I'll just stick to that to the

Good evening and welcome to the March 25th, 2025 meeting.

The time is now 530.

The meeting is called to order.

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

Thank you, Chair.

Commissioners, if you can please unmute your microphones.

Commissioner Birdock.

Here.

Commissioner Steinbaum.

Here.

Commissioner Shambay.

Here.

Commissioner Nelson.

Here.

Here.

Commissioner Olson is absent.

Vice Chair Eberle.

Here.

Commissioner Johnson.

Here.

Commissioner Tran.

Here.

And Chair Zido.

Here.

Thank you.

We have a quorum.

Okay.

Alrighty.

I would like to remind members of the public and chambers that if you would like to speak

on agenda item, please turn in a speaker slip when the item begins.

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

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

We will now proceed with today's agenda.

So if everybody please stand for the land acknowledgement and the legislative allegiance.

To the original people of this land, the Nissan people, the southern Maidu, Bali and Plains

Miwok, put Winton peoples and the peoples of the Wilton Rancheria.

Sacramento is the only federally recognized tribe.

May we acknowledge and honor these native people who came before us and still walk

besides us today on these ancestral lands.

By choosing to gather together today in the active practice of acknowledgement and appreciation

for Sacramento's indigenous peoples 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.

And this is our first meeting of the new year.

It seems like it's been a long time since we met before it's like last year.

But we have some new members so we were going to go around and ask them to introduce themselves

and if you have anything you want to share, that'd be great too.

So we'd start with Commissioner Verdok and then just go around.

I am Anthony Verdok.

I'm a resident of the land park and I'm looking forward to engaging with the commission and helping out.

I'm Lauren Steinbaum.

I live in Hollywood Park and I'm excited to join the commission.

Greetings all.

I'm Commissioner Shambay.

I'm representing the South Sacramento area district 8 under Honorable Council member Maiveng.

I'm indeed very happy to be here and to serve the city.

Nice to be with you all.

Soren Nelson resident of Elmerhurst.

My background is primarily in water utilities so pleased to be with you.

Tim Olson, new member?

Spence Arborley.

I live in district two and I'm vice chair.

We have you two.

Okay, so I guess we're going to move on and right now we go to, let's see where are we.

One of the consent calendar.

So our first order of business today is the approval of consent calendar.

Clerk, are there any members of the public who wish to speak on the consent calendar?

Thank you Chair.

We have no speakers for the consent.

Members of the commission, are there any commissioners who wish to speak on this?

I know it's been so long ago.

It's hard to even remember what was on there.

But okay.

So is there a motion and a second for the consent calendar?

So moved.

So I have a motion by commissioner.

Nelson, I'm sorry, and a second by commissioner.

I am.

Tram, okay, great.

Will the clerk please call the roll for vote?

Yes, thank you Chair.

Commissioners, if you can please unmute.

Commissioner Birdock.

Aye.

Aye. There are no.

Aye.

Commissioner Steinbaum.

Aye.

Commissioner Sean Bay.

Aye.

Commissioner Nelson.

Aye.

Commissioner Olson.

Aye.

Vice chair Eberley.

Aye.

Commissioner Johnson.

Aye.

Commissioner Tran.

Aye.

And Chair Zito.

Aye.

Thank you. The motion passes.

Okay, great.

Thank you.

Okay, we're going to now proceed to the discussion calendar.

And first on the discussion calendar is,

this one right here.

The city auditor's Department of Utilities, Water and

Waste Water Funds review.

So if you'd like to come up and present.

This is hello.

Good evening members of the utilities advisory commission.

My name is Frishta Arari.

I'm the Sacramento City auditor.

With me today, virtually is Brian Bass from our consultant,

Ruff Talas, who is the project manager for these funds.

These fund reviews, these reports were presented and

approved by the Budget and Audit Committee and the full city

council earlier this year.

The Department of Utilities, most of them are here behind me.

Provide three major services,

water, waste water and storm drainage.

Each service is funded primarily from its own funds.

So water from the water fund,

waste water from the waste water fund,

and storm drainage from the storm drainage fund.

In 2020, we completed a review of the storm drainage fund

at the request of the Department of Utilities.

Due to the success of that project,

the department requested we perform a similar analysis for

the other two major funds,

the water and wastewater,

and determined the fiscal stability about those funds.

Well, this is one agenda item.

We have broken up the information into two reports.

One is for the water fund and one is for the waste water fund.

However, the formatting and analysis is very similar in both reports.

At this time, I'll turn it over to Brian to do the presentation,

and he'll go over the results of the reviews.

Thank you.

Good afternoon, everyone.

My name is again, my name is Brian Bass,

I'm a manager with Rap Tellus,

and I was the project manager for this engagement.

Next slide, please.

Our overarching purpose of this engagement was to assess

the stability of the city's water and waste water funds.

This slide is a bird's eye view of the project objectives,

and let's see.

Okay, there we go.

It's weird.

Sorry.

Okay, thank you.

I say that because we worked extensively

with the city for over a year, conducting this analysis,

and the reports for each the water and waste water fund

are both over 100 pages long.

So for today's meeting, I wanted to give,

I just wanted to point out some of the main objectives

and how this culminated into a financial plan

to achieve the project purpose,

which was the fiscal stability for the water and waste water funds.

So our objectives in this study was to review

fiscal policies and procedures to review the expense revenue

and funding history for the last 10 years.

We also reviewed the service level capacity

of the water and waste water systems.

We also investigated the relationship and impact

of deferred maintenance and capital investments

on the value of the water and waste water infrastructure.

