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PROPOSITION 218 PUBLIC HEARING TO CONSIDER WASTEWATER RATE ADJUSTMENTS AND ANY PROTESTS
recommended action
RECOMMENDATION
It is recommended that the City Council approve a resolution:
1. Adopting the Draft Wastewater Rate Study (Study), dated August 2024, as prepared by HDR Engineering, Inc.
2. Approving the Wastewater Utility rate adjustments as identified in the Study if less than a majority of the affected record owners or affected sewer utility customers directly responsible for the payment of sewer service charges have submitted written protests.
It is also recommended that the City Manager be authorized to take appropriate and necessary actions to carry out the purpose and intent of this resolution.
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Summary
In August 2023, the Municipal Utilities Department (MUD) retained HDR Engineering, Inc, to conduct a comprehensive Wastewater Rate Study that meets the requirements of California Constitution article XIII D, Section 6 (commonly referred to as Proposition 218 and referred to herein as “Article XIII D”). The objective of the Study (Exhibit 1) was to review the City of Stockton MUD Wastewater Utility operating, maintenance, and capital costs necessary to provide wastewater service to its customers. The Study revealed that current funding levels were insufficient to maintain operation activities and capital improvement projects. The Study proposes a five-year schedule of adjustments in the rates of the City wastewater service charges to ensure the Wastewater Utility has sufficient revenue to meet projected operation, maintenance, and capital project costs.
It is a best practice to review rates for sewer utility charges every five years to confirm that rates reflect changes in the cost to provide sewer service, and that the utility maintains adequate financial resources to provide an essential public health service to the community. If less than a majority of the record property owners or affected sewer utility customers directly responsible for the payment of sewer service charges submit valid City of Stockton written protests to the proposed rates, the City Council may adopt the Draft Wastewater Rate Study, dated August 2024, and approve wastewater rate adjustments as identified in the Study.
Approval of the proposed rate schedules will establish the maximum rates (Exhibit 2) that may be charged during the five-year period. Prior to implementing the proposed rate adjustments each fiscal year, City staff will review the revenue requirements and the rates necessary to meet those revenue requirements each fiscal year during the Annual Budget process.
It is recommended that the City Council adopt the Draft Wastewater Rate Study, dated August 2024, and approve the proposed five-year rate schedules.
DISCUSSION
Background
The most recent wastewater utility rate study was completed in 2019 and included the adoption of phased rate adjustments over a five-year period. The last wastewater rate adjustment went into effect on July 1, 2023.
The wastewater utility rate adjustments in 2019 included funding for the Regional Wastewater Control Facility (RWCF) Plant Modifications Project (Project). The City was awarded $108 million from the Water Infrastructure Finance and Innovation Act of 2014 (WIFIA), $46.8 million from the Clean Water Act State Revolving Fund (SRF), and $9.5 million from Proposition 50, the Water Security, Clean Drinking Water, Coastal and Beach Protection Act of 2002. This funding reduced or eliminated the need to issue bonds to fund the Project. The main goal for the Project was to meet new nitrate and nitrite discharge limits required by the State. The construction of the new treatment processes is nearly complete and the RWCF met the new limits by the June 2024 deadline. Construction of the remaining building elements is scheduled for completion in early 2025. A rate study, and proposed rate adjustments, may include adjustments for up to five years.
On August 22, 2023, the City Council awarded a contract to HDR Engineering, Inc (HDR) to prepare a rate study that meets the requirements of Article XIII D. HDR was tasked to evaluate the Wastewater Utility revenue requirements, prepare a cost-of-service analysis, and design rates that equitably and proportionately allocate the costs of service among all customer classes and customers within each class.
On August 6, 2024, and August 7, 2024, the Draft Study and proposed rate adjustments were presented to the Water Advisory Group and Council Water Committee, respectively. Following the Water Advisory Group’s recommendation, the Council Water Committee approved forwarding the proposed wastewater rate adjustments to the City Council for consideration and to proceed with the Article XIII D notice and Public Hearing process. On August 20, 2024, the City Council approved mailing a Notice of Public Hearing (Notice) to all property owners and wastewater utility customers and set the public hearing to hear protests.
