates that the proposed wholesale water rates may result in a $2 to $3 monthly increase for households served by Sonoma Water’s contractors. If customers are able to conserve more water than last year, they may not see an increase in their monthly water bill from Sonoma Water’s wholesale water rate. Sonoma Water’s wholesale water rates are only a portion of the retailers’ overall costs, which include cost of operations and maintenance of their systems.
Discussion:
The Fiscal Year 2023/2024 budget provides appropriations to operate and maintain the Water Transmission System, implement projects required by the Russian River Biological Opinion, construct critical hazard mitigation infrastructure projects, pay debt service on outstanding bonds, and maintain a prudent reserve. Highlights of the budget include construction of three hazard mitigation projects and other essential capital projects, including the Warm Springs Dam Hydroturbine retrofit, rehabilitation of groundwater wells in the Santa Rosa Plain to increase water supply reliability during droughts, and Phases 4 & 5 of the Biological Opinion Dry Creek Habitat Enhancement Project. The budget also includes cathodic protection upgrades along the Santa Rosa Aqueduct and Russian River-Cotati Intertie, initiation of a comprehensive storage tank maintenance and recoat program, emergency inventory procurement, and a robust water use efficiency program to ensure continued implementation of water conservation measures.
Sonoma Water recognizes the profound impact of natural hazards and the COVID-19 pandemic to many residents, businesses, and our retail water contractors throughout our county and beyond. In response to the far-reaching financial hardships, Sonoma Water made a conscious effort to keep rate increases at a minimum in recent years while continuing to maintain system reliability and public health and safety. Sonoma Water has consistently kept average rate increases at 4.62% and 4.68% over the past five and ten years respectively, lower than a 5% average rate increase.
Multiple critical dry years and drought conditions have resulted in reduced water deliveries and associated revenue shortfalls directly related to Sonoma Water’s fully volumetric rate structure. The revenue shortfall for FY 2022/2023 is estimated to be between $4 and $6 million dollars. In addition to closely monitoring the budget, Sonoma Water has identified up to $4.5M in projects that have been or can be delayed until the beginning of FY 2023/2024 and will be utilizing up to $1.5 million of the water transmission systems prudent reserve to cover the revenue shortfall in FY 2022/2023. Projects that may experience delays include Cathodic Protection on the Santa Rosa and Cotati Aqueducts, SCADA, and multiple assessments/studies.
In FY 2023/2024, historically low deliveries combined with increasing costs to maintain aging infrastructure are putting additional pressure on rates. Sonoma Water reduced the rate increase by deferring $2.4 million in lower priority maintenance projects. Hydrogeologic studies, reduced emergency inventory procurement, electrical upgrades, chlorine system assessments, and aqueduct condition assessments are a few projects that are being deferred to ensure that higher priority maintenance projects such as tank maintenance and recoat projects, and cathodic protection projects to prevent aqueduct corrosion will be implemented. Additionally, completion of two hazard mitigation construction projects and progress on the Dry Creek Habitat Enhancement Project in FY 2022/2023 has resulted in a budget that is $3.5 million lower than the previous fiscal year. Sonoma Water further reduced the rate increase by using $18.15 million in fund balance, bond revenue, and grants.
Staff recommend a budget that results in a 10.56 percent rate increase for Santa Rosa Aqueduct customers, 9.42 percent rate increase for Petaluma Aqueduct customers, and a 10.56 percent increase for Sonoma Aqueduct customers. The proposed rate increase is necessary to invest in critical infrastructure improvements and deferred maintenance, implement drought related water reliability projects, and remain prepared for natural hazards. Sonoma Water optimized the use of other sources of revenue to develop a budget that is reasonable, responsible, and fair, and that softens the rate impact to the 600,000 customers Sonoma Water serves.
For purposes of establishing the charges for the next fiscal year, the Restructured Agreement requires Sonoma Water to assume that the quantity of water to be delivered from each aqueduct of the Water Transmission System will be the same amount of water delivered during the 12 months preceding establishment of rates, or the average annual amount of water delivered during the preceding 36 months, whichever is less. The three-year annual average deliveries were 45,128 acre-feet. The quantity of water delivered during the preceding 12 months was 41,847 acre-feet. For comparison, average water deliveries over the past two decades have been more than 52,000 acre-feet. The water rates calculated for Fiscal Year 2023/2024 utilizes 41,847 acre-feet as a delivery estimate. This represents an 8.5% decrease over Fiscal Year 2022/2023.
Much of the rate increase is attributable to the decrease in water deliveries resulting from Sonoma Water’s fully volumetric rate structure. Sonoma Water uses fund balance accumulated in years with higher deliveries than budgeted to reduce rate increases in years with lower deliveries. After three years of drought, Sonoma Water had less available fund balance to offset the rate increase. The remainder of the rate increase is attributable to the reduction in available fund balance and an increase in operations and maintenance costs.
