Okay.

Good evening and welcome to the August 27th, 2025 meeting of the utilities rate advisory commission.

It is now 53, and the meeting is now called to order.

Will the clerk please call the role to establish a quorum?

Thank you, Chair.

Members please unmute your microphones.

Member Tanakella.

Member Gasbard.

Present.

Member Burdock is absent.

Member Shambhai is absent.

Member Nelson?

Here.

Member Olson.

Here.

Member Everly?

Here.

Member Johnson.

Here.

Member Tran.

Here.

And Chair Zito.

Here.

Thank you.

We have quorum.

I would like to remind members of the public in chambers that if you would like to speak on an agenda item, please turn in a speaker slip when the item begins.

You will have two minutes to speak once you are called on.

After the first speaker, we will no longer accept speaker slips.

And we will now proceed with today's agenda.

So okay.

So we're going to start with the land acknowledgement.

Please rise for the opening acknowledgments in honor of Sacramento's Indigenous Peoples and Tribal Lands.

To the original people of this land, the Nissan people, the Southern Maidu, Valley and Plains, Miwok, Patwin, Wintong, Peoples, and the people of the Wilton Rancheria, Sacramento's only federally recognized tribe.

May we acknowledge and honor the Native people who came before us and still walk beside us today on these ancestral lands by choosing to gather together today in the active practice of acknowledgement and appreciation for Sacramento's Indigenous People's History Contributions and Lives.

Thank you.

Please remain standing for the Pledge of Allegiance.

I pledge allegiance to the flag of the United States of America and to the Republic for which it stands.

One nation under God, indivisible with liberty and justice for all.

Thank you.

Okay.

First up.

I wasn't here last time, so it's good to see everybody.

But I did, I did stream you, so I was sort of kind of here to watch what was going on.

It's all very interesting.

Okay, so anyway, um, let's go ahead with the I think the first order is the um consent calendar.

So let me just find where we have that.

Are there any members of the public who wish to speak on the consent calendar?

Thank you, Chair.

I have no speaker slips.

Are there any um let's see, are there any commissioners that wish to speak on this item?

No.

Is there a motion and a second?

I'd like to move uh approval of the CASIF calendar.

Second.

I have a motion by Commissioner Olson and a second by I'm sorry.

Uh Commissioner Nelson.

Uh will the clerk please call the roll for vote.

Thank you, Chair.

Members, please unmute your microphones.

Member Tanakella.

Aye.

Member Gasbard.

Aye.

Member Burdock is absence.

Member Shambhai is absent.

Member Nelson.

Aye.

Member Olson.

Aye.

Vice Chair Everly.

Aye.

Member Johnson.

Aye.

Member Tran.

Aye.

And Chair Zito.

Aye.

Thank you.

We have quorum.

Thank you.

The motion passes.

Okay, we move on to the second item, which is, and I had it here just a minute ago.

The second island item is on the um discussion calendar.

And that will be the city attorney's office that's going to review the our our roles and our responsibilities as the Europe Commission.

We've got so many new members.

It's always good to update that.

So give it to you, Mr.

Voss.

Go right ahead.

Thank you, Chair Zito, members of the commission.

Um, I'm gonna head down to the presentation, give my presentation down there, and then I will take any questions and then I will leave.

But I have a capable backup here.

Um Mike Fry will be taking my place at the dais Mike advises the Department of Recycling and Solid Waste.

And so he's also familiar with um this commission with Prop 218 and these issues, and also his name is Mike, so it should minimize any confusion.

So talk to you today about the commission, how it was formed, um, what it does and what it's supposed to do, what it's supposed to not do, and then just give you a few examples of some highlights that of the things that URAC has done and accomplished over the years.

So what's your origin story?

In 2007, Department of Utilities came forward with a rate increase, and it was a two-year rate increase, and council was was blindsided.

Um there was community protest, there really hadn't been workshops, um, nothing like this group gets, right?

The council's busy, they do a lot of different things, and so they they put a halt on the proceedings and they said um we'll approve one year of this two-year rate increase, but staff go back and form an advisory commission to let us know what's what's going on, and so and do that, and then come back to us when you have a recommendation, and then maybe we'll consider the second year of that rate increase.

Um so the I went back and I looked at the minutes, they're pretty straightforward.

If you went and you looked at the video testimony from June 5th 2007, um, there's a lot of questions, and there's hard questions that council is asking.

And so, really, what they wanted from URAC is to vet these proposals and answer some of these hard questions before it got to council in the last minute.

So the next year in 2008, the council adopted an ordinance creating the utility rate advisory commission.

And that's what this is, and it's advisory panel with relevant expertise regarding the rate structure for water, sewer drainage, and solid waste services in Sacramento.

And so commissioners are chosen and selected based on expertise.

Some of a lot of you, most of you, maybe all of you, are experts in some form or other in these fields.

And so you're the group that the council has selected to advise them on rate increases involving these services.

So I'm the attorney for water, sewer, and drainage, and Mike Fry.

Um, feel free to go up to the day as at any time, Mike, is your attorney for solid waste services.

So at one point or other, both of us will be advising our clients when they come in front of you to asking for rate increases.

Um so City Code actually sets out the powers and duties of the utility rate advisory commission.

We just recently reorganized the city code for advisory bodies to standardize it.

So that is now in Title II, and so you can see what some of the procedures are.

If you looked in city code, but this is the chapter 2.88 that applies to utility rate advisory commission.

And this is specific to the URAC.

And so there are powers and duties that are set out, and so those are granted to this commission, and anything that is not set out there, not granted to the commission, right?

Council is reserved that for itself.

And so reviewing and commenting on rate proposals, that's A.

That's number one.

That's the real reason that council initiated this because they didn't want to have to hear it for the first time themselves when it got to council.

So they want a body of experts to provide them with a recommendation.

Um, to develop and provide recommendations to the mayor and city council, like you're all experts as you go through this process to the extent that you see things that could be recommended.

Um, that is also within the purview of this commission to provide those recommendations to city council.

Um C is hold rate hearings, and so the count there's a public hearing that's actually required in the proposition 218 procedures.

Proposition 218 creates procedures for implementing rate increases and also subset of limitations on what rate payer revenues can be used for.

And so Prop 218 requires a public hearing be held before a rate increase can be adopted, or a new rate can be adopted.

And so this is the body that will actually hold that public hearing and accept public comments.

So I don't know that there's any members of the public in the audience now.

I don't know that there have been for the last few meetings.

I don't know that there will be this year, but I guarantee you that there will be many members of the public that come in for the public rate hearing prior to a rate increase.

And so you will be the body that listens to all of those comments.

That's C.

And D is I think another important function for this commission is the community liaison for utility rate settings.

And so some of you that have asked a lot of questions.

I think have this in mind, right?

If if I'm gonna be an effective advocate for the recommendation that we're gonna make, if I'm gonna be an expert in this, I need to know about what DOU operations are because people are going to come to us with questions, right?

What's DOU doing?

Why do they need a rate increase, right?

This body is gonna be has gotten and will be getting the information that DOU can provide to justify why rate increases are necessary.

So it's not just gonna be the Department of Utilities, this body also will have that knowledge and can act as a liaison with the community.

And finally, there's a new requirement since the reorganization of the advisory bodies.

