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Table A-4 Redwood City Water Financing Plan Outstanding Policy Issues Outstanding Policy Issues Water Rate Structure Adjustments ~ The financing plan calculates the total rate and revenue increases required from annual water sales and service charges assuming across- the-board rate increases. The City will need to determine how the various components of the rate structure will be adjusted to achieve the overall revenue target each year. 2 Financial Projections - The cash flow projections are based on the best information currently available and incorporate many assumptions (e.g. project cost estimates, water demand projections, SFPUC rate projections, operating cost inflation, bond interest rates, etc.) The City should periodically update the financial projections based on the best available information and adjust future rates accordingly. 3 Water Facilities Fees Update - Water Facilities Fees have not been adjusted since 1994 and may not account for the costs of capital improvements completed over the past 10 years and future capital needs for growth, including projects identified by Nolte Associate's engineering analyis of utility infrastructure needed to serve the Downtown Precise Plan Area. 4 Proposed New Water Capacity Fee - The City may adopt a new Water Capacity Fee to recover costs for capacity in the recycled water project required to free up potable water supply for new development. The City Council may need to resolve some policy issues when adopting new Water Capacity Fees or updated Water Facilities Fees including: a) The City may need to weigh the competing policy objectives of wanting to recover the full cost of infrastructure needed to serve growth vs. the desire to keep development costs low for affordable housing projects: and b) Supplemental fees for remodeling projects should be based on actual increases in water demand, but not for mandatory meter upsizings due to fireflow requirements alone. Over the next 10-20 years, Water Capacity Fees would generate roughly $6.4 to $9.6 million assuming fees are paid for 600 - 900 AF of potable water demand from new development at the current proposed fee of $10,600 per AF. 5 Drought Contingency Plan - City staff anticipate developing a drought contingency plan to help the City proactively respond to a future drought. Key components of the plan will include implementation of a water allocation program (water budgets) and an emergency drought water pricing policy. The City anticipates that this plan will be developed by July 1, 2008. 6 Recycled Water Sales to Other Agencies - The recycled water project provides the City with the opportunity to sell excess recycled water to other agencies at a potential profit. City staff anticipate developing guidelines to help ensure that future contracts for water sales to other agencies protect the City's long-term financial and operational interests. BARTLE WELLS ASSOCIATES F:\Jobs\Redwood City\1921\ IWater Financial Plan Update 2007 F\Assumplions 4,4/12/2007,6:52 PM Be Page 105 Attachment 5