All right.

Good evening.

We are here for the October 29th meeting of the rate utility commission.

Let's see.

It is now 5 30.

The meeting is now called to order.

Will you please call the role to establish a quorum?

Thank you, Chair.

Commissioners, please unmute.

Commissioner Tenekella.

Commissioner Gasbard.

Here.

Commissioner Burdock?

Here.

Commissioner Steinbaum?

Here.

Commissioner Shambhai?

Present.

Commissioner Nilsen is absent.

Commissioner Olson?

Here.

Vice Chair Eberley is absent.

Commissioner Johnson?

Here.

Commissioner Tran?

Here.

And Chair Zito.

Here.

Thank you.

We have a quorum.

Okay.

Alrighty.

So I would like to remind members of the public in 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.

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

We will now proceed with today's agenda.

So if everyone will please stand for the land acknowledgement and pledge of allegiance.

To the original people of this land, the Nissan people, the Southern Maidu Valley, and Plains Miwok.

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 active practice of acknowledgement and appreciation for Sacramento's Indigenous People's History Contributions and Lives.

Thank you.

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.

Okay, we can be seated, and we'll move on to our first order of business today, which is the approval of the consent calendar.

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

Thank you, Chair.

I have no speaker slips for this item.

Um let's see.

Okay, let's see.

Any members of the council want to speak?

Uh yeah, Tim Olson uh move to approve the consent calendar.

Do we have a second?

I'll second.

Hey, thank you.

I have a motion by um, see, I'll get the names.

Uh Commissioner Olsen seconded by Commissioner Tran.

Okay.

Clerk, will you please call the roll for a vote?

Thank you, Chair.

Uh Commissioner Tenankella.

Here.

Commissioner Gaspar.

Sure.

Is that the I think that's a yes or a no?

Okay.

Commissioner Burdock.

Aye.

Commissioner Steinbaum.

Aye.

Commissioner Shambhai.

Aye.

Commissioner Nilsson is absent.

Commissioner Olson?

Aye.

Vice Chair Eberley.

Is absent.

Commissioner Johnson.

Aye.

Commissioner Tran?

Aye.

And Chair Zito.

Aye.

Thank you.

The motion passes.

Okay, we'll now proceed to the discussion calendar.

I think we only have one item on that tonight.

Department of Utilities rate planning update.

The water fund.

And we meet again.

Good evening, Commissioners.

Chair Zito.

My name is David Levine, long-range financial planning manager for the Department of Utilities.

Tonight the goal is to provide you with additional information focused on the water fund.

I'll be sharing information specific to the funding gap we are facing, as well as critical operational capital and capital needs over the next five-year rate planning cycle.

Tonight's presentation covers our overall approach to funding our water needs in the upcoming rate cycle.

We'll start out with a brief review of the funding challenges and objectives that we looked at in August, since these will help guide us in our decision making in this rate process.

First, we'll look at what's needed to continue existing operations and service levels as they are today.

Next, we'll dive deeper into each of the policy objectives.

Finally, we'll explore the most critical water funding needs that will add new costs to our budget to address the greatest deferred maintenance, operations, and administrative challenges once we're able to fulfill our first two critical objectives.

In August, we examined all the factors that have driven costs up since 2020 COVID, labor contract increases, inflation, just to name a few, and while metering and water conservation reduced revenues during that same time period.

Additionally, there were rate affordability concerns during this period, which also influenced decisions to delay water and wastewater rate adjustments until absolutely necessary.

Let's take a look at those factors in more detail.

This chart provides a timeline for key events over the eight-year history between our last approved rate adjustment in FY20 and our proposed rate adjustment in FY28.

FY20 to 24 shows water fund revenue and expense actuals, followed by projections from FY25 to FY28.

Total revenues are shown in green and the total expenditures are shown in black.

For perspective, I have indicated where we are today on that calendar in red in early 20 FY26.

While spending increased from FY20 to 21 to fulfill critical needs, revenues and expenses remained largely flat in FY21 and 22, beginning in FY23 and continuing through FY25, expenses began to exceed revenues slightly to continue delivery of our operational and capital needs.

Fund balance was healthy and could absorb those variances, which amounted to about 11 million dollars annually on average, leaving us with an estimated ending fund balance of 69 million dollars after FY25, which is not sufficient to cover continued projected cost increases.