There's they all annually report to city council, and so staff will draft that report, this body will take a look at it, maybe delete things, modify things, add things, and approve it.

That goes to council.

I think probably that will look like a work plan.

What topics will you focus on?

What are you gonna learn about?

Um, where the education is gonna be for this next year as we're leading up to the next department of utility rate increase.

So those are powers and duties.

That that's it, those five things for this commission.

And I think it's helpful to zero in on subsection B because there's a there's a bit more there.

Um so specifically, what council wants from this commission is recommendations relevant to the setting of the utility service rates.

So this body is meant to act to take a look at and issue recommendations about proposed rate increases that are coming forward.

But there's a caveat, and the council also provided this commission shall have no authority to review or revise the utility service levels.

So what does that mean?

Utility service levels.

I'll give you a few examples for water, it could be the water pressure.

DOU employs a complex system of pumps to keep the water pressure up so it comes from the tap at a certain level, right?

That's a service level.

Water quality.

DOU has divisions and a lot of equipment, making sure that the water quality meets the required service levels, regulatory approvals, and sometimes DOU's standards for its water quality is higher than regulations, but that's a service level that Department of Utilities has discretion with council input to select, and then capacity.

For example, Department of Utilities wants to make sure that it has adequate capacity to address peak demand on the busiest hottest water day of the year, right?

And so if DOU to do that needs to build a new water treatment plant, that's a service level issue.

Um those are some examples of water service levels, and some sewer ones would be response times.

Someone's sewer backs up, they call the city because it's clog in the main in the street.

How does the city staff that?

How fast does the city want to get there?

Umitary sewer overflows, that's a regulatory issue, right?

The city has certain standards level of service that it strives for to minimize the number of SSOs.

So to do that, it needs to have maintenance schedules of sewer pipes, right?

So this commission, council does not want this commission to say we wouldn't have to raise the rates as high if you backed off your maintenance level a little bit and just lowered that service level, right?

That is expressly exempted from this commission's purview.

And then recycling solid waste service levels, those are pretty easy, right?

We think you should have bigger cans.

We think you should come twice a week.

Those would be increases in the existing service level that recycling in solid waste has.

And that's currently implemented today, and that helps tens of thousands, maybe 10,000, thousands of residents that are low income and need help paying their bills.

And also there was a recommendation to implement an accountability plan.

So that came with the issuance of a lot of revenue bonds that were going to pay for capital infrastructure.

And the URAC said, We're approving a lot of funding, and we want to make sure that it is being spent quickly and appropriately.

And so there was an accountability plan adopted, and Department of Utilities came every UAC meeting or quarterly to provide the accountability for those actions, spending down that bond revenue.

And so that accountability plan lapsed after the bonds were all spent.

But I think those are a couple examples of recommendations that the URAC has provided to council that relate to rate setting, right?

That they're not service levels, but they're appropriate and they're important.

And so I think with that, um I will conclude my presentation and happy to stick around to answer any questions.

Very informative.

Are there any questions from any of the commissioners?

Yes, Commissioner Wilson.

Thank you, Mr.

Voss.

Um just a couple of clarifications.

Um there any restrictions?

Uh thanks for providing that overview.

It's very helpful for someone new on the on the commission.

Are there any restrictions to probing as a member of the commission?

Probing, asking questions, trying to increase understanding of things like um line item expenses, revenue structures, capital outlays, um, uh delineation of priorities in more detail than we've heard.

Um understanding configuration of the facilities.

That's I'm I'm now beginning to understand how the whole system is set up.

Um by the site visits, by the way, I think those are really helpful.

Uh, but just understanding the remaining useful life, the age of the system.

Is that there are any restrictions to ask questions and probe in those areas?

Thanks for the question, Commissioner Wilson.

I would say there's no restrictions.

I would add that I feel like the spirit of the council's directives in the city ordinance is to focus on questions and issues and understanding that help you make recommendations with regards to the rates that Department of Utilities is bringing forward.

And so if the questions are designed to that end, I think that is consistent with what city council is hoping for.

If those questions are intended to get at maybe a different service level would be appropriate and build a case to make a recommendation to that end of council, I would say not within the spirit of what the council is hoping for.

So I don't think I could take a question and say appropriate or not appropriate, but really it's intended to um to guide where you're going with your questions.

Would any of us and uh thank you very much?

Any would any of us commissioners um have any restrictions if we independently talk to the utility staff outside this public hearing?

Um and may mainly the reason I'm raising that, there's just not enough time to in my mind to to get to some of the details.

And um, so is there a restriction on independent meetings, either um suggested by the staff or suggested by me in my case?

Um so I think there's some there's a legal answer to that question, and there's a policy answer to that question.

And the legal answer to that question is um it does it comply with the Brown Act, and I would say it does not violate the Brown Act, right?

Because it's just one member of the commission that's talking with staff.

There's no um consensus among a quorum that's outside of the meeting that's happening on the policy issue.

Um I guess the question is Department of Utilities staff are busy people, and so to the extent that they have time to do this, and that um they see value in doing this extra work outside of what they're already bringing to the commission.

Um I I would defer to Department of Utilities on that policy issue.

Uh so would it be helpful in that process to put that in writing the types of information that I would be interested in seeing I think it would it would be considerate and probably helpful if you were to make it as easy as possible for Department of Utilities staff to respond to Sumir questions.

Okay, uh similar similar line of question.

Um are there any restrictions in contacting city council members or city council members contacting me regarding this topic and this um anticipated rate having to address anticipated rate increase?

So I think there are probably different restrictions that apply to the commission when it's acting as the commission and individuals when they're acting as individuals.

I would say that it probably would not be the city council's intent or necessarily appropriate for you to in your role as a commissioner advocate for something like a change in service levels, but I do think that there's no restriction on you as an individual or even a commissioner talking to a council member about something that that's going on here.

So there's there's very different standards, I think that apply to this commission when it's acting as a body issuing a recommendation and commissioners acting as individuals.

And and uh just to clarify the Brown Act for us commissioners, um a violation of the Brown Act is if three or more commissioners together are talking outside a public hearing or if we have lunch together, that type of thing is not really so the actual rule is it's a quorum of this body, but there's a lot of members of this commission, and I think one thing I might fear is if three of you got together and then a couple of you talked to somebody else about it, it would turn into a serial meeting.

So I would just exercise extreme caution about getting together and meeting about it and then communicating with each other afterwards.

Very good.

That so that instance I the one I can think of would be a site visit where there might be two or three of us at that meeting at that tour, right?

And I I think that's not a problem.

Um I would be surprised and disappointed if Department of Utilities were to schedule a tour with a majority of the commission and not notice it as a meeting.

Right.

All right, thank you.

You're welcome.

Any other comments?

Okay.

Um I wanted to add to that.

Thank you so very much.

That was very, very helpful.

You're welcome.

Um I wanted to also add to that because it will get kind of um hectic when this whole thing starts.

Um we're gonna be like, whoa, wait a minute.

Um, and I did notice that um last time some questions were uh answered, we got the answers here, and I think this is a really good format to get answers that you need.

Um, that really might be for your background knowledge or whatever.

