Utilities Rate Advisory Commission Meeting - February 22, 2017

The Utilities Rate Advisory Commission met on February 22, 2017, from 5:34 p.m. to 6:58 p.m. to discuss the Department of Utilities Accountability Plan Update and the Recycling and Solid Waste Financial Workshop. The consent calendar, including approval of minutes from November 9, 2016, was approved unanimously.

Consent Calendar

• Approved the minutes from the November 9, 2016 meeting by a unanimous vote (5-0).

Discussion Items

1. Department of Utilities Accountability Plan Update

• Staff (Bill Busath, Director of Utilities) presented an update on key initiatives:
  • McKinley Park Vault Project: A wastewater storage project (2 million cubic feet, ~8 million gallons) to reduce flooding for a 10-year storm event. Preferred site is McKinley Park; pre-design is underway. Community outreach and support from Councilmember Harris noted. Similar to the Oak Park underground storage project which left the park improved.
  • Capital Financing: For FY17-21 water capital program, total debt financing is about $230 million, with $170 million targeted via a State Revolving Fund (SRF) loan (interest rate ~1.7%). If SRF approval is delayed beyond September, some projects may shift to bond financing. Bond rates are rising but remain below rate model assumptions.
  • Sacramento Utility Rate Assistance Program: Renamed to clarify scope. Participants increased from ~1,500-1,700 to 9,032 as of January 1, 2017 (down from ~11,400 in October 2016; staff to investigate reason). FY17 goal: add 1,000 participants. Program expenditures for current fiscal year: $1.2 million.
  • Drought/Water Conservation: Emergency drought declaration still in effect; City remains at Stage 2. Long-term goal: transition to a culture of efficient water use, with continued rebates, enforcement, and education. Current per capita water use is 155-170 gallons per person per day (down from 210 in 2013 and a peak of 280). Two-day watering schedule resumes in March.
  • Drainage Rate Planning: Education phase beginning; no rate adjustment in 20 years, resulting in insufficient capital improvement funding. Tiered water/wastewater rate study underway, but schedule tied to drainage rate timeline (uncertain).
• Commissioner questions:
  • Commissioner Javist noted reduced flooding in Tahoe Park; staff attributed it to moderate rain intensity and proactive inlet cleaning, not system improvements.
  • Commissioner McManus asked about long-term sustainability metrics; staff emphasized maintaining current conservation levels and education.
  • Commissioner Day asked about bond interest rate impact; staff responded that rising rates are still below conservative model assumptions.
  • Chair Horner asked about combined sewer separation; staff explained that a 1990s study determined improving the combined system was more cost-effective than separation, and 97% of stormwater in the combined system receives treatment. No discharge events during recent storms.

2. Recycling and Solid Waste Financial Workshop

• Terrance Davis (Integrated Waste General Manager) presented a detailed financial workshop covering:
  • Rate Model 101: Costs allocated to four service areas (garbage, recycling, yard waste, street sweeping) via direct and indirect costs. Indirect costs include administrative overhead, fleet, landfill closure, general fund tax, etc.
  • Key Cost Escalators in Rate Model: CPI (2.8%), fuel index, labor (3%), tipping/disposal (6%), customer growth (2%). Actual performance vs. model: CPI slightly higher, fuel costs lower (due to LNG/CNG transition), labor higher, growth much lower (~0.5%).
  • Fund Performance: FY16-17 overall solid waste fund deficit of $1.7 million (modeled $1 million). Primary drivers: lower than expected revenue growth, 40% increase in vehicle repair/maintenance ($1.8 million from three truck fires and higher fleet labor rates), unanticipated regulatory costs at closed landfills.
  • Service Area Variances:
    • Garbage: $900K shortfall (modeled $500K).
    • Recycling: performed better than modeled (small surplus) due to unanticipated revenue from recyclables sales and equipment sales.
    • Yard Waste: $843K shortfall (modeled $250K) due to slow growth and anticipated increase in green waste disposal contract costs (market constraints).
    • Street Sweeping: surplus of $306K (modeled $388K) due to seasonal service levels.
  • Fund Balance: 90-day reserve target of $16 million; fund balance started higher than modeled and has remained above target, but concerns persist.
  • Future Rate Outlook: Staff plans to return in early summer (May-June) with preliminary rate outlook, with final recommendations in early fall to meet Prop 218 timeline (public hearing Feb 2018, adoption March 2018, effective July 2018).
• Commissioner questions:
  • Commissioner McManus questioned the 2% growth assumption; staff agreed it was too aggressive and will use a more conservative figure (likely 1%) moving forward.
  • Commissioner Day asked about revenue decline in garbage slide; staff attributed a spike to a bond refunding (one-time).
  • Commissioner Day asked about tipping fee market options; staff noted limited providers (2-3) and long-term contracts constrain negotiation.
  • Commissioner Javist noted inconsistencies between current and prior rate presentations; staff promised to reconcile numbers and improve future projections.
  • Commissioner Javist asked about truck fires; staff explained the fires were due to debris on exhaust systems, corrective actions taken (training, retrofits), and costs were city losses (no manufacturer recovery).
  • Commissioner Ellis requested that any street sweeping service level increase (e.g., monthly) be modeled to ensure it doesn't erase the surplus.

Public Comments & Testimony

• No public comments were received.

Key Outcomes

• The consent calendar was approved unanimously (5-0).
• The Commission received and filed the Department of Utilities Accountability Plan Update (Item 2).
• The Commission received and filed the Recycling and Solid Waste Financial Workshop (Item 3).
• Staff committed to refining revenue growth assumptions, improving projection accuracy, and returning in summer 2017 with a preliminary rate outlook. The next rate adjustment is expected to be adopted by City Council in March 2018.