And then on this last bullet here, the fiscal forecasting,

we developed financial plans for the wastewater,

the water and waste water funds.

And this is where we took the results of all the analysis,

and we included them in a forecast to determine

the fiscal impact for the different systems.

Next slide, please.

And so what we did was we completed a,

once we took the results from the different analysis,

we incorporated those into a long term financial plan

over 25 years and conducted a cash flow analysis.

So we took the city's water and waste water units

and demand.

We multiplied those by the rates of projected,

those revenues out over the 25 year period.

Then we also included in any other revenues,

any loan proceeds or development impact fees,

where that was appropriate.

And we compared that to the operating expenditures,

capital expenditure, debt service expenses

over this time period as well.

And we wanted to see under the status quo,

which would be current conditions,

as well as under three different scenarios

for water and waste water,

would the city still be able to meet its,

its fiscal objectives over this time period.

And the fiscal policies,

that some of the policies that we looked at

were debt service coverage ratios,

where we take the operating,

the revenue, financial operating expenses,

we divide that by your total debt service

and make sure that the absolute for debt service coverage

of 120% can still be achieved.

And if not, we point that out.

And then we also looked at the reserve target.

So for the reserve target being,

you wouldn't have a certain level of cash

for operating expenses.

And so that was 120 days.

And then for the capital reserve target

would be next year's cash fund at Pego.

So we wanted to make sure that those

were achieved under the different scenarios.

Next slide, please.

And so before we get into that,

I wanted to point out some of the,

some of the impacts that would impact

what would drive some of these long-term rates,

what would cause the need for rate increases in the future.

And well, you see on the slide isn't just a specific

to Sacramento, but these pressures

are being felt through,

felt by utilities across California,

as well as the country,

inflationary pressures, which we're all familiar with,

rising costs,

is really affects the water and wastewater industries

that have outpaced inflation, CPI, consumer price index,

future borrowing terms and assumptions.

So there are other pressures as well.

Loans are more expensive, interest rates are a little higher.

And so that makes the cost of borrowing more expensive,

which also drives rates.

More string or regulatory requirements,

so the water and wastewater utility have to comply

with legal requirements on not only California,

but in the federal government.

And so as those requirements are becoming more stringent

over time, that makes more investments

that are necessary to make sure that the level of service

that's expected by the community is there

and that community has safe drinking water.

And then the baseline of water sales estimates.

So most communities see that the growth is pretty flat

in a lot of places.

It's exactly even declining in that impact sales

and also puts a pressure for rate increases.

And then something I mentioned earlier

was making sure that the utilities have adequate reserves

for emergency repairs, emergency projects

that weren't planned for.

And if you don't have a, you know, emergency repairs

that's something that could emergency funds,

that's something that could drive increases as well.

And then another item is the capital reinvestment

that's necessary or to maintain that level of service

for the city.

Next slide, please.

And so this just highlights some of the specific rate

increase drivers for the city of Sacramento,

height and inflation, which we just mentioned,

future bond debt.

One thing that's very specific to the city of Sacramento,

there's been several years without a rate increase.

While in the meantime, costs have continued to grow.

So that's something that puts pressure on the city as well.

And then a couple of that was the deferred maintenance

and capital investments.

And so there was some of the financial drivers

that are impacting the need for future rate increases.

And then from a regulatory standpoint,

PFAS regulations, making sure that the water is safe,

excavating chromium regulations,

as well as California regulations

for making conservation a way of life.

There was some other specific pressures

that the utilities facing.

And so this slide here shows the status quo.

So earlier I mentioned the financial plan

that we put together,

where we started with existing current conditions.

And the bars show, if you look at the left bar,

that's the ending fund balance, that left green bar.

And then you can see that over time,

the ending fund balance,

it's being drawn down over this five year period.

And if you look at that in 28,

it's actually below the operating target.

And in 28 and 29,

it's actually below the operating and capital reserve target.

The middle bar that you see here,

those are the revenue requirements.

And you can see that those are pretty steady

throughout the forecast.

And then the revenues,

I'm sorry, that's the revenues,

so the revenues are pretty steady there.

But the revenue requirements, those are your operating

and capital expenditures.

So you can see those are growing over that period

and actually outpacing the revenues.

And so this shows that the status quo,

there's already pressure for some rate increases,

even without looking at some of the additional expenditures

that will include in the scenarios.

And one thing I want to point out here as well,

and that's pretty similar on the sewer side,

is that in fiscal year 2030,

what's best shown here is that

that service coverage, the absolute floor of 120%

wouldn't be met in that six year there.

Next slide, please.

And so this is just an overview

of the financial plan comparisons that we looked at.

After we looked at the status quo,

the first financial plan just includes the original 30 year CIP

that's been presented to City Council before.

And then the next item that was included

are the multi year operating projects

that the city includes.

And so with this financial plan,

in order to meet the fiscal targets

that we talked about earlier,

over the 25 year period,

you would have 74% rate increases.

In financial plan two,

where we work with the city to identify

additional and necessary operation

and maintenance expenses,

some additional necessary myop,

as well as some additional necessary capital,

that would increase the rate increases

over this 25 year period up to 82%.

And then in the third scenario,

we included additional and necessary

prayer and placement projects.

And this will be the,

everything that's included all the different

on the capital costs.

The total rate increases over the 25 year period

under this scenario would be 90%.

And again, this is spread out over 25 years

in the beginning of this,

there's more rate increases

and then as time goes on,

those level out and are a lot smaller.

Next slide please.

And I'm sorry, I think you should go back one more.

