пять

So let's go ahead and get started.

Time is now 5.30.

The meeting is now called to order.

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

Yes, thank you.

Commissioners, please unmute your microphones.

Commissioner Tannekella.

Present.

Commissioner Gaspard.

Present.

Commissioner Burdock.

Present.

Commissioner Steinbaum.

Present.

Commissioner Schaumbe is absent.

Commissioner Rogers.

Present.

Commissioner Nelson.

Here.

Commissioner Olson.

I'm here.

Commissioner Eberle is absent.

Commissioner Johnson.

Here.

Is present.

Commissioner Tran is absent.

And Chair Zito.

Present.

Thank you.

We have a quorum.

Okay.

Thank you.

Let's see. I would like to remind members of the Republican Chambers that if you'd like to speak, there's no agenda items, so we're not going to be doing that. Sorry.

Okay, so we're going to go ahead and get started with the land acknowledgement. If you'll please stand.

Please rise for the opening acknowledgments in honor of Sacramento's indigenous peoples and tribal lands.

To the original people of this land, the Nissan people, the Southern Maidu Valley and Plains Muwak, Patwin-Winton peoples, and the people of the Wilton Rancheria, Sacramento's only federally recognized tribe, may we acknowledge and honor the Native people who came before us and still walk beside us today on these ancestral lands by choosing to gather together today in the active practice of acknowledgement and appreciation for Sacramento's indigenous people.

people's history, contributions, and lives. Thank you. Please remain standing for the

Pledge of Allegiance. I pledge allegiance to the flag of the United States of America

and to the republic for which it stands, one nation, under God, indivisible, with liberty

and justice for all. Thank you. And since this is a special meeting, we don't have a

consent calendar, we're going to go right ahead and move into the first discussion,

which will be the Department of Utilities rate planning update the Wastewater Fund.

Okay. Yes, it is. All right. Good evening, commissioners. I'm 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 wastewater fund. I'll be sharing information

specific to the funding gap we are facing as well as critical operational and capital

needs over the next five-year rate planning cycle. Tonight's presentation covers our overall

approach to funding the wastewater needs. 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 our decision making in this rate process.

Then we'll look at what's needed

to continue existing operations and service levels

as they are today.

Next, dive deeper into each of the policy objectives

and finally explore the most critical

wastewater funding needs that add new costs to our budget

to address the greatest deferred maintenance,

operations, and administrative challenges

once we are able to fulfill

our two first critical objectives.

In August, we examined all of the factors that have driven costs up since 2020, COVID, labor contract increases, inflation, just to name a few, while over the same period, wastewater revenues remained flat.

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

As we reviewed at the October meeting, these included rate increases for both the solid waste and storm drainage funds.

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

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

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

First, the capital reserve is underfunded at 42% of the amount needed to fund one year of DLU's capital improvement program expenditures due to insufficient revenues.

Second, like the water fund, the wastewater fund will be unable to meet its operating reserve target of 120 days of working capital beginning in FY29, as well as being unable to meet its required debt service coverage ratio.

These present significant risks to our credit rating and ability to meet unforeseen emergencies.

Before adding new costs to our already depleted budget,

our primary responsibility in this rate process must be to address these constraints at a minimum

so we can continue to operate as we are today without service interruptions.

with the goal of affordability and operational viability our rate adjustment must accomplish

the following three objectives in this order our top priority in this rate 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

improvement program, and or a reduction in workforce. Second, our rate adjustment must

ensure that we meet our three policy objectives. If we do not meet 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 fund large deferred maintenance needs at lower costs.

Last our rate adjustment must be able to address our highest priority operating administrative

capital and or deferred maintenance needs. Without it we fall further behind risking regulatory

violations and creating an even larger gap that will continue to burden rate payers well beyond

this or the next rate cycle. With that framework, let's take a look at each objective in more detail.

Here is a map of DOU's wastewater collection system, which includes areas served by, one,

One, our combined sewer system where wastewater and rainwater are collected in the same pipe,

as indicated in the forest green section in the middle of the map.

This is our city's core.

Two, our separated sewer system where wastewater and rainwater are collected in two different pipes,

one for each purpose, as indicated in the avocado green sections to the northeast and southwest,

and the tan section to the east of the city core.

Last is the area served by the Sacramento Area Sewer District, or SAC Sewer,

as indicated in the light green sections in the northwest and southeast areas of the city.

The city's rates are not used for these areas.

SAC Sewer charges a separate rate for providing operations and maintenance in these areas.

As previously mentioned, our focus in this rate cycle for the Wastewater Fund is to close the gap between revenues and expenses to make sure we can keep operating,

which means the collection and conveyance of wastewater and or stormwater, some primary treatment, and the maintenance of those systems.

Here are some high-level stats to give you an idea of the enormity of the operations.

operations. There are two combined system treatment plants permitted for primary treatment and

discharge. The age of the city's wastewater collection system follows a bullseye pattern.

The oldest pipes, 100 years old or older, are in the downtown combined system. Surrounding areas

like North Sacramento near the American River and Land Park average 80 to 90 years, transitioning

outward from there to 65 year old systems,

then 35 to 50 year old infrastructure

with the youngest facilities out the outer edges

of the city.

We have 840 miles of pipe, 48 wastewater pumping stations

and the electrical instrumentation SCADA group

that supports our industrial control network

for all three of our systems,

which consists of over 150,000 data points

with devices at nearly 200 locations.

Without the rate increase, we limit our ability

to invest in critical infrastructure

and maintain service reliability

and respond to unexpected challenges.