An Executive Summary of the Water Transmission Budget, including projected revenues, expenses, rates and capital projects, is provided in Attachment 1 - ‘Water Transmission Budget Executive Summary’. The recommended increase in total charges from the current fiscal year are identified in Attachment 2. Budget summaries are included in Attachment 3, including the projected Operations and Maintenance Fund revenues and expenses for Fiscal Year 2023/2024, and projected Fiscal Year 2023/2024 ending fund balances for various other funds (“Water Rate Calculations and Budget Summaries”).
Attachment 4 - ‘Fiscal Year 2023/2024 Revenue Summary Chart’ delineates projected water use and rate changes by Sonoma Water customers.
The Water Transmission System Operation and Maintenance charge, and charges for water management planning, watershed management and planning activities, recycled water/local supply projects, and water conservation/water use efficiency projects, and proposed rate increases are as follows:
|
Funds |
Fiscal Year 2023/2024 Rate in Dollars per Acre-Foot |
Increase (Decrease) from Fiscal Year 2022/2023 in Dollars |
Percent Change |
Description |
|
Operations and Management |
$903.30 |
$87.28 |
10.70% |
Fiscal Year 2022/2023 rate is $816.03. Fiscal Year 2023/2024 budget Increase is attributable to an increase in maintenance projects (cathodic protection, tank recoats, pump and valve replacements, chlorine and pH improvement projects, SCADA upgrades), studies (Regional Water Supply Resiliency, Watershed and Water Quality Seismic Mitigation Studies, Local Hazard Mitigation Plan), and emergency inventory procurement. |
|
Water Management Planning |
$0.00 |
($0.20) |
-100.00% |
Fiscal Year 2022/2023 rate is $0.20. Fiscal Year 2023/2024 Budget increase is due to staff time related to the annual water supply and demand assessment. Using an estimated $100,000 in fund balance to decrease rate to $0. Budget request is for follow-up meetings, responding to State Department of Water Resources and contractor requests, tracking regulatory compliance changes, and coordinating with climate adaption strategic planning efforts. |
|
Watershed Planning and Restoration |
$35.96 |
$3.25 |
9.94% |
Fiscal Year 2022/2023 rate is $32.70. Rate increase is primarily a result of an 8.5% decrease in deliveries. Rate of $120/AF based on $5M in expenditures and 41,847 AF is reduced to $35.96/AF by using $3.5 million in fund balance. |
|
Recycled Water and Local Supply |
$0.00 |
($0.50) |
-100.00% |
Fiscal Year 2022/2023 rate is $0.50. Due to accumulated fund balance budget reduces rate to $0 in FY23/24. No increase anticipated over FY2022-2023 budget. Expenditures are for Sonoma Water's share of Groundwater Sustainability Agencies' budgets. |
|
Water Conservation |
$54.08 |
$6.58 |
13.85% |
Fiscal Year 2022/2023 rate is $47.50. Rate increase is primarily a result of an 8.5% decrease in deliveries. Rate of $63.06/AF based on $2.6M of net expenditures and 41,847 AF is reduced to $54.08/AF by using $418,000 in fund balance. Decrease is associated with offsetting grant revenue from DWR Urban Community Drought Relief Grant Program. Expenditures used to implement water use efficiency, outreach and education projects, address drought conditions and ongoing water conservation needs, and pass-through grant funds to water contractors and other partners. |
|
Storage Facilities Bonds |
$29.14 |
$2.59 |
9.76% |
Fiscal Year 2022/2023 rate is $26.55. Rate is based on revenue requirement for debt service divided by water deliveries. Total Debt service lower than previous year due to savings associated with refunding in the 2022 Revenue Bond Issuance. Rate increase is due to decrease in budgeted water deliveries. |
|
Common Facilities Bonds |
$139.61 |
$13.05 |
10.31% |
Fiscal Year 2022/2023 rate is $140.41. Rate is based on revenue requirement for debt service divided by water deliveries. Total Debt service lower than previous year due to savings associated with refunding in the 2022 Revenue Bond Issuance. Rate increase is due to decrease in budgeted water deliveries. |
|
Sonoma Aqueduct Bonds |
$151.68 |
$19.81 |
15.02% |
Fiscal Year 2022/2023 rate is $151.68. Sonoma Aqueduct pays an additional revenue bond charge for the bonds associated with Sonoma Booster Station Electrical Upgrade and Pumping Reliability Project, Bennett Valley Fault Crossing Project, and other Creek Crossing Projects on the Aqueduct. Total Debt service lower than previous year due to savings associated with refunding in the 2022 Revenue Bond Issuance. Rate increase is due to decrease in budgeted water deliveries. |
|
Santa Rosa Aqueduct Capital Fund |
$11.00 |
($0.00) |
0.00% |
Fiscal Year 2022/2023 rate is $11. A discretionary capital charge is added by the water contractors to fund hazard mitigation projects, build fund balance for future aqueduct capital projects, and to provide rate stabilization capacity. |
|
Petaluma Aqueduct Capital Fund |