And just to my point that I'll be just showing that

the bulk of the rate increases are in 28 and 29

because again, there's been several years

without rate increases.

And then once the city has that revenue,

those rate increases are a lot smaller.

You can see they're almost inflationary in size

when you get out into the outer years,

where they're five and four percent sometimes.

And for now, I'll explain to you this even 3%.

Next slide please.

And so we did the same thing for wastewater.

And this shows the cashflow analysis

for the next five years.

Again, the light green bar on the far left,

that's the ending balance.

And you can see how that's being drawn down over time

to help mitigate rate increases here.

But by years, 28 and 29 similar to the water,

the city would not meet those reserved targets

in those years.

You can see the revenues are pretty steady

throughout this period.

But even with that, the revenue requirements,

which is that light green bar to the far right,

it begins to outpace the revenues and it's actually higher.

And that's why you see the ending balance

being drawn down over time.

And again, in fiscal year 30,

the absolute floor that service coverage requirement

of 120% would not be met under the status quo position here.

And then similar to wastewater, we did the same scenarios,

but the capital need on the wastewater side was a lot higher.

So you can see the difference here with the rate increases.

Again, financial plan one is just the 30 year capital improvement

plan with the multi year operating projects.

The total rate increases over the 25 year period

would be 147%.

We include the additional O&M, myopic capital,

and financial plan two, that's up to 172%.

And then we include everything,

including the additional necessary repair and replacement

projects that's up to 206%.

And then the next slide will show you the timing

of some of those rate increases here.

So you can see that in 28 and 29 similar to water,

that's where the bulk of those increases are again,

because there's been a lot of years

since the seat's had a rate increase.

But then once you get past that,

and the city has the level of revenue that it needs

to meet its fiscal targets for the reserve as well

as the service coverage ratio.

After that, beginning in 2030,

you see those rate increases are 7%, 5%,

financial plan three, and at 2031,

it even drops down to 3%.

And so you can see the difference here.

And then it tapers off after that.

And with that, I want to thank you for your time,

and I will turn it back over to you.

Right, this concludes our presentation.

The city auditor's office, Rafftales,

and the Department of Utilities are all here

to answer any questions you might have.

Thank you.

I'm going to go ahead and start with the full issue.

Item.

Thank you, Chair.

We have no speakers for this item.

Are there any members of the commission

who would like to speak on this item?

Yes, Commissioner Trail.

Hi there, thanks for your presentation.

I'm wondering what part of the process,

the DOU and the city and Rafftales are in this.

There are three proposals.

Part of the process, are you choosing between

or weighing the factors of which ones you go towards,

what are the variables you're looking at?

And in all three, I'll be honest, it seems like a lot.

And I've seen the presentations on the work we have to do.

So, just one more.

Yeah, this is just the beginning of the entire process.

This is just to kind of independently confirm

that there is a financial situation that they're facing

and Pravani can go into detail

on what the rest of the process is going to be.

So, under Proposition 218,

we have to go through what's called a cost of analysis process.

And that is to study for each of those areas,

water and waste water, what the cost for those services

are that we provide to our ratepayers.

And then based on that analysis,

we'll determine the exact rates that are needed

over a five-year period.

Proposition 218 also dictates that you can only ask

for a five-year period as a maximum period of time

for rate adjustments.

You cannot go beyond that.

I know some of what was shared in the presentation

shows it going out.

The reality is we need rate adjustments

for an extended period of time.

However, the focus of the cost of service analysis

is going to produce data for a five-year period of time

that will advise us on what rate needs are

and how they will be adjusted through that five-year period.

And also looking at the reasonableness of what the asks are

and also trying to ensure that we are trying to maintain

affordable rates for our communities.

So, we'll be looking at all of those aspects

and then coming up with recommendations

to bring to Iraq, to bring to Mayor Council,

as well as conversations with the public

in terms of what our needs are

and what we're going to be bringing forward

in terms of those rate adjustments.

So, hopefully there's an understanding

of what the recommendations are.

So, that's a process we're gonna work through.

This analysis that was done by Raff Tellus

with the Auditor's Office was to confirm

what DOU had indicated would be when we go into the red

and when we would need to be implementing rate adjustments.

Obviously, through the tables you see that ideally,

we would be doing those rate adjustments earlier.

However, the regulation to 18 dictates

that we have to engage in this process,

which is a lengthy process.

So, we've engaged a consultant,

which happens to be Raff Tellus in this instance

and we're gonna work through that cost of service analysis

and generate some of that data and information

and that is going to be coming back to all of you

for discussion and then figuring out,

do you support what the asks are,

the tweaks we have to make to the strategy to move forward.

So, we'll be having a lot of detailed conversation.

Okay, thanks, that's helpful.

Does anyone else have a comment?

Yes.

Commissioner Johnson.

Thank you for your presentation.

I had two questions.

One is, do any of the fiscal plans,

are they allowed to allow for variable responses

on rate increases within the five year period

that you plan for them?

Or do you have to plan five years at a time

and you're locked in for the next five years

regardless of changing conditions during that time period?

So, Pramani, questions.

And I might be looking to Mike Voss for support on this.

So, we will bring to council a request for adjustments

for the five year period.

I do believe if there are conditions

that change in that period of time,

we can go back to council and ask for adjustments

in those rates.

However, we have to always remember

that we need the justification for whatever those changes are.

So, you would have to engage in an analysis,

again, cost of service-like analysis

to ensure that whatever you're recommending

is supported by that analysis

because it always has to be defensible.

So, if we're challenged in any way,

that data can be used to defend

what the asks, what those adjustments are.