In total, it costs nearly $51 million in FY26

to meet our wastewater fund obligations

and ensure continuity of operations.

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

Our wastewater units provide O&M for the separated sewer and the combined sewer systems,

the combined sewer primary treatment plants, wastewater pumping facilities,

and O&M for electrical instrumentation and SCADA.

Included are the wastewater unit portions of the Citywide Underground Service Alert Program, or USA,

and the Citywide Generator Program for emergency standby power systems

to ensure operational readiness and regulatory compliance.

In addition to the Wastewater 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, site safety and security,

and related engineering services.

On top of the support from other units within DOU, the Wastewater Fund provides a contribution for citywide support for centralized city services benefiting DOU like payroll, the city attorney, and human resources, as well as the voter-approved 11% general fund tax to help fund city services like public safety.

multi-year capital and operating projects or CIP and MYOP respectively for short

exists to support the long-term continuity of operations with a key focus on reducing

deferred maintenance and ensuring timely asset replacement last we have to make sure our existing

debt for large long-term wastewater investments are paid

This chart provides a timeline of the wastewater funds revenue and expense actuals since the last rate adjustment in FY20.

Revenues are shown in green.

Expenses are shown in black.

During this period, operating expenses have steadily increased, while CIP expenses are more volatile year to year based on specific needs that arise or the availability of funding for the CIP, which has been chronically underfunded due to the lack of rate funding to address all system needs.

For example, the main cause of the increase in expenses from FY21 to FY22 was $3.7 million in additional expenses for the Combined Sewer System, or CSS-CIP, program.

This included $2.2 million for the National Pollutant Discharge Elimination System, or NPDES, permit compliance to address CSS outflows and $1.1 million to replace aged-out pipes.

CIP expenses dipped in FY23 but rose again in subsequent years.

Specifically, FY24 saw significant investments in the facility electrical rehabilitation program

with $2.3 million for the combined water treatment plant

and increases in the separated sewer pipe program with $2.2 million expended on the pocket road sinkhole emergency.

Here is a snapshot of the projected wastewater fund expenses and revenues which support continuity of operations, starting with our approved FY26 budget and projected FY27 through 30, absent a rate adjustment.

You'll notice that expenses spike in FY27, which is due to a needed increase in CIP expenditures to address critical asset replacements.

Expenses then decline in the forecast period due to the defunding of the capital program,

which is necessary to help close the operational gap between overall revenues and expenses.

A rate adjustment is needed to close the projected $5.4 million gap in FY28 to ensure continuity of operations.

Without it, DLU will need to reduce service levels, which could include eliminating all remaining CIP funding allocations,

which are about $4.2 million per year on average, and reallocating them to the operating budget or a reduction in workforce.

Our second priority for wastewater funding in this rate process is meeting our policy objectives, which include 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.

zero. Adhering to our policy objectives are vital as they help ensure 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 we need to close the gaps.

Sorry for the suspense there.

I had to get a drink.

Here is a snapshot of the impact to our operating reserve

from FY26 through 32.

Recall that operating reserves are a set-aside

to provide a financial safeguard

for unexpected or significant fluctuations

in revenues or operating expenses.

We commonly refer to the amount of operating reserves in the days of working capital,

which is represented by the purple line in the graph.

I look kind of red, but it's purple.

The minimum funding requirement per our designated reserve policy is 120 days of working capital,

which for FY26 is $8.7 million.

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

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

In FY28, we will eventually drop below our target and that decline will continue to grow unless a rate adjustment is approved or expenditure budgets are reduced.

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

Currently, the capital reserve is underfunded by almost $5 million.

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

At $3.3 million in FY26, the capital reserve is currently underfunded at 42% of the amount needed to fund one year of DLU's capital improvement program expenditures due to insufficient revenues.

With the department spending about $1.5 million over the last four years in the wastewater fund on emergency projects due to asset failures, it is critically important that the rate adjustment build the capital reserve up to the one-year minimum.

Finally, this graph displays the impact to our last policy objective that must be addressed in this rate process, our wastewater fund debt.

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

The debt service coverage ratio is a financial metric comparing 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.

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 the minimum floor of 1.20 through FY30, the overall trend continues to decline,

and the 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 in the future.

After addressing continuity of operations and policy objectives, our third and final priority in this rate cycle for the Wastewater Fund is to address some of our deferred maintenance and operating administrative and capital investment needs.

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, the need is an estimated investment of $1.1 billion across these five asset categories.

That number from 2021 has been escalated to the $1.3 billion amount you see here in 2025 dollars.

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

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

While a total of $89.3 million is identified in our current 30-year CIP for these deferred maintenance categories for FY28-32,

the total budget for our CIP program under our existing rate averages about $4.2 million per year,

or $21 million over that same five-year period, which, as you can see, is insufficient to fund these projects without a rate increase.

Our CIP program also funds preventative maintenance programs and initiatives to address regulatory compliance requirements, which also competes for the same funding needed for deferred maintenance.

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

Costs will continue to increase and new and future regulations will create additional strain on our available financial resources.

For FY28-32, some of our greatest deferred maintenance investments include the CSS Priority 1 Pipe Rehabilitation and Replacement Program,

which extends the service life of the oldest CSS gravity pipes in the city, which are 94 years old or greater,

using open trench or trenchless methodology to ensure reliable function and to protect public health and safety.

We plan to spend $3.9 million on these Priority One needs during this rate period,

which addresses approximately 2.8 miles of CSS pipe,

which is less than 10% of the actual program needs.