But as we enter the rate adjustment period, our meetings will emphasize fostering greater community engagement and understanding of the DOU proposals to make the best use of our time and that of the DOU staff while ensuring ample opportunity for public comments.

Commissioners are encouraged to reserve highly technical and specialized questions for direct follow-up with DOU staff outside of the public meeting, which means you can ask them, they will answer you in this format or email.

I know they're always available by email, but um I think it will expedite things for us and make it a lot easy because the public's not coming to hear us, you know, quibble amongst ourselves or question all these technical things that are beyond them.

They're they just want to know why.

Why is this happening?

So I think going forward that might be a good idea.

But I I really I don't know how many of you saw this.

I thought it was really helpful to read and to go over.

I'm like, oh, okay, well, then and then follow up questions that you can always email or whatever.

And I think um email who's who's still here.

Well, Mike, okay.

Your first question.

It would would it be a problem if they were to email?

As far as a question regarding something that's commissioner emailing staff alone, no.

What you'd have to be careful of is if a commissioner then you know copied all the other commissioners, because then you have the situation or the concern that you're possibly having a discussion outside of a notice meeting, but simply you know, a commissioner communicating by email with staff just one-on-one, no, that would not be an issue.

Okay, that sounds good.

Okay, so moving on.

Let's go ahead with the next item.

It is the Department of Utilities timeline, an overview of the water and wastewater rate studies stages.

I think you have a copy of that.

Yes.

And for the record, we had no public comments on item two.

Oh, I'm sorry.

I love how that just magically happens, it just appears.

Thank you, clerk's office.

All right, good evening, commissioners.

I'm David Levine, your long-range financial planning manager in the Department of Utilities.

The item before you tonight kicks off our water and wastewater rate adjustment process for FY28 and is the first of many presentations you will receive in preparation for the Prop 218 process and the rate hearing later next year.

The first item tonight provides a timeline and an overview of the rate study, which includes several critical and time-sensitive elements for the rate adjustment process.

I think I'm missing a slide there, so let me talk through this next part.

So, the what is a rate study?

So, a rate study is where we contract with an outside consulting firm.

This case it's RAF Tellus, who is a firm that specializes in municipal utility finance to conduct an independent rate study.

It's independent, it's comprehensive analysis to develop a plan for long-term financial sustainability.

It ensures rates are equitable and sufficient to cover administrative operations and administration and capital uh investments that are compliant with state law, Prop 218.

The study is broken down into several sequential elements, which we'll cover in more detail in subsequent slides.

Those include the financial plan development, cost of service analysis, rate design, and community engagement and outreach.

You might also be wondering what the difference is between a fund review and a rate study.

The former is conducted to evaluate the overall fiscal health and operational effectiveness of the utility, whereas the latter is a determination of the rates needed to recover a utility's costs.

So the first step in a rate study is the development of financial plans, which detail the five-year rate needs based on projected revenues, expenses, debt service, and capital project costs.

RAFTELUS will produce a multi-year funding plan with varying rate adjustments based on DOU feedback from our internal prioritization process, which you'll hear about in a few more minutes, next presentation, as well as discussions that we have with all of you at the URAC.

The city manager's office will then select a plan that best addresses the operational needs and affordability concerns.

As part of this process, DOU will be meeting with the URAC three times this fall to provide updates and receive feedback that will be considered for inclusion in the financial plan development.

Tonight, we will provide an overview of our rate needs and prioritization process.

We'll return to the URAC in October 2025 with a rate planning update focused specifically on the water fund.

Then in December, we'll return with a rate planning update focused on the wastewater fund.

By the end of the year, we must finalize our financial plans for each fund before proceeding to the next step, the cost of service analysis.

The cost of service analysis includes three parts.

First, it breaks down the revenue requirements or the costs from the selected financial plan into functions related to providing the service.

Some examples of that might be on the water side, treatment, distribution, storage, metering.

On the wastewater side, collection, transportation, pumping, et cetera.

Second, it determines the unit cost for each component.

Those could be on the water side, costs broken down by total water demand, peak and non-peak, or meter count.

On the wastewater side, costs broken down by annual use and estimated wastewater flows.

Third, it distributes the unit cost to customer classes, residential, commercial, multifamily, based on their proportionate share of the total system demand.

Next step is the rate design and rate review.

With those costs broken down from the cost of service analysis, we can then determine what the rate need is, or what the rate is, rather, for each customer class to recover their proportionate share of the financial plan.

RAFTELUS will develop rate options for each class based on the cost of service analysis, consisting of feedback from the city manager's office, the URAC community outreach process, and comparison to rate structures in similar agencies.

Speaking of community outreach, there are three phases running throughout 2026, culminating with the URAC rate hearing.

Phase one is research and planning.

This consists primarily of public opinion surveys, which will address public knowledge of DOU services, openness to rate adjustments and alternative solutions, identify primary concerns like affordability.

It'll also include what's called influencer interviews, which are interviews with people with key insights into the community's attitudes around DOU services.

Phase two is the development of the strategic communication plan.

This includes a summary of the key themes from the research and planning effort, messaging to address anticipated questions and concerns, and strategies to engage diverse customer groups, as well as for social and traditional media.

Last is the communications and engagement phase, which is the coordination of public meetings, outreach material development, Prop 218 mailer.

In March 2026, we will return to the URAC to get feedback on the strategic stakeholder communications.

As we enter the latter half of 2026, we will be focused on rates and the 218 process.

First, in June 2026 URAC meeting, the final financial plan and proposed rates will be presented, followed by the proposition 218 mailer and protest period, which includes new legislation AB 2257 written objection process.

AB 2257 is recently enacted legislation where municipalities can add as part of their existing Prop 218 process where property owners can submit written objections, and the city is required to respond in writing to each objection.

All objections and responses must be reviewed by the governing body.

In this case, it's the city council prior to proceeding with the URAC rate hearing.

With the AB 2257 process, a property owner cannot file a lawsuit against the city raising utility rates unless they submit a written protest first.

Then, as I mentioned, the city council will review the written objections and the city responses in December before culminating with the rate hearing in front of the URAC in December 2026, where the results and objections from the Prop 218 notification process will be revealed along with any verbal public testimony.

The hearing concludes with the URC making its recommendation to the city council.

I'd like to conclude my presentation with a brief mention of several constraints we are working with under this schedule.

First, rate tasks must follow a linear path.

Subsequent steps in the rate study build on the step before it.

Second, inclusion of AB 2257 protections elongates the Prop 218 notification period by another 30 days.

This is to allow time for the department to provide written responses to each written objection and get city council for their review.

Third, there are six seats on this commission that are terming out on 1231 26 is preferable to conclude our rate hearing process before this date.

Having a full commission to weigh in on the entire process provides council with a solid, well vetted rate recommendation for their consideration.

And last, as you can see from the schedule itself, there really is no wiggle room for tasks to extend beyond their current allotment.

If we do not stay on track, we will fall off our critical path, and that jeopardizes our ability to be in time for a July 27 implementation for fiscal year 28.

This concludes my presentation, and I'm available along with my team behind me and at the desk if you have any questions.

Thank you.

Are there any uh members of all the speaker on this?

Thank you, Chair.

I have no speaker slips on this item.

Thank you.

Are there any members of the commission who wish to speak on this item?

Yes.

Yes, Commissioner Alson.