So, yes, you could go forward with adjustments

depending on what's going on,

but you need to be able to do the analysis

to be able to justify what you're asking for.

So, it would take more time

than readily being able to respond and make adjustments.

Does that make sense?

I think that does.

Thank you.

I think my question is maybe another way to phrase it is,

it does, is the fiscal planning process allow

for tying rate increases to future variables

that you then solve on a year by year basis

like an index that you compare your rates to?

I believe it does, but again,

and I look to Mike Voss here,

is I think when we say we're adjusting rates

for those variables costs, construction,

cost-construction index, for example,

we can only do it for that five-year period

and would have to go on a continuous basis

for that sort of five-year period as we go out.

Is that correct?

Chair Zido, member of the commission's,

my name's Mike Voss.

I'm with the City Attorney's Office,

advise the Department of Utilities

and staff this commission.

So it's nice to meet all of you new members.

And without out of the way,

so yes, there is a five-year limitation

on how far rates can go out.

And I think Pervani has exactly right.

I'll just add that.

You can always lower rates.

If it turns out that the cost of service was too aggressive,

there's no procedure that's necessary to lower rates,

but there's always a procedure necessary to raise rates,

even if it's only a rate on one person.

And that procedural 218 process lasts for months,

if not years.

And so there's sort of an easy to go down, hard to go up,

and you have to justify everything that you're showing.

Any other commissioners who should speak?

Yes, Commissioner, I'm sorry, can't you?

I see you.

Very good, this Brian and the utility staff is very good.

Very two very good pre-ports.

Thanks for all the work on that.

You can tell you spent a lot of time,

turning over rocks and looking at lots of different things there.

I just started, I was appointed last week, last Friday.

I have one day to look at this, basically,

but I did go through the reports,

and there's still some detail that's lacking,

and that I would like to see,

and I'm hoping others will agree with that.

I have, basically, I have probably 50 questions,

but I'm going to go with just three main things.

One regarding the benchmarking for both reports,

one expense line items, and then some of the priority,

kind of, cleaning from this, some priorities.

You've identified it looks like some priorities for capital investment.

Benchmarking, I'd like to know whether you're

really looking apples to apples comparison to other local jurisdictions.

There are a bunch of factors there that are,

you know, to employees and similar kind of functions,

and Sacramento compared to these other eight or nine others you identified.

Do these are the same functions?

Do they have the same emphasis?

Do they have the same kind of infrastructure?

And equipment?

I mean, there's some detail there that's not there.

You don't have to answer that now,

but I'd like to have you look into that.

So I'm going to look to Brian,

because yes, Raf Tellus in doing the benchmarking,

that was the emphasis for the benchmarking,

is to ensure that we're as similar as we can be

to those entities that were benchmarked against.

And I'll let Brian, if you can provide a little more detail to that,

that would be helpful.

Yeah, so we work with the city to determine the benchmarking,

the peer communities based on community that the city has typically used in the past,

so that they would be familiar.

We also looked at the utility type,

versus combined versus all sanitary.

We looked at the size of the utilities,

so that the economies of scale would be important as well.

And so those were all factors that we considered.

We looked at with stormwater separate, was it included?

We pulled out to make sure that things were normalized,

we make sure that water was only considering water,

wastewater was only considering wastewater

and not wastewater and stormwater.

So we did work with the city extensively

to make sure that our peer community list

made sense from a comparison standpoint.

Yeah, very good, Brian.

I think it would it be worth providing a little more detail,

particularly on the labor, since that's a large part of the expense,

if you're going to do this benchmarking comparison of,

and I think it has a lot to do with what the infrastructure is for

different local governments.

You've got two water treatment plants here and a number of reservoirs,

and but other jurisdictions may have a different setup.

And as result, their labor assignments may be slightly different.

That would be that's just one kind of point I think it would be worth looking at.

I want to the other area that I looked at closely was the expense line items.

And it's pretty minimal information.

And I'd like to look, I'd like a look at the line item,

more detail line items, and whether or not there's a potential to reduce costs,

either in carrying out the work in an optional way,

different ways maybe from the past, or where there might be savings.

And I'll give you an example.

I'm familiar, I did a tour of the water treatment plant in the River District.

And my background is an energy area.

You're using two megawatts of power to run that plant.

And I kind of wonder the existing contract with SMUD can it be beaten and I think it can be.

And I'm smiling broadly because we are engaged with the Auditor's Office

in evaluating our use of electricity for our operations of our infrastructure.

Our goal is to minimize as much as we can how we use energy.

And we're also evaluating our bulls from various entities, SMUD.

At that same water treatment plant, we have solar panels, installation,

where we use solar energy.

So making sure that we're being as sustainable as we can be in terms of our energy usage

and where we need to go.

So we're currently engaged in that study and there will be information available in the future

that we will bring back and we can't share with all of you in terms of what that looks like,

what those recommendations off as we move out.

So it's an area that we're aware of that we need to do a lot of work in.

Our energy usage is high considering what we do.

It sort of goes along with it, but that doesn't mean we stay where we're at.

There's always improvements that can be made and so looking at some of that.

Yeah, very good.

So the point there is maybe segmenting what we might call controllable costs

versus those that are not controllable, which tend to be insurance.

And there's always going to be an increase in salary structure and hopefully we,

this utility department has some of the best engineers I've seen anywhere.

And it would be great to keep them on staff, which means your salaries have to reflect that.

But there's some things that might be controlled and expenses that are maybe worth looking at.

The other area that I wanted to cover is priorities that I'm picking out.