Present Situation
In the HDR analyses, the proposed wastewater rates were developed to meet the requirements of Article XIII D. A key component of Article XIII D requires that the wastewater rates may not exceed the cost of providing wastewater service, and the amount of the wastewater service charges imposed upon any parcel or person shall not exceed the proportional cost of the service attributable to the parcel. The revenue requirements for the wastewater utility are allocated to the different customer classes based on the respective volume and strength of sewer discharge produced, and customer classes. Customer classes include residential (including single family), multi-family, apartments, commercial, institutional, and industrial. Customers include those located within the City limits and Non-City customers include those properties outside the limits of the City of Stockton and within San Joaquin County unincorporated areas. The rate design reflects the revenue requirement findings, meets the City’s goals and objectives, is cost-based, and equitably and proportionately distributed among all the customer classes.
The Study exclusively evaluated potential adjustments to the rates of the wastewater service charges; connections fees were not a part of this study. To determine the appropriate level of revenue for the utility, HDR conducted a maintenance and operations evaluation from FY 2024-25 through FY 2028-29. Three interrelated analyses were used to address the adequacy and equity of the proposed utility rates including:
• The revenue requirement analysis, which compares the revenues to the expenses of the utility to determine the overall rate adjustment required.
• The cost-of-service analysis, which allocates the revenue requirement of the utility to the various customer classes of service in a fair and equitable manner.
• The rate design analysis, which considers both the level and structure of the rate design to collect the necessary amount of revenue.
The results of these three analyses indicate that the current wastewater rates are not sufficient to meet the operation and capital needs of the utility; therefore, the wastewater rates must be adjusted to meet the utility’s revenue requirement. The proposed wastewater rates for each customer class over the next five-year period are shown in the tables below:
Summary of Proposed Monthly Residential Wastewater Rates
|
|
Present Rates |
FY 2025 |
FY 2026 |
FY 2027 |
FY 2028 |
FY 2029 |
|
Residential Charge (Per Dwelling Unit) |
|
|
|
|
|
|
|
Single-Family & Condo (City) |
$55.68 |
$57.36 |
$59.65 |
$62.04 |
$64.52 |
$67.10 |
|
Single-Family & Condo (Non-City) |
$50.77 |
$52.30 |
$54.39 |
$56.57 |
$58.83 |
$61.18 |
|
Multi-Family (City) |
$52.45 |
$52.86 |
$54.97 |
$57.17 |
$59.46 |
$61.84 |
|
Multi-Family (Non-City) |
$47.05 |
$47.42 |
$49.32 |
$51.29 |
$53.34 |
$55.47 |
|
Apartments (City) |
$47.57 |
$47.57 |
$49.47 |
$51.45 |
$53.51 |
$55.65 |
|
Apartments (Non-City) |
$41.75 |
$41.75 |
$43.42 |
$45.16 |
$46.97 |
$48.85 |
Summary of Proposed Monthly Commercial/Institutional Wastewater Rates
|
|
Present Rates |
FY 2025 |
FY 2026 |
FY 2027 |
FY 2028 |
FY 2029 |
|
Consumption Charges ($/CCF1) |
|
|
|
|
|
|
|
Com/Inst - Low-strength |
$2.22 |
$2.40 |
$2.50 |
$2.60 |
$2.70 |
$2.81 |
|
Com/Inst - Med-strength |
$2.70 |
$2.75 |
$2.86 |
$2.97 |
$3.09 |
$3.21 |
|
Com/Inst - High-strength |
$4.54 |
$4.42 |
$4.60 |
$4.78 |
$4.97 |
$5.17 |
|
Schools ($/ADA2) |
$1.30 |
$1.29 |
$1.34 |
$1.39 |
$1.45 |
$1.51 |
|
Fixed Monthly Charge (City) |
$26.83 |
$26.91 |
$27.99 |
$29.11 |
$30.27 |
$31.48 |
|
Fixed Monthly Charge (Non-City) |
$23.56 |
$23.63 |
$24.58 |
$25.56 |
$26.58 |
$27.64 |
1 - CCF = one hundred cubic feet 2 - ADA = average daily attendance
Summary of Proposed Monthly Industrial Wastewater Rates
