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ADOPT A RESOLUTION TO AUTHORIZE A PUBLIC HEARING TO CONSIDER ADJUSTMENTS IN THE CITY’S WASTEWATER RATES AND CHARGES AND AUTHORIZING AND DIRECTING THE CITY MANAGER TO MAIL A NOTICE OF THE PUBLIC HEARING TO CONSIDER THE PROPOSED ADJUSTMENTS
recommended action
RECOMMENDATION
It is recommended that the City Council adopt a resolution to:
1. Authorize a public hearing to be held in the future to consider adjustments in the City’s wastewater rates and charges; and
2. Authorize and direct the City Manager to mail a notice of the future public hearing to all City of Stockton Wastewater Utility customers and the record owners of property upon which the rates and charges are proposed. The public hearing shall be held at least 45 days after the notice of the public hearing has been mailed.
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
The City of Stockton Municipal Utilities Department (MUD) includes the Water, Wastewater and Stormwater enterprise funds. Periodic wastewater utility rate studies are required by law and necessary to maintain a sound fiscal base to operate and maintain the utility.
The proposed actions will approve the recommendations of the Water Advisory Group and Council Water Committee to initiate the notice and public hearing proceedings required under California Constitution Article XIII D, Section 6 (commonly referred to as Proposition 218 and referred to herein as “Article XIII D”) for the consideration of the proposed wastewater rates and charges. These actions will notify wastewater customers and affected property owners of the proposed rate adjustments and provide instructions to submit written protests to the proposed rates and charges prior to the close of the public hearing. A public meeting will be held within the 45-day period following the mailing of the notice of public hearing to provide information regarding the proposed rate adjustments. The meeting will be recorded and available on the City’s website.
Notices will be mailed to customers directly responsible for payment of wastewater utility charges and the record owners of property upon which the rates and charges are proposed within the City’s wastewater service area. Although both billed customers and record owners will be notified, only one protest per parcel will be counted. If fewer than fifty percent plus one of the customers of record or record owners submit written protests to the proposed rate increases prior to the close of the public hearing, the City Council will be asked to authorize the wastewater rate adjustments at the public hearing, currently anticipated to be held on or about October 22, 2024.
DISCUSSION
Background
It is best practice to perform rate evaluations every five years including the preparation of rate studies to maintain a sound fiscal basis to operate and maintain the utility. The last wastewater utility rate study was completed in 2019 and included the adoption of phased rate adjustments over a five-year period. The most recent wastewater rate adjustment went into effect on July 1, 2023.
Approved by Resolution 2019-05-22-1506, the 2019 wastewater utility rate adjustments 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 imposed by the State. The construction of the new treatment processes is nearly complete, and the RWCF was able to meet 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 increases, are authorized to include adjustments for up to five years. It is prudent financial planning to revisit rate studies every five years to accurately reflect changes in cost-of-service, capital improvement projects, and customer impacts.
Present Situation
Following the Request for Proposals and selection process, a professional services contract with HDR Engineering, Inc. (HDR) was approved by the City Council on August 22, 2023, by Resolution 2023-08-22-1214. HDR was tasked to evaluate the Wastewater Utility’s revenue requirements, prepare a cost-of-service analysis, and design rates that are equitably and proportionately distributed among all customer classes and customers within each class. 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 within unincorporated pockets.
The Draft Wastewater Rate Study (Attachment A), dated July 2024, 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.
Based on the analyses, the proposed wastewater rates have been developed to meet the legal requirements of the California Constitution Article XIII D, Section 6 (Article XIII D), commonly referred to as Proposition 218. A key component of Article XIII D requires that the wastewater rates may not exceed the cost of providing wastewater service.
Likewise, Article XIII D determines that the amount of the wastewater service charge levied 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 group. 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.
On August 7, 2024, and August 8, 2024, the Draft Wastewater Rate Study (Attachment A) 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.
The City of Stockton will conduct a public information session in September 2024 to provide information to community members regarding the proposed rate increases and the Article XIII D process. This session will be recorded and posted on the City’s website.
By approving the resolution, the City Council will approve the Council Water Committee recommendation to hold a public hearing to consider the proposed wastewater rates and charges and authorize and direct the City Manager to issue a notice of the future public hearing to all City of Stockton Wastewater Utility customers, and the record owners of property upon which the proposed rates and charges are recommended. The Public Hearing shall be held at least 45 days after the notice of the public hearing is mailed. Staff anticipates that the Public Hearing will be held during the City Council meeting on or about October 22, 2024.
The proposed wastewater rates and charges for each customer class and the effective dates are shown in the tables below. The proposed rates for Non-City customers reflect the proportional use of the wastewater system by parcels outside City limits as determined by an agreement between the City and the San Joaquin County.
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 |
1CCF = one hundred cubic feet 2ADA = 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 |
1MG = million gallons 2Klbs = one thousand pounds
FINANCIAL SUMMARY
There are sufficient funds available in the Wastewater Utility - Outreach Division’s accounts for postage, special services and reprographics for the related printing and postage fees to mail the notice of public hearing.
This action has no impact on the General Fund or any other unrestricted funds.
Attachment A - Draft Wastewater Rate Study Report