Yeah, but you don't have any numbers there.

No, we'll see those in more detail later when we cover more specifically about revenues and expense variances.

Expenditures are expected to continue rising as we ramp up for project planning efforts to lay the foundational work needed for supporting and staying on track with future large-scale system improvements like water plus.

This early investment is critical, not only to stay on schedule, but also to mitigate the impact of rising construction costs anticipated in the coming years.

Delaying this foundational work would jeopardize our ability to move forward with future project phases that are critical for meeting system needs and building long-term resiliency.

Operating and project delivery costs have outpaced revenue growth, creating an ongoing annual shortfall of 30 million dollars.

This structural gap is eroding fund balances and jeopardizing reserve funds.

As we approach budget development for FY27, the department will look for areas to reduce or delay spending to be able to go into the next fiscal year with a bit more reserve funds to be prepared for potential emergency projects.

So while the water fund revenues and expenses were relatively in line with variances until we had to plan for larger capital needs in FY26 and beyond, our other utility rate payers fund rate payer funds did not.

Let's take a look at those factors now.

In January 2020, the first of a four-year rate adjustment for the Solid Waste Fund was approved by City Council through fiscal year 24.

In the middle of the solid waste increases, voters approved the first storm drainage rate adjustment in over 25 years to fund critical system infrastructure needs.

While the long-term forecast for the water fund showed a need for a future increase, utilizing its healthy fund balance over the next several years would help cushion the burden felt by ratepayers after increases to the solid waste and drainage rates, as well as the impacts felt by COVID and inflation.

With the long-range forecast showing the need for a future rate increase in the water fund in early 2024, the city auditor's office initiated the process for an independent water fund review, which, as you all know, confirmed that an adjustment in FY28 was necessary.

So while we have talked previously about there being an eight-year rate holiday, as you can see, there were circumstances in and out of our control that pushed water fund rate adjustments out as long as possible.

That brings us to today and our outlook for FY28 and beyond.

As you are all aware, having gone eight years without a rate adjustment has created many challenges for both the water and wastewater funds.

With our focus tonight specifically on the water fund, here is a reminder of what those challenges are.

Current expense and revenue current expense budgets exceed revenues by over 30 million dollars.

Existing fund balance is insufficient to continue full cost recovery over time.

Depletion of the capital reserve of about 2025 million dollars in FY28 is needed to fund the capital program.

We have a projected $2.8 million ending fund balance deficit in FY28 without a rate increase, and this will result in significant risk to credit rating and our ability to meet unforeseen emergencies.

Before we start adding new costs to our already depleted budget, our responsibility in this rate process must be to address these constraints at a minimum so we can continue operating as we are today without any service interruptions.

So with the goal of affordability and operational viability, our rate adjustment must accomplish the following three objectives in this order.

One, our top priority in this cycle must be to ensure continuity of operations.

Our rate must be adjusted to meet current and anticipated costs and close the gap between revenues and expenses.

Without it, difficult decisions will need to be made to balance the books, which could include service level reductions, defunding the capital program, and/or a reduction in workforce.

Secondly, our rate adjustment must ensure that we meet these three policy objectives.

If we do not meet all of these objectives, it puts the utility fund at significant risk of being unable to address unforeseen emergencies, meet our current debt obligations, and or keep our healthy credit rating, which significantly impacts our ability to borrow money at competitive rates and far fund large deferred maintenance needs at lower costs.

Last, our rate adjustment must be able to address our highest priority operating, administrative capital, andor deferred maintenance needs.

Without it, we fall further behind, risking regulatory violations and creating an even larger gap that will continue to burden ratepayers well beyond this or the next five-year rate cycle.

With that framework, let's take a closer look at each objective in more detail.

Ensuring continuity of operations.

Here's a simple depiction of how water travels from the source to your TAP.

As mentioned previously, our first focus in this rate cycle for the water fund is to close the gap between revenues and expenses to make sure we can continue operating.

In this case, what operating means is to continue to deliver clean, safe drinking water to residences and businesses in the city.

Without the rate increase, we limit our ability to invest in critical infrastructure, maintain service reliability, and respond to unexpected challenges.

In total, it costs $176 million in FY26 to meet all of our water fund obligations and ensure continuity of operations.

Let's take a look at how those costs break down.

