AgdaPkt 2016-06-13 Interview and Joint SA PFA

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7.A. - Page 50 2.9 Financial Challenges The City's water enterprise is facing a number of manageable financial challenges that will drive the need for rate increases in upcoming years. Key drivers of future rate increases are summarized as below. 2.9.1 SFPUC Wholesale Water Rate Increases Aside from recycled water supplies, Redwood City currently relies on imported water from the SFPUC for 100% of the community's water supply. SFPUC wholesale water rates (including the BAWSCA bond surcharge) have more than doubled over the past 5 years including a 52% increase over the past 2 years as shown on Figure W10. Looking forward, wholesale water rates are projected to increase by an additional 37% from current levels over the next 4 years. Considering that water supply costs account for approaching 45% of the City's total water utility expenses, these wholesale rate increases have put substantial upward pressure on the City's water rates. The SFPUC is in the process of completing a $4.8 billion program of seismic upgrades and reliability enhancements to the aging Hetch-Hetchy regional water system that delivers water to San Francisco and over 26 regional water agencies including Redwood City. To help fund these upgrades, the SFPUC has implemented substantial rate increases over the past 5+ years and is planning additional rate increases in upcoming years. In addition, the SFPUC recovers almost all of its costs from its wholesale customers via variable rates levied based on metered water purchases. Since a very large percentage of SFPUC water supply costs are fixed expenses, the recent reductions in water demand in response to drought have necessitated additional wholesale water rate increases as SFPUC's fixed costs need to be recovered from a substantially reduced volume of water sales. B Water Utility Finances& Rates W Water&Sewer Financial Plans&Rate Studies