I have a question of AB Chairwoman.

And it's um, well, maybe the maybe our um Mr.

Gage here, Mr.

Rye here.

Um the six members that are termed out, uh, there's a lot of expertise that's gonna be listening to all this uh testimony and presentations that we will not have access to, or we're not there any way to have a consulting relationship with former members or termed out members.

As far as once a commissioner leaves, a new commissioner can like you mean like talk to talk to them.

I mean, I don't think there's necessarily a prohibition that that a commissioner who's been termed out could then the new commissioner could talk to that former commissioner, but it kind of that new commissioner is the one who's who's really in the role of of making the decisions.

But as far as from what you're saying, sort of the loss of institutionalized knowledge, um, there's nothing preventing a new commissioner from from reaching out to an old commissioner to talk to them, but the new commissioner is the one who would have to make the decisions if there's uh gonna be a vote when once they've been uh uh nominated and sworn in.

Yeah, I'm I'm kind of thinking that it's taken a while to fill vacancies.

That's not you know, it didn't happen on January 1st uh for this current round.

And um your point is that it's the timeline is pretty quick, so I think it would be wise to be able to confer with those who've been on this panel and have her previously heard testimony.

Yeah, well, as I said, I don't think there's there's not a there's not a prohibition so that once a new commissioner comes in that they would be prevented from talking to the prior commissioner.

Um but again that new commissioner, if you if the vote hasn't occurred, then it's going to be up to the new commissioner to vote on on the rates at that point.

Okay, thanks.

Well, maybe this will help you a little bit.

Um the commissioners is my understanding that are timed out will not be replaced.

Is that the understanding?

I'm sorry, could you repeat that?

The commissioners that are being timed out.

The six, would they are not replacing them?

Jacob Redberg, Office of the City Clerk.

There are three seats currently on this commission due to the uh the ordinance updating the the city code for the uh the utilities rate advisory commission.

Um so it went from personal and public employee committee uh recommended seats to a mixture of council member and PNPE.

Um the folks who are on there before on the commission before that change, they their seats remained um and will sunset uh let's see uh two seats sunset uh December 31st, 2026, and one sunsets December 31st, 2027.

And so there are other seats uh the odd number council member seats, so districts one, three, five, and seven, uh those will uh those commissioners will term out uh December 31st, 2026 as well.

So uh at that time there will be quite a few commissioners either sunsetting or just their terms expiring.

Okay, and I I also think you were mentioning that a lot of this we will have this information by December 31st.

So we should all kind of be on the same page, even if some of us aren't coming back.

Maybe maybe that helps a little bit.

Yeah, I'm I'm just wondering the will will the new commissioners, if there are new commissioners, will they have the same information?

And I just counting on you.

Well, they'll have access to all these recordings.

They get a URAC binder uh with all the materials, but yeah, that's gonna be a huge task, and it's why we're really trying to get this wrapped up before those seats term out.

Is that a little bit problem with the timeline though?

The goal is that we'll all be on like still within our term and voting on it before anyone turns out.

So it doesn't seem as long as we stick to the schedule, it seems like it's not gonna be it's a non-issue.

Is that right?

Correct.

Okay.

I had a question about kind of um the a couple of the different sort of levels of preparation for both the June and the December meeting.

So in June, will we also be learning about the proposed rates um during the meeting, or is there like any uh material that will receive before?

I I'm trying to understand if their public will be at that one, or more likely at just the rate hearing in December.

I would anticipate they'll probably be at both.

Um it'll be the first time that we see what rates could look like in our proposal.

Um so that information will be public at that time.

Um and all of you will have access to that.

So to the extent like Mike Voss mentioned, you can conduct outreach within your your communities.

Um you would have that as well.

So definitely more, probably at a rate hearing, but um, yes, that information would become available for the first time in June 2026.

Okay, so if the public were to have questions, they would be directed towards DOU staff.

And I feel like maybe even similarly at the rate hearing.

Okay.

And then um, I had a question about the Prop 18 mailer.

So when the city receives uh protests, does that do we have any interaction with those other than reviewing them and and your responses?

Uh to my knowledge, no, we will present you with uh so two processes now, right?

As I mentioned, the traditional 218, which is basically we received X number of protests.

Here's the general themes in which we heard that information will be available at the rate hearing.

Um the written notification, the written, I'm sorry, the written objections and the city responses, um, those go to city council ahead of time.

Um we've sought clarification from the city attorney's office.

Um that the law says governing body, and governing body is not the URAC, it is the council.

So there is that step.

So all of that information will be public.

We'll be working with the city attorney's office to enact new procedures related to AB 2257 that will go before City Council approval, probably in early spring.

Thank you.

Okay.

And that was for just comments only, no vote.

On this, so we'll move on to number four.

Thank you.

You again.

Okay.

All right.

Good evening again.

Our second presentation tonight with respect to the water and wastewater rate development process is an overview of the department's efforts to identify and prioritize the most critical and necessary operational capital investment and administrative needs for rate adjustment funding.

Our first and what will have been eight years since the last one.

This slide provides an overview of our presentation.

First, we'll review how we got here since the last rate adjustment in 2020, then crosswalk from the fund review to the rate study to give you a bird's eye view of the entire adjustment process, followed by an explanation of the criteria used to prioritize rate needs and how that was used by the department subject matter experts to justify their needs.

Then we'll dive into how those priorities and justifications were evaluated by the DOU executive team to identify key objects key objectives that are guiding continued internal discussions along with our rate consultant over our greatest needs and what our rate adjustment can afford.

Tonight is a high level overview and is not intended to be a deep dive into specific needs or rates.

Our meetings coming up this fall will be focused specifically on critical needs of each fund.

First, the water fund in October and the wastewater fund in December.

So first, let's take a brief step back to see how we arrived at this point.

Our last rate adjustment of 10% in the water fund and 9% in the wastewater fund was in fiscal year 2020.

Since that time, a variety of factors have contributed to our current financial constraints.

In the wastewater fund, we project a 45% increase in expenses and no growth in operating revenues over that eight-year term.

As a result, each fund has drawn down its fund balance to provide continuity of operations.

By fiscal year 28, eight years after the fund's last adjustments, we will exhaust fund balances and need to tap into reserves to help balance the books.

With that orientation to our current situation, let's look at the deliberative approach DOU is taking to rate adjustments in fiscal year 28.

This visual provides a high-level roadmap of where we've been and where we are headed in this rate adjustment process.

First, we begin with the fund review, as you have all seen, evaluating the fiscal health of both the water and wastewater funds, identifying the need for rate adjustments in FY28.

The review contained three distinct financial plans, each one build each one identifying funding gaps and building on the plan prior, culminating in a plan three, which represented all of the department's funding needs and the consultant recommendations for rate adjustments to achieve each.

As part of the rate study, those prioritized needs will be used to identify a final independent financial plan that is defensible when compared to those in the fund review.

The selected plan will be run through the cost of service analysis to determine the appropriate share of the total cost for each customer class, and then multi-year rates assigned to recover those costs in compliance with Prop 218.

The department takes great care and diligence in its approach to rate adjustments, which is why the entire process takes over three years to complete, from the start of the fund review in October of 2023 and ending in the completion of the rate study in December 2026.