I kind of making a conclusion from the list of capital investments for things

that are repair replacement and end-of-useful life facility equipment.

And so you have a kind of a general summary of that, but I'd like to know a little more about the detail

of what those projects and what those, you know, at what point in time.

I think it's really good to kind of look at an,

essence you're creating, reserved to kind of address those future things.

But at what point in time do you need to do everything all at once?

Or, you know, and so there's I think be helpful to have that kind of priority setting

and time frame in the future analysis here.

All good points.

So I will tell you that there is detailed background to the report from Rafftellus

that incorporates all of those detailed items.

We have priorities in terms of what we call priority one, which is the life safety priority.

And then we go down from there and we go down to other areas,

including best management practices in terms of for the industry,

what are the recommendations to make sure that you're managing your system as well as you can.

So there's a lot of detail there.

However, what I would like to do is as we engage in this cost of service analysis,

where we're going to be going through all of those things,

including figuring out what the appropriate prioritization of infrastructure needs are.

And all of the other needs, including staff salaries and what those are going to look like,

is we then can engage with you all and give you some of the detail,

the background to what's giving us the rate adjustments that we're going to need.

That is the plan for our work with Iraq.

This is probably the most critical time for the work we're going to have with Iraq.

We're ramping up big time as we move forward here.

And we will be having those conversations because we need to have you understand the details.

So you understand where we're going and why we need to go the direction we're going.

So great questions and I appreciate your understanding of some of the things that we can look at

and where we can engage in efficiency, which is something utilities does on a continuous basis

on everything we do.

But that is also part of this process as we determine what our rate needs are going to be.

And we will definitely be bringing back to this commission, all of that information.

And having discussion, you all are going to have ideas on some of the things we could be looking at.

We're going to look at all those things and then decide what that path forward is going to look like

if we're going to be in agreement or if we're not in agreement of what that path forward is.

So we'll work through that.

But yes, great questions and a lot more information will be coming your way to help with some of that

background to where we're going.

Can you give a glimpse of the timeframe of what's next on the list here?

Is it an update of these reports and then is that three months from now, six months, a year from now?

What's the...

So working with Raff Tellus on the cost of service analysis, we're estimating and I'm looking back, David,

you're going to help me.

Is roughly a year to complete that process.

And that means getting to the part where we understand what the rate adjustment needs are going to be.

Then there's going to be discussion of strategy, right?

Do you go in year one and ask for your full rate adjustment needs or do you, you know,

phase it in over a five year period?

But in phasing in, what does that mean for our infrastructure projects?

Because we have some pretty substantive projects that need to happen.

And if we don't start collecting that money early on, we might not be ready in year four or

year five for some of those projects.

So those are all those detailed discussions we'll have but we'll be bringing it to you all to

fill you in.

So this year, next year is where we work on the cost of service analysis, once we have all the information

that next period of time from there to be able to implement rate adjustments in by July 1st of

2027, we're going to be in the communication mode with all of you, with the public, with

Mayor Council to advise of what is the justification for where we're asking to go.

This next period of time, as we get closer to the end of that year long period,

we will start looking at what can we bring to URAC to start to have some of those conversations.

We might not have the percentages of the adjustments ready,

but we might have the details of what some of the needs on each of the areas that we can

stop talking about some of those project details to start giving you that perspective on where we're

going with those rate adjustments. David, timeline correct? Yes.

Good evening, commissioners. Thank you, Commissioner Olson, for your comment.

David Levine, long-range financial planning manager. So you'll be seeing a lot of me and my team

as we go through the next few years. So when we're not in a rate cycle, which is where we're at

right now, we're kind of in that pre-process or the early phases of that process, we're focused

on education, right? So we can inform the commission about what our challenges are, provide more

detailed information. All of the new commissioners should have received a binder, an electronic URAC

binder. Be a lot of good information in there. Pass presentations about deferred maintenance

issues and stuff like that. A little bit later on this year, I think it's scheduled for our fourth

quarter meeting. We will effectively give you a preview or overview of our work with Raff Tellus

to date about the cost of service study and what that rate process is looking like. As we go

through the whole year of 2026, that is where we will be working with all of you through workshops.

We'll be very likely be meeting on a much more, we won't be meeting quarterly, we'll be meeting

much more frequently so that we can share that information with all of you, can see that.

So we start our public outreach. And so by the time we get to December of 2026, that's really where

we get to the Prop 218 noticing process and we go out to our rate pairs. So that's a general timeline.

We can certainly provide a timeline as well, but just in general, that's kind of what it looks like.

Thank you very much. It was one of my worries that if we were only doing three meetings a year,

I don't know how you're going to address this. So I'm glad to hear you're open to that.

Yes, absolutely. Thank you.

Are any other commissioners who would like to comment on this? Yes.

All right. Well, you've all sort of got to one of my points. So reading the report, which is

quite lengthy, Commissioner Wilson does point that out. It did look like FY 2027 is the absolute

latest that a decision has to be made. You said July. So is that like the actual rate increase?

Is that when it has to go council or we have to have that in 26 done by that point or?

So the actual rate increase that our customers will get needs to happen July 1 of 2027, which is

that fiscal year 28. So it needs to happen from then going forward to ensure that we don't go

into the red. Okay. So that our timeline is much before that. Okay. Yeah. The decision needs to be

made and councils decision needs to be made for implementation July 1 of 2027. So that was my

sometime in that year prior, we need to have that approval. Okay. Thank you. The second question

was should we take this report as sort of your strategic plan with even though it's just,

I mean, it's your cost analysis for rate increases. But are you going to is the deal you going to

use that as we go through this process to just like I said, the strategic plan of what you think

you want in terms of what you're going to ask. I mean, there's three different plans. There's

a lot to go through. But is should we take this as your sort of your guiding in terms of what

you're going to be asking for or is it going to be so dynamic that we won't? This this review was to

determine where we stand with the revenues coming in and our expenses. And when we anticipate we

need rate adjustments to be implemented. The financial plans are options that can be pursued.