In addition to the water division, who are directly responsible for these services, there are other departmental teams who provide support for the operation.

These include DOU fiscal, system support, customer service and billing, policy and regulatory teams who work to ensure our water rights, water conservation and education programs, site safety and security, and related engineering services.

On top of the support from other units in DOU, the water fund provides a contribution for citywide support, largely through the citywide cost allocation plan for centralized city services that benefit DOU like payroll, the city attorney, and human resources, just to name a few, as well as the voter approved 11% general fund tax to fund services like public safety, multi-year capital and operating projects, or CIP and MYOP respectively for short, exist to support the long-term continuity of operations with a key focus on reducing deferred maintenance and ensuring timely asset replacement.

Last but certainly not least, we have to make sure our existing debt for large long-term water investments are paid.

Here is a snapshot of our projected water fund expenses and revenues, which include continuity of operations starting with our approved FY26 budget.

At the start of the rate cycle in FY28, and at the end of the rate cycle in FY 32, absent a rate adjustment.

To ensure continuity of operations, we must continue to and to continue to provide services without interruption and meet our other support obligations, like what was outlined in the last slide.

Our rates must be adjusted to increase revenues to address eight years of rising costs.

Our proposed rate adjustment must close the projected $29.6 million gap in FY28 to ensure continuity of operations.

Anything less will require service level reductions, which could include reducing CIP funding and redirecting that to the operating budget or a reduction in workforce.

Our second priority for water funding in this rate cycle is meeting our policy objectives, which includes ensuring we have a minimum of 120 days of working capital, maintaining a minimum one year capital reserve, and achieving an absolute floor debt service coverage ratio of at least 1.20.

Adhering to our policy objectives is vital as they ensure that we have sufficient funding to meet financial uncertainties and address emergencies.

It is also important for meeting the requirements of our debt covenants, maintaining or improving our credit rating, and strengthening our position in the market for competitive borrowing rates.

Let's take a look at each objective and what is needed to close the gaps.

Here's a snapshot of the impact to our operating reserve from FY26 to 32.

Operating reserves are the set aside to provide some safeguards for unexpected or significant changes in revenues or expenses.

We refer to the amount of the reserves in days of working capital.

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

The minimum funding requirement per our designated reserve policy is 120 days of working capital, which represented is represented by the blue line in the graph.

And for FY26, that amount is $26 million.

Our year-over-year gap between revenues and expenses have been covered by fund balance, which has caused a continued decline in our days of working capital.

In FY28, we will eventually draw below our target, and that decline will continue unless a rate adjustment is approved or expenses are reduced.

This graph shows the impact to the capital reserve during the same period.

Recall that the capital reserve requires a minimum funding level of the amount needed to fund one year of DOU's capital improvement program expenditures.

Like the operating reserve, it is an unrestricted reserve.

If capital reserve funds need to be increased or replenished, this must be done as soon as practically possible based on the availability of funding per our reserve policy.

By the end of FY27, we will have an insufficient fund balance to cover future costs.

To balance the books in FY28, absent a rate adjustment, we will need to use 90% of our capital reserve or $25 million to continue funding the capital program that year.

Without this reserve, the city is at significant risk of being unable to fund unforeseen emergencies or asset failures.

Last, this graph displays the impact to our last policy objective, which must be addressed in this rate process, water fund debt.

Our bond covenants require that we must have a minimum floor of 1.20.

The debt service coverage ratio is a financial metric that compares our cash flow to our debt obligations.

It helps assess our ability to generate enough income to cover our debt payments, including both principal and interest.

It is calculated by dividing the net operating income or NOI by the total debt service.

Using simple math, a business with an NOI of $150,000 and a total annual debt service of $100,000 has a debt service coverage ratio of $1.5, meaning it generates $1.5 times the amount of income needed for its debt obligations.

A higher coverage ratio is seen as more desirable because it acts as a buffer against unexpected costs or income changes.

While we are able to exceed or maintain our minimum floor of 1.20 through FY31, as you can see in the slide, the overall trend continues to decline, and rating agencies will see this when conducting their annual surveillance efforts.

Without a rate adjustment to continue meeting our minimum coverage, our credit rating will be reduced, and that will affect our ability to borrow at lower rates in the future, which will cost the department millions of dollars more.