Prioritization criteria.

Three levels were established based on guidance from the government finance officers association, GFOA, and the city's use of program-oriented development to prioritize programs as part of the annual budget development process.

GFOA recommends when evaluating capital needs that governments should first prioritize based on high-risk safety issues that require a capital project to correct.

Secondly, capital assets that require renewal or replacement in accordance with a capital assets life cycle.

And third, infrastructure improvements needed to support government's policies, plans, and studies.

DAU has created three priority levels.

You see them on the screen.

I'll cover them in more detail.

Projects or programs that are considered priority one is if a disruption of service substantially impacts the health, safety, security, legal, and economic well-being of those living and working in the city.

Priority one are those that are the most critical and vital projects or programs relating to the city's most basic and most important infrastructure operations and maintenance needs.

So some portions of the overall system are more critical than others.

Priority one projects or programs have the highest degree of impact of failure due, I'm sorry, correct that, highest degree of impact due to failure or have exceeded their useful life the longest when compared to priority two.

An example would be the development of a main replacement program, which identifies mains throughout the city requiring replacement.

Midtown and downtown Sacramento have cast-iron mains that do not meet fire flow standards, and AC pipe is nearing failure in other neighborhoods.

The program would prioritize replacements andor rehabilitation, which replaces or upsizes older and smaller pipes to more appropriate sized pipelines.

This is a priority one because many of our infrastructure is meeting the end of their exceeding the end of their useful life.

Without an appropriate replacement program, aging transmission mains are a source of leaks and potential breaks that can damage property and end up costing the city substantially more in emergency repairs.

Like priority one, priority two projects or programs are also crucial and vital relating to the city's most basic and most important infrastructure, operational and maintenance needs.

Compared to priority one, priority two projects and programs have less, a lesser magnitude of potential impact of system failure or have exceeded its useful life for a shorter period of time compared to priority one.

An example is electrical repairs and upgrades at various reservoirs to ensure adequate safety and reliability of the system.

Electrical systems are critical to reservoir operation, which maintains pressure, addresses demand, and moves water in the system.

Without it, pumps and motors are impacted, resulting in shutdowns of the reservoir until electrical repairs can be completed.

Priority three projects or programs seek to optimize our systems or operations.

These include operational industry best practices and long-term strategies which provide a technique, process or program to improve the performance of DAU systems and operations, represent or contribute to performance beyond regulatory compliance, andor provide an innovative approach or method to improve effectiveness or efficiency.

An example of a priority three is the exterior and interior painting and coding of all structures inside the Fairbear and Water Treatment Plan.

Painting interior and exterior water structures help prevent corrosion, contamination, and structural deterioration, thus ensuring long-term sustainability and reliability reliability safety of the infrastructure.

Once prioritization levels were established, all of the rate funding needs, about 600 in total, that were included in the financial plans of the fund reviews were loaded into a smart sheet database where division subject matter experts evaluated each one to assign one or more priority levels to according to this criteria, including justifications for each level assigned, the impact of not funding the need, and the years in which funding was needed.

Of the over 600 needs identified by DOU subject matter experts, a total of 426 were forwarded to the DOU executive team for deliberation and consideration for rate funding as part of the rate study process.

Needs that were not forwarded to the executive team either fell outside of the five-year adjustment window or duplicates or could be consolidated into other similar needs.

Now let's take a look at how those needs break down in terms of dollars by fund.

This chart breaks down the needs by year and their highest priority level for the water fund.

For this rate adjustment, we will be proposing a five-year rate increase, which is the most at one time allowed under Prop 218.

For the five year period, and you have it highlighted in yellow, there are over $1 billion of needs identified in the water fund.

You'll notice that in FY30, a spike includes 155 million dollars for water plus and 250 million dollars for river ARC.

Due to the eight-year rate holiday, we will need at least two or three additional cycles, that's another 10 to 15 years, to fully fund all of the needs collected in this process.

As part of the rate study scope of work, Reftelus will provide a long-term funding plan that will include options for funding our needs beyond this current rate cycle.

On the wastewater side, the first thing you may notice is the exclusion of any priority three needs.

There were none submitted as part of this rate cycle request.

Priority one needs on the wastewater side are fairly consistent over the five-year period, where 163 million is needed to fund all priority needs.

The majority of these are either IT-related requests or facilities needs.

For example, most of the IT funding needs are for systems, software, or hardware that can be shared across that are shared across multiple business lines or perform functions that benefit more than one fund.

For example, the upgrade of our utility billing system or customer care and billing, or CCB for short, is funded four ways.

It's funded from water, wastewater, storm drainage, and solid waste.

And that's because each of those services are included in the utility bill, so they all share a piece of the cost.

In multifunded situations, there are pre-existing cost allocation methodologies that are used to determine each fund's fair share.

For instance, the billing system allocation is based on the number of billing adjustments performed by each fund.

It is important to note that when we go through a rate adjustment process where one or more funds that are not, I repeat, that are not being adjusted, are impacted by the allocation.

We need to make sure that if a need is selected for funding, that those other funds have the existing ability to absorb their respective cost increases.

If they do not, or we cannot find other resources to support the cost increase, then they will not be included in the rate adjustment cycle.

As you have seen, having gone eight years without a rate adjustment during a period of substantial cost increases due to inflation and other factors, has resulted in over 400 prioritized and justified operational and infrastructure needs that greatly exceed what an affordable and economically viable rate adjustment could achieve.

How do you decide one from the other given the extraordinary needs this community has to be healthy and safe?

This was the monumental hurdle faced by the executive team when evaluating these requests.

First step was to remind ourselves of the constraints both funds have, which necessitate the increases to begin with.

For the water fund, that is current expenses exceed revenues by 20 million dollars.

Existing fund balance is insufficient to fully cover those costs over time.

Two, the depletion of the capital reserve, about $25 million in FY28 to fund the capital program.

A projected $2.8 million ending fund balance deficit in FY28 without an increase.

And this presents significant risk to credit ratings and ability to meet unforeseen emergencies.

On the wastewater side, the fund will be unable to meet its capital reserve target.

By FY29, we will not meet our 120 days of working capital or our absolute floor debt service coverage ratio.

Significant risk to credit rating and ability to meet unforeseen emergencies exists here as well.

Before adding costs from our rate needs to an already depleted budget, steps must be taken with the rate adjustment to first address these constraints at a minimum to ensure continuity of operations.

I'm sorry, cut the number of needs down to those that contain just one priority, at least one priority one.

Anything without a priority one would be considered for the next rate cycle, FY33 to 38.

This action reduced the total number of needs from 426 to 255 for further consideration.

Second, we shifted as many needs as possible to later in the rate cycle, where there would be a greater amount of revenue available due to the compounding of the rate.

Third, to fund large infrastructure projects like WaterPlus and RiverARC, we would need to issue debt to spread that cost over time.

Better rates for borrowing are achieved by having more liquidity to back them.

By deferring spending in the early years of the rate cycle and instead focusing efforts to build back depleted reserves, we improve our position in the market and likely lower rates for borrowing.

When financing 400 million dollars, even half a percent could save millions.

By moving water plus and river ARC, we also create capacity to fund emergencies or unknowns as they arise.