The CSS Treatment Facility Rehabilitation

and Improvement Program,

which includes plans to spend 6.9 million

addressing needs at the Combined Water Treatment Plant

to replace and upgrade switchgear components

to improve reliability and safety of the electrical systems

and on-site water system improvements to meet fire code.

While the Pioneer Reservoir projects to replace the office structure roof

and the reservoir wash water system are planned to stay in compliance

with operational and regulatory requirements.

Additional more costly roof needs at Pioneer will require bond issuance.

Should we get a rate adjustment, we will have an opportunity to address some large deferred maintenance needs through a debt issuance late in the rate cycle.

One example would be the Pioneer roof replacement and associated improvements at $150 million shown in the picture to the right.

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

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

this chart reflects our non-deferred maintenance funding needs broken out by operations and

maintenance or O&M multi-year operating projects or MYOP and the capital improvement program or CIP

to fund all non-deferred maintenance priority levels one through three that we discussed in

August, a total of $88 million is needed across the five-year period. However, based on further

prioritization by the DOU executive team, the following highest priority needs emerged.

This pie chart represents a breakdown of those highest priority non-deferred maintenance needs

identified by the DOU executive team. Of the $88 million of total needs, up to $38 million

is being recommended for funding across four major categories.

Let's look at each one of those individually.

We are projecting up to $22.3 million needed

for fleet replacements over the five-year rate cycle

due to cost increases for our current existing fleet,

which have delayed timely vehicle replacements,

and compliance with California's electric fleet regulations.

Since fleet is a major cost driver for DOU,

this slide provides some additional information

regarding the Advanced Clean Fleet State Regulation.

The wastewater unit has 88 vehicles in its fleet,

of which 71 are heavy duty

and subject to California's clean fleet regulations

that require a transition to zero emission vehicles,

or ZEV, when they are due for replacement.

Currently, many of these electric vehicles

are not yet available on the market.

For rate planning purposes,

we consulted with city fleet professionals,

and they advised that we at least double

the cost of gas vehicle equivalents

to determine our costs for ZEV replacements.

We estimate that the total cost to replace

DOU heavy duty vehicles in FY28 to 32

would be 19.4 million.

However, given market factors and changing regulations,

we are including 13.7 in our rate planning effort,

which is $6 million short of current estimates

and actual costs could end up being higher.

As an example, our last gas powered Vacon purchase,

and the vac on is pictured there in the slide,

that replacement cost $780,000,

meaning a ZEV replacement could cost at least $1.6 million,

but likely more.

We have nine in our fleet.

In our wastewater operational needs area,

an investment of $12.2 million will support additional staffing

and equipment for unscheduled cleanings, inspections,

repairs to sewer mains to comply with new statewide waste discharge requirements.

Purchase of specialized equipment and process improvements to update techniques for root abatement

as over half of the sewer spills that the city is responsible for are caused by roots.

The use of drone and related technology improvements for crews to inspect our wastewater system assets

and facilities in a timely manner

to ensure they are properly maintained,

identify issues quickly,

and eliminate more expensive manual processes.

Safety and security needs,

including radio replacements

and physical perimeter safety improvements

at DOU facilities,

including fencing, cameras, and lighting.

Currently, we have a scheduled program

to inspect, repair, and replace gravity sewer mains.

However, due to limited resources,

this staff gets pulled away to address other needs

that come up outside of scheduled maintenance.

$2.4 million is needed to fund additional sewer crew

to address unscheduled pipe locating,

cleaning, inspections, and repairs.

This includes one lead worker, two service workers,

and associated vehicles and equipment.

Examples of unscheduled maintenance and inspection requests include

private development projects impacting aging infrastructure,

pipes over 80 years old,

to ensure private development construction does not result in an emergency project.

In-field pipe locating to ensure proper setbacks are established

for additional dwelling unit developments,

complying with expanding regulatory and route abatement programs to ensure system resiliency from sewer overflows

and to support in-house engineering requests for project development, planning, and or condition assessment programs.

Other unscheduled maintenance and inspection requests are necessary to support completion of other city department and or external agency projects

and to comply with the public works paving moratoriums,

ensuring newly paved streets are not cut into for sewer repair or replacement.

An investment of $1 million for additional wastewater policy and planning needs

to fully fund efforts to address regulatory requirements,

wastewater system needs, and long-term wastewater planning and asset management,

including modeling efforts to support improvements needed to reduce the number and frequency of sanitary sewer overflows to protect public health,

evaluating infrastructure system assets to complete and implement DOU's asset management program.

And last, for information technology, several system upgrades are projected to take place during this rate adjustment cycle,

with the majority of those costs driven by citywide initiatives,

which DLU supports through our IT capital and operating expenses,

which includes improvements and maintenance of the SCADA system

that includes cybersecurity for perimeter and endpoint protection,

updating human-machine interface or HMI software,

and non-supported controllers that cannot be updated,

which is critical for O&M teams to remotely control and monitor wastewater pumping stations.

DOU cost sharing for the citywide finance HR payroll system upgrade and migration to the cloud,

upgrade of DOU's work order management systems,

and existing software and subscription fee increases and hardware replacements.

All right, we made it.

Slide 29.

This concludes my presentation.

But before we open it up to feedback from the commissioners,

I want to provide a few process reminders moving forward.

By the end of this month,

our goal is to have a finalized financial plan for each fund approved by the

city manager's office.

Then with each approved plan,

our consultant, Ref Tellis, 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 2026.