After addressing continuity of operations and policy objectives, our third and final priority in this rate cycle for the water fund is to address our greatest deferred maintenance and our highest operating administrative and capital improvement needs, all of which add new costs to our budget.

Any rate revenue available after addressing the first two objectives will be used for these efforts.

This chart highlights the capital needs in our deferred maintenance program.

As you heard in our deferred maintenance presentation back in July, we need an estimated investment of $740 million.

That number, which was from 2021, has been escalated to $875 million you see here in FY or in 2025 dollars.

There are four different deferred maintenance asset categories, which include electrical and instrumentation systems, supply projects that include two categories of groundwater wells and treatment systems, and then water pipes, which include numerous other supporting equipment.

Some of this infrastructure is extremely old and requires ongoing repairs, replacements, upgrades, and improvements required to meet regulatory requirements.

Within each category, there exists numerous distinct projects or CIPs to address specific assets and related needs at various locations and facilities across the city.

Here we layer on the proposed funding in our current capital improvement program.

A total of 275 million is programmed in our current 30-year CIP for these deferred maintenance categories during the rate period FY28 to $32.

Currently, the total budget of our CIP program with our existing rate is only $25 million a year or $125 million over the five-year period, which is insufficient to fund these projects without a rate increase.

Additionally, it's important to note that our CIP program also funds preventative maintenance programs and initiatives to address regulatory compliance requirements, which also competes for the funding needed for deferred maintenance.

While these current investments will help, it's really just a fraction of what is needed to address all of our deferred maintenance needs and our meet existing regulatory requirements.

As we know, costs will continue to increase and new future regulations will create additional strain on our available financial resources.

We do have an opportunity to address some of these funding deficits in the FY28 to 32 rate adjustment process by increasing the existing allocation to address our large deferred maintenance needs through a debt issuance late in the rate cycle.

Rate revenues would then pay the principal and interest over time and avoid substantially large spikes in rates.

However, it's important that we must first address the right sizing of our existing budget to ensure continuity of operations and meet our policy obligations, which affords us the ability to cover unforeseen emergencies, maintain our credit worthiness, and provide collateral to secure competitive rates for future borrowing.

Any rate resources that remain after continuity of operations and policy obligations are met, we will be used to address deferred maintenance needs and the following non-deferred maintenance high priority rate needs.

This chart reflects our non-deferred maintenance needs broken out by operations and maintenance or ONM, multi-year operating projects or MYOP, and the Capital Improvement Program, or CIP, to fund all non-deferred maintenance priority levels one through three, which we discussed in August.

A total of 190 million dollars is needed across the five-year rate period.

Based on the prioritization exercise completed by the DOU executive team, the following highest priority needs have emerged.

This pie chart reflects a breakdown of the highest priority non-deferred maintenance needs identified by the DOU executive team.

Of the 190 million dollars in total needs, up to 49 million dollars is being recommended for funding across four major categories.

Let's take a look at each one you see here in more detail.

We are projecting a need of up to 19 million dollars for necessary fleet replacements over the five-year rate period.

This represents cost increases for replacing our existing fleet.

If this is not funded, we will continue to delay vehicle replacements, which would impact our operations and increase maintenance costs.

And this includes partially funding compliance with California's new electric vehicle regulations.

With respect to the regulations, it's important to note that these estimates and costs will likely be higher.

In our water operational needs area, an investment of up to $16 million is needed to support new water production needs, including switching to safer chemicals and treatment processes.

Increased funding for unplanned regulatory needs for our water distribution system, including material cost increases like fire hydrants, pipe fittings, plumbing supplies, etc.

An increase in meter shop operations and flushing program needs.

Last, SCADA master plan update to replace existing legacy equipment and hardware, which left unaddressed could cause system failures, leaving the city susceptible to security breaches, flooding, and water quality issues.

An investment of up to $12 million for water policy and planning needs to address tighter state water conservation regulations and long-term water planning and asset management, including increasing water conservation outreach and incentive programs to address tightening state regulations, planning efforts for the future of the water program, and operational efficiency changes, and evaluating infrastructure assets as part of DOU's asset management plan.

Last for information technology, several system upgrades are projected to take place during the rate cycle, with most of the cost driven by citywide initiatives, which include DOU's cost sharing in the citywide finance, payroll, and HR system upgrade and migration to the cloud, upgrade of DOU's work order management systems, and existing software and subscription fee increases.