Last, on the wastewater side, by grouping a large-scale CIP projects together, like Pioneer Roof and Facility Rehabilitation Project, and packaging them up for a debt issuance in the next rate cycle gives us the ability to address more deferred maintenance needs in FY28 to 32.

With this framework, we could focus on the constraints we just looked at: rectifying deficits, building reserves back sooner, increasing our days of working capital, and achieving our debt service coverage ratio.

With the goal of affordability and operational viability, there is still much work ahead of us as we work with our consultant to develop an independent and defensible rate package.

Tough decisions remain over what needs will be included in our financial plan that ultimately is pushed forward to the cost of service analysis and rate design phases of the rate study.

Well, we cannot afford everything in that prioritized list.

This prioritization process has helped us establish some key objectives that will guide us through the next steps with RAF TELUS.

These include number one, ensuring continuity of operations, meaning no disruption in our current service levels.

Two, meeting policy objectives, 120 days of working capital, minimum of one year capital reserve, and an absolute floor debt coverage ratio of 1.20.

And last, minimize deferred maintenance backlog to the greatest extent possible.

In closing, as I mentioned at the onset, the purpose of this presentation tonight was to be a high-level overview of the due diligence DOU has done in preparation for the rate study.

It is not intended to be a deep dive into specific needs or percentage increases.

Those will come at later meetings.

This concludes my presentation, and I'm available along with staff from DOU to answer any questions you may have.

Thank you.

Thank you.

Let's see.

Are there any members of the public who wish to speak on this presentation?

Thank you, Chair.

I have no speaker slips.

Do we have any members of the commission who would like to speak on this?

Commissioner Nelson?

Thank you, Madam Chair.

Thank you for the presentation.

That's very helpful.

I think in my mind, part of our charge here is as you pointed out in the earlier presentations is to make our case to our fellow Sacramentans.

I think something that would be helpful in the future, and I assume it'll be part of the rate study is to see where Sacramento stacks up versus some of our you know uh comparable cities in the state to understand sort of where we're at.

Um, to me it's evident that we have a lot of work to do, and there's no belt tightening that you can do to get where you need without a pretty big rate increase, which is unfortunate, but is the reality.

Um so I just just to put a marker down if at some point in the future when it's appropriate, it would be really helpful to sort of see where we stack up in terms of rates and also you know, does Sacramento have an extraordinary level of deferred maintenance as you just laid out, or is this pretty normal for a city of our our size and need?

So thank you for the information.

Absolutely.

Thank you.

Uh Commissioner Olson.

Uh thanks for the thanks for the presentation.

Thanks for the presentation.

Uh couple just clarifications.

Um your priority setting available now, or is that going to be over the next six months?

That will be over this next six months in those next two meetings that we bring forward to the URAC October and the water fund, as well as the wastewater in December, we'll be bringing forward our highest priorities and discussion around those.

And um, my understanding is RAF tell us also did a study, I think published in 2024.

Was that regarding the fund status?

2024, so that would be the fund review.

So they conducted the the evaluation of our financial condition as well as the operations.

And that study is in our binder, Commissioner Binder.

Yes, yes, and it was presented at the first meeting of the this year, I think it was in March.

Did um what's the utility staff viewpoint of that fund status study?

Did you accept all the recommendations all the I'm just curious?

Well, the the fund review um identified what we have experienced uh over the last what will be eight years of not having rate adjustments.

So I mean, I can't speak for my operational counterparts, but I can certainly say that the needs presented there are definitely needs that we could justify.

Anyone could justify those needs.

We just, of course, don't have as much room to fund all of those needs.

Um I think one of the conclusions also was that they think the utility department underestimated some costs.

Is that correct?

That I don't know.

I can defer to somebody else, maybe that can answer that question.

Or we can report back to the other.

You could just uh follow up on that at some point.

Um and then the other question is um the members of the priority setting evaluators, is that all within the utility department?

You said subject matter experts.

Who did you draw that from?

I'm just curious.

Yeah, so that was drawn from subject matter experts within the department uh within each of the specialties, water and wastewater, our engineering staff, our administrative staff, um, office of the director.

So as a full department participation with subject matter experts put forward by each of the members of the executive team that would be able to weigh in on the needs, uh but no outsiders, no outsiders.

Okay, thank you.

And I any other commissioners have a comment?

Because I do.

Um go ahead, I'm sorry.

Vice Chair Iverly.

Thank you.

Um so I just have I didn't want to interrupt you.

I had a couple of questions to just go back through the presentation.

So the very first page were the the color where we talked about the fund review.

Remember seeing the information where you had your three financial plans, you know, not wish lists of all kinds of things, you know, to try.

So the information you're providing here is sort of in the blue where you've taken that information and you have used the last year to prioritize and to kind of squeeze the very most critical things, and that is what you're presenting here in the um boxes where you're talking about funding needs and so on.

And then okay, so that makes sense.

That's I guess they understand where we are in the process.

The current rate cycle, you say in the framework they're focused solely on priority one needs.

So when I look back at the uh needs by dollar, are we should we concentrate on that first line priority for each of the funds that that is what this rate increase cycle is going to be focusing on?

For example, water would need a total of 962 million or so over the um one, two, three, four, five, six FY years.

Uh so we are focused on priority one, but we also know that funding for 962 million dollars is very unlikely.

Um like I mentioned, you know, we have some options, especially with respect to the large capital projects to do some uh financing.

Very likely we'll either be at the very end of this rate cycle, could even be in the next.

Okay, so what uh I mean, I understand those aren't hard numbers, but you've you've pretty much you've curated and curated and curated.

Now we're in this this space before we go pat into the cycle, we're we're trying to continually narrow what priority is, where we're gonna see the funding, and that is what that top level is at this point, what it's projected to be.

And maybe smaller, lower or something, just depending on how numbers go out.

So that's where we're okay.

And so I'm sorry, and and and like I said, part of this process has been what can we shift, right?

So the numbers that you see here are the direct, you know, from the subject matter experts.

We need whatever we need in these years.

Um what we have done, and some needs we can do this, some needs you know, we can't, but to the greatest extent possible, we've asked them to consider shifting to later in the cycle where there will be more revenue uh to fund some of those needs.

So I'm trying to capture as many as we can.

Right.

We're not abandoning water plus or river arc, we're just moving them farther down, deferred unfortunately a little bit more until the more critical priorities are met.

And it might be that we can start some of the initial parts of water plus and river arc, but you know, the the full full boat we won't be able to do in this cycle.

All right.

That's okay.

I just wanted to make sure that I understood where we were in the process that you've laid out for us.

Thank you.

Commissioner Alson.

Your your name came up again.

No.

Not me.

Okay, then it would maybe I just wanted to mention that it looks like that um rate holiday probably set us back by quite a bit.

Are we going to make sure that we don't kind of get in that position again?

Because I know once you get into the rate plan, you can't, and it's been approved.

You can't go back and say, uh oh, we had this happen, let's just do a temporary hike to kind of fill this in, and um maybe that's what we need to be able to do from time to time, have an emergency six month increase to cover an emergency situation and not get in this type of thing where you have eight years of accumulating debt, basically.

And that's gonna be a hard sell.

I think that's gonna probably be harder than the rate increase itself is how did you get to that point?

So just food for thought.