Also in the first half of 2026, the community engagement and outreach plan will be developed

and shared with the URAC at the March meeting and rolled out to coincide with the presentation

of the rates.

And with that, I am available, as are my colleagues in the audience,

to answer any questions you may have.

Thank you.

Do we have any commissioners who would like to comment?

Yes, no?

Okay.

Mr. Nelson.

Thank you, Madam Chair.

Thank you, David, for the great presentation.

I was looking at that deferred maintenance number that is a billion

and looking at the amount of money that we would be able to throw at it

with a rate increase to chip away at it

and it seems there's still a pretty big gap between deferred maintenance

and the amount of money we have to chip away at it with a rate increase

can you help me wrap my head around how you're thinking about that

because I'm sure that we're balancing how much of a rate increase

sacramentans can absorb reasonably with how much money we should be putting at

getting rid of our deferred maintenance.

So can you talk a little bit about how you're thinking through that?

Sure.

And so this is not a new problem.

This is a problem that has gone back to rate adjustments in the past and not

including our full rate and the recommendations that get approved by city

council have exacerbated this issue and it continues to kick the can down the

road.

Our hope is that if we can fulfill our obligations

to get our revenues and expenses back

to where they should be on the operating side,

get our reserves backed up to where they are policy objectives,

the hope is that we will have about $100 million,

$120 million to invest in deferred maintenance projects,

projects, but that's just scratching the surface.

And you know, it will definitely take more than one

rate cycle to get there.

And you know, we prioritize based on,

on you know, what we see is failing.

I don't know, I have my wastewater CIP engineer here.

I don't know if Roxanne wants to provide anything else

to that, but.

Sure.

I'm Roxanne Dilley, I'm the wastewater

supervising engineer. So we're monitoring this with newer technology, asset management programs

are critical for help informing the situation. So we can identify what are the highest priors

based on data, not just based on age of an asset. So we can really focus in on where

our biggest concerns lie. We also have regulations and trying to provide improved data to our

regulators to help us modify some of the regulations. We have capacity issues in the

combined sewer system. And so we've recently been able to demonstrate to our regulators that we're

showing how our modeling data can be improved and we need more investment on our planning side

because the models are overestimating in some areas, which has driven up some of the costs for

our combined sewer system area and so we're able to use cost-effective or

economic tools to help us better look at those projects before we put them in the

ground and so we will be able to update some of that deferred maintenance as we

get better and better technology and data that are helping better inform our

project delivery. Thank you that makes a lot of sense.

Okay, Commissioner Olson.

Yeah, very good.

Thank you, David.

Very good.

Thanks for your presentation.

I have a number of questions, mostly clarifications.

And okay, if you don't have the answers tonight, that's okay.

But I'd like to see if you can explore them.

So when I look at the first part of your operating expenses, you have a reference to debt service of 3.7 minutes on slide 9.

So I don't know if that's in the right place, but I guess I'm kind of wondering why we take on debt for operating expenses.

That's more suited for capital.

It is for capital.

It's just it's part of our operating expenses.

That's how the city classifies it.

So it's like a administrative cost type of thing.

So there must be there's a bigger capital.

There's a bigger debt service that's required, right, for overall?

There's a larger debt service.

Yes, the number is greater.

I don't have the number in front of me,

but that 3.7 represents the annual principal and interest payment.

Okay.

That's what I was interested in knowing.

And I guess it kind of begs the question, what's the norm in taking on new debt in terms of the projected gap?

I'm kind of looking at when you look at the pools of money that the city has available.

You know, what makes sense to me is that any significant capital investment probably should be serviced with debt, particularly if it's a 20-year, 30-year lifetime type of, and that operating expenses are different, should be treated differently than that.

And I think that's what you do from your previous presentations.

But what's the kind of historical numbers there?

Is it every five years we need to take on new debt for capital improvements?

Or is it funded year by year as you pay as you go type of?

I would say that it gets built into our rates.

So when we stand up and are in a situation like we're in now, we just don't.

We work with the city treasurer's office to come up with the best funding mechanisms.

but we have to have the rate to support it.

And so it's not something that we take on more debt every year,

but more when we get into situations that we are in right now,

where we are coming forward with a rate adjustment,

and that is a strategy to fund those large deferred maintenance

so that we can build in the principal and interest to the new rate.

Commissioner Olsen, I believe David's correct.

it depends on the needs and it depends on the availability of the fund that we can afford to take on additional debt.

So that has been traditionally the practice of the Department of Utility.

And the kind of mechanism you use, do you use bond debt that is secured through utility rate payments

or bond debt that's secured even partially through property tax payments?

We make our debt payment based on the enterprise fund,

which has nothing to do with the property tax.

The property tax is part of the general funds.

Everything by, in according to Proposition 218,

whatever that we collect, we need to pay for that amount

of collect in the enterprise fund.

There is no cross-pollination of funding

between the general fund and the enterprise fund.

And that's required by ordinance or statute?

I would defer this to Mr. Voss for his legal opinion.

Sure.

Need to speak to that.

I think Prop 218 goes one way, right?

So you can't have the sewer fund payment subsidizing a general fund bond issue.

The city could, if it wanted to, choose to have the general fund subsidizing a sewer bond issue.

But that's not the city's practice.

That's never been the city's practice.

It's secured by revenues from the sewer fund.

Okay.

Okay.

Okay, some other questions I have are related to,

do you get any revenue flow from the Sac Sewer project

related to their revenue generation by creating RNG for methane recovery?

That's a pretty large project.

The resource, in essence, is coming from multiple sources, including the city system.