The most sizable request in this bucket is the Beacon AMI, which is used to capture and manage water usage data for utility billing and consumption for customers.

As you can see, the non-deferred maintenance needs are largely to address increased costs from new regulations with some funding to address other critical needs.

This concludes my presentation.

But before we open it up to feedback from commissioners, I want to provide a few process reminders going forward.

In December, we will return to the URAC with an rate update for the wastewater fund.

By the end of the calendar year, our goal is to have a finalized financial plan for each fund approved by the city manager's office.

Then, with each approved plan, RefTELUS will establish the cost of service for each customer class and the rates needed to ensure full cost recovery.

This will be presented to the URAC in June.

Also, in the first half of 2026, the community engagement and outreach plan will be discussed with the URAC at the March meeting and rolled out to coincide with the presentation of the proposed rates in June.

And with that, I am available as well as my colleagues in the audience to answer any questions you may have.

Thank you.

Thank you.

Let's see.

Are there any commissioners who would wish to speak on this item?

This is only for review and no vote necessary.

Are there any members of the public who would like to speak on this item?

Thank you, Chair.

I have no speakers left for this item.

Okay.

And so it doesn't require a vote, so we'll go ahead and move on.

I have been very remiss in forgetting the most exciting news of all, which should have come before this, but I want to welcome the new director of the Department of Utilities, Dahlia Fado.

So if you'd like to come up and say whatever, you have a few words for us, but we're excited to have you.

Yes, thank you for having me.

My name is Dalia Fottle, and I will be taken over as director of utilities starting Monday, actually.

Just wanted to uh say a few words about myself.

So I have a degree in civil environmental engineering from UC Berkeley.

Um coming up on almost 22 years of being in public service, all of my careers have been in the you know water resources utilities field.

So I'm very excited to actually be back at City of Sacramento.

Uh I have worked for County of Sacramento, City of Sacramento Utilities, and then most recently City Ranch Cordova for the last seven years.

So it's good to be back.

Most importantly, I'm a mom of four kids.

I have a son and three daughters, and I feel like I want to be a good uh role model for them.

So I care about the community.

I'm very passionate about water resources, and I'm very excited to be back in this role and hopefully give back in some way.

So thank you.

We're certainly excited to have you.

Thank you.

Are there any commissioner comments, um ideas, questions?

Okay, Mr.

Olson.

It doesn't stay in here.

Commissioner Olson, did you have go ahead?

Uh yeah, it doesn't, it's not showing up on my queue here.

Thank you.

Um, David, I wonder if you um I have a couple questions, clarifications that I'd like you to make.

Uh very good presentation.

Uh it also reminds all of us of the the big challenge uh of this task.

And um I guess one quite one question is um frankly, I'm gonna need a lot more detail to make detail on these costs, and I'm wondering at what point that will happen in these public meetings, and if not, how do I what's the what do you recommend as a way for me to get data?

So looking at each one of those those areas where you summarize the amount of money, I'd like to know the breakdown, the itemized breakdown uh into finer categories.

Not every single line item, but just so for example, you had um I found it very helpful to uh visit the uh Fair Bearn um water treatment plant, and in that course of that I asked lots of questions what part of this plant needs an upgrade, and uh your their staff there basically said well we're gonna need 250 million for this and 15 million for that.

That's the kind of detail that I was looking for in terms of a breakdown, and I'm wondering if that's gonna happen on any of our future meetings.

So our URAC binder includes our 30-year CIP program as well as our five-year CIP program that breaks down all the projects into their different um parent projects, those costs.

So I would encourage you.

Uh that detail is available currently in the binder.

So that CIP is is that ref does that reflect your your kind of updated numbers, or is that based on 2021 plan?

The CIP is updated annually, so that would be reflective of what is planned as of right now.

Okay.

And I wonder if you could just um comment on one area, and that was your this is under the slide, ensuring continuity of operations, where you compared um, I'm sorry, let me see if I got this right.

It I'm sorry, it was the deferred maintenance uh slide where you uh you stated that 875 million dollars in uh um total cost, and you went you had those four categories.

Uh but you uh but you said the 2021 projection for that was 275 million from your 2012 planning uh time frame uh for and I it wasn't clear was that for did that reflect the same kind of projects or that's a big increase from 275 to 875.