|
|
Present Rates |
FY 2025 |
FY 2026 |
FY 2027 |
FY 2028 |
FY 2029 |
|
Industrial Charges |
|
|
|
|
|
|
|
Fixed Monthly Charge |
$26.83 |
$26.91 |
$27.99 |
$29.11 |
$30.27 |
$31.48 |
|
Admin / Stand-by Charge |
|
|
|
|
|
|
|
Industrial - Flow ($/MG1) |
$864.80 |
$945.76 |
$983.59 |
$1,022.93 |
$1,063.85 |
$1,106.40 |
|
Industrial - BOD ($/Klbs2) |
$140.13 |
$153.25 |
$159.38 |
$165.76 |
$172.39 |
$179.29 |
|
Industrial - SS ($/Klbs) |
$102.88 |
$112.51 |
$117.01 |
$121.69 |
$126.56 |
$131.62 |
|
Consumption Charges |
|
|
|
|
|
|
|
Industrial - Flow ($/MG) |
$748.52 |
$818.59 |
$851.33 |
$885.38 |
$920.80 |
$957.63 |
|
Industrial - BOD ($/Klbs) |
$52.14 |
$57.02 |
$59.30 |
$61.67 |
$64.14 |
$66.71 |
|
Industrial - SS ($/Klbs) |
$83.45 |
$91.26 |
$94.91 |
$98.71 |
$102.66 |
$106.77 |
1 - MG = million gallons 2 - Klbs = one thousand pounds
If less than a majority of the record property owners or affected water utility customers directly responsible for the payment of water service charges submit valid City of Stockton written protests to the proposed rates, the City Council may adopt the Draft Wastewater Rate Study, dated August 2024, and approve wastewater rate adjustments as identified in the Study.
Public Outreach and Notification
MUD staff provided information about the Study and an overview of the legal process requirements of Article XIII D to the Water Advisory Group on August 6, 2024, and Council Water Committee on August 7, 2024.
On August 20, 2024, the City Council authorized MUD staff to mail a Notice to all City of Stockton Wastewater Utility customers and the record owners of property upon which the rates and charges are proposed for imposition.
Public Hearing Notices were mailed to record property owners and sewer utility customers. The Notice included information on the amount of the proposed adjustments; the reasons for the adjustments; the date, time and location of the Public Hearing; and instructions to protest the proposed adjustments. Record property owners and Wastewater Utility customers who wish to submit a protest were instructed to do so in writing and submit it directly to the Office of the City Clerk on or before the close of the Public Hearing. Any written protest containing the required information as stated in the Notice will be counted by the City Clerk before the close of the public hearing. Property owners and customers can both submit a protest, but only one protest is counted per parcel.
The Notice listed November 12, 2024, at 5:30 p.m. as the date and time of the Public Hearing. The date and time of the Public Hearing have also been published on the City webpage at www.stocktonca.gov/SewerRates, announced at public meetings, and published in The Record on October 23, 2024, and October 30, 2024.
In addition, a dedicated phone line, and Ask Stockton topic were created to provide community members with additional ways to contact the City for questions and information on the proposed wastewater rate adjustments. The phone line is a message line. All calls were returned by a knowledgeable individual within two business days. An informational meeting was held on September 26, 2024, at Stribley Community Center. The meeting included a presentation about the proposed rates, and an opportunity for customers to ask questions. The presentation was recorded and is available at www.stocktonca.gov/SewerRates.
FINANCIAL SUMMARY
If approved, the proposed Wastewater rate adjustments will generate sufficient revenues over the next five years to pay for Wastewater Utility operation and maintenance costs, infrastructure needs, capital improvement projects, in addition to maintaining bond coverage covenants.
There is no impact to the General Fund, or any other unrestricted funds, from this action.