Do you get any of the revenue that comes out of what they do with that resource,

which is generating renewable natural gas and selling that?

That is a very complex question, Commissioner Olson, but I can share with you what I know.

What I know is there is two operating agreements with SACSURE.

One is paying for the operating cost of us performing services for SACSURE.

That's the first operating agreement.

The second operating agreement is what we call a building disbursement agreement,

where we do recoup funding from providing building services for SACSURE.

So those are only two that I'm aware of as a business services manager.

Is that a significant revenue stream?

I will have to get back to you.

I don't have a number on my topic, but I can get back to you on that one.

Okay, very good.

On page six, this is the map of the different kind of setup of the sewer.

you show the map here

and then you go into some of the priorities

later in the presentation.

The Pioneer

is identified

as one of those sites.

That's in the separated

sewer area, correct?

I believe that's part of combined.

Combined?

Okay.

I meant combined.

It is within the combined sewer area

the combined wastewater treatment plant

is in the separated area,

but all the flows from the combined system

are piped to that location.

So that might be what you're thinking,

is there is one facility that is in the separated system,

but the flows come from the combined system.

My question is related to,

are the priorities that you've identified

related to aging of the combined,

Mostly aging of the combined sewer system, replacements, repairs, or parts of the separated system.

Or is it a combination?

It's a combination.

Because we have older parts of the city in North Sacramento and just south of the combined sewer system as well.

One of our large pump stations in the separated system, it's actually owned by Sac Sewer.

We operate it and maintain it.

So there is improvements that get done in both the southern parts of the older area and the northern.

We're investing quite a bit in the north as well, and it's predominantly age-related.

And from what I heard, you said the combined system is over 100 years old, and the other parts are 50 to 70 years old.

So what's the useful life typically of those? Maybe 30, 40?

Pipes, we're talking 100 years.

Pump station, force mains, we're talking 50 to 70 years.

And pump stations, it varies.

So when you're dealing with chemicals, we have shorter lifespan.

So Pioneer is probably only 46, 47 years old.

It wasn't designed for chemicals.

So we're dealing with ramifications of what's needed to help keep the service life of that facility as long as possible since we have introduced chemicals in 2000, 2001.

Very good.

And I appreciate your highlighting the one project there that you said is a high priority.

Are you planning to do that for your proposed budget?

meaning identify all the major projects that are priorities and and do you have

any sense of the ranking order of those first question is are you planning to

to identify what all those other projects are so we do have a list of

projects priorities can fluctuate especially as we go in and assess things

things change yearly, monthly sometimes. But we do have a running list and as we find other

issues that we didn't know about we reassess the priority. But for this rate planning purpose

we have identified many of our priority one projects and we do have a list it will include

a description of.

You normally publish that for the citizens, the rate payers.

That's not for my call of whether it's published or not because it changes.

It's kind of like a 30-year.

We don't share our 30-year because things change too frequently for that.

But our five-year at the parent level, we will say how much is going at the parent level,

but we don't share the individual projects.

But when we're going out for bid, that's when the public will know what projects are

coming forward with. Yeah, I'm suggesting you may want to do that given the nature of the rate hike

proposal. We'll probably highlight many of the needs. Pioneer roof is a very large need. Yeah.

Just another clarification. So when I visited the water treatment plants,

was clear that there's some upgrades

to the SCADA systems needed there.

And I think at the River District plant,

I think I observed,

and I even asked a question of the manager there.

From what I remember,

you have a SCADA system there

where you can monitor other plants,

including the wastewater plants,

But there's no real central SCADA for everything.

Is there, each facility has its own SCADA system.

We'll bring Charlie to answer that question.

Thank you for your question, Charlie Cunningham.

I'm the manager over the SCADA group.

But so it's connected where we have visibility and control.

we have visibility and control.

So like you were saying,

from an efficiency standpoint,

we have the sack plant operations group

that's monitoring swing and graveyard shifts

for all the alarms on the wastewater site.

But from a resiliency standpoint,

those systems can run independently, right,

at each location.

So if we lost connectivity to one of the other sites,

that site would continue to function,

on its own. So we have the servers that are required for that to happen, the historical

servers, the IO servers, all the components that are needed for those sites to function

individually. But there is connectivity to where if something happened at one of the

sites and also for if we had a DOC, like a department operations type of event that we

can monitor those locations and provide support to staff that are responding.

So it's centralized, but it's segmented, I guess is the best way to put it.

Okay. Thank you for that clarification. I have some other questions related to the

kind of compliance with government regulations. I imagine it's what are

Control Board and the fleets. Well, because a large part of your budget for non-deferred

maintenance is fleet conversion, that is real troubling from my view from the standpoint

of asking rate payers for water and wastewater systems

to cover a fleet cost.

And I'm real familiar with this.

I work in this area.

And you're probably aware that this is a mandate.

So this is an unfunded mandate is what it is.

And it's a really high cost.

These vehicles are really expensive.

What you didn't say in here is how you're going to do the charging and infrastructure.

That's an incredible increase in cost that you don't have on here.

I'll give you a frame of reference.

I work with the LA Metro Transit District in Los Angeles.

That's first phase of their project is 26 electric buses and their catenary system, two different lines.

One to Long Beach, one out to San Fernando.

And this is, in my previous career, I worked for the California Energy Commission,

deploying money for these kinds of infrastructure projects.

And when I asked, well, how are you going to fund the, they got the money from DOT, FTA for the fleet.

For the most part, local governments, transits, can get about 85% of the money for the fleet,

the vehicles from the U.S. Department of Transit

and their FTA division.