We have not decided which path we're going to go down. You can see from the percentage adjustments,

those are substantive, right? So we have to be very mindful in how we look at what all the needs are,

the prioritization of what those needs are. We'll have to share the prioritization with all of you.

We cannot so I'll use financial plan three. It's going to be really challenging for us to say we're

going to stay with financial plan three in all of the asks in every area that we have. I'm not saying

that the needs are not there. I'm not saying the requirements are not there. But we have to be mindful

of what we move forward with. And so there's a lot of work that needs to happen within DOU to figure

out how we're going to prioritize appropriately. And we're going to come back and communicate all

of that to you. So you understand why we're prioritizing what we're prioritizing and how it's

correlating to those rate adjustments. So I would ask you to use this report as yes we need a

rate adjustment in fiscal year 28 for both water and wastewater. The indications of those

financial plans help give you a little bit of perspective on the challenges we face in what

rates we will be asking for. The details are going to come out in this cost of service analysis.

That is what we will need you all to understand and be more familiar with. This is a very sort of

preliminary indication of where we're going. So it's a guidance but I wouldn't put too much of

weight in the details of it because we're presenting information but we're not saying which

path we're going to take necessarily. There's a lot of decision making that needs to happen in

this next period of time because right now with the percentages you see to me that's not realistic

to ask members of the public for. I'm a rate payer too and so yeah we have to figure out what is

reasonable. I also tell you as the director of utilities that the systems are challenged. There

has been years of kicking the can down the road not asking for the adjustments we need. That is

all sort of coming together here and so there are major decisions that we all and I say we all

includes you Iraq it includes May and Council and input from the public on where we're going to go

but I think it helps give us a glimpse of some of those challenges. A challenging conversations

we're going to have to engage in. So a great report, a great review, yes confirming where we say

we need to go and giving us a little bit of a perspective on what we're going to be looking at

but it's really the cost of service analysis that's going to give us the true details and I think

that's where you all need to sort of delve in with us and get to understanding.

Yes thank you well that's that's how I took the report to see this is the beginning of a long

process so I appreciate I appreciate your answers always thank you.

Anyone else like to comment just yes come share Nelson. Yeah well I want to thank staff for

the report and for making yourselves available after the usual end of the work day I know that

you'd probably rather be at home so thanks for making yourselves available. I am glad to hear you

articulate some concern with the big jump that was proposed particularly in plan three 45%

a lot to ask in one year I think the average Sacramento is probably not paying close attention

to why that would be happening so I think that's a hard thing to ask of rate pairs. I wonder

Brian I think in your presentation might have been slide two or three you pointed to a few factors

that are driving costs and you know as the the reason behind the need for a rate increase and I

wonder if you could characterize you know sort of which of those factors is contributing most you

know I know that the new state regulations around conservation and PFAS or big drivers obviously

there are inflationary pressures that are outside of anyone's control so could you just characterize

quickly sort of which of those is the boogie man or is it spread evenly amongst all of them.

Probably the biggest thing is the inflationary pressures that the water and wastewater

industry face are a lot higher than the consumer price index. I have a slide that I normally use for

an appropriate process to kind of show the comparison but it is a pretty steep incline when you

compare the way that the costs have risen in this industry compared to just normal consumer price

index over time and that's something that again not only the city of Sacramento is faced with but

really all of California and the US cost for installation of materials that that's all that is

increased you know it's not unusual for capital projects that were planned you know two or three

years ago to have to be the engineers estimates have to be redone and sometimes those

they increase quite a bit from where they started so that's probably the one of the biggest things I

think is just the inflationary pressures that are specific to the water and wastewater industry.

I'll add to that Brian's absolutely rates on a capital improvement projects we're seeing

significant increases in costs across the board on anything that's needed for the project.

We recently just pulled some data related to our chemical costs for operating our water treatment

plants and in the last three to five year period we've seen some of those chemical costs

rise significantly and I'm talking 40, 50 up to 300 percent increases including something like

chlorine which is a disinfectant you cannot produce drinking water unless you use the disinfectant

those costs are extreme and they're not forecasted to start sort of tapering off.

I will add that I we're all aware that the federal requirements for tariffs are going to have

implications to our infrastructure projects we haven't yet seen what those are but there are

going to be consequences in pricing so those are all the things that contribute to it including

more stringent regulations Brian mentioned the PFAS the water conservation regulations those all

add so the pressures are coming from all different areas that we must meet and often the changes

the pressures are happening in real time we cannot adjust our rates in real time and so that's

what's complicated we kind of have to think out forecast out looking at the historical trends

and trying to guess at where things are going and that's where adjustments will come in right is

if our forecasts are way over where they need to be that's where we'll have to go back and say okay

we're going to adjust down because we don't need those revenues so being mindful of what's going

on at any given time and then making those adjustments as we move forward but yeah the pressures are

from all corners that I think the infrastructure costs are biggest that's also our most substantial

use of our revenues is to those infrastructure projects well I think your your report and your

presentation makes a strong case for a rate increase and I think just the the way we do that and how

we message it is the next question so look forward to that conversation thank you

yes commissioner Tran thanks pervani and so at looking at the end of the line and you know