$0.00 |
($11.00) |
-100.00% |
Fiscal Year 2022/2023 rate is $12. A discretionary capital charge is added by the water contractors to fund hazard mitigation projects, build fund balance for future aqueduct capital projects, and to provide rate stabilization capacity. Reduction at the request of the contractor's on the aqueduct. |
|
Sonoma Aqueduct Capital Fund |
$34.90 |
($3.10) |
-8.16% |
Fiscal Year 2022/2023 rate is $38. A discretionary capital charge is added by the water contractors to fund hazard mitigation projects, build fund balance for future aqueduct capital projects, and to provide rate stabilization capacity. Reduction at the request of the contractor's on the aqueduct. |
Per the Restructured Agreement, Other Agency Customers, pay monthly fixed meter charges in addition to their volumetric rate for delivered water. Meter charges cover the cost of new replacement meters, meter calibration and testing, meter maintenance, and meter reading. Meter charges have remained unchanged since 2000 and do not cover the cost of service. In order to recover the cost service Sonoma Water has updated the fixed meter charges in the FY 2023/2024 resolution as shown below:
|
Meter Size |
Monthly Meter Charge FY 2022/2023 |
Proposed Monthly Meter Charge FY 2023/2024 |
|
1" |
$24.00 |
$26.00 |
|
1.5" |
$25.00 |
$39.00 |
|
2" |
$26.00 |
$68.00 |
|
3" |
$28.00 |
$91.00 |
|
4" |
$29.00 |
$149.00 |
|
6" |
$180.00 |
$252.00 |
|
8" |
$197.00 |
$375.00 |
|
10" |
$220.00 |
$456.00 |
Over the past ten years, Sonoma Water’s customers have benefitted from more than $23 million in awarded grant funds that are used to offset expenses. The majority of funds have been for hazard mitigation and water supply reliability projects including the Santa Rosa Well Resiliency Project that received $6.9 million from the Department of Water Resources. In addition, the water transmission system currently had applications under consideration totaling $8 million what are scheduled to be awarded in FY2022/2023 or early FY2023/2024 for water conversation, water resiliency, and aquifer recharge.
Under the Restructured Agreement, Sonoma Water is required to submit a preliminary water transmission system budget to its Water Contractors by February 1 of each year. The preliminary budget for Fiscal Year 2023/2024 was sent to the water contractors on January 17, 2023. Sonoma Water met four times with Water Contractor staff to develop working drafts of the budget, and on March 6, 2023, the Water Contractor’s Technical Advisory Committee recommended approval of the draft budget. In March 2023, Sonoma Water staff made virtual and in person budget presentations and answered questions for some of the Water Contractor’s elected bodies. On April 3, 2023, the Water Contractor’s Water Advisory Committee members recommended adoption of the proposed budget by Sonoma Water’s Board of Directors. Pursuant to Section 4.1 of the Restructured Agreement, the budget must be adopted by Sonoma Water’s Board of Directors on or before April 30.
The Fiscal Year 2023/2024 bond and loan charges are summarized in Attachment 5.
Prior Board Actions:
4/19/22: Board established water rates and charges for Sonoma Water’s water transmission system for Fiscal Year 2022/2023.
Fiscal Summary
|
Expenditures |
FY 22-23 Adopted |
FY23-24 Projected |
FY 24-25 Projected |
|
Budgeted Expenses |
|
$68,300,000 |
|
|
Additional Appropriation Requested |
|
|
|
|
Total Expenditures |
|
$68,300,000 |
|
|
Funding Sources |
|
|
|
|
General Fund/WA GF |
|
|
|
|
State/Federal |
|
$2,989,000 |
|
|
Fees/Other |
|
$53,014,000 |
|
|
Use of Fund Balance |
|
$12,297,000 |
|
|
Contingencies |
|
|
|
|
Total Sources |
|
$68,300,000 |
|
Narrative Explanation of Fiscal Impacts:
There is no fiscal impact in Fiscal Year 2022/2023 as the proposed rates become effective in Fiscal Year 2023/2024. Revenues from these charges pay for operations and maintenance of the water transmission system. Sonoma Water anticipates total revenues of $53 million from water sales, power sales, contributions, and interest and investment income; $3 million in grant funds, and $12.3 million in use of fund balance. Revenue and expenditures for Fiscal Year 2024/2025 will be determined based on water deliveries in calendar year 2023.
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Staffing Impacts: |
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Position Title (Payroll Classification) |
Monthly Salary Range (A-I Step) |
Additions (Number) |
Deletions (Number) |
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Narrative Explanation of Staffing Impacts (If Required):
None.
Attachments:
Resolution
Attachment 1 FY 23/24 Water Transmission Budget
Attachment 2 FY 23/24 Water Charges Per Acre-Foot
Attachment 3 FY 23/24 Water Rates Calculation and Budget Summaries
Attachment 4 FY 23/24 Revenue Summary
Attachment 5 FY 23/24 Debt Service Charges
Related Items “On File” with the Clerk of the Board:
None.