But they do not cover much of the infrastructure.

It's on the local government to do that.

The California Air Resources Board

advanced clean truck rule

has been undermined

by the current federal administration.

And so all private fleets at this point

do not have to comply.

There's some other things that are going on

trying to recover that,

but for the most part, private fleets do not,

but public do.

And the Air Resources Board

and the Energy Commission deploy money

for those kinds of projects.

And I think it would be worth exploring,

in essence, to make that a funded mandate

by getting the funding from the state of California.

And you have three members of the city council

who are supportive of that.

I've already talked to them.

One of them is a board member

of the California Air Resources Board

that would make those decisions.

And I think this item should not be

in your long-term planning for this,

just my personal view on that.

And because I know there's money available

in another pool,

And it should be dedicated for these kinds of projects,

not forcing you to compete for it,

which you're not going to do very well compared to LA Metro

and all the other big city areas.

So that's a lot of money.

I was surprised to see what percent of your budget

and unfunded non-deferred maintenance is covered by that.

A couple other questions are related to on pages 10 and 11, actually page 11,

can you just reiterate what that spike is in 2027 on the expense?

Sure.

So that one is related to, let me get to my notes.

So the 27 spike is a large construction cost associated with some 85 relocation.

It was moved from a two-year to a one-year due to the criticality of the replacement.

So that is what the spike is.

Okay.

Okay. And when you stated you need 120 days of working capital requirement, and I like the fact that you're using this coverage ratio.

What is that? Who established the ratio? Is that a norm with wastewater treatment?

Kind of financial financing?

That is built within our bond covenants for the debt that we, for the borrowing that we've done.

I don't have any more information other than that.

We work directly with the Treasury Office on those.

So our Treasury Manager may have more information on that.

But those are directly stated within the covenants themselves.

And that's a minimum floor.

Yeah.

It just happens to be, it's the same number as for a private firm doing the same kind of work.

I'm also an owner of a hotel, and we use the same ratio idea.

We had our own on-site wastewater treatment plant and struggled with replacing that after 40 years of operation.

And this came up with our banking source.

The question I have for that 120 days of working capital,

do you need it on day one of the budget year?

So the first day of your budget year, you need that 120 days at that first.

and then if you're drawing down on that, you're replenishing it from an account.

Is that correct?

From fund balance.

Yeah.

And that's an interest-bearing account?

Yeah.

So how often do you – you had some – those draws are what, emergencies only?

So on the, are you talking about the operating reserve?

Yeah.

So to my knowledge, we have not drawn on our operating reserve.

We've had to draw on our capital reserve because they're related to CIP capital emergencies,

but we've not had to draw on the operating reserve to my knowledge.

Okay, I think that's all my questions.

Yeah, and by the way, the cost of the vehicles are more like 4X, not 2X.

That's what's happened in that market.

and a bigger and similar issue is the build time on the vehicles.

If you bought a diesel version of this kind of vehicle,

the build time is about 180 days.

For electric or hydrogen, it's almost 480.

So best intentions to comply still will be facing problems.

Thank you.

Could you, you said that on page 29 you had a reference to Reptelus providing information

about what the different rate classes would be. How many, are there, is it a number of

different rate classes, just residential and commercial industrial or what's the?

Residential, commercial, and multifamily.

Multifamily.

And the rates, are they typically different for each one of those?

Correct.

Because of their share of the total cost.

Yeah.

And that's for Prop 218 purposes.

Okay.

Yeah, these are more clarifications.

I appreciate it.

I couldn't find some very clearly these things in the background reports,

but thanks for doing that.

Thanks.

Thank you, Commissioner Oshon.

We have Commissioner Steinbaum.

I have a hopefully quick question related to the NPDES permit compliance that you talked about.

And I'm curious, is the amount that is going towards funding, is that for, like, compliance of everything, including dealing with issues related to combined sewer overflows and sanitary sewer overflows?

So in the deferred maintenance we have the category combined sewer system and PDS permit

program.

That one is for outflows which is a sanitary sewer overflow in the combined system and

overflows to the river.

It does not include funds for SSOs in the separated system.

I guess is that something that is an issue for this system?

Like have there been SSOs?

So in the combined system there has historically been issues with what we call outflows.

that flows to the surface.

And it's a public health concern.

And our permit that we're currently under

had set some goals for reducing those,

which means storage for keeping water underground

and trying to keep the outflows underground.

We're getting to the point with our modeling data

that we cannot separate what an outflow is from flooding.

And so the past regulations used our outflow reductions as a proxy for removing all flooding.

And with precipitation changes, we are not able to show progress towards it once we updated the precipitation.

So that's where we're utilizing new technology that are cost effective to more field verify or observe if it's actually coming out of the system instead of not being able to get into the system.

And then we'll focus our efforts in areas where we're seeing the outflows occurring.

We're not monitoring the entire system.

We're monitoring small areas, but we're using modeling data to produce where we're going to be assessing.

And then during events, rain events, we get public calls that come in.

So field crews will go out and assess, and if we determine if it's a capacity issue, then we'll know there.

But we're really focusing on observed so that we can focus on public health issues instead of just trying to get flooding underground.

Yeah, I think you're kind of hitting on maybe my point of asking about this is, I mean, one, yes, I guess there's kind of a difference between CSO versus SSO and how some people think about it.

But I think also for the public, you know, like numbers and discussing infrastructure changes can maybe feel a bit abstract.

