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 2024/2025
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 2024/2025
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 9.88 percent rate increase for Santa Rosa Aqueduct customers, 9.98 percent rate increase for Petaluma Aqueduct customers, and an 8.14 percent increase for Sonoma Aqueduct customers.
Sonoma Water’s critical infrastructure, including aqueducts, pipelines, pump stations, storage tanks, and wells, are gradually aging after decades of service. A significant portion of it is approaching the end of its useful lifespan. The age of the infrastructure, combined with substantial levels of deferred maintenance, underscores the importance of making investments to guarantee a dependable and sustainable water source for the future. This budget is a crucial and essential step in that direction.
The Fiscal Year 2024/2025 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 average rate increases below 6% in the past five to ten years while continuing to maintain system reliability and public health and safety. Sonoma Water’s rates continue to be significantly lower than other water wholesalers in the bay area.
Actual water deliveries over the previous 3-, 5-, and 10-year periods have shown negative growth which drives up rate increases due to the fully volumetric rate structure. In FY 2022/2023, historically low deliveries resulted in our lowest water sales on record and significantly reduced fund balance reserves and put additional pressure on rates.
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:
In FY 2023/2024, Sonoma Water has made significant progress advancing the design and construction of six capital projects including multiple seismic and flood hazard mitigation projects and advancing the two remaining Santa Rosa Plain Wells to the construction phase. We continue to make progress implementing a 10-year, $88 million Tank Maintenance, Recoating, and Rehabilitation program with tank inspections, washouts, and repairs on six tanks, completion of two tank recoats, and design of three tank recoat projects underway.
The Fiscal Year 2024/2025 budget provides appropriations to continue progress on high priority capital and maintenance projects including construction of three hazard mitigation construction projects, advancing designs for three more hazard mitigation projects, completing the rehabilitation of the remaining two groundwater wells in the Santa Rosa Plain to increase water supply reliability during droughts, and continued implementation of Phases 4, 5, and 6 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, continuation of the comprehensive storage tank maintenance and recoat program with implementation of tank recoats on 3 additional tanks, emergency inventory procurement, and a robust water use efficiency program to ensure continued implementation of water conservation measures.
Sonoma Water has been able to use more than $10M in FEMA grants in recent years to fund numerous hazard mitigation projects and anticipates seeking federal and state funds for other projects. These grants along with the U.S Army Corps’ 65% cost share for the Dry Creek Habitat Enhancement Projects have resulted in significant cost savings to the water contractors.
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. While drought conditions have dissipated, demand has hardened, and current weather patterns have both filled water contractor reservoirs and reduced demands from their customers leading to continued low water sales for Sonoma Water. Based on deliveries through February, the revenue shortfall for FY 2023/2024 is estimated to be up to $3.5 million dollars. Sonoma Water is closely monitoring the FY 2023/2024 budget and has identified projects including the Santa Rosa and Cotati Aqueducts Cathodic Protection Project and SCADA Upgrades that have been or can be delayed until the beginning of FY 2024/2025 should revenue come in below budget.
With deliveries below historical averages combined with increasing costs to maintain aging infrastructure, Sonoma Water recommends utilizing higher deliveries for calculating the water rate as described below and deferring $8.9 million in lower priority maintenance and capital projects. As a result, Sonoma Water is proposing a rate increase under ten percent that is supported by the water contractors. Budgets for seismic response planning, transmission system condition assessments, SCADA upgrades, emergency inventory procurement, the Warm Spring Dam Hydroturbine Retrofit Project, and the Mirabel 12kV Resiliency Project have been reduced or deferred. The reserve for the tank recoating program intended to smooth future rate increases was also reduced. Sonoma Water further reduced the rate increase by using $18.13 million in fund balance, bond revenue, and grants.
Staff recommends a budget that results in a 9.88 percent rate increase for Santa Rosa Aqueduct customers, 9.98 percent rate increase for Petaluma Aqueduct customers, and an 8.14 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 3-year annual average, whichever is less. The 3-year annual average deliveries were 42,826 acre-feet. The quantity of water delivered during the preceding 12 months was 40,844 acre-feet. However, the Restructured Agreement also states that if deliveries will not be predictive of future usage, Sonoma Water may use a different amount with the prior approval of the Water Advisory Committee. Given historically low deliveries resulting from the prolonged drought, and recognizing that the drought conditions have dissipated, Sonoma Water recommended, and the Water Advisory Committee approved, using the 3-year annual average at the February 2024 WAC meeting. The water rates calculated for Fiscal Year 2024/2025 utilizes 42,826 acre-feet as a delivery estimate. This represents a 2.3% increase over Fiscal Year 2023/2024 and resulted in reducing the rate increase by approximately 4.5%.