maybe December 2026 when we're trying to firm this up does that final rate recommendation look like

the table that Brian showed us like percentages over years or does it go more granular into like

each customer classes fixed and variable costs then we'll be more details so the fixed variable

costs and that goes back a little bit to what commissioner Olson was talking about that is

part of our analysis that we have to do right what are the costs that stay steady what are the costs

that can be variable and then how are those factored into the rates that we ask for typically when

we explain things to the public they like the percentage option but we also like to do some

calculations that gives examples but there are there are variabilities right on the water side

the rates that are rate pay is pay are dependent on the metasize for example so it depends on the

metasize you have for your home so we'll present it as some of those examples to give you a perspective

on if we say we end up at 10% just throwing in about there 10% what does that look like in terms

of your monthly bill if you're on a one inch meter on the wastewater side slightly different by

giving the different examples so people can get something of a perspective and then we'll also

offer up once we start messaging publicly is they contact us and give us their address then we

can go in and do more detailed calculations on what it would look like for their home to help people

understand what is coming at them as much as we can now granted we'll be doing this based on what

we're recommending on moving forward that doesn't mean that's where we'll end up but at least

people will have a perspective on what council and mayor will have to use to decide where we're

going to go once we all have figured that out thank you

come at your Johnson thanks I have one more question I was wondering if you could please

for the discussion today give us an update on the developer fees litigation and how that might

or may not impact some of the financial plans you're looking at so we took development

impact fees forward for approval through council I'm forgetting my timelines to I think it's

two years a couple years ago that's implemented and 218 requires that we cannot put development

and what the future needs of development is on ratepayers ratepayers pay for the current systems

repair replacement if there are improvements that need to be made for regulatory requirements all

of that that can be paid for from your rate base but developments coming into the city and what

their needs are cannot be born by our ratepayers and so we have to be very careful of keeping those

separated population increases in the city that can be factored into the rate base but not

development specific improvements or additions to infrastructure that I needed development impact

fees pay for their purchasing of current infrastructure or upsizing that's needed but ratepayers

do not pay for that thank you thank you so go ahead please I have another question regarding are

we are you you're going to desire utility department have your own financial staff or is that

deferred to the trajures office for combination so we have stuff within utilities because revenues

are utility specific so they manage our finances within utilities however we participate in the

cities budgeting process monitoring process the annual reports process so we then work with the

department of finance along with all the other departments of the city to report everything that

we have within utilities so we have dedicated staff to monitor collection of revenues monitor

expenditures ensure that we're balancing our budget and then all of that gets reported up to the

department of finance for review and approval yeah I'm thinking also of the method of

basically obtaining debt whether that's a I suspect that's a bond but is that if that's

another department it would be helpful to have them here to explain some of the options on

interest rates and those kinds of things so in the city it is the city treasurer's office who

oversees bond financing for any department any area of the city so utilities has engaged in

bond financing we've done it through the city treasurer's office and we would be happy to arrange

a future meeting where we could have them come in and explain some of those aspects of what they

do and how they help support utilities in all financing options and just one other one other thing

this is a big challenge to to balance improving some some facilities that have been deferred maintenance

for years versus affordability for the actual citizens and it sounds like there's no scenario where

the rates are going to stay the same and but I guess I'm wondering if you've done I could see this

in a little bit of the both of the plans that you're looking at percentiles of poverty wealth

in the city but in essence have you done can you do work that will get to the point of what's

really what's going to be affordable even with an increase that will be part of the analysis

we're doing right we have to figure that out so we have to look at affordability and what that

means in terms of the rates we're going to ask for so that's all data information that will come

through to this commission for discussion they will have to be rate adjustments for the systems if

the expectation is no rate adjustments honestly the reality at that point is we have to live with

failures catastrophic failures and so my advice is the director of utilities is there has to be rate

adjustments we're going to try to be as reasonable as we can and what those asks are are they going

to be affordable we're going to have to have those conversations that is why I talk about very

very challenging discussions that we have to to talk about the systems needs are there there's no

way to minimize them eliminate them we are very good in utilities as at trying to make things work

for as long as they will work but failures happen and we try to deal with those and when failures

happen it is more expensive to fix that failure than it would have been to do the maintenance when

it was due so that's another thing that we have to discuss there is a history of gaps and I say gaps

financial gaps the not getting the rate adjustments that we ask for that the systems need it's created

a backlog of maintenance and we've presented to your act we've presented to man council the three

systems so we look at water wastewater and storm drainage we're not talking about storm drainage

here but the total of those three systems for utilities is estimated at a 2.1 billion dollar backlog

we do not have money to to continue that work that is part obviously of what's going to be

asked for through this rate adjustment we're not looking to close that gap because it's not going

to be we're not going to be able to close it realistically in a five year period that is a longer

term plan so just a little bit of perspective is absolutely mindful of affordability we will be

looking at that studying it doing comparisons but also looking at what the absolute critical needs

of the systems are and how do we try to get to a balance with that those are all going to be

conversations that we engage in yeah thanks thanks for that elaboration

any other commissioners have any comments that they would like to our questions

no yes no okay well at this point this item is for recommendation only so nov it is required

so we'll go ahead and move on to the next item and thank you so much for your presentation

very informative it really was okay the next item that we have is the selection of chair and

vice chair for calendar year 2025 so I'm not quite sure I can take it from here so good evening

everyone my name Cecilia Ventress from the office of the city clerk there's currently no staff

presentation on this item as all information is detailed in your staff report however I'd like

to remind commissioners of a few things nominations will be heard for the chair position then followed