But for something like a CSO or certainly like a non-CSO, SSO, people understand that impact in a more like real physical way, right?

because there could be a spill in their community that they could be exposed to that's of a certain, you know, volume in a certain location.

And I think that that type of information is really helpful to help, like, share, you know, why all of this money is needed and why these infrastructure updates are needed.

I just wanted to add one thing to the discussion.

So Roxanne was talking largely about the capital program and how we evaluate our system and whether it's the combined system outflows or SSOs and where to do improvements in our system.

But overall in our budget, we deal with programs that look at both the separated and combined system to try to minimize outflows or overflows.

So operations cleaning program our spill response

So there's a lot of different things that are done throughout the department to try to minimize

Overflows and outflows and so if you're interested in numbers Charlie has numbers off the top of there

That he can provide but in short we have

Outflows in the combined system, and we have overflows in the sewer system every year

Thanks, Cheryl so

some of the operating costs. So prior to, I think it was 2015,

the average SSOs in the separated system were 102 per year. So there was a C-SPA settlement,

right? And so that, at that point, the department ramped up the cleaning program. We are the city

of trees, right? And so as David mentioned in the presentation, roots are a big factor,

right and so the cleaning is a big factor on how many sso's that we experience so since 2020

we have averaged 20 so we're down from 102 to 20 sso's per year so far this year we've recorded 11

however the vac on so with the cleaning program are a huge part of the success and that we've

seen, right, related to reducing the number of SSOs. So our last rate cycle, we were paying about

$550,000 for a VACON. The last one we purchased, $865,000 per unit, and we have about nine of them.

So those are a big part, right, of that success, but they're also a big ticket item, right, and then

also with the rotting trucks, they're now, you know, upwards of a half a million, right, so that

we can go in and remove the roots,

fit somewhere that the vac on cleaning is not adequate.

So there's a whole program that we have laid out

for the intervals, right?

And so that software that we've invested in

will give us recommended intervals for the cleanings

to help us stay ahead of the SSOs.

But if we don't continue to replace equipment,

there are impacts from other things

of how we're addressing the cleaning,

then we're going to see that go back towards that 102 number

that we don't want.

Because as you're saying, that's something

that people relate to, right?

Or also with the Roach program, right?

If we're seeing an increase in those complaints,

that can affect economic development,

that can affect our restaurants, our entertainment venues,

and that's not what we want.

Yeah, I guess another thing that maybe I'm

kind of curious about that I think people care about as well is if there are enforcement

actions related to those events that then would cost the city money in like you know

paying the the water board or something. Yeah I don't know. I don't know. We're seeing violations.

Yeah yeah I don't know. Going in that direction right and that was like I said there was a

settlement to get some corrections, right?

And so there was a big investment, right?

Well, to be able to continue at that level, right?

It's gonna take more dollars in the future.

And then, yeah, the last thing we want

is to have a bad reputation, right, with the regulators.

We've worked very hard to improve that reputation.

And now it is, I mean, it's great as far as the relationship that we do have and the respect that we've earned.

But we don't want to see that erode, right?

Because then it equals more scrutiny, underrows the public confidence, and it's not where we want to be.

Thank you.

Commissioner Rogers.

Hi, David.

Pleasure to meet you.

So my question, something that caught my attention mostly is you mentioned CSS treatment plant project, $6.9 million.

Obviously parts, the switch gears, the instrumentation, whatever needs to be replaced is a hard number.

But have they calculated labor?

I doubt something of that magnitude is being done in-house.

I'm assuming you're probably going to hire contractors.

and with the contractors is there a PLA agreement meaning you have to hire a union

yes much of this will be contracted out and we do have

rules that we follow with our projects that are bidded out where we do have to meet labor agreements

and anything over a million dollar we have our community workforce training agreement so we have

unions coming in and training apprentices in them as well, but we all, all of our projects

have to meet our requirements, and the phrase is escaping my mind.

Prevailing wage.

Prevailing wage, thank you. All of our projects must meet prevailing wage. If we're using

ratepayer money, we have to use prevailing wage, and most of it is done by unions.

So that cost has been anticipated then?

Correct.

Okay, cool. Thank you.

Commissioner Olson

I don't have any other questions for you

Okay, your name was up there

Okay, thank you

I'm going to break for a second

because for the second month in a row

I've forgotten to introduce our new commissioner

so I wanted to introduce

Commissioner Rogers

and if he wants to say a few words

So I'm Ivan Rogers

I've been living in Sacramento five years.

First day on the board.

Pleasure to be here.

Hence by my question, I'm a union electrician.

Hence why I'm here.

It's my background.

Figured I could add the labor perspective to things.

Pleases me to know that you guys have a project labor agreement.

I was one of those apprentices that will be trained on the job of these improvements trying to be made to the infrastructure.

and a silver lining to the rate increases is this guy right here that put me to work, that fed me,

kept a roof over my head, economic stimulation.

So, yeah, pleasure to be here.

You've got to remind me about these things.

I'm forgetting everything here.

Since there is no vote required on the last discussion, we'll move to the next item, which is...

Sorry, quickly, Haley with the clerk's office.

I do want to note there's no public comment for this item.

Okay, thank you.

We're going to move on to the review and discuss the annual work plan topics for calendar year 2026.

All right.

So our final item tonight, rather, supports the commission's duty of approving an annual report on the activities and plans of the commission to the personnel and public employees committee and the city council in accordance with the city council rules of procedure.

The purpose of this item is to review and discuss the topics within the scope of the Commission for Inclusion in the Utilities Rate Advisory Commission 2025 Annual Report and 2026 Work Plan.