Yeah, yeah.

Well, and and that those are conversations that we've had and and policy decisions need to be made around how frequently we evaluate our needs and our rates and return for rate adjustments.

We can't continue to have rate holidays.

I remember the day of the flat rate, and I kinda like that.

We're not gonna see them again anymore, are we?

No.

Anyway, okay.

Any any other commissioners?

Oh, okay.

Um Commissioner Tanakela?

Uh thanks for the presentation.

So I see that in the presentation uh you are looking for the 73 million uh for the highest priority level, right?

So either what will be the impact on the end of the customer if we sanction that means if we recommend uh to approve that 73 million.

So do you have that uh in hand?

I'm sorry, I didn't quite understand.

Can you repeat?

So you if the 73 million uh recommended to be approved.

So what will be the impact on the customer?

So how much rate will be increased per month or per cycle?

Yeah, so um that will occur.

We'll have more information on that as we proceed in the process.

So right now we're really focused on like narrowing down what we can what we believe, and based on feedback from this URAC and the city manager's office, what we believe is is affordable and defensible.

Um that will then get pushed forward to RAFTEL.

So in the springtime, we'll be able to start to see what those rates look like by the different customer classes and how much dollars and percentage wise the rates go up.

So we're not quite there, we're probably six months, eight months away from that.

Thank you.

Okay, and this item was for um discussion only, so we will move on to item number five, Department of Utilities designated reserve presentation.

We're keeping you busy tonight, aren't we?

Actually, I'm I'm phoning in a friend.

Oh, okay.

Okay.

Good evening, commissioners.

Uh, my name is Kelly Shurfee.

I am the supervising financial analyst for the Department of Utilities.

In response to the questions received at the last URAC meeting in July, uh I will provide an overview of the department's designated reserve uh fund policy.

Understanding the reserve policy and funding levels will be important as we proceed with the water and wastewater rate adjustment process.

As a department, we'll need to address shortfalls and the reserve balances, which are used to help mitigate rate increases.

There you go.

So tonight I'll provide an overview of these three reserves.

Starting with a bit of background, in 2022, DOU partner with the city treasurer's office to hire Feldman, Rolap, and associates to prepare a long-range fiscal plan, which included the creation of the designated reserve fund policy.

In January of 20, uh, sorry, of January 24 of 2023, um, sorry, January 24th, 2023, uh, the city council approved the formal policy for DOU, which established an unrestricted operating reserve, an unrestricted capital reserve, and the rate stabilization reserve, which is restricted.

The purpose of the reserve policy is to delineate which reserve is restricted and unrestricted, identify the distinct purpose of these reserves, and establish a recommended funding level.

In 2024, this policy did uh go through an amendment with some miscellaneous edits and a revision to the rate stabilization reserves.

And this copy of the policy is included with your agenda.

So I will start with the operating reserves.

These are unrestricted reserves that provide a safeguard against unexpected and significant fluctuations in operating revenue and expenditures.

The recommended minimum funding level is 120 days of working capital.

As a reminder, days of working capital is a measure of financial strength that shows how many days the organization can continue to cover normal operating costs if no new revenues were received.

If at any time this reserve declines below the 120 days of working capital, the department will take steps to restore the amount using available fund balance within one year.

Oops.

I'm flipping my pages, but I'm not flipping yours.

There you go.

So the capital reserves here.

This is also an unrestricted fund, and it has a recommended minimum funding level and the amount to fund one year of our capital improvement program expenditures.

And our target level is five years of the CIP expenditure levels.

Like the operating reserves, it's unrestricted as I mentioned.

If the capital reserve funds need to be increased or replenished, this is done as soon as practically possible.

But it's a based on the available funds that we have to replenish that.

The capital reserve can be used for rehabilitation and replacement projects, pay-go projects, and as a source to provide immediate funding when a project needs to be accelerated or has project overruns.

These funds are also invested and the earnings remain within the fund of origin.

So in 2013, DOU established a rate stabilization reserve for both water and wastewater to bolster our credit ratings, since neither fund had issued debt previously in the public market.

The rate stabilization reserve is restricted, which means that it can only be used under specific conditions, usually related to borrowing and bond requirements.

As part of the issuance of our 2023 water revenue refunding bonds, the bond underwriter informed DOU that our rate stabilization reserve, which was previously required, was no longer required.

And we could eliminate this reserve without impairing our fund rating for the bonds.

So armed with this information and the amendment that we did to our policy in 2024, the rate stabilization reserve balances were moved to the appropriate capital reserve funds.

So per policy, this reserve carries a zero balance unless it's required for conditions for future borrowing.

So at this time, the rate stabilization reserves are not funded.

Okay.

So now I'm going to address some of the specific questions that were raised at the last meeting.

There was expressed interest in seeing the five-year trend of our operating and capital reserves.

As you can see in this chart, it shows how the water fund reserves have changed over the past five years.

The operating reserves total, which are shown in light blue, is calculated each year during the budget development process and is set to 120 days of working capital.

The changes that you see in our year-over-year operating reserve amounts are due to the fluctuations in budget expenditures and revenues that are used in that calculation.

So I know there was confusion at the last meeting related to the level of days of working capital mentioned along with our reserve figures, and I will address those numbers shortly.

And they are shown in dark blue.

Darkish blue.

Since the capital improvement spending can vary significantly from year to year depending on asset replacement needs, reserve levels levels will adjust up and down depending on the projected spending for each year.

The current reserve levels reflected here for the water fund are from the decision made in February fiscal year 24 when the rate stabilization reserve reserve was no longer needed and the balances were transferred to the capital reserve.

This transfer elevated the reserves to its current levels of 31.6 million.

This higher reserve level has been maintained in anticipation for the use in fiscal year 28 to support our CIP capital reserve capital program.

Sorry.

This is due to the fund's limited capacity to absorb such a significant increase in the reserve at this time.

There was questions asked of you know when we might use these reserves.

So I was looking back at when we have actually used our reserves in the past.

And over the last fiscal year, the capital, the wastewater capital reserve was able to provide 1.6 million dollars to fund three critical projects.

And one of those projects that I thought was interesting to highlight was the pocket road and east shore manhole replacement, which was a repair to a sinking manhole that was taking on groundwater.

If this repair was not done in a timely manner, then this issue would have developed into a sinkhole.

And this would have caused potentially a disruption in service and elevated costs for repair due to the emergency nature.

Fortunately, at the end of the fiscal year, the wastewater fund was able to replace the funding in the capital reserve, keeping the reserve balance at its current level.

And last, uh this chart shows the historical trends for the operating reserves for the storm drainage fund, ranging from 8.9 million to the current level of 12 million.

With the establishment of the 2022 storm drainage property fee fund, the capital reserve is not applicable to the storm drainage fund since this fund is primarily operations and maintenance and is not capital expensive, does not have capital expenditures.

Alright.

So as promised, I wanted to address the days of working capital figures that were shown alongside my reserve balances at the previous meeting.

Sorry, these figures were related to DOU's available fund balance.

In general terms, an available fund balance is the portion of funds remaining after expenditures have been budgeted and the appropriate reserve balances have been set aside.

The fund balance is not a reserve and is available for spending should our expenses expenses continue to outpace our revenues.

