AgdaPkt 2016-06-27 Closed and Joint SA PFA

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Executive Summary ES‐1 Water & Sewer Financial Plans & Rate Studies ES EXECUTIVE SUMMARY ES‐1 Introduction Redwood City’s water and sewer utilities are financially self‐supporting enterprises that rely primarily on revenues from water and sewer service charges to fund the costs of providing service. As such, the City’s water and sewer rates need to be set at adequate levels to a) fund the costs of operating and maintaining the water and sewer systems, b) fund necessary capital improvements to keep the City’s aging infrastructure in good operating condition, c) pay for the wholesale costs of water supply from the San Francisco Public Utilities Commission (SFPUC), and d) pay for the City’s share of costs for the regional wastewater treatment plant operated by Silicon Valley Clean Water (SVCW). The City has provided proactive financial stewardship by gradually raising water and sewer rates each year over the past decade to keep revenues in line with the cost of providing service. The gradual rate increases have enabled the City to maintain the financial health of its utilities while avoiding the need for large rate spikes despite a number of financial challenges that have faced the water and sewer utilities in recent years. In 2015, the City retained Bartle Wells Associates (BWA) to develop updated financial projections and rate studies for the City’s water and sewer utilities. Final recommendations incorporate input from City staff and the City Council’s Utilities Committee, and independent legal review for compliance with the substantive provisions of Proposition 218. The proposed rates are designed to fund the operating and capital needs of the City’s water and sewer utilities and equitably recover costs from all customers. With the proposed rates, the City’s combined water and sewer rates are projected to remain in the middle range compared to other regional agencies. ES‐2 Water Rate Recommendations The City’s water utility has faced increased financial pressures in recent years, particularly due to large increases in SFPUC’s wholesale water rates coupled with a substantial decline in the volume of water sales due to customer response to drought. The water utility is facing a number of financial challenges that will require rate increases in upcoming years. These challenges include:  SFPUC Wholesale Rate Increases ‐ SFPUC wholesale water rates have more than doubled over the past 5 years, including a net 52% increase over the past 2 years. Wholesale water rates are projected to increase by an additional 37% over the next 4 years.  Capital Improvement to an Aging Water System ‐ Many of the City’s water distribution pipelines were installed over 50 years ago and are approaching the end of their useful lives. The City also needs to periodically rehabilitate or replace pump stations, storage tanks and 6.4.A. - Page 21