I suspect there's new projects in there, but uh uh what explains the the significant increase from the 2021 projection to your recent projection.

Sure.

So that might have been a misstatement by me.

The projection from 2021 was 740 million.

So that was what was presented as part of our uh presentation in July.

I think there was actually a report back item provided to the URAC uh related to that.

So we escalated that to the 875 million that you see here in 2025.

The 275 million is what we currently have allocated in our 30-year CIP for those asset categories during the years of FY28 to 32.

So in other words, if we have the money, right, we're planning to allocate 275 million to that.

So that's the difference between the three numbers.

Okay, and and that they're they're the same same type of projects, and the nature of the projects didn't change from those.

So is that um that let me let me pause that.

I mean, there might have been additional projects, and I'd have to defer to Michelle.

There might be more projects that have been added to those asset categories since 2021.

That I don't know.

I just know that the value of them has changed.

Or we've escalated them.

Is the escalation based on inflation or what is it based on?

It's it's based on uh construction cost index, which we use to update our fees and charges.

Um we compare uh 20 city the 20 city index to the San Francisco index, have an average, and then that we use that to escalate annually.

They're the same project.

They are the same projects.

Okay, so uh, and then of course um when you're actually doing the projects, you're doing competitive bidding, and those numbers may come in higher or lower depending on what the bids are for and the cost of materials and everything else at the time in which we do them.

Okay, um, I think I'll just leave it there.

I have I have a I guess a greater need for um some of the detail, and I'll uh go back and look at those documents again.

Um, okay, thanks a lot.

Yes, if you have uh additional questions, I encourage you to submit them to Jordan, and we can provide a follow-up report back on whatever those are.

All right, thanks, David.

Thank you.

Hi David, thanks for the presentation.

Um, I think from this presentation and multiple others that we've had, the need is pretty great, and some of the situations you've outlined, like if we don't have this rate increase, are pretty dire.

And I think maybe maybe feeding off of what um Commissioner Olsen was mentioning, it might be helpful to have a little bit more show, not tell, in terms of, you know, there are certain there's a certain amount of I I guess the tables and the the graphs are not always as compelling when trying to communicate, you know, these are the needs to the right payers, maybe something along the lines of like these are the you know beneficial projects that we will be funding for ratepayers in district XYZ.

Um, and I know that you're you're gonna work with Raphtellis um to get those rate payer impacts, but I think as you know, uh a commission, what part of our role is to help translate the DOU's needs to um the public, and I think that that's kind of the missing tool that we might be needing of like, okay, I your math is probably pretty good, um, but we just need more tools to communicate that to what it feels like for ratepayers, um, and maybe it includes some case studies, um, something more tangible than you know, graphs and tables, because uh if you're talking about 275 million versus like 150 million, it's pretty hard to to get a grasp of what does that mean for me as a as a member of the city.

Sure, thank you for the question.

Uh, couple things on that.

Um, when we are talking about what we will fund uh related to deferred maintenance, that's our third priority in this rate process, right?

I talked about continuity of operations.

We have to shore up our revenues and expenditures, we have to meet those policy objectives.

So it's hard right now today because I don't know what our rate will be, right?

We know that we need to meet all of these needs, and so that's why the graphs tried to paint the picture of what are those deficits and what are the gaps we need to fill.

I think um as we go further along, and certainly when we get a finalized financial plan and we can bring that information forward in the spring, we might have a better sense of what that looks like, but it's kind of a moving target.

It's kind of like why on the slides that came after this, we talked about up to a certain amount, right?

Like we have needs identified at a certain amount, but because we don't know what that rate is gonna, what is gonna be supported by the city manager's office for the financial plan and then ultimately approved for rates, it's hard to know, but we can certainly um probably provide a little more detail in terms of maybe some specific projects in each of those asset categories, just to give a flavor of what that looks like.

Thanks.

Okay, Commissioner Johnson.

Thank you, David, for your presentation.

Um I was wondering if you could clarify.

Did I understand correctly that the deferred maintenance fund includes covering future changing requirements and costs associated with future unknowns in policy and regulatory environments?

I would say it includes known.

I think part of the problem is is the unknown.

Like we know some regulatory requirements that are coming down the road, right?

Like we're given, like with the electric fleet, right?

We're given targets to meet those.