by nominations for vice chair commissioners may nominate another commissioner or themselves for

chair or vice chair a commissioner may serve as a chairperson or vice chairperson for no more than

two calendar years and the newly elected chairperson and vice chairperson will start their term the

next regular meeting and in this case your meeting is June 25th and of the current roster everyone

on the commission is currently eligible to serve as chair and vice chair so now we can turn it over

to you all for nominations just anyone I bet you want to put forth the nomination for chair

this point yes when when I came to this commission last year the previous chair pointed out I

thought was a thoughtful point that for continuity that we should probably keep more senior commissioners

and then move so I would like to make motion to have you remain as chair for this next year

because I believe this is the end of your term on the commission I turn completely yes

second that motion thank you and chair do you accept um yes so I'll continue yes so that

was a motion by commissioner or vice chair Everly and commissioner Olsen nominating

current chair 0 to continue as chair for 2025 and then for the record we do not have any public

speakers for this item so we will now move forward with the vote commissioners if you can please unmute

commissioner Burdock aye commissioner Steinbaum aye commissioner Sean May

aye commissioner Nelson aye commissioner Olsen aye vice chair Everly aye commissioner Johnson aye

commissioner Tran aye and chair 0 aye thank you the motion passes congratulations

and now we'll move on to nominations for vice chair

I'd like to go ahead and nominate vice chair Everly to continue on under the same kind of

arrangement that it's good to just have some people continue as the new new members get used to

what's going on and can just kind of ease in we only have two more meetings in this year believe

or not so I nominate him for vice chair we need a second I'll second okay we have a second by

commissioner Nelson thank you and we'll move forward with the vote for vice chair

commissioners if you can please unmute commissioner Burdock aye commissioner Steinbaum aye commissioner

aye commissioner Nelson aye commissioner Olsen aye vice chair Everly aye commissioner Johnson aye

commissioner Tran aye and chair 0 I thank you the motion passes congratulations to you both

thank you now we move on to commissioner comments any ideas or questions that any of you would have

yes commissioner Tran hi I'm glad to see a lot of new faces I would highly recommend you know

getting to know the DOU staff you know during your term I've had the the privilege to go on a

tour with them recently to check out their facilities be on the ground and you know understand the

needs and get to know the system and the staff better and so if you're available I would highly

recommend you know taking them up on tours meeting with staff they're they're pretty available to answer

questions and build the relationships as we're working towards this you know difficult road and

on our tour I happened to line up where council member plucky bomb was also available and so

another opportunity to connect with council members DOU staff I would say take them up on it if

the opportunity rises anyone else so I would then yes yes I should also yeah I haven't had a very

similar kind of comment and I have visited as I mentioned before the water treatment plant and

but I'd like to see the facilities some of the different facilities in both the water and wastewater

and I guess the other question I think the staff kind of just answered this my worry that we're

not having enough meetings to really address this issue and is that is that how do we go about that

if is it just scheduling and you find out who's available it was actually a published calendar

right now right that was set for this year so I think it was set with the help of the farmer utilities

pretty much yeah so historically our challenge has been when we're not in a rate cycle how do we

ensure that we're using commissioners time in a way that makes sense we try to focus it on education

so that's why this year's calendar is set up the way it was which is with quarterly meetings

ramping up next year is going to be more frequent meetings at least monthly I would imagine if not

maybe even a little more depending on what information we have to share and the amount of time

we need to engage in discussion so the calendar as it is this year is reflective of the historical

the last rate adjustments that came through this commission was the recycling and solid waste

adjustments which happened like I believe it was probably a couple years ago so we will ramp up for sure

the the minimal number of meetings are just reflective on not having some of that substantive

information to bring to you and have conversation in but we're definitely ramping up in that way

going forward if it if if the commission does not schedule a significant number of meetings

but you're doing workshops if it's if it's not a violation of our roles I'd like to be invited to

those are included so yeah no we will try we we're doing workshops we're going to try to do

them in the meeting formats so everybody's together we're not violating the brown acts it will be

a published public meeting some of the visits and and the discussions we engage in when we we go

to particular locations we try to ensure that we're just having one commissioner as fast possible

so we're not violating any requirements we try to team up with other people who also want to do

twists or we're being efficient without time but we will make sure that discussion on the

substantive items related to wherever going with our rate adjustments will be all of you together

so we can engage in discussion and it will be always public formats of this opportunity for the

public to hear listen in to provide comment as well so we'll always mindful of that in order to

schedule more meetings we can decide if we want to add more meetings in the future here this year

I'm not anticipating that we're going to need to add more to the calendar but certainly if

commissioners feel there is a need for something to be added we can talk about it as long as we

ensure we have the notification period to be able to make sure that the public is a way of what

we're doing and the clerk's office helps us with that very good thank you

anyone else anymore yes I share I know we're we're going long tonight but I do just want to echo

what commissioner trans said that this is a this is a great staff you're going to meet them as they

all make presentations throughout the time I'm very excited how this commission has grown

and it is an important time because we are going to go through a rate cycle and that is why

this commission exists and we are looking at two possible rate increases out of our four of

enterprise funds that we we are responsible for so I hope that you guys are excited as I am to

get into the detail and I'm very glad that everybody's using their time to to come to here and

spend time with such an important subject for everybody who lives in this city who is all affected

so thank you yeah we're we are coming into a very busy time so it will really wrap up quite a

bit um next we have public comments matters not on the agenda thank you chair we have no speakers

for matters not on the agenda at this point in time is there is nothing else we will adjourn

and I don't have a gavill so we are adjourned thank you