The city staff worked with the clerk's office to schedule five URAC meetings for 2026 and is recommending the following topics for inclusion during these meetings.

Most of these topics coincide with the FY28 water and wastewater rate adjustment calendar

and timeline, which we presented to the URAC in the August 2025 meeting,

with the exception of a few regularly scheduled annual updates.

So the first meeting will be on January 28, 2026.

will include the election of a new URAC chair and vice chair,

which is required during the first meeting of the year.

We'll also include fiscal year 25, year-end financial results,

including a deferred maintenance update,

and the review and approval of the URAC 2025 annual report and 26 work plan.

So we're discussing tonight elements that will be part of that work plan.

That work plan will come to you for approval in the January meeting.

In March, on the meeting on the 25th, 2026, we will be back to the rate business of discussing the strategic stakeholder communications effort associated with our rate process.

June 24th, 2026 will be a big meeting.

That was the meeting that will be the presentation of the selected financial plans and proposed rates,

as well as a discussion of the Prop 218 process and an overview of AB 2257.

In September on the 23rd of 2026, our colleagues in the Public Works Department will be here for an update on the recycling and solid waste division.

It will also include a financial update from DOU

regarding the FY27 budget and FY26 year end projections.

We also have noted there in the schedule,

third item which is the storm drainage fund review.

We wanna note that this item is now tentatively scheduled

to occur in 2027.

So it will not be included in next year's work plan

and this will allow capacity for this commission

to be focused to address the water

and wastewater rate adjustment process

since we have limited meeting opportunities in 2026.

And then finally, December 2nd, 2026,

will be the Prop 218 rate hearing

after the public notice has gone out for the 218 process,

and this will be where the URAC debates

and discusses with staff

the recommendations and where the URAC will determine

what is recommended to City Council for their review.

Commissioners may comment on or discuss

the aforementioned work plan topics for 2026

and or suggest additional topics for schedule consideration.

I will just say that the schedule is very tight,

that we have very limited meeting availability,

but if there are topics that you wish to be considered,

we will definitely hear that tonight.

And that concludes my brief presentation

and I am available to answer any questions.

Thank you.

Okay, so we're going to go ahead and accept any comments.

Let's see, are there any comments from the public?

No comments?

No public comment at this time.

Okay.

Let's go ahead with the Commissioner comments.

Anybody have any comments they'd like to share?

Commissioner Olson.

Yeah.

So, David, on the March 25th meeting, you may not have this decided at this point,

But as part of this process in 2026, are you planning to do any kind of public outreach beyond these public meetings here with individual neighborhood groups or segments of the city?

and meaning special that the staff

is doing any kind of presentations

in the course of this year?

So, yeah, so this will, the outreach process

and those components will be outlined in the plan,

will be brought forward to the URAC

for your consideration and your input.

But yes, it is a multi-stakehold, multi-faceted process.

There will be recommendation from Raftelis, our consultant,

based on their industry best practices,

and it could include a variety of public meetings,

like staff out in the public.

Typically, we have websites with information,

something called, something they are calling,

now the word is escaping me,

but targeted like individuals within the communities

that are kind of have their pulse on the community.

I can't remember the word.

Anyway, there's a variety,

but all of that information will be presented in that meeting.

And then we will get your input on that.

And another question,

will there be anybody from Raftelis,

Raftelis?

Raftelis.

available to respond to questions from the UREC?

Yes.

I would anticipate that you will see more of Raftelis

as we get into more of the communication part

and when the rates are presented.

Okay, very good.

Thank you.

Anyone else?

Any other speakers?

Okay.

Commissioner, oh, excuse me, I'm going to,

is it Tanakela?

So I see the next steps in the one on the page.

So we are going to, that means the city manager is going to approve the financial plan by December, right?

So what number we are going to propose?

So is it going to be the deferred maintenance estimate, which is $1.3 billion,

or the proposed funding for 28 to 32,

which is 89 million something,

which one we are going to propose?

Because my question is,

we are still did not prioritize the work at our end, right?

So just curious to know.

So we know that it is going to be

a five-year rate adjustment, FY28 to 32.

What is included in that

will largely be determined based on what the city manager's office determines is affordable

for the community and the city manager's office is evaluating not just what our needs are but

for the city. I think you all know that there is continued general fund issues. There are other

there are other our rate payers have other obligations as well. So all of that gets factored

So what we are discussing in terms of tonight's presentation,

the presentation on the water fund in October

is kind of highlighting what our biggest challenges are

and what those dollar amounts are,

but it will largely, what is included will largely depend

on what the city manager's office feels is appropriate

and what they feel we can get past, basically.

So it's, you know, when we put numbers out like $88 million,

out like 88 million or 1.1 billion,

we just don't know at this point

because especially with respect to the non-deferred maintenance

and the deferred maintenance needs,

those really come number three

because we have to close the gap

between revenues and expenses.

We have to make sure our reserves are set

and we're meeting our debt covenant.

So that requires a certain amount on its own,

but we don't know that

until the city manager's office tells us.

I have nobody listed, so I think we've pretty much concluded.

You do have commissioner comments, ideas, and questions.

Okay.

Are there any commissioner comments, ideas, or questions?

No?

Okay, with that, I think we have concluded.

And before we do that, I want to wish everybody a happy and safe holiday season.

and we will be back, like David said, January 28th, the new year.

It's going to be kind of hard to say 2026, but it is.

And so we will see everybody then.

And with that, we are adjourned.

I'll see you next time.