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7.B. - Page 18 Executive Summary 1! 011V qW `wflj(RG 9 6 e WJft LCr&d recommend course adjustments, as needed, during the latter years of the Master Planning period. The City's risk tolerance and approach toward risk management would also factor into whether the rate increases associated with this program are justified. To assess the potential impacts on rates, the City performed a rate analysis, evaluating potential rate increases needed to fund the Scenario 2 CIP programs through FY 2019/20. Future rate updates would evaluate funding beyond FY 2019/20. City staff developed several scenarios, with the recommended scenario designed to achieve two objectives: 1) increase long -term fund reserves; and 2) fund the CIP. Current City Water Enterprise Financial Projections estimate customer rate increases between 3.5 percent to 12 percent annually to fund system operational costs, debt services, reserves, Meter Replacement Program, Conservation Program, and Scenario 2 CIP through FY 2019/20. Staff provided a briefing to the City Council Utilities Committee on July 27, 2011 and recommended implementing Scenario 2. The Utilities Committee indicated its support of City staff s recommendation. Tables ES -7 and Figure ES -2 show the recommended project funding timeline for Scenario 2. The tables and figure show the sequencing of specific projects and programs. Sequencing is generally based on the relative priorities of projects and programs, with some adjustments to balance project implementation dollars with available funding. Sequencing also considers providing a mix of projects year -by -year to provide a more balanced CIP. Table ES -7 shows the funding timeline in current dollars. Table ES -8 shows the funding timeline in the years in which they occur, with project and program costs escalated at 4 percent per year. The timeline shown represents the best estimate of project sequencing at this time. While the goals will remain the same in the future, the timeline may need to be modified to respond to changes in funding levels, priorities and implementation. In recent years, the City has funded about $1M of pipeline improvements per year, averaging about 1.6 miles /year. Funding/cash flow for the first 10 years of both Scenario 2 and 3 is based on a gradual increase in funding, which results in less than $1M /year for 6 out of the 10 years. In the next two years, the City should review its ability to increase funding more quickly to maintain a level of pipeline replacement similar to recent years. The City has a longer -term goal of funding replacement of 1 percent of system pipelines per year (2.5 miles). WEST Y O S T ASSOCIATES ES -1 4 City of Redwood City September 2011 Water System Master Plan o\c\369\06-09-01 \wp\mp\05261 0_0ES