This balance fluctuates throughout the year based on unbudgeted operating expenses and revenue.

The table on this slide shows the days of working capital for each fund's balance.

The water fund balance is 230 days of working capital, the wastewater fund is 255 days, and the storm drainage fund is 240 days of working capital.

Budget projections so show and how David was explaining that our fund balances will decline between now and fiscal year 28, which is why it is vital to have our reserves in place.

So I hope that this slide and this information provides more clarity to the item.

As you know, the Department of Utilities, like all municipalities, operate under uncertainty while still simultaneously needing to provide high quality service, high quality uninterrupted service.

So reserves are one of the tools used to manage risk, chiefly by self-insuring against these risks.

Reserves should also be maintained because our bond ratings are based on the water and wastewater municipal debt rating criteria.

An exact formula of the days to working capital is not published by the rating agencies.

However, similar, however, similar to DOU, many other agencies across a ride wide range of sizes choose to maintain at least 120 days of working capital for their reserve policies.

Regarding previous questions from the commission on the broader context of the amount of liquidity that other similar agencies maintain, we are currently at or near for water or below for wastewater, the median level of agencies with a similar credit rating.

So given that we are at or below the median level for comparable agencies, we should strive to maintain or improve our fund balances and liquidity to maintain our current bond rating.

Overall, maintaining reserves helps the department mitigate impacts of this ever-changing environment and are the foundation of our financial credit credit worthiness.

I could say that word just fine earlier today, not today.

And ensure we can continue delivering reliable service now and in the future.

So in conclusion, looking past fiscal year 26, our available fund are available financial resources will continue to decline without a rate adjustment.

Projections show that the need to utilize our capital reserve to fund the CIP program in fiscal year 28 and the operating reserves for both funds will be pushed below their 120 days of minimal minimum recommendation, and that's due to the available fund balances being negative at that time.

These projections can be found in your URAC binder as well as the independent fund reviews conducted by external consultants.

The reserve levels and the replenishment will be an important topic as we get further into discussions regarding water and wastewater rate needs.

So I hope this presentation has provided more information, more insight, and explanation.

I'm available for questions, and so are my colleagues.

Thank you so much.

Thank you, Chair.

I have no speaker slips.

Yes, you've already learned how to do this.

Okay, uh, Commissioner Alson.

Uh yes, uh, thank you.

Very good presentation.

Um, just kind of fundamental question.

I I didn't quite pick this up.

The definition and difference between restricted and unrestricted.

Sure.

So um restricted reserves are typically have a specific use of those funds that are legally um set forth.

So if we have a bond obligation or something like that, that is a legal requirement of that reserve and it cannot be used for a different use.

Unrestricted reserves have a bit more flexibility and they are not um legally obligated in a specific use.

Very good.

Uh another question about um the what happened.

So there was no reserve prior to 2023 for either wastewater or water?

For the capital reserve, yes.

Capital reserve that didn't exist.

Yes, I mean it didn't exist.

We had um a policy, an internal policy, but then it was formally adopted in fiscal or in uh 2023.

So if you needed to draw what so what happened if you uh ran short in one department and you needed money, you just borrowed from another or a different department or well.

So um just to provide clarity, if it's all within our fund.

So the water fund, um, all of the water needs have to stay within that water fund and all of the storm drainage and the storm storm drainage fund.

So we're all very segregated in in that sense uh for proposition 218 purposes.

If the water fund had a need that we didn't budget for that year before we had our reserves, we had our available fund balance.

So we would um tap into that if appropriate, and our executive team was okay with that expense, and we move forward, we would pull that over that project or whatever that expense was.

Good evening, Commissioner Osam.

Um I would like to address your original question prior to 2023, it was a past practice.

It was a past practice.

It was a financial past practice.

We decided as a department of utility to codify them and to make sure that they are a CD council approval number one.

Number two is also solidify a fiduciary responsibility to a ray payer as well as the uh market that we uh took out their bond.

So that was the primary reason why we codify and formalize it.

Very good.

Uh one other uh kind of comment recommendation is um you listed regulatory um requirements in here as a factor for and maybe it's on uncertain uh expenses that might come about from regulatory uh compliance.

I think it would be helpful in in the course of the next six months to have some what those are, whether they're specific dates in your estimate if whether or not you can estimate what the compliant compliance costs would be.

Yeah, and I think those are in the future um presentations that we have related to those two funds, um projects that are a result of those regulatory items would be um presented and highlighted as they were moving forward those funds as part of the project.

Very good, thank you.

Yeah, thank you.

Uh Vice Chair Iberley.

Thank you.

Um I understand that prior to 23, wait, 23, yeah, 23.

We didn't codify the CIP reserves.

So most of the time when we were looking at the reserves of 120 days, those were just operating reserves, and now the figures that we see at the very end include both of those reserves that are now codified in the thing.

So we have three um factors.

So we have our operating reserve for 120 days of working capital, we have our CIP reserve, and then we also have our available fund balance.

The two reserves are separate from the available fund balance, days of working capital numbers I gave you.

And that makes sense, and that currently we have no um for the if we had any um uh bond or or any kind of we do not have that at the so we don't we don't have a say uh reach standardization in there.

So okay.

So those numbers consist of operating reserve, capital reserve, and actual we'll call day-to-day funding of of each of the the funds.

They are all three separate, so the days of working capital for the available fund balance do not include the balances of the reserve.

Okay.

So that would sort of explain why if you looked historically the reserve working capital really after 23 and 24 jumped, it we kept much lower numbers because we were only using operating reserves in that working capital because it's it's nearly doubled in some, but if you go back, you know, five, ten years before that, it we maintained maybe 180, 120, it was much lower to the recommended 120.

So that makes a lot more sense.

I remember all these questions from the last meeting of why it had swollen, where it so I really appreciate you coming back with this to much better understand how the pie is broken up in these numbers because again, everybody looks at these reserves and says, Well, we've almost got a year in some of these.

What are we raising money?

But that's because some of it we can spend, some of we can't spend, some for ongoing.

So I really appreciate the presentation clarification.

Thank you.

Thank you.

Okay, um, I think that's it for that.

We open up now for any commissioner comments, um, ideas and questions, possibly not on the agenda.

Uh Commissioner Olson.

Yeah, uh, I have a question.

Um I started delving into the RAF Tele study uh for the 2024 fund, and I also noticed that there's a audit study done by Stantec.

I think it's an engineering firm.

I work with them in the past.

And um, and I'm I'm just kind of wondering if if all that information is in our binder package or whether they um these are reports that are not not available to us.

That's just a question I have.

A lot of them are, and I can double check that that one has been made available to you as well.

And just to be clear, the uh stand tech audit was for the drainage fund.

Under yeah, understand else.

Are there any public comments?

in our binder package or whether they um these are reports that are not not available to us that's just a question I have a lot of them are and I can double check that that one has been made available to you as well and just to be clear the uh stand tech audit was for the drainage fund under yeah understand are there any public comments um on matters not on the agenda thank you chair I have no speaker slips okay well with that I think we've concluded today and we'll reconvene um I believe it's October 29th yes pretty sure I can double check close to Halloween yeah October 29th ish okay we'll see you sometime that week I can confirm it is october twenty ninth okay thank you okay and with that we are adjourned thank you