Um part of the challenge with electric is that the infrastructure doesn't exist.

There's a lot of challenges associated with that.

So some of it we, if we know, then we can plan for, um, but a lot of it is, you know, every year there's something new.

So that that's what makes it difficult.

Yeah, and I I guess I was curious about is it typical?

It seems like a very different um accounting line item than tangible assets and uh associating costs needed to, you know, fix them, maintain them, replace them.

Is there a reason that those are is it typical?

Is there a reason that those are lumped into the same deferred maintenance budget rather than separated out?

Um that's a good question.

I mean, I think that's part of why we have reserves is to account for the things we cannot account for.

But I think Cheryl's gonna give a better answer.

So I'm gonna say, thanks.

I'm gonna give another answer.

Well, no, I was just gonna clarify that I think the deferred maintenance costs are really looking at assets that are aging out, and it was estimates of those costs and what those replacements need to be.

When you look at our CIP and what we fund in our CIP, then it includes other things in addition to deferred maintenance.

So it might include something that is an improvement related to a regulatory change, uh, maybe an operations budget.

You saw things related to the water conservation regs.

So sometimes new regulations or new requirements are kind of sprinkled throughout our budgets.

So they're not necessarily in the deferred maintenance numbers, but you'll see them in some of the operational costs.

Uh, our slides talked about the uh talked about non-uh deferred maintenance costs, but then when you see the CIP that David uh provided on that slide for FY28 through 32 in our 30-year CIP, you'll have costs in there in addition to deferred maintenance.

So it's a bit of a blend.

So I think one of our points is that competes, right?

We have this big deferred maintenance need, but then every year our engineering teams are looking at all those needs and balancing, and some of those deferred maintenance projects get pushed out.

Or an example might be they're going in to do some plant improvements.

I think some of the things that we talked about on the tour, but they might be changing out uh chlorine to hypo, right?

So they might be doing um uh an improvement that is kind of hitting multiple buckets, if that makes sense.

Yeah, thank you.

Um, I think if I may make a suggestion looking forward towards our community outreach, um concrete examples and and separating out some of those kinds of examples might be helpful in communicate communicating to community members.

Here's the kinds of things that cost money asset maintenance and uh you know electrification of fleet vehicles or the different putting those in different bins might with pictures that might be more concrete and tangible for people to understand.

Thank you.

Thank you.

Uh Commissioner Tonikallab.

Thank you for the presentation.

So in the presentation, I see that I observed highest priority maintenance investment cost will be forty-nine million for the twenty-eight to twenty thirty-two financially.

So did we identify the priority one project items uh and what are the corresponding estimated costs for each work?

Something like that.

If yes, if you identify it when it will be presented to uh the commissioners, um can you repeat that?

I'm sorry, I just want to make sure I so the highest prior highest priority maintenance investment needs will be forty-nine million dollars, but financially 28 to 32.

So we are you are expecting the DOU is expecting forty-nine dollars.

What we've said is of that 190 million, we feel like 49 million represents the highest priority needs.

You know, it's very unlikely that we will get a rate adjustment that can fund 190 million plus all the other needs that we talked about.

So these are what the executive team have put forward at this time.

But did we prioritize the works which are under highest priority?

Yes.

Yes, it it's so highest priority.

A lot of uh debate and conversation.

Um, so I think we just talked about the 49.

Oh, thank you.

But the the 49 million is all priority one.

Okay.

We didn't get out of that bucket category.

So I think that's what you're asking, right?

Yes, yeah.

Yeah.

Thank you.

And there are actually some priority ones that are not included in that number.

Um again, we just tried to put forward the most uh highest priority.

We know that it will take at least another rate cycle uh to, and it is our hope in the following rate cycle that we'll be able to uh accomplish, you know, those priority ones and the twos and the threes, but we don't know what's gonna happen in the next, you know, many years leading up to that.

Those costs will go up, things will change, so um, but our hope is to capture all of that by the end of the second uh rate cycle.

Thank you.

Um are there any uh public comments matters not on the agenda?

Thank you, Chair.

I have no speakers left for this item.

Well, with that, I think we've concluded our agenda for today.

Um our next meeting is in December.

Um we determine the date, was it the ninth?

December 10th.

December 10th.

Um so we'll meet back there back here then.

So okay, all right, and we are adjourned.