The rate increase is attributable to increasing operations and maintenance costs and critically needed infrastructure improvements, compounded by the fully volumetric rate structure with the continuing effects of water demand below historical averages. Sonoma Water uses fund balance accumulated in years with higher deliveries than budgeted to reduce rate increases in years with lower deliveries. After several years of drought, Sonoma Water has less available fund balance to offset the rate increase.
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 2024/2025, and projected Fiscal Year 2024/2025 ending fund balances for various other funds (“Water Rate Calculations and Budget Summaries”).
Attachment 4 - ‘Fiscal Year 2024/2025 Revenue Summary Chart’ delineates projected water use and rate changes by Sonoma Water customers. The Fiscal Year 2024/2025 bond and loan charges are summarized in Attachment 5. Attachment 6 includes the Fiscal Year 2024/2025 Water Transmission System Charges and Proposed Rate Increases by fund.
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. In order to recover the cost of service, Sonoma Water has updated the fixed meter charges in the FY 2024/2025 resolution as shown below:
|
Meter Size |
Monthly Meter Charge FY 2023/2024 |
Proposed Monthly Meter Charge FY 2024/2025 |
|
1" |
$26.00 |
$27.00 |
|
1.5" |
$39.00 |
$40.00 |
|
2" |
$68.00 |
$69.00 |
|
3" |
$91.00 |
$93.00 |
|
4" |
$149.00 |
$152.00 |
|
6" |
$252.00 |
$257.00 |
|
8" |
$375.00 |
$381.00 |
|
10" |
$456.00 |
$463.00 |
Over the past ten years, Sonoma Water’s customers have benefitted from more than $26 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.
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 2024/2025 was sent to the water contractors on January 17, 2024. Sonoma Water met two times with Water Contractor staff to develop working drafts of the budget, and on March 4, 2024, the Water Contractor’s Technical Advisory Committee unanimously recommended approval of the draft budget. In March 2024, Sonoma Water staff made budget presentations and answered questions for the majority of the Water Contractor’s elected bodies. On April 8, 2024, 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.
County of Sonoma Strategic Plan Alignment
N/A
Racial Equity:
Was this item identified as an opportunity to apply the Racial Equity Toolkit?
No
Prior Board Actions:
4/18/23: Board established water rates and charges for Sonoma Water’s water transmission system for Fiscal Year 2023/2024.
Fiscal Summary
|
Expenditures |
FY23-24 Adopted |
FY24-25 Projected |
FY25-26 Projected |
|
Budgeted Expenses |
|
$74,430,000 |
|
|
Additional Appropriation Requested |
|
|
|
|
Total Expenditures |
|
$74,430,000 |
|
|
Funding Sources |
|
|
|
|
General Fund/WA GF |
|
|
|
|
State/Federal |
|
$1,036,000 |
|
|
Fees/Other |
|
$62,758,000 |
|
|
Use of Fund Balance |
|
$10,636,000 |
|
|
General Fund Contingencies |
|
|
|
|
Total Sources |
|
$74,430,000 |
|
Narrative Explanation of Fiscal Impacts:
There is no fiscal impact in Fiscal Year 2023/2024 as the proposed rates become effective in Fiscal Year 2024/2025. Revenues from these charges pay for operations and maintenance of the water transmission system. Sonoma Water anticipates total revenues of $62.8 million from water sales, power sales, contributions, interest, and investment income; $1 million in grant funds, and $10.6 million in use of fund balance. Revenue and expenditures for Fiscal Year 2025/2026 will be determined based on water deliveries in calendar year 2024.
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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 24/25 Water Transmission Budget
Attachment 2 FY 24/25 Water Charges Per Acre-Foot
Attachment 3 FY 24/25 Water Rates Calculation and Budget Summaries
Attachment 4 FY 24/25 Revenue Summary
Attachment 5 FY 24/25 Debt Service Charges
Attachment 6 FY24/25 Water Transmission System Charges and Proposed Rate Increases
Attachment 7 FY 24/25 Water Transmission Budget Presentation
Related Items “On File” with the Clerk of the Board:
None.